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, 1997
                               ------------------------------------

                                       OR

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

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


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

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


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


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
                                                   -----------------------------

              4209 Vineland Road, Suite J-1, Orlando, Florida 32811
--------------------------------------------------------------------------------
              (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, 1997, the registrant had outstanding  4,658,873  shares of Common
Stock, par value $0.001 per share.


<PAGE>



                          Part I. FINANCIAL INFORMATION

Item 1.  Financial Statements


                                ELXSI CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)

                                   A S S E T S


                                               September 30,        December 31,
                                                   1997                1996
                                               ------------         -----------
                                                 Unaudited
Current assets:

  Cash - restricted                            $     1,222           $      --

  Accounts receivable, net                           3,734               3,425

  Inventories, net                                  10,521              11,017

  Prepaid expenses and other current assets            340                 234

  Note receivable - related party                    1,156               1,156

  Deferred tax asset                                 1,725               1,142
                                               -----------           ---------  

         Total current assets                       18,698              16,974

Property, buildings and equipment, net              28,984              27,677

Intangible assets, net                               5,391               5,525

Deferred debt costs, net                               128                  76

Notes receivable - related party                     2,909               6,759

Deferred tax asset - noncurrent                      2,392               1,739

Other                                                  810                 728
                                               -----------           ---------  

         Total assets                          $    59,312           $  59,478
                                               ===========           =========


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


                                       2
<PAGE>


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

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                   September 30,   December 31,
                                                       1997            1996
                                                   -------------   ------------ 
                                                     Unaudited
Current liabilities
     Accounts payable                              $       1,231   $      3,266
     Accrued expenses                                      5,002          4,649
     Capital lease obligations - current                     142            142
     Current portion of long-term debt                       185            268 
                                                   -------------   ------------
         Total current liabilities                         6,560          8,325

Capital lease obligations - non current                    1,482          1,588
Long-term debt                                            13,930         18,706
Other liabilities                                          2,508          1,946
                                                   -------------   ------------

         Total liabilities                                24,480         30,565

Commitments and contingencies                                 --             --

Stockholders' equity:
   Preferred stock, Series A Non-voting
     Convertible, par value $0.002 per share
       Authorized--5,000,000 shares
       Issued and outstanding--none                           --             --
   Common stock, par value $0.001 per share
       Authorized--160,000,000 shares
       Issued and outstanding--4,658,873 and
       4,660,869 at September 30, 1997 and
       December 31, 1996, respectively.                        5              5
   Additional paid-in capital                            228,498        228,520
   Accumulated deficit                                  (193,489)      (199,512)
   Cumulative foreign currency translation 
     adjustment                                             (182)          (100)
                                                   -------------   ------------

      Total stockholders' equity                          34,832         28,913
                                                   -------------   ------------

      Total liabilities and stockholders' equity   $      59,312   $     59,478
                                                   =============   ============




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

                                       3
<PAGE>


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


<TABLE>
<CAPTION>
                                                      Three Months Ended                  Nine Months Ended
                                                         September 30,                      September 30,
                                                 ----------------------------       ----------------------------
                                                    1997              1996             1997              1996
                                                 -----------      -----------       -----------      -----------
<S>                                              <C>              <C>               <C>              <C>

Net  sales                                       $    23,076      $    21,242       $    64,719      $    62,727

Costs and expenses:
     Cost of sales                                    18,017           16,993            50,993           50,920
     Selling, general and administrative               2,031            1,814             5,854            5,446
     Depreciation and amortization                       798              681             2,372            2,036
                                                 -----------      -----------       -----------      -----------

Operating income                                       2,230            1,754             5,500            4,325

Other income (expense):
     Interest expense                                   (299)            (333)           (1,103)          (1,163)
     Interest income                                     138               27             1,137               82
     Other (expense) income                              (17)              34               (35)              20
                                                 -----------      -----------       -----------      -----------

Income before income taxes                             2,052            1,482             5,499            3,264

Benefit (provision) for income taxes                   1,248             (167)              524             (396)
                                                 -----------      -----------       -----------      -----------

