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

                                    FORM 10-Q


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

                For the quarterly period ended September 30, 1998

                                       OR

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

                         Commission File Number: 0-18805


                          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, including zip code)


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


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 [ ]


The number of shares of Common  Stock  outstanding  as of  November  4, 1998 was
53,158,268.


<PAGE>

<TABLE>


                                         ELECTRONICS FOR IMAGING, INC.

                                                     INDEX
<CAPTION>



                                                                                                      Page No.
<S>                                                                                                         <C>

PART I - Financial Information


Item 1.           Condensed Consolidated Financial Statements

                      Condensed Consolidated Statements of Income
                           Three Months Ended September 30, 1998 and 1997, and
                           Nine Months Ended September 30, 1998 and 1997.....................................3

                      Condensed Consolidated Balance Sheets
                           September 30, 1998 and December 31, 1997 .........................................4

                      Condensed Consolidated Statements of Cash Flows
                           Nine Months Ended September 30, 1998 and 1997 ....................................5

                      Notes to Condensed Consolidated Financial Statements ..................................6



Item 2.           Management's Discussion and Analysis of Financial
                  Condition and Results of Operations .......................................................9



PART II - Other Information


Items 1 - 5.      Not Applicable ...........................................................................21


Item 6.           Exhibits and Reports on Form 8-K .........................................................21


Signatures .................................................................................................22

</TABLE>

                                                       2

<PAGE>


<TABLE>


PART I            Financial Information


     ITEM 1.          Condensed Consolidated Financial Statements


                                            ELECTRONICS FOR IMAGING, INC.
                                     CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                      (In thousands, except per share amounts)
                                                     (Unaudited)
<CAPTION>


                                                      Three Months Ended                   Nine Months Ended
                                                         September 30,                       September 30,         
                                                 -----------------------------       ------------------------------
                                                     1998             1997                1998            1997     
                                                 -------------   -------------       -------------   --------------
<S>                                              <C>             <C>                 <C>             <C>           
Revenue                                          $     125,327   $     107,323       $     304,007   $      298,962
Cost of revenue                                         71,436          48,295             171,770          134,795
                                                 -------------   -------------       -------------   --------------
                                                        53,891          59,028             132,237          164,167
                                                 -------------   -------------       -------------   --------------

Operating expenses:
   Research and development                             14,914          10,753              43,087           28,144
   Sales and marketing                                  13,957          10,520              43,241           30,565
   General and administrative                            4,120           2,913              11,449            8,627
                                                 -------------   -------------       -------------   --------------

                                                        32,991          24,186              97,777           67,336
                                                 -------------   -------------       -------------   --------------

     Income from operations                             20,900          34,842              34,460           96,831

Other income, net                                        2,419           2,523               6,229            7,779
                                                 -------------   -------------       -------------   --------------

     Income before income taxes                         23,319          37,365              40,689          104,610

Provision for income taxes                               6,816          13,451              13,070           37,659
                                                 -------------   -------------       -------------   --------------

     Net income                                  $      16,503   $      23,914       $      27,619   $       66,951
                                                 =============   =============       =============   ==============


Net income per basic common share                $        0.31   $        0.46       $        0.52   $         1.29
                                                 =============   =============       =============   ==============

Shares used in per share
   calculation (basic)                                  52,641          52,139              52,608           51,866
                                                 =============   =============       =============   ==============


Net income per diluted common share              $        0.31   $        0.43       $        0.51   $         1.20
                                                 =============   =============       =============   ==============

Shares used in per share
   calculation (diluted)                                53,929          56,216              54,067           55,897
                                                 =============   =============       =============   ==============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>


                                                          3

<PAGE>

<TABLE>

                                       ELECTRONICS FOR IMAGING, INC.
                                   CONDENSED CONSOLIDATED BALANCE SHEETS
                             (In thousands, except share and per share amounts)
                                                (Unaudited)
<CAPTION>

                                                                   September 30,              December 31,
                                                                       1998                       1997    
                                                                  --------------             -------------
<S>                                                                   <C>                        <C>      
ASSETS
Current assets:
   Cash and cash equivalents                                          $   64,742                  $ 57,195
   Short-term investments                                                214,723                   185,536
   Accounts receivable, net                                               70,423                    30,930
   Inventories                                                            16,202                    23,790
   Other current assets                                                   25,043                    32,445
                                                                  --------------             -------------

     Total current assets                                                391,133                   329,896

Property and equipment, net                                               45,852                    46,502
Other assets                                                               8,733                     9,600
                                                                  --------------             -------------

     Total assets                                                     $  445,718                 $ 385,998
                                                                  --------------             -------------

LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
   Accounts payable                                                   $   37,253                 $  20,255
   Accrued and other liabilities                                          26,532                    19,891
   Income taxes payable                                                   11,020                     2,923
                                                                  --------------             -------------

     Total current liabilities                                            74,805                    43,069
                                                                  --------------             -------------

Long-term debt                                                             3,924                     4,064
                                                                  --------------             -------------

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; 52,657,312 and 52,558,383 shares issued
      and outstanding, respectively                                          527                       524
   Additional paid-in capital                                            137,914                   137,264
   Cumulative translation adjustment                                        (148)                       --
   Retained earnings                                                     228,696                   201,077
                                                                  --------------             -------------

     Total stockholders' equity                                          366,989                   338,865
                                                                  --------------             -------------

     Total liabilities and stockholders' equity                       $  445,718                 $ 385,998
                                                                  --------------             -------------

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


                                                     4


<PAGE>

<TABLE>


                                       ELECTRONICS FOR IMAGING, INC.
                              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                               (In thousands)
                                                (Unaudited)
<CAPTION>

                                                                   Nine Months Ended September 30,
                                                                  ---------------------------------
                                                                     1998                    1997 
                                                                  ----------             ----------
<S>                                                               <C>                    <C>        
Cash flows from operating activities:
   Net income                                                     $   27,619             $   66,951
   Adjustments  to  reconcile  net  income  to net
    cash  provided  by  operating activities:
       Depreciation and amortization                                  10,146                  4,454
       Provision for doubtful accounts
         and sales returns                                               241                 (1,269)
       Other                                                            (148)                    --
     Changes in operating assets and liabilities: 
         Accounts receivable                                         (39,734)               (12,944)
         Inventories                                                   7,588                 (4,746)
         Receivables from subcontract manufacturers                    7,808                 (4,184)
         Other current assets                                           (406)                (4,898)
         Accounts payable and accrued liabilities                     23,639                  9,638
         Income taxes payable                                          8,097                 12,240
                                                                  ----------             ----------

           Net cash provided by operating activities                  44,850                 65,242
                                                                  ----------             ----------

Cash flows from investing activities:
   Purchase of short-term investments                               (147,927)              (141,013)
   Sales and maturities of short-term investments                    118,740                102,639
   Purchase of property and equipment, net                            (8,679)               (30,210)
   Increase (decrease) of other assets, net                               50                    (83)
                                                                  ----------             ----------

           Net cash used for investing activities                    (37,816)               (68,667)
                                                                  ----------             ----------

Cash flows from financing activities:
   Repayment of bonds payable                                           (140)                    --
   Issuance of common stock related to stock plans                       653                  8,501
                                                                  ----------             ----------

           Net cash provided by financing activities                     513                  8,501
                                                                  ----------             ----------

Net change in cash and cash equivalents                                7,547                  5,076

Cash and cash equivalents at beginning of period                      57,195                 71,946
                                                                  ----------             ----------

Cash and cash equivalents at end of period
                                                                  $   64,742             $   77,022
                                                                  ==========             ==========

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

                                                     5
</TABLE>


<PAGE>



                          ELECTRONICS FOR IMAGING, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 (In thousands)
                                   (Unaudited)


1.       Basis of Presentation

         The accompanying  unaudited  interim condensed  consolidated  financial
         statements of Electronics for Imaging, Inc. (the Company) as of and for
         the interim periods ended September 30, 1998, have been prepared on the
         same basis as the audited  consolidated  financial statements as of and
         for the year ended December 31, 1997, contained in the Company's Annual
         Report to  Stockholders.  In the opinion of  management  the  condensed
         consolidated  financial statements include all adjustments  (consisting
         generally of normal recurring  adjustments) necessary to present fairly
         the financial position of the Company and the results of its operations
         and cash  flows,  in  accordance  with  generally  accepted  accounting
         principles.  The interim condensed  consolidated  financial  statements
         should be read in conjunction with the audited  consolidated  financial
         statements and notes thereto referred to above.

         The  preparation  of  the  interim  condensed   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  interim  condensed
         consolidated  financial  statements and the reported amounts of revenue
         and expenses during the reporting  period.  Actual results could differ
         from these estimates.

         The interim  results of the Company  are subject to  fluctuation.  As a
         result,  the Company believes the results of operations for the interim
         periods ended September 30, 1998 are not necessarily  indicative of the
         results to be expected for any other interim period or the full year.

2.       Comprehensive Income

         Effective  January 1, 1998, the Company adopted  Statement of Financial
         Accounting Standards No. 130, "Reporting  Comprehensive  Income".  This
         Statement requires that all items recognized under accounting standards
         as  components  of  comprehensive  earnings  be  reported  in an annual
         financial statement that is displayed with the same prominence as other
         annual  financial  statements.  This  Statement  also  requires that an
         entity classify items of other  comprehensive  earnings by their nature
         in an annual  financial  statement.  There was no  material  difference
         between  Comprehensive  income  and Net  income  for the three and nine
         months ended September 30, 1998.

