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

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934 [NO FEE REQUIRED]

    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            (I.R.S. Employer Identification No.)
 of incorporation or organization)

       3600 RIO VISTA AVENUE, SUITE A, ORLANDO FL            32805
       ------------------------------------------          ---------
        (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, AND ASSOCIATED COMMON STOCK PURCHASE RIGHTS
   ---------------------------------------------------------------------------
                                (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. [X]

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 1, 1999,  as reported  by NASDAQ,  was  $28,387,000.  On March 1,
1999, the Registrant had outstanding 4,453,463 shares of Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy  Statement for the Annual  Meeting of  Shareholders  to be
held in May 1999 are incorporated by reference into Part III.


                                       1
<PAGE>


THIS  ANNUAL  REPORT  ON  FORM  10-K  (THIS  "10-K")  INCLUDES   FORWARD-LOOKING
STATEMENTS,  PARTICULARLY  IN  THE  "MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF
FINANCIAL  CONDITION  AND  RESULTS  OF  OPERATIONS"  SECTION  (ITEM  7  HEREIN).
ADDITIONAL  WRITTEN  OR  ORAL  FORWARD-LOOKING  STATEMENTS  MAY BE MADE BY OR ON
BEHALF OF THE COMPANY  FROM TIME TO TIME,  IN FILINGS  WITH THE  SECURITIES  AND
EXCHANGE  COMMISSION,  IN PRESS  RELEASES  AND  OTHER  PUBLIC  ANNOUNCEMENTS  OR
OTHERWISE.  ALL SUCH  FORWARD-LOOKING  STATEMENTS ARE WITHIN THE MEANING OF THAT
TERM IN SECTION 27A OF THE SECURITIES  ACT OF 1933, AS AMENDED,  AND SECTION 21E
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS MAY INCLUDE,
BUT NOT BE LIMITED TO,  PROJECTIONS OF REVENUE,  INCOME,  LOSSES AND CASH FLOWS,
PLANS FOR FUTURE CAPITAL AND OTHER  EXPENDITURES,  PLANS FOR FUTURE  OPERATIONS,
FINANCING  NEEDS OR PLANS,  PLANS  RELATING TO PRODUCTS OR  SERVICES,  ESTIMATES
CONCERNING THE EFFECTS OF LITIGATION OR OTHER DISPUTES,  AS WELL AS EXPECTATIONS
AND  ASSUMPTIONS  RELATING  TO ANY OR ALL  OF  THE  FOREGOING,  RELATING  TO THE
COMPANY, ITS SUBSIDIARIES AND/OR DIVISIONS.

ALTHOUGH THE COMPANY BELIEVES THAT ITS  FORWARD-LOOKING  STATEMENTS ARE BASED ON
EXPECTATIONS AND ASSUMPTIONS THAT ARE REASONABLE, FORWARD-LOOKING STATEMENTS ARE
INHERENTLY  SUBJECT  TO  RISKS  AND  UNCERTAINTIES,  SOME  OF  WHICH  CAN NOT BE
PREDICTED.  ACCORDINGLY,  NO ASSURANCE  CAN BE GIVEN THAT SUCH  EXPECTATIONS  OR
ASSUMPTIONS  WILL  PROVE TO HAVE BEEN  CORRECT,  AND  FUTURE  EVENTS  AND ACTUAL
RESULTS  COULD  DIFFER  MATERIALLY  FROM THOSE  DESCRIBED IN OR  UNDERLYING  THE
FORWARD-LOOKING STATEMENTS. AMONG THE FACTORS THAT COULD CAUSE FUTURE EVENTS AND
ACTUAL RESULTS TO DIFFER  MATERIALLY ARE: THE DEMAND FOR THE COMPANY'S  PRODUCTS
AND SERVICES AND OTHER MARKET  ACCEPTANCE  RISKS;  THE PRESENCE IN THE COMPANY'S
MARKETS OF  COMPETITORS  WITH  GREATER  FINANCIAL  RESOURCES,  AND THE IMPACT OF
COMPETITIVE  PRODUCTS  AND SERVICES  AND  PRICING;  THE LOSS OF ANY  SIGNIFICANT
CUSTOMERS  OR  GROUP  OF  CUSTOMERS;  GENERAL  ECONOMIC  AND  MARKET  CONDITIONS
NATIONALLY AND (IN THE CASE OF  BICKFORD'S) IN NEW ENGLAND;  THE ABILITY OF CUES
TO DEVELOP NEW PRODUCTS;  CAPACITY AND SUPPLY  CONSTRAINTS OR DIFFICULTIES;  THE
RESULTS  OF  THE   COMPANY'S   FINANCING   EFFORTS;   THE  EMERGENCE  OF  FUTURE
OPPORTUNITIES; AND THE EFFECT OF THE COMPANY'S ACCOUNTING POLICIES.

MORE DETAIL REGARDING THESE AND OTHER IMPORTANT  FACTORS THAT COULD CAUSE ACTUAL
RESULTS  TO  DIFFER   MATERIALLY   FROM  SUCH   EXPECTATIONS,   ASSUMPTIONS  AND
FORWARD-LOOKING  STATEMENTS  ("CAUTIONARY  STATEMENTS") MAY BE DISCLOSED IN THIS
10-K, OTHER SECURITIES AND EXCHANGE COMMISSION FILINGS AND PUBLIC  ANNOUNCEMENTS
OF THE  COMPANY.  ALL  SUBSEQUENT  WRITTEN AND ORAL  FORWARD-LOOKING  STATEMENTS
ATTRIBUTABLE TO THE COMPANY,  ITS SUBSIDIARIES OR DIVISIONS OR PERSONS ACTING ON
THEIR  BEHALF  ARE  EXPRESSLY  QUALIFIED  IN THEIR  ENTIRETY  BY THE  CAUTIONARY
STATEMENTS.

THE COMPANY  ASSUMES NO OBLIGATION TO UPDATE ITS  FORWARD-LOOKING  STATEMENTS OR
ADVISE OF CHANGES IN THE EXPECTATIONS, ASSUMPTIONS AND FACTORS ON WHICH THEY ARE
BASED.



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<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 place of  incorporation
from Bermuda to Delaware and became known as ELXSI Corporation in August 1987. A
public company since November  1983,  the Company  acquired  ELXSI, a California
corporation  ("ELXSI"),  in October 1985. In December 1987, the Company's  other
California subsidiary, Trilogy Systems Corporation was merged into ELXSI.

On July 1, 1991, ELXSI acquired 30 restaurants operating under the Bickford's or
Bickford's  Family  Fare  names and 12  restaurants  operating  under the Howard
Johnson's name, 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 1997,  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 11 new  Bickford's  Family
Restaurants   ("Bickford's")   and  acquired  16  Abdow's   Family   Restaurants
("Abdow's"). ELXSI subsequently converted nine Abdow's into Bickford's, sold one
Abdow's and closed another  Abdow's.  During 1998, ELXSI opened three additional
Bickford's  and  closed one  Abdow's  Restaurant.  At  December  31,  1998 ELXSI
operated 58 Bickford's, four 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 January  1,  1999,  the lease on  ELXSI's  sole  remaining  Howard
Johnson's Restaurant expired and this restaurant was closed.

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  ELXSI.  Cues,  Knopafex  Ltd.  and Cues  B.V.  are
hereinafter  collectively referred to as "Cues" or the "Cues Division".  Cues is
principally  engaged in the  manufacturing 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 11 (Segment Reporting) to
the Consolidated  Financial  Statements  included herein,  which  information is
hereby incorporated by reference herein.


                                       3
<PAGE>


RESTAURANT DIVISION

Restaurant Division sales were $71,517,000, $65,198,000 and $61,283,000 in 1998,
1997 and 1996,  respectively,  representing  72.6%, 75.0% and 74.1% of the total
sales of the Company during 1998, 1997 and 1996, 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 $2.99 and $8.99,  with the
average customer check being approximately  $5.68, $5.52 and $5.24 in 1998, 1997
and 1996,  respectively.  Major categories of menu items are pancakes,  waffles,
french  toast,  eggs and  omelets,  "country"  dinners,  soups and side  orders,
salads, hamburgers,  sandwiches,  and desserts.  Breakfast items and coffee have
accounted  for  approximately  70% of all food  sales in each of the past  three
fiscal years.

Each Restaurant is open seven days a week.  Most  Restaurants are generally open
from 7:00 a.m.  to 11:00 p.m.  during the week and later on  weekends  with some
open 24 hours on the weekends and others open 24 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  families  and to a lesser  extent  senior
citizens,  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
accounts for a majority of Restaurant sales.

Each  of the  Bickford's  Restaurants  generally  consists  of a  free  standing
building  that covers  approximately  2,700 to 7,400  square  feet,  and all are
typically  located  adjacent to major roads and highways  and/or shopping malls.
Nearly all of the Restaurants contain two dining areas designated as smoking and
non-smoking.  At December 31, 1998, 14 of the  Restaurant  buildings were owned,
while the  remaining 49  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 257  people.  Eight of the
Bickford's Restaurants provide counter service.


                                       4
<PAGE>


RESTAURANT EXPANSION AND RENOVATION

Capital  expenditures  during the years ended  December 31, 1998,  1997 and 1996
were as follows:

<TABLE>
<CAPTION>
                                              1998               1997               1996
                                          ------------       ------------       ------------
<S>                                       <C>                <C>                <C>         
         Expansion                        $    942,000       $    725,000       $    483,000
         Conversions                                --                 --            747,000
         Purchase leased property              641,000            635,000                 --
         Renovation                            279,000            255,000            384,000
         Replacement due to fire loss               --            517,000            249,000
         Refurbishment & equipment
              replacements                   1,887,000          1,695,000          1,028,000
                                          ------------       ------------       ------------
                                          $  3,749,000       $  3,827,000       $  2,891,000
                                          ============       ============       ============
</TABLE>

Earnings from operations funded the majority of the above capital  expenditures.
The purchases of the leased  properties were primarily made with the proceeds of
mortgages.

The Company currently plans to spend  approximately  $2,350,000 for renovations,
refurbishments  and equipment  replacements  and  approximately  $1,550,000  for
Restaurant  expansion  during  1999.  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 these factors at least  partially  resulted in increased  sales at
comparable Restaurants.

Sales at same Bickford's  Restaurants  increased 6.2% in 1998 (48  Restaurants),
increased 4.2% in 1997 (41 Restaurants),  and 0.7% in 1996 (35 Restaurants) over
the prior year's sales. Customer counts at these same Restaurants increased 3.2%
in 1998, decreased 1.0% in 1997 and decreased 0.8% in 1996 over the prior year's
counts.

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


                                       5
<PAGE>

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 restaurant 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,  accordingly,   repeat  customers  are  important  to  the
Bickford's  Division's  success.  See the fourth  paragraph of this  "Restaurant
Division" section 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.  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, 1998, the Restaurant  Division employed 2,752 persons,  of which
2,174 were part-time hourly  employees,  352 were full-time hourly employees and
226 were salaried personnel.  This is approximately the same number of employees
as of  December  31,  1997.  None of the  Restaurant  Division's  employees  are
represented by a union.


                                       6
<PAGE>

ENVIRONMENTAL MATTERS

The  Restaurant  Division is subject to various  federal,  state and local laws,
rules and regulations  relating to the protection of the environment,  which are
considered by management to be typical for companies operating in the Restaurant
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  $27,049,000,  $21,747,000 and $21,460,000 in 1998,
1997 and 1996,  respectively,  representing  27.4%, 25.0% and 25.9% of the total
sales of the Company during 1998, 1997 and 1996, 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.  Without a tightly
maintained pipe network the treatment plant may become overwhelmed  resulting in
raw sewage  flowing into rivers,  harbors,  lakes or other bodies of water.  The
Environmental Protection Agency through the Clean Water Act imposes severe fines
and penalties for such  pollution.  Leaking  joints and pipe  fractures can also
contribute to sewer line damage that can be repaired,  in severe cases,  only by
costly  excavation.  Cues mounts its systems in  specially  designed  trucks and
vans,  which are sold as mobile  units.  Cues also  designs and sells a range of
portable systems that may be hand carried or mounted on a wheeled dolly for ease
of transport to difficult access locations. Cues also provides product servicing
and  replacement  parts for its customers.  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 but
strictly designs and manufactures equipment.

INSPECTION AND REHABILITATION EQUIPMENT

Cues's  inspection and sealing  equipment  constitutes an integrated system that
provides the capability of inspecting underground sewer lines via remote control
television cameras. The system has the capability of creating a permanent record
on video tape of the pipe  conditions such as distance,  slope,  defect severity
and location using various  sensing  instrumentation.  In addition,  the Company
manufactures  a line of grout  application  equipment for (a) detecting  leaking
joints through an air pressure testing device and (b) properly applying chemical
sealant to repair small pipe fractures and leaking joints.

Cues also  manufactures  and sells a line of remotely  operated  robotic cutting
devices.  These cutting devices reinstate or open lateral sewer lines, which are
smaller-diameter pipes leading from residences or businesses into the main sewer
pipes, after the laterals have been blocked by the material used in relining the
main sewer pipe's interior surface.


                                       7
<PAGE>

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 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
fracture 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 used  integrally  in the  structural,  in-line  methods  of  repairing
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.

PRODUCT SERVICING, REPLACEMENT PARTS AND CHEMICALS

Cues  provides  product  servicing  and  repairs at its  facilities  in Orlando,
Florida;  Montclair,  California;  Milpitas,  California;  Toronto,  Canada; and
Maastricht,  The  Netherlands.  In Orlando,  Cues also  maintains  an  extensive
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
$185,000,  $146,000  and  $287,000,  during  the  years  1998,  1997  and  1996,
respectively.

PRODUCT DEVELOPMENT

Cues has an ongoing program to improve its existing  products and to develop new
products.  During  the 12  months  ended  December  31,  1998,  1997  and  1996,
approximately  $360,000,  $217,000 and $248,000,  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


                                       8
<PAGE>

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 1999, 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.
Purchased  components  include  television  camera  modules,   monitors,   video
recorders,  vehicles, all of which are 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  adverse effect on
the Cues Division. Cues also employees technical service representatives located
in Orlando, Toronto and Maastricht.

Within North America,  Cues's 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  1998,  1997 or 1996
sales. Cues  participates in trade shows and uses trade magazine  advertising in
the marketing of its products and services to North American Customers. The Cues
name is well established within its industry, affording it and its products wide
recognition.

Outside  North  America,  Cues markets its products on 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  1998,  1997 and 1996,  export sales to
foreign  countries  represented  approximately  13%,  12% 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  letter of credit
arrangements 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


                                       9
<PAGE>

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  types of  product  sold by Cues is based  mostly on price,
features,  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, 1998 Cues had 155 full and  part-time  employees.  This includes
four  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,  which are considered
by  management  to be typical for companies  operating in the  underground  pipe
inspection  industry.  Management believes that compliance  therewith has had no
material effect on its capital expenditures, earnings or competitive position.

ITEM 2.     PROPERTIES

ELXSI  leases land and/or  buildings  at 49 of its 63  restaurants,  under lease
agreements expiring (including extension options) on various dates through 2032.
The majority of these  leases are "triple  net",  requiring  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.



                                       10
<PAGE>


Below is a summary of the Restaurant properties as of December 31, 1998:

<TABLE>
<CAPTION>
                                                             Howard
                                          BICKFORD'S        JOHNSON'S        ABDOW'S         TOTAL
                                          ----------        ---------        -------         -----
<S>                        <C>              <C>                <C>             <C>            <C>
    Massachusetts:         Owned             10                 --              --             10
                           Leased            26                  1               3             30

    Connecticut:           Owned              2                 --              --              2
                           Leased             7                 --               1              8

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

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

    Vermont:               Owned             --                 --              --             --
                           Leased             1                 --              --              1

    Total:                 Owned             14                 --              --             14
                           Leased            44                  1*              4             49
</TABLE>

* closed 1/1/99

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 of
which 4,000 square feet are  currently  being  utilized by its Cues Division for
manufacturing.  In  addition,  Cues  rents  a  3,000  square  foot  facility  in
Montclair,  California  for  service  and  sales,  Cues B.V.  owns an office and
manufacturing facility in Maastricht,  The Netherlands and Knopafex,  Ltd. rents
office and manufacturing space in Toronto,  Canada. During 1997, ELXSI purchased
a 32,000 square foot facility in Orlando,  Florida.  Renovation and expansion to
48,000  square  feet was  completed  by  ELXSI  in 1998  and  Cues is  currently
utilizing the facility for it's manufacturing and administrative functions.