Net income                                       $     3,300      $     1,315       $     6,023      $     2,868
                                                 ===========      ===========       ===========      ===========

Primary net income per common share              $      0.66      $      0.27       $      1.22      $      0.57
                                                 ===========      ===========       ===========      ===========
Fully diluted net income per common
   share                                         $      0.64      $      0.27       $      1.18      $      0.57
                                                 ===========      ===========       ===========      ===========

Weighted average number of common
     and common equivalent shares
         Primary                                       5,038            4,994             4,919            5,055
                                                 ===========      ===========       ===========      ===========
         Fully Diluted                                 5,122            4,998             5,122            5,055
                                                 ===========      ===========       ===========      ===========
</TABLE>






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

                                       4
<PAGE>


                                ELXSI CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                             (Amounts in Thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                      Cumulative
                                                                        Additional        Accum-       Foreign
                                                 Common Stock             Paid-In         ulated      Translation
                                            Shares         Dollars        Capital         Deficit     Adjustment
                                        -------------  --------------  -------------  -------------  ------------
<S>                                     <C>            <C>             <C>            <C>

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

Net income                                         --              --             --          6,023            --

Purchase and retirement of 2,000
     share of Common Stock                        (2)              --           (22)             --            --

Foreign currency translation
     adjustment                                    --              --             --             --           (82)
                                        -------------  --------------  -------------  -------------  ------------

Balance at September 30, 1997           $       4,659  $            5  $     228,498  $    (193,489) $       (182)
                                        =============  ==============  =============  =============  ============

</TABLE>












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

                                       5

<PAGE>


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

                                                            Nine Months Ended
                                                              September 30,
                                                         ----------------------
                                                           1997         1996
                                                         ----------   ---------
Cash flows provided by operating activities:

Net income                                               $    6,023   $   2,868

Adjustments to reconcile net income to net cash
  provided by operating activities:
     Depreciation and amortization                            2,372       2,036
     Amortization of deferred debt costs                         60         117
     Amortization of debt discount                               --          --
     Amortization of note receivable discount                  (725)         15
     Other                                                      (82)        (46)

(Increase) decrease in assets:
     Accounts receivable                                       (309)        (23)
     Inventories                                                496      (2,445)
     Prepaid expenses and other current assets                 (106)         25
     Deferred tax asset                                      (1,236)         --
     Other                                                     (101)       (268)
Increase (decrease) in liabilities:
     Accounts payable                                        (2,035)       (750)
     Accrued expenses                                           353         369
     Other liabilities                                          562         375
                                                         ----------   ---------
     Net cash provided by operating activities           $    5,272   $   2,273
                                                         ----------   ---------

Cash flows used in investing activities:
     Proceeds from sale of Abdow's Restaurant                    --       1,075
     Purchase of property, building and equipment            (3,526)     (2,301)
     Issuance of note receivable - related party             (2,000)         --
     Proceeds from note receivable - related party            6,575          --
                                                         ----------   ---------
     Net cash used in investing activities                    1,049      (1,226)
                                                         ----------   ---------

Cash flows used in financing activities:
     Net repayment of long-term debt                         (7,359)       (734)
     Proceeds from industrial revenue bonds                   2,500          --
     Purchase of Common Stock                                   (22)       (181)
     Payment of deferred debt costs                            (112)         --
     Principal payments of capital lease                       (106)       (132)
                                                         ----------   ---------
     Net cash used in financing activities               $   (5,099)  $  (1,047)
                                                         ----------   ---------


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

                                       6
<PAGE>

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



                                                 Nine Months Ended September 30,
                                                 -------------------------------
                                                     1997                1996
                                                 ----------          ---------


Increase in cash and cash equivalents            $    1,222          $      --

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

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


Supplemental Disclosure of Cash Flow
  Information

Cash paid during the period for
    Income taxes                                 $      519          $     526
    Interest                                            926              1,001
























