<PAGE>

                     SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, DC 20549

                                 FORM 10-Q

(Mark One)

[X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934. For the quarterly period
          ended JUNE 30, 2000

                                     OR

[  ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
          FROM ____ TO _____

                      COMMISSION FILE NUMBER 000-21171

                    SPLASH TECHNOLOGY HOLDINGS, INC.
            (Exact name of registrant as specified in its charter)

              DELAWARE                               77-0418472
    (State or other jurisdiction of        (IRS Employer Identification No.)
    incorporation or organization)

       555 DEL REY AVENUE, SUNNYVALE, CA                      94086
     (Address of principal executive offices)               (Zip Code)

       Registrant's telephone number, including area code: (408) 328-6300

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed 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 outstanding of the Registrant's Common Stock. $.001 par
value, as of July 31, 2000 was 14,321,111 shares.

<PAGE>

                        SPLASH TECHNOLOGY HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>


                                                                                      December 31,        June 30,
                                                                                      ------------     ------------
                                                                                          1999             2000
                                                                                      ------------     ------------
                                                                                                         (UNAUDITED)
<S>                                                                                   <C>              <C>
                                   ASSETS

Current Assets:
   Cash and cash equivalents                                                           $36,268          $ 51,000
   Marketable securities                                                                25,629            24,410
   Accounts receivable, net of allowance for doubtful
     accounts of $280 and $177 as of December 31, 1999 and
     June 30, 2000, respectively                                                        14,920             6,382
   Inventories                                                                           3,134             4,910
   Prepaid expenses and other current assets                                               930             1,246
   Deferred income taxes                                                                 2,024             2,024
                                                                                       -------          --------
                                Total current assets                                    82,905            89,972
   Property and equipment, net                                                           1,847             2,043
   Deferred income taxes                                                                10,651            10,651
   Other assets                                                                          3,491             2,482
                                                                                       -------          --------
                                Total assets                                           $98,894          $105,148
                                                                                       =======          ========
                                LIABILITIES
Current liabilities:
   Trade accounts payable                                                              $ 7,608          $  6,143
   Accrued and other liabilities                                                        10,854             9,476
   Deferred revenue                                                                         --             3,217
                                                                                       -------          --------
                                Total current liabilities                               18,462            18,836
Other long term liabilities                                                                374               323
                                                                                       -------          --------
                                Total liabilities                                       18,836            19,159
                                                                                       -------          --------

                              STOCKHOLDERS' EQUITY

   Common stock, par value $.001 per share:
      Authorized: 50,000,000 shares
      Issued and outstanding: 14,085,342 shares and 14,321,111
      shares as of December 31, 1999 and June 30, 2000                                      14                14
      Additional paid-in capital                                                        89,469            90,980
      Deferred stock based compensation                                                 (1,914)           (1,730)
      Accumulated deficit                                                               (7,511)           (3,275)
                                                                                       -------          --------
                                   Total stockholders' equity                           80,058            85,989
                                                                                       -------          --------
                                   Total liabilities and stockholders' equity          $98,894          $105,148
                                                                                       =======          ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       2
<PAGE>
                        SPLASH TECHNOLOGY HOLDINGS, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                      Three Months Ended          Six Months Ended
                                                             June 30,                   June 30,
                                                    ---------------------       ---------------------
                                                     1999           2000          1999         2000
                                                    -------       -------       -------       -------
<S>                                                 <C>           <C>           <C>           <C>
Net revenue                                         $16,945       $22,371       $33,247       $46,225
Cost of net revenue                                   7,542        12,071        14,857        24,969
                                                    -------       -------       -------       -------
        Gross profit                                  9,403        10,300        18,390        21,256
                                                    -------       -------       -------       -------

Operating expenses:
  Research and development                            3,748         4,071         7,037         7,963
  Sales, general and administrative                   3,818         4,803         7,927        10,082
                                                    -------       -------       -------       -------
        Total operating expenses                      7,566         8,874        14,964        18,045
                                                    -------       -------       -------       -------
            Income from operations                    1,837         1,426         3,426         3,211
                                                    -------       -------       -------       -------
Interest income, net                                    799         1,112         1,486         2,084
                                                    -------       -------       -------       -------
            Income before income taxes                2,636         2,538         4,912         5,295
Provision for income taxes                              557           507         1,058         1,059
                                                    -------       -------       -------       -------
                  Net income                        $ 2,079       $ 2,031       $ 3,854       $ 4,236
                                                    =======       =======       =======       =======
Basic net income per share                          $  0.15       $  0.14       $  0.28       $  0.30
                                                    =======       =======       =======       =======
Diluted net income per share                        $  0.15       $  0.14       $  0.27       $  0.28
                                                    =======       =======       =======       =======
Shares used in per share calculations-basic          14,014        14,261        13,990        14,192
                                                    =======       =======       =======       =======
Shares used in per share calculations-diluted        14,131        14,755        14,105        14,872
                                                    =======       =======       =======       =======

