UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549

                                    FORM 10-K
(Mark One)

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

For the fiscal year ended December 31, 1996     Commission File Number:  0-18805

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

                          ELECTRONICS FOR IMAGING, INC.
             (Exact name of registrant as specified in its charter)

                 Delaware                                   94-3086355
     (State or other jurisdiction of                    (I.R.S. Employer
        incorporation or organization)                 Identification No.)

     2855 Campus Drive, San Mateo, CA                          94403
 (Address of principal executive offices)                   (Zip Code)

                                 (415) 286-8600
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:            None.

Securities registered pursuant to Section 12(g) of the Act:        Common Stock,
                                                                  $.01 Par Value
                                                                (Title of Class)

         Indicate by check mark whether the registrant (1) has filed all reports
required 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
                                       -    -

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained,  to the best of registrant's knowledge, in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or an amendment to this Form 10-K. [ ]

State the aggregate market value of the voting stock held by  non-affiliates  of
the registrant as of March 24, 1997.
             Common Stock, $.01 par value:  $38.00

Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of March 24, 1997.
             Common Stock, $.01 par value:  51,772,802

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions  of  the  definitive   Proxy  Statement  to  be  delivered  to
stockholders in connection with the Annual Meeting of Stockholders to be held on
May 1, 1997 are incorporated by reference into Part III.

               A list of all exhibits to this Form 10-K is located
                            on pages 37 through 40.

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PART I



Item 1: Business.

         The Company was founded to develop innovative solutions to enable color
desktop  publishing  in the same manner that laser  printers and  PostScript(TM)
software enabled black-and-white desktop publishing in the mid-1980s. In pursuit
of this goal,  the Company  developed  the Fiery(R)  line of color  servers (the
"Fiery  Color  Servers")  to enable  short-production  run color  printing in an
office environment,  together with application and system software to facilitate
color  correction  and  device-independent  color.  The  Company has focused the
majority of its efforts on its Fiery Color  Servers and the  development  of new
models of Fiery products designed to control digital printing on a wide range of
devices  including  digital  color  copiers,  desktop  color laser  printers and
wide-format color inkjet printers. Substantially all of the Company's revenue to
date has  resulted  from  the  sale of  Fiery  Color  Servers  and  Fiery  Color
Controllers (collectively, "Fiery Products").


Background

         Prior to the  mid-1980s,  to obtain  quality  black-and-white,  typeset
documents,  a manuscript  was typically  sent to a specialized  trade shop where
craftsmen  labored on typesetting and photo composition  machines.  This process
was expensive and frequently  involved delays and numerous proofing cycles. As a
result,  only a limited  number of documents  were typeset,  typically  books or
periodicals printed in thousands or millions of copies.  However,  the advent of
desktop  publishing  in the mid-1980s  enabled users to create the  professional
look of  typeset  documents  in an  office  environment.  As a  result,  desktop
publishing  systems  offered  users,  without  specialized  training,  increased
control over the black-and-white document creation process and enabled documents
to be produced more quickly  without  relying on special trade shops and outside
services.  A single copy of a letter,  a hundred copies of a memo, or a thousand
copies of a  newsletter  could be  produced  with a personal  computer,  a laser
printer and a black-and-white  copier. These systems became increasingly popular
with users of low volume printing, such as small businesses, large corporations,
government  agencies,  educational  institutions,  graphic  artists and business
professionals.

         However,  users were  still  limited  in their  ability to use  desktop
systems to produce color documents for short-run  printing at a reasonable cost.
In the late 1970s,  color images were typically  prepared on an electronic color
pre-press system developed by companies such as Scitex.  These pre-press systems
were  expensive,  ran  proprietary  software,  were not  compatible  with  other
systems,  and  required  highly-trained  operators  to properly  edit and render
color. Users routinely endured a lengthy pre-press process, including the review
of numerous  interim  proofs,  before final  printing.  While  suitable for high
volume printing applications such as catalogs or magazines,  pre-press equipment
and  commercial  printing  presses were of limited  value to users who wished to
design and proof material  in-house and produce a limited number of color copies
quickly and cost-effectively.

         The consumer preference for color is clearly evidenced by the migration
of photographs, motion pictures and television from black-and-white to color. In
the personal computer field, this preference is seen by the almost exclusive use
of color monitors with  color-oriented  graphical user  interfaces,  application
software  and  Internet  content.  In each of these  cases,  once  the  enabling
technology  developed  sufficiently,  consumer  adoption quickly  followed.  The
Company  believes  that  consumers  prefer  color in documents  created  through
desktop  publishing,  but until  recently the technology was not available to do
this in a quick and  cost-effective  manner.  Accurate color reproduction is far
more complex than black-and-white reproduction. In black-and-white printing, the
principal  variable is the amount of black ink printed on the page. In contrast,
producing  color on a page requires a combination  of four inks (cyan,  magenta,
yellow and black) applied in differing  percentages to create varying colors. In
addition,  the human eye is extremely  sensitive to  variations in color images.
Minor  inconsistencies  in the way various  input,  display  and output  devices
display color, even small differences in ambient lighting conditions, can result
in significant variations in the way a color image is printed and perceived.

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The Electronics for Imaging Solution

         The Company is the  industry  pioneer and market  leader in  developing
products that enable  high-quality  color printing in short production runs. The
Company's  product line solves the  limitations  described  above by  permitting
users to produce color documents  easily,  quickly and  cost-effectively  in the
office  on a range  of  peripheral  devices.  Fiery  Color  Servers  incorporate
hardware and software technologies that transform digital color copiers from all
leading copier manufacturers into fast,  high-quality  networked color printers.
Further,  Fiery Color Server  products  are fully  scalable to meet the needs of
both the  high and low ends of the  color  printing  market.  Additionally,  the
Company has developed and manufactures variations of the Fiery Color Servers for
wide-format inkjet printers and Fiery Color  Controllers,  which are an embedded
solution to enable  color  printing on desktop  color laser  printers.  Printing
solutions that integrate the Fiery Products are marketed with the "Fiery Driven"
logo.


Strategy

         The Company's  overall  objective is to establish Fiery Products as the
solution of choice to enable  short-run  digital color  printing on a variety of
peripheral printing devices. With respect to its current products, the Company's
goal is to provide a broad range of color processing and printing solutions that
address broad sections of the color printing market.  The Company's  strategy to
accomplish these objectives consists of three key elements.

         Proliferate and Expand the Fiery Product Line

         Traditionally,  the Company has sold products that support five to nine
page-per-minute  ("ppm") color laser  copiers.  While the market for color laser
copiers is expanding, the Company has expanded its technology to an even broader
market for color printing  devices.  For example,  in 1996, the Company expanded
its line of color servers,  the Fiery XJ family, to drive a wide range of output
devices  including  desktop color laser  printers and  wide-format  color inkjet
printers with poster-size output and announced plans to further develop products
to  support  high speed  black-and-white  printing  systems.  By  utilizing  the
advantages  of the Fiery XJ design,  the Company  intends to continue to develop
new Fiery  Products  that are  scalable  and offer a broad range of features and
performance.

         Develop Additional Relationships with Key Industry Participants

         The Company has established  relationships  with Canon,  Xerox,  Kodak,
Minolta, Ricoh, Oce, IBM and Digital Equipment Corporation  (collectively,  "the
OEMs")  and is  seeking  relationships  with other  digital  copier and  printer
companies  for the  distribution  of  Fiery  Products  with  their  copiers  and
printers.  See "Significant  Relationships."  As the Company addresses a broader
range of color printing markets,  it will continue to seek to develop additional
relationships with companies that offer digital copy and/or print devices.

         Leverage Color Expertise

         The Company has assembled an  experienced  team of technical  personnel
with backgrounds in color reproduction,  electronic pre-press,  image processing
and  software  and  hardware  engineering.  By applying  its  expertise in color
imaging the Company  expects to continue to expand the scope and  sophistication
of its products and gain access to new markets.


Products and Technology

         Shipments  of the first  generation  Fiery Color Server began in August
1991. In 1995, the Company introduced the third-generation  platform,  the Fiery
XJ. During 1996, the Company migrated the majority of its product line to the XJ
platform and later refined these  products  through  migration to a variation of
the XJ platform known as the Fiery XJ+, which included shifting from a 100Mhz to
133Mhz CPU, an  improvement  in

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bus speed from  50Mhz to 66Mhz and an  improvement  in the  application-specific
integrated  circuit ("ASIC") chip sets incorporated  into the Servers.  To date,
the  Company  has  sold  over  50,000  Fiery  Color   Servers  and  Fiery  Color
Controllers. The Fiery Color Servers enable a color laser copier to perform as a
high  performance,  plain-paper  color  printer with the ability to produce full
color pages at up to 400  dots-per-inch  ("dpi")  resolution for copiers and 600
dpi resolution for printers in continuous tone or halftone.  Fiery Color Servers
are capable of connecting color laser copiers with networked  desktop  computers
such as Windows-based PCs, Apple Macintosh  computers and UNIX workstations.  In
addition, Fiery Color Servers provide the scanning capabilities of certain color
laser copiers providing full color scanning capability to the network. The Fiery
Color  Server is designed to provide a solution  for short  production  runs and
on-demand  color proofing for the desktop  environment.  Fiery Color Servers are
currently  used with all full color  copiers  supplied by Canon,  Xerox,  Kodak,
Minolta,  Ricoh and Oce. With the exception of Canon,  the Fiery Color Server is
sold under the Fiery trademark.

         In 1996,  the  Company  began  shipping  Fiery XJ  printer  Controllers
(marketed under the name Fiery XJe) to IBM, Canon and Digital.  The Fiery XJe is
embedded in desktop color laser printers sold by those  companies.  In 1996, the
Company also  released a version of the Fiery XJe which is embedded in the Ricoh
Aficio  2000  series  color   copier.   The  Company  is  currently   developing
relationships  with other  color  laser  printer  manufacturers  in an effort to
develop Fiery XJ embedded  controllers for those companies'  desktop color laser
printers as well.  During  1996,  the Company  also  released  the Fiery SI (see
"Fiery SI" below) and  announced an agreement to develop a controller  for Oce's
high-speed black-and-white print system.

         Fiery XJ Technology

         In 1996, the Company  focused its product line on its new generation of
the XJ  architecture,  the Fiery XJ+.  The Fiery XJ+  architecture  and  product
family  allowed the Company's  OEMs to provide the fastest  document  processing
time available in the short-run color printing industry.  The streamlined design
of the Fiery XJ architecture is a key component in increasing speed and reducing
the cost of Fiery Color Servers and Fiery embedded  controllers,  thereby making
this technology available to a wider range of consumers.  Fiery XJ+ architecture
delivers  double the  performance  at  substantially  lower  costs than  earlier
models.  The Company designed  specialized  RipChips(TM) that accompany the MIPS
R4600/R4700  100  Mhz/133  Mhz  RISC   microprocessors   and  accelerate   color
PostScript(TM)  processing.  Through  the use of these  ASICs,  the  Company has
minimized the chip count and reduced the key technology of the color server to a
single  board.  Additional  cost  reductions  result from the  Company's  Memory
Multiplier(TM)  technology,  which  allows for  full-resolution  continuous-tone
output with half the memory previously required.  The Fiery XJ architecture also
incorporates a new software technology,  Rip-While-Print(TM),  which enables one
page to be printed while subsequent  pages are  simultaneously  processed,  thus
eliminating  the delay caused by the cycling  down of the copier or printer.  As
with previous Fiery products, the Fiery XJ+ incorporates  PostScript(TM) Level 2
interpreter  software  from  Adobe  Systems,  related  system  software  and the
Company's  proprietary  software  utilities  for  use  on the  user's  networked
personal  computer.  The Company has  designed the Fiery XJ+ for use with Canon,
Xerox, Kodak, Minolta, Ricoh and Oce color copiers and is pursuing relationships
with other manufacturers of color copiers.

         The Fiery XJ for color copiers is currently sold in four configurations
which, except for those sold to Canon, are marketed under the name Fiery XJ+ and
offer a  wider  range  of  price/performance  capabilities  than  the  Company's
previous  products.  Initial shipments began in April 1996 of the Fiery XJ+ 170,
Fiery  XJ+ 250 and  Fiery  XJ+  300,  and in June  1996 for the  Fiery  XJ+ 500.
Estimated  street prices for those  products are $16,000,  $22,000,  $28,000 and
$45,000,  respectively.  Actual street prices are set by the Company's  OEMs and
may vary by dealer and specific product configuration.

         Fiery XJe - Desktop Color Laser Printers

         In 1996, the Company  continued to offer  manufacturers  of color laser
printers proven Fiery XJ technology embodied in the Fiery XJe Controller.

         The Fiery XJe  Controller  enables a new class of desktop  color  laser
printers  to print at faster  speeds  than the  current  market-leading  desktop
printers,  while maintaining superior output quality. With unrivaled performance
and output,  these printers are designed to fit in a wide range of environments,
including desktop

                                       4


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publishing,   pre-press  and  graphic   environments.   Speed,  output  quality,
networkability,  and remote  management  software make color printing with Fiery
Driven printers both affordable and easy. Most jobs that once required a service
bureau can now be done in-house, saving time and money for end users.

         Fiery XJe Controllers  are based on the proven  technology and scalable
architecture   developed  for  the  Company's   Fiery  XJ  Color  Servers.   The
single-board  design  of the  Fiery XJ and  Fiery  XJ+ allow the Fiery XJe to be
installed  inside a color laser printer or color  copier.  The Fiery XJe employs
both a  RISC-based  CPU  and  ASICs  for the  industry's  fastest  raster  image
processing  (RIP).  These  specially-designed  Fiery XJ Rip  Chips  speed up the
output of color  documents by off loading all data movement  functions  from the
Controller's  main  CPU,  which is then  free  for  PostScript  processing.  The
Company's  Rip-While-Print  technology  further speeds  printing by enabling one
page to be printed  while  subsequent  pages are  concurrently  processed.  With
Continuous Print, Fiery XJe Controllers eliminate the delay caused when printers
"cycle down" between  printing pages or jobs. Fiery XJe Controllers also provide
enhanced  print  quality,   generating  near   photographic-quality,   600  dpi,
continuous-tone output on all prints. Fiery Driven printers deliver consistently
high output quality even when printing large and complex color documents.

