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, 1997     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)

                                 (650) 286-8600
              (Registrant's telephone number, including area code)


<TABLE>
<CAPTION>
<S>                                                            <C>
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)
</TABLE>


         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 23, 1998.  
               Common Stock,  $.01 par value:    $1,366,743,560.88

         Indicate the number of shares  outstanding of each of the  registrant's
classes of common  stock as of March 24,  1998.  
               Common  Stock , $.01 par value:   52,600,667

                       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 7, 1997 are incorporated by reference into Part III.

   A list of all exhibits to this Form 10-K is located on pages 41 through 44.

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PART I



Item 1: Business.


         Electronics for Imaging, Inc., a Delaware corporation (the "Company" or
"EFI") was  founded to develop  innovative  solutions  to enable  color  desktop
publishing  in the same manner that laser  printers  and  PostScriptTM  software
first enabled black-and-white desktop publishing in the mid-1980s. In pursuit of
this goal,  the Company  first  developed  the  Fiery(R)  line of color  servers
("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.  Fiery  Color  Servers  are
sophisticated  computers  that enable  digital color copier  machines to accept,
process,  and print digital  color images from  personal  computers and computer
networks.

         Historically,   the  Company  primarily  focused  its  efforts  on  its
stand-alone Fiery Color Servers and substantially all of its revenue to date has
resulted from the sale of these stand-alone products.  The Company's efforts are
expanding to include the  development of new Fiery products to support  printing
on a wide range of devices,  including additional digital color copiers, desktop
color  laser  printers,   wide-format   color  inkjet   printers,   and  digital
black-and-white copiers.

Background

         Prior to the  mid-1980s,  in order to obtain  quality  black-and-white,
typeset  documents,  a manuscript was typically sent to a specialized trade shop
where craftspeople 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. It also enabled the
production of documents 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 to produce a limited  number of color  copies
quickly and cost-effectively.

         The Company believes that consumers generally prefer color as evidenced
by  the  migration  of   photographs,   motion   pictures  and  television  from
black-and-white  to color.  In the personal  computer  field,  EFI believes this
preference  is  shown  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 of color quickly followed. The Company believes
that consumers  prefer color in documents  created through  desktop  publishing.
Until recently,  however, 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. By 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 


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output devices  display color,  and even small  differences in ambient  lighting
conditions,  can result in  significant  variations  in the way a color image is
printed and perceived.


The Electronics for Imaging Solution

         The  Company  develops   products  with  a  wide  range  of  price  and
performance  to overcome the obstacles to color  printing  described  above.  In
general,  the Company's  products  enable  high-quality  color printing in short
production runs. For example, Fiery Color Servers do this by permitting users of
digital color copiers to transmit and convert  digital data from a computer to a
color copier so that the color copier can print color documents easily,  quickly
and  cost-effectively.  As a result, Fiery Color Servers transform digital color
copiers into fast,  high-quality  networked  color printers.  Additionally,  the
Company has  developed  and now  manufactures  other  products that support both
color  and  black-and-white   printing.  These  include  Fiery  controllers  for
black-and-white  digital  copiers,  Fiery Color Servers for  wide-format  inkjet
printers and Fiery color  controllers,  which are  embedded  solutions to enable
network color  printing for color copiers and desktop  printers.  These products
leverage the Company's Fiery technology for use in new applications;  instead of
being sold as a stand-alone  product to be connected to copiers,  these products
are  embedded  inside  copiers and desktop  printers.  Printing  solutions  that
integrate the Fiery  Products  have been marketed with the "Fiery  Driven" logo.
The Company believes the Fiery name and trademark have substantial  goodwill and
recognition associated with them.

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
primary  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 goals consists of three key elements.

         Proliferate and Expand the Fiery Product Line

         Traditionally, the Company has sold products that support three to nine
page-per-minute  ("ppm") digital color copiers.  While the Company believes that
the demand for color  laser  copiers is still  expanding,  the  Company has also
expanded the uses of its technology.  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.  The  Company has also  announced  plans to
develop products to support black-and-white printing systems and copiers.

         In the fourth quarter of 1997, the Company also shipped its first Fiery
Servers based upon its new Fiery LX platform, connecting to the Epson Stylus Pro
5000 and PM 5000C inkjet color printers,  and the Sharp AR 5132  black-and-white
digital copier.  In 1997, the Company also shipped its first Fiery Products with
PostScript(TM)   3(TM)   interpreter   software   licensed  from  Adobe  Systems
Incorporated ("Adobe"). By utilizing the advantages of the newly developed Fiery
LX platform,  the Company intends to continue to develop new Fiery Products that
are scalable and offer a broad range of features and performance  when connected
to digital color and black-and-white copiers and printers.

         Develop Additional Relationships with Key Industry Participants

         The Company has established relationships with such companies as Canon,
Xerox, Kodak, Minolta,  Ricoh, Oce, IBM, Digital Equipment Corporation,  Konica,
Sharp and Seiko Epson  (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.  The Company will continue to seek to
develop  additional  relationships  with  companies  that offer digital  copiers
and/or printers.

         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


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<PAGE>

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 its 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 bus speed from 50Mhz to 66Mhz and an improvement
in the  application-specific  integrated circuit ("ASIC") chip sets incorporated
into the Fiery Color Servers.  During 1997,  the Company  enhanced the Fiery XJ+
family with the introduction of a 200 Mhz CPU in some Fiery Products.

         To date,  the Company  has sold over  100,000  stand-alone  Fiery Color
Servers and embedded  controllers.  The  stand-alone  Fiery Color Servers enable
color laser copiers to perform as high  performance,  plain-paper color printers
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.  Stand-alone 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,  stand-alone Fiery Color
Servers  support  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.  Stand-alone  Fiery  Color  Servers are
currently used with full color copiers supplied by Canon, Xerox, Kodak, Minolta,
Ricoh and Oce. With the exception of Canon,  the stand-alone  Fiery Color Server
is sold under the Fiery trademark.

         In 1997, the Company focused its development efforts on improvements to
its products' performance, features, and ease of use. The first of the Company's
new products to utilize a new hardware platform,  the Fiery LX stand-alone Color
Server first shipped in the fourth quarter of, 1997.  Also in the fourth quarter
of 1997, the Company shipped the first Fiery LX controller for a black-and-white
digital  copier.  Shipments  of the Fiery LX Color  Server  and  black-and-white
controller did not account for a significant amount of revenue in 1997.

                  Software  features  developed  and announced by the Company in
1997 include the Company's  proprietary  ColorWise Color Management System which
allows users to adjust colors to their  liking;  Fiery  WebTools  which uses any
standard  Java(TM)-enabled  browser to provide network  administrators  with the
ability  to access  and  control  a variety  of  printing  functions;  and Fiery
FreeForm Variable Data Printing,  a printing  technology advance that can create
master and  variable  graphics  and text  elements  independent  of  platform or
application. The Company also introduced its next generation Command WorkStation
interface in March 1997, enabling users to manage, reorder, and view previews of
any files that are being  stored or processed  for  printing.  Additionally,  in
October 1997, the Company  announced  Fiery FreeForm  Variable Data Printing,  a
printing  technology  advance that can create  master and variable  graphics and
text elements independent of platform or application.

         In 1997, the Company continued to ship Fiery printer  controllers which
are embedded in desktop color laser printers (marketed under the name Fiery XJe)
to Canon,  as well as a version of the Fiery XJe which is  embedded in the Ricoh
Aficio 2000 series color copier.

         During  1997,  the  Company  also  continued  to ship the Fiery SI (see
"Fiery SI" below) and the Fiery XJ-W (see "Fiery XJ-W" below).

         Fiery XJ Technology

         In 1997, the Company  continued to ship its product line based upon the
Fiery XJ+ architecture.  Fiery XJ+ architecture delivers improved performance at
lower costs than earlier models. The Company designed  specialized  RipChips(TM)
that  accompany  the  MIPS   R4600/R4700/R5000  100MHz/133MHz/200MHz


                                       4

<PAGE>


RISC microprocessors and accelerate color PostScript processing. Through the use
of these ASICs in Fiery embedded controllers, the Company has minimized the chip
count and  reduced the key  technology  of its color  server to a single  board.
Additional cost reductions result from the Company's introduction in 1997 of its
proprietary  STARR  Compression  technology,  which  allows for  full-resolution
continuous-tone  output with half the memory previously  required.  The Fiery XJ
architecture  also  incorporates the company's  Rip-While-Print(TM)  technology,
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  Level 2 interpreter  software from Adobe 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, Fuji Xerox, Minolta, and Ricoh.

         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.  The four  configurations  are Fiery XJ+ 170,
Fiery XJ+ 250,  Fiery XJ+ 325 and Fiery XJ+ 525.  Estimated  street  prices  for
those products are $13,000, $16,000, $20,000 and $40,000,  respectively.  Actual
street prices are set by the Company's  OEMs and may vary by dealer and specific
product configuration.

         Fiery XJe Embedded Controllers

         In 1997, the Company  continued to offer  manufacturers  of color laser
printers and copiers  embedded Fiery XJ technology in the Fiery XJe  Controller.
In addition to enabling color copiers,  the Fiery XJe Controller enables desktop
color laser printers to print at fast speeds while  maintaining  superior output
quality.  These  printers  are  designed  for  end-users  from a wide  range  of
environments,  including desktop 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.  Many 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 available 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 designed
to be compatible with leading network  environments.  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.

         In 1997, the Company  continued to ship Fiery XJe Controllers to Canon,
IBM and Digital for desktop color  printers,  as well as to Ricoh for the Aficio
2000 series  digital color  copier.  The Fiery XJe for the Ricoh Aficio 2000 was
the Company's first embedded controller for a color laser copier.


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         Fiery XJ-W

         Based on the Fiery XJ architecture,  the Fiery XJ-W drives  wide-format
color  inkjet   printers  at  their   maximum-rated   speed  for  most  software
applications.  In 1997,  the Company  continued  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 also enhanced the
Fiery XJ-W in 1997 with the introduction of Version 2.5, designed to support the
Hewlett Packard DesignJet 2000CP and the Encad NovaJet PROe Series.  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 approximately $4,995.

         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 1997,  the Company  continued  to ship the Fiery SI, which was first
released in December  1996.  The Fiery SI is a  stand-alone,  entry-level  color
server that is optimized for fast,  high-quality  performance on common business
graphics  applications,  and is also capable of producing  photographic  quality
output for more  demanding  graphic  arts  applications.  The Fiery SI currently
supports color copiers and printers distributed by Canon, Xerox,  Minolta,  Fuji
Xerox, Oce, and Agfa, and has a list price of approximately $10,000.