</TABLE>


  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       3
<PAGE>

                        SPLASH TECHNOLOGY HOLDINGS, INC.
                       CONSOLIDATED STATEMENTS CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    Six Months Ended
                                                                        June 30,
                                                             ----------------------------
                                                                 1999           2000
                                                             ------------    ------------
<S>                                                           <C>              <C>
Cash flows from operating activities:
  Net income                                                  $ 3,854           $ 4,236
  Adjustments to reconcile net income to net
     cash provided by operating activities:
     Depreciation and amortization                                611               633
     Change in assets and liabilities:
       Accounts receivable                                      1,599             8,538
       Inventories                                              1,500            (1,776)
       Prepaid expenses and other current assets                  590              (316)
       Other assets                                            (1,369)            1,226
       Trade accounts payable                                   4,197            (1,465)
       Accrued and other liabilities                           (1,196)           (1,429)
       Deferred revenue                                            --             3,217
                                                              -------           -------
            Net cash provided by operating activities           9,786            12,864
                                                              -------           -------

Cash flows from investing activities:
  Redemption of marketable securities                           1,850             1,219
  Purchase of property and equipment                             (593)             (691)
                                                              -------           -------
            Net cash provided by investing activities           1,257               528
                                                              -------           -------
Cash flows from financing activities:
  Exercise of stock under stock plans                             359             1,340
                                                              -------           -------
            Net cash provided by financing activities             359             1,340
                                                              -------           -------
Net increase in cash                                           11,402            14,732

Cash and cash equivalents, beginning of period                $51,013           $36,268
Cash and cash equivalents, end of period                      $62,415           $51,000

</TABLE>

The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                       4
<PAGE>
                        SPLASH TECHNOLOGY HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.    REORGANIZATION AND BASIS OF PRESENTATION

             Splash Technology Holdings, Inc. (the "Company"), through its
      wholly-owned subsidiaries, develops, produces and markets color servers,
      which consist of computer hardware and software systems that provide an
      integrated link between desktop computers and digital color copiers and
      enable such copiers to provide high speed and quality networked color
      printing and scanning. The Company sells, through its wholly owned
      subsidiaries substantially all of its color servers through two original
      equipment manufacturers ("OEMs") which integrate the Company's color
      servers into connected digital color photocopier systems, which are sold
      to end users in North and South America, Europe, Asia, Australia, Japan,
      New Zealand, Africa and the Middle East. The Company operates in one
      business segment.

              The accompanying unaudited consolidated financial information has
      been prepared by the Company in accordance with accounting principles
      generally accepted in the United States for interim financial statements
      and pursuant to the rules of the Securities and Exchange Commission on
      Form 10-Q. Certain information and footnote disclosures normally included
      in financial statements prepared in accordance with generally accepted
      accounting principles have been condensed or omitted pursuant to the rules
      and regulations of the Securities and Exchange Commission. The December
      31, 1999 balance sheet was derived from audited financial statements but
      does not include all disclosures required by accounting principles
      generally accepted in the United States. In the opinion of management, the
      accompanying consolidated financial statements contain all normal,
      recurring adjustments necessary to present fairly the Company's
      consolidated financial position as of June 30, 2000, and the results of
      operations for the three and six months ended June 30, 2000 and cash flows
      for the six months ended June 30, 2000, which results are not necessarily
      indicative of results on an annual basis. The consolidated financial
      statements should be read in conjunction with the consolidated financial
      statements and related notes contained in the Company's Annual Report on
      Form 10-K for the fiscal year ended December 31, 1999.

2.    BALANCE SHEET DETAIL (IN THOUSANDS):

<TABLE>
<CAPTION>
                                                        December 31,     June 30,
                                                            1999          2000
                                                      --------------   -------------
     <S>                                                <C>             <C>
      INVENTORIES:
       Raw materials                                     $ 2,612          $3,194
       Finished goods                                        522           1,716
                                                         -------          ------
                                                         $ 3,134          $4,910
                                                         =======          ======

      ACCRUED AND OTHER LIABILITIES:
       Royalties payable                                 $ 1,464          $1,413
       Accrued product-related obligations                 1,784           1,717
       Accrued compensation and related expenses           1,613           1,758
       Income taxes payable                                3,074           4,070
       Other liabilities                                   2,919             518
                                                         -------          ------
                                                         $10,854          $9,476
                                                         =======          ======
</TABLE>

3.    COMPUTATION OF NET INCOME PER SHARE

             Basic EPS is computed by dividing income available to common
       shareholders by the weighted average number of common shares outstanding
       for the period. Diluted EPS is computed giving effect to all dilutive
       potential common shares that were outstanding during the period. Dilutive
       potential common shares consist of incremental shares issuable upon
       exercise of stock options.

