SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

(Mark One)

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


For the quarterly period ended                 June 30, 1997
                              -------------------------------------------------

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from                    to                            
                               ------------------    -------------------------- 

                         Commission file number 0-11877
                                                -------

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


            Delaware                                      77-0151523
--------------------------------------------------------------------------------
(State or other jurisdiction of             (I.R.S. employer identification no.)
incorporation or organization) 



4209 Vineland Road, Suite J-1, Orlando, Florida                         32811
--------------------------------------------------------------------------------
  (Address of principal executive offices)                            (Zip code)


Registrant's telephone number, including area code:     (407) 849-1090
                                                   ----------------------------

--------------------------------------------------------------------------------
        (Former name, former address and former fiscal year, if changed
                              since last report.)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

 Yes [X]   No [ ]

On August 10, 1997, the registrant had  outstanding  4,660,871  shares of Common
Stock, par value $0.001 per share.


<PAGE>

                          Part I. FINANCIAL INFORMATION

Item 1.  Financial Statements


                                ELXSI CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)

                                   A S S E T S

                                                        June 30,    December 31,
                                                          1997          1996
                                                       ---------     ----------
                                                       Unaudited

Current assets:

  Accounts receivable, net                             $   3,021     $   3,425

  Inventories, net                                        10,528        11,017

  Prepaid expenses and other current assets                  394           234

  Note receivable - related party                          1,156         1,156

  Deferred tax asset                                       1,283         1,142
                                                       ---------     ---------
    Total current assets                                  16,382        16,974

Property, buildings and equipment, net                    27,920        27,677

Intangible assets, net                                     5,435         5,525

Deferred debt costs, net                                      30            76

Notes receivable - related party                           2,909         6,759

Deferred tax asset - noncurrent                            1,517         1,739

Other                                                        718           728
                                                        --------      --------
         Total assets                                   $ 54,911      $ 59,478
                                                        ========      ========


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

                                        2


<PAGE>


                                ELXSI CORPORATION
                     CONSOLIDATED BALANCE SHEETS (Continued)
                             (Dollars in Thousands)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                    June 30,        December 31,
                                                      1997              1996
                                                   ---------        -----------
                                                   Unaudited
Current liabilities
  Accounts payable                                 $  2,109          $  3,266
  Accrued expenses                                    5,430             4,649
  Capital lease obligations - current                   142               142
  Current portion of long-term debt                      18               268
                                                   --------          --------
    Total current liabilities                         7,699             8,325

Capital lease obligations - non current               1,519             1,588
Long-term debt                                       11,806            18,706
Other liabilities                                     2,321             1,946
                                                   --------          --------

         Total liabilities                           23,345            30,565

Commitments and contingencies                            --                --

Stockholders' equity:
  Preferred stock, Series A Non-voting
    Convertible, par value $0.002 per share
      Authorized--5,000,000 shares
      Issued and outstanding--none                       --                --
  Common stock, par value $0.001 per share
       Authorized--160,000,000 shares
       Issued and outstanding--4,660,869 at
         June 30, 1997 and December 31, 1996              5                 5
  Additional paid-in capital                        228,520           228,520
  Accumulated deficit                              (196,789)         (199,512)
  Cumulative foreign currency 
    translation adjustment                             (170)             (100)
                                                   --------          --------
      Total stockholders' equity                     31,566            28,913
                                                   --------          --------
      Total liabilities and stockholders' equity   $ 54,911          $ 59,478
                                                   ========          ========

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

                                        3


<PAGE>


                                ELXSI CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Amounts in Thousands, Except Per Share Data)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                              Three Months Ended           Six Months Ended
                                                   June 30,                    June 30,
                                           ----------------------        ---------------------
                                             1997          1996            1997         1996
                                           --------      --------        --------     --------

<S>                                        <C>           <C>            <C>           <C>
Net  sales                                 $ 21,564      $ 21,665       $ 41,643      $ 41,485

Costs and expenses:
  Cost of sales                              16,835        17,463         32,976        33,927
  Selling, general and administrative         1,909         1,884          3,823         3,632
  Depreciation and amortization                 787           677          1,574         1,355