         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  printers.  The  Company
continues to work with Oce to develop the Fiery Server.

         Fiery LX Technology

         In 1997,  the  Company  focussed  its  development  efforts on its next
generation architecture designed to replace the Fiery XJ architecture, including
the Fiery LX.  The  streamlined  design  of the Fiery LX is a key  component  in
increasing   speed  and  reducing  the  cost  of  Fiery  Color  Servers,   Fiery
black-and-white controllers, and Fiery embedded controllers, thereby making this
technology  available to a wider range of copier and printer devices.  The Fiery
LX utilizes  new  proprietary  ASICs for the fastest  document  processing  time
available in the short-run color printing industry.  The Fiery LX ships with the
100BaseT  ethernet network board as standard,  and is the first Fiery Product to
support  Adobe  PostScript  3. The  Fiery LX Color  Server  and  black-and-white
controller is a newly designed chassis,  while the Fiery LX embedded  controller
has a smaller  footprint  than the Fiery XJe which will  enhance  the ability to
embed the controller in multiple digital copiers and printers.

         The  Fiery LX  utilizes  enhanced,  as well as new,  software  features
developed  by the Company  during  1997.  These  software  features  include the
Company's proprietary ColorWise Color Management System which contains extensive
color  rendering  dictionaries,  allowing  users to  adjust  colors at their own
comfort  level.  Also,  the Fiery LX  includes  Fiery  WebTools  which  uses any
standard  Java(TM)-enabled  browser to provide network  administrators  with the
ability  to access  and  control a variety  of  printing  functions  such as job
tracking,  job  reprinting,  job print  order,  and even  deleting  jobs.  Fiery
WebTools also provides remote access to the print queue so the administrator can
obtain  instant  updates on job status and error  messages,  allowing for timely
response to problems,  and provides job accounting and job security capabilities
which are essential in network printing environments.


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         In 1997, the Company  shipped its first Fiery LX products,  including a
Fiery LX Color  Server  which is  connected  to the Epson Stylus Pro 5000 and EM
5000C.  Also in 1997, the Company  shipped the Fiery LX Controller for the Sharp
AR-5132, the Company's first controller for a black-and-white digital copier.

Significant Relationships

         The Company has  established,  and continues to try to build and expand
relationships  with a number of leading copier and printer companies ("OEMs") in
order to benefit from the OEMs'  products,  distribution  channels and marketing
resources.  These OEMs  include  domestic  and  international  manufacturers  of
digital copiers (both black-and-white and color) and wide-format  printers,  and
more recently,  sellers of color-laser printers.  The Company works closely with
its OEM customers with the aim of developing  solutions that incorporate leading
technology and which are optimally  suited to work in conjunction with its OEMs'
products.  OEMs that the Company sold products to in 1997 include: Canon, Danka,
DEC, Hitachi,  IBM, Kodak, Konica,  Minolta, Oce, Ricoh, Seiko Epson, Sharp, and
Xerox and its worldwide subsidiaries and affiliates.  Together,  sales to Canon,
Xerox, and Ricoh accounted for 80% of the Company's 1997 revenue,  with sales to
each of these customers accounting for more than 10% of the Company's revenue.

         The  Company  customarily  enters  into  development  and  distribution
agreements with its OEM customers.  These  agreements can be terminated  under a
range  of   circumstances,   and  often  upon  relatively   short  notice.   The
circumstances  under which an agreement can be terminated vary from agreement to
agreement  and there can be no assurance  that OEM  customers  will  continue to
purchase products from the Company in the future,  despite such agreements.  The
Company  recognizes  the  importance  of its  relationships  and  works  hard to
maintain good relations with its customers. However, the Company's relationships
with its customers can be affected by a number of factors including: competition
from other  suppliers,  competition  from  internal  development  efforts by the
customers themselves,  and changes in competitive conditions (such as changes in
demand for the company's  products).  There can be no assurance that the Company
will continue to maintain or build the relationships it has developed to date.

         In addition to its  development and sales  relationships  with OEMs, to
increase the distribution and presence of Fiery Color Servers  connected to both
color  copiers  and wide format  printing  devices,  the  Company has  developed
strategic relationships with two well-known print-for-pay companies, Kinko's and
AlphaGraphics.

         In October of 1997, the Company acquired Pipeline Associates,  Inc. and
Pipeline Asia, Inc. (the "Pipeline  Acquisition"),  a leading software developer
specializing in PostScript, HTML and PCL interpreter technologies.

         The Company also has a continuing  relationship with Adobe and licenses
PostScript software from Adobe for use in many Fiery products. This relationship
is important because each Fiery Color Server requires page description  language
software  in order to  operate.  Adobe's  PostScript  software is widely used to
manage the geometry,  shape and topography of hard copy documents and Adobe is a
recognized leader in providing page description software.

Distribution and Marketing

         The Company's primary  distribution  method for its Fiery Color Servers
(other than for wide format  products)  has been to sell the Fiery Color Servers
to its OEMs. The Company's OEMs in turn sell these products to end-users for use
with the OEMs'  copiers  as part of an  integrated  printing  system.  For Fiery
Controllers,  the  Company's  primary  distribution  method has been to sell the
products  to the  companies  that  embed the  products  into their  copiers  and
printers.  There is no assurance  that the risks of  distributing  the Company's
Fiery Products  primarily  through its OEM customers will not negatively  impact
the  Company  in the  future.  See  "Management's  Discussion  and  Analysis  of
Financial  Condition  and Results of  Operations:  Factors That Could  Adversely
Affect Performance--Reliance on OEM Resellers; Risks Associated With Significant
Group Concentration".  The 


                                       7

<PAGE>


Company continues to sell and distribute wide-format Fiery Color Servers through
distributors and wide-format color inkjet printer dealers. There is no assurance
that future sales of these  products 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.

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


Research and Development

         Research  and  development  costs for 1997,  1996,  and 1995 were $40.3
million,  $22.4  million,  and $12.9 million,  respectively.  As of December 31,
1997, 285 of the Company's 538 full-time employees were involved in research and
development.   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 a multiprocessor architecture for high-end systems and
lower-cost designs for desktop color laser printers. Substantial additional work
will  be  required  to  complete  the   development  of  these   projects.   See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations:   Factors   That   Could   Adversely   Affect   Performance--Product
Transitions".


Manufacturing

         The  Company  subcontracts  with other  companies  to  manufacture  its
products. These companies are closely supervised by the Company and work closely
with the Company to assure low costs and good quality in the  manufacture of the
Company's products.  Subcontractors purchase components needed for the Company's
products. The Company is totally reliant on the ability of its subcontractors to
produce  products sold by the Company,  and although the Company  supervises its
subcontractors,  there can be no assurance that the subcontractors will continue
to perform for the  Company as well as they have in the past.  There can also be
no assurance that any difficulties  experienced by the Company's  subcontractors
(such as  interruptions  in a  subcontractor's  ability to make goods or quality
assurance problems) would not adversely affect the Company's operations.

Human Resources

         As of December  31, 1997,  the Company  employed  538  employees,  with
approximately  409  full  time  employees  located  primarily  in  its  Northern
California offices. Of the 538 total employees,  approximately 161 were in sales
in  marketing,   56  were  in  management   and   administration,   30  were  in
manufacturing,  and 285 were in research and development. Of the total number of
employees,  the Company had 50 employees  located in Canadian  and U.S.  offices
outside of  Northern  California,  and 79  employees  located  in  international
offices including  employees based in Great Britain,  The Netherlands,  Germany,
Japan, France, Italy, Finland,  Spain,  Australia,  and Hong Kong. The Company's
employees are not represented by any collective bargaining  organization and the
Company has never experienced a work stoppage.


                                       8

<PAGE>

Risk Factors

         In addition to the above information,  a discussion of factors that may
adversely affect the Company's future  performance and financial  results can be
found in Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operation.


                                       9


<PAGE>


I
tem 2: Properties.

         The Company's  principal offices are located in San Mateo,  California.
The  company has also leased  additional  facilities  in San Mateo and in Foster
City,  California  for  research  and  development,  quality  assurance,  sales,
marketing,  administration,  and other  support  operations.  These  offices  in
Northern California  collectively include  approximately  144,000 square feet of
space.  In addition,  the Company  leases space for its  international  offices.
Employees  formerly  with  Pipeline  Associates,  Inc. are based in an office in
Parsippany, New Jersey.

         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,  and
construction  began in 1997.  Construction  of this  facility is scheduled to be
completed in December,  1998. The Company  expects to vacate its existing rental
facilities  in San Mateo and Foster City upon  completion  of the new  corporate
headquarters.

         In addition to its  principal  offices in San Mateo,  the Company  also
leases a number of domestic and international sales offices.



Item 3: Legal Proceedings.

         On December 15,  1997, a  shareholder  class action  lawsuit,  entitled
Steele,  et al. v.  Electronics  for Imaging,  Inc., et al., No. CV 403099,  was
filed  against  the Company and certain of its  officers  and  directors  in the
California  Superior  Court,  San Mateo County.  Five virtually  identical class
action  complaints were  subsequently  filed in the San Mateo Superior Court. On
December  31,  1997,  a putative  shareholder  class  action  entitled  Smith v.
Electronics  for  Imaging,  Inc.,  et al., No.  C97-4739  was filed  against the
Company and certain of its officers and directors in the United States  District
Court for the Northern  District of California.  The  state-court  class actions
allege that the Company  made false and  misleading  statements  concerning  its
business  during a putative class period of April 10, 1997 through  December 11,
1997 and allege  violations of California  Corporations  Code Sections 25400 and
25500 and Civil Code Sections 1709 and 1710. The federal class action  complaint
makes the same  factual  allegations,  but  alleges  violations  of the  federal
securities  laws. The complaints do not specify the damages sought.  The Company
believes that these lawsuits are without merit and


                                       10

<PAGE>

intends  to  contest  them  vigorously,  but there can be no  assurance  that if
damages are ultimately  awarded  against the Company,  the  litigation  will not
adversely affect the Company's results of operations.

         In addition,  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.

         No matters were  submitted to  shareholders  for vote during the fourth
quarter of 1997.


PART  II


<TABLE>

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 1997 and
1996 and reflects the Company's February 1997 two-for-for one stock split. As of
December 31, 1997,  there were  approximately  385  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.
<CAPTION>

                                   1997                                                 1996
              -----------------------------------------             -----------------------------------------
                   Q1         Q2         Q3         Q4                  Q1         Q2         Q3         Q4
              -----------------------------------------             -----------------------------------------
<S>           <C>         <C>        <C>        <C>                 <C>        <C>        <C>        <C>    
High          $ 49.00     $ 50.00    $ 56.00    $ 54.62             $ 22.88    $ 42.69    $ 38.50    $ 42.75
Low             38.00       35.62      47.25      13.62               15.38      22.25      25.63      33.75
</TABLE>




                                       11

<PAGE>



<TABLE>

Item 6:  Selected Financial Data.