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


                                       7

<PAGE>

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

Note 1.  The Company

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

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

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

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

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

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

Note 2.  Summary of Significant Accounting Polices

Adoption  of  New  Accounting  Standards.  In  February,   1997,  the  Financial
Accounting  Standards Board issued Statement No. 128 "Earnings Per Share" ("SFAS
No. 128"),  which  replaces the  presentation  of primary EPS with basic EPS and
requires diluted EPS be presented for entities with complex capital  structures.
This  Statement is effective for fiscal  periods  ending after December 15, 1997
and  early   application  is  not  permitted.   Under  SFAS  No.  128  reporting
requirements, basic EPS on a pro forma basis would have been $0.71 and $1.29 per
share for the 

                                       8
<PAGE>


three and nine months ended September 30, 1997,  respectively  compared to $0.28
and $0.60 for the three and nine months ended September 30, 1996,  respectively.
Under SFAS No. 128  reporting  requirements,  diluted  EPS on a pro forma  basis
would  have been $0.65 and $1.22 per share for the three and nine  months  ended
September  30, 1997,  respectively  compared to $0.26 and $.57 for the three and
nine months ended September 30, 1996, respectively.

Note 3.  Restricted Cash.

Industrial  development  bond  proceeds  (see Note 5) in excess of the  purchase
price of the building and land and the portion of the transaction  costs allowed
to be paid at  closing  from the  bond  proceeds  are  being  held by a  trustee
pursuant to a trust indenture between the Orange County  Industrial  Development
Authority  (the "IDA") and a commercial  bank,  as trustee.  As of September 30,
1997, the trustee held cash in the amount of $1,222,000, which is restricted for
use by Cues to  building  improvements  and  equipment  expenditures  within the
following  three  years.  The  funds are  reflected  as  restricted  cash in the
accompanying  balance  sheet and are  invested  in a money  market  mutual  fund
pursuant to the trust indenture.

Note 4.  Related Party Transactions

Transactions with Azimuth  Corporation and  Subsidiaries.  On December 30, 1996,
ELXSI  entered  into  a   Recapitalization   Agreement  (the   "Recapitalization
Agreement")  with Azimuth  Corporation  ("Azimuth")  and its three  wholly-owned
subsidiaries:  Contempo Design,  Inc.,  Contempo Design West, Inc., and Delaware
Electro   Industries,   Inc.   (collectively   referred   to  as  the   "Azimuth
Subsidiaries").  Certain of the officers,  directors and stockholders of Azimuth
and certain of the  officers  and  directors  of the Azimuth  Subsidiaries'  are
officers and  directors of the Company.  Under the  Recapitalization  Agreement,
ELXSI purchased from Bank of America Illinois  ("BAI"),  its lending bank, three
Azimuth Subsidiary  revolving notes (the "Azimuth  Subsidiary Notes" or "Notes")
which were  scheduled to mature on December  31, 1996.  The Notes had a combined
face value of $6,650,000  and were  purchased by ELXSI at an $800,000  discount.
Under the  Recapitalization  Agreement,  ELXSI received all contract  rights and
obligations  held by BAI in relation  to the Notes and, as a result,  became the
provider of a working capital line of credit for the Azimuth Subsidiaries, which
ELXSI  increased to $9,650,000  and extended  through June 30, 1998. The line of
credit was secured by an Azimuth guaranty and substantially all of the assets of
Azimuth and the Azimuth Subsidiaries.

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

Transactions with Cadmus Corporation.  On June 30, 1997, ELXSI loaned $2,000,000
to  Cadmus  Corporation  ("Cadmus").  The loan,  which is fully  collateralized,
matures  on June 30,  1999 and  bears  interest  at 15%,  payable  quarterly  in
arrears. ELXSI earned a 5%, or $100,000, closing fee, which will be amortized to
interest  income  utilizing the effective  interest  method over the life of the
loan.  Cadmus will reimburse ELXSI for all costs incurred by ELXSI in making the
loan.  Certain  officers,  directors and or  shareholders of Cadmus are officers
and/or directors of the Company and/or ELXSI.