Operating income                              2,033         1,641          3,270         2,571

Other income (expense):
     Interest expense                          (381)         (401)          (804)         (830)
     Interest income                            624            27            999            55
     Other expense                              (18)           (4)           (18)          (14)

Income before income taxes                    2,258         1,263          3,447         1,782

Provision for income taxes                      475           140            724           229
                                           --------      --------       --------       -------
Net income                                 $  1,783      $  1,123       $  2,723       $ 1,553
                                           ========      ========       ========       =======

Net income per common share                $   0.37      $   0.21       $   0.56       $  0.30
                                           ========      ========       ========       =======

Weighted average number of common
     and common equivalent shares             4,859         5,119          4,857         5,106
                                           ========      ========       ========       =======
</TABLE>


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

                                        4

<PAGE>



                                ELXSI CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                             (Amounts in Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                   Cumulative
                                        Common Stock     Additional                 Foreign
                                     -----------------    Paid-In   Accumulated    Translation
                                      Shares   Dollars    Capital     Deficit      Adjustment
                                     --------  -------   ---------- -----------    ----------

<S>                                   <C>       <C>      <C>         <C>             <C>
Balance at December 31, 1996            4,661   $   5    $ 228,520   $(199,512)      $(100)

Net income                                 --      --           --       2,723          --

Foreign currency translation
     adjustment                            --      --           --          --         (70)
                                      -------   -----    ---------   ----------      -----
Balance at June 30, 1997              $ 4,661   $   5    $ 228,520   $(196,789)      $(170)
                                      =======   =====    =========   ==========      =====
</TABLE>


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

                                        5

<PAGE>

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


                                                            Six Months Ended
                                                                 June 30,
                                                          ---------------------
                                                            1997          1996
                                                          -------       ------- 
Cash flows provided by operating activities:

Net income                                                $ 2,723       $ 1,553

Adjustments to reconcile  net income to net
  cash provided by (used in) operating activities:
     Depreciation and amortization                          1,574         1,355
     Amortization of deferred debt costs                       46           121
     Amortization of debt discount                             --             7
     Amortization of note receivable discount                (725)           --
     Other                                                    (70)          (32)

(Increase) decrease in assets:
     Accounts receivable                                      404          (296)
     Inventories                                              489        (1,265)
     Prepaid expenses and other current assets               (160)          137
     Deferred tax asset                                        81            --
     Other                                                     10          (224)
Increase (decrease) in liabilities:
     Accounts payable                                      (1,157)           61
     Accrued expenses                                         781          (517)
     Other liabilities                                        375           250
                                                          -------        ------ 
     Net cash provided by operating activities              4,371         1,150
                                                          -------        ------ 

Cash flows provided by (used in) investing activities:
     Proceeds from sale of Abdow's Restaurant                  --         1,075
     Purchase of property, building and equipment          (1,727)       (1,439)
     Issuance of note receivable - related party           (2,000)           --
     Proceeds from note receivable -  related party         6,575            --
                                                          -------        ------ 
     Net cash provided by (used in) investing activities    2,848          (364)
                                                          -------        ------ 

Cash flows used in financing activities:
     Net repayment of long-term debt                       (7,150)         (660)
     Payment of deferred bank fee                              --           (30)
     Principal payments of capital lease                      (69)          (96)
                                                          -------        ------ 
     Net cash used in financing activities                $(7,219)       $ (786)
                                                          -------        ------ 

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

                                       6
<PAGE>

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



                                                       Six Months Ended June 30,
                                                       -------------------------
                                                          1997            1996  
                                                       --------        --------

Increase (decrease) in cash and cash equivalents       $     --        $     --

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

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


Supplemental Disclosure of Cash Flow Information

Cash paid during the period for
    Income taxes                                       $    179        $    358
    Interest                                                690             719


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


                                       7
<PAGE>


                               ELXSI CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 June 30, 1997
                                  (Unaudited)

Note 1.  The Company

General.  The  information  contained  in  this  report  is  unaudited  but,  in
management's  opinion,  all adjustments  necessary for a fair  presentation have
been  included and were of a normal and  recurring  nature.  The results for the
three and six  months  ended June 30,  1997 are not  necessarily  indicative  of
results to be expected for the entire year. These financial statements and notes
should be read in  conjunction  with ELXSI  Corporation's  Annual Report on Form
10-K for the year ended December 31, 1996.