3.       Accounting for Derivative Instruments and Hedging

         In June 1998, the Financial Accounting Standards Board issued Statement
         of Financial  Accounting  Standards No. 133 (SFAS 133)  Accounting  for
         Derivative Instruments and Hedging. SFAS 133 establishes accounting and
         reporting   standards  for  derivative   instruments  and  for  hedging
         activities and requires,  among other things,  that all  derivatives be
         recognized  as  either  assets  or  liabilities  in  the  statement  of
         financial  position and measure those  instruments at fair value.  SFAS
         133 is effective for fiscal  quarters and fiscal years  beginning after
         June 15, 1999. The Company is currently  studying the provisions of the
         SFAS  133  and  the  potential  impact  it may  have  on its  financial
         statements.

                                       6

<PAGE>

<TABLE>
4.       Earnings Per Share

         In February  1997,  The  Financial  Accounting  Standards  Board issued
         Statement of Financial Accounting Standards SFAS No. 128, "Earnings per
         Share" (SFAS No. 128). 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 for the periods presented below:
<CAPTION>

                                                                  Three Months Ended  Nine Months Ended
                                                                     September 30,       September 30,
                                                                  --------------------------------------
                                                                  1998      1997      1998      1997 
                                                                  ----      ----      ----      ---- 
(in thousands, except per share amounts)
<S>                                                               <C>       <C>       <C>       <C>     
Net income available to
     common shareholders                                          $16,503   $23,914   $27,619   $66,951

Shares
     Basic shares                                                  52,641    52,139    52,608    51,866
     Effect of Dilutive Securities                                  1,288     4,077     1,459     4,031
                                                                  -------   -------   -------   -------
     Diluted shares                                                53,929    56,216    54,067    55,897
                                                                  =======   =======   =======   =======

Earnings per common share
     Basic EPS                                                    $  0.31   $  0.46   $  0.52   $  1.29
     Diluted EPS                                                  $  0.31   $  0.43   $  0.51   $  1.20

</TABLE>


         Antidilutive  Options.  Options to purchase 2,890,000 and 50,000 shares
         of  common  stock  outstanding  as of  September  30,  1998  and  1997,
         respectively,  were not included in the computations of diluted EPS for
         the three-month periods then ended because the options' exercise prices
         were greater than the average market price of the common shares for the
         three month  periods  then ended.  Options to  purchase  2,849,000  and
         345,000 shares of common stock outstanding as of September 30, 1998 and
         1997,  respectively,  were not included in the  computations of diluted
         EPS for the nine-month periods then ended because the options' exercise
         prices were greater than the average  market price of the common shares
         for the nine month periods then ended.

                                       7

<PAGE>

6.       Balance Sheet Components (in thousands)

                                              September 30, December 31,
                                                   1998        1997   
                                                 --------    --------

Accounts receivable:

Accounts receivable                              $ 72,049    $ 32,315
  Less Allowance for doubtful accounts
  and sales returns                                (1,626)     (1,385)
                                                 --------    --------
                                                 $ 70,423    $ 30,930
                                                 ========    ========

Inventories:

Raw materials                                    $ 13,895    $ 19,216
Work-in-process                                     1,393       3,183
Finished goods                                        914       1,391
                                                 --------    --------

                                                 $ 16,202    $ 23,790
                                                 ========    ========

Other current assets:

Receivable from subcontract manufacturers        $  9,834    $ 17,642
Other                                              15,209      14,803
                                                 --------    --------

                                                 $ 25,043    $ 32,445
                                                 ========    ========

Property and equipment:

Land                                             $ 27,461    $ 27,351
Equipment and purchased software                   41,575      34,201
Furniture and leasehold improvements                7,717       7,494
                                                 --------    --------
                                                   76,753      69,046
Less accumulated depreciation and amortization    (30,901)    (22,544)
                                                 --------    --------

                                                 $ 45,852    $ 46,502
                                                 ========    ========

                                       8


<PAGE>



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

The following  discussion and analysis  should be read in  conjunction  with the
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations and the audited consolidated  financial statements of Electronics for
Imaging, Inc. (the Company) and related notes thereto contained in the Company's
1997 Annual Report to Stockholders. Results for the three and nine month periods
ended September 30, 1998 are not necessarily  indicative of the results expected
for  the  entire  fiscal  year  ending  December  31,  1998.  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  more  complete
discussion of factors which might impact the Company's  results,  please see the
section entitled "Factors that Could Adversely Affect  Performance" below and in
the Company's  1997 Annual Report on Form 10-K, as filed with the Securities and
Exchange  Commission.  The Company  periodically  reviews such factors to ensure
their appropriateness.