         With a built-in Ethernet interface and support for simultaneous  Novell
IPX,  TCP/IP  and  EtherTalk  network  protocols,   Fiery  Driven  printers  are
compatible with all popular networks. Fiery Driven printers come with a suite of
software tools that offer complete remote  management of print output from a PC,
Macintosh or UNIX desktop.  The tools  provide users with complete  control over
print queue  operations,  print options and print order.  Fiery Driven  printers
also include a print calibrator, enabling accurate calibration of color output.

         The Company began  shipping  Fiery XJe  Controllers to IBM in the third
quarter of 1996, in addition to the Fiery XJe  Controllers  it began shipping to
Canon and  Digital in 1995.  Furthermore,  the  Company  began  shipping  an XJe
embedded controller for the Ricoh Aficio 2000 series digital color copier in the
4th quarter of 1996.  The Fiery XJe for the Ricoh  Aficio 2000 is the  Company's
first embedded controller for a color laser copier.

         Fiery XJ-W - Wide-format Inkjet Printers

         In October  1996,  the Company  further  broadened its Fiery XJ product
offerings  by  announcing  the Fiery XJ-W, a controller  for  wide-format  color
printers. Based on the Fiery XJ architecture,  the Fiery XJ-W drives wide-format
color  inkjet  printers at their  maximum-rated  speed.  By December  1996,  the
Company  was  shipping  the Fiery XJ-W for the ENCAD  NovaJet Pro and in January
1997 the Company began shipping the Fiery XJ-W for the Hewlett Packard DesignJet
750C  printer.   The  Company  is  currently  selling  the  Fiery  XJ-W  through
distributors and wide-format color inkjet printer dealers.  The Fiery XJ-W has a
list price of $7,995.

         The Company's  Fiery XJ-W product faces  competition  from  wide-format
printer  manufacturers  that develop their own  controllers  and other companies
that develop  controllers for  wide-format  printers.  These  companies  include
Lasermaster, Onyx, Visual Edge, Cactus, Pisa Systems and Hewlett-Packard. Future
versions of these and other  companies'  controllers  for  wide-format  printers
developed by these  companies and new  companies  who develop  products for this
market may compete with the Fiery XJ-W Controllers.

         Fiery SI

         In December 1996, the Company released the first Fiery SI. The Fiery SI
is a standalone  color server that combines  Fiery  qualities to print  business
documents. Based on the proven Fiery XJ architecture,  the Fiery SI is optimized
for printing in the business office environment. The Fiery SI currently supports
color copiers and printers manufactured by Canon, Xerox, Minolta, Fuji Xerox and
Oce, and has a list price of $9,995.

         Fiery For High Speed Black-and-White Printers

         In September  1996,  the Company  announced that it had entered into an
agreement  with Oce  Printing  Systems for the Company to develop a Fiery Server
designed to drive Oce's high speed black-and-white printing systems.

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Distribution and Marketing

         Distribution

         Sales of Fiery XJ Color  Servers  designed  for  Canon,  Xerox,  Kodak,
Minolta,  Ricoh and Oce copiers  have been made through  these copier  companies
acting as systems  integrators  for  distribution  of these products  worldwide.
Sales of Fiery XJe Controllers  designed for Digital,  Canon,  IBM and Ricoh are
made  through  these  companies  which  integrate  the  Controllers  into  their
products.  See  "Significant  Relationships."  There is no assurance that future
operations will be successful,  nor that the risks of doing a significant amount
of business with few OEM customers,  will not  negatively  impact the Company in
the future. See "Risk Factors - Reliance On OEM Resellers; Risks Associated With
Significant OEM Group Concentration."

         The Company is currently  selling the Fiery XJ-W  through  distributors
and wide-format color inkjet printer dealers.  There is no assurance that future
sales of the Fiery XJ-W will be  successful,  nor that the risks of selling  the
Fiery XJ-W through  distributors and printer dealers will not negatively  impact
the Company in the future. See "Risk Factors - XJ-W Sales Channels."

         Marketing

         The Company  promotes its products  through  public  relations,  direct
mail,  advertising,  promotional  material,  trade  shows and  ongoing  customer
communication programs.


Training, Technical Support and Warranties

         The Company offers its OEM partners  training in the sale and servicing
of the Fiery XJ and SI Color  Server and the Fiery XJe  Controller.  The Company
offers its VARs and the various  dealers  training in the sale and  servicing of
Fiery XJ-W controllers for wide-format printers. The Company's training programs
include sales training, marketing support and systems engineering to ensure that
Fiery products are effectively sold, integrated into computing  environments and
properly  installed and maintained.  The Company endeavors to provide responsive
service and support to its OEM partners  and dealers  that sell Fiery  products,
who in turn have  responsibility  for  support  and  service to end  users.  See
"Distribution and Marketing."

         The Company  warrants its  products  against  defects in materials  and
workmanship on its hardware and software products.  To date, the Company has not
experienced significant claims under such warranties.


Research and Development

         Research  and  development  costs for 1996,  1995,  and 1994 were $22.4
million,  $12.9  million,  and $10.4 million,  respectively.  As of December 31,
1996, 164 of the Company's 354 full time employees were involved in research and
development,  quality  assurance and  documentation.  The Company  believes that
development of new products and  enhancement of existing  products are essential
to  its  continued  success,  and  management  intends  to  continue  to  devote
substantial  resources  to  research  and new product  development.  The Company
expects to make significant expenditures to support its research and development
programs.

         The Company is developing  Fiery products to support  additional  color
and  black-and-white  printing devices including desktop printers high-end color
copiers,   black-and-white  copiers  and  multi-function  devices.  The  ongoing
development work includes  multiprocessor  architecture for high-end systems and
lower-cost  designs  for  desktop  color  laser  printers.  The  Company is also
developing  several  options that it expects to make available to users of Fiery
XJ,  Fiery SI, Fiery XJe and Fiery XJ-W  products.  To remain  competitive,  the
Company  is  continuing  to  research   improved   compression  and  calibration
techniques  that would be released with future  revisions of the Fiery XJ, Fiery
SI, Fiery XJe and Fiery XJ-W. The Company will continue to conduct  research and
development to reduce the cost of manufacturing its products,  as well as update
and expand its Fiery product

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line.  Substantial  additional work will be required to complete the development
of these projects. See "Risks Factors - New Product Introductions."


Manufacturing

         Having successfully produced the Fiery XJ controllers,  the Company has
extended its product line into newer  controller  products,  the Fiery XJ+ Color
Servers, the Fiery XJe Controllers,  the Fiery XJ-W Controllers and the Fiery SI
Color Servers.  The Company made a smooth  transition from the Fiery XJ lines to
the Fiery XJ+ product line during the second  quarter of 1996.  All of the Fiery
XJ-related  products are assembled at Solectron  Corporation,  SMTC Center,  KBM
Electronics and at Micron Technology.  All subcontractors purchase a significant
quantity  of the  components  included  in the Fiery XJ  Products.  The Fiery XJ
design enables the Company to reduce the number of component suppliers.  All the
boards used in the Fiery XJ servers are built at ISIS  Surface  Mounting.  These
subcontractors  provide  turnkey  manufacturing  which  minimizes  the inventory
carrying  costs for the  Company.  This  strategy  has  allowed  the  Company to
continue to maximize  additional  quality  improvements and cost reduction.  The
only part  consigned at the assembly  subcontractors  are dynamic  random access
memory  ("DRAM"),  components.  The  Company  continues  to seek and to  qualify
additional  second-source suppliers for all components of the Fiery XJ series to
protect against potential supply  shortages.  (See "Risk Factors - Dependence on
Component Availability and Cost.")

         Throughout  1996,  the Company's  focus on cost  reductions and product
quality, combined with price decreases in certain memory components, resulted in
improved  gross  margins for the company,  and greater in process  manufacturing
yield rates.  In 1996, the Company  continued to use a  manufacturing/accounting
software package that is shared by the Company's  subcontractors to display real
time quality control and inventory information.  The Company's multiple sourcing
plan,  participation  in  the  quality  control  process  and  the  use  of  the
manufacturing/accounting  software  package  should allow the Company to further
improve product quality.  The Company provides a warranty accrual at the time of
sale that  approximates  projected  expenses  to be incurred  over the  warranty
period  which,  for the Fiery XJ  products,  ranges  from ninety days to fifteen
months from the date of delivery.  There can be no assurance  that the Company's
estimates regarding these matters will be accurate.

         The Company's  strategy  includes an  investment in critical  component
inventory  to  ensure  the  timely  delivery  of  Fiery  Products  and in  spare
components  to  maintain  the  installed  base of Fiery  Products.  The  Company
attempts to minimize  finished goods on hand. The Company had inventory  on-hand
of  approximately  $11.0  million and $7.8  million as of December  31, 1996 and
1995,  respectively.  Significant  fluctuations in the amount of inventory could
adversely affect the Company's operating results. No assurance can be given that
the Company  will  continue to be  successful  in  implementing  its strategy or
achieving its objectives.


Human Resources

         As of December  31, 1996,  the Company  employed  354  employees,  with
approximately  273  full  time  employees  located  primarily  in its San  Mateo
headquarters  and a  new  Foster  City  facility  which  the  Company  subleased
beginning in August 1996 (see "Item 2 -  Properties"),  and also 81 in its other
worldwide sales offices.  Of this total, 164 employees were engaged primarily in
research and development,  quality  assurance and  documentation,  125 employees
were  engaged  primarily  in sales  and  marketing  and  technical  support,  48
employees were engaged primarily in corporate  management and administration and
17  employees  were  engaged in  manufacturing  support.  Of the total number of
employees,  the  Company  had 13  employees  located  in the United  Kingdom,  5
employees in the Netherlands, 11 employees in Germany, 11 employees in Japan, 12
employees  in France,  2  employees  in Italy and 1  employee  in  Finland.  The
Company's   employees  are  not   represented  by  any   collective   bargaining
organization and the Company has never experienced a work stoppage.

         The Company's  future  success will depend,  in part, on its ability to
continue to attract,  retain and motivate highly qualified technical,  marketing
and  management  personnel,  all of whom are in great  demand.  To date,  in the
highly competitive Silicon Valley job market, the Company has been successful in
attracting and

                                       7


<PAGE>

retaining  required  personnel.  However,  there  can be no  assurance  that the
Company  will  continue to be  successful  in its  recruiting  efforts,  and the
inability  to  recruit,  or the  loss  of  certain  personnel  in  positions  of
substantial  responsibility  could  materially  adversely  affect the  Company's
business, operating results and financial condition.


Significant Relationships

         The Company has established relationships with a number of companies in
order to  benefit  from  their  products,  distribution  channels  or  marketing
resources.   The  following  is  a  discussion  of  the  Company's   significant
relationships with other companies.

         Adobe Systems

         Each Fiery Color Server requires page description  language software in
order to operate.  Adobe's PostScript(TM)  software is widely used to manage the
geometry,  shape and  topography  of hard copy  documents.  In March  1991,  the
Company  entered  into  a  Custom  PostScript(TM)   Interpreter  (CPSI)  License
Agreement  under  which the  Company  received a  non-exclusive  license to such
software.  For each copy of  PostScript(TM)  utilized in a Fiery Color Server or
controller,  the  Company is  required  to pay Adobe a royalty  determined  by a
percentage of the  aggregate  list price of the Fiery Color Server and the print
device with which it is used.  In  September  1995,  the Company  entered into a
PostScript(TM)  Support Source and Object Code  Distribution  License  Agreement
with Adobe.  With this Agreement,  the Company has access to support source code
that will  enable  customization  of that code to create and enhance new feature
developed by the Company.

         Canon

         In 1996, the Company  continued its  relationship  with Canon under the
terms of the OEM Purchase Agreement entered into between the Company in December
1995. The Company's OEM Purchase  Agreement with Canon provides for the sale and
distribution of Fiery XJ Color Servers  designed for Canon's CLC 700 and CLC 800
color  copiers  and Fiery SI Color  Servers  designed  for Canon's CLC 320 color
copier under the Canon brand name  "ColorPASS."  The  Agreement  provides  Canon
exclusive,  worldwide  distribution  rights  to  distribute  the  Fiery XJ Color
Servers that support all functions and features of the Canon color copiers.  The
OEM Purchase  Agreement  has an initial term of two years and may be renewed for
successive  terms of one year by  mutual  agreement  of the  parties.  Under the
Agreement, Canon has committed to certain minimum purchase requirements over the
two-year term.  Either the Company or Canon may terminate the Agreement upon the
expiration of sixty days notice of material breach of the agreement by the other
party, provided such breach is not cured within such sixty day period.

         During  1996,  the  Company  shipped  product  based  on the  Fiery  XJ
technology to Canon Inc. for the CLC family of copiers.  Fiery Color Servers are
now  sold  through  Canon  Inc.  to   approximately   1,000  Canon  dealers  and
distributors   worldwide.   The  substantial   majority  of  these  dealers  are
independently owned and the remainder are owned by Canon.

         To date, neither the Company nor its competitors offer full feature set
support for the CLC 700 and CLC 800 copiers.  The Company  expects to offer full
feature  set  support  for the CLC 700  and  CLC 800 in  version  3.1  software,
available in early April 1997.

         If Canon or a third party  offers a controller  that  supports the full
feature set of the CLC 700 and CLC 800 copiers  before the Company offers such a
controller,  sales of the Company's  products to support the CLC 700 and CLC 800
could be adversely affected.

         In addition, Canon currently markets its own PS-IPU3 and ColorPass 1000
controllers that compete with the Fiery Color Server. These controllers are also
compatible with Kodak and Agfa copiers.  Wide market acceptance of Canon's color
servers could adversely affect sales of the Company's Fiery Color Server.

                                       8


<PAGE>

         In March 1996, the Company entered into a Purchase Agreement with Canon
for the sale and  distribution by the Company of Fiery XJe embedded  controllers
to Canon for use in  Canon's  LBP line of  desktop  color  laser  printers.  The
Company began shipping these controllers to Canon in December 1995.