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

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

Between  1992 and 1996,  ELXSI  sold six of its  Howard  Johnson's  restaurants,
converted five others into Bickford's  Restaurants,  opened eight new Bickford's
restaurants, acquired 16 Abdow's Family Restaurants ("Abdow's"),  converted nine
of the Abdow's into  Bickford's  restaurants,  sold one Abdow's  restaurant  and
closed one Abdow's  restaurant.  During the first half of 1997, ELXSI opened two
new Bickford's restaurants. As of June 30, 1997, ELXSI owned 54 Bickford's, five
Abdow's and one Howard Johnson's Restaurants (the "Restaurants").

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, (together referred to as "Cues").

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

Note 2.  Related Party Transactions

Transactions with Azimuth  Corporation and  Subsidiaries.  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").  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

                                       8
<PAGE>


Company.  Under the  Recapitalization  Agreement,  ELXSI  purchased from Bank of
America Illinois ("BAI"),  its lending bank, three Azimuth Subsidiary  revolving
notes (the "Azimuth Subsidiary Notes" or "Notes") which were scheduled to mature
on December 31, 1996. The Notes had a combined face value of $6,650,000 and were
purchased  by  ELXSI  at  an  $800,000  discount.   Under  the  Recapitalization
Agreement,  ELXSI received all contract  rights and  obligations  held by BAI in
relation to the 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. The line of credit was secured by an Azimuth
guaranty  and  substantially  all of the  assets  of  Azimuth  and  the  Azimuth
Subsidiaries.

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.

Transactions with Cadmus Corporation.  On June 30, 1997, ELXSI loaned $2,000,000
to  Cadmus  Corporation  ("Cadmus").  The loan,  which is fully  collateralized,
matures  on June 30,  1999 and  bears  interest  at 15%,  payable  quarterly  in
arrears. 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 will reimburse ELXSI for all 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.

Effective June 30, 1997, the management  agreement  between Cadmus and ELXSI was
extended to at least June 30, 2005.  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 of April 1, 1997.


Note 3.  Long-Term Debt

The maturity  date of ELXSI's  line of credit with Bank of America  Illinois was
extended from June 30, 1998 to September 30, 1998.


Note 4.  Subsequent Event

In July 1997,  ELXSI  completed  negotiations  to purchase a 32,000  square foot
facility on five acres of land in Orlando, Florida for approximately $1,240,000.
The facility, which is adjacent to Cues's existing property, will be utilized by
Cues for all manufacturing and  administrative  functions.  Closing is scheduled
for October 1, 1997. It is anticipated  that industrial  revenue bonds issued by
the Orange  County  Florida  Industrial  Development  Authority in the amount of
$2,500,000  will finance the purchase price,  all necessary  improvements to the
facility  and a portion  of the  related  transaction  expenses.  The bonds will
mature over  fifteen  years with equal  monthly  principal  payments and monthly
interest payments equal to the tax exempt equivalent of either the prime rate or
"IBOR" plus 1.5%.

                                       9
<PAGE>


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.


Results of Operations

The Company's 1997 and 1996  six-month and second quarter  revenues and expenses
result from the  operation  of ELXSI's  Restaurant  and Cues  Divisions  and the
Company's corporate ("Corporate") expenses.

Comparison of First Half 1997 results to first half 1996 results

Six-month sales increased $158,000, gross profit increased $1,109,000,  selling,
general and  administrative  expense  increased  $191,000 and  depreciation  and
amortization  expense  increased  $219,000,  resulting  in an  operating  income
increase of $699,000.  Interest  expense  decreased by $26,000,  interest income
increased  by  $944,000,  other  expense  increased  by $4,000 and income  taxes
increased by $495,000, resulting in a increase in net income of $1,170,000.

