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, 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           (I.R.S. employer identification no.)
 of 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 July 30, 1998,  the  registrant had  outstanding  4,569,259  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


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

     Restricted cash and cash equivalents                $ 1,108     $ 1,079

     Accounts receivable, net                              5,098       3,987

     Inventories, net                                      9,706      10,378

     Prepaid expenses and other current assets               565         203

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

         Total current assets                             21,501      20,671

Property, buildings and equipment, net                    29,950      29,681

Intangible assets, net                                     5,253       5,344

Deferred debt costs, net                                     117         155

Notes receivable - related party                           4,200       4,065

Deferred tax asset - noncurrent                            4,890       6,019

Other                                                        691         518
                                                         -------     -------

         Total assets                                    $66,602     $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

                                                        June 30,    December 31,
                                                          1998          1997
                                                        ---------    ---------
                                                        Unaudited
Current liabilities
     Accounts payable                                   $   2,609    $   3,226
     Accrued expenses                                       5,513        5,005
     Capital lease obligations - current                       77          125
     Current portion of long-term debt                        836          220
                                                        ---------    ---------
         Total current liabilities                          9,035        8,576

Capital lease obligations - non current                     1,056        1,074
Long-term debt                                              9,201       10,935
Other non current liabilities                               3,146        2,696
                                                        ---------    ---------

         Total liabilities                                 22,438       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--4,569,258 and
         4,660,980 at June 30, 1998 and
         December 31, 1997, respectively                        5            5
   Additional paid-in capital                             227,263      228,509
   Accumulated deficit                                   (182,848)    (185,133)
   Accumulated other comprehensive income                    (256)        (209)
                                                        ---------    ---------

         Total stockholders' equity                        44,164       43,172
                                                        ---------    ---------

         Total liabilities and stockholders' equity     $  66,602    $  66,453
                                                        =========    =========


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

                                       4
<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,
                                           --------------------    --------------------
                                             1998        1997        1998        1997
                                           --------    --------    --------    --------
<S>                                        <C>         <C>         <C>         <C>     
Net  sales                                 $ 25,108    $ 21,564    $ 48,529    $ 41,643

Costs and expenses:
     Cost of sales                           19,528      16,835      38,293      32,976
     Selling, general and administrative      2,328       1,909       4,447       3,823
     Depreciation and amortization              868         787       1,725       1,574
                                           --------    --------    --------    --------

Operating income                              2,384       2,033       4,064       3,270

Other income (expense):
     Interest expense                          (268)       (381)       (526)       (804)
     Interest income                            154         624         305         999
     Other expense                              (26)        (18)        (35)        (18)
                                           --------    --------    --------    --------

Income before income taxes                    2,244       2,258       3,808       3,447

Provision for income taxes                      897         475       1,523         724
                                           --------    --------    --------    --------

Net income                                 $  1,347    $  1,783    $  2,285    $  2,723
                                           ========    ========    ========    ========

Net income per common share
     Basic                                 $   0.30    $   0.38    $   0.50    $   0.58
                                           ========    ========    ========    ========
     Diluted                               $   0.26    $   0.37    $   0.44    $   0.56
                                           ========    ========    ========    ========
Weighted average number of common
   and common equivalent shares
     Basic                                    4,569       4,661       4,612       4,661
                                           ========    ========    ========    ========
     Diluted                                  5,149       4,832       5,187       4,832
                                           ========    ========    ========    ========
</TABLE>


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

                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                         Accumulative
                                                              Additional       Accum-        Other
                                         Common Stock          Paid-In         ulated    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                                 --            --           --         2,285            --
Purchase and retirement of
  Common Stock                        (92,000)           --       (1,248)           --            --
Exercise of Common Stock options
  to purchase Common Stock                275            --            2            --            --
Issuance of fractional shares               3            --           --            --            --
Foreign currency translation
  adjustment                               --            --           --            --           (47)
                                   ----------    ----------   ----------    ----------    ----------

Balance at June 30, 1998            4,569,258    $        5   $  227,263    $ (182,848)   $     (256)
                                   ==========    ==========   ==========    ==========    ==========
</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)