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 any of its
subsidiaries  is a party or of which any of their  respective  properties is the
subject,  nor are there any proceedings  known by the Company to be contemplated
by governmental authorities against the Company or any of its subsidiaries.

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

There  were no  matters  submitted  to vote of  stockholders  during  the fourth
quarter of 1998.


                                       11
<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 National Market System of The Nasdaq
Stock Market  ("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.
                                       1998                          1997
                               ---------------------       ---------------------
                                  HIGH         LOW            HIGH         LOW

         First Quarter         $ 17.750     $ 10.063       $  7.375     $ 5.875
         Second Quarter          14.750        9.500          7.375       5.750
         Third Quarter           12.500        8.750         12.000       7.000
         Fourth Quarter          13.625        8.125         15.000       8.750

On March 16, 1999,  the reported last sale price for the Company's  Common Stock
was $10.25 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 1, 1999 there were 5,112 holders of record of the  Company's  Common
Stock.

DIVIDEND HISTORY

The Company has never paid a cash  dividend.  Management  will  consider  paying
dividends  depending on future  earnings and cash flows of the Company and other
relevant  considerations.  On June 4, 1997,  the Board of  Directors  declared a
common stock purchase right dividend for  shareholders  of the Company's  Common
Stock outstanding as of June 16, 1997.

STOCK TRANSFER AGENT

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


                                       12
<PAGE>


ITEM 6.   SELECTED FINANCIAL DATA
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                 --------------------------------------------------------
                                                   1998        1997        1996        1995        1994
                                                 --------    --------    --------    --------    --------
<S>                                              <C>         <C>         <C>         <C>         <C>     
NET SALES                                        $ 98,566    $ 86,945    $ 82,743    $ 74,674    $ 62,423
COSTS AND EXPENSES:
    Cost of sales                                 (77,327)    (68,406)    (66,603)    (58,347)    (47,440)
    General and administrative                     (9,269)     (7,924)     (7,362)     (7,484)     (6,630)
    Depreciation and amortization                  (3,529)     (3,176)     (2,775)     (2,206)     (1,794)
    Interest income                                   583       1,287         111         125           8
    Interest expense                                 (807)     (1,420)     (1,495)     (1,767)     (1,426)
    Other (expense) income                           (193)       (239)        432          65         (41)
    (Provision) benefit for income taxes           (3,234)      7,312       2,332        (514)       (366)
                                                 --------    --------    --------    --------    --------

Net income                                       $  4,790    $ 14,379    $  7,383    $  4,546    $  4,734
                                                 ========    ========    ========    ========    ========

Net income per common share
    Basic                                        $   1.05    $   3.08    $   1.55    $   0.95    $   0.88
                                                 ========    ========    ========    ========    ========
    Diluted                                      $    .95    $   2.88    $   1.51    $   0.89    $   0.79
                                                 ========    ========    ========    ========    ========

Weighted average number of common and
   common equivalent shares
    Basic                                           4,557       4,661       4,763       4,811       5,353
    Assumed conversion of options and warrants        486         328         139         282         654
                                                 --------    --------    --------    --------    --------
    Diluted                                         5,043       4,989       4,902       5,093       6,007
                                                 ========    ========    ========    ========    ========

OTHER DATA:

Working capital                                  $ 11,216    $ 12,095    $  8,649    $  2,438    $   (423)
Total assets                                       66,636      67,661      61,143      48,772      41,214
Capitalized leases and long term debt               8,665      12,354      20,704      14,924      12,304
Stockholders' equity                               45,560      43,172      28,913      22,714      19,398
</TABLE>


                                                     13


<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.

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.

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


YEAR ENDED DECEMBER 31, 1998

RESTAURANT DIVISION. The Restaurants had sales of $71,517,000,  cost of sales of
$58,614,000,  selling,  general and  administrative  expenses of $2,134,000  and
depreciation and  amortization  expense of $2,972,000,  which yielded  operating
income of  $7,797,000.  In addition,  the  Restaurants  had $148,000 of interest
expense  related  primarily  to  mortgage  loans and capital  leases,  and other
expense of $140,000  related to the write off and reserve for disposals of fixed
assets, resulting in income before taxes of $7,509,000.

CUES  DIVISION.  Cues had sales of  $27,049,000,  cost of sales of  $18,713,000,
selling,  general and administrative expenses of $5,137,000 and depreciation and
amortization expense of $557,000,  which yielded operating income of $2,642,000.
In addition,  Cues had $63,000 of interest  expense,  $20,000 of interest income
and $72,000 of other expense, resulting in income before taxes of $2,527,000.

CORPORATE.  Corporate general and administrative  expenses were $1,998,000.  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),  legal  expenses,  Corporate and  Bickford's  audit  expenses,  and
stockholder services and financial reporting expenses.

Under the terms of the Cadmus management  agreement,  Cadmus provides ELXSI with
advice and services with respect to it's business and financial  management  and
long-range planning.  Specific examples of services historically rendered to the
Company under this management  agreement include: (a) furnishing the services of
certain executive officers and other employees of Cadmus; (b) ongoing evaluation
of division  management;  (c) preparing and reviewing division operating budgets
and plans;  (d)  evaluating  new  restaurant  locations  and menu  changes;


                                       14
<PAGE>

(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 $596,000,  consisting  primarily of the interest
charges on senior bank debt.  The  Company's  senior bank debt lender is Bank of
America National Trust and Savings  Association  (formerly named Bank of America
Illinois) ("BofA");  Note 7 to Consolidated  Financial Statements of the Company
includes information regarding the terms of the senior bank debt.

During  1998,  the Company  recorded a current  consolidated  tax  provision  of
$1,207,000  and  deferred  tax expense of  $2,027,000,  resulting  in income tax
expense of $3,234,000.  The deferred tax expense 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 its net
operating loss and tax credit  carryforwards and the anticipated  realization of
these 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, the
ability of the company to realize budgeted future taxable income, 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 - and no assurance  can be given that one will not occur - factors
such as the number of common shares issued and outstanding,  the market price of
such shares,  short term treasury rates,  etc.,  would be used under the current
tax laws to determine the amount of the tax loss and credit  carryforwards  that
can be utilized each year. At December 31, 1998, management continued to believe
the  possibility of a change of ownership  occurring in 1999 was less likely due
to bylaw provisions  approved by the stockholders in May 1997 to help limit such
changes as well as the  passage of time in the  three-year  window of  ownership
change calculation.

Recording  the deferred tax expense in 1998 resulted in a decrease in net income
and basic earnings per share of $2,027,000 and $0.44 ($0.40 diluted earnings per
share), respectively.


                                       15
<PAGE>

EARNINGS PER SHARE. The 1998 basic and diluted earnings per share were $1.05 and
$.95,  respectively.  The 1998 weighted average number of shares outstanding for
the  basic  and  diluted  earnings  per  share  were  4,557,000  and  5,043,000,
respectively.  The  average  stock  price  during 1998 was $11.44 and the market
price at December 31, 1998 was $12.63.


YEAR ENDED DECEMBER 31, 1997

RESTAURANT DIVISION. The Restaurants had sales of $65,198,000,  cost of sales of
$53,378,000,  selling,  general and  administrative  expenses of $1,880,000  and
depreciation and  amortization  expense of $2,694,000,  which yielded  operating
income of  $7,246,000.  In addition,  the  Restaurants  had $152,000 of interest
expense  related to the  amortization  of  deferred  financing  fees and capital
leases,  and  other  expense  of  $152,000  related  mainly to the write off and
reserve for  disposals  of fixed  assets,  resulting  in income  before taxes of
$6,942,000.

CUES  DIVISION.  Cues had sales of  $21,747,000,  cost of sales of  $15,028,000,
selling,  general and administrative expenses of $4,245,000 and depreciation and
amortization expense of $482,000,  which yielded operating income of $1,992,000.
In addition,  Cues had $84,000 of interest  expense,  $24,000 of interest income
and $87,000 of other expense, resulting in income before taxes of $1,845,000.

CORPORATE.  Corporate general and administrative  expenses were $1,799,000.  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  under  a  management
agreement (see Note 6 to the Consolidated Financial Statements), legal expenses,
Corporate and Bickford's audit expenses,  and stockholder services and financial
reporting expenses.

Corporate  interest  expense  was  $1,184,000,  consisting  of senior  bank debt
interest.  The Company's senior bank debt lender is BofA; Note 7 to Consolidated
Financial Statements of the Company includes information  regarding the terms of
the senior bank debt.

During  1997,  the Company  recorded a current  consolidated  tax  provision  of
$850,000 and a deferred tax benefit of $8,162,000, resulting in a net income tax
benefit of $7,312,000.  The deferred tax benefit was recorded in accordance with
SFAS 109. At December 31, 1996,  management believed that the Company would have
a cumulative  stock ownership change of 50% or more during 1997. At December 31,
1997,  management believed the possibility of a change of ownership occurring in
1998 was less likely due to bylaw provisions approved by the stockholders in May
1997 to help limit such changes as well as the passage of time in the three-year
window of ownership change calculation.

As a result,  in 1997,  the Company  reduced the  valuation  allowance  by a net
$8,162,000,  which increased in the deferred tax asset of $2,881,000 at December
31, 1996 to  $11,043,000  at  December  31,  1997.  The net  deferred  tax asset
represents the amount of net operating loss and


                                       16
<PAGE>

tax credit  carryforwards which management believes were more likely than not to
be realized in the future.

Recording the deferred tax benefit in 1997 resulted in an increase in net income
and basic earnings per share of $8,162,000 and $1.75 ($1.64 diluted earnings per
share), respectively.

EARNINGS PER SHARE. The 1997 basic and diluted earnings per share were $3.08 and
$2.88, respectively.  The 1997 weighted average number of shares outstanding for
the  basic  and  diluted  earnings  per  share  were  4,661,000  and  4,989,000,
respectively. The average stock price during 1997 was $8.23 and the market price
at December 31, 1997 was $11.50.


YEAR ENDED DECEMBER 31, 1996

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, legal expenses, Corporate
and Bickford's audit expenses,  and stockholder services and financial reporting
expenses.

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.

During  1996,  the Company  recorded a current  consolidated  tax  provision  of
$549,000 and a deferred tax benefit of $2,881,000, resulting in a net income tax
benefit of $2,332,000 at the Corporate level.

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 tax credit  carryforwards which management believed was 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,  which  would


                                       17
<PAGE>

significantly  restrict usage of net operating  losses in future years under IRC
sections 382 and 383.

Recording the deferred tax benefit in 1996 resulted in an increase in net income
and earnings per share of $2,881,000 and $0.59, respectively.

EARNINGS PER SHARE. Basic and diluted earnings per share for 1996 were $1.55 and
$1.51, respectively,  with basic and diluted weighted average shares outstanding
of 4,763,000 and  4,902,000,  respectively.  The average stock price during 1996
was $5.83 and the market price at December 31, 1996 was $6.625.


COMPARISON OF 1998 RESULTS TO 1997 RESULTS

Sales during 1998 increased by $11,621,000,  or 13.4%, gross profit increased by
$2,700,000,  or 14.6%, selling,  general and administrative expense increased by
$1,345,000,  or 17.0%, and depreciation and amortization  increased by $353,000,
or 11.1%, resulting in an operating income increase of $1,002,000,  or 13.5%, in
each case as compared to 1997. Interest expense decreased by $613,000, or 43.2%,
interest income decreased by $704,000,  or 54.7%, and other expense decreased by
$46,000,  or 19.2%.  In 1998,  the  Company  recorded  an income tax  expense of
$3,234,000  compared to an income tax benefit of $7,312,000  in 1997.  The above
changes  resulted  in a decrease in net income of  $9,589,000,  or 66.7% in 1998
compared to 1997.

RESTAURANT DIVISION. Restaurant sales increased by $6,319,000, or 9.7%, in 1998.
The sales  increase is primarily  attributable  to an increase in the same store
sales of $3,126,000  and an increase in sales at new  Restaurants  of $4,266,000
partially  offset  by sales  declines  due to  closed  Restaurants.  Same  store
Restaurant  sales  increased by  $3,126,000,  or 6.2%,  mainly as a result of an
increase in customers and a menu price increase.

The  comparable 48 Bickford's had customer  count  increases of 3.2%,  while the
four  remaining  Abdow's and the one Howard  Johnson's  had  decreased  customer
counts of 2.4% and 1.1%,  respectively.  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 increased by $1,083,000,  or 9.2%, and gross profit as a
percentage of sales remained  relatively  flat between  years.  Labor costs as a
percentage of sales  increased by 0.5%, from 35.1% in 1997 to 35.6% in 1998, due
to  competitive  economic  pressures  causing  higher  average  rates of pay and
increased  staffing  during peak  business  periods.  Variable  costs  including
advertising  remained flat,  while fixed costs decreased by 0.2% as a percentage
of sales in 1998 compared to 1997.

Restaurant selling, general and administrative expense increased by $254,000, or
13.5%,  during 1998 compared to 1997 due to additional  personnel and labor rate
increases.


                                       18
<PAGE>

Restaurant depreciation and amortization increased by $278,000, or 10.3%, during
1998  as  compared  to  1997.  Restaurant   depreciation  and  amortization  are
anticipated to increase each year with the addition of new Restaurants.

As a result of the above,  Restaurant  Division  operating  income  increased by
$551,000, or 7.6%, in 1998 compared to 1997.

CUES DIVISION.  Cues's sales increased by $5,302,000, or 24.4%, in 1998 compared
to 1997. As a result of this increase and a 0.1% decrease in Cues's gross profit
percentage in 1998 compared to 1997,  gross profit  increased by $1,617,000,  or
24.1%. Cues was able to increase sales volume in 1998 without resorting to price
reductions in the face of continuing competitive pressures.  Customers appear to
recognize the benefits of Cues's equipment, thereby permitting the Company to be
more selective in its pricing during the competitive  bidding process.  Selling,
general  and  administrative  expenses  increased  by  $892,000,  or 21.0%,  and
depreciation  and  amortization  expense  increased  by $75,000,  or 15.6%.  The
increase in  selling,  general and  administrative  expenses  was 47% related to
selling  expenses  and 53% related to general and  administrative  expense.  The
increase in sales  expenses  are  primarily  attributable  to increases in wages
resulting  from  both  rate  and  headcount   increases,   sales  volume-related
commissions  and an  increase  in west coast  sales  efforts,  where a satellite
service and sales office has been  established.  The general and  administrative
expense increase is primarily  attributable to increases in wages resulting from
both rate and headcount  increases,  new facility costs, repairs and maintenance
of  computer  hardware.  The net result of the above  produced  an  increase  in
operating income of $650,000, or 32.6%, in 1998 compared to 1997.

CORPORATE.   Corporate's  general  and  administrative   expenses  increased  by
$199,000,  or 11.1%,  during 1998 compared to 1997, mainly due to an increase in
the  Bickford's  management  compensation  accrual  related to its Phantom Stock
Option Plan and and to a lesser extent an marginal  increase in  management  fee
expense.  Interest expense decreased by $588,000,  or 49.7%, in 1998 compared to
1997.