                                       5
<PAGE>

             A reconciliation of the numerator and denominator of basic and
       diluted EPS is provided as follows (IN THOUSANDS, EXCEPT PER SHARE
       AMOUNTS):


<TABLE>
<CAPTION>
                                                                  Three Months                 Six Months
                                                                 Ended June 30,               Ended June 30,
                                                                1999          2000          1999           2000
                                                             ---------     ---------     ---------     ---------
<S>                                                           <C>           <C>           <C>           <C>
Numerator - Basic and Diluted EPS
     Net income available to common Stockholders              $ 2,079       $ 2,031       $ 3,854       $ 4,236
                                                              =======       =======       =======       =======
Denominator - Basic EPS
     Weighted average shares outstanding                       14,014        14,261        13,990        14,192
                                                              -------       -------       -------       -------
     Basic net income per share                               $  0.15       $  0.14       $  0.28       $  0.30
                                                              =======       =======       =======       =======
Denominator - Diluted EPS
     Denominator - Basic EPS                                   14,014        14,261        13,990        14,192
     Effect of dilutive common stock options                      117           494           115           680
                                                              -------       -------       -------       -------
     Dilutive shares                                           14,131        14,755        14,105        14,872
                                                              -------       -------       -------       -------
     Diluted net income per share                             $  0.15       $  0.14       $  0.27       $  0.28
                                                              =======       =======       =======       =======
</TABLE>

           Options to purchase 1.8 million and 1.5 million shares of common
      stock were outstanding at June 30, 1999, and June 30, 2000, respectively,
      but were not included in the calculation of diluted earnings per share
      because the options' exercise price was greater than the average market
      price of the common shares during the three months ended June 30, 1999 and
      2000, respectively.

      4.   New accounting pronouncements

           In June 1998, the Financial Accounting Standards Board (FASB)
      issued Statement of Financial Accounting Standards (SFAS) No. 133,
      "Accounting for Derivative Instruments and Hedging Activities," that
      requires companies to record derivative financial instruments on their
      balance sheets as assets or liabilities, measured at fair value. Gains
      or losses resulting from changes in the values of those derivatives
      would be accounted for depending on the use of the derivative
      instrument and whether it qualifies for hedge accounting. The key
      criterion for hedge accounting is that the hedging relationship must be
      highly effective in achieving offsetting changes in fair value or cash
      flows. In June 1999, the FASB issued SFAS No. 137, "Accounting for
      Derivative Instruments and Hedging Activities--Deferral of the
      Effective Date of FASB Statement No. 133," that amends SFAS No. 133 to
      be effective for all fiscal quarters of fiscal years beginning after
      June 15, 2000. In June 2000, the Financial Accounting Standards Board
      issued SFAS No. 138, "Accounting for Derivative Instruments and Hedging
      Activities--An Amendment of FASB No. 133." SFAS 138 amends the
      accounting and reporting standards for certain derivatives and hedging
      activities such as net settlement contracts, foreign currency
      translations and intercompany derivatives. To date, the Company has not
      engaged in derivatives or hedging activities.

           In December 1999, the Securities and Exchange Commission ("SEC")
      issued Staff Accounting Bulletin No. 101 ("SAB 101") "Revenue
      Recognition in Financial Statements," which provides guidance on the
      recognition, presentation and disclosure of revenue in financial
      statements filed with the SEC. SAB 101 outlines the basic criteria that
      must be met to recognize revenue and provides guidance for disclosures
      related to revenue recognition policies. The Company must adopt SAB 101
      in the first quarter of fiscal 2001.  Management believes that the
      impact of SAB 101 will not have a material effect on the financial
      position or results of operations of the Company.  However, the
      interpretation of SAB 101 is still under discusison by the Securities
      and Exchange Commission and may be revised.  Such revisions could have
      a material effect on the financial position or results of operations of
      the Company.

           In March 2000, the Financial Accounting Standards Board ("FASB")
      issued FASB Interpretation No. 44 ("FIN 44") "Accounting for Certain
      Transactions involving Stock Compensation," an interpretation of APB
      Opinion No. 25. FIN 44 clarifies the application of Opinion 25 for (a)
      the definition of employee for purposes of applying Opinion 25, (b) the
      criteria for determining whether a plan qualifies as a noncompensatory
      plan, (c) the accounting consequence of various modifications to the
      terms of a previously fixed stock option or award, and (d) the
      accounting for an exchange of stock compensation awards in a business
      combination. FIN 44 is effective July 1, 2000, but certain conclusions
      cover specific events that occur after either December 15, 1998, or
      January 12, 2000.  Management does not expect that the adoption of the
      remaining provisions will have a material effect on the consolidated
      financial statements.

      5.    CONTINGENCIES

           In January 1999, two class action complaints were filed in the United
      States District Court for the Northern District of California against the
      Company, certain of its officers and directors, and certain underwriters.
      The complaints allege that defendants made false and misleading statements
      about the Company's business condition and prospects during a class period
      of January 7, 1997 to October 13, 1998 and assert claims for violations of
      Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC
      Rule 10b-5. The complaints in both actions seek damages of unspecified
      amounts.

           On December 20, 1999, Electronics for Imaging ("EFI") filed a
      complaint in the United States District Court for the Northern District of
      California against the Company. The complaint alleges that the defendant's
      products infringe upon three EFI patents. The suit is aimed at enforcing
      patents in the areas of color management, color calibrations and
      continuous printing technologies.