                                                       Six Months Ended June 30,
                                                       -------------------------
                                                            1998       1997
                                                           -------   -------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

Net income                                                 $ 2,285   $ 2,723
Adjustments to reconcile net income to net
    cash provided by operating activities:
     Depreciation and amortization                           1,725     1,574
     Amortization of deferred debt costs                        38        46
     Other                                                      --       (70)

(Increase) decrease in assets:
     Accounts receivable                                    (1,111)      404
     Inventories                                               672       489
     Prepaid expenses and other current assets                (362)     (160)
     Deferred tax asset                                      1,129        81
     Other                                                    (219)       10
Increase (decrease) in liabilities:
     Accounts payable                                         (617)   (1,157)
     Accrued expenses                                          508       781
     Other non current liabilities                             450       375
                                                           -------   -------
     Net cash provided by operating activities               4,498     5,096
                                                           -------   -------

CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES:
     Purchase of property, building and equipment           (1,904)   (1,727)
     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    (2,039)    2,123
                                                           -------   -------

CASH FLOWS USED IN FINANCING ACTIVITIES:
     Net payment of long-term debt                          (1,118)   (7,150)
     Purchase of Common Stock                               (1,248)       --
     Proceeds from exercise of Common Stock
       options                                                   2        --
     Principal payments of capital lease                       (66)      (69)
                                                           -------   -------
     Net cash used in financing activities                 $(2,430)  $(7,219)
                                                           =======   ======= 


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

                                       7
<PAGE>

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


                                                 Six Months Ended June 30,
                                                 -------------------------
                                                       1998     1997
                                                      ------   ------
                                                    
Increase in cash and cash equivalents                 $   29   $   --
                                                    
Cash and cash equivalents, beginning of period         1,079       --
                                                      ------   ------
                                                    
Cash and cash equivalents, end of period              $1,108   $   --
                                                      ======   ======
                                                    
                                                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the period for:
    Income taxes                                      $  476   $  179
    Interest                                             499      690


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

                                       8
<PAGE>

                                ELXSI CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 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 six  months  ended June 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 six months ended June
30,  1998,   ELXSI  opened  two  new  Bickford's   Restaurants  and  closed  one
under-performing  Abdow's  Restaurant.  As of June  30,  1998,  ELXSI  owned  57
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
six months ended June 30 are as follows:

<TABLE>
<CAPTION>
                                            Three Months Ended    Six Months Ended
                                                 June 30,             June 30,
                                           ------------------    ------------------
                                            1998       1997       1998       1997
                                           -------    -------    -------    -------
<S>                                        <C>        <C>        <C>        <C>    
Net income                                 $ 1,347    $ 1,783    $ 2,285    $ 2,723
Foreign currency translation adjustment,
    net of income taxes                         (7)       (67)       (47)       (70)
                                           -------    -------    -------    -------
Comprehensive income                       $ 1,340    $ 1,716    $ 2,238    $ 2,653
                                           =======    =======    =======    =======
</TABLE>


Accumulated other comprehensive  income at June 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 HALF 1998 RESULTS TO FIRST HALF 1997 RESULTS

Six-month  sales  increased  $6,886,000,   gross  profit  increased  $1,569,000,
selling,  general and administrative expense increased $624,000 and depreciation
and amortization  expense increased  $151,000,  resulting in an operating income
increase of $794,000.  Interest expense  decreased by $278,000,  interest income
decreased  by  $694,000,  other  expense  increased  by $17,000 and income taxes
increased by $799,000, resulting in a decrease in net income of $438,000.

RESTAURANT  DIVISION.  In the first half of 1998,  Restaurant sales increased by
$3,651,000,  or 11.7%, and gross profit increased $455,000, or 8.2%, 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 $85,000
and an increase in depreciation and amortization expense of $122,000,  resulting
in an operating  income  increase of $248,000,  or 7.6%.  The sales increase was
mainly due to an increase in same store sales of $1,849,000, or 7.6%, sales from
the opening of five new Bickford's  Restaurants of $2,087,000,  partially offset
by a decrease  in sales  resulting  from the  closing  of an Abdow's  Restaurant
totalling  $370,000.  Customer  counts at  Restaurants  operated in both periods
increased  4.7% during the first six months of 1998  compared to the same period
in the prior year.  Customer  counts at the four remaining  Abdow's  Restaurants
decreased by 1.5% compared to 1997.