COMPARISON OF 1997 RESULTS TO 1996 RESULTS

Sales during 1997 increased by $4,202,000,  or 5.1%,  gross profit  increased by
$2,399,000,  or 14.9%, selling,  general and administrative expense increased by
$562,000,  or 7.6%, and depreciation and amortization  increased by $401,000, or
14.5%,  resulting in an operating  income  increase of $1,436,000,  or 23.9%, in
each case as compared to 1996.  Interest expense decreased by $75,000,  or 5.0%,
interest  income  increased  by  $1,176,000,  or  1,059.5%,  and  other  expense
increased by $671,000  from other income of $432,000 in 1996 to other expense of
$239,000  in 1997.  In 1997,  the  Company  recorded  an income  tax  benefit of
$7,312,000.  The  above  changes  resulted  in an  increase  in  net  income  of
$6,996,000, or 94.8% in 1997 compared to 1996.

RESTAURANT DIVISION. Restaurant sales increased by $3,915,000, or 6.4%, in 1997.
The sales  increase is primarily  attributable  to an increase in the same store
sales of $1,528,000  and an increase in sales at new  Restaurants of $2,285,000.
Same store restaurant sales increased by $1,528,000, or 3.5%, mainly as a result
of a $1,232,000,  or 4.3%, sales increase in the original

                                       19
<PAGE>

comparable Bickford's acquired in 1991 (28 locations). In addition, the 11 other
comparable Bickford's increased $478,000, or 4.3%.

The original  comparable 28 Bickford's  had decreased  customer  counts of 0.8%,
while  the 12 other  comparable  Bickford's  and the one  Howard  Johnson's  had
decreased  customer counts of 1.5% and 2.3%,  respectively.  Overall  comparable
customer  counts  decreased  by 1.8% in 1997  compared  to 1996.  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 increased by $1,527,000,  or 14.8%, and the gross profit
as a percentage of sales increased from 16.8% in 1996 to 18.1% in 1997. The main
factors in the 1.3%  increase in the gross profit  percentage  was a decrease in
food and labor costs as a percentage  of sales.  Food costs as a  percentage  of
sales decreased by 0.7%, from 26.0% to 25.3%, mainly due to discounts related to
the  increased  volume of food  purchases  associated  with the  addition of new
Restaurants,  including  the  Abdow's.  Labor  costs  as a  percentage  of sales
decreased by 0.5%,  from 35.8% in 1996 to 35.3% in 1997, due to the inclusion of
$355,000 of start-up  training costs in 1996 related primarily to the conversion
of nine  Abdow's  into  Bickford's  restaurants.  Variable  and fixed costs were
approximately flat as a percentage of sales in 1997 compared to 1996.

Restaurant selling,  general and administrative expense decreased by $76,000, or
3.9%, during 1997 compared to 1996.

Restaurant depreciation and amortization increased by $376,000, or 16.2%, during
1997 as compared to 1996.

As a result of the above,  Restaurant  Division  operating  income  increased by
$1,227,000, or 20.4%, in 1997 compared to 1996.

CUES DIVISION.  Cues's sales increased by $287,000, or 1.3%, in 1997 compared to
1996.  As a result of this  increase and a 3.7%  increase in Cues's gross profit
percentage  in 1997  compared to 1996,  gross profit  increased by $872,000,  or
14.9%.  Selling,  general and administrative  expenses increased by $189,000, or
4.7%, and depreciation and amortization  expense increased by $25,000,  or 5.5%.
The increase in selling,  general and administrative expenses resulted primarily
from  the  increase  in west  coast  sales  effort.  As a result  of the  above,
operating income increased by $658,000, or 49.3%, in 1997 compared to 1996.

CORPORATE.   Corporate's  general  and  administrative   expenses  increased  by
$449,000,  or 33.3%, during 1997 compared to 1996,  partially due to an increase
in the Bickford's  management  compensation accrual related to its Phantom Stock
Option  Plan,  an  increase in  management  fee expense and an increase in other
taxes. Interest expense decreased by $23,000, or 1.9%, in 1997 compared to 1996.

On December 30, 1996, ELXSI purchased three revolving notes (the "Notes") with a
face value of  $6,650,000  from BofA,  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  December  31,  1996


                                       20
<PAGE>

balance  sheet.  The face  value of the  Notes,  payable  by three  wholly-owned
subsidiaries of Azimuth Corporation (collectively,  the "Azimuth Subsidiaries"),
bore  interest  at 15% per annum  payable in arrears on the 1st and 16th of each
month  and  had a  maturity  date  of  June  30,  1998.  The  Notes  were  fully
collateralized  by all of the  assets of  Azimuth  Corporation  and the  Azimuth
Subsidiaries,  including  accounts  receivable  and  inventory.  Certain  of the
officers,  directors  and/or  stockholders of Azimuth  Corporation are officers,
directors  and/or  stockholders  of the Company and/or officers and directors of
ELXSI.

The purpose of the  transaction  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 BofA
made ELXSI unique in its ability to capture such an attractive opportunity. As a
result of the  transactions,  ELXSI became the senior revolving credit lender to
the Azimuth Subsidiaries. Funding for ELXSI's purchase of the Notes was provided
by BofA under an amendment and  restatement of its credit  agreement with ELXSI.
The Company's  return on investment from the foregoing  transactions  was 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)  and the portion of the
discount earned by the Company described above.

On June 16, 1997, the Azimuth  Subsidiaries  prepaid all of the outstanding face
amount of the  Notes due to ELXSI by  utilizing  the  proceeds  of a new line of
credit negotiated with a third party lender.  The working capital line of credit
extended  by  ELXSI  to  the  Azimuth  Subsidiaries  was  terminated  upon  such
prepayment.

During 1997, in connection with the Azimuth Subsidiaries  financing  transaction
described above, the Company recorded interest income (including amortization of
the discount), net of the applicable interest expense paid to BofA, of $709,000,
or $0.15 per share ($0.14  diluted).  Over the period the Notes were outstanding
and held by ELXSI,  it earned  approximately  $938,000  of net income from these
transactions.

YEAR 2000 COMPLIANCE

The year 2000 issue is the result of computer  programs  being written using two
digits  rather  than four to  define  the  applicable  year.  As a result  these
programs may not properly  recognize  the year 2000 (and  subsequent  dates) and
errors may  result.  The  company has  instituted  a program to  identify  these
computer  programs and modify or replace its systems so that they will  function
properly in the year 2000 as well as any  non-information  technology systems in
place.

During 1998, the Restaurant  division  installed new accounting systems that are
fully operational and are year 2000 compliant.  Individual  restaurant locations
do not  currently  utilize  point  of  sale  registers  and  therefore  computer
programming  changes are not  required.  Peripheral  hardware  and  software and
equipment at each  restaurant  location and the Restaurant head office are being
evaluated for year 2000 compliance.

Cues is  currently  in the testing  phase of its  manufacturing  and  accounting
software,  which  is  the  critical  component  for  the  planning,  purchasing,
manufacturing and sale of its products.  All


                                       21
<PAGE>

known  functions  within  the  software  have  been  rewritten  to be year  2000
compliant. Within various departments,  Cues also utilizes computer hardware and
peripheral  programs  that are  separate and distinct  from the  accounting  and
manufacturing software. Examples include programs related to engineering design,
spreadsheets,  word  processing,  sales  database  tracking,  etc.  While not as
critical to the ongoing nature of the business,  Cues is currently assessing the
effect of year  2000 on each  hardware  and  software  component.  Cues does not
utilize any computer aided machinery in its production process.

The Company is in the process of initiating and assessing formal  communications
with all of its  significant  suppliers  to  determine  the  extent to which the
Company is vulnerable to potential  third parties'  failures to remediate  their
own  year  2000  issues.  It is in the  interest  of  the  Company  to use  this
information to mitigate these risks. However,  because of the complexity of this
issue, the Company can give no assurances that the systems of other companies on
which the Company  relies  will be  remedied  for the year 2000 issue on time or
that a  failure  to remedy  the  problem  by  another  company  would not have a
material adverse effect on the Company. Plans are therefore under development in
order to attempt to mitigate the extent of such potential adverse effects.

The Company is expensing the costs to modify or replace computer applications as
incurred,  the  majority of which are being  handled  internally  utilizing  its
normal  information  technology  budget  and  personnel.  The  Company  does not
anticipate any significant  increases in costs due to year 2000  conversions nor
does it  anticipate  any  decrease  in the  information  technology  budget upon
completion of the conversion efforts.  The Company will continue to incur salary
expense,  while the efforts of personnel will be directed  towards other ongoing
information technology projects in 2000. Based on the above, management does not
anticipate  that the cost of achieving year 2000 compliance will exceed $50,000,
and  therefore  will not have a  material  impact  on the  Company's  operation,
financial condition or liquidity.

INCOME TAXES AND INFLATION

In 1998,  the Company  recorded a  provision  for  current  federal  alternative
minimum  taxes of  $242,000,  a state  income tax  provision  of $965,000  and a
deferred  tax  expense of  $2,027,000,  resulting  in an income  tax  expense of
$3,234,000.

In 1997,  the Company  recorded a  provision  for  current  federal  alternative
minimum  taxes of  $149,000,  a state  income tax  provision  of $701,000  and a
deferred  tax  benefit of  $8,162,000,  resulting  in an income  tax  benefit of
$7,312,000 (see "Year Ended December 31, 1997 - Corporate" above).

In 1996,  the Company  recorded a  provision  for  current  federal  alternative
minimum  taxes of  $105,000,  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).

At December 31, 1998, the Company had approximately  $194,000,000 in federal net
operating loss carryforwards,  which begin to expire in 1999 and fully expire in
2005  if not  used.  In


                                       22
<PAGE>

addition,  the Company had  $885,000 in tax credit  carryforwards  available  to
reduce  future  federal  income  taxes  (see  Note  5,  "Income  Taxes",  to the
consolidated financial statements).

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, 1998 and 1997 were  $1,587,000 and  $1,208,000,  respectively.  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 1998,  the Company had cash flow from  operations of  $11,280,000  which,
along with the net  borrowings  of long-term  debt of $500,000 and proceeds from
the exercise of stock options of $26,000, funded the purchase of property, plant
and  equipment  totaling  $5,750,000,  investment  in  related  party  notes  of
$135,000,  net payments of the line of credit of $3,862,000,  principal payments
of other  long-term  debt  totaling  $217,000,  the purchase of Common Stock for
$2,432,000 and principal  payments on capital  leases of $110,000.  During 1998,
current assets decreased by $909,000, primarily due to the use of the restricted
cash and cash equivalents for funding the Cues building renovation and expansion
and a decrease in Cues's accounts receivable  partially offset by an increase in
the Company's current deferred tax asset. Current liabilities  increased in 1998
by $624,000  (excluding  the current  portion of the long-term  debt and current
portion of long-term capital leases).

During 1997,  the Company had cash flow from  operations of  $10,327,000  which,
along with the net  collection of related  party notes  receivable of $3,850,000
and net  borrowings  of  long-term  debt of  $3,020,000,  funded the purchase of
property,  plant and equipment totaling $5,435,000  (including the $1,407,000 of
land and building  construction-in-progress and the three new Restaurants opened
in 1997), net payments of the line of credit of $10,765,000,  principal payments
of other  long-term  debt totaling  $74,000;  the repurchase of Common Stock and
Warrants to purchase Common Stock for $22,000;  payment of deferred bank fees of
$153,000;  and principal  payments on capital  leases of $137,000.  During 1997,
current  assets  increased  by  $3,420,000,  primarily  due to the  increase  in
restricted cash and cash  equivalents and an increase in the Company's  deferred
tax asset.  Current  liabilities  increased in 1997 by $141,000  (excluding  the
current portion of the long-term debt and current  portion of long-term  capital
leases).

During 1996,  the Company had cash flow from  operations  of  $4,792,000  which,
along with the  $1,075,000  proceeds from the sale of an Abdow's  Restaurant and
net borrowings of $7,112,000 under the bank line of credit,  funded the purchase
of property,  plant and equipment  totaling  $3,108,000  (including  the one new
Restaurant opened in 1996), a loan to ELX Limited  Partnership  ("ELX") totaling
$909,000,  the purchase of related  party debt with a face amount of  $6,650,000
from BofA for  $5,850,000  (see  "Comparison of 1997 Results to 1996 Results and


                                       23
<PAGE>


Corporate"  above);  principal  payments  of  long-term  14.5%  and  15%  senior
subordinated  notes  totaling  $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 $4,198,000,
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 due 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  Abdow's
restaurant.  Inventory  increased due to Cues's  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
$158,000  (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 future  operations,  including the interest
payments on bank debt. With bank approval,  excess funds are available under the
Company's loan agreement to finance additional acquisitions.

ITEM 7A.    MARKET RISKS.

The Company is exposed to market risk from changes in interest rates on borrowed
funds, which could affect its results of operations and financial condition.  At
December 31, 1998, the Company has  approximately  $6.5 million in variable rate
debt  outstanding  and as such the market  risk is  immaterial  based upon a 10%
increase or decrease in interest rates from there December 31, 1998 levels.  The
Company has elected to manage this risk by obtaining debt financing  which allow
it to select the most  advantageous  interest rate between either the prime rate
or the Eurodollar rate plus 2%

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, 1998, together with the report
thereon of PricewaterhouseCoopers LLP dated March 12, 1999, are included in this
report  commencing  on page F-1 and are listed  under  Part IV,  Item 14 in this
Report.

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

Since the  beginning of 1996:  (i)  PricewaterhouseCoopers  LLP,  the  Company's
independent  accountants  engaged  as the  principal  accountant  to  audit  the
Company's  financial  statements,  has neither  resigned  (or  indicated  it has
declined to stand for  re-election  after the  completion of a current audit) or
been dismissed,  and (ii) no new independent  accountant has been engaged by the
Company as either the  principal  accountant  to audit the  Company's  financial
statements or as an independent  accountant to audit a significant subsidiary of
the Company.


                                       24
<PAGE>

                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information  required under this item is incorporated herein by reference to
the  Company's  Proxy  Statement to be filed within 120 days after  December 31,
1998 for the annual Meeting of Stockholders to be held in May 1999.

ITEM 11.    EXECUTIVE COMPENSATION

The information  required under this item is incorporated herein by reference to
the  Company's  Proxy  Statement to be filed within 120 days after  December 31,
1998 for the annual Meeting of Stockholders to be held in May 1999.


ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information  required under this item is incorporated herein by reference to
the  Company's  Proxy  Statement to be filed within 120 days after  December 31,
1998 for the annual Meeting of Stockholders to be held in May 1999.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information  required under this item is incorporated herein by reference to
the  Company's  Proxy  Statement to be filed within 120 days after  December 31,
1998 for the annual Meeting of Stockholders to be held in May 1999.



                                       25
<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
<TABLE>
<CAPTION>
                                                                                Page
1.  FINANCIAL STATEMENTS                                                      Number(s)
                                                                              ---------
<S>                                                                          <C>
         Report of Independent Accountants                                       F-1
         Consolidated Balance Sheets at December 31, 1998 and 1997            F-2 to F-3
         Consolidated Income Statements for the three years ended
              December 31, 1998                                                  F-4
         Consolidated Statements of Stockholders' Equity for the
              three years ended December 31, 1998                                F-5
         Consolidated Statements of Cash Flows for the three years
              ended December 31, 1998                                         F-6 to F-7
         Notes to Consolidated Financial Statements                           F-8 to F-26
</TABLE>

2.  FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
           Schedule
            Number        Description                                           Page
            ------        -----------                                           ----
<S>                                                                             <C>
              II          Valuation and Qualifying Accounts and Reserves         S-1
</TABLE>

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 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)).


                                       26
<PAGE>

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

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             Certificate   of   Amendment   of   Restated    Certificate   of
                Incorporation  of the Company  dated May 19, 1998  (Incorporated
                herein by  reference  to Exhibit  3.3 to the  Company's  Current
                Report on form 8-k, dated March 19, 1999 (File no. 0-11877))

3.4             Bylaws  of the  Company  (Incorporated  herein by  reference  to
                Exhibit 3.3 to the  Company's  Current  Report on Form 8-K dated
                June 24, 1997 and filed on June 26, 1997 (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").  (Incorporated
                herein by  reference  to  Exhibit  4.1 of the  Company's  Annual
                Report on Form 10-K for the fiscal year ended  December 31, 1996
                (File No. 0-11877)).