         Xerox

         In September 1991, the Company entered into an agreement with Xerox for
the sale and  distribution  of Fiery  Color  Servers  designed  for Xerox  color
copiers.  In September  1996,  the Company began shipping its Fiery XJ family of
network color server  products with support for the DocuColor 4040 - the fastest
color copier from Xerox.  During 1996, the Company also shipped product to Xerox
based on the Fiery XJ technology for the Xerox Regan and MajestiK Color copiers.
Fiery Color  Servers are sold  through the Xerox  worldwide  direct and indirect
sales organization under the Fiery trademark.

          The Company's agreement with Xerox had an initial term of three years,
but is  automatically  extended in one year increments if neither party provides
written  notice of  termination.  Either the Company or Xerox may  terminate the
agreement  upon the expiration of forty-five  days notice of material  breach of
the agreement by the other party,  provided such breach is not cured within such
forty-five day period.

         Kodak/Danka

         In November 1991, the Company  entered into an agreement with Kodak for
the sale and  distribution  of Fiery  Color  Servers  designed  for Kodak  color
copiers.  In 1996,  Danka  Business  Systems PLC  ("Danka")  acquired the sales,
marketing and equipment  service  operations of Kodak's office imaging  business
and the Company  agreed to assign  Kodak's rights under its Agreement with Kodak
to Danka.  During 1996, the Company shipped products to Kodak/Danka based on the
Fiery XJ technology for the Color Edge family of color  copiers,  which includes
the ColorEdge  1525+,  ColorEdge  1550+,  ColorEdge  1560,  and  ColorEdge  1565
copiers.  Fiery Color Servers are sold through the Kodak/Danka  worldwide direct
and indirect sales organization under the Fiery trademark.

         The  Company's  agreement  with  Kodak/Danka  automatically  renews  in
December of each year for  successive  one year terms unless  terminated  by the
Company in writing at least  thirty  days prior to the  renewal  date.  However,
Kodak may  terminate  the  agreement  at any time on thirty  days' notice to the
Company.  Either  the  Company or Kodak may  terminate  the  agreement  upon the
expiration  of thirty days notice of a material  breach of the  agreement by the
other party, provided such breach is not cured within such thirty day period.

         The  PS-IPU3  and  ColorPass  1000  currently  marketed  by  Canon  are
compatible  with  Kodak's  copiers,  which are  functionally  equivalent  to and
include the same  interface  as the Canon CLC 300,  CLC 500, CLC 700 and CLC 800
series of color  copiers.  At present,  neither the Company nor its  competitors
offers  full  feature  set support for the  ColorEdge  1565 and  ColorEdge  1560
copiers.  If Kodak or a third party offers a controller  that  supports the full
feature set of the ColorEdge  1565 and ColorEdge 1560 copiers before the Company
offers  such a  controller,  sales of the  Company's  products  to  support  the
ColorEdge 1565 and ColorEdge 1560 could be adversely affected.

         Minolta

         In October 1993, the Company entered into an agreement with Minolta for
the sale and  distribution  of Fiery Color  Servers  designed for Minolta  color
copiers.  During 1996, the Company shipped product to Minolta based on the Fiery
XJ technology  for the Minolta CF80 and CF900 color copier.  Fiery Color Servers
are sold through the Minolta  worldwide  direct and indirect sales  organization
under the Fiery trademark.

         The Company's agreement with Minolta had an initial term of three years
ending in October 1996, and automatically continues from year to year thereafter
unless  terminated on ninety days written notice by either party.  The Agreement
was not terminated by either party in 1996 and has therefore been  automatically
extended pursuant to its terms.  Either the Company or Minolta may terminate the
agreement  upon the expiration of forty-

                                       9


<PAGE>

five  days  notice  of  material  breach of the  agreement  by the other  party,
provided such breach is not cured within such forty-five day period.

         In July 1996,  the Company  began  shipping  color server  products for
Minolta's newly introduced CF900 digital color copier/printer.

         Ricoh

         The Company  entered into an agreement with Ricoh  effective  September
1994 for the sale and  distribution  of a version of the Fiery Color  Server for
Ricoh's  NC5006  color  copier.  This  Agreement  was renewed for an  additional
two-year term in September  1996.  During 1996, the Company  shipped  product to
Ricoh based on the technology for Ricoh's Aficio 5000 Series, NC5006 and NC8115,
Preter 300, 500 and 600 color  copiers.  In September  1996,  the Company  began
shipping the Fiery XJe Controller to Ricoh for use in Ricoh's Aficio 2000 series
digital copiers. Fiery Color Servers are sold through the Ricoh worldwide direct
and indirect sales organization under the Fiery trademark.

         The  Company's  agreement  with Ricoh has an initial  term of two years
ending in September  1998,  but may be renewed for  additional one year terms by
mutual  agreement of the parties.  Either the Company or Ricoh may terminate the
agreement  upon the  expiration  of sixty days notice of material  breach of the
agreement  by the other  party,  provided  such breach is not cured  within such
sixty day period.

         Oce

         During 1996, the Company  shipped  product to Oce based on the Fiery XJ
technology for Oce's 3107C and 3108C color copiers and entered into an agreement
with Oce to develop  controllers  for the Oce 3125c color  copier.  In September
1996,  the Company and Oce  announced  that the  Company  would  develop a Fiery
Controller for the high-speed  black-and-white printing system developed by Oce.
Fiery Color  Servers are sold  through the Oce  worldwide  distribution  channel
under the Fiery trademark.

         The  PS-IPU3  and  ColorPass  1000  currently  marketed  by  Canon  are
compatible with Oce copiers,  which are functionally  equivalent to, and include
the same  interface as the Canon CLC 300, CLC 500, CLC 700 and CLC 800 series of
color copiers.  At present,  neither the Company nor its competitors offers full
feature set support for Oce's 3107C and 3108C  copiers.  If Oce or a third party
offers a Controller  that supports the full feature set of Oce's 3107C and 3108C
copiers  before the Company  offers such a  controller,  sales of the  Company's
products  to  support  the  Oce's  3107C and 3108C  copiers  could be  adversely
affected.

         Fuji Xerox

         In March 1996, the Company entered into a Purchase  Agreement with Fuji
Xerox Co.  Ltd.  ("Fuji  Xerox"),  pursuant  to which Fuji Xerox is  entitled to
purchase Fiery Products from the Company.

         Digital

         In March 1996, the Company and Digital  entered into an Order Agreement
for the sale and  distribution by the Company of Fiery XJe embedded  controllers
to digital for use in the Digital Colorwriter LSR 2000+ color laser printer. The
Company began shipping the Fiery XJe embedded controllers to Digital in December
1995.

         IBM

         In May 1996, the Company entered into a Product Purchase Agreement with
IBM for  the  sale  and  distribution  by the  Company  of  Fiery  XJe  embedded
controllers  to IBM for use in the IBM Network  Color  Printer,  a desktop color
laser printer.  The Company began shipping Fiery XJe embedded controllers to IBM
in the third  quarter  of 1996  pursuant  to the terms of the  Product  Purchase
Agreement.

                                       10


<PAGE>

Risk Factors

         In addition to the above information,  the following factors may impact
the Company's future performance and financial results:

         Product Transitions

         The Company  plans to introduce  new Fiery and other  products in 1997.
Delays in the launch or availability of these new products could have an adverse
effect on the Company's  financial results.  Product  transitions also carry the
risk that  customers  will delay or cancel  orders for existing  models  pending
shipments  of new  models.  If the  Company is not able to  successfully  manage
future product transitions or cannot guarantee the availability of products, its
results of operations could be adversely affected.

         New Product Introductions

         The Company continues to look at opportunities to develop product lines
distinct  from the Fiery line.  Such new products may require the  investment of
capital for the  development of new  distribution  and marketing  channels at an
unknown cost to the Company. There can be no guarantee that the Company would be
successful  in the  development  of such  channels or that any new products will
gain market acceptance.  Further,  new products may directly impact the sales of
the Company's Fiery Products.  If the Company is not able to successfully manage
the  introduction of new products,  its results of operations could be adversely
affected.

         Competition

         The Company has seen  competition in the marketplace from companies and
products that provide similar  functionality  and believes that such competition
will continue and may intensify. There can be no assurance that the Company will
be able to continue to  successfully  compete against other  companies'  product
offerings.

         Fiery XJe

         The Company is currently selling the Fiery XJe Controller to Canon, IBM
and Digital  under OEM  agreements.  No assurance  can be given that the Company
will  continue  to  recognize  significant  revenue  from such sales or that the
Company  will be  successful  in  further  marketing  this  product to other OEM
partners or other parties.

         Reliance on OEM Partners

         No  assurance  can be given that the  Company  will  continue to supply
products to each of its current OEM  partners.  In the event that an OEM partner
discontinues  or reduces its level of purchases of Fiery  Products,  the Company
would  experience a significant  negative impact on its  consolidated  financial
position and results of operations.

         Fluctuations in Operating Results

         Operating  results may  fluctuate due to factors such as demand for the
Company's  products,  success and timing of the  introduction  of new  products,
price  reductions by the Company and its  competitors,  delay,  cancellation  or
rescheduling of orders, product performance, seasonal purchasing patterns of its
OEM  partners,  performance  of  third-party  manufacturers,  product  inventory
levels, availability of key components for the Company's products, the status of
the Company's  relationships  with its OEM partners and Adobe, among others, the
Company's  ability to develop and market new products,  the timing and amount of
sales and marketing  expenditures,  and the general demand for color copiers and
color laser printers.

                                       11


<PAGE>


         Limited Backlog

         The  Company  typically  does  not  obtain  long-term  volume  purchase
contracts from its customers, and a substantial portion of the Company's backlog
is scheduled  for delivery  within 90 days or less.  Customers may cancel orders
and change volume levels or delivery times without penalty.  Quarterly sales and
operating  results  therefore  depend on the volume and timing of the backlog as
well as bookings  received  during the  quarter.  A  significant  portion of the
Company's  operating  expenses  are fixed,  and planned  expenditures  are based
primarily on sales forecasts and product development  programs.  If sales do not
meet the  Company's  expectations  in any given  period,  the adverse  impact on
operating  results  may  be  magnified  by the  Company's  inability  to  adjust
operating  expenses  sufficiently  or quickly  enough to  compensate  for such a
shortfall.

         Currency Fluctuations

         The  Company  realized  approximately  51% of its  revenue in 1996 from
sales outside the United States,  including 21% from Japan. As such, the Company
faces a continuing risk in that the  strengthening of the U.S. dollar versus the
Japanese yen and major European  currencies could adversely impact the Company's
revenues and gross margin  through  lower unit demand and the necessity to lower
average  selling  prices  to  compensate  for  the  reduced  strength  of  local
currencies.

         Volatility of Stock Price

         Due to various  factors,  including  those noted above,  the  Company's
future  earnings  and stock  price may be  subject  to  significant  volatility,
particularly  on a quarterly  basis.  Any  shortfall in revenue or earnings from
levels  expected by securities  analysts could have an immediate and significant
adverse  effect on the trading price of the Company's  common stock in any given
period.  The Company  participates  in a highly  dynamic  industry,  which often
results in significant volatility for the Company's common stock price.

         Reliance on OEM Resellers;  Risks Associated With Significant OEM Group
         Concentration

         In fiscal  1996,  approximately  92% of the  Company's  net sales  were
accounted for by sales to Canon,  Xerox,  Ricoh and Minolta.  As of December 31,
1996,  these four  customers  accounted for  approximately  84% of the Company's
accounts receivable balance.

         The Company's strategy of selling  principally to OEMs anticipates that
the Company will be relying on high sales  volumes to a relatively  small number
of customers.  Although there can be no assurance that the major  customers will
continue to utilize the  Company's  products at current  levels,  if at all, the
Company  expects to  continue to depend upon such  customers  for a  significant
percentage of its revenues. A decline in demand for color copiers or color laser
printers,  or other factors affecting the computer industry in general, or major
customers in particular,  could have a material  adverse effect on the Company's
results of operations.

         The  Company  relies  upon the  ability  of its  OEM's to  develop  new
products,  applications and product  enhancements on a timely and cost-effective
basis. The ability of these OEMs to meet changing  customer needs and respond to
emerging industry standards and other technological  changes is essential to the
Company's continued success.  There is no assurance that the Company's OEMs will
effectively meet these technological  challenges.  These OEMs are not within the
control of the Company,  may incorporate into their products the technologies of
other companies in addition to those of the Company,  and, with the exception of
certain minimum  purchase  obligations,  are not obligated to purchase  products
from the Company.  There can be no assurance that any OEM will continue to carry
the  Company's  products,  and the loss of  important  OEMs,  or an inability to
recruit  additional  OEMs,  could  materially  adversely  affect  the  Company's
business, operating results and financial condition.

         The  Company's  sales  have  been  and  will  continue  to  be  heavily
influenced by order  quantities and timing of delivery to its OEMs. No assurance
can be given that the Company will be able to successfully maintain sales of the
Fiery  Products in any OEM  channel.  The  Company's  sales  could be  adversely
affected if an OEM introduces or supports  additional products that compete with
Fiery  Color  Servers,  fails to  effectively  market  the

                                       12


<PAGE>

Fiery Color  Server,  modifies its color copiers or printers such that the Fiery
Color  Server is no longer  compatible,  or  introduces  new  color  copiers  or
printers that are incompatible with the Fiery Color Server or does not allow the
Fiery Color Server to support all of the  features  available on its new copiers
or printers.

         Although  the Company is  pursuing,  and will  continue to pursue,  the
business  of  additional  color  and   black-and-white   copier  and  color  and
black-and-white laser printer OEMs, customer concentration will continue to be a
risk due to the  limited  number of OEMs  producing  color  and  black-and-white
copiers and color and black-and-white  laser printers in sufficient volume to be
attractive to the Company.

         International Operations

         Approximately  51%  of the  Company's  product  revenue  for  1996  was
attributable to international sales,  primarily in Europe and Japan. The Company
expects  that  international  sales will  continue to  represent  a  significant
portion of its total revenue. The Company is subject to certain risks associated
with international operations, including tariff regulations and requirements for
export   licenses,   particularly   with   respect  to  the  export  of  certain
technologies, which may on occasion be delayed or difficult to obtain.