Restaurant  Division.  In the first half of 1997,  Restaurant sales increased by
$1,281,000,  or 4.3%, and gross profit increased $986,000, or 21.7%, compared to
the same period in the prior  year.  The gross  profit  increase  was  partially
offset by an increase in selling,  general and administrative expense of $20,000
and an increase in depreciation and amortization expense of $210,000,  resulting
in an operating  income increase of $756,000,  or 30.2%.  The sales increase was
mainly due to an increase in same store sales of $644,000, or 3%, sales from the
opening of two new  Bickford's  Restaurants of $898,000,  partially  offset by a
decrease in sales resulting from the sale and closing of two Abdow's Restaurants
totalling $325,000. All of the sales increase at same store Restaurants resulted
from an increase in the average  guest  check.  Customer  counts at  Restaurants
operated  in both  periods  decreased  2.2%  despite  the fairer  weather in New
England during the first quarter of 1997 as compared to the record snow falls in
1996.  Customer  counts  at  the  nine  converted  and  five  remaining  Abdow's
Restaurants decreased by 3.1% and 6.4%, respectively, compared to 1996.

As a result of the sales  increase  and a 2.5%  improvement  in the gross profit
percentage from 15.3% to 17.8%,  Restaurant  gross profit increased by $986,000,
or 21.7%,  in the first half of 1997  compared to the same  period in 1996.  The
increase in the gross profit  percentage  was mainly the result of a decrease in
food cost of 1.0% attributable to the conversion of the Abdow's Restaurants into
Bickford's in the latter half of 1996 and an increase in the average guest check
during  the  quarter.  Additionally,  variable  costs as a  percentage  of sales
decreased by 0.9%,  attributable  to the milder  weather in the first quarter of
1997 as compared to the severe weather in the same period in 1996.

Management  expected the Restaurant gross profit percentage to decline initially
as a result of the 1995 acquisition of the 16 Abdow's Restaurants,  which have a
higher  percentage  of food,  labor and rent costs  compared  to the  Bickford's
Restaurants.  It was anticipated that upon conversion of the Abdow's Restaurants
into  Bickford's  Restaurants  the food  costs as a  percentage  of sales  would
decline to the average  Bickford's  level,  thereby  increasing the gross profit
percentage.

                                       10
<PAGE>

Management intends to keep up to five of the acquired  Restaurants  operating as
lower margin Abdow's Restaurants,  and overall margins will continue to be lower
than if all Restaurants were operated as Bickford's Restaurants.

Restaurant  selling,  general and  administrative  expense  increased by $20,000
during the first half of 1997.

Restaurant Division  depreciation and amortization expense increased by $210,000
during the first half of 1997. Restaurant Division depreciation and amortization
expense  will   continue  to  increase  each  year  with  the  addition  of  new
restaurants, or until such time as assets valued and recorded at the date of the
Restaurants acquisition in 1991 become fully depreciated. The equipment acquired
in that  acquisition  has a seven  year  useful  life,  and  will  become  fully
depreciated in 1998.

As a result of the above items,  operating  income  increased  by  $756,000,  or
30.2%, in the first half of 1997.  Restaurant  Division interest expense related
to the  amortization  of  deferred  bank fees and to capital  lease  obligations
decreased by $72,000 as the fees became fully amortized.

Cues Division.  Cues's sales decreased by $1,123,000, or 9.7%, in the first half
of 1997  compared to the same period in the prior  year.  The sales  decline was
primarily the result of a decrease in shipments of truck-based  systems due to a
combination  of timing and model year  preferences.  Gross  profit  increased by
$123,000,  or 4.1%,  while  operating  income  increased by $167,000,  or 23.2%.
Cues's gross profit margins showed signs of improvement in the second quarter of
1997 despite a continued competitive  environment as production efficiencies and
product mix  combined  for a  favorable  outcome.  Included  in the  increase in
operating  income  is  the  effect  of  a  decrease  in  selling,   general  and
administrative   expense  of  $53,000  and  an  increase  in  depreciation   and
amortization expense of $9,000.  Management anticipates that gross and operating
margins will continue to experience pressure in 1997 due to the fact that Cues's
customers  continue to stress pricing factors in awarding  contracts through the
competitive bidding process.