Results of Operations  for the Three and Nine Month Periods Ended  September 30,
1997 and 1998

Revenue

Revenue increased 16.8% to $125.3 million in the third quarter of 1998, compared
to $107.3  million in the third  quarter  of 1997,  and the  corresponding  unit
volume increased  approximately 161.4%. Revenue increased 1.7% to $304.0 million
in the nine month period ended September 30, 1998, compared to $299.0 million in
the  same  period  of  1997,  and  the   corresponding   unit  volume  increased
approximately  91.9%.  The increase in revenue is primarily  due to  significant
increases  in  unit  volumes  and  positive  market  acceptance  of new  product
introductions,  partially  offset by price  reductions on older product lines in
anticipation of new product introductions.

The  Company's  revenue  for  1998  is  principally  derived  from  three  major
categories.  The first category is made up of stand-alone  servers which connect
digital color copiers into computer  networks.  This category  includes Fiery XJ
and XJ+, which  accounted for a vast majority of the Company's  revenue prior to
1998.  The second  category is made up of  embedded,  desktop and bundled  color
solutions  primarily  for the office  market.  The third  category is made up of
controllers for digital black & white products.

                                       9

<PAGE>

<TABLE>
The  following is a break-down of categories of Revenue both in terms of volume,
as a percentage (%) of total units shipped, and absolute revenue dollars.
<CAPTION>
                                             Three Months Ended                 Three Months Ended
                                             September 30, 1998                 September 30, 1997
                                      -------------------------------    ------------------------------
(dollars in thousands)                 Volume          Revenue             Volume         Revenue
                                      --------- ---------------------    ----------  ------------------
<S>                                     <C>     <C>            <C>        <C>       <C>          <C>
Stand-alone Servers Connecting
      to Digital Color Copiers           27.8%  $   83,865      66.9%      83.6%    $  92,852     86.5%

Embedded, Desktop Controllers
     & Bundled Color Solutions           54.1%      26,067      20.8%      16.4%        5,747      5.4%

Controllers for Digital
     Black & White Solutions             18.1%       4,674       3.7%       0.0%            0      0.0%

Spares, licensing
     & other misc. sources                N/A       10,721       8.6%       N/A         8,724      8.1%
                                      --------- ---------- ----------    ---------- ---------- --------

Total revenues                          100.0%  $  125,327     100.0%     100.0%    $ 107,323    100.0%
                                      ========= ========== ==========    ========== ========== ========
</TABLE>


<TABLE>
<CAPTION>
                                              Nine Months Ended                  Nine Months Ended
                                             September 30, 1998                 September 30, 1997
                                     --------------------------------    ------------------------------
   (dollars in thousands)              Volume          Revenue             Volume           Revenue
                                     ---------- ---------------------    ---------- -------------------
<S>                                     <C>     <C>            <C>       <C>        <C>          <C>
Stand-alone Servers Connecting
      to Digital Color Copiers           33.0%  $  208,876      68.7%      72.4%    $ 239,719     80.2%

Embedded, Desktop Controllers
     & Bundled Color Solutions           50.9%      54,693      18.0%      27.6%       30,207     10.1%

Controllers for Digital
     Black & White Solutions             16.1%      13,512       4.4%       0.0%            0      0.0%

Spares, licensing
     & other misc. sources                N/A       26,926       8.9%        N/A       29,036      9.7%
                                     ---------- ---------- ----------    ---------- ---------- --------

Total revenues                          100.0%  $  304,007     100.0%     100.0%    $ 298,962    100.0%
                                     ========== ========== ==========    ========== ========== ========
</TABLE>

                                                        10

<PAGE>


As noted above  growth took place in the three and nine months  ended  September
30, 1998 in the two newer product categories - the Embedded Desktop  Controllers
& Bundled  Color  Solutions  and the  Controllers  for  Digital  Black and White
Solutions.  These  products  are  generally  characterized  by much  higher unit
volumes  but lower unit  prices and  associated  margins  than the  Company  has
experienced in its more traditional  Stand-alone  Server line of products.  Over
time the  Company  anticipates  further  growth in these newer  categories  as a
percentage  of total  revenue.  To the extent these  categories do not grow over
time in absolute terms or the Company is not able to meet demand for higher unit
volumes,  it could have a material  adverse  affect on the Company.  The Company
believes that  Stand-alone  server products have not experienced  year over year
revenue  growth in 1998 due largely to price  reductions on the Company's  older
generations  of product that the Company  believes are, and will be  effectively
replaced  by newer  product as the  different  OEM  customers  qualify  that new
product and begin to order in increasing volumes. In addition,  low end products
which  previously  shipped  as servers  have in 1998  begun to ship as  embedded
products.  There can be no assurance  that the new products will be qualified by
all the OEM's or successfully  compete or be accepted by the market or otherwise
not be able to effectively replace the volume of revenue and, or income from the
older products.