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

4.5             Series C Warrant  No. C-3 to  purchase  68,762  shares of Common
                Stock  issued to EKLLC.  (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, 1996 (File No. 0-11877)).

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


                                       27
<PAGE>

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

4.7             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)).

4.8             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)).

4.9             Amended and Restated  Loan and Security  Agreement,  dated as of
                December 30, 1996,  between  ELXSI and Bank of America  Illinois
                ("BofA").  (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, 1996 (File No. 0-11877)).

4.10            Second  Amendment  to Amended  and  Restated  Loan and  Security
                Agreement,  dated as of September  24, 1997,  between  ELXSI and
                Bank  of  America   National  Trust  and  Savings   Association.
                (Incorporated  herein  by  reference  to  Exhibit  4.18  of  the
                Company's  Quarterly  Report on Form 10-Q for the quarter  ended
                September 30, 1997 (File No. 0-11877)).

4.11            Trust  Indenture,  dated as of September  24, 1997,  between the
                Orange  County  Industrial  Development  Authority and Sun Trust
                Bank,  Central  Florida,   National  Association,   as  Trustee.
                (Incorporated  herein  by  reference  to  Exhibit  4.19  of  the
                Company's  Quarterly  Report on Form 10-Q for the quarter  ended
                September 30, 1997 (File No. 0-11877)).

4.12            Loan  Agreement,  dated as of September 24, 1997,  between ELXSI
                and  the  Orange  County   Industrial   Development   Authority.
                (Incorporated  herein  by  reference  to  Exhibit  4.20  of  the
                Company's  Quarterly  Report on Form 10-Q for the quarter  ended
                September 30, 1997 (File No. 0-11877)).

4.13            Mortgage and Security Agreement,  dated as of September 24, 1997
                between  ELXSI  and the  Orange  County  Industrial  Development
                Authority.  (Incorporated herein by reference to Exhibit 4.21 of
                the  Company's  Quarterly  Report on Form 10-Q for quarter ended
                September 30, 1997 (File No. 0-11877)).

4.14            Bond Purchase Agreement,  dated as of September 24, 1997, by and
                among the Orange County Industrial Development Authority,  ELXSI
                and Bank of  America  National  Trust and  Savings  Association.
                (Incorporated  herein  by  reference  to  Exhibit  4.22  of  the
                Company's  Quarterly  Report on Form 10-Q for the quarter  ended
                September 30, 1997 (File No. 0-11877)).

4.15            Guaranty  Agreement,  dated as of  September  24,  1997,  by and
                between ELXSI Corporation and Bank of America National Trust and
                Savings  Association.   (Incorporated  herein  by  reference  to
                Exhibit 4.23 of the Company's  Quarterly Report on Form 10-Q for
                the quarter ended September 30, 1997 (File No. 0-11877)).

4.16            Security  Agreement,  dated as of September  24,  1997,  between
                ELXSI and the Orange County  Industrial  Development  Authority.
                (Incorporated  herein  by  reference  to  Exhibit  4.24  of  the
                Company's  Quarterly  Report on Form 10-Q for the quarter  ended
                September 30, 1997 (File No. 0-11877)).

4.17            Rights Agreement,  dated as of June 4, 1997, between the Company
                and Continental Stock Transfer & Trust Company,  as Rights Agent
                (Incorporated  herein  by  reference  to  Exhibit  4.17  to  the
                Company's Form 8-A Registration  Statement,  dated June 10, 1997
                (File no. 0-11877)).

                                       28
<PAGE>

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

4.18            Rights Agreement Amendment,  dated as of March 16, 1999, between
                the Company and Continental  Stock Transfer & Trust Company,  as
                Rights Agent  (Incorporated  herein by reference to Exhibit 2 to
                the    Registrant's    Form   8-A/A    Registration    Statement
                (Post-Effective  Amendment No. 1) dated March 19, 1999 (File No.
                0-11877)).

4.19            Standstill  Agreement,  dated as of March  16,  1999,  among the
                Company,  Alexander  M. Milley and the  "Kellogg  Person"  party
                thereto  (Incorporated  herein by  reference to Exhibit 3 of the
                Registrant's Form 8-A/A Registration  Statement  (Post-effective
                Amendment No. 1) dated March 19, 1999 (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 Company's  1997  Incentive  Stock Option Plan  (Incorporated
                herein by  reference  to Exhibit 4.1 to the  Company's  Form S-8
                Registration Statements filed January 30, 1998 (Registration No.
                333-45381)).

10.7            The Company's  1998  Incentive  Stock Option Plan  (Incorporated
                herein  by  reference  to the  Annex  A to the  Company's  Proxy
                Statement  included in its  Schedule 14A Filed on April 17, 1998
                (File No. 0-11877)).

10.8            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)).

10.9            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)).

10.10           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)).

10.11           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)).


                                       29
<PAGE>

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

10.12           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)).

10.13           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)).

10.14           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)).

10.15           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)).

10.16           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 filed October 3, 1989 (File No 0-11877)).

10.17           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)).

10.18           Management  Agreement between Winchester  National,  Inc. (d/b/a
                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)).

10.19           Assignment of Management Agreement dated June 28, 1991 among the
                Company,  Winchester National, Inc., ELXSI and Milley Management
                Incorporated  ("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)).

10.20           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)).

10.21           Form of Extension  No. 2 to  Management  Agreement,  dated as of
                June 30, 1997, between ELXSI and Cadmus  (incorporated herein by
                reference to Exhibit  10.33 to the Company's  Current  Report on
                Form 8-K dated and filed July 9, 1997 (File No. 0-11877)).

10.22           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)).

10.23           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)).


                                       30
<PAGE>

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

10.24           Letter Agreement dated December 8, 1997, from the Company to ELX
                extending the term of the foregoing.

10.25           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).

10.26           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).

10.27           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 BofA (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).

10.28           Second Amended and Restated Loan and Security  Agreement,  dated
                as of October 9, 1995,  between Azimuth and BofA.  (Incorporated
                herein by reference  to Exhibit  10.24 of the  Company's  Annual
                Report on Form 10-K for the fiscal year ended  December 31, 1996
                (File No. 0-11877)).

10.29           Loan and  Security  Agreement,  dated  as of  October  9,  1995,
                between  DEI and  BofA.  (Incorporated  herein by  reference  to
                Exhibit  10.25 of the  Company's  Annual Report on Form 10-K for
                the fiscal year ended December 31, 1996 (File No. 0-11877)).

10.30           Loan and  Security  Agreement,  dated  as of  October  9,  1995,
                between  CDI and  BofA.  (Incorporated  herein by  reference  to
                Exhibit  10.26 of the  Company's  Annual Report on Form 10-K for
                the fiscal year ended December 31, 1996 (File No. 0-11877)).

10.31           Loan and  Security  Agreement,  dated  as of  October  9,  1995,
                between  CDW and  BofA.  (Incorporated  herein by  reference  to
                Exhibit  10.27 of the  Company's  Annual Report on Form 10-K for
                the fiscal year ended December 31, 1996 (File No. 0-11877)).

10.32           First  Omnibus  Amendment,  dated as of  August 9,  1996,  among
                Azimuth,  DEI,  CDI,  CDW  and  BofA.  (Incorporated  herein  by
                reference to Exhibit  10.28 of the  Company's  Annual  Report on
                Form 10-K for the fiscal year ended  December 31, 1996 (File No.
                0-11877)).

10.33           Second Omnibus Amendment,  dated as of September 23, 1996, among
                Azimuth,  DEI,  CDI,  CDW  and  BofA.  (Incorporated  herein  by
                reference to Exhibit  10.29 of the  Company's  Annual  Report on
                Form 10-K for the fiscal year ended  December 31, 1996 (File No.
                0-11877)).

10.34           Third Omnibus  Amendment,  dated as of November 27, 1996,  among
                Azimuth,  DEI,  CDI,  CDW  and  BofA.  (Incorporated  herein  by
                reference to Exhibit  10.30 of the  Company's  Annual  Report on
                Form 10-K for the fiscal year ended  December 31, 1996 (File No.
                0-11877)).

10.35           Second  Amended and  Restated  Guaranty,  dated as of October 9,
                1995,  made by DEI, CDI and CDW in favor of BofA.  (Incorporated
                herein by reference  to Exhibit  10.31 of the  Company's  Annual
                Report on Form 10-K for the fiscal year ended  December 31, 1996
                (File No. 0-11877)).

10.36           Second  Amended  and  Restated  Pledge  Agreement,  dated  as of
                October  9,  1995,  among  Azimuth,  DEI,  CDI,  CDW  and  BofA.
                (Incorporated  herein  by  reference  to  Exhibit  10.32  of the
                Company's  Annual  Report on Form 10-K for the fiscal year ended
                December 31, 1996 (File No. 0-11877)).


                                       31
<PAGE>

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

10.37           Form of letter, dated June 1997 from ELXSI to Azimuth, DEI, CDI,
                and CDW  (Incorporated  herein by  reference to Exhibit C 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)

10.38           Form of Employment Agreement, dated as of June 30, 1997, between
                ELXSI and Alexander M. Milley  (Incorporated herein by reference
                to Exhibit 10.34 to the Company's  Form 8-K Current Report dated
                July 9, 1997 filed on July 9, 1997 (File No. 0-11877)).

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 PricewaterhouseCoopers LLP

27              Financial Data Schedule

(B)  REPORTS ON FORM 8-K

                None







                                       32
<PAGE>

                                   SIGNATURES

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

                                        ELXSI CORPORATION

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

Dated:   March  17, 1999

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 17, 1999
----------------------------------        President and Chief Executive        
     Alexander M. Milley                  Officer (Principal Executive Officer)


 /s/ ROBERT C. SHAW                       Director and Vice President                March 17, 1999
----------------------------------
     Robert C. Shaw


 /s/ THOMAS R. DRUGGISH                  Vice President, Treasurer                   March 17, 1999
----------------------------------       and Secretary (Chief
     Thomas R. Druggish                  Accounting Officer and
                                         Principal Financial Officer)


 /s/ KEVIN P. LYNCH                       Director and Vice President                March 17, 1999
----------------------------------
     Kevin P. Lynch


 /s/ FARROKH K. KAVARANA                  Director                                   March 17, 1999
----------------------------------
     Farrokh K. Kavarana


 /s/ DENIS M. O'DONNELL                   Director                                   March 17, 1999
----------------------------------
     Denis M. O'Donnell
</TABLE>



                                       33
<PAGE>


                        REPORT OF INDEPENDENT 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  26,  present  fairly,  in all
material  respects,   the  financial  position  of  ELXSI  Corporation  and  its
subsidiaries at December 31, 1998 and 1997, and the results of their  operations
and their cash flows for each of the three  years in the period  ended  December
31, 1998, 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/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PricewaterhouseCoopers LLP


Orlando, Florida
March 12, 1999





                                      F-1
<PAGE>


                                    ELXSI CORPORATION
                               CONSOLIDATED BALANCE SHEETS
                                  (Dollars in Thousands)

                                       A S S E T S



<TABLE>
<CAPTION>
                                                                 December 31,  December 31,
                                                                     1998          1997
                                                                 ------------  ------------
<S>                                                                 <C>           <C>
Current assets:

     Cash and cash equivalents                                      $ 1,587       $ 1,208

     Restricted cash and cash equivalents                                --         1,079

     Accounts receivable, less allowance for
       doubtful accounts of $181 and $117 in 1998
       and 1997, respectively                                         3,493         3,987

     Inventories                                                     10,114        10,378

     Prepaid expenses and other current assets                          292           203

     Deferred tax asset                                               5,484         5,024
                                                                    -------       -------

         Total current assets                                        20,970        21,879

Property, buildings and equipment, net                               31,888        29,681

Intangible assets, net                                                5,163         5,344

Deferred debt costs, net                                                105           155

Notes receivable - related party                                      4,200         4,065

Deferred tax asset - noncurrent                                       3,532         6,019

Other                                                                   778           518
                                                                    -------       -------

     Total assets                                                   $66,636       $67,661
                                                                    =======       =======


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

                                           F-2
<PAGE>


                                    ELXSI CORPORATION
                               CONSOLIDATED BALANCE SHEETS
                                  (Dollars in Thousands)

                           LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                              December 31,    December 31,
                                                                 1998            1997
                                                              ------------    ------------
<S>                                                           <C>             <C>
Current liabilities:
     Accounts payable                                          $   3,526       $   4,434
     Accrued expenses                                              5,289           5,005
     Capital lease obligations - current                              52             125
     Current portion of long-term debt                               887             220
                                                               ---------       ---------

         Total current liabilities                                 9,754           9,784

Capital lease obligations - non current                            1,037           1,074
Long-term debt, net of discount                                    6,689          10,935
Other non current liabilities                                      3,596           2,696
                                                               ---------       ---------

     Total liabilities                                            21,076          24,489
                                                               ---------       ---------

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--60,000,000 shares
       Issued and outstanding--4,453,460
       at December 31, 1998 and 4,660,980
       at December 31, 1997                                            5               5
   Additional paid-in-capital                                    226,103         228,509
   Accumulated deficit                                          (180,343)       (185,133)
   Accumulated other comprehensive income                           (205)           (209)
                                                               ---------       ---------

         Total stockholders' equity                               45,560          43,172
                                                               ---------       ---------

     Total liabilities and stockholders' equity                $  66,636       $  67,661
                                                               =========       =========



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

                                           F-3
<PAGE>

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


<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                      ----------------------------------
                                                        1998         1997         1996
                                                      --------     --------     --------
<S>                                                   <C>          <C>          <C>     
Net sales                                             $ 98,566     $ 86,945     $ 82,743

Costs and expenses:
     Cost of sales                                      77,327       68,406       66,603
     Selling, general and administrative                 9,269        7,924        7,362
     Depreciation and amortization                       3,529        3,176        2,775
                                                      --------     --------     --------

Operating income                                         8,441        7,439        6,003

Other income (expense):
     Interest income                                       583        1,287          111
     Interest expense                                     (807)      (1,420)      (1,495)
     Other (expense) income                               (193)        (239)         432
                                                      --------     --------     --------

Income before income taxes                               8,024        7,067        5,051

(Provision) benefit for income taxes                    (3,234)       7,312        2,332
                                                      --------     --------     --------

Net income                                               4,790       14,379        7,383

Other comprehensive income, net of tax:
   Foreign currency translation adjustment                   4         (109)         (38)
                                                      --------     --------     --------

Comprehensive income                                  $  4,794     $ 14,270     $  7,345
                                                      ========     ========     ========

Net income per common share:
     Basic                                            $   1.05     $   3.08     $   1.55
                                                      ========     ========     ========
     Diluted                                          $    .95     $   2.88     $   1.51
                                                      ========     ========     ========
Weighted average number of common
  and common equivalent shares:
     Basic                                               4,557        4,661        4,763
                                                      ========     ========     ========
     Diluted (see Note 10)                               5,043        4,989        4,902
                                                      ========     ========     ========



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

                                           F-4
<PAGE>


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

<TABLE>
<CAPTION>
                                                                                         Accumulated
                                            Common Stock      Additional      Accum-        Other
                                         ------------------    Paid-In-       ulated    Comprehensive
                                         Shares     Dollars    Capital        Deficit       Income   
                                         ------     -------    -------        -------       ------   
<S>                                    <C>         <C>       <C>          <C>           <C>
Balance at December 31, 1995           4,792,353    $    5   $  229,666    $ (206,895)   $   (62)