Corporate.  Corporate general and administrative  expenses increased by $224,000
during the first six  months of 1997  mainly as a result of an  increase  in the
phantom stock option plan accrual for Bickford's  management.  Interest  expense
increased  by $40,000 due to a higher  average  debt  balance in 1997  partially
offset by a decrease in the Company's  senior debt  borrowing  rate.  During the
first half of 1997 and 1996, the Company  recorded  interest  income of $993,000
and  $55,000,  respectively,  in  connection  with notes  receivable  due from a
related parties.

On December 30, 1996, ELXSI purchased three Azimuth Corporation subsidiary notes
(the  "Notes")  with a face value of  $6,650,000  from Bank of America  Illinois
("BAI")  for  $5,850,000.  The  Company  recorded  the  $800,000  discount  as a
reduction in the face amount of the Notes on the balance  sheet.  The face value
of the Notes, payable by the Azimuth Corporation subsidiaries,  bore interest at
15% per annum  payable in arrears on the 1st and 16th of each month.  Two of the
Azimuth  Corporation  subsidiaries  design  and  manufacture  trade  show  booth
displays; the other is a distributor of electrical fuses and fasteners.  Certain
of the  officers and  directors  and  stockholders  of Azimuth  Corporation  are
officers  and  directors  of  the  Company  and/or  ELXSI.  As a  result  of the
transactions described in this paragraph,  ELXSI was the senior revolving credit
lender to the Azimuth Corporation subsidiaries.  Funding for ELXSI's purchase of
the Notes was provided by BAI under an amendment and restatement of its existing
credit  agreement  with  ELXSI.  The  Company's  return on  investment  from the
foregoing  transactions  was in the form of

                                       11
<PAGE>

net  interest   (i.e.,   the  difference   between  the  Azimuth's   Corporation
subsidiaries'  15% interest  rate and the Company's  cost of borrowing)  and the
discount earned by the Company.

The purpose of the  transactions  described  above 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 BAI made ELXSI unique in
its ability to capture such an attractive opportunity.

On June 16,  1997,  the  Azimuth  Corporation  subsidiaries  prepaid  all of the
remaining  outstanding  principal  of the  Notes due to ELXSI by  utilizing  the
proceeds of a new line of credit obtained from a third party lender.

The $938,000  increase in interest income during the first half of 1997 compared
to the same  period in 1996,  primarily  resulted  from  recording  $902,000  of
interest related to the Notes described above. The $902,000  recorded during the
first half of 1997 consisted of the 15% interest on the face amount of the Notes
and amortization of the discount.  Included in interest expense is interest paid
to BAI of approximately  $193,000  directly  attributable to ELXSI's purchase of
the Notes. As a result of the Notes, the Company recorded net interest income of
approximately  $709,000  during  the first  half of 1997 and  $934,000  in total
during the period the Notes were outstanding.

Income taxes  increased  from  $229,000 in the first half of 1996 to $724,000 in
the first half of 1997. The $495,000 tax increase  resulted from calculating the
projected  1997  effective tax rate,  assuming a change of control in accordance
with the Section 382 of the Internal  Revenue Code occurs in 1997,  and applying
the  effective  rate to the first six months'  estimated  taxable  income.  If a
change of control does not occur,  the effective  tax rate will decrease  during
the fourth  quarter  of 1997.  Management  does not  believe a change of control
occurred in the first six months of 1997.

Earnings  Per Share.  Earnings  per share for the six months ended June 30, 1997
was $0.56 per share and the weighted  average number of shares  outstanding  was
4,857,000. This compares to $0.30 per share for the corresponding period in 1996
when there were 5,106,000 weighted average shares outstanding.  The reduction in
the weighted  average  shares  outstanding in the first half of 1997 compared to
the first half of 1996 resulted  mainly from the  repurchase  and  retirement of
Common Stock in the second half of 1996 and the  repurchase  and retirement of a
warrant held by an affiliate  of BAI on December  30,  1996.  The average  stock
market  price for the first  half of 1997 was $6.48  compared  to an  average of
$6.31 in the  corresponding  period of 1996.  An  increase  in the  stock  price
results in a slightly  greater  number of shares  outstanding  for  purposes  of
determining  the weighted  average shares  outstanding  used in the earnings per
share calculation.