                                       9
<PAGE>

Effective June 30, 1997, the management  agreement  between Cadmus and ELXSI was
extended to at least June 30, 2005.  Effective  April 1, 1997 the management fee
was increased from $500,000 to $600,000 annually,  with a provision that the fee
shall increase 5% on each anniversary of April 1, 1997.

Note 5.  Long-Term Debt

On September  24, 1997,  ELXSI  completed the purchase of a building and land in
Orlando, Florida for $1,240,000.  Financing for the purchase was provided by the
Orange County Industrial  Development Authority (the "IDA"). The IDA issued a 15
year bond in the amount of  $2,500,000,  which was  purchased by Bank of America
National Trust and Savings Association,  formerly BAI. ELXSI will make 180 equal
monthly principal payments of approximately $14,000. Interest is paid monthly in
arrears  initially at a taxable rate of either the Bank's  reference rate or the
London  Eurodollar rate plus 175 basis points. It is anticipated that on or near
January 1, 1998, the bonds will convert to tax-exempt status. Thereafter,  ELXSI
will pay interest at approximately 64% of the taxable rate.

Also on September 24, 1997,  ELXSI completed a second  amendment to the existing
line of credit with Bank of America National Trust and Savings Association.  The
second amendment  provides for a non-amortizing  line of credit in the amount of
$9,000,000,  which  replaces  the  previous  line of credit  extended by BAI. In
addition,  the amendment provides for a $2,000,000  increase in the supplemental
line of credit facility from the existing outstanding balance of $5,100,000 to a
maximum balance of $7,100,000.  The amendment  requires monthly  amortization of
the supplemental  facility in the amount of approximately  $118,000.  The second
amendment also extends the termination date of the facility to June 30, 1999 and
modified certain financial covenants.


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

Forward-Looking   Statements.  This  Quarterly  Report  on  Form  10-Q  contains
forward-looking  statements,  particularly  with  respect  to  the  Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations.
Additional written or oral forward-looking statements may be made by the Company
from time to time,  in filings with the  Securities  and Exchange  Commission or
otherwise.  Such forward-looking  statements are within the meaning of that term
in Section 27A of the  Securities  Act of 1933 and Section 21E of the Securities
Exchange  Act of 1934.  Such  statements  may  include,  but not be  limited  to
projections of revenue, income, losses, cash flows, capital expenditures,  plans
for future  operations,  financing needs or plans, plans relating to products or
services of the Company, estimates concerning the effects of litigation or other
disputes, as well as assumptions to any of the foregoing.

Forward-looking  statement are  inherently  subject to risks and  uncertainties,
some of which can not be  predicted.  Future  events  and actual  results  could
differ  materially  from those set forth in or  underlying  the forward  looking
statements.


                                       10
<PAGE>



RESULTS OF OPERATIONS

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

COMPARISON OF FIRST NINE MONTH 1997 RESULTS TO 1996 RESULTS

Nine-month  sales  increased  $1,992,000,  gross  profit  increased  $1,919,000,
selling,  general and administrative expense increased $408,000 and depreciation
and amortization  expense increased  $336,000,  resulting in an operating income
increase of $1,175,000.  Interest expense decreased by $60,000,  interest income
increased  by  $1,055,000,  other  expense  increased  by $55,000 and income tax
expense  decreased  by  $920,000,  resulting  in an  increase  in net  income of
$3,155,000.

Restaurant  Division.  In the  first  nine  months  of  1997,  Restaurant  sales
increased by $2,549,000,  or 5.5%,  and gross profit  increased  $1,479,000,  or
20.2%,  compared to the same period in the prior year. The gross profit increase
was partially offset by an increase in depreciation and amortization  expense of
$324,000, or 19.2%, resulting in an operating income increase of $1,155,000,  or
27.3%.  The sales  increase was mainly due to an increase in same store sales of
$954,000, or 2.9%, sales from the opening of three new Bickford's Restaurants of
$1,701,000,  partially offset by a decrease in sales resulting from the sale and
closing of two Abdow's Restaurants totalling $325,000. All of the sales increase
at same store Restaurants  resulted from an increase in the average guest check.
Customer counts at Restaurants  operated in both periods  decreased 2.4% despite
the fairer  weather in New England  during the first quarter of 1997 as compared
to the record snow falls in 1996. Customer counts at the nine converted and five
remaining Abdow's Restaurants decreased by 3.8% and 6.5%, respectively, compared
to 1996.