                                       10
<PAGE>

As a result of the  sales  increase  and a 0.6%  decrease  in the  gross  profit
percentage from 17.8% to 17.2%,  Restaurant  gross profit increased by $455,000,
or 8.2%,  in the first half 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 0.6%  attributable  to higher  levels of  staffing  during  peak
business  periods in order to provide better service to customers and to improve
customer counts.

Restaurant  selling,  general and  administrative  expense  increased by $85,000
during the first half of 1998.

Restaurant  depreciation and amortization  expense  increased by $122,000 during
the first half 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 $248,000, or 7.6%,
in the  first  half  of  1998.  Restaurant  Division  interest  expense  related
primarily  to the  mortgage  loan and capital  lease  obligations  decreased  by
$15,000.

CUES DIVISION. Cues's sales increased by $3,235,000, or 30.8%, in the first half
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  systems.  Gross
profit  increased by $1,114,000,  or 35.6%,  while operating income increased by
$664,000, or 74.9%. Cues was able to increase sales volume in the second 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.  Included in the
increase in  operating  income is the effect of an increase in selling,  general
and  administrative  expense of $421,000  and an increase  in  depreciation  and
amortization expense of $29,000.

CORPORATE.  Corporate general and administrative  expenses increased by $118,000
during the first six  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 $338,000 due mainly to a lower  average debt balance and a decrease
in the average  borrowing rate in 1998.  Interest  income  decreased by $694,000
during the first six months of 1998 primarily as a result of collecting proceeds
on related  party  notes.  During the first half of 1998 and 1997,  the  Company
recorded interest income of $268,000 and $994,000,  respectively,  in connection
with notes receivable due from a 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

                                       11
<PAGE>

Subsidiary  Notes,  the Company  recorded net interest  income of  approximately
$709,000 during the first half of 1997.

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

Partially  offsetting  the  decrease in interest  income  related to the Azimuth
Subsidiary  Notes was a $175,000  increase in interest  income  during the first
half of 1998  resulting  from a related  party note dated June 30, 1997 due from
Cadmus Corporation.

Income  tax  expense  increased  from  $724,000  in the  first  half  of 1997 to
$1,523,000 in the first half of 1998.  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%,  but  will  recognize  a 40% tax
expense on future quarterly and annual income statements.

EARNINGS  PER SHARE.  Basic and  diluted  earnings  per share for the six months
ended June 30, 1998 were $0.50 and $0.44 per share, respectively.  The basic and
diluted  weighted  average  number  of shares  outstanding  were  4,612,000  and
5,187,000,  respectively.  This compares to basic and diluted earnings per share
of $0.58 and $0.56 per share,  respectively for the corresponding period in 1997
when  there  were  basic an  diluted  weighted  average  shares  outstanding  of
4,661,000  and  4,832,000,  respectively.  The  decrease  in the basic  weighted
average shares  outstanding in the first half of 1998 compared to the first half
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 half of
1998 compared to the first half 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  half of 1998 was $12.56
compared to an average of $6.48 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
earnings per share calculation.

COMPARISON OF SECOND QUARTER 1998 RESULTS TO 1997 RESULTS

The second quarter sales increased $3,544,000,  gross profit increased $851,000,
selling,  general and administrative expense increased $419,000 and depreciation
and amortization  increased $81,000 resulting in an operating income increase of
$351,000.  Interest expense decreased by $113,000,  interest income decreased by
$470,000,  other  expense  increased  by $8,000 and income  taxes  increased  by
$422,000 resulting in a decrease in net income of $436,000.

