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                  September 30, 1998
                               -------------------------------------------------

                                       OR

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

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

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


                                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)


   3600 Rio Vista Avenue, Suite A, Orlando, Florida              32805
--------------------------------------------------------------------------------
      (Address of principal executive offices)                (Zip code)

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

--------------------------------------------------------------------------------
                        (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 October 29, 1998, the registrant had outstanding  4,453,455  shares of Common
Stock, par value $0.001 per share.
<PAGE>


THIS  QUARTERLY  REPORT  ON FORM 10-Q  (THIS  "10-Q")  INCLUDES  FORWARD-LOOKING
STATEMENTS,  PARTICULARLY  IN  THE  "MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF
FINANCIAL  CONDITION  AND  RESULTS  OF  OPERATIONS"  SECTION  (ITEM  2  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 STATEMENT 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  COMMISSIONS FILING 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.

                                       2
<PAGE>


                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS


                                ELXSI CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)

                                   A S S E T S


                                                   September 30,   December 31,
                                                       1998           1997     
                                                    ---------       ---------
                                                    Unaudited
Current assets:

     Restricted cash and cash equivalents           $     579       $   1,079

     Accounts receivable, net                           4,834           3,987

     Inventories, net                                   9,941          10,378

     Prepaid expenses and other current assets            377             203

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

         Total current assets                          20,755          20,671

Property, buildings and equipment, net                 31,480          29,681

Intangible assets, net                                  5,208           5,344

Deferred debt costs, net                                  111             155

Notes receivable - related party                        4,200           4,065

Deferred tax asset - noncurrent                         4,149           6,019

Other                                                     875             518
                                                    ---------       ---------

         Total assets                               $  66,778       $  66,453
                                                    =========       =========

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

                                       3
<PAGE>


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

                         LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                      September 30,    December 31,
                                                          1998              1997
                                                      -------------    -------------
                                                       Unaudited
<S>                                                   <C>              <C>          
Current liabilities
     Accounts payable                                 $       2,228    $       3,226
     Accrued expenses                                         5,551            5,005
     Capital lease obligations - current                         58              125
     Current portion of long-term debt                        1,669              220
                                                      -------------    -------------
         Total current liabilities                            9,506            8,576

Capital lease obligations - non current                       1,049            1,074
Long-term debt                                                8,102           10,935
Other non current liabilities                                 3,371            2,696
                                                      -------------    -------------

         Total liabilities                                   22,028           23,281

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--60,000,000 shares
       Issued and outstanding--4,503,455 and
         4,660,980 at September 30, 1998 and
         December 31, 1997, respectively                          5                5
   Additional paid-in capital                               226,581          228,509
   Accumulated deficit                                     (181,579)        (185,133)
   Accumulated other comprehensive income                      (257)            (209)
                                                      -------------    -------------

         Total stockholders' equity                          44,750           43,172
                                                      -------------    -------------

         Total liabilities and stockholders' equity   $      66,778    $      66,453
                                                      =============    =============

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

                                            4
<PAGE>

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



<TABLE>
<CAPTION>
                                                      Three Months Ended                  Nine Months Ended
                                                         September 30,                      September 30,       
                                                 ----------------------------       ----------------------------
                                                    1998              1997             1998              1997   
                                                 -----------      -----------       -----------      -----------


<S>                                              <C>              <C>               <C>              <C>        
Net  sales                                       $    25,558      $    23,076       $    74,087      $    64,719

Costs and expenses:
     Cost of sales                                    19,796           18,017            58,089           50,993
     Selling, general and administrative               2,387            2,031             6,834            5,854
     Depreciation and amortization                       893              798             2,618            2,372
                                                 -----------      -----------       -----------      -----------

Operating income                                       2,482            2,230             6,546            5,500

Other income (expense):
     Interest income                                     154              138               459            1,137
     Interest expense                                   (219)            (299)             (745)          (1,103)
     Other expense                                       (24)             (17)              (59)             (35)
                                                 -----------      -----------       -----------      -----------

Income before income taxes                             2,393            2,052             6,201            5,499

(Provision) benefit for income taxes                  (1,124)           1,248            (2,647)             524
                                                 -----------      -----------       -----------      -----------

Net income                                       $     1,269      $     3,300       $     3,554      $     6,023
                                                 ===========      ===========       ===========      ===========