         The following tables summarize selected consolidated  financial data as
of and for the five years ended December 31, 1997.  This  information  should be
read in  conjunction  with the audited  consolidated  financial  statements  and
related notes thereto.

<CAPTION>

(In thousands, except per share amounts)
                                                                                As of and for the years ended December 31,
                                                           -------------------------------------------------------------------------
                                                              1997            1996            1995            1994           1993
                                                           -------------------------------------------------------------------------
<S>                                                         <C>             <C>             <C>             <C>             <C>     
     Operations
Revenue                                                     $360,631        $298,013        $190,451        $130,381        $ 89,526
Gross profit                                                 196,676         152,614          95,000          66,048          49,603
Income before income taxes                                   101,377          97,164          58,593          33,301          20,551
Net income                                                    64,882          62,184          37,500          21,306          12,751
Net income per basic common share 1                             1.24            1.23            0.76            0.46            0.29
Net income per diluted common share 1                       $   1.15        $   1.13        $   0.71        $   0.43        $   0.26
Shares used in computing net income
     per basic common share 1                                 52,359          50,672          49,210          47,208          44,420
Shares used in computing net income  per
     diluted common share 1                                   56,198          54,828          53,100          49,836          49,156

     Financial Position
Cash and short-term investments                             $242,731        $212,100        $144,018        $106,974        $ 79,491
Working capital                                              286,827         237,366         157,059         108,071          82,745
Long Term Debt                                                 4,064            --              --              --              --
Total assets                                                 385,998         298,953         194,469         135,461         104,044
Stockholders' equity                                         338,865         249,370         163,940         113,529          88,307

     Ratios and Benchmarks
Current ratio                                                    7.7             5.8             6.1             5.9             6.3
Inventory turns                                                  9.4            15.5            11.8             9.9             9.1
Full-time employees                                              538             354             222             192             173
<FN>
1  See Note 7 of Notes to Consolidated Financial Statements as well as the Company's adoption of Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 128 - "Earnings per share".
</FN>
</TABLE>




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,  readers are
referred to the section  below  entitled  "Factors that Could  Adversely  Affect
Performance".

Results of Operations

         The  following  tables set forth  items in the  Company's  consolidated
statements of income as a percentage of total revenue for 1997,  1996, and 1995,
and the year-to-year percentage change for certain items in 1997 and 1996. These
operating  results  are not  necessarily  indicative  of results  for any future
period.


                                       12

<PAGE>

                                                    Years ended December 31,
                                               -------------------------------
                                               1997         1996          1995
                                               -------------------------------
Revenue                                         100%         100%         100%
                                               -----        -----        -----
Gross profit                                   54.5%        51.2%        49.9%
Research and development                       11.2%         7.5%         6.8%
Sales and marketing                            12.0%        10.1%        11.5%
General and administrative                      3.4%         3.4%         3.7%
In-process research and development             2.6%         0.0%         0.0%
                                               -----        -----        -----
Income from operations                         25.3%        30.2%        27.9%
Other income, net                               2.8%         2.5%         2.9%
                                               -----        -----        -----
Income before income taxes                     28.1%        32.7%        30.8%
Provision for income taxes                     10.1%        11.8%        11.1%
                                               -----        -----        -----
Net income                                     18.0%        20.9%        19.7%
                                               =====        =====        =====

                                        Years ended December 31,
                         -------------------------------------------------------
                             1997      Change      1996       Change      1995
                         -------------------------------------------------------
Revenue                   $360,631       21%     $298,013       56%     $190,451
Gross profit               196,676       29%      152,614       61%       95,000
Operating expenses         105,480       68%       62,768       50%       41,883
Net income                  64,882      4.3%       62,184       66%       37,500
Net income per                                                         
   diluted common share   $   1.15        2%     $   1.13       59%     $   0.71
                                                                     


Revenue                                       

     Revenue increased to $360.6 million in 1997,  compared to $298.0 million in
1996 and $190.5  million in 1995.  Substantially  all of the  revenue  for these
three  periods  was  attributable  to the sale of  Fiery  products  through  the
Company's OEM channels with such partners as Canon, Xerox, Ricoh,  Minolta, Fuji
Xerox and others.

     The Company  believes that its revenue growth in 1997 has been enabled by a
number of factors which include: increased demand for color printing;  increased
use in the graphic arts and office  environments of software  applications which
are  enhanced by color  printing;  the  increased  percentage  of digital  color
copiers which are connected to a network  environment;  and successful  sales of
entry-level  Fiery products with pricing and performance  that are attractive to
the corporate environment. The Company also believes that revenue growth in 1997
is partly  attributable  to increased  sales of the Company's  current family of
products  to  print-for-pay  end-users  such as Kinko's  and  Alphagraphics.  In
addition,  in 1997 the Company made available to its customers  improvements  to
the Company's current family of products, including new software features.

     The  Company's  growth rate in revenue in 1997 was 21%,  compared to 56% in
1996. Through the third quarter of 1997,  revenues were 44% greater than for the
same period in 1996. During the fourth quarter of 1997, the Company  experienced
substantial decreases in the purchase of its products. The Company believes that
these decreases were associated with product transitions, substantial reductions
of inventory by the Company's  customers and distress in Asian  economies.  As a
result, the Company experienced a decline in revenues during the fourth quarter.
The Company's  revenues were 32% less in the fourth  quarter of 1997 than in the
corresponding  period for 1996,  which resulted in a growth rate for fiscal 1997
of 21%.


                                       13

<PAGE>

     International  revenue increased slightly from 51% of total revenue in 1996
to 52% in 1997. Direct sales to Europe increased $33.4 million to $108.6 million
in 1997, and accounted for approximately 30% of total revenue, compared with 25%
in 1996 and 27% in 1995. The Company  believes that increased  European  revenue
was due in part to one of the Company's OEM partners requesting direct shipments
to their European operations instead of continuing to handle reshipments itself.
Shipments  to  some  of the  Company's  OEM  partners  continue  to be  made  to
centralized  purchasing and manufacturing  locations in the United States, which
in turn sell  through  to other  international  locations.  As a result of these
factors,  the Company  believes  that  international  sales of its  products may
actually be higher than is reflected in the percentages  above,  though accurate
data is difficult to obtain.  The Company believes that the increase in sales to
Europe  was  also  due in  part to the  continued  development  of  distribution
channels  and  the  Company's   continued   investment  in  its  European  sales
organizations.

     Direct sales to Japan decreased $0.3 million to $63.4 million and accounted
for  approximately  18% of total  revenue in 1997,  compared with 21% and 14% in
1996 and 1995, respectively.  The Company believes that the decrease in sales to
Japan in 1997 reflects delays in purchases  associated with product transitions,
aggressive  reductions of inventory by the  Company's  Japanese  customers,  and
distress in Asian economies.  Although such conditions are difficult to predict,
the Company  does not assume  that there will be a  significant  improvement  in
economic  conditions in Asia in 1998,  and limited  demand from Asia may have an
adverse impact on the Company's  results of operation.  The Company expects that
international  revenue will continue to represent a  significant  portion of its
total revenue.

     In 1997,  the Company  relied on three OEM  customers,  Canon,  Xerox,  and
Ricoh,  for  approximately  85% of its  revenue,  with  each of these  customers
accounting for more than 10% of the Company's total revenue. As a result of this
concentration,  delays in  purchases  by one or several  key OEM  customers,  as
occurred  in the  fourth  quarter of 1997,  can  severely  impact the  Company's
revenues. The Company anticipates that decreases in revenue related to delays in
the  introduction of next generation  Fiery products may continue until the next
generation  of  products  is fully  tested and  accepted  by the  Company's  OEM
customers  and is  shipping  in  volume.  Although  the  Company  is  continuing
development  of new  products and expects to announce  the  introduction  of new
products in 1998, there can be no assurance that such  introductions will not be
further delayed,  or that once the products have been introduced,  the Company's
customers will purchase them. If the Company  experiences  further delays in the
launch or  availability  of its  products,  such  delays may have an  additional
adverse impact on the Company's financial results.

         In 1997, as in 1996 and 1995, the Company's revenues were substantially
based on sales of  stand-alone  Fiery Color Servers for digital  color  copiers.
These  products  accounted for more than 80% of the  Company's  revenue in 1997.
However,  in addition to further  developing and  distributing  its  stand-alone
Fiery Color Servers,  the Company  continues to market embedded Fiery technology
under the name "Fiery Driven" for use in desktop color printers.  Although sales
of this type of product did not account for a significant  part of the Company's
revenue in 1997, the Company believes that the demand for desktop color printers
may increase,  although  there can be no assurance that such demand will in fact
increase  or that  the  Company  can  successfully  develop  and  sell  embedded
controllers for desktop color printers.  Accordingly,  the Company  continues to
dedicate  resources  to  developing  embedded   controllers  for  desktop  color
printers.  The Company  believes a higher  level of  competition  and  different
distribution  and marketing  practices exist for desktop color printers than for
digital color copiers.  This has led the Company to accept lower unit prices and
lower  margins for its embedded  products for desktop  color  printers  than the
Company obtained in 1997 for its stand-alone color copier products. Accordingly,
if the Company does not sell printer products in sufficient volume to offset the
products'  lower margins,  the Company's  results of operations may be adversely
affected.

                                       14

<PAGE>

     The Company has also begun  efforts to develop and sell both  embedded  and
stand-alone  controllers  for  digital  black-and-white  copiers.  Products  for
digital  black-and-white  copiers  began  shipping  in low volumes in the fourth
quarter  of 1997 and were an  insignificant  source of  revenue  for  1997.  The
Company   believes  that  its   development   of  Fiery   products  for  digital
black-and-white copiers may further allow the Company to leverage its controller
technology  into  additional  sources  of  revenue,  although  there  can  be no
assurance that the Company will successfully develop and sell Fiery products for
black-and-white  copiers  or that  there  will be  significant  demand for these
products.  There can be no  assurance  that the  Company  will  ever  experience
significant   revenue  from  sales  of  the   Company's   products  for  digital
black-and-white copiers.