Foreign currency translation
     adjustment, net of tax                   --        --           --            --        (38)
Purchase and retirement of Common
     Stock and warrants to purchase
     convertible preferred stock        (131,500)       --       (1,146)           --         --
Issuance of fractional shares                 16        --           --            --         --
Net income                                    --        --        7,383            --
                                      ----------    ------   ----------    ----------    -------

Balance at December 31, 1996           4,660,869         5      228,520      (199,512)      (100)

Foreign currency translation
     adjustment, net of tax                   --        --           --            --       (109)
Purchase and retirement of
     Common Stock                         (2,000)       --          (22)           --         --
Exercise of Common Stock options
     to purchase Common Stock              2,100        --           11            --         --
Issuance of fractional shares                 11        --           --            --         --
Net income                                    --        --           --        14,379         --
                                      ----------    ------   ----------    ----------    -------

Balance at December 31, 1997           4,660,980         5      228,509      (185,133)      (209)

Foreign currency translation
     adjustment, net of tax                   --        --           --            --          4
Purchase and retirement of
     Common Stock                       (212,000)       --       (2,432)           --         --
Exercise of Common Stock options
     to purchase Common Stock              4,465        --           26            --         --
Issuance of fractional shares                 15        --           --            --         --
Net income                                    --        --           --         4,790         --
                                      ----------    ------   ----------    ----------    -------

Balance at December 31, 1998           4,453,460    $    5   $  226,103    $ (180,343)   $  (205)
                                      ==========    ======   ==========    ==========    =======


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

                                           F-5

<PAGE>


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


<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                      --------------------------------
                                                        1998        1997         1996
                                                      --------    --------    --------
<S>                                                   <C>        <C>         <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

Net income                                            $  4,790    $ 14,379    $  7,383
Adjustments to reconcile net income to net
   cash provided by operating activities:
     Depreciation and amortization                       3,529       3,176       2,775
     Amortization of deferred debt costs                    50          74         166
     Amortization of debt discount                          --          --          12
     Loss on disposal of equipment                         195          42         292
     Other                                                  --          --         (38)

(Increase) decrease in assets:
     Accounts receivable                                   494        (562)       (649)
     Inventories                                           264         639      (2,540)
     Prepaid expenses and other current assets             (89)         31         163
     Deferred tax asset                                  2,027      (8,162)     (2,881)
     Other                                                (256)        101        (283)
(Decrease) increase in liabilities:
     Accounts payable                                     (908)       (497)       (411)
     Accrued expenses                                      284         356         253
     Other non current liabilities                         900         750         550
                                                      --------    --------    --------
     Net cash provided by operating activities          11,280      10,327       4,792
                                                      --------    --------    --------

CASH FLOWS USED IN INVESTING ACTIVITIES:

     Proceeds from sale of Abdow's Restaurant               --          --       1,075
     Purchase of property, buildings and equipment      (5,750)     (5,435)     (3,108)
     Collection of notes receivable - related party         --       5,850          --
     Investment in notes receivable - related party       (135)     (2,000)     (6,759)
                                                      --------    --------    --------
     Net cash used in investing activities              (5,885)     (1,585)     (8,792)
                                                      --------    --------    --------



 The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
                                           F-6
<PAGE>


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


<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                           --------------------------------
                                                             1998        1997        1996
                                                           --------    --------    --------
<S>                                                        <C>         <C>         <C>
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:

     Net (payments) borrowings on line of credit             (3,862)    (10,765)      7,112
     Borrowings of long-term debt                               500       3,020          --
     Payments of long-term senior subordinated debt              --          --      (1,199)
     Payments of long-term debt                                (217)        (74)         (6)
     Purchase of Common Stock and warrants to
       purchase Common Stock                                 (2,432)        (22)     (1,146)
     Proceeds from exercise of Common Stock
       options                                                   26          11          --
     Payment of deferred bank fee                                --        (153)        (30)
     Principal payments on capital lease obligations           (110)       (137)       (139)
                                                           --------    --------    --------
     Net cash (used in) provided by financing activities     (6,095)     (8,120)      4,592
                                                           --------    --------    --------

(Decrease) increase in cash and cash equivalents               (700)        622         592

Cash and cash equivalents, beginning of period                2,287       1,665       1,073
                                                           --------    --------    --------

Cash and cash equivalents, end of period                   $  1,587    $  2,287    $  1,665
                                                           ========    ========    ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the year for:
       Interest                                            $    894    $  1,237    $  1,411
       Taxes                                                  1,278         856         747


NON CASH INVESTING ACTIVITIES:

In October 1997, the Company  purchased a restaurant  facility it was previously
leasing, which was classified as a capital lease, in Marlboro, Massachusetts for
approximately $635,000, $520,000 of which was financed with a mortgage note (see
Note 7).







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

                                           F-7
<PAGE>


                                ELXSI CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998


NOTE 1.   THE COMPANY

GENERAL.  ELXSI  Corporation  (together with its subsidiary,  the "Company") has
historically   operated   principally   through  its   wholly-owned   California
subsidiary,  ELXSI.  Prior to 1990,  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.

On  July 1,  1991,  ELXSI  acquired  30  Bickford's  Restaurants  and 12  Howard
Johnson's  Restaurants from Marriott Family Restaurants,  Inc. These Restaurants
were  located  in  Massachusetts,  Vermont,  New  Hampshire,  Rhode  Island  and
Connecticut.

Between  1991 and 1997,  ELXSI  sold six of its  Howard  Johnson's  Restaurants,
converted  five others into  Bickford's  Restaurants,  opened 11 new  Bickford's
Restaurants,  acquired 16 Abdow's Family  Restaurants  ("Abdow's"),  sold one of
these  Abdow's,  closed  another  of these  Abdow's  and  converted  nine of the
remaining Abdow's into Bickford's  Restaurants.  During 1998, ELXSI opened three
Bickford's Restaurants and closed one Abdow's Restaurant.  At December 31, 1998,
ELXSI operated 58 Bickford's Restaurants,  four Abdow's and one Howard Johnson's
Restaurant (the  "Restaurants" or "Restaurant  Division").  The Howard Johnson's
lease expired and the restaurant was closed on January 1, 1999.

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 herein as "Cues" or "Cues Division".

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  subsidiary,  ELXSI.  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 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.

CASH AND CASH  EQUIVALENTS.  The Company has a cash  management  system  whereby
substantially  all cash  generated by operations is  immediately  used to reduce
debt. Cash and cash equivalents  include bank deposits with original  maturities
of three months or less.


                                      F-8
<PAGE>


FAIR  VALUE OF  FINANCIAL  INSTRUMENTS.  The  carrying  amount  of cash and cash
equivalents  and  restricted  cash  and cash  equivalents,  accounts  and  notes
receivable,  accounts payable,  accrued expenses and long-term debt approximates
fair value primarily due to the short-term 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.  Depreciation is provided using the straight-line  method over the
estimated useful lives of individual assets or classes of assets. Buildings held
pursuant to capital leases or improvements to leased  properties or fixtures are
amortized over the shorter of the term of the applicable  lease or the estimated
useful life. Estimated useful lives are:

         Buildings                                          30    years
         Building improvements                              20    years
         Equipment, furniture and fixtures                 3-7    years

Depreciation  expense for 1998,  1997 and 1996 was  $3,348,000,  $2,995,000  and
$2,597,000, respectively.

Normal  repairs and  maintenance  are expensed as incurred.  Expenditures  which
materially  increase  values,  change  capacities or extend  useful  lives,  are
capitalized.  The property,  building and equipment accounts are relieved of the
cost of the items being replaced and accumulated depreciation of disposed assets
are  eliminated  with any resulting  gain or loss on disposal  being recorded in
other income or expense.

RESTAURANT  OPENING COSTS.  Non-capital  expenditures  incurred in opening a new
restaurant are expensed as incurred.

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  un-discounted  cash flows  associated  with the
asset's  carrying  amount  to  determine  if a  write-down  to  market  value or
discounted cash flow is required.

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
each of 1998, 1997 and 1996 was $150,000.  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. Trademark
amortization  expense for 1998, 1997 and 1996 was $31,000,  $31,000 and $28,000,
respectively.

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, 1998
and 1997,  $105,000 and $155,000,  respectively,  remained to be amortized  over
future periods. Amortization expense in 1998, 1997 and 1996 was $50,000, $74,000
and $166,000, respectively.


                                      F-9
<PAGE>

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 the disclosure of contingent  assets and liabilities at the date
of the consolidated financial statements and of the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.

CONCENTRATION OF CREDIT RISK.  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.

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 recognizes 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).

ADVERTISING.  Advertising costs, included in selling, general and administrative
expense, are expensed as incurred and totaled $973,000,  $1,028,000 and $975,000
in 1998, 1997 and 1996, respectively.

ACCOUNTING  FOR  STOCK-BASED  COMPENSATION.  The Company  measures  compensation
expense for employee  and director  stock  options as the  aggregate  difference
between the market and exercise  prices of the options on the date that both the
number of shares the grantee is entitled to receive and the  purchase  price are
known.  Compensation expense associated with restricted stock grants is equal to
the  market  value of the shares on the date of grant and is  recorded  pro rata
over the required  holding period.  Pro forma  information  relating to the fair
value of stock-based  compensation  is presented in Note 10 to the  consolidated
financial statements.

EARNINGS PER SHARE. The Company  presents  "basic" earnings per share,  which is
net income divided by weighted average shares outstanding during the period, and
"diluted"  earnings  per  share,  which  considers  the  impact of common  stock
equivalents.  The  Company's  common stock  equivalents  consist of employee and
director stock options and warrants to purchase common stock.

                                      F-10
<PAGE>

RECLASSIFICATION.  The Company has recorded certain  reclassifications  in prior
years  to  be   consistent   with  the  current   year's   presentation.   These
reclassifications had no effect on net income or stockholders' equity.

ADOPTION OF NEW ACCOUNTING STANDARDS.  In 1998, the Company adopted Statement of
Financial  Accounting  Standards  No.  131,  "Disclosures  About  Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 supersedes Statement of
Financial  Accounting  Standards No. 14, "Financial  Reporting For Segments of a
Business  Enterprise"  (SFAS 14) replacing the "industry  segment" approach with
the  "management"  approach.  The  management  approach  designates the internal
organization  that is used by  management  for making  operating  decisions  and
assessing  performance as the source of the Company's reportable segments.  SFAS
131 also requires disclosures about products and services, geographic areas, and
major customers.

In 1998 the Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS
130 requires that the Company display "comprehensive  income," which in addition
to net income  includes all other changes in  stockholders'  equity except those
resulting from  investments by owners and  distributions  to them. For all years
presented,  the Company's comprehensive income, which encompasses net income and
foreign  currency  translation  adjustments,  is displayed  in the  consolidated
income statements.

NOTE 3. RESTRICTED CASH AND CASH EQUIVALENTS

Industrial  development  bond proceeds used to finance the Orlando  building and
land  acquisition  were being held by a trustee  pursuant  to a trust  indenture
between the Orange  County  Industrial  Development  Authority  and a commercial
bank, as trustee.  As of December 31, 1997,  the trustee held cash in the amount
of  $1,079,000,   which  was  restricted  for  use  by  Cues  to  fund  building
improvements and equipment  expenditures to modify the building for its intended
use. The funds were invested in a money market mutual fund pursuant to the trust
indenture  and  were   recorded  at  fair  market  value  in  the   accompanying
consolidated  balance  sheet.  During 1998,  the  expansion and  renovation  was
completed and the funds were disbursed.

NOTE 4. COMPOSITION OF CERTAIN FINANCIAL STATEMENT COMPONENTS

                                                      YEAR ENDED DECEMBER 31,
                                                   ----------------------------
                                                        1998            1997
                                                   ------------    ------------
Inventories:
     Raw materials and finished goods              $  6,924,000    $  6,884,000
     Work in process                                  3,190,000       3,494,000
                                                   ------------    ------------
                                                   $ 10,114,000    $ 10,378,000
                                                   ============    ============

Property, buildings and equipment:
       Land                                        $  8,505,000    $  7,599,000
       Buildings and improvements                    18,495,000      15,307,000
       Buildings held pursuant to capital leases      1,234,000       1,234,000
       Equipment, furniture and fixtures             17,816,000      15,593,000
       Construction in progress                              --       1,407,000
                                                   ------------    ------------
                                                     46,050,000      41,140,000
       Accumulated depreciation                     (14,162,000)    (11,459,000)
                                                   ------------    ------------
                                                   $ 31,888,000    $ 29,681,000
                                                   ============    ============


                                      F-11
<PAGE>

                                                      YEAR ENDED DECEMBER 31,
                                                   ----------------------------
                                                        1998            1997
                                                   ------------    ------------
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                      (1,201,000)     (1,020,000)
                                                    -----------     -----------
                                                    $ 5,163,000     $ 5,344,000
                                                    ===========     ===========

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 Restaurants and Cues by ELXSI.

                                                        YEAR ENDED DECEMBER 31,
                                                      --------------------------
                                                         1998            1997
                                                      ----------      ----------
Accrued expenses:
       Salaries, benefits and vacation                $1,982,000      $1,768,000
       Other taxes                                       848,000         642,000
       Insurance                                         598,000         633,000
       Professional fees                                 275,000         212,000
       Royalty                                           259,000         202,000
       Rents                                             243,000         170,000
       Utilities                                         250,000         258,000
       Warranty                                          200,000         200,000
       Other reserves                                    108,000         171,000
       Acquisition costs                                  50,000          50,000
       Interest and bank fees                              3,000         140,000
       State and federal income taxes                         --           9,000
       Other expenses                                    473,000         550,000
                                                      ----------      ----------
                                                      $5,289,000      $5,005,000
                                                      ==========      ==========

NOTE 5.   INCOME TAXES

Pre-tax  income  for the years  ended  December  31,  1998,  1997 and 1996 is as
follows:

                                   1998               1997               1996
                                ----------         ----------         ----------
Domestic                        $7,923,000         $6,938,000         $5,000,000
Foreign                            101,000            129,000             51,000
                                ----------         ----------         ----------
  Total                         $8,024,000         $7,067,000         $5,051,000
                                ==========         ==========         ==========

The components of income tax benefit (expense) related to earnings for the years
ended December 31, 1998, 1997 and 1996 are as follows:

                                  1998               1997               1996
                              -----------        -----------        -----------
Current:
  Federal                     $  (242,000)       $  (149,000)       $  (105,000)
  State and local                (965,000)          (701,000)          (444,000)
                              -----------        -----------        -----------
                               (1,207,000)          (850,000)          (549,000)
                              ===========        ===========        ===========


                                     F-12
<PAGE>

                                     1998             1997             1996
                                 -----------       -----------      -----------
Deferred:
  Federal                         (2,027,000)        8,162,000        2,881,000
  State and local                         --                --               --
                                  (2,027,000)        8,162,000        2,881,000
                                 -----------       -----------      -----------

Total                            $(3,234,000)      $ 7,312,000      $ 2,332,000
                                 ===========       ===========      ===========

Deferred income taxes are provided for temporary  differences between income tax
and  financial  statement  recognition  of revenues  and  expenses.  Significant
components  of the  deferred  tax  (liabilities)  assets  are  comprised  of the
following at December 31, 1998 and 1997:

                                                     1998              1997
                                                 ------------      ------------
Fixed asset and other                            $ (1,103,000)     $ (1,147,000)
                                                 ------------      ------------
  Gross deferred tax liabilities                   (1,103,000)       (1,147,000)
                                                 ------------      ------------

Accrued expenses and other                          2,548,000         1,989,000
Loss carryforwards                                 65,842,000        70,618,000
Credit carryforwards                                1,775,000         2,342,000
                                                 ------------      ------------
  Gross deferred tax assets                        70,165,000        74,949,000
                                                 ------------      ------------

Deferred tax asset valuation allowance            (60,046,000)      (62,759,000)
                                                 ------------      ------------
  Net deferred taxes                             $  9,016,000      $ 11,043,000
                                                 ============      ============

At December 31, 1998 and 1997, the Company had net operating loss  carryforwards
for federal income tax purposes of approximately  $194 million and $208 million,
respectively. The decrease in the net deferred tax asset primarily resulted from
the use of net operating loss  carryforwards  to offset 1998  estimated  federal
taxable  income and a  reduction  in credits  available  to the  Company.  As of
December 31, 1998,  the Company has tax credit  carryforwards  of  approximately
$885,000.  These  net  operating  loss and tax  credit  carryforwards  expire as
follows:
                                          Net Operating Loss       Tax Credit
                                            Carryforwards         Carryforwards
                                            -------------         -------------
1999                                        $ 54,067,000          $    425,000
2000                                          66,375,000               303,000
2001                                          33,916,000                 7,000
2002                                           5,836,000                    --
2003                                          14,118,000                    --
2004                                          18,941,000                    --
2005 through 2013                                401,000               150,000
                                            ------------          ------------
                                            $193,654,000          $    885,000
                                            ============          ============

The  Company  also  has  alternative   minimum  tax  credit   carryforwards   of
approximately $890,000, which have an unlimited carryforward period.