                                       12
<PAGE>


Comparison of Second quarter 1997 results to 1996 results

The second quarter sales decreased  $101,000,  gross profit increased  $527,000,
selling,  general and administrative  expense increased $25,000 and depreciation
and amortization  increased $110,000,  resulting in an operating income increase
of $392,000. Interest expense decreased by $20,000, interest income increased by
$597,000,  other  expense  increased  by $14,000 and income  taxes  increased by
$335,000, resulting in an increase in net income of $660,000.

Restaurant Division.  Restaurant sales increased by $879,000, or 5.7%, and gross
profit  increased by $490,000,  or 18.5%, in the second quarter of 1997 compared
to the same period in the prior year.  Operating income increased  $402,000,  or
25.3%,  after the effect of a decrease  in selling  general  and  administrative
expense of $20,000 and an increase in depreciation and amortization of $108,000.
The  sales  increase  was  mainly  due to an  increase  in same  store  sales of
$238,000,  or 2.1%, sales from the opening of two new Bickford's  Restaurants of
$575,000,  a sales increase from the nine  converted and five remaining  Abdow's
Restaurants of $99,000,  partially  offset by a decrease in sales resulting from
the sale and closing of two Abdow's Restaurants  totalling $132,000.  All of the
sales  increase  resulted from an increase in the average guest check.  Customer
counts at  Restaurants  operated in both  periods  decreased  by 3.9%.  Customer
counts at the nine converted and five remaining Abdow's Restaurants decreased by
0.1% and 7.8%, respectively, in the second quarter of 1997 as compared to 1996.

As a result of the sales  increase  and a 2.1%  improvement  in the gross profit
percentage from 17.1% to 19.2%,  restaurant  gross profit increased by $490,000,
or 18.5%, in the second quarter of 1997 compared to the same period in 1996. The
increase in the gross profit  percentage  was mainly the result of a decrease in
food costs  attributable  to the  conversion  of the  Abdow's  Restaurants  into
Bickford's in the latter half of 1996 and an increase in the average guest check
during the quarter.

Restaurant selling,  general and administrative expense decreased by $20,000 and
restaurant depreciation and amortization increased by $108,000 during the second
quarter of 1997.

As a result of the above items,  operating  income  increased  by  $402,000,  or
25.3%, in the second quarter of 1997.

Cues  Division.  Cues's sales  decreased by  $980,000,  or 15.9%,  in the second
quarter of 1997 compared to the same period in the prior year. The sales decline
was primarily the result of a decrease in shipments of  truck-based  systems due
to a  combination  of  timing  and model  year  preferences.  Despite  the sales
decrease,  gross profit increased by $37,000, or 2.4%, due to a 5.4% increase in
the gross profit percentage from 25.1% in the second quarter of 1996 to 30.5% in
the  second  quarter  of 1997.  Cues's  gross  profit  margins  showed  signs of
improvement  in this  quarter  despite a continued  competitive  environment  as
production  efficiencies  and product  mix  combined  for a  favorable  outcome.
Operating  income increased by $112,000,  or 30.5%.  Included in the increase in
operating  income  is  the  effect  of  an  decrease  in  selling,  general  and
administrative   expense  of  $77,000  and  an  increase  in  depreciation   and
amortization expense of $2,000.  Management anticipates that gross and operating
margins will continue to experience pressure in 1997 due to the fact that Cues's
customers  continue to stress pricing factors in awarding  contracts through the
competitive bidding process.