The Restaurant gross profit increase resulted from the sales increase and a 2.2%
improvement  in the gross profit  percentage  from 15.9% to 18.1%,  in the first
nine months of 1997  compared to the same  period in 1996.  The  increase in the
gross  profit  percentage  was mainly the result of a decrease in food cost as a
percentage  of sales of 0.8% and a decrease  in labor costs as a  percentage  of
sales of 0.9%  attributable  to the conversion of the Abdow's  Restaurants  into
Bickford's  in the latter  half of 1996 and an  increase  in the  average  guest
check.

Management expected the Restaurant gross profit percentage to decline initially
as a result of the 1995 acquisition of the 16 Abdow's Restaurants,  which have a
higher  percentage  of food,  labor and rent costs  compared  to the  Bickford's
Restaurants.  It was anticipated that upon conversion of the Abdow's Restaurants
into  Bickford's  Restaurants  the food  costs as a  percentage  of sales  would
decline to the average  Bickford's  level,  thereby  increasing the gross profit
percentage.  Management  intends to keep up to five of the acquired  Restaurants
operating as lower margin Abdow's Restaurants, and overall margins will continue
to be lower than if all Restaurants were operated as Bickford's Restaurants.

Restaurant  selling,  general and  administrative  expense during the first nine
months of 1997 were  unchanged  in  comparison  to the same  period in the prior
year.

Restaurant Division  depreciation and amortization expense increased by $324,000
during the first nine months of 1997 and will  continue  to  increase  each year
with the addition of new  restaurants,  

                                       11
<PAGE>

or until such time as assets valued and recorded at the date of the  Restaurants
acquisition  in 1991 become fully  depreciated.  The equipment  acquired in that
acquisition  has a seven year useful life, and will become fully  depreciated in
1998.

As a result of the above items,  operating  income  increased by $1,155,000,  or
27.3%, in the first nine months of 1997.  Restaurant  Division  interest expense
related  to  the  amortization  of  deferred  bank  fees  and to  capital  lease
obligations decreased by $81,000 as the fees became fully amortized.

Cues Division.  Cues's sales  decreased by $557,000,  or 3.4%, in the first nine
months of 1997 compared to the same period in the prior year.  The sales decline
was primarily the result of a decrease in shipments of  truck-based  systems due
to a combination of timing and model year preferences. Gross profit increased by
$440,000,  or 9.8%,  while  operating  income  increased by $414,000,  or 39.1%.
Cues's gross profit  margins have shown signs of  improvement  in 1997 despite a
continued  competitive  environment as production  efficiencies  and product mix
combined for a favorable  outcome.  Included in the increase in operating income
is the effect of an increase in selling,  general and administrative  expense of
$14,000 and an increase in  depreciation  and  amortization  expense of $12,000.
Management  anticipates  that  gross and  operating  margins  will  continue  to
experience  pressure in the fourth quarter of 1997 and into 1998 due to the fact
that Cues's customers  continue to stress pricing factors in awarding  contracts
through the competitive bidding process.

Corporate.  Corporate general and administrative  expenses increased by $394,000
during the first nine  months of 1997  mainly as a result of an  increase in the
phantom stock option plan accrual for  Bickford's  management and an increase in
the management fee payable to Cadmus Corporation.  Interest expense decreased by
$26,000  due to a higher  average  debt  balance in 1997  partially  offset by a
decrease in the Company's  senior debt borrowing rate.  During the first half of
1997 and 1996, the Company  recorded  interest income of $1,128,000 and $82,000,
respectively, in connection with notes receivable due from a related parties.

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

The purpose of the  transactions  described  above was to prudently  utilize the
Company's  debt  capacity  to  earn a  return  not  generally  available  in the
marketplace for the commensurate risk. 