Net income per common share:
     Basic                                       $      0.27      $      0.71       $      0.77      $      1.29
                                                 ===========      ===========       ===========      ===========
     Diluted                                     $      0.25      $      0.66       $      0.69      $      1.22
                                                 ===========      ===========       ===========      ===========

Weighted average number of common
 and common equivalent shares:
     Basic                                             4,556            4,661             4,593            4,661
                                                 ===========      ===========       ===========      ===========
     Diluted                                           5,042            5,038             5,145            4,919
                                                 ===========      ===========       ===========      ===========

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

                                                        5
<PAGE>
<TABLE>
<CAPTION>

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

                                                                                                     Accumulative
                                                 Common Stock            Additional                     Other
                                        -----------------------------     Paid-In      Accumulated   Comprehensive
                                            Shares         Dollars        Capital         Deficit       Income 
                                        -------------  --------------  -------------  -------------  -------------
<S>                                         <C>        <C>             <C>            <C>            <C>         

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

Net income                                         --              --             --          3,554           --
Purchase and retirement of
     Common Stock                            (162,000)             --         (1,953)            --           --
Exercise of Common Stock options
     to purchase Common Stock                   4,465              --             25             --           --
Issuance of fractional shares                      10              --             --             --           --
Foreign currency translation
     adjustment                                    --              --             --             --          (48)
                                        -------------  --------------  -------------  -------------  -----------

Balance at September 30, 1998               4,503,455  $            5  $     226,581  $    (181,579) $      (257)
                                        =============  ==============  =============  =============  ===========
</TABLE>

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

                                       6
<PAGE>


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

<TABLE>
<CAPTION>
                                                                       Nine Months Ended September 30,
                                                                  ----------------------------------------
                                                                       1998                      1997     
                                                                  --------------             -------------
<S>                                                                         <C>                       <C>  
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:

Net income                                                        $        3,554             $       6,023
Adjustments to reconcile net income to net
    cash provided by operating activities:
     Depreciation and amortization                                         2,618                     2,372
     Amortization of deferred debt costs                                      44                        60
     Other                                                                    --                       (82)

(Increase) decrease in assets:
     Accounts receivable                                                    (847)                     (309)
     Inventories                                                             437                       496
     Prepaid expenses and other current assets                              (174)                     (106)
     Deferred tax asset                                                    1,870                    (1,236)
     Other                                                                  (404)                     (101)
Increase (decrease) in liabilities:
     Accounts payable                                                       (998)                   (2,035)
     Accrued expenses                                                        546                       353
     Other non current liabilities                                           675                       562
                                                                  --------------             -------------
     Net cash provided by operating activities                             7,321                     5,997
                                                                  --------------             -------------

CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
     Purchase of property, building and equipment                         (4,282)                   (3,526)
     Investment in notes receivable - related party                         (135)                   (2,000)
     Collection of notes receivable -  related party                          --                     5,850
                                                                  --------------             -------------
     Net cash (used in) provided by investing activities                  (4,417)                      324
                                                                  --------------             -------------

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
     Net payment of long-term debt                                        (1,384)                   (7,359)
     Proceeds from industrial revenue bonds                                   --                     2,500
     Purchase of Common Stock                                             (1,953)                      (22)
     Payment of deferred bank fees                                            --                      (112)
     Proceeds from exercise of Common Stock
       options                                                                25                        --
     Principal payments on capital lease obligations                         (92)                     (106)
                                                                  --------------             -------------
     Net cash used in financing activities                        $       (3,404)            $      (5,099)
                                                                  --------------             -------------

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

                                                     7
</TABLE>

<PAGE>


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


                                                 Nine Months Ended September 30,
                                                 -------------------------------
                                                     1998             1997
                                                   -------           -------

Increase in cash and cash equivalents              $  (500)          $ 1,222

Cash and cash equivalents, beginning of period       1,079                --
                                                   -------           -------

Cash and cash equivalents, end of period           $   579           $ 1,222
                                                   =======           =======


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the period for:
    Income taxes                                   $ 1,014           $   519
    Interest                                           831               926



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

                                       8
<PAGE>


                                ELXSI CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1998
                                   (Unaudited)

NOTE 1.  THE COMPANY

GENERAL.  The  information  contained  in  this  report  is  unaudited  but,  in
management's  opinion,  all adjustments  necessary for a fair  presentation have
been  included and were of a normal and  recurring  nature.  The results for the
three and nine months ended September 30, 1998 are not necessarily indicative of
results to be expected for the entire year. These financial statements and notes
should be read in  conjunction  with ELXSI  Corporation's  Annual Report on Form
10-K for the year ended December 31, 1997.