         Proprietary Information

         The Company  relies on a  combination  of  copyright,  patent and trade
secret protection,  nondisclosure agreements,  and licensing and cross-licensing
arrangements to establish and protect its proprietary  rights. In addition,  the
Company owns eleven  issued U.S.  patents and has six U.S.  patent  applications
pending,  as well as some counterparts to these patents in other countries.  The
Company intends to file additional patent applications as appropriate. There can
be no assurance  that patents will issue from any of these pending  applications
or, if patents do issue,  that any claims allowed will be sufficiently  broad to
protect the Company's  technology.  In addition,  there can be no assurance that
any patents that may be issued to the Company,  or which the Company may license
from third parties, will not be challenged, invalidated or circumvented, or that
any rights  granted  thereunder  would  provide  proprietary  protection  to the
Company.  Although the Company  continues to implement  protective  measures and
intends to defend  its  proprietary  rights,  policing  unauthorized  use of the
Company's technology or products is difficult and there can be no assurance that
these measures will be  successful.  The Company has also entered into licensing
or  cross-licensing  agreements with several  companies,  including an agreement
with the Massachusetts Institute of Technology granting the Company an exclusive
license to two U.S. patents. There can be no assurance that such agreements will
not be  terminated  or that  the  Company  will be able to  enter  into  similar
arrangements on favorable terms, if required,  in the future.  In addition,  the
laws of certain  foreign  countries  may not protect the  Company's  proprietary
rights to the same extent as do the laws of the United States.

         Infringement and Potential Litigation

         The Company may receive in the future communications from third parties
asserting that the Company's products infringe, or may infringe, the proprietary
rights of third parties. There can be no assurance that any of these claims will
not result in  protracted  and costly  litigation.  While it may be necessary or
desirable  in the  future  to  obtain  licenses  relating  to one or more of its
products  or  relating  to  current  or  future  technologies,  there  can be no
assurance  that the  Company  will be able to do so on  commercially  reasonable
terms, or at all.

                                       13


<PAGE>

         Reliance on Adobe Systems

         Under the Adobe License  Agreement,  a separate license must be granted
for each type of copier or printer  used with a Fiery Server or  Controller.  To
date,   the  Company  has   successfully   obtained   licenses  to  use  Adobe's
PostScript(TM)  software for all Fiery Servers and  Controllers  that it offers.
However, the Company is required to seek Adobe's approval to expand the terms of
the Adobe License Agreement to use Adobe's PostScript(TM) in new products and in
certain new versions of the Company's existing  products.  Adobe is not required
to grant  any such  approval.  Although  the  Company  has been  able to  obtain
licenses for Adobe's PostScript(TM)  software as requested to date, no assurance
can be given that Adobe will continue to grant future licenses to PostScript(TM)
software as required by the Company on reasonable  terms, in a timely manner, or
at all.

         The  Company  is  required   under  the  Adobe  License   Agreement  to
participate in Adobe's quality  assurance program and receive approval each time
it integrates a new version of Adobe's PostScript(TM) software with its products
or develops a new product or  significantly  changes an  existing  product  that
incorporates  Adobe's  PostScript(TM)  software.  Obtaining such approval is not
within the Company's control and may be a lengthy process.  Although in the past
the Company has received  approval for its products from Adobe on a timely basis
and has not been required to delay product development efforts, no assurance can
be given that future approvals will be granted in a timely manner, or at all. If
the  Company  is unable to obtain  approval  of a product  from  Adobe,  product
introduction  will be delayed  because  the  Company  would be  required to seek
alternative page description language software from another supplier.

         If the Adobe  License  Agreement  is  terminated  for any reason or the
Company's   relationship  with  Adobe  is  otherwise  impaired,   the  Company's
operations  could be adversely  affected.  Although the Company believes that it
would be able to incorporate  alternative page description  language software in
its products,  such a change could limit the marketability of its products.  The
Adobe License  Agreement  expired in March 1996, and was extended for a one-year
period at the Company's  option.  The Company may continue to extend the license
at its option, subject to certain limitations, for successive periods subject to
Adobe's  consent  which may not be  unreasonably  withheld.  The  Adobe  License
Agreement may be canceled by either Adobe or the Company after the expiration of
thirty days written  notice of a material  breach of the  agreement by the other
party, provided such breach is not cured within such thirty-day period.

         XJ-W Sales Channels

         The Company is currently  selling the Fiery XJ-W  through  distributors
and wide-format  color inkjet dealers.  There are certain risks  associated with
selling  through  this  channel.  These  risks  include  the risk of  default on
payments  by  the   distributors  and  dealers  and,  because  the  dealers  and
distributors  generally do not make volume purchase  commitments,  the risk that
the Company may accumulate unsold units of the Fiery XJ-W in inventory.

                                       14


<PAGE>


I
tem 2: Properties.

         The Company's  principal  facility,  located in San Mateo,  California,
consists of approximately  50,000 square feet of office space leased pursuant to
an agreement  that  terminates  on June 30,  1999.  On March 8, 1996 the Company
entered into a sublease for an additional  28,000 square feet of office space in
a building  adjacent to its  principal  facility  pursuant to an agreement  that
terminates on January 6, 1998. This space is used for research and  development,
quality assurance,  sales,  marketing and administration.  On August 1 1996, the
Company  entered into a sublease for an additional  21,000 square feet of office
space in a building located in Foster City, California, pursuant to an Agreement
that  terminates  on August 1,  1997.  The office  space in Foster  City is used
primarily for the Company's support and manufacturing operations.

         In September 1996, the Company's  entered into a master operating lease
for land and a  building  to be  constructed  in Foster  City,  California.  The
facility is to be used as a corporate  headquarters for the Company. The Company
expects to vacate its existing  rental  facilities  in San Mateo and Foster City
upon completion of the new corporate headquarters.

         The Company also leases sales offices in:  Newport  Beach,  California;
Arlington,  Texas;  Chicago,  Illinois;  Rockland,  Massachusetts;  Iselin,  New
Jersey; Aventura,  Florida;  Arlington,  Virginia; Denver, Colorado and Clayton,
Ohio.  Additionally,  the Company  leases office space in the  following  cities
outside the United States: Ontario,  Canada;  Middlesex,  United Kingdom; Cedex,
France; Munich, Germany; Dusseldorf, Germany; Amsterdam, The Netherlands; Milan,
Italy; and Tokyo, Japan.



Item 3: Legal Proceedings.

         The Company is  involved  from time to time in  litigation  relating to
claims  arising in the normal  course of business.  Management is of the opinion
that the  ultimate  resolution  of such  claims will not  materially  affect the
Company's business or financial  position.  See "Risk Factors - Infringement and
Potential Litigation."



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

         None.



PART  II



Item 5:  Market for Registrant's Common Equity and Related Stockholder Matters.

         The  Company's  common  stock was first  traded on the NASDAQ  National
Market under the symbol EFII on October 2, 1992.  The table below lists the high
and low closing  quotation  during each quarter the stock was traded in 1996 and
1995, and reflects the effect of the Company's two-for-one stock split (See Note
8 of Notes to Consolidated Financial Statements). As of December 31, 1996, there
were  approximately 252 stockholders of record.  The Company has never paid cash
dividends on its capital stock. The Company  currently  anticipates that it will
retain all available funds for business, and does not anticipate paying any cash
dividends in the foreseeable future.

                                           1996
                      ---------------------------------------------
                        Q1           Q2           Q3           Q4
                      ---------------------------------------------
High                  $22.88       $42.69       $38.50       $42.75
Low                    15.38        22.25        25.63        33.75

                                           1995
                      ---------------------------------------------
                        Q1           Q2           Q3           Q4
                      ---------------------------------------------
High                  $14.00       $14.31       $17.94       $25.06
Low                     6.00         9.44        12.63        15.13


                                       15


<PAGE>



Item 6:  Selected Financial Data.


<TABLE>
         The following tables summarize selected consolidated  financial data as
of and for the five years ended December 31, 1996.  This  information  should be
read in  conjunction  with the audited  consolidated  financial  statements  and
related notes thereto.

(In thousands, except per share amounts)
<CAPTION>
                                                                          As of and for the years ended December 31,
                                                             ----------------------------------------------------------------------
                                                              1996            1995            1994           1993            1992
                                                             ----------------------------------------------------------------------
<S>                                                         <C>             <C>             <C>             <C>             <C>     
     Operations
Revenue                                                     $298,013        $190,451        $130,381        $ 89,526        $ 53,690
Gross profit                                                 152,614          95,000          66,048          49,603          32,178
Income before taxes                                           97,164          58,593          33,301          20,551           8,763
Net income                                                    62,184          37,500          21,306          12,751           6,588
Net income per share(1)                                     $   1.13        $   0.71        $   0.43        $   0.26        $   0.18
Shares used in computing net income per
     share(1)                                                 54,828          53,100          49,836          49,156          35,788

     Financial Position
Cash and short-term investments                             $212,100        $144,018        $106,974        $ 79,491        $ 45,193
Working capital                                              237,366         157,059         108,071          82,745          43,625
Total assets                                                 298,953         194,469         135,461         104,044          58,533
Stockholders' equity                                         249,370         163,940         113,529          88,307          47,374

     Ratios and Benchmarks
Current ratio                                                    5.8             6.1             5.9             6.3             4.9
Inventory turns                                                 15.5            11.8             9.9             9.1             8.2
Full-time employees                                              354             222             192             173             129

<FN>
(1) All per share data and shares used in computing  net income per share have been  restated to reflect the  Company's  two-for-one
stock split effective February 20, 1997. See Notes 1 and 8 of Notes to Consolidated Financial Statements.
</FN>
</TABLE>


                                       16


<PAGE>



Item 7: Management's  Discussion and Analysis of Financial Condition and Results
of Operations.

         The following  discussion  and analysis  should be read in  conjunction
with the audited  consolidated  financial  statements and related notes thereto.
All assumptions, anticipations,  expectations and forecasts contained herein are
forward-looking  statements that involve risks and uncertainties.  The Company's
actual results could differ materially from those discussed here. For a complete
discussion  of the factors that could impact the Company's  results,  please see
the section below entitled "Factors that Could Adversely Affect Performance" and
the section entitled "Risk Factors" above.

Results of Operations

         The  following  tables set forth  items in the  Company's  consolidated
statements of income as a percentage  of total revenue for 1996,  1995 and 1994,
and the year-to-year percentage change for certain items in 1996 and 1995. These
operating  results  are not  necessarily  indicative  of results  for any future
period.

                                                     Years ended December 31,
                                                 1996         1995         1994
                                                --------------------------------
     Revenue                                     100%         100%        100.0%
                                                -------      -------      ------
Gross profit                                     51.2%        49.9%        50.7%
Research and development                          7.5%         6.8%         8.0%
Sales and marketing                              10.1%        11.5%        14.3%
General and administrative                        3.4%         3.7%         5.1%
                                                -------      -------      ------
Income from operations                           30.2%        27.9%        23.3%
Other income                                      2.5%         2.9%         2.2%
                                                -------      -------      ------
Income before taxes                              32.7%        30.8%        25.5%
Provision for taxes                              11.8%        11.1%         9.2%
                                                -------      -------      ------
Net income                                       20.9%        19.7%        16.3%
                                                =======      =======      ======

                                        Years ended December 31,
                        --------------------------------------------------------
                             1996        Change    1995         Change    1994
                        --------------------------------------------------------
Total revenue             $298,013         56%   $190,451         46%   $130,381
Gross profit               152,614         61%     95,000         44%     66,048
Operating expenses          62,768         50%     41,883         17%     35,678
Net income                  62,184         66%     37,500         76%     21,306
Net income per share      $   1.13         59%   $   0.71         64%   $   0.43

Revenue

     The  Company's  revenue  was  $298.0  million in 1996,  compared  to $190.5
million  and $130.4  million in 1995 and 1994,  respectively,  and is  generally
attributable to the sale of Fiery Products  during these periods.  Substantially
all of the  Company's  sales in 1996 were to its OEM  partners,  reflecting  the
Company's  new  OEM  partnerships  with  IBM  and  Digital  and  its  continuing
relationships with Canon, Xerox,  Ricoh,  Kodak,  Minolta and Oce (see Note 7 of
Notes to Consolidated  Financial  Statements).  The increase in revenue reflects
continued  market  acceptance of the Company's  Fiery XJ and Fiery XJe products,
the expansion of the Company's sales and marketing organizations,  and increased
revenue from the Company's OEM sales channels due to the above-mentioned  market
acceptance and an increase in the number of the Company's OEM partners.

                                       17


<PAGE>

     The Company  completed  agreements  in the first quarter of 1996 with Canon
and Digital  Equipment  Corporation,  and in the second quarter of 1996 with IBM
Corporation,  under which these  companies  are  producing  desktop  color laser
printers using the Company's Fiery XJe  Controller.  The Fiery XJe Controller is
an embedded controller which, when combined with a specified color laser engine,
results in a desktop color laser printer with superior speed and output quality.

     International revenue continued to grow, from 41% of revenue in 1995 to 51%
in 1996.  Direct sales into Europe  increased $23.9 million to $75.3 million and
accounted for approximately 25% of revenue in 1996,  compared to 27% in 1995 and
1994,  respectively.  Direct sales into Japan  increased  $37.7 million to $63.7
million and accounted for  approximately  21% of revenue in 1996,  compared with
14% and 15% in 1995 and 1994,  respectively.  Increased international revenue in
each  year  was due  primarily  to the  continued  development  of  distribution
channels,  new agreements with certain OEM partners and the Company's  continued
investment in its international sales organizations.  Further, shipments to some
of  the  Company's  OEM  partners  are  made  to   centralized   purchasing  and
manufacturing  locations,  which in turn sell through to foreign locations. As a
result of these  factors,  the Company  believes that sales of its products into
Europe and Japan may actually be higher,  though  accurate  data is difficult to
obtain.  The  Company  expects  that  international  revenue  will  continue  to
represent a significant portion of its total revenue.

     During  1996,  the  Company  introduced  new  generations  of its  Fiery XJ
platform,  including  the Fiery XJ+ series of color  servers,  and broadened its
product  lines,  including a Fiery XJ+ 500 series of  high-speed  servers for 40
page-per-minute  color  copiers,  the  Fiery  XJ-W,  a  server  for  wide-format
printers,  and a low-end  Fiery SI series for the  under-$10,000  market.  These
product  offerings  were  introduced  in the latter half of 1996 and,  while the
initial  response  has been  favorable,  it is too soon to assess  the extent of
market acceptance.  The Company continues to work on the development of products
utilizing the Fiery XJ  architecture  and other products and intends to continue
to introduce new  generations  of Fiery  Products and other new product lines in
1997.