     The Company also believes that in addition to the factors  described above,
price reductions for all of its products may affect revenues in the future.  The
Company has made and may in the future make price  reductions  for its products,
including reductions on its stand-alone Fiery Color Servers.  Depending upon the
price-elasticity of demand for the Company's  products,  the pricing and quality
of competitive  products,  and other economic and competitive  conditions,  such
price  reductions  may have an  adverse  impact on the  Company's  revenues  and
profits.  If the Company is not able to compensate  for lower gross margins that
may result from price  reductions with an increased volume of sales, its results
of operations could be adversely affected. In addition, if the Company's revenue
in the future  depends more upon sales of products with  relatively  lower gross
margins  than the Company  obtained in 1997 (such as  embedded  controllers  for
printers,  embedded  controllers  for color  and  black-and-white  copiers,  and
stand-alone controllers for black-and-white copiers),  results of operations may
be adversely affected.

     It is  also  possible  that  revenues  in the  future  may be  affected  if
individuals  with  responsibility  for purchasing the Company's  Fiery products,
such  as  information  technology  professionals,  choose  to  devote  available
discretionary  resources to other perceived needs,  such as technology  expenses
associated  with  Year  2000  preparation.  At this  time,  the  Company  cannot
determine how much impact, if any, this factor may have.

Cost of Revenue

         The  substantial  majority of the Company's cost of revenue to date has
been attributable to the sale of Fiery Color Servers.  Third-party manufacturers
who purchase most of the necessary  components  manufacture these products.  The
Company directly purchases proprietary memory, certain ASIC components,  as well
as software  licensed from various  sources,  including  PostScript  interpreter
licensed from Adobe Systems Incorporated.

         The  Company's  gross  margin was 54.5%,  51.2% and 49.9% of revenue in
1997, 1996, and 1995, respectively. Overall gross margins in 1997 benefited from
lower  component  prices  used in the  Company's  products  in addition to lower
manufacturing costs due to economies of scale. Gross margins in 1996 were better
than in 1995 in part because of a reduction of DRAM and other component  prices.
However,  prices for these  components  generally  only began to decrease in the
second  quarter of 1996.  In  addition,  the Company  introduced  certain  color
servers at the end of 1996 which had higher  margins than the embedded  products
that the Company introduced in 1995.

          The Company's  gross margin  depends in part on the market prices that
can be  achieved on its current  and future  products.  The lower  manufacturing
costs of the Company's  currently  shipping color servers have given the Company
flexibility  to  offer  products  with a broad  range  of  prices.  However,  no
assurance  can be given that either  component  prices or overall  manufacturing
costs will not increase in future periods.


                                       15

<PAGE>

         In the first half of 1997,  the Company was able to offer its customers
significant  price  reductions  across its line of products and saw  substantial
increases in volumes while still maintaining its gross margins.  The Company was
able to do so because of lower market prices for DRAM components.  However,  the
Company's ability to maintain similar gross margins may not continue,  and there
can be no assurance that the Company will increase or maintain  current margins.
In  addition to the  factors  affecting  revenue  described  above,  the Company
expects to be subject to  pressures  to reduce  prices,  and as a result,  gross
margins for all of its  products  may be lower.  The Company  also  expects that
sales of products with relatively  lower margins may increase as a percentage of
revenue.  Such  products  include  older  products  for which prices are reduced
during  product  transitions,  embedded  products for both desktop  printers and
copiers, and stand-alone and embedded  controllers for black-and-white  copiers.
If such sales increase as a percentage of the Company's  revenue,  gross margins
may decline.

         In general,  the Company believes that gross margin will continue to be
impacted by a variety of factors.  These factors  include the  availability  and
pricing of key components (including DRAM and PostScript  interpreter software),
third-party  manufacturing  costs,  product,  channel and  geographic  mix,  the
success of the Company's product transitions and new products,  competition, and
general economic conditions in the United States and abroad.

Operating Expenses

Operating  expenses  for 1997  increased  by $42.7  million  or 68 % from  1996.
Operating expenses in 1997 also constituted a higher percentage of revenues than
in 1996 or 1995 - 29%  versus  21% and 22%  respectively.  One  element  of this
increase was a $9.4 million charge for in process  technology  that was expensed
in 1997 as part of the  acquisition  of Pipeline  Associates,  Inc. and Pipeline
Asia,  Inc.  (the  "Pipeline   Acquisition"),   a  leading  software   developer
specializing in PostScript, HTML and PCL interpreter technologies.  Increases in
operating  expenses  in the last two  years  also were  caused by the  hiring of
additional full time employees, with a net increase of 184 people or 52% in 1997
and a net increase of 132 people or 59% in 1996.  The Company  hired  additional
employees to support  product  development  as well as to support the  Company's
expanded  operations.  The Company  anticipates  that  operating  expenses  will
continue to grow and may increase  both in absolute  dollars and as a percentage
of revenue. The components of operating expenses are detailed below.


         Research and Development

         Expenses for research and  development  consist  primarily of personnel
         expenses  and,  to  a  lesser  extent,   consulting  and   nonrecurring
         engineering expenses,  depreciation,  and costs of prototype materials.
         Research  and  development  expenses  were  $40.3  million  or 11.2% of
         revenue in 1997,  compared to $22.4 million (7.5% of revenue) and $12.9
         million (6.8% of revenue) in 1996 and 1995, respectively.  Research and
         development  expenses have increased over the years primarily due to an
         increase in  research  and  development  projects  resulting  in an 80%
         growth in  engineering  headcount  in 1997 and 1996.  The  increase  in
         efforts to develop  new Fiery  products  has also  increased  prototype
         costs, nonrecurring engineering expenses, and depreciation charges. The
         Company   believes  that  the  development  of  new  products  and  the
         enhancement  of  existing  products  are  essential  to  its  continued
         success,  and intends to continue to devote  substantial  resources  to
         research and new product development efforts.  Accordingly, the Company
         expects  that its  research  and  development  expenses may continue to
         increase in absolute dollars and also as a percentage of revenue.


                                       16



<PAGE>

         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  primarily in the United States,  Europe,
         Japan  and other  locations  around  the  world.  Sales  and  marketing
         expenses for 1997 were $43.4  million or 12.0% of revenue,  compared to
         $30.2 million  (10.1% of revenue) and $21.9 million  (11.5% of revenue)
         in 1996 and 1995,  respectively.  While  sales and  marketing  expenses
         decreased as a percentage of total revenue in 1996 from 1995,  over the
         past three years these  expenses  have  increased  steadily in absolute
         dollars.  Contributing  to this  increase is a 29% and 40%  increase in
         headcount,  in 1997 and 1996,  respectively,  primarily  in the  United
         States. In addition, costs required for the introduction, promotion and
         support of a broader  range of current  products with both existing and
         new OEM relationships as well as technology alliance partners have also
         increased.  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
         products,  and continue to build its sales and marketing  organization,
         particularly in Europe and Asia Pacific, including Japan.

         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  $12.3  million or 3.4% of
         revenue in 1997,  compared to $10.1  million (3.4% of revenue) and $7.0
         million (3.7% of revenue) in 1996 and 1995, respectively. While general
         and administrative expenses have remained constant or have decreased as
         a percentage  of total  revenue in 1997 and 1996,  these  expenses have
         increased  in absolute  dollars.  The  increases  in 1997 and 1996 were
         primarily  due to the increase in  headcount  to support the  Company's
         operations.  The Company  expects  that its general and  administrative
         expenses  may  continue to  increase in absolute  dollars and also as a
         percentage of revenue.


                                       17

<PAGE>

         Acquisition

         In October of 1997, the Company acquired Pipeline  Associates, Inc. and
         Pipeline Asia, Inc. in the Pipeline  Acquisition for $12.6 million, net
         of cash received.  The  acquisition is intended to expand the Company's
         core  technologies  and thereby  decrease  its  dependence  on software
         licensed from outside sources.

         Income Taxes

         The Company's  effective tax rate was 36.0% in 1997,  1996 and 1995. In
         each of these years,  the Company  benefited from increased  tax-exempt
         interest  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 Federal and State
         taxing  authorities.  The Company  anticipates that these benefits will
         continue to have a favorable impact on its  consolidated  effective tax
         rate.

Liquidity and Capital Resources

         Cash, cash equivalents and short-term  investments  increased to $242.7
million as of December  31, 1997,  from $212.1  million as of December 31, 1996.
Working  capital  increased to $286.8  million as of December 31, 1997,  up from
$237.4 million as of December 31, 1996. These increases are primarily the result
of cash  generated  from  operations  and the exercise of employee  common stock
options.

         Net cash  provided by operating  activities  was $72.5  million,  $71.3
million and $36.0 million in 1997, 1996 and 1995, respectively. Cash provided by
operating  activities increased in 1997 primarily due to a reduction in accounts
receivable  balances at the end of the fourth quarter,  partially  offset by the
increased investment in inventory and receivable from subcontract manufacturers.

          The Company has  continued  to invest  additional  cash in  short-term
investments,  mainly  municipal  securities.  Purchases  in  excess  of sales of
short-term  investments were $45.3 million,  $42.1 million, and $21.2 million in
1997, 1996, and 1995, respectively.  In October 1997, the Company invested $12.6
million, net of cash received, in the Pipeline  Acquisition.  Prior to 1997, the
Company's  capital  expenditures  have  generally  consisted of  investments  in
computers and related  peripheral  equipment and office furniture for use in the
Company's operations.  The Company purchased  approximately $11.2 million, $10.7
million and $4.5 million of such equipment and furniture  during 1997,  1996 and
1995, respectively.

         In 1997,  the Company  began  development  of a  corporate  campus on a
35-acre  parcel of land in Foster City,  California.  During  1997,  the Company
spent approximately $27.0 million on this land and associated improvement costs.
In addition to  purchasing  the land,  the Company  entered into an agreement to
lease a ten-story  295,000  square foot building to be  constructed in 1998. The
lessor of the building has  committed to fund up to a maximum of $65 million for
the  construction to be directed by the Company.  Rent payments for the building
will commence upon completion of construction and bear a direct  relationship to
the carrying cost of the amount drawn on the commitment. The initial term of the
lease is 7 years with options to purchase at any time. Also in conjunction  with
the lease,  the Company has entered into a separate ground lease with the lessor
of the  building  for  approximately  35 years.  The  Company has  guaranteed  a
residual value associated with the building to the lessor of  approximately  82%
of the lessor's  funding.  If the Company defaults on the lease,  does not renew
the lease,  does not purchase the building or does not arrange for a third party
purchase of the  building at the end of the lease term,  it may be liable to the
lessor for the amount of the residual guarantee.  As part of the lease agreement
the Company  must  maintain a minimum net worth.  In  addition,  the company has
pledged certain marketable securities ($ 7.6 million at December 31, 1997) to be
held in proportion to the amount drawn in order to secure a more favorable lease
rate and avoid other covenant  restrictions.  The Company may use these funds at
any time,  but their  conversion  would also  result in an increase to the lease
rate and the imposition of additional covenant restrictions.