                                       12
<PAGE>

The  knowledge  of the  Azimuth  Corporation  credit  and the short  time  frame
required to respond to BAI made ELXSI  unique in its ability to capture  such an
attractive opportunity.

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

The $1,046,000  increase in interest  income during the first nine month of 1997
compared to the same period in 1996,  primarily resulted from recording $902,000
of interest related to the Notes described  above. The $902,000  recorded during
the first half of 1997  consisted  of the 15% interest on the face amount of the
Notes and amortization of the discount. Included in interest expense is interest
paid to BAI of approximately  $193,000 directly attributable to ELXSI's purchase
of the Notes. As a result of the Notes, the Company recorded net interest income
of  approximately  $709,000 during the nine months of 1997 and $934,000 in total
during the period the Notes were outstanding.

Income tax expense  during the first nine months of 1996  consisted of a current
tax  provision  of $396,000.  During the first nine months of 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.  Recording  the
deferred tax benefit of  $1,092,000  during the nine months ended  September 30,
1997, resulted in an increase in primary and fully diluted earnings per share of
$0.22 and $0.21 per share , respectively.  Accordingly the Company recognized an
increase in the net deferred tax asset of $1,236,000 from $2,881,000 at December
31, 1996 to  $4,117,000  at  September  30,  1997.  The net  deferred  tax asset
represents  the  amount of net  operating  loss and credit  carryforwards  which
management believes are more likely than not to be realized in the future. As of
September  30,  1997,  the Company  continued  to believed  that it would have a
change of ownership  of 50% or more.  The increase in the net deferred tax asset
resulted  primarily  from an  increase  in the  market  price of the  issued and
outstanding  common  shares,  which  are  used  under  the  current  tax laws to
determine  the amount of the tax loss  carryforward  that can be  utilized  each
year. It is uncertain,  due to the unpredictable  nature of the factors involved
in determining the deferred tax asset,  what impact SFAS 109 will have on future
results.  In the  event  that a change in  ownership  does not take  place,  the
Company may be able to recognize the benefit of additional loss carryforwards.

Earnings Per Share.  Primary and fully  diluted  earnings per share for the nine
months ended September 30, 1997 was $1.22 and $1.18 per share, respectively. The
weighted  average  number of shares  outstanding  for primary and fully  diluted
earning per share was 4,919,000 and  5,122,000,  respectively . This compares to
$0.57 per share for the  corresponding  period in 1996 when there were 5,055,000
weighted  average  shares  outstanding  for both the primary  and fully  diluted
calculations. The reduction in the primarily weighted average shares outstanding
in the first  nine  months of 1997  compared  to the first  nine  months of 1996
resulted mainly from the repurchase and retirement of Common Stock in the second
half of 1996 and the repurchase and retirement of a warrant held by an affiliate
of BAI on December 30, 1996 partially offset by an increase in the average stock
market price. The higher weighted average number of shares outstanding for fully
diluted  earnings per share compared to primary  earnings per share for the nine
months  ended  September  30, 1997  resulted  from using the ending stock market
price at September 30, 1997 for the fully diluted calculation  compared to using
the lower average stock market price for the period in the primary  earnings per
share  calculation.  The average stock 


                                       13
<PAGE>

market price for the first nine months of 1997 was $7.23  compared to an average
of $6.03 in the  corresponding  period of 1996. The ending stock market price at
September  30,  1997 was $10.25.  An  increase  in the stock price  results in a
slightly  greater number of shares  outstanding  for purposes of determining the
weighted average shares outstanding used in the earnings per share calculation.

COMPARISON OF THIRD QUARTER 1997 RESULTS TO 1996 RESULTS

The third quarter sales increased  $1,834,000,  gross profit increased $810,000,
selling,  general and administrative expense increased $217,000 and depreciation
and amortization  increased $117,000,  resulting in an operating income increase
of $476,000. Interest expense decreased by $34,000, interest income increased by
$111,000,  other  expense  increased  by $51,000 and income  taxes  decreased by
$1,415,000, resulting in an increase in net income of $1,985,000.