RESTAURANT  DIVISION Restaurant sales increased by $1,808,000 or 11.0% and gross
profit  increased by $213,000 or 6.8% in the second  quarter of 1998 compared to
the same period in the prior year.  Operating income increased  $120,000 or 6.0%
after  deducting an increase in selling  general and  administrative  expense of
$30,000 and an increase in depreciation and  amortization of $63,000.  The sales
increase was mainly due to an increase in same store sales of $985,000,  or 7.8%
and sales from the opening of new Bickford's Restaurants of $1,180,000 partially
offset by

                                       12
<PAGE>

a decrease in sales at a closed unit of $259,000. Customer counts at Restaurants
operated in both periods  increased 4.9%.  Customer counts at the four remaining
Abdow's  Restaurants  decreased  1.4% in the second  quarter of 1998 compared to
1997.

As a result of the sales  increase,  partially  offset by a 0.7% decrease in the
gross profit  percentage from 19.2% to 18.5%,  restaurant gross profit increased
by $213,000,  or 6.8% in the second  quarter 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 cost of .8%  attributable  to higher levels of staffing during
peak  business  periods in order to provide  better  service to customers and to
improve customer counts.  These increases were partially offset by a decrease of
 .1% in fixed and other expenses 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 $30,000
during the second quarter of 1998.

Restaurant  depreciation and amortization increased by $63,000 during the second
quarter 1998.

As a result of the above items,  operating  income increased by $120,000 or 6.0%
in the second quarter of 1998.

CUES  DIVISION  Cues's  sales  increased  by  $1,736,000  or 33.4% in the second
quarter of 1998 compared to the same period in the prior year.  Cues was able to
increase sales volume in the second  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 1.6% increase in
the gross profit percentage from 30.5% in the second quarter of 1997 to 32.1% in
the second quarter of 1998, gross profit increased by $638,000,  or 40.3% in the
second  quarter of 1998.  Operating  income  increased  by  $287,000,  or 59.9%.
Included  in the  increase in  operating  income is the effect of an increase in
selling,  general  and  administrative  expense of  $333,000  and an increase in
depreciation  and  amortization  expense  of  $18,000.  Sales and  gross  profit
established  new quarterly  records for Cues in the second quarter of 1998 while
operating  income was only  exceeded by the record  operating  income set in the
first quarter of 1998.

CORPORATE  Corporate general and  administrative  expenses  increased by $56,000
during  the  second  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 $142,000 due to a lower  average  debt  balance in 1998.  Interest
income  decreased by $470,000 during the second quarter of 1998 from $624,000 in
1997 to $154,000 in 1998.

The decrease in interest  income was primarily the result of recording  $575,000
of interest  income in the second  quarter of 1997  related to the  December 30,
1996 financing transaction with Azimuth Corporation.

Included in interest  expense was interest  payable to the BAI of  approximately
$84,000 directly  attributable to the purchase of the Azimuth  Subsidiary Notes.
As a result of the Azimuth

                                       13
<PAGE>

Subsidiary  Notes,  the Company  recorded net interest  income of  approximately
$491,000 during the first quarter of 1997.

The second  quarter of 1998 did not contain any interest  income  related to the
Azimuth Subsidiary Notes.

Partially  offsetting  the  decrease in interest  income  related to the Azimuth
Subsidiary  Notes was an $88,000  increase in interest  income during the second
quarter of 1998 resulting from a related party note dated June 30, 1997 due from
Cadmus Corporation.

Income tax expense  increased  from  $475,000  in the second  quarter of 1997 to
$897,000  in the  second  quarter  of 1998.  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%, but will recognize a
40% tax expense on future quarterly and annual income statements.

EARNINGS PER SHARE Basic and diluted  earnings  per share for the quarter  ended
June 30, 1998 were $0.30 and $0.26, respectively. The basic and diluted weighted
average  number of shares  outstanding  for the quarter ended June 30, 1998 were
4,569,000  and  5,144,000,  respectively.  This  compares  to basic and  diluted
earnings  per  share  of  $0.38  and  $0.37  per  share,  respectively  for  the
corresponding  period in 1997 when there were basic and diluted weighted average
shares outstanding of 4,661,000 and 4,832,000, respectively. The increase in the
diluted  weighted  average  shares  outstanding  in the  second  quarter of 1998
compared to the second  quarter of 1997 resulted  mainly from an increase in the
average  stock market price  during the second  quarter of 1998  compared to the
corresponding  period in 1997 partially offset by the purchase and retirement of
Common Stock during 1998.  The average stock market price for the second quarter
of 1998 was $12.69 compared to an average of $6.50 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 earnings per share calculation.