                                       18

<PAGE>

         Net cash provided by financing activities of $9.9 million, $7.7 million
and $5.5 million in 1997, 1996 and 1995, respectively, were primarily the result
of exercises of common stock options.  Net cash provided by financing activities
in 1997 includes  approximately  $ 132,000 of repayment of bonds assumed as part
of the Foster City, California land acquisition.

         The Company's  inventory  consists primarily of memory subsystems which
are   consigned  to   third-party   contract   manufacturers   responsible   for
manufacturing  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 were
reduced or not available.

         The Company does not have a comprehensive and formal Year 2000 plan for
all of its  operations.  The Company has  informally  reviewed  its internal MIS
systems  and  believes  that its  internal  MIS systems  will not be  materially
affected by Year 2000  issues.  Also,  the  Company  has tested its  products to
determine if the products  will  successfully  roll-over  from the years 1999 to
2000 and 2000 to 2001,  and if the products  will  correctly  recognize the date
February 29, 2000.  Products  first  released after November 1, 1997 have passed
internal tests for these criteria,  and future products will be required to pass
the same internal  tests before  shipping.  Because the Company  cannot  control
other companies'  products used in conjunction with the Company's products (such
as other  companies'  software),  the  Company  does not  intend to  assure  its
customers that its products will meet the above-referenced criteria when used in
conjunction with any other software or hardware not manufactured by the Company.
The  Company  has  not  reviewed  Year  2000  plans  and   preparations  of  its
manufacturers,  suppliers,  customers, and other third parties with whom it does
business.  The effects and costs  associated  with possible Year 2000 issues are
unknown to the  Company at this time,  and there can be no  assurance  that such
effects and costs will not have a material  adverse  effect on the Company,  its
financial condition, results of operations.

         The  Company,  along  with  its  directors  and  certain  officers  and
employees,  has been named in class action  lawsuits filed in both the San Mateo
County  Superior  Court and the United  States  District  Court for the Northern
District of California.  The lawsuits are all related to the drop in the trading
price of the  Company's  stock that  occurred  in  December,  1997.  The Company
believes the lawsuits are without merit and intends to contest them  vigorously,
but there can be no assurance that if damages are ultimately awarded against the
Company,  the  litigation  will not adversely  affect the  Company's  results of
operations.

         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 1998.

Factors That Could Adversely Affect Performance

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

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

     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 Company's 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,   may  adversely  affect  the  Company's  results  of
operations.


                                       19

<PAGE>

     The Company  relies  upon the ability of its OEMs 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 or instead of the Company's  products,  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, may have a material adverse effect on 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 its
products in any OEM channel. The Company's sales may be adversely affected if an
OEM introduces or supports  additional  products that compete with the Company's
products, fails to effectively market the Company's products, modifies its color
copiers or printers such that the Company's  products are no longer  compatible,
introduces  new  color  copiers  or  printers  that  are  incompatible  with the
Company's  products,  or does not allow the Company's products 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  copier and printer  OEMs,  customer  concentration  will
continue to be a risk due to the limited  number of OEMs  producing  copiers and
printers in sufficient volume to be attractive to the Company.

     Product Transitions

     Although the Company plans to introduce new products,  delays in the launch
or  availability of these 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  products.  If the  Company is not able to
successfully  manage product transitions or cannot guarantee the availability of
products  once they have been  introduced,  its  results  of  operations  may be
adversely affected.

     Product Diversification and Coordination of Development With Customers

     The  Company's  customers  have  requested a broader range of products with
different  and unique  features,  and the Company  believes  that this trend may
continue.  If the  Company  cannot  successfully  manage  the  effort  and risks
associated  with a broader range of products,  its results of operations  may be
adversely affected.

     The Company's  customers work closely with the Company to develop  products
that  are  specific  to each  customer.  Many of the  products  the  Company  is
developing  require the Company and its  customers  to  coordinate  development,
quality  testing,  marketing and other tasks.  The Company  cannot control other
companies' efforts,  and such coordination may result in delays that the Company
cannot manage by itself.  If the Company cannot  successfully  manage the effort
and risks  associated  with  coordination,  its  results  of  operations  may be
adversely affected.

     Reliance  On  Products  That  Enable  Color  Printing  Of Digital  Data and
     Decrease In Demand For The Company's Products

     Although the Company has expanded  its product  line in recent  years,  and
continues  to explore  opportunities  to further  diversify  its  business,  the
Company's business has been focused heavily on sales of products that enable the
color printing of digital data.  Should  conditions arise that reduce the demand
for this service, the Company's results of operations may be adversely affected.
The Company believes that purchases of the Company's products may be affected by
a  variety  of  economic  conditions  and  considerations,  and  there can be no
assurance  that  demand for the  Company's  products  will  continue  at current
levels.  For example,  although such  conditions  are difficult to predict,  the
Company is not assuming that there will be  significant  improvement in economic
conditions  in Japan in 1998.  The  Company  believes  that  continued  economic
distress in Japan and  elsewhere in Asia may limit  demand in these  regions for
the  Company's  products.  In addition,  it is possible  that  individuals  with
responsibility  for  purchasing  the  Company's  products,  such as  information
technology professionals, may choose to devote available discretionary resources
to other perceived needs, such as


                                       20

<PAGE>

technology expenses associated with Year 2000 preparation.

      New Product Introductions

      The Company  continues to explore  opportunities  to develop product lines
distinct  from its Fiery  Color  Servers.  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  would  gain  market  acceptance.   If  the  Company  is  not  able  to
successfully manage the introduction of new products,  its results of operations
may be  adversely  affected.  In  addition  to these  risks,  if the  Company is
successful  in  introducing  new products,  there can be no assurance  that such
product  introductions  (including more powerful products sold at a lower price)
will not adversely impact gross margins or sales of existing products.

     Competition

     The Company has seen  competition in the market from companies and products
that provide similar  functionality to the Company's  products and believes that
such competition  will continue and may intensify.  It is also possible that the
Company's  customers  may  themselves  internally  develop  and supply  products
presently  sold by the Company.  There can be no assurance that the Company will
be able to continue to  successfully  compete against other  companies'  product
offerings or their  financial and other  resources.  In addition to  competition
among suppliers of the Company's products, the Company believes that competition
among the Company's  customers and potential  customers,  including  competition
over price,  may increase.  Such  competition  may have an adverse impact on the
Company's results of operations.

     Managing Growth

     The Company  continues to increase its  headcount,  and is working to build
relationships  with  OEMs and  other  customers.  As a result,  the  number  and
complexity of  relationships  the Company must manage,  including  relationships
with  customers,  manufacturers,  and suppliers,  has increased and may increase
further.  If the  Company  cannot  successfully  manage  growth,  its results of
operations may be adversely affected.

     Hiring and Retention of Employees

     The Company depends upon skilled  employees,  such as software and hardware
engineers, quality assurance engineers,  marketing and sales professionals,  and
persons in administrative and managerial positions. Demand for such employees in
Northern  California,  where the Company's main offices are located, is high. To
assure  that the  Company  can  adequately  support  its  business,  the Company
undertakes a number of efforts to hire and retain  qualified  employees.  If the
Company cannot successfully hire and retain employees, its results of operations
could be adversely affected.

     Fluctuations in Operating Results

     Operating  results  may  fluctuate  due to  factors  such as demand for the
Company's products,  success and timing of the new product introductions,  price
reductions  by  the  Company  and  its  competitors,   delay,   cancellation  or
rescheduling of orders, product performance,  or availability of key components.
Operating results may also fluctuate due to seasonal  purchasing patterns of its
OEM partners or the status of the Company's  relationships with its OEM partners
as well as to  performance  of  third-party  manufacturers  or the status of the
Company's relationships with its key suppliers.  Moreover, 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, digital black-and-white
copiers, and color laser printers will also effect operating results.

     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.  Sales and operating
results  therefore  depend on the volume  and  timing of the  backlog as well as
bookings received.  Significant portions of the Company's operating expenses are
fixed,  and planned  expenditures  are based  primarily on sales  forecasts  and


                                       21

<PAGE>

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.

       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. 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.

     Risks  Associated  With  The  Company's  Ownership  of  Real  Property  And
     Transition To New Facilities

     In late  1998 or  early  1999,  the  Company  anticipates  moving  into new
headquarters  on land in Foster City,  California  that the Company owns. If the
Company cannot successfully  manage the transition,  disruption to the Company's
business  and delays in sales  could  arise,  and results of  operations  may be
adversely affected.

     International Operations and Currency Fluctuations

     Approximately   52%  of  the  Company's   product   revenue  for  1997  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.

     Given the significance of international  sales to the Company,  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.  Although  the Company  typically  invoices in U.S.
dollars,  these  adverse  impacts  could occur through lower unit demand and the
necessity to lower average selling prices to compensate for the reduced strength
of local currencies

     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.  There can be no
assurance  that any  patents  that may be  issued to the  Company,  or which the
Company may license from third parties,  or that any other proprietary rights of
the Company will not be  challenged,  invalidated or  circumvented,  or that any
rights granted thereunder would provide proprietary protection to the Company.

     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.

     Reliance on Adobe Systems Incorporated

         Under the Company's  license  agreements with Adobe, a separate license
must be  granted  from Adobe to the  Company  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  software  for  products  that it
offers.  However,  there can be no assurance  that Adobe will  continue to grant
future  licenses to Adobe  PostScript  software on  reasonable  terms,  in a
timely manner,  or at all, or that Adobe will continue to give quality assurance
approvals.  Such actions by Adobe may adversely affect the Company's  results of
operations.  If Adobe does not grant the Company such licenses or approvals,  if
the Adobe license  agreements are terminated,  or if the Company's  relationship
with Adobe is otherwise  impaired,  the  Company's  operations  may be adversely
affected.