The Company  continually  reviews the adequacy of the valuation allowance and is
recognizing  deferred tax asset benefits only as reassessment  indicates that it
is more likely than not that the benefits will be realized.

During 1996, a portion of the valuation  allowance  was released  based upon the
success of Restaurant  conversions and Cues  manufacturing  consolidations  that
began in 1995. Accordingly,


                                      F-13
<PAGE>

the Company  recognized a $2,881,000 net deferred tax asset. At the end of 1996,
the Company believed it would have a change of ownership of 50% or more.

During 1997, facts and circumstances  surrounding the Company's belief that they
would have a change in ownership of 50% or more materially changed. Accordingly,
the Company reduced the valuation  allowance  applied against net operating loss
carryforwards  by  $8,162,000  based upon  reasonable  and prudent tax  planning
strategies and future income projections.

During 1998, the Company  amortized the deferred tax asset to income tax expense
in the  amount  of  $2,027,000.  This  reduced  the net  deferred  tax  asset to
$9,016,000, which represents an amount that management believes more likely than
not will be realized.  The total amount of future  taxable  income  necessary to
realize the asset is approximately $26,000,000.  The Company expects to generate
this income  principally  through the  continued  adherence  to  reasonable  tax
planning  strategies  and future income  projections.  The  remaining  valuation
allowance  is  necessary  due  to  the  magnitude  of  the  net  operating  loss
carryforwards and the uncertainty of future income estimates.

The  Company's  net  deferred  tax  assets  include  substantial  amounts of net
operating loss and credit  carryforwards.  Failure to achieve forecasted taxable
income would affect the ultimate realization of the net deferred tax assets.

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.

A reconciliation of the statutory  federal tax rate and the Company's  effective
income  tax rate for the years  ended  December  31,  1998,  1997 and 1996 is as
follows:

<TABLE>
<CAPTION>
                                                             1998          1997           1996
                                                            ------       --------       -------
<S>                                                         <C>          <C>            <C>
     Federal income tax rate                                  34.0%          34.0%         34.0%
     State income taxes, net of federal benefit                5.5            6.5           8.6
     Changes in valuation allowance for deferred
                      tax assets                                --         (113.9)        (57.1)
     Other                                                     0.8            1.9           0.3
     Recognition of net operating loss carryforward             --          (32.0)        (32.0)
                                                            ------       --------       -------
           Effective income tax rate                          40.3%        (103.5)%       (46.2)%
                                                            ======       ========       =======
</TABLE>

NOTE 6. RELATED PARTY TRANSACTIONS

TRANSACTIONS  WITH ELX LIMITED  PARTNERSHIP.  On  December 8, 1994,  the Company
loaned 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,
approximately  $1,156,000  under an  unsecured  note.  ELX used the  proceeds to
exercise its option to purchase  369,800  shares of the  Company's  Common Stock
held by The Airlie Group L.P.  (Airlie) under an existing  option granted to ELX
at $3.125 per share on September 25, 1989. On December 8, 1997,  the due date of
the loan was extended for an additional  three years. The loan bears interest at
1/2% above the


                                      F-14
<PAGE>

Company's  senior debt  borrowing  rate (see Note 7).  Interest from December 8,
1994 to  December  8, 1997 was paid  current in  December  1997.  Principal  and
interest from December 8, 1997 are due on December 8, 2000.

On December 30, 1996,  the Company  loaned ELX  approximately  $909,000 under an
unsecured  note.  The  proceeds of this loan were used to exercise its option to
purchase  110,200  shares of the  Company's  Common  Stock held by Bank  America
Capital  Corporation  (BACC)  under  an  existing  option  and to  purchase  the
remaining  110,200 shares of the Company's  Common Stock held by BACC for $5.125
per share. This note also bears interest at 1/2% above the Company's senior debt
borrowing  rate.  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 loan  funds was
ELXSI's line of credit.

TRANSACTIONS WITH CADMUS CORPORATION.  On June 30, 1997, ELXSI loaned $2,000,000
to Cadmus  Corporation  (Cadmus).  The loan  matures on June 30,  1999 and bears
interest  at 15%,  payable  quarterly  in arrears  and is  collateralized  by an
investment owned by Cadmus.  Management intends to extend the expiration of this
note  for an  additional  year  and  has  therefore  classified  this  note as a
non-current asset in the accompanying  consolidated balance sheets. ELXSI earned
a 5%, or  $100,000,  closing fee,  which will be  amortized  to interest  income
utilizing  the  effective  interest  method  over the life of the  loan.  Cadmus
reimbursed  ELXSI for the costs  incurred  by ELXSI in making the loan.  Certain
officers,  directors and/or shareholders of Cadmus are officers and/or directors
of the Company and/or ELXSI.

ELXSI (as assignee of ELXSI Corporation)  entered into a management agreement on
September  25,  1989  with  Cadmus.  Effective  June 30,  1997,  the  management
agreement  was extended to at least June 30, 2005,  and during 1998 the Board of
Directors  extended the agreement for an additional two years ending on June 30,
2007.  Effective April 1, 1997 the management fee was increased from $500,000 to
$600,000  annually,  with a  provision  that the fee shall  increase  5% on each
anniversary  date thereof.  The management fee may be  discontinued  following a
year in which the Company's  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 1998, 1997 and
1996,  the  Company  was  charged  management  fees of  $623,000,  $575,000  and
$500,000,  respectively.  Cadmus also provides the Company with certain  general
and  administrative  services.  At December 31, 1998 and 1997, ELXSI did not owe
any amount to Cadmus under such management agreement.

TRANSACTIONS WITH AZIMUTH CORPORATION AND SUBSIDIARIES. On March 24, 1998, ELXSI
borrowed  $135,000  on it's  supplemental  line of credit  with Bank of  America
National Trust and Savings Association (formerly named Bank of America Illinois)
(BofA) and loaned the  proceeds to Azimuth  Corporation,  who  purchased  10,000
shares of ELXSI  Corporation's  Common Stock from a third party.  Certain of the
officers,  directors and stockholders of Azimuth and certain of the officers and
directors of the Azimuth Subsidiaries are officers and directors of the Company.
The loan matures on March 24, 2000 and bears interest at 15% per anum.

On December  30, 1996,  ELXSI  entered into a  Recapitalization  Agreement  (the
"Recapitalization  Agreement") with Azimuth Corporation  (Azimuth) 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"). Under the Recapitalization Agreement, ELXSI purchased from BofA,
its lending bank, three Azimuth  Subsidiary  revolving notes (the "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


                                      F-15
<PAGE>

Recapitalization  Agreement,  ELXSI received all contract rights and obligations
held by BofA in relation to the Notes and, as a result, became the provider of a
working  capital  line of  credit  for the  Azimuth  Subsidiaries,  which  ELXSI
increased to $9,650,000 and extended  through June 30, 1998. An Azimuth guaranty
and  substantially  all of the assets of Azimuth  and the  Azimuth  Subsidiaries
secured the line of credit.

On June 16, 1997, the Azimuth  Subsidiaries  prepaid the outstanding face amount
of the  Notes due to ELXSI by  utilizing  the  proceeds  of a new line of credit
obtained from a third party lender.  The working capital line of credit extended
by ELXSI to the Azimuth Subsidiaries was terminated upon such prepayment. During
the period the Notes were outstanding,  ELXSI earned  approximately  $938,000 of
net income from this transaction.

NOTE 7.   LONG-TERM DEBT

Long-term debt consists of the following:
                                                           DECEMBER 31,
                                                      ----------------------
                                                        1998          1997
                                                      --------      --------
       Bank Line of Credit with BofA,  $9,000,000
       available,  interest  due monthly at prime
       (7.75% at December  31,  1998) or 2% above
       Eurodollar  rate  (7.06% at  December  31,
       1998), maturing on June 30, 2001. The line
       of  credit   does  not   require   minimum
       reductions in available  credit.  The line
       is  collateralized  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).                        $       --  $ 2,956,000

       Supplemental  Bank  Line  of  Credit  with
       BofA, $4,970,000  available,  interest due
       monthly at prime  (7.75% at  December  31,
       1998) or 2% above  Eurodollar  rate (7.06%
       at December 31, 1998) maturing on June 30,
       2001. The line of credit requires  minimum
       reductions in available  credit.  The line
       may be utilized to  repurchase  securities
       of the Company,  including stock, warrants
       and notes and is  collateralized 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.      4,194,000    5,100,000

       5  year  mortgage   payable  on  land  and
       building      located     in     Marlboro,
       Massachusetts with monthly installments of
       approximately   $3,000  plus  interest  at
       8.01% per annum.  The  balance of $347,000
       is due on October 1, 2002.                        480,000      514,000


                                      F-16
<PAGE>

                                                           DECEMBER 31,
                                                      ----------------------
                                                        1998          1997
                                                      --------      --------

       5  year  mortgage   payable  on  land  and
       building      located     in     Kingston,
       Massachusetts with monthly installments of
       approximately   $2,800  plus  interest  at
       8.25% per annum.  The  balance of $330,000
       is due on August 25, 2003.                        488,000           --

       15   year   Orange    County    Industrial
       Development  Authority  bonds with monthly
       principal    payments   of   approximately
       $14,000  plus  interest  at the tax exempt
       equivalent  of the  Eurodollar  rate  plus
       1.5% payable  monthly in arrears (5.31% at
       December 31, 1998).                             2,306,000    2,472,000

       Mortgage  payable at 8.25% on the land and
       building   owned  by  Cues  B.V.                  108,000      111,000

       Other                                                  --        2,000
                                                      ----------  -----------
                                                       7,576,000   11,155,000
       Less current portion                             (887,000)    (220,000)
                                                      ----------  -----------
       Long-Term Debt                                 $6,689,000  $10,935,000
                                                      ==========  ===========

The above  bank debt  agreements  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
interest   coverage  and  funded  debt  to  earnings  before  interest,   taxes,
depreciation and amortization.

During  1998,  ELXSI  exceeded  restrictions  imposed by BofA under the  capital
expenditure  covenant.   Acceleration  of  the  bank  line  of  credit  and  the
supplemental bank line of credit,  cumulatively $4,194,000 at December 31, 1998,
was  subsequently  waived.  Simultaneously,  BofA  extended the maturity of both
lines of credit until June 30, 2001.

Aggregate  maturities of long-term  debt for the five years ending  December 31,
2003 and thereafter are as follows:

                     1999                     $   887,000
                     2000                       1,663,000
                     2001                       2,373,000
                     2002                         584,000
                     2003                         531,000
                     Thereafter                 1,538,000
                                              -----------
                                              $ 7,576,000
                                              ===========

The following is a summary of interest  expense and interest  income on borrowed
funds held by the trustee  related to the Orange County  Industrial  Development
Bonds during the years ended December 31, 1998 and 1997:


                                      F-17
<PAGE>

                                                        1998       1997
                                                      --------   --------
Interest expense:
  Capitalized                                         $133,000   $     --
  Charged to interest expense                               --     54,000
                                                      --------   --------
                                                      $133,000   $ 54,000
                                                      ========   ========
Interest income:
  Capitalized                                         $ 48,000   $     --
  Credited to interest income                               --     12,000
                                                      --------   --------
                                                      $ 48,000   $ 12,000
                                                      ========   ========

NOTE 8. COMMITMENTS AND CONTINGENCIES

ELXSI  conducts  a  substantial  portion  of  its  operations  utilizing  leased
facilities. ELXSI leases land and/or buildings at 49 of its 63 Restaurants under
lease  agreements  with terms  expiring on various  dates  (including  extension
options)  through  2032.  The majority of the leases  require that ELXSI pay all
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.

Additionally,  ELXSI 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 each of the
years in the five-year periods ending December 31, 2003, and thereafter:

<TABLE>
<CAPTION>
                                                     CAPITAL LEASES   OPERATING LEASES
                                                     --------------   ----------------
<S>                                                   <C>              <C>
1999                                                  $   144,000      $ 2,849,000
2000                                                      129,000        2,802,000
2001                                                      129,000        2,626,000
2002                                                      129,000        2,569,000
2003                                                      105,000        2,168,000
Thereafter                                              1,429,000       13,620,000
                                                      -----------      -----------
Total minimum lease payments                            2,065,000      $26,634,000
                                                                       ===========
Less - Amount representing interest                      (976,000)
                                                      ----------- 
Present value of net minimum capital lease payments     1,089,000 
Less - current portion                                    (52,000)
                                                      ----------- 
Capital lease obligation - noncurrent                 $ 1,037,000 
                                                      =========== 
</TABLE>

Rent  expense  charged to  operations  amounted to  $3,424,000,  $3,294,000  and
$2,852,000 during 1998, 1997, and 1996, respectively.

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 1998,
1997 and 1996 was $51,000,  $63,000 and $61,000,  respectively.  At December 31,
1998 and 1997,  truck bodies held by the dealers under these  arrangements  were
valued at $320,000 and $447,000, respectively.


                                      F-18
<PAGE>


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  trustee administered 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 1998,  1997 and 1996 was $70,000,  $44,000
and $44,000, respectively.

During 1995,  the Restaurant  Division  established a  non-contributory  trustee
administered  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. STOCKHOLDERS' EQUITY

COMMON STOCK OPTIONS.  At December 31, 1998 and 1997, the Company had a total of
848,435 and 897,487  common shares  reserved for issuance under its stock option
plans,  respectively.  Options under the Company's plans are granted at exercise
prices  determined by the Board of  Directors,  generally not less than the fair
market value 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.

During 1998,  stockholders  approved the ELXSI  Corporation 1998 Incentive Stock
Option Plan (the "1998  Plan"),  under which up to 75,000  shares may be issued.
Under  the 1998  Plan  options  to  purchase  75,000  shares  were  granted  and
outstanding  at an  exercise  price of $8.125 per share.  These  options  become
exercisable on April 8, 1999.

During 1997,  stockholders  approved the ELXSI  Corporation 1997 Incentive Stock
Option Plan (the "1997 Plan"),  under which up to 130,000  shares may be issued.
Under  the 1997 Plan  options  to  purchase  130,000  shares  were  granted  and
outstanding  at an exercise price of $6.00 per share as of December 31, 1997. As
of December 31, 1998,  127,500  shares were  outstanding.  These options  became
exercisable on November 22, 1997.

During 1996,  stockholders  approved the ELXSI  Corporation 1996 Incentive Stock
Option Plan (the "1996 Plan"),  under which up to 125,000  shares may be issued.
Under  the 1996 Plan  options  to  purchase  114,950  shares  were  granted  and
outstanding at an exercise price of $6.50 and $9.00 per share as of December 31,
1996 and 1997.  As of December 31, 1998,  111,950  were  outstanding.  The $6.50
options  became  exercisable  on November 23, 1996 and the $9.00 options  become
exercisable on April 8, 1998.