           The Company believes that it has meritorious defenses and it intends
      to defend them vigorously. However, litigation is subject to inherent
      uncertainties and, thus, there can be no assurance that these complaints
      will be resolved favorably to the Company or that they will not have a
      material adverse affect on the Company's financial condition and results
      of operations. No provision for any liability that may result upon
      adjudication has been made in the accompanying financial statements.

           The Company and its subsidiaries are also parties to various other
      legal actions and administrative proceedings. The Company believes that
      the disposition of these matters will not have a material effect on the
      financial position of the Company.


                                       6
<PAGE>


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

              THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
       AND RESULTS OF OPERATIONS AND OTHER PARTS OF THIS FORM 10Q CONTAIN
       FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ALL
       FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON
       INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY
       ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. THE
       COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
       IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
       INCLUDING THOSE SET FORTH IN "FACTORS AFFECTING FUTURE RESULTS".

       RESULTS OF OPERATIONS

              The Company has achieved operating profitability each year
       since fiscal 1994, before purchase accounting adjustments. The
       Company's profitability and growth are contingent on a number of
       factors, many of which are outside of its control. These factors
       include the overall rate of growth in the color server market, the
       impact of varying economic conditions in different regions in which
       the Company sells its product, and customer purchasing patterns. Due
       to these and other factors (including a relatively high base from
       which to grow), the Company's historical profitability may be
       difficult to attain or exceed in the future. In addition, the
       Company's overall expense level has increased and is expected to
       continue to increase as the Company continues to build corporate
       infrastructure and expand its operations. Accordingly, the Company
       believes that period-to-period comparisons of its financial results
       should not be relied upon as an indication of future performance.

              The Company establishes its expenditure levels for operating
       expenses based on projected sales levels and margins, and expenses are
       relatively fixed in the short term. Moreover, the Company expects to
       continue to expand its sales and marketing, technical and customer
       support, research and product development and administrative activities.
       Accordingly, if sales are below expectations in any given quarter, the
       adverse impact of the shortfall in revenues on operating results may be
       increased by the Company's inability to adjust spending in the short term
       to compensate for the shortfall.

              The following table sets forth consolidated statement of
       operations data as a percentage of net revenue for the periods
       indicated:

<TABLE>
<CAPTION>
                                                      Three Months Ended June 30,    Six Months Ended June 30,
                                                      ---------------------------    -------------------------
                                                          1999           2000             1999          2000
                                                      -------------  ------------    -------------  ------------
       <S>                                                <C>            <C>              <C>           <C>
       Net revenue                                        100%           100%             100%          100%
       Cost of net revenue                                 45             54               45            54
                                                           --             --               --            --
         Gross profit                                      55             46               55            46
                                                           --             --               --            --
       Operating expenses:
         Research and development                          22             18               21            17
         Sales, general and administrative                 23             22               24            22
                                                           --             --               --            --
             Total operating expenses                      45             40               45            39
                                                           --             --               --            --
       Income from operations                              10              6               10             7
       Interest income                                      5              5                5             4
                                                          ---            ---              ---           ---
             Income before income taxes                    15             11               15            11
       Provision for income taxes                           3              2                3             2
                                                          ---            ---              ---           ---
       Net income                                          12%             9%              12%            9%
                                                           ==            ===               ==           ===

</TABLE>

              NET REVENUE. The Company's net revenue increased 32% to $22.4
       million in the three months ended June 30, 2000 from $16.9 million in
       the three months ended June 30, 1999. Net revenue increased 39% to
       $46.2 million in the six months ended June 30, 2000 from $33.2 million
       in the six months ended June 30, 1999. This increase was primarily
       attributable to an increasing demand for Xerox's DC12 print engine to
       which the Company's products connect. This resulted in increased
       demand for the Company's products, including its G Series product, and
       the Company's first controller device incorporated into the structure
       of the copier ("integrated controller") product. Any decrease in
       market acceptance for the Xerox DC12 print engine, or any other
       products to which the Company's products connect, would adversely
       affect the Company. The Company sells a range of products, and the
       revenue for any period will be determined by the product mix sold in
       that period. The Company currently sells a substantial portion of its
       products to two customers, Xerox and to a significantly lesser extent,
       Fuji Xerox Company Ltd. ("Fuji Xerox") on an OEM basis and,
       historically, fluctuations in net revenue are in part due to the
       purchasing patterns of these customers. There can be no assurance that
       either of the Company's two major customers, Xerox or, to a
       significantly lesser extent, Fuji Xerox will not change their mix of
       product or purchasing patterns in a manner which

                                       7
<PAGE>

      materially adversely impacts net revenue. During the first half of
      2000, the company introduced its T200 line of products. The T200
      series products are currently compatible with certain print engines
      manufactured by Canon Corporation ("Canon"). There can be no assurance
      that the company will be successful in selling these Canon compatible
      products, or any other non-Xerox compatible product it develops in the
      future.