                                       22

<PAGE>


<TABLE>

                                               Electronics for Imaging, Inc.
                                                Consolidated Balance Sheets
<CAPTION>

                                                                                             December 31,
                                                                                    --------------------------------
(In thousands, except share and per share amounts)                                         1997             1996
                                                                                    --------------------------------
<S>                                                                                 <C>              <C>           
Assets

Current assets:
Cash and cash equivalents                                                           $      57,195    $       71,946
Short-term investments                                                                    185,536           140,154
Accounts receivable                                                                        30,930            40,875
Inventories                                                                                23,790            11,004
Other current assets                                                                       32,445            22,970
                                                                                    -------------    --------------

         Total current assets                                                             329,896           286,949

Property and equipment, net                                                                46,502            10,640
Other assets                                                                                9,600             1,364
                                                                                    -------------    --------------

                  Total assets                                                      $     385,998    $      298,953
                                                                                    =============    ==============


Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable                                                                    $      20,255    $       16,355
Accrued and other liabilities                                                              19,891            25,980
Income taxes payable                                                                        2,923             7,248
                                                                                    -------------    --------------

         Total current liabilities                                                         43,069            49,583
                                                                                    -------------    --------------

Long - term debt                                                                            4,064                 -
                                                                                    -------------    --------------


Commitments and Contingencies (Note 5)

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;
     52,558,383 and 51,503,314 shares issued and outstanding,
     respectively                                                                             524               515
Additional paid-in capital                                                                137,264           112,660
Retained earnings                                                                         201,077           136,195
                                                                                    -------------    --------------

         Total stockholders' equity                                                       338,865           249,370
                                                                                    -------------    --------------

                  Total liabilities and stockholders' equity                        $     385,998    $      298,953
                                                                                    =============    ==============

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



                                       23

<PAGE>


<TABLE>


                                               Electronics for Imaging, Inc.
                                             Consolidated Statements of Income

<CAPTION>


                                                                                 Years ended December 31,
                                                                  --------------------------------------------------
 (In thousands, except per share amounts)                                1997              1996             1995
                                                                  --------------------------------------------------

<S>                                                               <C>               <C>              <C>           
Revenue                                                           $      360,631    $     298,013    $      190,451

Cost of revenue                                                          163,955          145,399            95,451
                                                                  --------------    -------------    --------------

Gross profit                                                             196,676          152,614            95,000



Operating expenses:

Research and development                                                  40,318           22,440            12,922

Sales and marketing                                                       43,414           30,221            21,938

General and administrative                                                12,348           10,107             7,023

In - process research and development                                      9,400             --                --
                                                                  --------------    -------------    ------------

                                                                         105,480           62,768            41,883
                                                                  --------------    -------------    --------------



Income from operations                                                    91,196           89,846            53,117

Other income, net                                                         10,181            7,318             5,476
                                                                  --------------    -------------    --------------



Income before income taxes                                               101,377           97,164            58,593

Provision for income taxes                                               (36,495)         (34,980)          (21,093)
                                                                  ---------------   -------------    --------------



Net income                                                        $       64,882    $      62,184    $       37,500
                                                                  ==============    =============    ==============



Net income per basic common share                                 $         1.24    $        1.23    $         0.76
                                                                  ==============    =============    ==============

Shares used in per-share calculation                              $       52,359    $      50,672            49,210
                                                                  ==============    =============    ==============


Net income per diluted common share                               $         1.15    $        1.13    $         0.71
                                                                  ==============    =============    ==============

Shares used in per-share calculation                              $       56,198    $      54,828            53,100
                                                                  ==============    =============    ==============


<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                           Total
                                                       -----------------------         Paid-in          Retained       Stockholder's
(In thousands)                                         Shares         Amount           Capital          Earnings          Equity
                                                       ------        ---------        ---------         ---------        ---------
<S>                                                    <C>           <C>              <C>               <C>              <C>      
Balances as of December 31, 1994                       11,989        $     120        $  76,898         $  36,511        $ 113,529

Exercise of common stock options                          993               10            5,465              --              5,475

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

Effect of two-for-one stock split                      11,989              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                      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


Exercise of common stock options                        1,055                9           10,059              --             10,068

Tax benefit related to stock plans                       --               --             14,545              --             14,545

Net income for the year ended
      December 31, 1997                                  --               --               --              64,882           64,882
                                                       ------        ---------        ---------         ---------        ---------


Balances as of December 31, 1997                       52,558        $     524        $ 137,264         $ 201,077        $ 338,865
                                                       ======        =========        =========         =========        =========

<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)                                                          1997              1996             1995
                                                                  -------------------------------------------------
<S>                                                               <C>               <C>              <C>           
Cash flows from operating activities:
Net income                                                        $       64,882    $      62,184    $       37,500
Adjustments to reconcile net income to net cash
provided by operating activities:
     Depreciation and amortization                                         7,376            5,484             3,414
     Deferred taxes                                                       (4,144)          (4,135)           (1,313)
     In-process research and development                                   9,400               --                --
     Changes in operating assets and liabilities:
         Accounts receivable                                              10,378          (13,287)          (18,849)
         Inventories                                                     (12,786)          (3,195)              614
         Receivable from Subcontract Manufacturers                        (5,854)          (9,600)           (1,788)
         Other current assets                                             (4,107)            (778)              426
         Accounts payable and accrued liabilities                         (2,870)          19,682             6,549
         Income taxes payable                                             10,220           14,919             9,484
                                                                  --------------    -------------    --------------

     Net cash provided by operating activities                            72,495           71,274            36,037
                                                                  --------------    -------------    --------------

Cash flows from investing activities:
Purchases of short-term investments                                     (195,669)        (213,919)         (168,556)
Sales/maturities of short-term investments                               150,287          171,777           147,299
Investment in property and equipment, net                                (38,530)         (10,655)           (4,528)
Business acquired, net of cash received                                  (12,626)              --                --
Purchase of other assets                                                    (644)            (236)               60
                                                                  ---------------   --------------   --------------

     Net cash used for investing activities                              (97,182)         (53,033)          (25,725)
                                                                  ---------------   -------------    --------------

Cash flows from financing activities:

Repayment of bonds payable                                                  (132)              --                --
Issuance of common stock                                                  10,068            7,699             5,475
                                                                  --------------    -------------    --------------

     Net cash provided by financing activities                             9,936            7,699             5,475
                                                                  --------------    -------------    --------------

Increase (decrease) in cash and cash equivalents                         (14,751)          25,940            15,787
Cash and cash equivalents at beginning of year                            71,946           46,006            30,219
                                                                  --------------    -------------    --------------

Cash and cash equivalents at end of year                          $       57,195    $      71,946    $       46,006
                                                                  ==============    =============    ==============

Supplemental disclosures of Cash Flow Information:
Cash paid for interest                                            $          154    $         --     $          --
Cash paid for income taxes                                                30,225           23,715            12,463
Assumption of debt in conjunction with land acquisition                    4,467              --                --

<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
inter-company 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 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,  1997,  the
Company had approximately $187.0 million of  available-for-sale  securities,  of
which   approximately   $1.4  million  were  classified  as  cash   equivalents.
Approximately $45.7 million had stated maturities greater than one year and less
than two years.  Approximately  $39.3 million had stated maturities greater than
two years. 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.  None of the  Company's  available-for-sale
securities had maturities greater than two years as of December 31, 1996.

     Concentration  of Credit Risk. The Company is exposed 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.

     Fair value of  financial  Instruments.  The carrying  amount of cash,  cash
equivalents,  short-term  investments,  accounts  receivable,  accounts payable,
accrued liabilities and bonds payable as presented in the financial  statements,
approximates  fair value based on the nature of these instruments and prevailing
interest rates.


                                       27

<PAGE>

     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.

     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  for U.S.  income tax is made for the  undistributed  earnings  of the
Company's foreign  subsidiaries,  to the extent 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 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 Based  Compensation.  Compensation  associated  with stock options is
recognized  using the  intrinsic  value  method,  whereby  compensation  is only
recorded if the exercise price of the stock option is less than the market price
of the underlying stock on the date of grant.  Additional pro forma  disclosures
are  provided in Note 8 as if the fair value  method had been  applied.  Current
compensation  under the fair value method  incorporates an additional  component
for the potential future value of the option.

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

     Comprehensive Income. In June 1997 the Financial Accounting Standards Board
issued  Statement  of  Financial  Accounting  Standards  130 (SFAS) - "Reporting
Comprehensive   Income".  SFAS  130  establishes  the  standards  for  reporting
comprehensive income and its components in a financial statement.  Comprehensive
income as defined  includes all changes in equity (net  assets)  during a period
from  non-owner  sources.  Examples  of items to be  included  in  comprehensive
income,  which are excluded from net income include foreign currency translation
adjustment  and  unrealized  gain/loss on  available  for sale  securities.  The
disclosure  prescribed by the Statement  must be made  beginning  with the first
quarter of fiscal 1998.

     Segment Reporting.  In June 1997, the Financial  Accounting Standards Board
issued  SFAS 131 -  "Disclosures  about  Segments of an  Enterprise  and Related
Information." This statement  establishes standards for the way companies report
information  about operating  segments in annual financial  statements.  It also
establishes  standards  for related  disclosures  about  products and  services,
geographic  areas, and major  customers.  The Company has not yet determined the
impact,  if any, of adopting this new standard.  The  disclosures  prescribed by
SFAS 131 are effective in fiscal 1998.

     Reclassifications.  Certain  prior year amounts have been  reclassified  to
conform with fiscal 1997 presentation. These changes had no impact on previously
reported results of operations or shareholders' equity.



                                       28

<PAGE>

Note 2: Acquisitions

         In October of 1997, the Company acquired Pipeline Associates,  Inc. and
Pipeline Asia, Inc. (collectively, "Pipeline") - a leading software developer of
PostScript, HTML and PCL interpreter technologies . The acquisition cost, net of
cash received was $12.6 million and was accounted for as a purchase.  The excess
of the  acquisition  cost  over the fair  market  value of net  tangible  assets
acquired was $ 12.5 million,  of which $ 9.4 million was allocated to in-process
research  and  development  and expensed  immediately.  The  allocation  to in -
process  research  and  development  was  based  on an  independent  appraiser's
valuation  report which included the value of products in the development  stage
not  considered to have reached  technological  feasibility.  The balance of the
excess acquisition cost was allocated to Acquired  Technology and Trademarks - $
2.8 million,  and goodwill - $0.3 million which are being amortized over 3 and 5
years  respectively.  The Pipeline  acquisition  was not deemed  material to the
Company's financial condition or results of operations,  accordingly,  pro forma
disclosures associated with purchase accounting have not been provided.


