867374--2/29/2008--ELECTRONICS_FOR_IMAGING

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The matters relating to the Special Committee s review of our historical stock option grant practices and the restatement of our consolidated financial statements required us to incur substantial expenses for accounting, legal and other professional services, diverted our management s attention from our business and had and may continue to have a material adverse effect on our financial performance. We face risks related to possible SEC and regulatory actions regarding our historical stock option grant practices, which could require significant management time and attention, and could require us to pay fines or other penalties. We face litigation risks relating to our stock option grant practices that could have a material adverse effect on our business, financial condition, results of operation and cash flow. We rely on sales to a relatively small number of OEM customers and the loss of any of these OEM customers could substantially decrease our revenues. The market for our super-wide-format printers is very competitive. We face strong competition in the market for printing supplies such as ink. We do not typically have long term purchase contracts with our OEM customers and our OEM customers have in the past and could at any time in the future, reduce or cease purchasing products from us, harming our operating results and business. We rely on our OEM customers to develop and sell products incorporating our controller technologies and if they fail to successfully develop and sell these products, or curtail or cease the use of our technologies in their products, our business will be harmed. Ongoing economic uncertainty has had and may continue to have a negative effect on our business. Our operating results may fluctuate based upon many factors, which could adversely affect our stock price. We face competition from other suppliers as well as our own OEM customers and if we are not able to compete successfully our business may be harmed. Price reductions for all of our products may affect our revenues in the future. Entry into new markets or distribution channels could result in higher operating expenses that may not be offset by increased revenue. We license software used in most of our products from Adobe Systems Incorporated and the loss of this license would prevent us from shipping these products. We depend upon a limited group of suppliers for key components in our products. The loss of any of these suppliers, the inability of any of these suppliers to meet our requirements, or the delays or shortages of supply of these components could adversely affect our business. We are dependent on a limited number of subcontractors, with whom we do not have long-term contracts, to manufacture and deliver products to our customers and the loss of any of these subcontractors could adversely affect our business. We may face increased risk of inventory obsolescence related to our super-wide format inkjet printers and ink. If we are not able to hire and retain skilled employees, we may not be able to develop products or meet demand for our products in a timely fashion. Our acquisition of VUTEk in June 2005 and Jetrion in October 2006 increased the chance that we will experience additional bad debt expense. Because of our recent acquisitions we now sell our products to distributors and directly to the end-user. If we are unable to effectively manage a direct sales force, sales and revenues could decline. We have made acquisitions that are dilutive to existing stockholders. Acquisitions may result in unanticipated accounting charges or otherwise adversely affect our results of operations and result in difficulties in assimilating and integrating the operations, personnel, technologies, products and information systems of acquired companies or businesses. We face risks from currency fluctuations. We face risks from our international operations. We may be unable to adequately protect our proprietary information and may incur expenses to defend our proprietary information. We face risks from third party claims of infringement and potential litigation. We may be subject to environmental related liabilities due to our use of hazardous materials and solvents. Future sales of our hardware products in European Union member countries ( EU ) could be limited due to the enactment of the EU Restriction of Hazardous Substances in Electrical and Electronic Equipment ( ROHS ). Our products may contain defects which are not discovered until after shipping. Actual or perceived security vulnerabilities in our products could adversely affect our revenues. System failures or system unavailability could harm our business. The location and concentration of our facilities subjects us to the risk of earthquakes, floods or other natural disasters and public health risks. We are subject to numerous federal and state employment laws and may face claims in the future under such laws. We may be subject to the risk of loss due to fire because the materials we use in the manufacturing process of our inks are flammable. The value of our investment portfolio is subject to interest rate volatility. Our stock price has been volatile historically and may continue to be volatile. Our stock repurchase program could affect our stock price and add volatility. Under regulations required by the Sarbanes-Oxley Act of 2002, an adverse opinion on internal controls over financial reporting could be issued by our auditors, and this could have a negative impact on our stock price. A reduction in our net income as reported on our financial statements could increase the likelihood of identifying a material weakness in our internal controls. Our debt service obligations may adversely affect our cash flow.

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867374--2/29/2008--ELECTRONICS_FOR_IMAGING_INC