<TABLE>
Sales by  geographic  market for the three and nine months ended  September  30,
1997 and 1998 were as follows:
<CAPTION>
                         Three Months Ended                            Nine Months Ended
                         September 30,              Increase           September 30,              Increase
                       1998           1997         (Decrease)       1998          1997           (Decrease)
                   --------------  --------------  -----------  ------------  ----------------  -------------
<S>                  <C>            <C>                <C>      <C>           <C>                 <C>

North America        $    64,098    $     45,041        42.3%   $   147,178   $   138,690 **        6.1% **

Europe                    38,920          36,331         7.1%       102,829        90,617 **       13.5% **

Japan                     18,857          20,315        (7.2%)       44,697        57,868         (22.8%)

Rest of World              3,452           5,636       (38.8%)        9,303        11,787         (21.1%)
                   --------------  --------------  -----------  ------------  ----------------  -------------
                     $   125,327    $    107,323        16.8%   $   304,007   $   298,962           1.7%
                   ==============  ==============  ===========  ============  ================  =============
</TABLE>


** In the  middle of the  second  quarter of 1997,  one of the  Company's  major
customers began having its products for the European market shipped  directly to
Europe  rather than  through the United  States.  The Company  does not know the
dollar amount of the  corresponding  shipments to Europe for the period from the
beginning  of the year to the  middle of the second  quarter of 1997.  Therefore
shipments to North  America in 1997 are  slightly  overstated  and  shipments to
Europe  slightly  understated  for the nine month ended  September 30, 1997. The
Company estimates that the actual increase for North America and Europe from the
nine month period ended  September 30, 1998 as compared to the nine month period
ended  September 30, 1997 amounted to  approximately  13% and 2%,  respectively.
Consequently the above indicated  increase and decrease  percentage for the nine
month periods  ended  September 30, 1998 compared to the nine month period ended
1997 should be read with caution.


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

                                       11

<PAGE>

The unit volume for the entire  Company has  increased  by 161.4%  quarter  over
quarter and 91.9% nine month period over nine month  period.  The  corresponding
revenue  increase  has been  tempered by the effect of price  reductions  on the
Company's older product lines in 1998, as well as a shift in product mix to less
expensive  desktop  units.  The  Company  expects  the shift in  product  mix to
continue; however, this may be tempered somewhat as the new Fiery ZX stand alone
server line begins to ship in larger volumes after its introduction in the third
quarter of 1998.

Substantially  all of the revenue of both periods was  attributable  to sales of
products through the Company's OEM channels with such partners as Canon,  Xerox,
Ricoh,  Minolta,  Fuji Xerox, Konica, Oce, Epson, Sharp and others. During 1998,
the Company has continued  work on both  increasing the number and expanding the
size of existing  relationships with OEM partners.  For the three and nine month
periods  ended  September 30, 1998,  the Company  continued to rely on three OEM
customers,  Canon,  Xerox and Ricoh for 69.2 % and 70.2% of it's revenue for the
respective  periods,  as  compared  to 85.3% and  85.5%,  reported  for the same
periods  of 1997.  In the event that any of these OEM  relationships  are scaled
back or discontinued,  the Company may experience a significant  negative impact
on its consolidated  financial position and results of operations.  In addition,
no  assurance  can be given  that the  Company's  relationships  with  these OEM
partners will continue.  Further, the Company's historical results have followed
a seasonal pattern  reflecting the buying patterns of these large OEM customers.
That  historical  pattern has  indicated the  Company's  fiscal  fourth  quarter
results may be adversely affected by a desire on the part of some or all of its'
OEM customers to slow down, or otherwise delay fourth quarter orders in order to
minimize  their  respective  inventory  investments  at the end of their  fiscal
years.

On October 28, 1998 the Company  announced that it has provided  Hewlett Packard
Company with embedded  Fiery X2e  technology  for the new HP Color Laserjet 8500
Printer which is HP's first A3 Tabloid  Color Laser  Printer for the  Department
Market.   Hewlett   Packard  is  the  market  leader  among   computer   printer
manufacturers  for the Desktop market.  The 8500 project basically calls for the
Company to provide  chipsets and software to HP which,  as the products begin to
ship in volume,  will have a lower per unit revenue impact but a much higher per
unit margin impact as a percentage  of revenues  than the Company's  traditional
products  have  had  on the  Company's  results  from  operations.  The  Company
continues  to  work  on  the   development  of  products   utilizing  the  Fiery
architecture  and other  products  and  intends to  continue  to  introduce  new
generations  of Fiery  products and other new product  lines in the remainder of
1998 and  beyond.  No  assurance  can be given that the  introduction  or market
acceptance of new, current or future products will be successful.