Cost of Revenue

         The  substantial  majority of the Company's cost of revenue to date has
been attributable to the sale of Fiery Products.  Such products are manufactured
by third-party manufacturers who purchase most of the necessary components.  The
Company sources directly  proprietary  memory and certain ASIC  components,  and
software  licensed  from  various  sources,   including  PostScript  interpreter
software, which the Company licenses from Adobe Systems, Inc.

         The  Company's  gross  margin was 51.2%,  49.9% and 50.7% of revenue in
1996, 1995, and 1994, respectively. Overall gross margins in 1996 were favorably
affected,  beginning in the second  quarter,  by broad declines in market prices
for DRAM and certain other components used in the Company's  products,  combined
with shipments late in the year of higher-margin Fiery XJ+ 500 units. Offsetting
this favorable  impact were the effect of certain  reductions in average selling
prices for selected Fiery products and a change in the mix of sales as shipments
of Fiery XJe Controllers,  sold at margins substantially lower than those of the
Company's  other products,  became a more  noticeable  portion of total revenue.
Gross margins in 1995 were unfavorably  impacted by the initial shipments in the
fourth  quarter of Fiery XJe  Controllers  and by the  reduction of shipments to
independent  Canon  dealers and  distributors,  pursuant to the  Company's  1995
agreement with Canon,  which were at higher margins than those achieved  through
the Company's OEM sales.

                                       18


<PAGE>

         The  Company's  gross  margin  depends  in part on prices it is able to
attain on its Fiery Products,  Fiery XJe Controllers  and future  products.  The
lower  manufacturing  costs of the  Fiery  models  have  given the  Company  the
flexibility to offer products with a broad range of prices. In addition,  as the
Company  continues to  introduce  new Fiery  Products,  it may continue to lower
prices on existing  products.  The Fiery XJe  Controller  will  continue to have
lower  margins than the  Company's  other  products,  reflecting  the  different
distribution and marketing  practices employed for desktop color laser printers.
Accordingly,  if the Fiery XJe Controller  continues to increase as a percentage
of revenue, the Company's overall gross margin is expected to decline, all other
things being equal.  In general,  gross margin will continue to be impacted by a
variety of factors including,  among others, the availability and pricing of key
components  (including  DRAM  and  PostScript  interpreter  software),  product,
channel and geographic mix, the success of the Company's product transitions and
new products,  competition, and general economic conditions. The Company expects
to  continue to take  further  steps to reduce  product  costs,  expand  product
offerings and control  operating  expenses;  however,  no assurance can be given
that these efforts will be successful.

Research and Development

         Expenses for research and  development  consist  primarily of personnel
expenses  and,  to a lesser  extent,  consulting  and  nonrecurring  engineering
services,   depreciation,   and  costs  of  prototype  materials.  Research  and
development  expenses were $22.4 million or 7.5% of revenue in 1996, compared to
$12.9  million (6.8% of revenue) and $10.4 million (8.0% of revenue) in 1995 and
1994,  respectively.  Research and  development  expenses  rose due primarily to
costs  associated  with an 80% growth in  engineering  headcount  and  increased
depreciation,  prototype and  nonrecurring  engineering  expenses related to the
development of Fiery Products.  The Company believes that the development of new
products and  enhancement  of existing  products are  essential to its continued
success,  and management intends to continue to devote substantial  resources to
research and new product development.  Accordingly, the Company expects that its
research and development  expenses may continue to increase in absolute  dollars
and possibly also as a percentage of revenue.

Sales and Marketing

         Sales and marketing  expenses  include  personnel  expenses,  costs for
trade shows,  marketing programs and promotional  materials,  sales commissions,
travel and entertainment expenses, depreciation, and costs associated with sales
offices in the United States, Europe and Japan. Sales and marketing expenses for
1996 were $30.2 million or 10.1% of revenue, compared to $21.9 million (11.5% of
revenue) and $18.6  million  (14.3% of revenue) in 1995 and 1994,  respectively.
While sales and marketing expenses decreased as a percentage of total revenue in
both 1996 and 1995,  these  expenses  have  increased in absolute  dollars.  The
increase in 1996 was due to a 40% increase in headcount, primarily in the United
States, and costs required for the introduction,  promotion and support of Fiery
XJ+  products.  The  increase in 1995 was due to increases  in  headcount,  also
primarily in the United States, and costs related to the introduction, promotion
and support of Fiery XJ products, including the Fiery XJe Controller line.

         Decreases in sales and  marketing  expenses as a percentage  of revenue
are due to the Company's increased sales to its OEM partners and continuing cost
control  measures,  including the  consolidation in 1995 of certain  duplicative
European  sales  facilities.  The Company  expects that its sales and  marketing
expenses may increase in absolute  dollars and possibly  also as a percentage of
revenue as it continues to actively  promote its products,  launch new Fiery and
other products, and build its sales and marketing organization,  particularly in
Europe and Japan.

                                       19


<PAGE>

General and Administrative

         General and  administrative  expenses  consist  primarily  of personnel
expenses and, to a lesser extent,  depreciation and facility costs, professional
fees  and  certain  costs   associated  with  public   companies.   General  and
administrative  expenses were $10.1 million or 3.4% of revenue in 1996, compared
to $7.0 million (3.7% of revenue) and $6.7 million (5.1% of revenue) in 1995 and
1994,  respectively.  While general and  administrative  expenses decreased as a
percentage of total revenue in both 1996 and 1995, these expenses have increased
in absolute  dollars.  The increases in 1996 and 1995 were  primarily due to the
addition of personnel to support the Company's  operations.  The Company expects
that its  general  and  administrative  expenses  may  continue  to  increase in
absolute  dollars  and  possibly  also as a  percentage  of  revenue in order to
support any growth in operations.

Income Taxes

         The Company's  effective tax rate was 36.0% in 1996,  1995 and 1994. In
each year the Company benefited from increased  tax-exempt income,  increases in
foreign  sales and the  utilization  of  research  and  development  credits  in
achieving a  consolidated  effective tax rate lower than that  prescribed by the
respective taxing authorities.  The Company anticipates that these benefits will
continue to have a favorable impact on the Company's  consolidated effective tax
rate.

Liquidity and Capital Resources

         Cash, cash equivalents and short-term  investments  increased to $212.1
million as of December 31, 1996, up from $144.0 million as of December 31, 1995.
Working  capital  increased to $237.4  million as of December 31, 1996,  up from
$157.1 million as of December 31, 1995. These increases are primarily the result
of profitable operations and stock-related financing activities.

         Net cash  provided by operating  activities  was $55.7  million,  $28.6
million and $26.4 million in 1996, 1995 and 1994, respectively. Cash provided by
operating  activities  was offset by an increased  investment  in inventory  and
accounts  receivable due to growth in the Company's  business and by an increase
in other  current  assets  primarily  related to  consigned  inventory  sales to
third-party subcontractors.

         The Company's capital  expenditures to date have generally consisted of
investments  in  computers  and  related  peripheral  equipment  for  use in the
Company's  operations and research and development,  and office  furniture.  The
Company purchased  approximately $10.7 million, $4.5 million and $2.8 million of
such equipment and furniture during 1996, 1995 and 1994, respectively.

         The  Company  is  working  with the City of  Foster  City to  develop a
corporate  campus on a 35-acre  parcel of land in Foster City.  The  anticipated
purchase  price of this  parcel is  approximately  $24.5  million.  The  Company
anticipates funding this purchase during the year ending December 31, 1997.

         Net cash  provided by  financing  activities  of $23.2  million,  $12.9
million and $3.9 million in 1996, 1995 and 1994,  respectively,  were the result
of exercises of common stock options and the related tax benefits.

         The Company's  inventory  consists primarily of memory subsystems which
are   consigned  to   third-party   contract   manufacturers   responsible   for
substantially  all of the  Company's  products.  Should  the  Company  decide to
purchase components and do its own manufacturing,  or should it become necessary
for the Company to purchase and consign components other than the ASIC or memory
subsystems  for its contract  manufacturers,  inventory  balances would increase
significantly, thereby reducing the Company's available cash resources. Further,
these  contract   manufacturers  produce  substantially  all  of  the  Company's
products.  The  Company  believes  that,  should  the  services  of any of these
contract manufacturers become unavailable,  a significant negative impact on the
Company's  consolidated  financial  position  and  results of  operations  could
result. The Company is also reliant on several sole-source suppliers for certain
key components and could experience a further significant negative impact on its
consolidated  financial  position and results of  operations  if such supply was
reduced or not available.

                                       20


<PAGE>

         In  January  1997,  the  Company's  Board  of  Directors  authorized  a
two-for-one  stock split in the form of a stock dividend payable on February 20,
1997, to  stockholders  of record as of February 10, 1997. All references in the
consolidated  financial  statements to average numbers of shares outstanding and
related prices,  per share amounts and stock option plan data have been restated
to reflect the stock split.

         The Company believes that its existing capital resources  together with
cash  generated  from  continuing  operations  will be  sufficient  to fund  its
operations and meet capital requirements through at least 1997.

Factors That Could Adversely Affect Performance

     The  following may impact the Company's  future  performance  and financial
results:

     Product  Transitions.  The Company  plans to introduce  new Fiery and other
products in 1997.  Delays in the launch or  availability  of these new  products
could  have an  adverse  effect  on the  Company's  financial  results.  Product
transitions  also carry the risk that  customers will delay or cancel orders for
existing models pending  shipments of new models.  If the Company is not able to
successfully   manage  future  product   transitions  or  cannot  guarantee  the
availability of products, its results of operations could be adversely affected.

     New Product  Introductions.  The Company continues to look at opportunities
to develop  product lines  distinct  from the Fiery line.  Such new products may
require the investment of capital for the  development of new  distribution  and
marketing channels at an unknown cost to the Company.  There can be no guarantee
that the Company would be successful in the development of such channels or that
any new products will gain market acceptance. Further, new products may directly
impact the sales of the Company's Fiery products.  If the Company is not able to
successfully manage the introduction of new products,  its results of operations
could be adversely affected.

     Competition.  The  Company has seen  competition  in the  marketplace  from
companies and products that provide similar functionality and believes that such
competition will continue and may intensify.  There can be no assurance that the
Company  will  be  able  to  continue  to  successfully  compete  against  other
companies' product offerings.

     Fiery XJe. The Company is  currently  selling the Fiery XJe  Controller  to
Canon, IBM and Digital under OEM agreements.  No assurance can be given that the
Company will continue to recognize  significant  revenue from such sales or that
the Company will be  successful in further  marketing  this product to other OEM
partners or other parties.

     Reliance on OEM  Partners.  No assurance can be given that the Company will
continue to supply  products to each of its current OEM  partners.  In the event
that an OEM  partner  discontinues  or reduces its level of  purchases  of Fiery
Products,  the Company  would  experience a significant  negative  impact on its
consolidated financial position and results of operations.

     Fluctuations in Operating  Results.  Operating results may fluctuate due to
factors  such as demand for the  Company's  products,  success and timing of the
introduction  of  new  products,   price  reductions  by  the  Company  and  its
competitors, delay, cancellation or rescheduling of orders, product performance,
seasonal  purchasing  patterns of its OEM partners,  performance  of third-party
manufacturers,  product inventory levels, availability of key components for the
Company's  products,  the  status of the  Company's  relationships  with its OEM
partners and Adobe,  among others,  the Company's  ability to develop and market
new products, the timing and amount of sales and marketing expenditures, and the
general demand for color copiers and color laser printers.

     Limited  Backlog.  The Company  typically does not obtain  long-term volume
purchase  contracts  from  its  customers,  and a  substantial  portion  of  the
Company's  backlog is scheduled for delivery  within 90 days or less.  Customers
may cancel orders and change volume  levels or delivery  times without  penalty.
Quarterly sales and operating  results therefore depend on the volume and timing
of the backlog as well as bookings  received  during the quarter.  A significant
portion of the Company's operating expenses are fixed, and planned  expenditures
are based  primarily on sales  forecasts and product  development  programs.  If
sales do not meet the Company's  expectations  in any given period,  the adverse
impact on  operating  results may be  magnified  by the  Company's  inability to
adjust operating expenses  sufficiently or quickly enough to compensate for such
a shortfall.

                                       21


<PAGE>

     Currency  Fluctuations.  The  Company  realized  approximately  51%  of its
revenue in 1996 from sales outside the United States,  including 21% from Japan.
As such, the Company faces a continuing  risk in that the  strengthening  of the
U.S.  dollar  versus  the  Japanese  yen and  major  European  currencies  could
adversely  impact the  Company's  revenues and gross margin  through  lower unit
demand and the necessity to lower average  selling  prices to compensate for the
reduced strength of local currencies.

     Volatility of Stock Price.  Due to various  factors,  including those noted
above,  the  Company's  future  earnings  and  stock  price  may be  subject  to
significant  volatility,  particularly  on a quarterly  basis.  Any shortfall in
revenue or earnings from levels  expected by securities  analysts  could have an
immediate and  significant  adverse effect on the trading price of the Company's
common stock in any given period.  The Company  participates in a highly dynamic
industry, which often results in significant volatility for the Company's common
stock price.




I
tem 8:  Financial Statements and Supplementary Data.

Information  with respect to this item may be found as  referenced  in the table
below.