                                       13
<PAGE>

Corporate.  Corporate general and administrative  expenses increased by $122,000
during  the  second  quarter of 1997  mainly as a result of an  increase  in the
phantom stock option plan accrual for Bickford's  management.  Interest  expense
increased  by $9,000 due to a higher  average  debt  balance in 1997,  partially
offset by a decrease in the Company's  senior debt  borrowing  rate.  During the
second  quarter  of 1997,  the  Company  recorded  interest  income of  $621,000
compared to $28,000 in the same period of 1996.

The increase in interest income  primarily  resulted from recording  $575,000 of
interest  income  during  the second  quarter  of 1997  related to the Notes and
amortization  of the $800,000  discount  described  above.  Included in interest
expense is interest paid to BAI of approximately  $84,000 directly  attributable
to ELXSI's purchase of the Notes. As a result of the Notes, the Company recorded
net interest income of approximately $491,000 during the second quarter of 1997.

Income taxes  increased  from $140,000 in the second quarter of 1996 to $475,000
in the  second  quarter  of  1997.  The  $335,000  tax  increase  resulted  from
calculating the projected 1997 effective tax rate,  assuming a change of control
in accordance with the Section 382 of the Internal  Revenue Code occurs in 1997,
and applying the effective rate to the first quarters  estimated taxable income.
If a change of control  does not occur,  the  effective  tax rate will  decrease
during the fourth quarter of 1997.

Earnings Per Share.  Earnings per share for the quarter  ended June 30, 1997 was
$0.37 per share  and the  weighted  average  number  of shares  outstanding  was
4,859,000. This compares to $0.21 per share for the corresponding period in 1996
when there were 5,119000 weighted average shares  outstanding.  The reduction in
the weighted  average shares  outstanding in the second quarter of 1997 compared
to the second quarter of 1996 resulted mainly from the repurchase and retirement
of Common Stock in the second half of 1996 and the  repurchase and retirement of
a Warrant held by an affiliate  of BAI on December 30, 1996.  The average  stock
market price for the second  quarter of 1997 was $6.50 compared to an average of
$6.42 in the corresponding period of 1996.


Liquidity and Capital Resources

Available Resources.  The Company's unrestricted  consolidated cash positions at
June 30, 1997 and December 31, 1996 was $0.

During the first half of 1997,  the  Company  had cash flow from  operations  of
$4,371,000.  The  cash  from  operations  and  the  proceeds  from  the  Azimuth
Corporation  subsidiary notes receivable of $6,575,000 funded the acquisition of
property,  plant and  equipment  totalling  $1,727,000,  a related party loan to
Cadmus Corporation in the amount of $2,000,000,  the repayment of long-term debt
of $7,150,000 and the repayment of capital leases obligations of $69,000. During
the first half of 1997,  current assets decreased by $592,000 primarily due to a
$540,000  decrease in Cues's  inventory and the collection of the $225,000 Notes
purchase closing fee, which was classified as a receivable at December 31, 1996,
partially  offset by an  increase in Cues's  accounts  receivable  of  $134,000.
Partially  offsetting  the  decrease  in  current  assets,  current  liabilities
(excluding the current portion of long-term debt and capital  leases)  decreased
$376,000 mainly due to a reduction in Cues's accounts payable.

                                       14
<PAGE>


During the first half of 1996,  the  Company  had cash flow from  operations  of
$1,150,000.  The cash  from  operations  and the  proceeds  from the sale of the
Vernon,  Connecticut  Abdow's Restaurant of $1,075,000 funded the acquisition of
property,  plant and equipment totalling $1,439,000,  the repayment of long-term
debt of  $660,000,  the  payment  of a  deferred  bank  fee of  $30,000  and the
repayment  of capital  lease  obligations  of $96,000.  During the first half of
1996,  accounts  receivable and inventory primarily related to Cues increased by
$296,000  and  $1,265,000,   respectively.   In  addition,  current  liabilities
(excluding the current portion of long-term debt and capital  leases)  decreased
$456,000  mainly due to the timing of payments  related to  Bickford's  accounts
payable and accrued expenses.

The Company has a cash  management  system  whereby  the net cash  generated  by
operations is immediately  used to reduce bank 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  earn from  alternative
investments.   Working  capital  needs,  when  they  arise,  are  met  by  daily
borrowings.