                                       29

<PAGE>

Note 3: Balance Sheet Components

                                                              December 31,
                                                        ------------------------
(In thousands)                                             1997         1996
                                                        ------------------------
Short-term investments:

Municipal securities                                    $ 183,859     $ 137,315
U.S. government securities                                  1,677         2,839
                                                        ---------     ---------

                                                        $ 185,536     $ 140,154
                                                        =========     =========

Accounts receivable:

Accounts receivable                                     $  32,315     $  42,787
Less reserves and allowances                               (1,385)       (1,912)
                                                        ---------     ---------

                                                        $  30,930     $  40,875
                                                        =========     =========

Inventories:

Raw materials                                           $  19,216     $   6,696
Work in process                                             3,183         3,374
Finished goods                                              1,391           934
                                                        ---------     ---------

                                                        $  23,790     $  11,004
                                                        =========     =========


Other Current Assets:

Receivable from subcontract manufacturers               $  17,642     $  11,788
Other                                                      14,803        11,182
                                                        ---------     ---------

                                                        $  32,445     $  22,970
                                                        =========     =========


Property and equipment:

Land                                                    $  27,351     $    --
Equipment and purchased software                           34,201        21,901
Furniture and leasehold improvements                        7,494         3,907
                                                        ---------     ---------
                                                           69,046        25,808
Less accumulated depreciation and amortization            (22,544)      (15,168)
                                                        ---------     ---------

                                                        $  46,502     $  10,640
                                                        =========     =========

Accrued and other liabilities:

Accrued product-related obligations                     $  14,618     $  13,588
Accrued compensation and benefits                           2,716         2,261
Other accrued liabilities                                   2,557        10,131
                                                        ---------     ---------

                                                        $  19,891     $  25,980
                                                        =========     =========


                                       30

<PAGE>

Note 4:  Long -Term Debt

         Long Term Debt  consists  of amounts due to the City of Foster City for
certain bonds  assumed by the Company  during the purchase of land (see Note 5).
Principal amounts owing under the bonds are as follows:

(In thousands)

Total principal         $ 4,335
Less: current portion      (271)
                        -------
                        $ 4,064
                        =======

The  bonds  are  secured  by the  land  and  bear  an  annual  interest  rate of
approximately 7%. Interest and principal payments are due semi-annually with the
last payment occurring in June 2009.  Principal payments under the bonds payable
are as follows:

(In thousands)

Year ending
December 31,
- ------------
  1998         $  271
  1999            287
  2000            304
  2001            323
  2002            342
  Thereafter    2,808
               ------
               $4,335
               ======

Note 5:   Commitments and Contingencies

Leases

     The Company currently leases its principal operating  facilities under four
non-cancelable  operating  leases  expiring  between March 31, 1999 and June 30,
2000. Future minimum lease commitments under noncancelable  operating leases for
facilities as of December 31, 1997 are approximately $3.1 million, $2.5 million,
and $0.8  million  in 1998,  1999  and  2000,  respectively.  Rent  expense  was
approximately  $3.3 million,  $2.1 million,  and $1.9 million in 1997,  1996 and
1995, respectively.

     On July  18,  1997,  the  Company  entered  into an  agreement  to  lease a
ten-story 295,000 square foot building to be constructed on 35 acres,  which the
Company  owns in  Foster  City,  California.  The  lessor  of the  building  has
committed  to fund up to a maximum of $65  million for the  construction  of the
building,   with  the  portion  of  the  committed   amount  actually  used  for
construction to be determined by the Company.  Rent obligations for the building
will bear a direct  relationship to the carrying cost of the commitment actually
drawn down. The amount of this rent  obligation is contingent upon future events
and  is not  included  in the  above  future  minimum  lease  commitments  under
non-cancelable operating leases.  Currently,  carrying costs of funds drawn also
accrue as part of the  construction  cost being drawn from the  commitment.  The
Company currently anticipates that construction will be completed in December of
1998. The Company has the contractual right to sub-lease its current facilities.


                                       31

<PAGE>

     The lease  associated  with the Foster  City  building  has a term of seven
years with an option to renew the lease for an  additional 3 to 5 years  subject
to certain conditions.  In connection with the lease, the Company entered into a
lease of its land in Foster City to the lessor of the building at a nominal rate
and for a term of 34 years and 11 months. If the Company  terminates or does not
negotiate  an extension  of its lease of the  building,  the ground lease to the
lessor converts to a market rate. The Company,  at its option,  may purchase the
building  during or at the end of the terms of the  lease at  approximately  the
amount  expended  by the lessor to  construct  the  building.  The  Company  has
guaranteed  a  residual  value  associated  with the  building  to the lessor of
approximately 82% of the lessor's funding. If the Company defaults on its lease,
does not renew its lease,  does not purchase the building or arrange for a third
party purchase of the building at the end of the lease term, it may be liable to
the lessor for the amount of the residual guarantee.

     As part of this  agreement,  the Company must maintain a minimum net worth.
In addition,  in order to obtain a favorable lease rate, the Company has pledged
certain  securities  ($ 7.6 million at December 31, 1997) in  proportion  to the
amount  drawn  against  the  commitment  to be held in a  custodial  account  as
collateral  to ensure  fulfillment  of the  obligations  to the lessor under the
lease  agreement.  The Company may invest these funds in certain  securities and
receive the full  benefit of the  investment.  However,  if the Company  uses or
transfers  these funds,  the rent on the building would increase and the Company
would be required to comply with certain additional financial covenants.

Legal Proceedings

         The Company and certain principal  officers and directors were named as
defendants  in class action  complaints  filed in both the  California  Superior
Court of the County of San Mateo on  December  16,1997,  and the  United  States
District  Court for the Northern  District of  California  on January 2, 1998 on
behalf of purchasers of the common stock of the Company  during the class period
from April 10, 1997, through December 11, 1997. The complaints allege violations
of securities laws during the class period. Management believes the lawsuits are
without  merit and that the outcome will not have a material  adverse  effect on
the  financial  position or overall  trends in the results of  operations of the
Company.  However, due to the inherent uncertainties of litigation,  the Company
cannot  accurately   predict  the  ultimate  outcome  of  the  litigation.   Any
unfavorable  outcome  of the  litigation  could  have an  adverse  impact on the
Company's financial condition and results of operations.



                                       32

<PAGE>

Note 6:   Income Taxes

     The provision for income taxes is summarized as follows:

                                                    Years ended December 31,
                                               ---------------------------------
(In thousands)                                   1997        1996       1995
                                               ---------------------------------

Current:
U.S. federal                                   $ 34,623    $ 32,309    $ 18,372
State                                             5,744       6,186       3,673
Foreign                                             272         620         361
                                               --------    --------    --------

     Total current                               40,639      39,115      22,406
                                               --------    --------    --------

Deferred:
U.S. federal                                     (3,327)     (3,203)     (1,079)
State                                              (817)       (932)       (234)
Foreign                                            --          --          --
     Total deferred                              (4,144)     (4,135)     (1,313)
                                               --------    --------    --------
         Total provision for income taxes      $ 36,495    $ 34,980    $ 21,093
                                               ========    ========    ========


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

                                                                December 31,
                                                         -----------------------
(In thousands)                                             1997           1996
                                                         -----------------------

Depreciation                                             $ 1,007         $   669
Reserves and accruals                                      5,795           7,457
State taxes payable                                        1,140           1,188
Deferred Revenue                                           1,466            --
Intangibles                                                3,777            --
Other                                                        550             277
                                                         -------         -------
     Total deferred tax assets                           $13,735         $ 9,591
                                                         =======         =======



                                       33

<PAGE>

     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)                                   1997        1996        1995
                                              ----------------------------------

Tax expense at federal statutory rate          $ 35,482    $ 34,007    $ 20,509
State income taxes, net of federal benefit        3,203       3,415       2,235
Tax-exempt interest income                       (2,245)     (2,099)     (1,488)
Other                                                55        (343)       (163)
                                               --------    --------    --------

                                               $ 36,495    $ 34,980    $ 21,093
                                               ========    ========    ========

Income  before  income  taxes  includes $ 1.0  million,  $ 0.8 million and $ 0.8
million  of income  relating  to non -U.S.  operations  for 1997,  1996 and 1995
respectively.

The United  States  federal tax  authority is currently  reviewing the Company's
federal income tax returns for 1994, 1995 and 1996. Management believes that the
ultimate outcome of these reviews will not have a material adverse impact on the
Company's financial condition or results of operations.




Note 7:   Earnings Per Share

     In February 1997, The Financial  Accounting Standards Board issued SFAS 128
- - "Earnings per Share".  The Statement  redefines earnings per share (EPS) under
generally accepted accounting principles. Under the new standard, primary EPS is
replaced by basic EPS and fully  diluted EPS is replaced by diluted EPS. It also
requires dual presentation of basic and diluted EPS on the face of the financial
statements.  SFAS No. 128 was adopted in the fourth  quarter of 1997 and the EPS
for all periods  presented  have been restated to conform with the provisions of
SFAS No. 128. The following table represents unaudited, disclosures of basic and
diluted EPS in  accordance  with SFAS No. 128  assuming the standard was applied
during all periods presented below:

                                                       Years ended December 31,
                                                     ---------------------------
(In thousands, except per share amounts)               1997     1996      1995
                                                     ---------------------------

Net income available to common shareholders          $64,882   $62,184   $37,500

Shares

         Basic shares                                 52,359    50,672    49,210
         Effect of Dilutive Securities                 3,839     4,156     3,890
                                                     -------   -------   -------
         Diluted shares                               56,198    54,828    53,100
                                                     -------   -------   -------

Earnings per common share

         Basic EPS                                   $  1.24   $  1.23   $  0.76
         Diluted EPS                                 $  1.15   $  1.13   $  0.71


Antidilutive Options.  Options to purchase 585,529,  95,625 and 89,332 shares of
common stock outstanding as of December 31, 1997, 1996, and 1995,  respectively,
were not  included in the  computations  of diluted  EPS  because  the  options'
exercise  prices were greater than the average market price of the common shares
for the years then ended.


                                       34

<PAGE>

Note 8:   Stock Compensation Plans

As of December 31, 1997,  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 1997  and  1996  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:

                                                    Years ended December 31,
                                               --------------------------------
(In thousands, except per share amounts)         1997         1996       1995
                                               --------------------------------
                                                         
Net income                 As reported         $64,882      $62,184     $37,500
                           Pro forma           $52,015      $58,304     $36,057
                                                         
Earnings per basic         As reported         $  1.24      $  1.23     $  0.76
     common share          Pro forma           $  0.99      $  1.15     $  0.73
                                                         
Earnings per diluted       As reported         $  1.15      $  1.13     $  0.71
     common share          Pro forma           $   .93      $  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.  At December 31, 1997, 2.8 million shares were
available for future grants.