             All sales to Fuji Xerox, and a portion of the Company's sales to
      Xerox, are international sales. In addition, given Xerox's international
      customer base, the Company believes that a portion of Splash products
      purchased by Xerox in the U.S. are resold outside the United States. The
      Company expects that direct and indirect international sales will continue
      to represent a substantial portion of its net revenue for the foreseeable
      future. While the Company's international sales are generally denominated
      in U.S. dollars, fluctuations in currency exchange rates could cause, and,
      in the case of Japan, have caused, the Company's products to become
      relatively more expensive to end users in a that country, leading to
      pressure to reduce the U.S. dollar denominated price to the Company's OEM
      customers and to lost sales. Such pressure has in the past and could again
      in the future result in a reduction in net revenue and profitability.

             GROSS MARGIN. Gross margins were 55% and 46% in the three months
      ended June 30, 1999 and 2000, respectively. Gross margins were 55% and 46%
      for the six months ended June 30, 1999 and 2000, respectively. The
      significant decline in gross margins was primarily due to a sales shift
      toward certain lower margin integrated controllers, partially offset by
      economies of scale derived from higher sales volumes, and cost reductions
      achieved through product designs. In 1999, the Company introduced its
      first integrated controller product. This product has substantially lower
      margins than the Company's other products. The Company expects that gross
      margins will fluctuate from period to period and may decrease in future
      periods. Gross margin is affected by a number of factors, including
      product mix, product pricing and manufacturing and component costs. The
      average selling price ("ASP") of the Company's products has decreased in
      the past primarily as a result of competitive market pressures, the
      introduction of lower priced products and, in certain cases, in response
      to new product introductions by the Company's customers. The Company
      expects this trend to continue in the future. Any decline in average
      selling prices of a particular product which is not offset by a reduction
      in production costs or by sales of other products with higher gross
      margins would decrease the Company's overall gross margin and adversely
      affect the Company's operating results.

             RESEARCH AND DEVELOPMENT. Research and development expenses
      increased 9% to $4.1 million in the three months ended June 30, 2000 from
      $3.7 million in the three months ended June 30, 1999. Research and
      development expenses increased 13% to 8.0 million in the six months ended
      June 30, 2000 from 7.0 million in the six months ended June 30, 1999. As a
      percentage of net revenue, research and development decreased to 18% in
      the three months ended June 30, 2000 from 22% in the three months ended
      June 30, 1999. As a percentage of net revenue, research and development
      decreased to 17% in the six months ended June 30, 2000 from 21% in the six
      months ended June 30, 1999. The increase in research and development
      spending in absolute dollars is attributable to costs associated with
      expanding the Company's product line. Historically, the Company had
      invested in research and development to develop products which were
      primarily compatible with print engines distributed and manufactured by
      Xerox and Fuji Xerox. The Company intends to increase its research and
      development efforts to develop products for print engines from suppliers
      other than Xerox and Fuji Xerox. For example, the T200 line of products,
      which the company recently introduced, is compatible with print engines
      manufactured by Canon. All research and development costs to date have
      been expensed as incurred. In view of current projects under development
      and planned, research and development expenses may increase in future
      periods.

           SALES, GENERAL AND ADMINISTRATIVE. Sales, general and administrative
      expenses increased 26% to $4.8 million in the three months ended June 30,
      2000 from $3.8 million in the three months ended June 30, 1999. As a
      percentage of net revenue, sales, general and administrative expenses
      decreased to 22% in the three months ended June 30, 2000 from 23% in the
      three months ended June 30, 1999. As a percentage of net revenue, sales,
      general and administrative expenses decreased to 22% in the six months
      ended June 30, 2000 from 24% in the six months ended June 30, 1999. The
      increase in these expenditures in absolute dollars was primarily related
      to expansion of the Company's sales support and marketing staff and
      associated costs (primarily to increase the Company's level of support for
      its customers sales organization), the implementation of promotional
      programs designed to improve name and product recognition in the end-user
      community and the Company's increased participation in industry trade
      shows. In addition, the Company incurred significant expenses related to
      the introduction of its new T200 line of product, as well as costs
      associated with developing its new distribution channel for the T200 line.
      During the March 31, 2000 quarter, the Company announced IKON Office
      Products as a distribution partner for the T200 product line. In addition,
      the increases in these expenditures were due to increased salary and
      related costs from increased headcount related to the Company's efforts to
      enhance its corporate infrastructure and to support expansion of its
      operations. The Company believes that its sales, general and
      administrative expenses will increase in the foreseeable future as it
      continues to implement additional management and operational systems, and
      expand its administrative staff. Sales, general, and administrative
      expenses are also expected to increase in future periods as the Company
      increases its sales support and marketing staff and associated costs to
      expand its presence in sales channels other than Xerox and Fuji Xerox.
      There is no assurance that the Company will be able to maintain or
      increase its presence in its existing customers or to successfully
      penetrate any additional sales channels.

             PROVISION FOR INCOME TAXES. The Company accounts for income taxes
      in accordance with the Financial Accounting Standards Board's Statement of
      Financial Accounting Standard No.109 "Accounting for Income Taxes". The
      Company's effective tax rate was 22% and 20% for the six months ended June
      30, 1999 and 2000, respectively. The effective tax rate differs from the
      statutory rate primarily due to the benefits derived from the Splash
      Foreign Sales Corporation and research and development credits.