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 thirty  Bickford's and twelve Howard  Johnson's
Restaurants,  which are located in Massachusetts,  Vermont, New Hampshire, Rhode
Island and Connecticut, from Marriott Family Restaurants, Inc.

Between  1992 and 1997,  ELXSI  sold six of its  Howard  Johnson's  Restaurants,
converted five others into Bickford's Restaurants,  opened eleven 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 the nine months ended
September 30, 1998, ELXSI opened three new Bickford's Restaurants and closed one
under-performing  Abdow's  Restaurant.  As of September 30, 1998, ELXSI owned 58
Bickford's, 4 Abdow's and one Howard Johnson's Restaurants (the "Restaurants" or
Restaurant Division).

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

Cues is engaged in the manufacture and servicing of video  inspection and repair
equipment  for  wastewater  and  drainage  systems  primarily  for  governmental
municipalities,   service  contractors  and  industrial  users.  NOTE  2.  OTHER
COMPREHENSIVE INCOME

The Company  adopted  SFAS 130,  "Reporting  Comprehensive  Income",  during the
quarter  ended  March  31,  1998.  SFAS 130  requires  the  Company  to  display
"Comprehensive  Income",  which includes net income and certain amounts recorded
directly to equity.


                                       9
<PAGE>


The components of  comprehensive  income,  net of related tax, for the three and
nine months ended September 30 are as follows:

<TABLE>
<CAPTION>
                                                      Three Months Ended                  Nine Months Ended
                                                         September 30,                      September 30,       
                                                 ----------------------------       ----------------------------
                                                    1998              1997             1998              1997   
                                                 -----------      -----------       -----------      -----------


<S>                                              <C>              <C>               <C>              <C>        
Net income                                       $     1,269      $     3,300       $     3,554      $     6,023
Foreign currency translation adjustment,
    net of income taxes                                   (1)             (12)              (48)             (82)
                                                 -----------      -----------       -----------      -----------
Comprehensive income                             $     1,268      $     3,288       $     3,506      $     5,941
                                                 ===========      ===========       ===========      ===========
</TABLE>

Accumulated  other  comprehensive  income at  September  30, 1998 and 1997,  was
comprised solely of foreign currency translation adjustments.


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS. RESULTS OF OPERATIONS

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

COMPARISON OF FIRST NINE MONTHS OF 1998 RESULTS TO 1997 RESULTS

Nine-month  sales  increased  $9,368,000,  gross  profit  increased  $2,272,000,
selling,  general and administrative expense increased $980,000 and depreciation
and amortization  expense increased  $246,000,  resulting in an operating income
increase of $1,046,000.  Interest expense decreased by $358,000, interest income
decreased by $678,000, other expense increased by $24,000 and income tax expense
increased by $3,171,000, resulting in a decrease in net income of $2,469,000.

RESTAURANT  DIVISION.  In the  first  nine  months  of  1998,  Restaurant  sales
increased by $5,080,000, or 10.4%, and gross profit increased $796,000, or 9.0%,
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  $142,000  and an  increase  in  depreciation  and  amortization  expense  of
$190,000,  resulting in an operating  income increase of $464,000,  or 8.6%. The
sales  increase was mainly due to an increase in same store sales of $2,461,000,
or 6.5%,  sales  from  the  opening  of  seven  new  Bickford's  Restaurants  of
$3,319,000,  partially  offset by a decrease in sales resulting from the closing
of one Restaurant totaling $618,000.  Customer counts at Restaurants operated in
both periods increased 3.6% during the first nine months of 1998 compared to the
same period in the prior year.  Customer  counts at the four  remaining  Abdow's
Restaurants decreased by 2.4% compared to 1997.

As a result of the  sales  increase  and a 0.2%  decrease  in the  gross  profit
percentage from 18.1% to 17.9%,  Restaurant  gross profit increased by $796,000,
or 9.0%,  in the first nine months of 1998  compared to the same period in 1997.
The decrease in the gross profit percentage was mainly the result of an increase
in labor costs of 0.7%  attributable  to higher  levels of staffing  during peak
business  periods in order to provide better service to customers and to improve
customer  counts.  Also impacting labor costs was an increase in the average pay
rate for restaurant employees. The 

                                       10
<PAGE>


labor  market in New  England  is  currently  very  competitive  for  Restaurant
employees, putting upward pressure on pay rates.