LIQUIDITY AND CAPITAL RESOURCES

AVAILABLE  RESOURCES The Company's  unrestricted  consolidated cash positions at
June 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 half of 1998,  the  Company  had cash flow from  operations  of
$4,498,000.  The cash from operations funded the acquisition of property,  plant
and equipment totalling $1,904,000, the payment of long-term debt of $1,118,000,
the repayment of capital  leases  obligations  of $66,000,  the  investment in a
related  party note  receivable  of $135,000 and the purchase of Common Stock of
$1,248,000.  During the first half of 1998, current assets increased by $830,000
primarily  due to a  $1,090,000  increase  in  Cues's  accounts  receivable,  an
increase in

                                       14
<PAGE>

prepaid expenses of $362,000  partially offset by a $682,000  decrease in Cues's
inventory.  Current liabilities  increased $459,000 mainly due to a reduction in
Bickford's  accounts payable, an increase in accrued expenses and an increase in
the current portion of long-term debt.

During the first half of 1997,  the  Company  had cash flow from  operations  of
$5,096,000.  The  cash  from  operations  and  the  proceeds  from  the  Azimuth
Corporation  subsidiary notes receivable of $5,850,000 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.

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.

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



                           PART II. OTHER INFORMATION

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

The Company's 1998 Annual Meeting of  Stockholders  was held on May 19, 1998. In
connection   therewith  the  Company   submitted  the  following   proposals  to
stockholders in its Notice of Annual Meeting of Stockholders and Proxy Statement
dated April 17, 1998.

                                       15
<PAGE>

All of the directors of the Company were  re-elected at the 1998 Annual  Meeting
of Stockholders, having received votes as follows:

                                      Against/                       Broker
      Nominee              For        Withheld      Abstentions     Non Votes
      -------           ---------     --------      -----------     ---------
Farrokh H. Kavarana     3,240,398      21,221           --              --
Kevin P. Lynch          3,240,448      21,171           --              --
Alexander M. Milley     3,240,375      21,244           --              --
Denis M. O'Donnell      3,240,408      21,211           --              --
Robert C. Shaw          3,240,445      21,174           --              --
                                                                
A majority of the  stockholders  approved the  Company's  1998  Incentive  Stock
Option Plan, voting as follows:

                                      Against/                       Broker
                           For        Withheld      Abstentions     Non Votes
                        ---------     --------      -----------     ---------
Number of votes         3,010,653     242,807          8,158            --

A  majority  of  the  stockholders   approved  the  amendment  of  the  Restated
Certificate  of  Incorporation  of the  Corporation  to  reduce  the  number  of
authorized  shares  of its  Common  Stock,  par  value  $.001  per  share,  from
160,000,000 to 60,000,000.

                                      Against/                       Broker
                           For        Withheld      Abstentions     Non Votes
                        ---------     --------      -----------     ---------
Number of votes         3,246,266       9,964          5,389            --

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,
1998, voting as follows:

                                      Against/                       Broker
                           For        Withheld      Abstentions     Non Votes
                        ---------     --------      -----------     ---------
Number of votes         3,202,544      52,585          6,489            --


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


                                       16
<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 3, 1998           /s/ Alexander M. Milley
                               ------------------------------------------------
                                   Alexander M. Milley,  Chairman of the Board,
                                   President and Chief Executive Officer
                                   (Principal Executive Officer)



Date: August 3, 1998           /s/ Thomas R. Druggish
                               ------------------------------------------------
                                   Thomas R. Druggish,  Vice President,
                                   Treasurer and Secretary (Chief Accounting
                                   Officer and Principal Financial Officer)