                                       8
<PAGE>

       LIQUIDITY AND CAPITAL RESOURCES

             The Company's cash balances and marketable securities are
      sufficient to satisfy its current liquidity requirements.

             The Company had $75.4 million of cash, cash equivalents and
      marketable securities and had no borrowings outstanding under its $10
      million bank line of credit as of June 30, 2000. Borrowings under the line
      of credit bear interest at the prime rate or libor plus 1.25% to 2%, and
      are available based on a percentage of eligible accounts receivable.

             For the six months ended June 30, 2000, the Company generated $12.9
      million in cash from operating activities, primarily due to a decrease in
      accounts receivable and other assets and an increase in deferred revenue,
      partially offset by an increase in inventories and a decrease in trade
      accounts payable, and other accrued liabilities. For the six months ended
      June 30, 1999, the Company generated $9.8 million in cash from operating
      activities primarily from net income, a decrease in accounts receivable
      and inventories, and an increase in trade accounts payable, partially
      offset by an increase in other assets and a decrease in other liabilities.

             In the six months ended June 30, 1999, investing activities
      provided $1.3 million primarily related to the redemption of marketable
      securities. In the six months ended June 30, 2000, investing activities
      provided $0.5 million, primarily from the redemption of marketable
      securities.

           Financing activities for the six months ended June 30, 1999 and 2000
      were immaterial. The Company has no material financing commitments other
      than its obligations under operating leases.

           The Company believes that cash flows from operations and existing
      cash balances will be sufficient to satisfy the Company's cash
      requirements for at least the next twelve months.

       FACTORS AFFECTING FUTURE RESULTS

             FLUCTUATIONS IN OPERATING RESULTS; SEASONAL PURCHASING PATTERNS.
      The Company's operating results have fluctuated and will likely
      continue to fluctuate in the future on a quarterly and annual basis as
      a results of a number of factors, many of which are outside the
      Company's control. These fluctuations are in part due to the purchasing
      patterns of the Company's two large customers, Xerox and, to a
      significantly lesser extent, Fuji Xerox. In the past, inventory
      balancing activities by the Company's customers have resulted, and may
      continue to result, in variations in the timing of purchases by such
      customers. There can be no assurance that the Company will receive
      sufficient inventory information from its OEM customers or that the
      Company will be able to prevent significant inventory issues in the
      future. In 1999, the Company suffered a substantial decrease
      in sales to its customer, Fuji Xerox. This materially adversely
      affected the Company's business and operating results for 1999. The
      Company's customers may also vary their purchasing and inventory
      patterns in conjunction with their or their competitor's introduction
      of new products, their actual or potential delays in new product
      introductions, or their cancellations of planned new products or
      existing products. Also, announcements by the Company or its
      competitors of new products and technologies could cause customers to
      defer purchases of the Company's existing products. In the event that
      anticipated orders fail to materialize, or delivery schedules are
      deferred or canceled as a result of the above factors or other
      unanticipated factors, it would materially and adversely affect the
      Company's business, operating results and financial condition.

             Results in any period could also be affected, and in 1999, were
      materially adversely affected by changes in market demand, competitive
      market conditions, sales promotion activities by the Company, its OEM
      customers or its competitors market acceptance of new or existing
      products, sales of color copiers with which the Company's products are
      compatible, the cost and availability of components, expansion of and the
      mix of the Company's customer base and sales channels, the amount of any
      third-party funding of development expenses, the mix of products sold, the
      Company's ability to effectively expand its sales and marketing
      organization, the Company's ability to attract and retain key technical
      and managerial employees, and general economic conditions. As a result,
      the Company believes that period-to-period comparisons of its results of
      operations are not necessarily meaningful and should not be relied upon as
      indicative of future performance. Due to all of the foregoing factors, the
      Company's operating results in one or more future periods may be subject
      to significant fluctuations of public market analysts and investors, the
      price of the Company's common stock would be materially and adversely
      affected.

             The Company's gross margin is affected by a number of factors,
      including product mix, product pricing, and manufacturing, component and
      royalty costs. The average selling price of the Company's products has
      decreased substantially in the past and may continue to do so, primarily
      as a result of competitive market pressures, the introduction of lower
      priced products and, in certain cases, in response to new product
      introductions by the Company's customers. The Company expects this trend
      to continue. During the second half of 1999, the Company delivered its
      first integrated product. The integrated

                                       9
<PAGE>

      products and its Intel-based M series products have gross margins that
      are significantly lower than those of the PCI and DC series. In
      September 1999, the Company also launched its G610 and G710 server
      products. These products replaced the Company's PCI and DC Series
      products, respectively. The average selling price ("ASPs") of these
      newly introduced products are lower than those of the PCI and DC Series
      products they replaced. The G610 is only compatible with Xerox's newly
      introduced DC12 color laser copier. If the Xerox DC12 color laser
      copier has low levels of market acceptance, the Company's operating
      results would be adversely affected. The Company expects a lower gross
      margin on its G Series products. In the event of significant price
      competition in the market for color copier servers or competitive
      systems, the Company could be at a significant disadvantage compared to
      its competitors, many of which have substantially greater resources or
      lower product costs than the Company and therefore could more readily
      withstand an extended period of downward pricing pressure. Any decline
      in ASPs of a particular product, such as was experienced in 1999, which
      is not offset by a reduction in production costs or by sales of other
      products with higher gross margins would decrease the Company's overall
      gross margin and adversely affect the Company's operating results. The
      Company establishes its expenditure levels for product development and
      other operating expenses based on projected sales levels and margins,
      and expenses are relatively fixed in the short term. Accordingly, if
      sales are below expectations, as they were in 1999, the adverse impact
      of the shortfall on the Company's operating results may be increased by
      the Company's inability to adjust spending in the short term to
      compensate for the shortfall.