Cost of Revenue

Historically,  a majority of the Company's cost of revenue has been attributable
to the sale of Fiery  Color  Servers.  Fiery  Color  Servers as well as embedded
desktop  controllers  and digital black and white products are  manufactured  by
third-party  manufacturers  who purchase most of the necessary  components.  The
Company  sources  directly  processors,  memory,  certain  ASICs,  and  software
licensed from various sources,  including PostScript interpreter software, which
the Company  licenses from Adobe  Systems,  Inc. The Company's  gross margin was
43.0% and 43.5% for the three and nine month periods  ended  September 30, 1998,
down from 55.0% and 54.9%,  respectively,  of the corresponding periods of 1997.
This was due to a  combination  of  factors,  including  a higher mix of low end
products with  relatively  lower  margins,  including new embedded  products and
black and white  products,  and a different  mix of OEM  partners  purchasing  a
different mix of products  during the three and nine month periods.  The Company
also initiated price reductions on older products as of January 1, 1998 in light
of pending  introductions of newer generations of products.  The Company expects
that sales of products with relatively  lower margins may further  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 further decline.


                                       12

<PAGE>

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.  Consequently,  the Company
anticipates gross margins will fluctuate from quarter to quarter.

Operating Expenses

Operating expenses for the three and nine month periods ended September 30, 1998
increased $8.8 million and $30.4 million or 36.4% and 45.2%, respectively,  from
the corresponding periods in 1997. Operating expenses in 1998 also constituted a
higher  percentage  of revenues  than in 1997,  26.3% versus 22.5% for the three
month  periods  ended  September  30 and 32.2%  versus  22.5% for the nine month
periods ended September 30. Increases in operating  expenses in absolute dollars
were primarily  caused by costs associated with the development and introduction
of new products during 1998 and the hiring of additional full time employees - a
net  increase of 72 people or 14.5% from  September  30, 1997 to  September  30,
1998. The Company has hired additional  employees to support product development
as well as to support expanded operations. The increase in operating expenses as
a percentage of revenues  resulted from increases in absolute costs. 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 $14.9  million  and $43.1
million  or 11.9% and 14.2% of  revenues,  respectively,  for the three and nine
month  periods  ended  September  30, 1998,  compared to $10.8 million and $28.1
million  or 10.0% and 9.4% of  revenue  in the  corresponding  periods  of 1997.
Research and development expenses have increased primarily due to an increase in
research and development  projects,  which has led to an increase in engineering
headcount of 84.8% from  September  30, 1997 to September 30, 1998. In addition,
due to all of the new  product  development,  the  Company  has  experienced  an
increase in non-recurring  engineering expenses for prototype  development.  The
Company  believes  that the  development  of new  products  and  enhancement  of
existing products is essential to its continued success,  and management intends
to  continue  to  devote  substantial  resources  to  research  and new  product
development.  Accordingly, the Company expects that its research and development
expenses may increase in absolute  dollars and possibly  also as a percentage of
revenue.

Sales  and  Marketing.  Such  expenses  include  personnel  expenses,  costs for
tradeshows,   marketing   programs  and  other   promotional   material,   sales
commissions,   travel  and  entertainment  expense,   depreciation,   and  costs
associated  with sales offices in the United States,  Europe and Japan and other
locations around the world.  Sales and marketing  expenses were $14.0 million or
11.1% of revenue in the third quarter of 1998, compared to $10.5 million or 9.8%
of revenue in the  corresponding  quarter of 1997. Sales and marketing  expenses
were $43.2  million or 14.2% of revenue  for the nine month  period  ended 1998,
compared  to $30.6  million or 10.2% of revenue in the  corresponding  period of
1997.  Sales and  marketing  expenses  increased  in  absolute  dollars and as a
percentage  of total  revenue  due  primarily  to a 42.4%  increase  in employee
headcount  since  September  30,  1997.  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
has  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 Fiery models and other
products, and continue to build its worldwide sales and marketing organization.