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

Impact of  Inflation.  Inflationary  factors such as increases in food and labor
costs directly affect the Company's operations. Many of the Restaurant employees
are paid hourly rates  related to the federal  minimum wage,  and,  accordingly,
increases in the minimum wage will result in  increases in the  Company's  labor
costs.  In addition,  the cost of food  commodities  utilized by the Company are
subject to market supply and demand pressures. Shifts in these costs may have an
impact on the  Company's  food  costs.  The Company  anticipates  that food cost
increases  can  be  offset  through  selective  price  increases,   although  no
assurances can be given that the Company will be successful in this regard.

Increases in interest rates could negatively affect the Company's operations.


                                       15


<PAGE>




                           PART II. OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security-Holders.

The Company's 1997 Annual Meeting of  Stockholders  was held on May 22, 1997. In
connection  therewith the Company  submitted  three proposals to stockholders in
its Notice of Annual Meeting of Stockholders and Proxy Statement dated April 14,
1997.

All of the directors of the Company were  re-elected at the 1997 Annual  Meeting
of Stockholders, having received votes as follows:

                                      Against/                   Broker
        Nominee           For         Withheld    Abstentions    Non Votes
        -------         ---------     --------    -----------    ---------
Farrokh H. Kavarana     3,273,847      131,229            --            --
Kevin P. Lynch          3,273,903      131,173            --            --
Alexander M. Milley     3,273,749      131,327            --            --
Denis M. O'Donnell      3,274,357      130,719            --            --
Robert C. Shaw          3,273,613      131,463            --            --


A majority of the  stockholders  approved the  Company's  1997  Incentive  Stock
Option Plan,  voting as follows:

                                      Against/                   Broker
                          For         Withheld    Abstentions    Non Votes
                        ---------     --------    -----------    ---------
Number of votes         3,027,297      281,731        11,532        84,516


A majority of the  stockholders  approved  amendments to the Company's Bylaws to
impose  certain  tax-related  transfer  restrictions  on Common  Stock and other
equity securities of the Company.

                                      Against/                   Broker
                          For         Withheld    Abstentions    Non Votes
                        ---------     --------    -----------    ---------

Number of votes         2,186,576      163,153        20,099     1,035,248


A majority of the stockholders  approved the appointment of Price Waterhouse LLP
as the Company's independent accountants for the fiscal year ending December 31,
1997,  voting as follows:

                                      Against/                   Broker
                          For         Withheld    Abstentions    Non Votes
                        ---------     --------    -----------    ---------

Number of votes         3,391,012        6,523          7,541           --


                                        16


<PAGE>



Item 5.  Other Information

       None

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits required by Item 601 of Regulation S-K

     3.3    Bylaws of the Company  (incorporated  herein by reference to Exhibit
            3.3 to the  Company's  Form 8-K Current  Report  dated June 24, 1997
            filed on June 26, 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  filed June 10,  1997 (file no. 0-
            11877)).

     10.33  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 Form 8-K Current Report dated July
            9, 1997 filed on July 9, 1997 (File No. 0-11877)).

     10.34  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)).

     27.1   Financial Data Schedule



(b) Reports on Form 8-K.

During the  fiscal  quarter  ended June 30,  1997,  the  Company  filed with the
Securities and Exchange Commission,  on June 26, 1997, a Form 8-K Current Report
dated June 24, 1997, under which it made Item 5 (Other Events)  disclosures;  no
financial statements were included in such Form 8-K.


                                       17


<PAGE>




                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                       ELXSI CORPORATION
                              --------------------------------------------------
                                          (Registrant)



Date: August 12, 1997         /s/   Alexander M. Milley
                              --------------------------------------------------
                              Alexander M. Milley,  Chairman of the Board,
                               President and Chief Executive Officer
                               (Principal Executive Officer)




Date: August 12, 1997         /s/   Thomas R. Druggish
                              --------------------------------------------------
                              Thomas R. Druggish,  Vice President,
                               Treasurer and Secretary (Chief Accounting
                               Officer and Principal Financial Officer)



                                       18


<PAGE>