     Consolidated Balance Sheets..............................................23
     Consolidated Statements of Income........................................24
     Consolidated Statements of Stockholders' Equity..........................25
     Consolidated Statements of Cash Flows....................................26
     Notes to Consolidated Financial Statements...............................27

     Report of Independent Accountants........................................33
     Quarterly Consolidated Financial Information (Unaudited).................34

                                       22


<PAGE>


                          Electronics for Imaging, Inc.
                           Consolidated Balance Sheets


                                                                 December 31,
                                                             -------------------
(In thousands, except share and per share amounts)             1996        1995
                                                             -------------------


Assets

Current assets:
Cash and cash equivalents                                    $ 71,946   $ 46,006
Short-term investments                                        140,154     98,012
Accounts receivable                                            40,875     27,588
Inventories                                                    11,004      7,809
Other current assets                                           22,970      8,173
                                                             --------   --------

         Total current assets                                 286,949    187,588

Property and equipment, net                                    10,640      5,469
Other assets                                                    1,364      1,412
                                                             --------   --------

                  Total assets                               $298,953   $194,469
                                                             ========   ========


Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable                                             $ 16,355   $ 10,630
Accrued and other liabilities                                  25,980     12,023
Income taxes payable                                            7,248      7,876
                                                             --------   --------

         Total current liabilities                             49,583     30,529
                                                             --------   --------

Commitments

Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000
     shares authorized; none issued and
     outstanding                                                 --         --
Common stock, $.01 par value; 150,000,000
     shares authorized; 51,503,314 and
     24,971,350 shares issued and outstanding,
     respectively                                                 515        250
Additional paid-in capital                                    112,660     89,679
Retained earnings                                             136,195     74,011
                                                             --------   --------

         Total stockholders' equity                           249,370    163,940
                                                             --------   --------

              Total liabilities and stockholders' equity     $298,953   $194,469
                                                             ========   ========

See accompanying notes to consolidated financial statements.

                                       23


<PAGE>


                          Electronics for Imaging, Inc.
                        Consolidated Statements of Income




<TABLE>
                                                     Years ended December 31  
                                                -----------------------------------
<CAPTION>
 (In thousands, except per share amounts)         1996         1995          1994
                                                ---------    ---------    ---------
<S>                                             <C>          <C>          <C>      
Revenue                                         $ 298,013    $ 190,451    $ 130,381

Cost of revenue                                   145,399       95,451       64,333
                                                ---------    ---------    ---------

                                                  152,614       95,000       66,048

Operating expenses:

Research and development                           22,440       12,922       10,387

Sales and marketing                                30,221       21,938       18,601

General and administrative                         10,107        7,023        6,690
                                                ---------    ---------    ---------

                                                   62,768       41,883       35,678
                                                ---------    ---------    ---------

Income from operations                             89,846       53,117       30,370

Other income                                        7,318        5,476        2,931
                                                ---------    ---------    ---------


Income before income taxes                         97,164       58,593       33,301

Provision for income taxes                        (34,980)     (21,093)     (11,995)
                                                ---------    ---------    ---------


Net income                                      $  62,184    $  37,500    $  21,306
                                                =========    =========    =========


Net income per share                            $    1.13    $    0.71    $    0.43
                                                =========    =========    =========


Shares used in computing net income per share      54,828       53,100       49,836
                                                =========    =========    =========


<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>


                                                24


<PAGE>


<TABLE>

                                                    Electronics for Imaging, Inc.
                                           Consolidated Statements of Stockholders' Equity

<CAPTION>




                                                                          Common Stock          Additional
                                                                     -----------------------     Paid-in       Retained
(In thousands)                                                        Shares        Amount       Capital       Earnings      Total
                                                                     ---------     ---------    ---------     ---------    ---------
<S>                                                                     <C>              <C>       <C>           <C>          <C>   
Balances as of December 31, 1993                                        11,596           116       72,986        15,205       88,307


Exercise of common stock options                                           393             4        1,188          --          1,192

Tax benefit related to stock plans                                        --            --          2,724          --          2,724

Net income for the year ended
     December 31, 1994                                                    --            --           --          21,306       21,306
                                                                     ---------     ---------    ---------     ---------    ---------

Balances as of December 31, 1994                                        11,989           120       76,898        36,511      113,529

Exercise of common stock options                                           994            10        5,465          --          5,475

Tax benefit related to stock plans                                        --            --          7,436          --          7,436

Effect of two-for-one stock split                                       11,988           120         (120)         --

Net income for the year ended December 31, 1995                           --            --           --          37,500       37,500
                                                                     ---------     ---------    ---------     ---------    ---------

Balances as of December 31, 1995                                        24,971           250       89,679        74,011      163,940

Exercise of common stock options                                           780             8        7,691          --          7,699

Tax benefit related to stock plans                                        --            --         15,547          --         15,547

Effect of two-for-one stock split (see Note 8)                          25,752           257         (257)         --           --

Net income for the year ended December 31, 1996                           --            --           --          62,184       62,184
                                                                     ---------     ---------    ---------     ---------    ---------

Balances as of December 31, 1996                                        51,503     $     515    $ 112,660     $ 136,195    $ 249,370
                                                                     =========     =========    =========     =========    =========

<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>


                                                                 25


<PAGE>



<TABLE>
                                                    Electronics for Imaging, Inc.
                                                Consolidated Statements of Cash Flows
<CAPTION>

                                                                                               Years ended December 31,
                                                                                      ---------------------------------------------
 (In thousands)                                                                         1996              1995              1994
                                                                                      ---------         ---------         ---------

<S>                                                                                   <C>               <C>               <C>      
Cash flows from operating activities:
Net income                                                                            $  62,184         $  37,500         $  21,306
Adjustments to reconcile net income to net cash
provided by operating activities:
     Depreciation and amortization                                                        5,484             3,414             3,140
     Deferred taxes                                                                      (4,135)           (1,313)           (1,465)
     Changes in operating assets and liabilities:
         Accounts receivable                                                            (13,287)          (18,849)            2,311
         Inventories                                                                     (3,195)              614            (4,035)
         Other current assets                                                           (10,378)           (1,362)           (1,092)
         Accounts payable and accrued liabilities                                        19,682             6,549             2,616
         Income taxes payable                                                              (628)            2,048             3,579
                                                                                      ---------         ---------         ---------

     Net cash provided by operating activities                                           55,727            28,601            26,360
                                                                                      ---------         ---------         ---------

Cash flows from investing activities:
Purchases of short-term investments                                                    (213,919)         (168,556)         (103,759)
Sales/maturities of short-term investments                                              171,777           147,299            76,934
Investment in property and equipment, net                                               (10,655)           (4,528)           (2,844)
Other assets                                                                               (236)               60                51
                                                                                      ---------         ---------         ---------

     Net cash used for investing activities                                             (53,033)          (25,725)          (29,618)
                                                                                      ---------         ---------         ---------

Cash flows from financing activities - Issuance of common stock,
     including tax benefit related to stock plans                                        23,246            12,911             3,916
                                                                                      ---------         ---------         ---------
Increase in cash and cash equivalents                                                    25,940            15,787               658
Cash and cash equivalents at beginning of year                                           46,006            30,219            29,561
                                                                                      ---------         ---------         ---------

Cash and cash equivalents at end of year                                              $  71,946         $  46,006         $  30,219
                                                                                      =========         =========         =========

Supplemental disclosure - cash paid for income taxes                                  $  23,715         $  12,463         $   6,998
                                                                                      =========         =========         =========

<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>


                                                                 26


<PAGE>


Electronics for Imaging, Inc.
Notes to Consolidated Financial Statements

Note 1:  The Company and Its Significant Accounting Policies

The Company and Its Business

     Electronics  for Imaging,  Inc. (the  "Company"),  a Delaware  corporation,
designs and markets  products that enable  high-quality  color printing in short
production   runs.  Its  Fiery  products   incorporate   hardware  and  software
technologies  that  transform  digital  color  copiers  from all leading  copier
manufacturers  into  fast,  high-quality  networked  color  printers.  Fiery XJe
Controllers leverage these technologies to increase the output speed and improve
the print quality of desktop color laser printers.  The Company  operates in one
industry and sells its products primarily to original equipment manufacturers in
North America,  Europe and Japan.  Substantially all of the Company's revenue to
date has resulted from the sale of Fiery products.

Summary of Significant Accounting Policies

     Basis of Presentation.  The accompanying  consolidated financial statements
include  the  accounts  of the Company  and its  subsidiaries.  All  significant
intercompany accounts and transactions have been eliminated in consolidation.

     The  preparation of  consolidated  financial  statements in conformity with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure  of  contingent  assets  and  liabilities  as  of  the  date  of  the
consolidated  financial  statements  and the  reported  amounts of  revenue  and
expenses  during the reporting  period.  Actual  results could differ from these
estimates.

     Revenue  Recognition.  Revenue is  recognized  when the product is shipped,
provided no  significant  obligations  remain and  collectibility  is  probable.
Provisions for estimated warranty costs and potential sales returns are recorded
when revenue is recognized.

     Cash, Cash Equivalents and Short-Term  Investments.  The Company  generally
invests its excess cash in deposits with major banks,  money market  securities,
and municipal and U.S. government  securities.  The Company is exposed to credit
risk in the event of default by the financial  institutions  or issuers of these
investments to the extent of amounts recorded on the consolidated balance sheet.

     The Company has adopted Statement of Financial  Accounting Standards (SFAS)
No. 115,  Accounting for Certain  Investments in Debt and Equity Securities.  In
accordance  with  SFAS No.  115,  the  Company  has  classified  its  investment
portfolio as  available-for-sale.  Available-for-sale  securities  are stated at
fair value with unrealized gains and losses reported as a separate  component of
stockholders'  equity.  Such unrealized  gains and losses have  historically not
been material.

     Cash  equivalents  consist of short-term,  highly liquid  investments  with
original  maturities  of three  months or less.  As of December  31,  1996,  the
Company had approximately $150.2 million of  available-for-sale  securities,  of
which  approximately  $10.1  million were  classified  as cash  equivalents  and
approximately  $68.7 million had stated maturities  greater than one year. As of
December   31,  1995,   the  Company  had   approximately   $100.9   million  of
available-for-sale   securities,   of  which  approximately  $2.9  million  were
classified  as cash  equivalents  and  approximately  $51.2  million  had stated
maturities  greater  than one  year.  None of the  Company's  available-for-sale
securities  had  maturities  greater  than two years as of December  31, 1996 or
1995.

     Concentration  of Credit Risk. The Company  asexposed to credit risk in the
event of default by any of its  customers  to the extent of amounts  recorded on
the consolidated  balance sheet. The Company performs ongoing credit evaluations
of its  customers'  financial  condition  and  maintains  reserves for estimated
credit losses; such actual losses have been within management's expectations.

     Inventories. Inventories are stated at standard costs which approximate the
lower of actual cost using a first-in,  first-out method, or market. The Company
periodically reviews its inventories for potential slow-moving or obsolete items
and writes down specific items to net realizable value as appropriate.

                                       27


<PAGE>

     Property  and  Equipment.  Property  and  equipment  are  recorded at cost.
Depreciation  is computed  using the  straight-line  method  over the  estimated
useful  lives  of  the  assets,   generally  three  to  five  years.   Leasehold
improvements  are amortized  using the  straight-line  method over the estimated
useful lives of the improvements or the lease term, if shorter.

     Income Taxes.  The Company uses the asset and liability method to calculate
deferred  income  taxes.  The  realization  of  deferred  tax assets is based on
historical  tax positions  and  expectations  about future  taxable  income.  No
provision has been made for the undistributed  earnings of the Company's foreign
subsidiaries,  as it is the Company's  intention to indefinitely  reinvest these
earnings in the respective subsidiaries.

     Foreign Currency  Translation.  Subsidiaries  with accounts  denominated in
foreign  currencies have been translated in accordance with SFAS No. 52, Foreign
Currency Translation,  using the U.S. dollar as the functional currency. Foreign
currency  translation and transaction gains and losses have not been significant
in any period.

     Stock  Compensation.  In October 1995, the Financial  Accounting  Standards
Board  issued  SFAS No. 123,  Accounting  for Stock  Compensation.  SFAS No. 123
establishes an accounting  method based on the fair value of equity  instruments
awarded to  employees  as  compensation.  The  Company has elected to retain its
current  application  of  Accounting  Principles  Board  (APB)  Opinion  No. 25,
Accounting for Stock Issued to Employees.  The Company has adopted, as required,
the disclosure provisions of SFAS No. 123.

     Stock Split. The Company effected on February 20, 1997, a two-for-one stock
split in the form of a stock dividend  payable to  stockholders  of record as of
February 10, 1997 (see Note 8). All  references  in the  consolidated  financial
statements to weighted average numbers of shares outstanding and related prices,
per share  amounts and stock option plan data have been  restated to reflect the
stock split.

     Net Income per Share.  Net income per share is computed  using the weighted
average  number of common  and  common  equivalent  shares  outstanding.  Common
equivalent  shares result from the assumed  exercise,  using the treasury  stock
method, of outstanding common stock options having a dilutive effect.

                                       28

<PAGE>

Note 2:   Balance Sheet Components
                                                             December 31,
                                                        ------------------------
(in thousands)                                            1996           1995
                                                        -----------------------

Short-term investments:

Municipal securities                                    $ 137,315     $  93,479
U.S. government securities                                  2,839         4,533
                                                        ---------     ---------

                                                        $ 140,154     $  98,012
                                                        =========     =========

Accounts receivable:

Accounts receivable                                     $  42,787     $  29,158
Less allowances for doubtful accounts
      and sales-related reserves                           (1,912)       (1,570)
                                                        ---------     ---------

                                                        $  40,875     $  27,588
                                                        =========     =========

Inventories:

Raw materials                                           $   6,696     $   3,971
Work in process                                             3,374         3,734
Finished goods                                                934           104
                                                        ---------     ---------

                                                        $  11,004     $   7,809
                                                        =========     =========


Property and equipment:

Equipment and purchased software                        $  21,901     $  12,805

Furniture and leasehold improvements                        3,907         2,348
                                                        ---------     ---------
                                                           25,808        15,153
Less accumulated depreciation and amortization            (15,168)       (9,684)
                                                        ---------     ---------

                                                        $  10,640     $   5,469
                                                        =========     =========

Accrued and other liabilities:

Accrued product-related obligations                     $  13,588     $   5,788
Accrued compensation and benefits                           2,261         1,344
Other accrued liabilities                                  10,131         4,891
                                                        ---------     ---------

                                                        $  25,980     $  12,023
                                                        =========     =========


Note 3:   Commitments

     The Company leases its principal  operating  facility under a noncancelable
operating lease expiring in June 1997.  Future minimum lease  commitments  under
noncancelable  operating  leases for  facilities  and  certain  equipment  as of
December 31, 1996 are approximately  $1,629,000,  $799,000 and $436,000 in 1997,
1998  and  1999,  respectively.   Rent  expense  was  approximately  $2,062,000,
$1,895,000 and $1,850,000 in 1996, 1995 and 1994, respectively.