                                       13

<PAGE>

General  and  Administrative.  Such  expenses  consist  primarily  of  personnel
expenses and, to a lesser  extent,  professional  fees,  expenses  required of a
public company,  and depreciation and facility costs. General and administrative
expenses  were $4.1  million or 3.3% of revenue for the three month period ended
September  30,  1998,  compared  to  $2.9  million  or 2.7%  of  revenue  in the
corresponding  period of 1997.  General and  administrative  expenses were $11.5
million or 3.8% of revenue for the nine month period ended  September  30, 1998,
compared to $8.6 million or 2.9% of revenue in the corresponding period of 1997.
The  increases  were  primarily  due to  increased  headcount  as well as  other
operating expenses, including the use of outside consultants for legal and other
matters.  The Company expects that its general and  administrative  expenses may
increase in absolute  dollars and possibly  also as a  percentage  of revenue in
order to support the Company's  efforts to grow its business.  In addition,  the
Company  anticipates  certain non recurring general and administrative  expenses
beginning  in the fourth  fiscal  quarter,  and possibly for one to two quarters
thereafter,  related to the Company's  pending move to a new central facility in
Foster City, California.

Other income

Other income relates mainly to interest  income and expense and gains and losses
on foreign currency transactions. Other income decreased by $0.1 million or 4.1%
to $2.4 million and by $1.6 million or 19.9% to $6.2  million,  in the three and
nine month periods ended  September 30, 1998,  compared to $2.5 million and $7.8
million in the corresponding  periods ended September 30, 1997. The decrease for
the nine month  period was due in part to $1.3  million  in losses  suffered  on
Asian currency denominated transactions. Although to date the Company's exposure
to  currency  fluctuations  has been  relatively  minor,  in  response to recent
currency  fluctuations  in Asia the Company began to implement a hedging program
in June 1998. In addition, the Company has been earning less on interest in 1998
compared to 1997 due to a decline in market interest rates.

Income Taxes

The  Company's  effective  tax rate was 32.1% for the nine  month  period  ended
September 30, 1998 compared to 36.0% for the  corresponding  period in 1997. The
decrease in the effective  tax rate was  primarily the result of lower  expected
taxable  income in fiscal 1998 as compared to fiscal 1997,  primarily the result
of lower  expected  taxable income in fiscal 1998 relative to non taxable income
and tax credits as compared to the mix of taxable income and non-taxable  income
and  credits  in 1997.  The  effective  tax rate of 32.1% for  fiscal  1998 also
assumed that the R&D tax credit  would only be available  for the first 6 months
of the year. In the fourth quarter of fiscal 1998 the US Congress announced that
the credit would be extended for all of fiscal 1998. Accordingly the Company may
adjust the fourth quarter effective tax rate to reflect this change.

Liquidity and Capital Resources

Cash, cash equivalents and short-term  investments increased by $36.8 million to
$279.5  million  as of  September  30,  1998  compared  to $242.7  million as of
December  31,  1997.  The  Company has an  investment  portfolio  of  short-term
investments comprised of fixed income securities that are classified as "held to
maturity securities".  These securities, like all fixed income instruments,  are
subject to interest  rate risk and will fall in value if market  interest  rates
increase.  The Company attempts to limit this exposure by investing primarily in
short-term securities.

                                       14

<PAGE>



Net cash  provided by operating  activities  decreased to $44.9  million for the
nine month period ended  September  30, 1998  compared to $65.2  million for the
corresponding  period ended  September 30, 1997. The $20.3 million  decrease was
mainly the result of a $39.3 million decrease in net income offset by changes in
other operating assets and liabilities. The Company purchased approximately $8.6
million of capital  equipment and  furniture  during the nine month period ended
September 30, 1998  compared to purchases of $30.2 million in the  corresponding
period  of  1997.   Capital   equipment   and   furniture   spending   decreased
significantly,  as the Company  purchased  land for its new corporate  campus in
Foster City,  California  for $20.2  million in cash and the  assumption of $4.5
million in bonds payable during the third quarter in 1997.  Cash provided by the
exercise of options  amounted to $0.7  million for the nine month  period  ended
September  30, 1998, a $7.9 million  decrease over the  corresponding  period in
1997.  The  decrease was due to a lower  volume of option  exercises  due to the
lower relative market prices available for the stock in fiscal 1998.

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 1999.

Year 2000 Status

Although  the Company has not  completed  a formal,  comprehensive  MIS plan for
potential Year 2000 related  problems,  Management has taken steps and continues
to assess the possible effects and potential  solutions for a Year 2000 problem.
The Company has updated substantially all of it's computer system infrastructure
over the last few years,  thus  management  believes that all critical pieces of
hardware and software have been represented by their  manufacturers,  and tested
on a limited basis by EFI, to be Year 2000 compliant. In addition,  based on the
reviews  completed  to date,  the  Company  has not spent and does not expect to
spend material  amounts on remediation  of it's existing  systems.  Although the
Company  continues to review and test,  based on informal  reviews to date,  the
Company currently  believes that Year 2000 issues will not materially affect its
internal MIS systems.

Also,  the Company has tested its products to  determine  if the  products  will
successfully  rollover 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.