                                      F-19
<PAGE>


                                                                   Weighted-
                                                      Number        Average
                                                     of Shares   Exercise Price
                                                     ---------   --------------

     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

     Granted during 1997                              217,500          7.21
     Exercised during 1997                             (2,100)         5.38
     Canceled during 1997                                  --            --
     Outstanding at December 31, 1997                 767,160          6.13
     Exercisable at December 31, 1997                 580,394          5.74
     Available for grant at December 31, 1997         130,327

     Granted during 1998                               77,500          8.15
     Exercised during 1998                             (4,465)         5.59
     Canceled during 1998                             (55,725)         6.84
     Outstanding at December 31, 1998                 784,470          6.28
     Exercisable at December 31, 1998                 655,921          6.10
     Available for grant at December 31, 1998          65,165

The following table summarizes the stock options  outstanding and exercisable at
December 31, 1998:
<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             633,270             6.29             5.74             567,596               5.72
   8.125 - 9.00             150,000             9.25             8.56              87,125               8.53
       26.50                  1,200             1.39            26.50               1,200              26.50
</TABLE>

The  Company  has  adopted  the   "disclosure-only"   provisions  of  SFAS  123.
Accordingly,  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 1998,  1997 and 1996
consistent  with the  provisions  of SFAS 123,  the  Company's  net  income  and
earnings per share would approximate the following pro forma amounts:


                                      F-20
<PAGE>



                                     1998             1997             1996    
                                 -------------    -------------   -------------

Net income - as reported             4,790,000       14,379,000       7,383,000
Net income - pro forma               4,639,000       14,098,000       7,148,000

Basic EPS - as reported                   1.05             3.08            1.55
Basic EPS - pro forma                     1.02             2.96            1.50

Diluted EPS - as reported                 0.95             2.88            1.51
Diluted EPS - pro forma                   0.92             2.83            1.46

The fair  value of each  option  is  estimated  on the date of grant  using  the
Black-Scholes  option-pricing  model.  The fair value of options  granted during
1998,  1997 and 1996 were  calculated  utilizing the following  weighted-average
assumptions:  No dividend yield;  expected volatility of 11.8%, 11.7% and 10.2%,
respectively;  risk free interest rate of 5.91%, 5.89% and 6.26%,  respectively;
and  expected  lives of 7 years.  The  weighted-average  fair  value of  options
granted during fiscal 1998, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                                                            Weighted-          Weighted-
                                                                             Average            Average
                                                         Number             Exercise             Fair
                                                       of Options            Prices             Values
                                                       -------------------------------------------------
<S>                                                     <C>                 <C>                 <C>
Fiscal 1998:
Exercise price = market price at date of grant            75,000             8.125               2.85

Fiscal 1997:
Exercise price = market price at date of grant           217,500              7.21               2.66

Fiscal 1996:
Exercise price = market price at date of grant           130,450              6.21               2.24
</TABLE>

WARRANTS.  At  December  31,  1998 and 1997,  the Company had a total of 269,262
common shares reserved for issuance pursuant to warrants as follows:

In September  1989, 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 warrants from Airlie for $1,635,000,  or $2.125 per
warrant.  On December 30, 1996,  the Company  repurchased  all of these warrants
that were 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  warrants,  designated  as Series A,  remain  unexercised  at
December 31, 1998, and  originally had an exercise price and expiration  date of
$3.125 and  September  25,  1996,  respectively.  During 1996,  these  warrants'
expiration date was extended until September 30, 1998 and the exercise price was
increased to $3.75 per share.  In September  1998, the Company elected to extend
and modify the terms of the Series A  warrants.  Series A warrants  to  purchase
50,000 shares of the Company's  Common Stock are held by Eliot  Kirkland  L.L.C.
("Eliot"),  of which  Alexander M. Milley,  the  President of the Company is the
sole manager and significant equity holder. Series A warrants to acquire 150,500
shares  of the  Company's  Common  Stock  are held by the  Alexander  M.  Milley
Irrevocable  Trust I U/A, a trust for the  benefit  of  members of Mr.  Milley's
immediate  family  and of which  Mr.  Milley's  wife is a  trustee.  Under  this
modification  of the terms of the Series A  warrants  their  exercise  price was
increased from $3.75 per share to $4.50 per share and their  expiration date was
extended from September 30, 1998 to September 30, 2000. The estimated fair value
of the  modified  Series A


                                      F-21
<PAGE>

warrants  at  September  30,  1998 was $5.39 per share  using the  Black-Scholes
option  pricing  model and  assumptions  similar to those used for  valuing  the
Company's stock options as described  above, as compared to the value of the old
warrants at approximately $5.75 per share at the date of extension.

In connection  with the 1992  acquisition  of Cues,  the Company issued Series C
warrants to purchase 68,762 shares of the Company's Common Stock. These warrants
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, these warrants' expiration date was extended until January 31, 1999
and the exercise  price was increased to $5.23 per share.  In December 1998, the
Board  of  Directors  of the  Company  approved  the  further  extension  of the
outstanding Series C warrants,  which are held by Eliot. Under this modification
of the terms of the Series C warrants,  their  exercise price was increased from
$5.23 per share to $6.278 per share and their  expiration date was extended from
January 31, 1999 to January 31, 2001.  The estimated  fair value of the modified
Series C warrants at December 17, 1998 was $4.55 per share using a Black-Scholes
option  pricing  model and  assumptions  similar to those used for  valuing  the
Company's  stock options as descried  above, as compared to the value of the old
warrants at approximately $5.02 per share at the date of extension.

PHANTOM STOCK OPTION PLAN.  The ELXSI 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 totaling approximately $116,000. In October 1997, the Company
returned the Group's initial  investment and  simultaneously  received notes for
the same amount from each Group member. These notes bear interest at 9% annually
and are due June 30,  2001.  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 employment,
death or the sale of the Restaurants.

The assumptions used in calculating the annual expense attributable to this plan
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 1998, 1997 and 1996, the Company  recorded
compensation  expense  related to the phantom  stock  option  plan of  $900,000,
$750,000  and  $550,000,  respectively.  As  of  December  31,  1998  and  1997,
$3,596,000  and  $2,696,000,  respectively,  was  recorded in other  non-current
liabilities,  which  represents  13.9%  of  the  estimated  appraised  value  of
Bickford's Restaurants, as defined, on those dates.

STOCK  PURCHASE  RIGHTS.  On June 4,  1997,  the Board of  Directors  declared a
dividend  distribution  of one Common Stock  purchase right (a "Right") for each
share of the Company's Common Stock  outstanding on June 16, 1997 issued under a
rights  agreement (the "Rights  Agreement")  with  Continental  Stock Transfer &
Trust Company.  Each Right would entitle  stockholders to purchase the Company's
Common Stock at an exercise  price of $25.00 per full common  share,  subject to
adjustment.  The  Rights  are  not  currently  exercisable,   but  would  become
exercisable if a person or group,  together with his affiliates and  associates,
becomes an "Acquiring Person" (as defined in the Rights Agreement) by becoming a
beneficial holder of 15% or more of the outstanding  shares of Common Stock (35%
or more for The Milley Group Members (as defined in the Rights Agreement).  Upon
such an event (or certain other events


                                      F-22
<PAGE>

described in the Rights  Agreement),  each Right will entitle the holder thereof
(other than the Acquiring Person and his affiliates and associates) the right to
receive, upon exercise and payment of the exercise price, shares of Common Stock
having a market value equal to two times that exercise price.

In the  event  that  the  Company  is  acquired  in a merger  or other  business
combination,  under  various  circumstances  the  holders of the Rights  will be
entitled to receive, upon exercise, Common Stock of the Company or the acquiring
company,  and/or cash and other property,  equal to two times the exercise price
of the Rights.

The  Company  may redeem  the Rights at a price of $0.001 per Right,  subject to
certain limitations. The Rights will expire at the close of business on June 15,
2007,  unless  extended  through  provisions  in the Rights  Agreement  or early
redemption or exchange by the Company.

In March 1999, in connection with and under the terms of a Standstill  Agreement
entered into by the Company that month with Peter R. Kellogg and certain persons
and  entities  controlled  by or related to him who had  purchased  an acquiring
block of Common stock ("Kellogg Persons"), the Company and Rights Agent executed
and delivered an amendment to the rights  Agreement  which,  among other things,
provided that (i) under certain circumstances such Kellogg Persons could acquire
in excess of 15% of the  outstanding  Common Stock without  becoming  "Acquiring
Persons" under the Rights Agreement, and (ii) Mr. Milley was granted irrevocable
proxies to vote the Kellogg Persons' shares and obtained certain rights of first
refusal over such shares.

RECONCILIATION  OF EARNINGS PER SHARE. The following is a reconciliation  of the
numerators  and  denominators  of the  basic  and  diluted  earnings  per  share
computations for the years ended December 31:


<TABLE>
<CAPTION>
                                                 1998         1997           1996
                                             -----------   -----------   -----------
<S>                                          <C>           <C>           <C>
Basic earnings per share
     Numerator                               $ 4,790,000   $14,379,000   $ 7,383,000
                                             -----------   -----------   -----------
     Denominator:
         Common shares outstanding             4,557,000     4,661,000     4,763,000
                                             -----------   -----------   -----------
         Basic earnings per share            $      1.05   $      3.08   $      1.55
                                             ===========   ===========   ===========

Diluted earnings per share
     Numerator                               $ 4,790,000   $14,379,000   $ 7,383,000
                                             -----------   -----------   -----------
     Denominator:
         Common shares outstanding             4,557,000     4,661,000     4,763,000
         Assumed conversion of options and
           warrants                              486,000       328,000       139,000
                                             -----------   -----------   -----------
         Total shares                          5,043,000     4,989,000     4,902,000
                                             -----------   -----------   -----------
         Diluted earnings per share          $       .95   $      2.88   $      1.51
                                             ===========   ===========   ===========
</TABLE>

Options  to  purchase  87,500  shares  of Common  Stock at $9.00 per share  were
outstanding  during  the last  quarter  of 1997 but  were  not  included  in the
computation  of diluted  earnings per share because the options'  exercise price
was  greater  than the average  market  price of the common  shares.  Options to
purchase 75,000 shares were still outstanding at the end of 1998.

Options to  purchase  105,450  shares of Common  Stock at $6.50 per share,  were
outstanding  during  the  last  half  of  1996  but  were  not  included  in the
computation  of diluted  earnings per share because the options'  exercise price
was  greater  than the average  market  price of the common  shares.  Options to
purchase 104,950 shares were outstanding at the end of 1998.


                                      F-23
<PAGE>

Options to  purchase  1,200  shares of Common  Stock at $26.50  per share,  were
outstanding  during 1998, 1997 and 1996 but were not included in the computation
of diluted  earnings per share because the options'  exercise  price was greater
than the average market price of the common shares.  These options are scheduled
to mature on May 23, 2000.

NOTE 11.   SEGMENT REPORTING

The Company has two  reportable  segments,  restaurant  operations and equipment
manufacturing.  The Company is primarily  organized into two strategic  business
units,  which have  separate  management  teams and  infrastructures  that offer
different  products and services.  Each  business  requires  different  employee
skills,  technology and marketing strategies.  The restaurant operations segment
includes  63  stores  located  in the New  England  States  operating  under the
Bickford's and Abdow's brand names. The equipment manufacturing segment produces
sewer inspection equipment for sale to municipalities,  contractors, and foreign
governments.

Accounting  policies  of the  segments  are the same as those  described  in the
Summary  of  Significant   Accounting   Policies.   The  Company  evaluates  the
performance  of each segment  based upon profit or loss from  operations  before
income taxes not including  non-recurring  gains and losses and foreign exchange
gains and losses.

Summarized  financial  information  by  business  segment  for the  years  ended
December 31, 1998,  1997 and 1996 is  summarized  in the  following  table.  The
"Other"  lines  include  corporate  related  items,   results  of  insignificant
operations  and,  as they  relate to profit and  losses,  income and expense not
allocated to reportable segments:
<TABLE>
<CAPTION>
                                               1998            1997            1996
                                           ------------    ------------    ------------
<S>                                        <C>             <C>             <C>
Revenues From External Customers:
     Restaurants                           $ 71,517,000    $ 65,198,000    $ 61,283,000
     Equipment                               27,049,000      21,747,000      21,460,000
                                           ------------    ------------    ------------
                                           $ 98,566,000    $ 86,945,000    $ 82,743,000
                                           ============    ============    ============
Depreciation and Amortization:
     Restaurants                           $  2,972,000    $  2,694,000    $  2,318,000
     Equipment                                  557,000         482,000         457,000
                                           ------------    ------------    ------------
                                           $  3,529,000    $  3,176,000    $  2,775,000
                                           ============    ============    ============
Segment Profit:
     Restaurants                           $  7,797,000    $  7,246,000    $  6,019,000
     Equipment                                2,642,000       1,992,000       1,334,000
     Other                                   (1,998,000)     (1,799,000)     (1,350,000)
                                           ------------    ------------    ------------
                                           $  8,441,000    $  7,439,000    $  6,003,000
                                           ============    ============    ============
Interest Revenue:
     Restaurants                           $         --    $         --    $         --
     Equipment                                   20,000          24,000              --
     Other                                      563,000       1,263,000         111,000
                                           ------------    ------------    ------------
                                           $    583,000    $  1,287,000    $    111,000
                                           ============    ============    ============
Interest Expense:
     Restaurants                           $    148,000    $    152,000    $    246,000
     Equipment                                   63,000          84,000          42,000
     Other                                      596,000       1,184,000       1,207,000
                                           ------------    ------------    ------------
                                           $    807,000    $  1,420,000    $  1,495,000
                                           ============    ============    ============
</TABLE>


                                      F-24
<PAGE>


<TABLE>
<CAPTION>
                                               1998         1997          1996 
                                           -----------   -----------   -----------
<S>                                        <C>          <C>           <C>
Segment Assets:
     Restaurants                           $31,415,000   $31,184,000   $31,097,000
     Equipment                              21,474,000    21,132,000    18,676,000
     Other                                  13,747,000    15,345,000    11,370,000
                                           -----------   -----------   -----------
                                           $66,636,000   $67,661,000   $61,143,000
                                           ===========   ===========   ===========
Capital Expenditures for Segment Assets:
     Restaurants                           $ 3,749,000   $ 3,827,000   $ 2,891,000
     Equipment                               2,001,000     1,608,000       217,000
                                           -----------   -----------   -----------
                                           $ 5,750,000   $ 5,435,000   $ 3,108,000
                                           ===========   ===========   ===========
</TABLE>

Capital  expenditures  exclude amounts expended in connection with  acquisitions
and divestitures.

There were no  inter-segment  sales or transfers  during 1998,  1997,  and 1996.
Operating income by business segment excludes interest income, interest expense,
and other income and expenses.  Other 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 represent less than 10% of the
Company's  totals. No material amounts of the Company's sales are dependent upon
a single customer.