                                       29


<PAGE>


Note 4:   Income Taxes

     The provision for income taxes is summarized as follows:

                                                   Years ended December 31,
                                               --------------------------------
(in thousands)                                   1996        1995        1994
                                               --------------------------------

Current:
U.S. federal                                   $ 32,309    $ 18,372    $ 10,295
State                                             6,186       3,673       2,778
Foreign                                             620         361         387
                                               --------    --------    --------

     Total current                               39,115      22,406      13,460

Deferred:
U.S. federal                                     (3,203)     (1,079)     (1,222)
State                                              (932)       (234)       (243)
Foreign                                            --          --           --
     Total deferred                              (4,135)     (1,313)     (1,465)
                                               --------    --------    --------

         Total provision for income taxes      $ 34,980    $ 21,093    $ 11,995
                                               ========    ========    ========


     The tax effects of  temporary  differences  that give rise to deferred  tax
assets are as follows:

                                                                December 31,
                                                           ---------------------
(in thousands)                                              1996           1995
                                                           ---------------------

Depreciation                                               $  669         $  837
Reserves and accruals                                       7,457          3,368
State taxes payable                                         1,188            775
Other                                                         277            476
                                                           ------         ------

     Total deferred tax assets                             $9,591         $5,456
                                                           ======         ======


     A reconciliation  between the income tax provision  computed at the federal
statutory rate and the actual tax provision is as follows:

                                                    Years ended December 31,
                                               --------------------------------
(in thousands)                                   1996        1995        1994
                                               --------------------------------


Tax expense at federal statutory rate          $ 34,007    $ 20,509    $ 11,658
State income taxes, net of federal benefit        3,415       2,235       1,648
Tax-exempt interest income                       (2,099)     (1,488)       (853)
Other                                              (344)       (163)       (458)
                                               --------    --------    --------

                                               $ 34,979    $ 21,093    $ 11,995
                                               ========    ========    ========


Note 5:   Common Stock

     In October 1995, the Company's Board of Directors  authorized a two-for-one
stock split in the form of a stock  dividend  payable on November 30,  1995,  to
stockholders  of record as of  November  20,  1995.  On

                                       30


<PAGE>

November 1, 1995, the  stockholders  of the Company  approved an amendment to
the articles of  incorporation  to increase the number of shares of common stock
authorized for issuance to 150,000,000.

Note 6:   Stock Compensation Plans

As of December 31, 1996,  the Company has two  stock-based  compensation  plans,
described   below.   The  Company   applies  APB  Opinion  No.  25  and  related
Interpretations in accounting for its plans.  Accordingly,  no compensation cost
has been recognized for its fixed stock option plans. Had compensation  cost for
options  granted  in 1996  and  1995  under  the  Company's  option  plans  been
determined  based on the fair value at the grant dates as prescribed by SFAS No.
123, the Company's net income and pro forma net income per share would have been
as follows:

                                                         December 31,
                                                ----------------------------
(in thousands, except per share amounts)              1996            1995
                                                ----------------------------

Net income                 As reported           $    62,184    $     37,500
                           Pro forma             $    58,304    $     36,057

Earnings per share         As reported           $      1.13    $       0.71
                           Pro forma             $      1.06    $       0.68


         Under the Company's 1989 and 1990 Stock Plans (the Plans),  the Company
may grant options to employees, directors and consultants for up to 19.5 million
shares of common stock. Under the Plans the exercise price of each option equals
the market  price of the  Company's  stock on the date of grant and an  option's
maximum term is 10 years. Options are granted  periodically  throughout the year
and vest ratably over four years.

         The fair value of each option  grant is  estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during the applicable period: dividend yield of 0.0%
for both periods,  expected volatility of 48%, risk-free interest rates of 5.68%
to 6.71% for options granted, and a weighted average expected option term of 4.3
years for both periods.

         A summary of the status of the Company's fixed stock option plans as of
December 31, 1996 and 1995, and changes during the years then ended is presented
below:

                                                                Weighted Average
                                                    Shares       Exercise Price
                                                  -----------      -----------
Outstanding as of December 31, 1994                7,159,632        $    3.76

Granted                                            2,400,800            13.08
Exercised                                         (1,988,812)            2.69
Forfeited                                         (1,233,568)            5.31
                                                  -----------

Outstanding as of December 31, 1995                6,338,052             7.34

Granted                                            1,949,900            25.80
Exercised                                         (1,557,614)            4.89
Forfeited                                           (644,900)           13.86
                                                  -----------

Outstanding as of December 31, 1996                6,085,438            13.19
                                                  ===========


     The weighted  average fair value of options granted was $9.42 and $4.78 per
share for the years ended December 31, 1996 and 1995, respectively.

                                       31


<PAGE>


<TABLE>
     The following table summarizes  information about stock options outstanding
at December 31, 1996:
<CAPTION>
                                          Options Outstanding                        Options Exercisable
                         ---------------------------------------------------      -----------------------------
     Range of                Number         Weighted Avg.      Weighted Avg.         Number          Weighted Avg.
  Exercise Prices         Outstanding     Remaining Life      Exercise Price      Exercisable       Exercise Price
  ----------------       -------------    --------------      --------------       ----------       --------------
  <S>                       <C>                 <C>              <C>               <C>                <C>         
   $0.01 to  $4.31            827,402           5.55             $ 2.04              591,114          $ 1.24
   $4.44 to  $5.00          1,277,064           7.49               4.97              652,591            4.97
   $5.56 to  $8.94            570,000           7.86               6.14              304,149            5.69
   $9.28 to $12.81          1,356,922           8.50              12.62              238,522           12.75
  $13.25 to $23.69            461,950           8.96              17.51               44,700           16.68
  $25.63 to $25.63          1,171,400           9.54              25.63                 -                 -
  $27.31 to $42.13            420,700           9.59              32.10                2,500           35.13
                           ----------                                             ----------         
                                                                                                     
  $0.01 to $42.13           6,085,438           8.14              13.19            1,833,576            5.23
                           ==========                                             ==========         
</TABLE>

Note 7:  Export Sales and Significant Customers

Export sales by geographic area consisted of the following:

                                               Years ended December 31,
                                      ------------------------------------------
                                        1996             1995             1994
                                      ------------------------------------------
Europe                                $ 75,266         $ 51,338         $ 35,826
Japan                                   63,670           25,930           19,210
Canada                                   6,990            3,004            2,013
Other                                    5,409            1,504            2,407
                                      --------         --------         --------

     Total                            $151,335         $ 81,776         $ 59,456
                                      ========         ========         ========

Shipments  to  some of the  Company's  OEM  partners  are  made  to  centralized
purchasing and  manufacturing  locations,  which in turn sell through to foreign
locations.  As a result of these factors, the Company believes that sales of its
products into Europe and Japan may actually be higher,  though  accurate data is
difficult to obtain.

     Three customers  accounted for approximately 47%, 23% and 12% of revenue in
1996.  These  customers  represented  56%,  22% and 12%,  and 36%, 22% and 6% of
revenue in 1995 and 1994,  respectively.  These customers accounted for 26%, 26%
and 18%, and 32%, 33% and 14% of accounts receivable as of December 31, 1996 and
1995, respectively.  A fourth customer accounted for approximately 14% and 4% of
accounts receivable as of December 31, 1996 and 1995, respectively.

Note 8:   Subsequent Event

     On  January  21,  1997,  the  Company's  Board of  Directors  authorized  a
two-for-one  stock split in the form of a stock dividend payable on February 20,
1997, to  stockholders  of record as of February 10, 1997. All references in the
consolidated   financial  statements  to  weighted  average  numbers  of  shares
outstanding  and related  prices,  per share  amounts and stock option plan data
have been restated to reflect the stock split.

                                       32


<PAGE>


 
                       Report of Independent Accountants



The Board of Directors and Stockholders
Electronics for Imaging, Inc.:

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements of income,  stockholders' equity and cash flows present
fairly,  in all material  respects,  the financial  position of Electronics  for
Imaging,  Inc. and its  subsidiaries  as of December 31, 1996 and 1995,  and the
results  of their  operations  and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting   principles.   These  consolidated   financial  statements  are  the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  consolidated  financial  statements  based on our  audits.  We
conducted our audits of these  statements in accordance with generally  accepted
auditing  standards  which  require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.


PRICE WATERHOUSE LLP


San Jose, California
January 14, 1997, except for Note 8,

 which is as of January 21, 1997

                                       33



<PAGE>


                  Quarterly Consolidated Financial Information

(Unaudited)
(in thousands, except per share data)

The following  table  presents the Company's  operating  results for each of the
eight quarters in the two-year  period ended December 31, 1996. The  information
for each of these  quarters is unaudited but has been prepared on the same basis
as the audited  consolidated  financial  statements  appearing elsewhere in this
Annual  Report.  In  the  opinion  of  management,   all  necessary  adjustments
(consisting only of normal recurring  adjustments) have been included to present
fairly the unaudited quarterly results when read in conjunction with the audited
consolidated financial statements of the Company and the notes thereto appearing
in this Annual Report. These operating results are not necessarily indicative of
the results  for any future  period.  Per share  amounts  have been  restated to
reflect the effect of the Company's two-for-one stock split.

1996:                                     Q1          Q2          Q3          Q4
                                 -----------------------------------------------
Revenue                              $63,649     $69,046     $75,121     $90,197
Gross profit                          30,406      34,491      38,699      49,018
Income from operations                18,025      20,030      22,564      29,227
Net income                            12,597      13,901      15,553      20,133
Net income per share                 $  0.23     $  0.25     $  0.28     $  0.36

1995:                                     Q1          Q2          Q3          Q4
                                 -----------------------------------------------
Revenue                              $40,364     $44,798     $48,502     $56,787
Gross profit                          19,968      22,405      24,233      28,394
Income from operations                10,032      11,735      13,726      17,624
Net income                             7,173       8,287       9,721      12,319
Net income per share                 $  0.14     $  0.16     $  0.18     $  0.23




Item 9:   Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure.

         Not applicable.

                                       34


<PAGE>



PART III


Item 10:  Directors and Executive Officers of the Registrant.

         Information  with respect to Directors  and  Executive  Officers may be
found in the sections entitled "Election of Directors" and "Executive Officers,"
respectively,  appearing in the  definitive  Proxy  Statement to be delivered to
stockholders in connection with the Annual Meeting of Stockholders to be held on
May 1, 1997. Such information is incorporated herein by reference.



Item 11:  Executive Compensation.

         Information  with  respect  to this  item may be found in the  sections
entitled "Executive  Compensation" and "Employee Benefit Plans" appearing in the
definitive  Proxy  Statement to be delivered to  stockholders in connection with
the Annual Meeting of Stockholders  to be held on May 1, 1997. Such  information
is incorporated herein by reference.



Item 12:  Security Ownership of Certain Beneficial Owners and Management.

         Information  with  respect  to this  item may be  found in the  section
entitled "Security Ownership," appearing in the definitive Proxy Statement to be
delivered to  stockholders in connection with the Annual Meeting of Stockholders
to be held on May 1, 1997. Such information is incorporated herein by reference.



Item 13:  Certain Relationships and Related Transactions.

         Not Applicable.

                                       35


<PAGE>



                                     PART IV



Item 14:  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)      Documents Filed as Part of Form 10-K

                                                                  Page in this
                                                                  Annual Report
                                                                  on Form 10-K
                                                                  -------------
1.  Consolidated Financial Statement Schedule

    Schedule  II -  Valuation  and  Qualifying  Accounts               41

    (All other schedules are omitted because of the absence
    of conditions  under  which they are required or because
    the necessary  information is provided in the consolidated
    financial statements or notes thereto.)

                                       36


<PAGE>


         2.  Listing of Exhibits

                                INDEX TO EXHIBITS
Exhibit
No.        Description
- ---        -----------
3.1        Amended and Restated Certificate of Incorporation.(2)

3.2        Bylaws as amended.(1)

4.1        See Exhibit 3.1

4.2        Specimen Common Stock certificate of the Company.(1)

10.1       Agreement  of Lease  dated as of July 30,  1992,  by and  between the
           Company and The Joseph and Eda Pell Revocable Trust for the Company's
           new executive office in San Mateo, California.(1)

10.2       First Addendum to Lease dated as of July 30, 1992, by and between the
           Company and The Joseph and Eda Pell Revocable Trust.(1)

10.3+      License Agreement,  dated as of February 9, 1990, between the Company
           and the Massachusetts Institute of Technology.(1)

10.4       Amendment to License  Agreement dated December 31, 1990,  between the
           Company and the Massachusetts Institute of Technology.(1)

10.5       Amendment to License Agreement dated May 29, 1991 and March 19, 1991,
           by and  between  the  Company  and  the  Massachusetts  Institute  of
           Technology.(1)

10.6+      Third  Amendment  to License  Agreement  dated  June 1, 1992,  by and
           between the Company and the Massachusetts Institute of Technology.(1)

10.7+      Research and Development Agreement,  dated September 1, 1989, between
           the Company and Toyo Ink Mfg. Co., Ltd.(1)

10.8       Cooperation Agreement, dated as of March 7, 1990, between the Company
           and Toyo Ink Mfg. Co., Ltd.(1)

10.9+      Patent Sublicense Agreement, dated March 7, 1990, between the Company
           and Toyo Ink Mfg. Co., Ltd.(1)

10.10+     Know-How License Agreement,  dated March 7, 1990, between the Company
           and Toyo Ink Mfg. Co., Ltd.(1)

10.11+     License  Agreement,  dated as of January 11, 1991, by and between the
           Company and Eastman Kodak Company, as amended March 10, 1992.(1)

10.12+     Authorized  VAR  Agreement  dated as of  November  26,  1991,  by and
           between the Company and Eastman Kodak Company.(1)

10.13+     License  Agreement,  dated March 1, 1991,  by and between the Company
           and Adobe Systems Incorporated, as amended May 22, 1991.(1)

10.14+     Custom PostScript(TM)  Interpreter OEM License Agreement, dated as of
           March  1,  1991,  by  and  between  the  Company  and  Adobe  Systems
           Incorporated.(1)