Restaurant  selling,  general and  administrative  expense increased by $142,000
during the first nine months of 1998.

Restaurant  depreciation and amortization  expense  increased by $190,000 during
the first nine months of 1998 and will  continue to increase  each year with the
addition of new restaurants.

As a result of the above items, operating income increased by $464,000, or 8.6%,
in the first nine months of 1998.  Restaurant  Division interest expense related
primarily  to the  mortgage  loan and capital  lease  obligations  decreased  by
$12,000.

CUES DIVISION. Cues's sales increased by $4,288,000, or 26.7%, in the first nine
months of 1998 compared to the same period in the prior year. The sales increase
was  primarily  the  result of an  increase  in  shipments  of  truck-based  and
component  systems.  Gross  profit  increased  by  $1,476,000,  or 30.0%,  while
operating  income  increased  by $747,000,  or 50.7%.  Cues was able to increase
sales  volume  in the  first  nine  months of 1998  without  resorting  to price
reductions in the face of continuing competitive pressures. Customers recognized
the  benefits of Cues's  equipment,  thereby  permitting  the Company to be more
selective on bidding. Included in the increase in operating income is the effect
of an increase in selling, general and administrative expense of $673,000 and an
increase in depreciation and amortization expense of $56,000.

CORPORATE.  Corporate general and administrative  expenses increased by $165,000
during the first nine  months of 1998  mainly as a result of an  increase in the
phantom stock option plan accrual for Bickford's  management.  Interest  expense
decreased by $476,000 due mainly to a lower  average debt balance and a decrease
in the average  borrowing rate in 1998.  Interest  income  decreased by $725,000
during  the first  nine  months  of 1998  primarily  as a result  of  collecting
proceeds on related party notes.  During the first nine months of 1998 and 1997,
the Company recorded  interest income of $403,000 and $1,128,000,  respectively,
in connection with notes receivable due from related parties.

The decrease in interest  income was primarily the result of recording  $902,000
of interest  income in the first half of 1997  related to the  December 30, 1996
financing transaction with Azimuth Corporation,  a related party. This financing
transaction  involved a loan from Bank of  America  National  Trust and  Savings
Association  (formerly Bank of America  Illinois)  ("BAI") and the purchase from
BAI (at a  discount),  of  certain  notes  payable  by  subsidiaries  of Azimuth
Corporation  ("Azimuth  Subsidiary  Notes").  ELXSI collected the balance of the
proceeds of the Azimuth Subsidiary Notes in June 1997 and retired the applicable
debt  payable  to BAI (see the  Company's  1997  Annual  Report on Form 10-K for
additional details).

Included in interest  expense was interest  payable to the BAI of  approximately
$193,000 directly  attributable to the purchase of the Azimuth Subsidiary Notes.
As a result of the Azimuth  Subsidiary  Notes, the Company recorded net interest
income of approximately $709,000 during the first half of 1997.

The first nine months of 1998 did not contain any interest income related to the
Azimuth Subsidiary Notes.

                                       11
<PAGE>


Partially  offsetting  the  decrease in interest  income  related to the Azimuth
Subsidiary  Notes was a $176,000  increase in interest  income  during the first
nine months of 1998  resulting from a related party note dated June 30, 1997 due
from Cadmus Corporation.

During the nine months ended September 30, 1998, the Company recorded net income
tax expense of $2,647,000  consisting of a current tax provision of $777,000 and
a deferred tax expense of $1,870,000. During the nine months ended September 30,
1997, the Company recorded a net income tax benefit of $524,000  consisting of a
current tax provision of $568,000 and a deferred tax benefit of $1,092,000.  The
increase in tax expense was primarily attributable to non-cash expense resulting
from  calculating  the  deferred  tax  provision in  accordance  with  Financial
Accounting  Standards Board Statement No. 109 "Accounting For Income Taxes". The
Company will continue to pay taxes on a cash basis at the rate of  approximately
11.