NOTE  12.  QUARTERLY  FINANCIAL  DATA -  (UNAUDITED)  THE  following  summarizes
quarterly  financial  data for 1998 and 1997 (in  thousands,  except  per  share
data):

                                                         1998
                                        -------------------------------------
                                        MAR. 31,  JUNE 30,  SEP. 30,  DEC. 31,
                                        -------   -------   -------   -------
Net sales                               $23,421   $25,108   $25,558   $24,479
Gross profit                              4,656     5,580     5,762     5,241
Income before income taxes                1,564     2,244     2,393     1,823
Net income                              $   938   $ 1,347   $ 1,269   $ 1,236
Earnings per common share:
     Basic                              $   .20   $   .30   $   .27   $   .28
     Diluted                            $   .18   $   .26   $   .25   $   .26

Reconciliation of earnings per share:
  Basic earnings per share:
   Numerator                            $   938   $ 1,347   $ 1,269   $ 1,236
                                        -------   -------   -------   -------
   Denominator:
     Common shares outstanding            4,654     4,569     4,556     4,456
                                        -------   -------   -------   -------
     Basic earnings per share           $   .20   $   .30   $   .27   $   .28
                                        =======   =======   =======   =======

Diluted earnings per share:
   Numerator                            $   938   $ 1,347   $ 1,269   $ 1,236
                                        -------   -------   -------   -------
   Denominator:
     Common shares outstanding            4,654     4,569     4,556     4,456
     Assumed conversion of options
       and warrants                         571       580       486       436
                                        -------   -------   -------   -------
     Total shares                         5,225     5,149     5,042     4,892
                                        -------   -------   -------   -------
     Diluted earnings per share         $   .18   $   .26   $   .25   $   .26
                                        =======   =======   =======   =======


                                      F-25
<PAGE>


                                        MAR. 31,  JUNE 30,  SEP. 30,  DEC. 31,
                                        -------   -------   -------   -------
Net sales                               $20,079   $21,564   $23,076   $22,226
Gross profit                              3,938     4,729     5,059     4,813
Income before income taxes                1,189     2,258     2,052     1,568
Net income                              $   940   $ 1,783   $ 3,300   $ 8,356
Earnings per common share:
     Basic                              $   .20   $   .38   $   .71   $  1.79
     Diluted                            $   .19   $   .37   $   .66   $  1.61

Reconciliation of earnings per share:
  Basic earnings per share:
   Numerator                            $   940   $ 1,783   $ 3,300   $ 8,356
                                        -------   -------   -------   -------
   Denominator:
     Common shares outstanding            4,661     4,661     4,661     4,661
                                        -------   -------   -------   -------
     Basic earnings per share           $   .20   $   .38   $   .71   $  1.79
                                        =======   =======   =======   =======

  Diluted earnings per share:
   Numerator                            $   940   $ 1,783   $ 3,300   $ 8,356
                                        -------   -------   -------   -------
   Denominator:
     Common shares outstanding            4,661     4,661     4,661     4,661
     Assumed conversion of options
       and warrants                         166       177       377       521
                                        -------   -------   -------   -------
     Total shares                         4,827     4,832     5,038     5,182
                                        -------   -------   -------   -------
     Diluted earnings per share         $   .19   $   .37   $   .66   $  1.61
                                        =======   =======   =======   =======

In the fourth  quarter of 1997,  the  Company  recorded a credit to benefit  for
income  taxes of  $7,070,000,  as a result of the  release  of a portion  of the
valuation allowance discussed in Note 5.



                                      F-26
<PAGE>


<TABLE>
<CAPTION>
                                     SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

                                                  ELXSI CORPORATION AND SUBSIDIARIES
                                                        (DOLLARS IN THOUSANDS)


                                                                            Additions
                                                                 -------------------------------
                                                  Balance at      Charged          Charged to                             Balance
                                                   Beginning     Costs and           Other            Deductions-         at End
                                                   of Period     Expenses      Accounts-describe       Describe          of Period
                                                  ----------     ---------     -----------------      -----------      -------------
<S>                                                <C>            <C>              <C>                <C>                <C>
Year ended December 31, 1998                    
 Account deducted from assets:
       Reserve for doubtful accounts
          receivable                               $     117      $   30            $   83 (C)        $      49 (A)       $     181
                                                   =========      ======            ======            =========           =========
         Inventory reserve                         $   1,227      $  500            $   --            $     432 (B)       $   1,295
                                                   =========      ======            ======            =========           =========
       Deferred tax asset valuation allowance      $  62,759      $   --            $   --            $   2,713 (D)       $  60,046
                                                   =========      ======            ======            =========           =========
                                                                                                                       
Year ended December 31, 1997                                                                                           
 Account deducted from assets:                                                                                         
       Reserve for doubtful accounts                                                                                   
          receivable                               $      54      $   55            $    8 (C)        $      -- (A)       $     117
                                                   =========      ======            ======            =========           =========
       Inventory reserve                           $     550      $  715            $   --            $      38 (B)       $   1,227
                                                   =========      ======            ======            =========           =========
       Deferred tax asset valuation allowance      $  76,979      $   --            $   --            $  14,220 (D)       $  62,759
                                                   =========      ======            ======            =========           =========
                                                                                                                       
Year ended December 31, 1996                                                                                           
 Account deducted from assets:                                                                                         
       Reserve for doubtful accounts                                                                                   
          receivable                               $      58      $   28            $    3 (C)        $      35 (A)       $      54
                                                   =========      ======            ======            =========           =========
       Inventory reserve                           $     150      $  400            $   --            $      -- (B)       $     550
                                                   =========      ======            ======            =========           =========
       Deferred tax asset valuation allowance      $  83,988      $   --            $   --            $   7,009 (D)       $  76,979
                                                   =========      ======            ======            =========           =========


(A) Uncollectible accounts written off during 1998, 1997 and 1996.
(B) Obsolete inventory written off during 1998, 1997 and 1996.
(C) Bad debt recoveries.
(D) Change in  estimate  related to future  net  operating  loss and tax  credit  usage and  various  changes in timing  differences
    associated with tax to book benefits.
</TABLE>


                                                                 S-1


<PAGE>
                                ELXSI CORPORATION
                                 EXHIBITS INDEX
                                1998 - FORM 10-K


<TABLE>
<CAPTION>
Exhibit
Number          Description                                                                    Page No.
------          -----------                                                                    --------
<S>             <C>                                                                           <C>
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 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)).
</TABLE>


<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number          Description                                                                    Page No.
------          -----------                                                                    --------
<S>             <C>                                                                           <C>
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             Certificate   of   Amendment   of   Restated    Certificate   of
                Incorporation  of the Company  dated May 19, 1998  (Incorporated
                herein by  reference  to Exhibit  3.3 to the  Company's  Current
                Report on form 8-k, dated March 19, 1999 (File no. 0-11877))

3.4             Bylaws  of the  Company  (Incorporated  herein by  reference  to
                Exhibit 3.3 to the  Company's  Current  Report on Form 8-K dated
                June 24, 1997 and filed on June 26, 1997 (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").  (Incorporated
                herein by  reference  to  Exhibit  4.1 of the  Company's  Annual
                Report on Form 10-K for the fiscal year ended  December 31, 1996
                (File No. 0-11877)).

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

4.5             Series C Warrant  No. C-3 to  purchase  68,762  shares of Common
                Stock  issued to EKLLC.  (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, 1996 (File No. 0-11877)).

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

4.7             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)).

4.8             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)).

4.9             Amended and Restated  Loan and Security  Agreement,  dated as of
                December 30, 1996,  between  ELXSI and Bank of America  Illinois
                ("BofA").  (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, 1996 (File No. 0-11877)).

4.10            Second  Amendment  to Amended  and  Restated  Loan and  Security
                Agreement,  dated as of September  24, 1997,  between  ELXSI and
                Bank  of  America   National  Trust  and  Savings   Association.
                (Incorporated  herein  by  reference  to
</TABLE>


<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number          Description                                                                    Page No.
------          -----------                                                                    --------
<S>             <C>                                                                           <C>
                Exhibit 4.18 of the Company's  Quarterly Report on Form 10-Q for
                the quarter ended September 30, 1997 (File No. 0-11877)).

4.11            Trust  Indenture,  dated as of September  24, 1997,  between the
                Orange  County  Industrial  Development  Authority and Sun Trust
                Bank,  Central  Florida,   National  Association,   as  Trustee.
                (Incorporated  herein  by  reference  to  Exhibit  4.19  of  the
                Company's  Quarterly  Report on Form 10-Q for the quarter  ended
                September 30, 1997 (File No. 0-11877)).

4.12            Loan  Agreement,  dated as of September 24, 1997,  between ELXSI
                and  the  Orange  County   Industrial   Development   Authority.
                (Incorporated  herein  by  reference  to  Exhibit  4.20  of  the
                Company's  Quarterly  Report on Form 10-Q for the quarter  ended
                September 30, 1997 (File No. 0-11877)).

4.13            Mortgage and Security Agreement,  dated as of September 24, 1997
                between  ELXSI  and the  Orange  County  Industrial  Development
                Authority.  (Incorporated herein by reference to Exhibit 4.21 of
                the  Company's  Quarterly  Report on Form 10-Q for quarter ended
                September 30, 1997 (File No. 0-11877)).

4.14            Bond Purchase Agreement,  dated as of September 24, 1997, by and
                among the Orange County Industrial Development Authority,  ELXSI
                and Bank of  America  National  Trust and  Savings  Association.
                (Incorporated  herein  by  reference  to  Exhibit  4.22  of  the
                Company's  Quarterly  Report on Form 10-Q for the quarter  ended
                September 30, 1997 (File No. 0-11877)).

4.15            Guaranty  Agreement,  dated as of  September  24,  1997,  by and
                between ELXSI Corporation and Bank of America National Trust and
                Savings  Association.   (Incorporated  herein  by  reference  to
                Exhibit 4.23 of the Company's  Quarterly Report on Form 10-Q for
                the quarter ended September 30, 1997 (File No. 0-11877)).

4.16            Security  Agreement,  dated as of September  24,  1997,  between
                ELXSI and the Orange County  Industrial  Development  Authority.
                (Incorporated  herein  by  reference  to  Exhibit  4.24  of  the
                Company's  Quarterly  Report on Form 10-Q for the quarter  ended
                September 30, 1997 (File No. 0-11877)).

4.17            Rights Agreement,  dated as of June 4, 1997, between the Company
                and Continental Stock Transfer & Trust Company,  as Rights Agent
                (Incorporated  herein  by  reference  to  Exhibit  4.17  to  the
                Company's Form 8-A Registration  Statement,  dated June 10, 1997
                (File no. 0-11877)).

4.18            Rights Agreement Amendment,  dated as of March 16, 1999, between
                the Company and Continental  Stock Transfer & Trust Company,  as
                Rights Agent  (Incorporated  herein by reference to Exhibit 2 to
                the    Registrant's    Form   8-A/A    Registration    Statement
                (Post-Effective  Amendment No. 1) dated March 19, 1999 (File No.
                0-11877)).

4.19            Standstill  Agreement,  dated as of March  16,  1999,  among the
                Company,  Alexander  M. Milley and the  "Kellogg  Person"  party
                thereto  (Incorporated  herein by  reference to Exhibit 3 of the
                Registrant's Form 8-A/A Registration  Statement  (Post-effective
                Amendment No. 1) dated March 19, 1999 (File No. 0-11877))
</TABLE>


<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number          Description                                                                    Page No.
------          -----------                                                                    --------
<S>             <C>                                                                           <C>
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 Company's  1997  Incentive  Stock Option Plan  (Incorporated
                herein by  reference  to Exhibit 4.1 to the  Company's  Form S-8
                Registration Statements filed January 30, 1998 (Registration No.
                333-4538)).

10.7            The Company's  1998  Incentive  Stock Option Plan  (Incorporated
                herein  by  reference  to the  Annex  A to the  Company's  Proxy
                Statement  included in its  Schedule 14A Filed on April 17, 1998
                (File No. 0-11877)).

10.8            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)).

10.9            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)).

10.10           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)).

10.11           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)).

10.12           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)).
</TABLE>


<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number          Description                                                                    Page No.
------          -----------                                                                    --------
<S>             <C>                                                                         <C>
10.13           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)).

10.14           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)).

10.15           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)).

10.16           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 filed October 3, 1989 (File No 0-11877)).

10.17           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)).

10.18           Management  Agreement between Winchester  National,  Inc. (d/b/a
                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)).

10.19           Assignment of Management Agreement dated June 28, 1991 among the
                Company,  Winchester National, Inc., ELXSI and Milley Management
                Incorporated  ("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)).

10.20           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)).

10.21           Form of Extension  No. 2 to  Management  Agreement,  dated as of
                June 30, 1997, between ELXSI and Cadmus  (incorporated herein by
                reference to Exhibit  10.33 to the Company's  Current  Report on
                Form 8-K dated and filed July 9, 1997 (File No. 0-11877)).

10.22           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)).
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number          Description                                                                    Page No.
------          -----------                                                                    --------
<S>             <C>                                                                           <C>
10.23           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)).

10.24           Letter Agreement dated December 8, 1997, from the Company to ELX
                extending the term of the foregoing.

10.25           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).

10.26           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).

10.27           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 BofA (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).

10.28           Second Amended and Restated Loan and Security  Agreement,  dated
                as of October 9, 1995,  between Azimuth and BofA.  (Incorporated
                herein by reference  to Exhibit  10.24 of the  Company's  Annual
                Report on Form 10-K for the fiscal year ended  December 31, 1996
                (File No. 0-11877)).

10.29           Loan and  Security  Agreement,  dated  as of  October  9,  1995,
                between  DEI and  BofA.  (Incorporated  herein by  reference  to
                Exhibit  10.25 of the  Company's  Annual Report on Form 10-K for
                the fiscal year ended December 31, 1996 (File No. 0-11877)).

10.30           Loan and  Security  Agreement,  dated  as of  October  9,  1995,
                between  CDI and  BofA.  (Incorporated  herein by  reference  to
                Exhibit  10.26 of the  Company's  Annual Report on Form 10-K for
                the fiscal year ended December 31, 1996 (File No. 0-11877)).

10.31           Loan and  Security  Agreement,  dated  as of  October  9,  1995,
                between  CDW and  BofA.  (Incorporated  herein by  reference  to
                Exhibit  10.27 of the  Company's  Annual Report on Form 10-K for
                the fiscal year ended December 31, 1996 (File No. 0-11877)).

10.32           First  Omnibus  Amendment,  dated as of  August 9,  1996,  among
                Azimuth,  DEI,  CDI,  CDW  and  BofA.  (Incorporated  herein  by
                reference to Exhibit  10.28 of the  Company's  Annual  Report on
                Form 10-K for the fiscal year ended  December 31, 1996 (File No.
                0-11877)).

10.33           Second Omnibus Amendment,  dated as of September 23, 1996, among
                Azimuth,  DEI,  CDI,  CDW  and  BofA.  (Incorporated  herein  by
                reference to
</TABLE>


<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number          Description                                                                    Page No.
------          -----------                                                                    --------
<S>             <C>                                                                           <C>
                Exhibit  10.29 of the  Company's  Annual Report on Form 10-K for
                the fiscal year ended December 31, 1996 (File No. 0-11877)).

10.34           Third Omnibus  Amendment,  dated as of November 27, 1996,  among
                Azimuth,  DEI,  CDI,  CDW  and  BofA.  (Incorporated  herein  by
                reference to Exhibit  10.30 of the  Company's  Annual  Report on
                Form 10-K for the fiscal year ended  December 31, 1996 (File No.
                0-11877)).

10.35           Second  Amended and  Restated  Guaranty,  dated as of October 9,
                1995,  made by DEI, CDI and CDW in favor of BofA.  (Incorporated
                herein by reference  to Exhibit  10.31 of the  Company's  Annual
                Report on Form 10-K for the fiscal year ended  December 31, 1996
                (File No. 0-11877)).

10.36           Second  Amended  and  Restated  Pledge  Agreement,  dated  as of
                October  9,  1995,  among  Azimuth,  DEI,  CDI,  CDW  and  BofA.
                (Incorporated  herein  by  reference  to  Exhibit  10.32  of the
                Company's  Annual  Report on Form 10-K for the fiscal year ended
                December 31, 1996 (File No. 0-11877)).

10.37           Form of letter, dated June 1997 from ELXSI to Azimuth, DEI, CDI,
                and CDW  (Incorporated  herein by  reference to Exhibit C 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)

10.38           Form of Employment Agreement, dated as of June 30, 1997, between
                ELXSI and Alexander M. Milley  (Incorporated herein by reference
                to Exhibit 10.34 to the Company's  Form 8-K Current Report dated
                July 9, 1997 filed on July 9, 1997 (File No. 0-11877)).

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 PricewWaterhouse Coopers LLP

27              Financial Data Schedule
</TABLE>