                                       37


<PAGE>

10.15+     Agreement  dated  September  6, 1991,  by and between the Company and
           Xerox Corporation.(1) 

Exhibit
No.        Description
- ---        -----------

10.16+     Patent License  Agreement dated December 12, 1991, by and between the
           Company and Xerox Corporation.(1)

10.17      Formal Agreement for  Distribution of Fiery,  dated June 27, 1991, by
           and between the Company and Toyo Ink Mfg. Co., Ltd.(1)

10.18+     Patent License  Agreement  dated January 29, 1992, by and between the
           Company and Minolta Camera Co., Ltd.(1)

10.19      License  Agreement dated December 3, 1991, by and between the Company
           and Scitex Corporation Ltd.(1)

10.20+     Development  Agreement dated May 28, 1991, by and between the Company
           and Canon Inc.(1)

10.21      Fiery  Approval  Agreement  dated May 28,  1991,  by and  between the
           Company and Canon Inc.(1)

10.22      Letter  Agreement  dated May 28, 1991, by and between the Company and
           Canon, Inc.(1)

10.23+     Parts  Purchase  Agreement  dated June 30,  1991,  by and between the
           Company and Canon Inc.(1)

10.24+     Patent  License  Agreement  dated June 11,  1992,  by and between the
           Company and Victor Company of Japan.(1)

10.25+     OEM License Agreement dated July 20, 1992, by and between the Company
           and QMS, Inc.(1)

10.26+     License  Agreement  dated May 2, 1991, by and between the Company and
           Pantone, Inc.(1)

10.27+     Software  Distribution  License  Agreement dated January 30, 1992, by
           and between the Company and Storm Technology, Inc.(1)

10.28+     Agreement  for OEM Software  Acquisition  dated April 7, 1992, by and
           between the Company and Cooperative Printing Solutions, Inc.(1)

10.29+     License  Agreement dated May 18, 1992, by and between the Company and
           Microsoft Corporation.(1)

10.30+     Cooperation  and Project  Funding  Agreement dated August 6, 1992, by
           and among the Company,  Electronics for Imaging (Israel) Ltd. and the
           BIRD Foundation.(1)

10.31      Advisory  Agreement,  dated May 25,  1989,  between  the  Company and
           William F. Schreiber.(1)

10.32      1989 Stock Plan of the Company.(1)

10.33      1990 Stock Plan of the Company.(1)

10.34      Convertible Subordinated Note Purchase Agreement, dated as of June 1,
           1990,  between  the  Company  and  Frederick  R.  Adler,  and related
           Convertible Note.(1)

10.35      Convertible Subordinated Note Purchase Agreement, dated June 1, 1990,
           between the Company and  Hesperus XVI N.V.,  and related  Convertible
           Note.(1)

                                       38


<PAGE>

10.36      Convertible Subordinated Note Purchase Agreement, dated as of June 1,
           1990,  between the  Company and Athena  Venture  Partners  L.P.,  and
           related Convertible Note.(1)

Exhibit
No.        Description
- ---        -----------

10.37      Convertible Subordinated Note Purchase Agreement, dated as of June 1,
           1990,  between  the  Company  and Thomas I.  Unterberg,  and  related
           Convertible Note.(1)

10.38      Convertible  Subordinated  Note,  dated June 1, 1990,  for  principal
           amount of $17,500  transferred  from Athena Venture  Partners L.P. to
           Dan Tolkowsky pursuant to Letter Agreement dated May 31, 1991.(1)

10.39      Convertible  Subordinated  Note,  dated June 1, 1990,  for  principal
           amount of $6,000  transferred  from Athena  Venture  Partners L.P. to
           Yadin Kaufman pursuant to Letter Agreement dated May 31, 1991.(1)

10.40      Stock Purchase  Agreement,  dated as of March 1, 1991, by and between
           the Company and Adobe Systems Incorporated.(1)

10.41      Convertible Note Purchase Agreement dated as of March 1, 1992, by and
           between the Company,  Electronics for Imaging  (Ireland)  Limited and
           European Financial Investors Holdings S.A.(1)

10.42      Series B Preferred  Stock  Purchase  Agreement  dated as of March 12,
           1992, by and among the Company,  funds affiliated with Weiss,  Peck &
           Greer Venture Partners II, L.P. and other persons and entities.(1)

10.43      Registration  Rights  Agreement  dated as of March 12,  1992,  by and
           among the Company,  funds affiliated with Weiss, Peck & Greer Venture
           Partners II., L.P. and other persons and entities.(1)

10.44      First  Addendum  to  Series B Stock  Purchase  Agreement  dated as of
           August 5, 1992 (the  "Addendum"),  by and among the Company,  and the
           persons listed on Schedule A to the Addendum.(1)

10.45      First Amendment to Registration  Rights  Agreement dated as of August
           5, 1992 (the "First  Amendment"),  by and among the Company,  and the
           persons listed on Exhibit A to the First Amendment.(1)

10.46      Form of Indemnification Agreement.(1)

10.47+     Patent  License  Agreement  dated May 28,  1991,  by and  between the
           Company and Canon Inc.(1)

10.48      Software  Publishing  Agreement dated August 17, 1992, by and between
           the Company and Quark, Inc.(1)

10.49      Employment Agreement dated August 1, 1992 by and between Efraim Arazi
           and the Company.(1)

10.50+     Supplement to Formal Agreement for Distribution of Fiery dated August
           25, 1992, by and between the Company and Toyo Ink Mfg. Co., Ltd.(1)

10.51+     OEM Software License  Agreement dated August 14, 1992, by and between
           the Company and RSA Data Security, Inc.(1)

10.52      Employment Agreement dated July 13, 1995, by and between Efraim Arazi
           and the Company.(3)

10.53      Employment  Agreement  dated July 17, 1995,  by and between Dan Avida
           and the Company.(3)

10.54      Employment Agreement dated July 17, 1995, by and between Jeff Lenches
           and the Company.(3)

                                       39


<PAGE>

10.55      Employment  Agreement  dated  July  17,  1995,  by and  between  Fred
           Rosenzweig and the Company.(3)

10.56      Employment  Agreement  dated  October 15,  1995,  by and between Eric
           Saltzman and the Company.(3)

11.1       Statement regarding computation of the Company's per share earnings.

21.1       List of Subsidiaries.(1)

23.1       Consent of Price Waterhouse LLP.

24.1       Power of Attorney.

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

(1)      Filed as an exhibit to the Company's Registration Statement on Form S-1
         (No. 33-50966) and incorporated herein by reference.

(2)      Filed as an exhibit to the Company's Registration Statement on Form S-1
         (File No. 33-57382) and incorporated herein by reference.

(3)      Filed as an exhibit to the Company's Annual Report on Form 10-K for the
         year ended December 31, 1995 (File No. 0-18805) and incorporated herein
         by reference.

+        The  Company  has  received  confidential  treatment  with  respect  to
         portions of these documents.

(b)      Reports on Form 8-K

         None filed during the quarter ended December 31, 1996.

(c)      List of Exhibits

         See Item 14(a)3.


(d)      Consolidated  Financial  Statement  Schedule  II for  the  years  ended
         December 31, 1994, 1995 and 1996, respectively.

         See Page 41 of this Annual Report on Form 10-K.

                                       40


<PAGE>




<TABLE>
                                                     ELECTRONICS FOR IMAGING, INC.
 
                                                             Schedule II

                                                  Valuation and Qualifying Accounts
<CAPTION>



                                            Balance at      Charged to     Charged to                     Balance at
                                            beginning       costs and        other                          end of
              Description                   of period        expenses       accounts      Deductions        period
           ------------------              -------------   -------------  -------------  -------------   -------------
<S>                                        <C>             <C>            <C>            <C>             <C>        
Year Ended December 31, 1996
Allowance for doubtful accounts and
sales-related reserves                     $      1,570    $       1,132  $         --   $      (790)    $     1,912
                                           =============   =============  =============  =============   =============


Year Ended December 31, 1995
Allowance for doubtful accounts and
sales-related reserves                     $      2,176    $        479   $         --   $    (1,085)    $     1,570
                                           =============   =============  =============  =============   =============


Year Ended December 31, 1994
Allowance for doubtful accounts and
sales-related reserves                     $        812    $     1,926    $         --   $       (562)   $     2,176
                                           =============   =============  =============  =============   =============

</TABLE>


                                                                 41


<PAGE>




                      Report of Independent Accountants on
                          Financial Statement Schedules


To the Board of Directors
of Electronics for Imaging, Inc.



Our audits of the consolidated  financial  statements  referred to in our report
dated  January 14,  1997,  except for Note 8, which is as of January  21,  1997,
appearing  on  page  32 of  this  form  10-K,  also  included  an  audit  of the
Consolidated  Financial  Statement  Schedule  listed in Item  14(a) of this Form
10-K. In our opinion,  the Consolidated  Financial  Statement  Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.



PRICE WATERHOUSE LLP

San Jose, California
January 14, 1997, except for Note 8,

which is as of January 21, 1997

                                       42


<PAGE>



                                   SIGNATURES

         Pursuant to the  requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto duly  authorized,  on the 27th day of
March 1997.

                        ELECTRONICS FOR IMAGING, INC.


                        By:      /s/    Dan Avida
                           -----------------------------------------------------
                                 Dan Avida
                                 President, Chief Executive Officer and Director


                                POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE  PRESENT,  that each person  whose  signature
appears below  constitutes and appoints Dan Avida and Eric Saltzman  jointly and
severally, his attorneys-in-fact,  each with the power of substitution,  for him
in any and all  capacities,  to sign  any  amendments  to the Form  10-K  Annual
Report,  and to file the same,  with  exhibits  thereto and other  documents  in
connection  therewith,  with the  Securities  and  Exchange  Commission,  hereby
ratifying  and  conforming  all  that  each  of said  attorneys-in-fact,  or his
substitute or substitutes, may do or cause to be done by virtue thereof.


<TABLE>
         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities indicated on the 27th day of March 1997.

<CAPTION>
Signature                                          Title                                                   Date
- ---------                                          -----                                                   ----



<S>                                      <C>                                                        <C> 
   /s/ Efraim Arazi                       Chairman of the Board                                      March 27, 1997
- --------------------------------------
       Efraim Arazi

                                          President, Chief Executive Officer
   /s/ Dan Avida                          and Director                                               March 27, 1997
- --------------------------------------
       Dan Avida                          (Principal Executive Officer and
                                          Principal Financial and Accounting Officer)


   /s/ Gill Cogan                         Director                                                   March 27, 1997
- --------------------------------------
       Gill Cogan


   /s/ Jean-Louis Gassee                  Director                                                   March 27, 1997
- --------------------------------------
       Jean-Louis Gassee


   /s/ Dan Maydan                         Director                                                   March 27, 1997
- --------------------------------------
       Dan Maydan


   /s/ Thomas Unterberg                   Director                                                   March 27, 1997
- --------------------------------------
       Thomas Unterberg

                                                                 43
</TABLE>







                                                                    EXHIBIT 11.1



<TABLE>
                          ELECTRONICS FOR IMAGING, INC.
          STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (1) (2)
                      (In thousands, except per share data)
                                   (Unaudited)


<CAPTION>
                                                                     Year Ended
                                                                    December 31,
                                                            ---------------------------
                                                             1996      1995       1994
                                                            -------   -------   -------

<S>                                                         <C>       <C>       <C>    
Net income for purposes of computing net income per share   $62,184   $37,500   $21,306
                                                            -------   -------   -------

Weighted average common shares outstanding                   50,672    49,210    47,208

Weighted common equivalent shares from options(3)             4,156     3,890     2,628
                                                            -------   -------   -------

         Weighted average common shares and equivalents      54,828    53,100    49,836
                                                            =======   =======   =======

Net income per share                                        $  1.13   $  0.71   $  0.43
                                                            =======   =======   =======

<FN>
(1)    This Exhibit should be read in  conjunction  with "Summary of Significant
       Accounting  Policies - Net Income per Share" contained in Note 1 of Notes
       to Consolidated Financial Statements.

(2)    All per share data and shares used in computing net income per share have
       been restated to reflect the Company's two-for-one stock split. See Notes
       1 and 8 of Notes to Consolidated Financial Statements.

(3)    Computed using the treasury stock method.  The difference between primary
       net  income  per share  and fully  diluted  net  income  per share is not
       significant.
</FN>
</TABLE>



                                       44






                                                                    EXHIBIT 23.1

                       CONSENT OF INDEPENDENT ACCOUNTANTS

         We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (Nos.  33-56422,  33-80523,  33-93602 and  333-11685) of
Electronics for Imaging,  Inc. of our report dated January 14, 1997,  except for
Note 8, which is as of January 21, 1997, appearing on page 32 of this Form 10-K.
We  also  consent  to  the  incorporation  by  reference  of our  report  on the
Consolidated  Financial  Statement  Schedule,  which  appears on page 33 of this
Annual Report on Form 10-K.



PRICE WATERHOUSE LLP

San Jose, California
March 27, 1997



                                       45








<TABLE> <S> <C>


<ARTICLE>                     5

       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                              Dec-31-1996
<PERIOD-START>                                 Jan-01-1996
<PERIOD-END>                                   Dec-31-1996
<CASH>                                          71,946
<SECURITIES>                                   140,154
<RECEIVABLES>                                   40,875
<ALLOWANCES>                                         0
<INVENTORY>                                     11,004
<CURRENT-ASSETS>                               286,949
<PP&E>                                          10,640
<DEPRECIATION>                                   5,484
<TOTAL-ASSETS>                                 298,953
<CURRENT-LIABILITIES>                           49,583
<BONDS>                                              0
<COMMON>                                       113,175
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<OTHER-SE>                                     136,195
<TOTAL-LIABILITY-AND-EQUITY>                   298,953
<SALES>                                        298,013
<TOTAL-REVENUES>                               298,013
<CGS>                                          145,399
<TOTAL-COSTS>                                  145,399
<OTHER-EXPENSES>                                62,768
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              (7,318)
<INCOME-PRETAX>                                 97,164
<INCOME-TAX>                                    34,980
<INCOME-CONTINUING>                             62,184
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    62,184
<EPS-PRIMARY>                                     1.13
<EPS-DILUTED>                                     1.13
        


</TABLE>