EARNINGS  PER SHARE.  Basic and diluted  earnings  per share for the nine months
ended September 30, 1998 were $0.77 and $0.69 per share, respectively. The basic
and diluted  weighted  average number of shares  outstanding  were 4,593,000 and
5,145,000,  respectively.  This compares to basic and diluted earnings per share
of $1.29 and $1.22 per share,  respectively for the corresponding period in 1997
when  there  were basic and  diluted  weighted  average  shares  outstanding  of
4,661,000  and  4,919,000,  respectively.  The  decrease  in the basic  weighted
average  shares  outstanding  in the first nine  months of 1998  compared to the
first nine months of of 1997  resulted  from the  repurchase  and  retirement of
Common  Stock in 1998.  The  increase in the  diluted  weighted  average  shares
outstanding  in the first nine months of 1998  compared to the first nine months
of 1997 resulted from an increase in the average stock price partially offset by
the  repurchase and retirement of Common Stock in 1998. The average stock market
price for the first  nine  months of 1998 was $11.87  compared  to an average of
$7.23 in the  corresponding  period of 1997.  An  increase  in the  stock  price
results in a greater  number of shares  outstanding  for purposes of determining
the weighted  average shares  outstanding used in the diluted earnings per share
calculation.


COMPARISON OF THIRD QUARTER 1998 RESULTS TO 1997 RESULTS

The third quarter sales increased  $2,482,000,  gross profit increased $703,000,
selling,  general and administrative expense increased $356,000 and depreciation
and amortization  increased $95,000 resulting in an operating income increase of
$252,000.  Interest expense  decreased by $80,000,  interest income increased by
$16,000,  other  expense  increased  by $7,000 and  income  taxes  increased  by
$2,372,000 resulting in a decrease in net income of $2,031,000.

RESTAURANT DIVISION.  Restaurant sales increased by $1,429,000 or 8.2% and gross
profit  increased by $341,000 or 10.4% in the third  quarter of 1998 compared to
the same period in the prior year.  Operating income increased $216,000 or 10.1%
after  deducting an increase in selling  general and  administrative  expense of
$57,000 and an increase in depreciation and  amortization of $68,000.  The sales
increase was mainly due to an increase in same store sales of $612,000,  or 4.6%
and sales from the opening of new Bickford's Restaurants of $1,231,000 partially
offset by a decrease in sales at a closed unit of $248,000.  Customer  counts at
Restaurants operated in both periods increased 1.7%. Customer counts at the four
remaining  Abdow's  Restaurants  decreased  4.1% in the  third  quarter  of 1998
compared to 1997.

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<PAGE>


As a result of the  sales  increase  and a 0.4%  increase  in the  gross  profit
percentage from 18.7% to 19.1%,  restaurant  gross profit increased by $341,000,
or 10.4% in the third quarter of 1998  compared to the same period in 1997.  The
increase in the gross profit  percentage was mainly the result of an increase in
labor  cost of 0.8%  attributable  to higher  levels  of  staffing  during  peak
business  periods in order to provide better service to customers and to improve
customer  counts and to higher average  hourly rates due to a competitive  labor
market. These increases were partially offset by a decrease of 0.4% in fixed and
other  expenses  primarily  due to the higher  sales  resulting  from  increased
customers and a higher average guest check during the quarter.

Restaurant  selling,  general and  administrative  expense  increased by $57,000
during the third quarter of 1998.

Restaurant  depreciation and amortization  increased by $68,000 during the third
quarter 1998.

As a result of the above items,  operating income increased by $216,000 or 10.1%
in the third quarter of 1998.

CUES  DIVISION.  Cues's  sales  increased  by  $1,053,000  or 18.9% in the third
quarter of 1998 compared to the same period in the prior year.  Cues was able to
increase  sales volume in the third  quarter of 1998 without  resorting to price
reductions in the face of continuing competitive pressures. Customers recognized
the  benefits of Cues's  equipment,  thereby  permitting  the Company to be more
selective on bidding.  As a result of the sales  increase and a 0.3% increase in
the gross profit  percentage from 32.1% in the third quarter of 1997 to 32.4% in
the third quarter of 1998, gross profit  increased by $362,000,  or 20.2% in the
third quarter of 1998. Operating income increased by $83,000, or 14.1%. Included
in the  increase  in  operating  income is the effect of an increase in selling,
general and  administrative  expense of $252,000 and an increase in depreciation
and amortization expense of $27,000.

CORPORATE.  Corporate general and  administrative  expenses increased by $47,000
during  the third  quarter  of 1998  mainly as a result  of an  increase  in the
phantom stock option plan accrual for Bickford's  management.  Interest  expense
decreased  by $138,000 due to a lower  average  debt  balance in 1998.  Interest
income for the third quarter of 1998 was unchanged at $135,000 compared to 1997.