Restaurant  Division.  Restaurant  sales  increased by $1,268,000,  or 7.8%, and
gross  profit  increased  by $493,000,  or 17.8%,  in the third  quarter of 1997
compared  to the same  period  in the prior  year.  Operating  income  increased
$399,000,  or 23.0%,  after the effect of a  decrease  in  selling  general  and
administrative  expense of $20,000,  or 4.2% and an increase in depreciation and
amortization  of  $114,000,  or 20.2%.  The sales  increase was mainly due to an
increase in same store  sales of  $305,000,  or 2.6%,  sales from the opening of
three  new  Bickford's  Restaurants  of  $802,000  partially  offset  by a sales
decrease  from the nine  converted and five  remaining  Abdow's  Restaurants  of
$98,000.  All of the sales  increase  resulted  from an  increase in the average
guest check.  Customer counts at Restaurants  operated in both periods decreased
by 2.6%.  Customer  counts  at the nine  converted  and five  remaining  Abdow's
Restaurants  decreased by 5.2% and 6.8%,  respectively,  in the third quarter of
1997 as compared to 1996.

The Restaurant gross profit increase resulted form the sales increase and a 1.6%
improvement  in the gross  profit  percentage  from  17.1% to 18.7% in the third
quarter of 1997  compared to the same period in 1996.  The increase in the gross
profit percentage was mainly the result of a decrease in food costs attributable
to the conversion of the Abdow's  Restaurants into Bickford's in the latter half
of 1996 and an increase in the average guest check during the quarter.

As a result of the above items,  operating  income  increased  by  $399,000,  or
23.0%, in the third quarter of 1997.

Cues  Division.  Cues's  sales  increased by  $566,000,  or 11.3%,  in the third
quarter  of 1997  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 due to a combination of timing and model year  preferences.  As a result
of the sales  increase and a 2.7% increase in the gross profit  percentage  from
29.4% in the third quarter of 1996 to 32.1% in the third quarter of 1997,  gross
profit increased by $317,000, or 21.5%. Cues's gross profit margins showed signs
of improvement in this quarter  despite a continued  competitive  environment as
production  efficiencies  and product  mix  combined  for a  favorable  outcome.
Operating  income increased by $247,000,  or 72.4%.  Included in the increase in
operating  income  is  the  effect  of  an  increase  in  selling,  general  and
administrative   expense  of  $67,000  and  an  increase  in  depreciation   and
amortization expense of $3,000.  Management anticipates that gross and operating
margins will continue to experience  pressure in the fourth  quarter of 1997 and
into 1998 due to the fact  that  Cues's  customers  continue  to stress  pricing
factors in awarding contracts through the competitive bidding process.


                                       14
<PAGE>

Corporate.  Corporate general and administrative  expenses increased by $170,000
during  the third  quarter  of 1997  mainly as a result  of an  increase  in the
phantom stock option plan accrual for  Bickford's  management and an increase in
the management  fee payable to Cadmus.  Interest  expense  decreased by $14,000.
During the third  quarter  of 1997,  the  Company  recorded  interest  income of
$135,000 compared to $27,000 in the same period of 1996.

Income tax expense  during the third quarter of 1996  consisted of a current tax
provision of $167,000.  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.  Recording  the deferred tax
benefit of $1,457,000 during the third quarter of 1997,  resulted in an increase
in primary and fully  diluted  earnings  per share of $0.29 and $0.28 per share,
respectively.

Earnings Per Share.  Primary and fully diluted  earnings per share for the three
months ended September 30, 1997 was $0.66 and $0.64 per share, respectively. The
weighted  average  number of shares  outstanding  for primary and fully  diluted
earnings per share was 5,038,000 and 5,122,000,  respectively . This compares to
$0.27 per share for the  corresponding  period in 1996 when there were 4,994,000
and 4,998,000  weighted average shares outstanding for primary and fully diluted
calculations,  respectively.  The increase in the  primarily  and fully  diluted
weighted average shares outstanding in the third quarter of 1997 compared to the
same period in 1996 resulted mainly from an increase in the average stock market
price.  The  higher  weighted  average  number of shares  outstanding  for fully
diluted  earnings per share compared to primary earnings per share for the third
quarter  ended  September  30, 1997  resulted from using the ending stock market
price at September 30, 1997 for the fully diluted calculation  compared to using
the lower average  stock market price for the period in the primary  earning per
share calculation.  The average stock market price for the third quarter of 1997
was $8.75 compared to an average of $5.46 in the  corresponding  period of 1996.
The ending stock market price at September 30, 1997 was $10.25.