             COLOR SERVER MARKET. The color server market has, in the past,
      grown more slowly than anticipated. The markets for digital color copiers
      and connected color servers are intense. Because current and future
      competitors are likely to continue to introduce competing solutions, it is
      difficult to predict the rate at which these markets will grow, if at all.
      If the market continues to grow slowly, or not grow at all, the Company's
      business, operating results and financial condition will be adversely
      affected. The Company intends to continue to spend resources educating
      potential customers about color servers. However, there can be no
      assurance that such expenditures will enable the Company's products to
      achieve any additional degree of market acceptance. Moreover, the Company
      has historically focused on certain segments of the market (the prepress
      and graphic arts segments) and has had only limited penetration to date
      into the broader office segment or other market segments. There can be no
      assurance that the Company will be able to maintain or increase its
      presence in its existing market segments or to successfully penetrate such
      additional market segments.

             DEPENDENCE ON XEROX AND FUJI XEROX. The Company's products operate
      primarily with certain color laser copiers offered by Xerox and, to a
      substantially lesser extent, Fuji Xerox, and the Company currently sells
      its products primarily to Xerox and Fuji Xerox, which resell the Company's
      products on an OEM basis to their color copier end users. As a result of
      this dependence, sales of the Company's products have been and will
      continue to be influenced heavily by the market acceptance of the Xerox
      and Fuji Xerox color copiers with which the Company's products operate and
      the sales efforts of Xerox and Fuji Xerox with respect to Splash products.
      Xerox and Fuji Xerox face substantial competition from other manufacturers
      of color copiers, including Canon, which the Company believes has a
      significant share of the worldwide market for color copiers. If sales of
      the color copiers of Xerox and Fuji Xerox, with which Splash's products
      are compatible, decrease, the Company's business, operating results and
      financial condition would be, as they have been in the past, materially
      and adversely affected. During 1999, sales of Splash compatible copiers
      were significantly lower than in prior periods. In particular, sales to
      Fuji Xerox of products for resale in Japan were negligible in 1999. This
      reduction in sales has, and any continued reduction from historical levels
      could, materially and adversely affect the Company's business, operating
      results and financial condition. Similarly, if Xerox or Fuji Xerox were to
      introduce color copiers that are not compatible with the Company's
      products, or if Xerox or Fuji Xerox were to introduce color copiers that
      already contain a significant portion of the functionality of the
      Company's products so as to render the Company's products unnecessary, the
      Company's business, operating results and financial condition would be
      materially and adversely affected. In addition, Fuji Xerox color copiers
      are produced in a single location in Japan and any disruption of
      production at this facility could materially and adversely affect the
      Company's business, operating results and financial condition.

             As a result of its reliance on Xerox and Fuji Xerox, the Company
      currently has a relatively small sales and marketing organization and has
      limited experience with direct sales efforts. Any change in the sales and
      marketing efforts of Xerox or Fuji Xerox with respect to Splash's
      products, including any reduction in the size or effectiveness of the
      Xerox or Fuji Xerox sales and marketing forces, or changes in incentives
      for Xerox or Fuji Xerox salespersons to sell Splash products or color
      servers produced by competitors of Splash, could have, as it has in the
      past, a material adverse effect on the Company's business, operating
      results and financial condition. During 1999, Fuji Xerox changed the means
      by which it sold products in Japan, requiring that its OEM suppliers have
      a sales support and marketing organization in Japan. The Company had a
      limited sales support and marketing presence in Japan and only recently
      began the process of adding personnel in Japan.

             Xerox currently sells a substantial number of color servers made by
      companies other than Splash, including those of the Company's principal
      competitor, Electronics For Imaging ("EFI"). The Company is also a
      supplier of color servers to Fuji Xerox. However, Fuji Xerox has increased
      the number of color servers sold to end users that were manufactured by
      companies other than Splash, including EFI. In addition, the Company is
      required to permit testing by Xerox and Fuji Xerox of the beta release of
      the Company's products (including components contained therein) and cannot
      begin shipping any version to Xerox or Fuji Xerox until such version and
      components meet their respective quality standards. Any delay in meeting
      such respective standards would have a detrimental effect to the Company.
      Xerox and Fuji Xerox promote the use of color servers

                                       10
<PAGE>

      manufactured by competitors of the Company to the detriment of sales of
      the Company's products. Either Xerox or Fuji Xerox may choose to
      manufacture color servers themselves, may choose to manufacture only
      color copiers that are not compatible with Splash products, or may
      reduce, delay or cease purchases and sales of Splash color servers.
      Although the Company has a contract with Xerox, the Company does not
      have a contract with Fuji Xerox with respect to its products and is
      currently operating on a purchase order basis with Fuji Xerox. There
      can be no assurance as to the level of orders from Xerox under its
      contract or that the Company will continue to receive orders from Xerox
      or Fuji Xerox. Any decrease in the level of sales to Xerox or continued
      decrease in the level of sales to Fuji Xerox would have a material
      adverse effect on the Company's business, operating results and
      financial condition.