During the third quarter of 1998, the Company recorded net income tax expense of
$1,124,000  consisting of a current tax provision of $383,000 and a deferred tax
expense of $741,000.  During the third quarter of 1997,  the Company  recorded a
net income tax benefit of  $1,248,000  consisting  of a current tax provision of
$209,000 and a deferred tax benefit of  $1,457,000.  The increase in tax expense
was primarily  attributable to non-cash  expense  resulting from calculating the
deferred tax provision in accordance with Financial  Accounting  Standards Board
Statement No. 109  "Accounting  For Income Taxes".  The Company will continue to
pay taxes on a cash basis at the rate of approximately 11%.

EARNINGS PER SHARE.  Basic and diluted  earnings per share for the quarter ended
September  30,  1998 were $0.27 and $0.25,  respectively.  The basic and diluted
weighted  average number of shares  outstanding  for the quarter ended September
30, 1998 were 4,556,000 and 5,042,000,  respectively. This compares to basic and
diluted  earnings per share of $0.71 and $0.66 per share,  respectively  for the
corresponding  period in 1997 when there were basic and diluted weighted average
shares outstanding of 4,661,000 and 5,038,000,  respectively.  The average stock
market 

                                       13
<PAGE>


price for the third  quarter of 1998 was $10.49  compared to an average of $8.74
in the corresponding period of 1997.

LIQUIDITY AND CAPITAL RESOURCES

AVAILABLE RESOURCES.  The Company's unrestricted  consolidated cash positions at
September  30,  1998 and  December  31,  1997  was $0.  The  Company  has a cash
management  system whereby 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 cash could safely earn from alternative investments. Working capital needs,
when they arise, are met by daily borrowings.

During the first nine months of 1998, the Company had cash flow from  operations
of  $7,321,000.  The cash from  operations  funded the  acquisition of property,
plant and  equipment  totaling  $4,282,000,  the  payment of  long-term  debt of
$1,384,000,  the  repayment  of  capital  leases  obligations  of  $92,000,  the
investment  in a related  party note  receivable of $135,000 and the purchase of
Common Stock of $1,953,000. During the first nine months of 1998, current assets
increased  by  $84,000   primarily  due  to  a  $847,000  increase  in  accounts
receivable,  an increase in prepaid  expenses of $174,000  partially offset by a
$437,000 decrease in Cues's inventory.  Current  liabilities  increased $930,000
mainly due to an increase in current  portion of  long-term  debt of  $1,449,000
partial  offset by a decrease in accounts  payable net of an increase in accrued
expenses of $452,000.

During the first nine months of 1997, the Company had cash flow from  operations
of  $5,997,000.  The  cash  from  operations,  the  proceeds  from  the  Azimuth
Corporation  subsidiary notes receivable of $5,850,000 and the proceeds from the
industrial revenue bonds of $2,500,000 funded the acquisition of property, plant
and equipment totaling $3,526,000, a related party loan to Cadmus Corporation in
the amount of $2,000,000,  the repayment of long-term  debt of  $7,359,000,  the
purchase and retirement of Common Stock of $22,000, the payment of deferred debt
costs of $112,000,  the repayment of capital leases  obligations of $106,000 and
an increase in restricted  cash of  $1,222,000.  During the nine months of 1997,
current  assets  (excluding  restricted  cash and deferred  taxes)  increased by
$81,000.  Current  liabilities  (excluding the current portion of long-term debt
and capital leases) decreased $1,682,000 mainly due to a reduction in Bickford's
and Cues's accounts payable.

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 long-term debt.  With bank approval,  excess funds are available
under the Company's loan Agreement to finance additional acquisitions.

IMPACT OF  INFLATION.  Inflationary  factors such as increases in food and labor
costs directly affect the Company's operation.  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  cost.  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.

                                       14
<PAGE>


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



                           PART II. OTHER INFORMATION


ITEM 5.  OTHER INFORMATION

             None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

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

             27.1   Financial Data Schedule

         (b) Reports on Form 8-K

             None

                                       15
<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: November 10, 1998         /s/ ALEXANDER M. MILLEY
                                ------------------------------------------------
                                    Alexander M. Milley,  Chairman of the Board,
                                    President and Chief Executive Officer
                                    (Principal Executive Officer)




Date: November 10, 1998         /s/ THOMAS R. DRUGGISH
                                ------------------------------------------------
                                    Thomas R. Druggish,  Vice President,
                                    Treasurer and Secretary (Chief Accounting
                                    Officer and Principal Financial Officer)


                                       16