867374--3/16/2006--ELECTRONICS_FOR_IMAGING

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Our controller products are sold to a relatively small number of OEM partners and the loss of any of these customers could substantially decrease our hardware 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. If we enter new markets or distribution channels this 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 and the loss of any of these suppliers 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. We acquired VUTEk, Inc., a privately-held provider of super-wide format digital printers for approximately $289,150 in June 2005. Acquisitions involve risks and if we are unable to mitigate those risks our business will be harmed. Our acquisition of VUTEk in June 2005 increased the chance that we will experience additional bad debt expense. Because of our recent acquisitions we now must sell our products directly to distributors and to the end-user. If we are unable to effectively manage a direct sales force, sales and revenues could decline. We may make acquisitions that are dilutive to existing stockholders, 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 nations (EU) could be limited after July 1, 2006 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 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 will decrease if interest rates increase. 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--3/16/2006--ELECTRONICS_FOR_IMAGING_INC