<TABLE>

         The fair value of each option  grant is  estimated on the date of grant
using the  Black-Scholes  option-pricing  model,  the  attribution  method  with
respect to graded vesting and the following weighted-average assumptions:

<CAPTION>

                                                                              Years Ended December 31,
                                                                              ------------------------
         Black Scholes Assumptions & Fair Value                    1997                 1996                 1995
                                                                   ----                 ----                 ----
<S>                                                            <C>                  <C>                  <C>
Expected Volatility                                                69.0%                48.0%                 48.0%
Dividend Yield                                                      0.0%                 0.0%                  0.0%
Risk Free Interest Rate                                        5.35% to 5.83%       5.68% to 6.71%       5.68% to 6.71%
Weighted Average Expected Option Term                             5.2 years           4.3 years            4.3 years

Weighted Average Fair Value of Options Granted                    $  25.22             $  9.42               $ 4.78

</TABLE>



                                       35

<PAGE>


<TABLE>

         A summary  of the  status of the  Company's  fixed  stock  option  plan
activity is presented below:
<CAPTION>

(In thousands, except exercise price)                                     Years ended December 31,
                                                   1997                             1996                            1995
                                                   ----                             ----                            ----
                                                           Average                         Average                        Average
                                                          Exercise                        Exercise                        Exercise 
                                           Shares           Price          Shares           Price        Shares            Price
                                           ------           -----          ------           -----        ------            -----
<S>                                        <C>              <C>            <C>             <C>             <C>            <C>    
Beginning of Year                            6,085          $ 13.19         6,338          $  7.34         7,160          $  3.76
Granted                                      1,613            47.14         1,950            25.80         2,401            13.08
Exercised                                   (1,055)            9.51        (1,560)            4.89        (1,986)            2.69
Forfeited                                     (301)           25.70          (643)           13.86        (1,237)            5.31
                                             -----                          -----                        -------
End of Year                                  6,342            21.84         6,085            13.19         6,338             7.34
                                             -----                          -----                        -------
                                                                                                         
</TABLE>



<TABLE>

     The following table summarizes  information about stock options outstanding
at December 31, 1997:
<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 $5.00            1,490               5.62          $    3.61           1,257           $       3.40
  $5.62 to $9.97              577               6.88               6.35             447                   5.76
  $10.75 to $12.81          1,001               7.51              12.77             341                  12.77
  $13.25 to $19.13            266               7.98              16.24              80                  16.54
  $19.38 to $25.63          1,139               8.49              25.14             235                  24.96
  $27.31 to $47.25          1,492               9.27              42.87              69                  33.12
  $47.56 to $55.13            377               9.71              52.38               0                      0
                            -----                                                 -----               
                                                                                                  
  $0.01 to $55.13           6,342               7.75              21.84           2,429                   8.51
                            =====                                                 =====          
                                                                                               
</TABLE>



                                       36

<PAGE>

Note 9:  Export Sales and Significant Customers

Export sales by geographic area consisted of the following:
(In thousands)


                                    Years ended December 31,
                       ------------------------------------------------
                         1997              1996              1995  
                       ------------------------------------------------
Europe                   $109,000          $ 75,000          $ 51,000  
Japan                      63,000            64,000            26,000  
Canada                      1,000             7,000             3,000  
Other                      14,000             5,000             2,000  
                         --------          --------          --------  
                                                  
     Total               $187,000          $151,000          $ 82,000  
                         ========          ========          ========  

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 44%, 27% and 14% of Revenue in
1997.  These  customers  represented  47%,  23% and 12%, and 56%, 23% and 12% of
revenue  in  1996  and  1995  respectively.  In  addition,  these  customers  in
combination with a fourth customer  accounted for  approximately  77% and 84% of
the accounts receivable balance as of December 31, 1997 and 1996 respectively.




                                       37

<PAGE>

 
                       Report of Independent Accountants



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

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements of income,  of  stockholders'  equity and of cash flows
present fairly, in all material respects,  the financial position of Electronics
for Imaging,  Inc. and its  subsidiaries  at December 31, 1997 and 1996, and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31,  1997,  in  conformity  with  generally  accepted
accounting principles.  These financial statements are the responsibility of the
Company's  management;  our  responsibility  is to  express  an opinion on these
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, 1998,




                                       38

<PAGE>


<TABLE>

                  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, 1997. 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 adoption of SFAS 128.
<CAPTION>

1996:                                                                    Q1               Q2                Q3                Q4
                                                                     ---------------------------------------------------------------
<S>                                                                  <C>               <C>               <C>               <C>     
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 basic common share                                    $   0.25          $   0.27          $   0.31          $   0.40
Net income per diluted common share                                  $   0.23          $   0.25          $   0.28          $   0.36

1997:                                                                    Q1               Q2                Q3                Q4
                                                                     ---------------------------------------------------------------
Revenue                                                              $ 91,006          $100,633          $107,323          $ 61,669
Gross profit                                                           49,913            55,226            59,028            32,509
Income (loss) from operations                                          29,356            32,633            34,842            (5,635)
Net income (loss)                                                      20,428            22,609            23,914            (2,069)
Net income (loss) per basic common share                             $   0.40          $   0.44          $   0.46          $  (0.06)
Net income (loss) per diluted common share                           $   0.37          $   0.41          $   0.43          $  (0.04)

</TABLE>



                                       39

<PAGE>


 
                                    PART IV


<TABLE>


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

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

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

              Schedule II - Valuation and Qualifying Accounts                                                   45

              (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.)


</TABLE>



                                       40

<PAGE>

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

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


                                       41

<PAGE>

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)

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)



                                       42

<PAGE>

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)

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


                                       43

<PAGE>

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

10.57      Master Lease and Open End Mortgages  dated as of July 18, 1997 by and
           between the Company and FBTC Leasing Corp. for the lease financing of
           the Company's corporate  headquarters  building to be built in Foster
           City, California.(4)

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.

(4)        Filed as an exhibit to the  Company's  Quarterly  Report on Form 10-Q
           for  the  quarter  ended  June  30,  1997  (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, 1997.

(c)        List of Exhibits
           See Item 14 (a) 3.

(d)        Consolidated  Financial  Statement  Schedule  II for the years  ended
           December 31, 1995, 1996 and 1997, respectively.

           See Page 45 of this Annual Report on Form 10-K.



                                       44

<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>        
(In thousands)
Year Ended December 31, 1997
Allowance for doubtful accounts and
sales-related reserves                     $     1,912     $        132   $         --    $     (659)    $     1,385
                                           =============   =============  =============  =============   =============


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
                                           =============   =============  =============  =============   =============


</TABLE>



                                       45

<PAGE>


                      Report of Independent Accountants on
                          Financial Statement Schedule





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



Our audits of the  consolidated  financial  statement  referred to in our report
dated January 14, 1997 appearing in 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, 1998




                                       46

<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 1998.

                        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 1998.

<CAPTION>

Signature                                          Title                                                   Date
- ---------                                          -----                                                   ----
<S>                                       <C>                                                        <C>
   /s/ Efraim Arazi                       Chairman of the Board                                      March 27, 1998
- --------------------------------------
       Efraim Arazi


                                          President, Chief Executive Officer
   /s/ Dan Avida                          and Director                                               March 27, 1998
- --------------------------------------    (Principal Executive Officer and               
       Dan Avida                          Principal Financial and Accounting Officer)    
                                          


   /s/ Gill Cogan                         Director                                                   March 27, 1998
- --------------------------------------
       Gill Cogan



   /s/ Jean-Louis Gassee                  Director                                                   March 27, 1998
- --------------------------------------
       Jean-Louis Gassee


   /s/ Dan Maydan                         Director                                                   March 27, 1998
- --------------------------------------
       Dan Maydan


   /s/ Thomas Unterberg                   Director                                                   March 27, 1998
- --------------------------------------
       Thomas Unterberg
</TABLE>


                                       47






<TABLE>
                                                                                                                        EXHIBIT 11.1

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

<CAPTION>

                                                                                                         Year Ended
                                                                                                         December 31,
                                                                                         -------------------------------------------
                                                                                          1997              1996              1995
                                                                                         -------           -------           -------
<S>                                                                                      <C>               <C>               <C>    
Net income for purposes of computing net income per share                                $64,882           $62,184           $37,500
                                                                                         -------           -------           -------
Weighted average common shares outstanding for 
     computing basic income per share                                                     52,359            50,672            49,210

Potential common shares from options (2)                                                   3,839             4,156             3,890
                                                                                         -------           -------           -------

Weighted average potential common shares and equivalents                                  56,198            54,828            53,100
                                                                                         =======           =======           =======
Net income per basic common share                                                        $  1.24           $  1.23           $  0.76
                                                                                         =======           =======           =======
Net income per diluted common share                                                      $  1.15           $  1.13           $  0.71
                                                                                         =======           =======           =======

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

(2)    Computed using the treasury stock method.
</FN>
</TABLE>




                                       48




                                                                    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, 1998 appearing in
this Form 10-K. We also consent to the  incorporation by reference of our report
on the Consolidated  Financial Statement Schedule,  which appears in this Annual
Report on Form 10-K.



PRICE WATERHOUSE LLP

San Jose, California
March 27, 1998




                                       49





<TABLE> <S> <C>


<ARTICLE>                     5
<LEGEND>
This  schedule  contains  summary  financial   information  extracted  from  the
condensed  balance  sheet,  condensed  statement  of  operations  and  condensed
statement of cash flows  included in the Company's  Form 10-K for the year ended
December  31,  1997  and is  qualified  in its  entirety  by  reference  to such
financial statements and the notes thereto.
</LEGEND>
       
<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                              DEC-31-1997
<PERIOD-START>                                 JAN-01-1997
<PERIOD-END>                                   DEC-31-1997
<CASH>                                         57,195
<SECURITIES>                                   185,536
<RECEIVABLES>                                  32,315
<ALLOWANCES>                                   1,385
<INVENTORY>                                    23,790
<CURRENT-ASSETS>                               329,896
<PP&E>                                         69,046
<DEPRECIATION>                                 22,544
<TOTAL-ASSETS>                                 385,998
<CURRENT-LIABILITIES>                          43,069
<BONDS>                                        4,064
<PREFERRED-MANDATORY>                          0
<PREFERRED>                                    0
<COMMON>                                       524
<OTHER-SE>                                     338,341
<TOTAL-LIABILITY-AND-EQUITY>                   385,998
<SALES>                                        360,631
<TOTAL-REVENUES>                               360,631
<CGS>                                          163,955
<TOTAL-COSTS>                                  163,955
<OTHER-EXPENSES>                               105,480
<LOSS-PROVISION>                               0
<INTEREST-EXPENSE>                             0
<INCOME-PRETAX>                                101,377
<INCOME-TAX>                                   36,495
<INCOME-CONTINUING>                            64,882
<DISCONTINUED>                                 0
<EXTRAORDINARY>                                0
<CHANGES>                                      0
<NET-INCOME>                                   64,882
<EPS-PRIMARY>                                  1.24
<EPS-DILUTED>                                  1.15
        


</TABLE>