Liquidity and Capital Resources

Available Resources.  The Company's unrestricted  consolidated cash positions at
September  30, 1997 and December  31, 1996 was $0. As of September  30, 1997 the
Company had $1,222,000 in restricted cash (see Note 3).

During the first nine months of 1997, the Company had cash flow from  operations
of  $5,272,000.  The  cash  from  operations,  the  proceeds  from  the  Azimuth
Corporation  subsidiary notes receivable of $6,575,000 and the proceeds from the
industrial revenue bonds of $2,500,000 funded the acquisition of property, plant
and equipment totalling  $3,526,000,  a related party loan to Cadmus Corporation
in the amount of $2,000,000,  the repayment of long-term debt of $4,359,000, 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.


                                       15
<PAGE>



During the nine months of 1996,  the Company  had cash flow from  operations  of
$2,273,000.  The cash  from  operations  and the  proceeds  from the sale of the
Vernon,  Connecticut  Abdow's Restaurant of $1,075,000 funded the acquisition of
property,  plant and equipment totalling $2,301,000,  the repayment of long-term
debt of $734,000,  the purchase and  retirement  of Common Stock of $181,000 and
the repayment of capital lease  obligations  of $132,000.  During the first nine
months of 1996,  current  assets  increased by  $1,368,000  primarily  due to an
increase in Cues's inventory.  In addition,  current liabilities  (excluding the
current portion of long-term debt and capital leases) decreased  $381,000 mainly
due to the timing of payments related to Bickford's  accounts payable  partially
offset by an increase in accrued expenses.

The Company has a cash  management  system  whereby  the net cash  generated  by
operations is immediately  used to reduce bank debt. The immediate  reduction of
outstanding  debt  provides  the Company  with a reduction  in interest  expense
greater  than the  interest  income  that the cash could  earn from  alternative
investments.   Working  capital  needs,  when  they  arise,  are  met  by  daily
borrowings.

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

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

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


                                       16

<PAGE>



                           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

4.18    Second  Amendment to Amended and Restated  Loan and Security  Agreement,
        dated as of  September  24,  1997,  between  ELXSI  and Bank of  America
        National Trust and Savings Association.

4.19    Trust  Indenture,  dated as of September  24,  1997,  between the Orange
        County  Industrial  Development  Authority  and Sun Trust Bank,  Central
        Florida, National Association, as Trustee.

4.20    Loan  Agreement,  dated as of September 24, 1997,  between ELXSI and the
        Orange County Industrial Development Authority.

4.21    Mortgage and Security Agreement,  dated as of September 24, 1997 between
        ELXSI and the Orange County Industrial Development Authority.

4.22    Bond  Purchase  Agreement,  dated as of September 24, 1997, by and among
        the Orange County Industrial  Development  Authority,  ELXSI and Bank of
        America National Trust and Savings Association.

4.23    Guaranty Agreement, dated as of September 24, 1997, by and between ELXSI
        Corporation and Bank of America National Trust and Savings Association.

4.24    Security  Agreement,  dated as of September 24, 1997,  between ELXSI and
        the Orange County Industrial Development Authority.

27.1     Financial Data Schedule


(b) Reports on Form 8-K.

During the fiscal  quarter ended  September 30, 1997, the Company filed with the
Securities and Exchange  Commission,  on July 9, a Form 8-K Current Report dated
July 9,  1997,  under  which  it made  Item 5  (Other  Events)  disclosures;  no
financial statements were included in such Form 8-K.


                                       17

<PAGE>



                                   SIGNATURES


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


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



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




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









                                       18


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