To date,  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 Company is currently in the process of identifying and contacting
these critical third parties. The Company has begun to work on contingency plans
and  currently   assumes  that  internal   problems   encountered   in  handling
transactions  could be  processed  manually  for a short  period of time.  These
contingency plans will be more fully developed by the 3rd quarter of 1999.

The Company  continues to assess the effects and costs  associated with possible
Year 2000  problems;  however,  the total  effects  and costs 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,
or results of operations.

                                       15

<PAGE>


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.  

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, who 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.


                                       16

<PAGE>

Reliance on  Continued  Demand for the  Company's  Products  That  Enable  Color
Printing of Digital Data and the effects of a Potential Decrease

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 during the  remainder of 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 technology  expenses
associated with Year 2000 preparation and or Euro currency conversion projects.

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.

                                       17

<PAGE>


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.  The  Company's  results have
followed a seasonal  pattern  reflecting  the buying  patterns of its' large OEM
customers.  In the past that pattern has indicated  the Company's  fiscal fourth
quarter results may be adversely affected by a desire on the part of some or all
its' OEM customers to slow down,  or otherwise  delay fourth  quarter  orders in
order to minimize  their  inventory  investment at the end of their fiscal year.
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 what
is a  discretionary  purchase  item -  color  copiers,  digital  black-and-white
copiers,  and color laser printers and general global  economic  conditions will
also effect operating results.

Interest Rate risk

The  Company has an  investment  portfolio  of fixed  income  securities.  These
securities  are subject to  interest  rate risk and will fall in value if market
interest  rates  increase.  The Company  attempts to limit  these  exposures  by
investing primarily in short-term securities.

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 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  might 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.

                                       18

<PAGE>

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  48.9% and 51.6%,  respectively,  of the Company's product revenue
for the three and nine month periods ended September 30, 1998, were 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. Where the Company does invoice in local currency, the Company's cash
flows and earnings  are exposed to  fluctuations  in interest  rates and foreign
currency  exchange rates. The Company attempts to limit these exposures  through
operational strategies and where appropriate the use of hedge oriented financial
market instruments. To date the Company has primarily utilized forward contracts
to mitigate its exposure in these markets.

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.

                                       19

<PAGE>



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(TM)  software for  products  that it offers.
However,  there can be no  assurance  that Adobe will  continue to grant  future
licenses to Adobe  PostScript(TM)  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.

                                       20





<PAGE>



P
ART II           Other Information



     ITEMS 1 - 5.

There is no applicable  information  to report under Part II, Items 1 - 5 during
the period covered by this report.






     ITEM 6.      Exhibits and Reports on Form 8-K

         (a)          Exhibits

                      Exhibit 27.1 Financial Data Schedule.............. Page 23

         (b)          Reports on Form 8-K

                      No reports  on Form 8-K were filed by the  Company  during
                       the three month period ended September 30, 1998.



                                       21

<PAGE>






                                   SIGNATURES

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



                                                   ELECTRONICS FOR IMAGING, INC.

Date: November 13, 1998


                                                      By /s/  Dan Avida
                                                      --------------------------
                                                      Dan Avida
                                                      President and Chief
                                                      Executive Officer





                                                      By /s/  Eric Saltzman
                                                      --------------------------
                                                      Eric Saltzman
                                                      Chief Financial Officer


                                       22





<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-Q for the nine month
period ended September 30, 1998 and is qualified in its entirety by reference to
such financial statements and notes thereto.
</LEGEND>
<CIK>                          0000867374
<NAME>                         u@g2dxvi
       
<S>                             <C>
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                              DEC-31-1998
<PERIOD-START>                                 JAN-01-1998
<PERIOD-END>                                   SEP-30-1998
<CASH>                                          64,742
<SECURITIES>                                   214,723
<RECEIVABLES>                                   72,049
<ALLOWANCES>                                     1,626
<INVENTORY>                                     16,202
<CURRENT-ASSETS>                               391,133
<PP&E>                                          76,752
<DEPRECIATION>                                  30,901
<TOTAL-ASSETS>                                 445,718
<CURRENT-LIABILITIES>                           74,805
<BONDS>                                          3,924
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                           527
<OTHER-SE>                                     366,462
<TOTAL-LIABILITY-AND-EQUITY>                   445,718
<SALES>                                        304,007
<TOTAL-REVENUES>                               304,007
<CGS>                                          171,770
<TOTAL-COSTS>                                  171,770
<OTHER-EXPENSES>                                97,777
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                 236
<INCOME-PRETAX>                                 40,689
<INCOME-TAX>                                    13,070
<INCOME-CONTINUING>                             27,619
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    27,619
<EPS-PRIMARY>                                      .52
<EPS-DILUTED>                                      .51
                                                      

</TABLE>