             INVENTORY RISKS. Xerox and Fuji Xerox may from time to time carry
      excess inventory of Splash color servers, inaccurately project future
      demand for Splash products or fail to optimally manage their ordering of
      Splash products, any of which could result in a significant decrease in
      orders from such customers in subsequent periods. There can be no
      assurance that the Company will receive sufficient information from Xerox,
      Fuji Xerox or other customers over time or that the Company will in any
      event be able to prevent the recurrence of similar problems in the future.

             As a result, Splash's customers, among other things, may be
      required to discount excess inventory, may experience difficulty in
      selling excess inventory, may experience reduced sales of new products
      or may become dissatisfied with their relationship with Splash. The
      Company's customer, in an effort to reduce its inventory levels, orders
      product with increasingly shorter lead times. If the Company cannot
      deliver product within these shortened lead times it would have a
      materially adverse affect on the Company's results. Although customers
      have no commercial right of return with respect to the Company's
      products, there can be no assurance that the Company will not elect to
      make accommodations to significant customers. Reduced sales of Splash
      products by Xerox or Fuji Xerox or any financial or other accommodation
      made to Xerox or Fuji Xerox could have a material adverse effect on the
      business, operating results and financial condition of Splash.

             DEPENDENCE ON ADOBE SYSTEMS INCORPORATED. The majority of the
      Company's products depend on the PostScript page description language
      software developed by Adobe Systems Incorporated ("Adobe") and licensed by
      the Company from Adobe on a non-exclusive basis. Any delay in the release
      of future versions of PostScript by Adobe or in the upgrade of the
      Company's products to be compatible with current or future versions of
      PostScript, or any material defects in any versions of PostScript software
      (including defects identified in connection with upgrades of the Company's
      products), could have a material adverse effect on the Company's business,
      operating results and financial condition. The Company has, and may
      continue to experience, delays in the release of its products due to Adobe
      product delays. The Company is required to pay a royalty for each copy of
      PostScript that is incorporated in Splash products, which royalty
      constitutes a substantial portion of the total manufactured cost of the
      Company's products. In addition, the Company is required to permit testing
      by Adobe of the beta release version of the Company's products, and the
      Company cannot begin shipping any version until such version meets Adobe's
      quality standards. The license agreement between the Company and Adobe
      expires in March 2003, subject to renewal upon mutual consent. There can
      be no assurance that Adobe will continue to enjoy its leadership position
      in the market, renew the current license at the end of its term or license
      future versions of PostScript to Splash on terms favorable to Splash or at
      all. If the license agreement between Adobe and the Company is terminated
      for any reason or the Company's relationship with Adobe is impaired, the
      Company could be required to change to an alternative page description
      language which would require the expenditure of significant resources and
      time and could significantly limit the marketability of the Company's
      products. Any increase in royalties payable to Adobe also could have a
      material adverse effect on the Company's operating results. In addition,
      the Adobe PostScript software is incorporated in the products of certain
      of the Company's competitors. The Company's business could be materially
      and adversely affected if Adobe were to make available to the Company's
      competitors future versions of Adobe PostScript software that include
      enhancements to the Adobe PostScript software that were originally
      developed or implemented by Splash.

             DEPENDENCE ON COMPONENT AVAILABILITY, COST, AND CERTAIN SUPPLIERS.
      The majority of the Company's current products require the use of an Apple
      as a computer platform. In the past, Apple has experienced significant
      financial difficulties and losses in market acceptance, and its products
      have particularly low levels of market acceptance in the office color
      printing market into which the Company is seeking to expand. In addition,
      Apple has experienced significant changes in management. If Apple were to
      discontinue production of models with which Splash products operate or
      were unable to provide or otherwise cease to provide an acceptable level
      of end user customer support, the Company's business, operating results
      and financial condition would be materially and adversely affected. The
      Company has experienced sourcing difficulties related to Apple's delay in
      the release of new models. The Company ships products which may contain
      discontinued components. The Company has experienced sourcing difficulties
      in procuring discontinued components in the past. There can be no
      assurance that the Company will not experience similar difficulties in the
      future. Any extended delay between the discontinuation of an existing
      model and the release of an enhanced model by Apple could have a material
      adverse effect on the Company's business, financial condition and results
      of operations. Any efforts of the Company to migrate its products to
      different computer platforms will require a substantial expenditure of
      resources and time, and there can be no assurance that any such products
      can be successfully developed or introduced in a timely fashion and at
      competitive cost or otherwise achieve widespread market acceptance.

             Certain components necessary for the manufacture of the Company's
      products are obtained from a sole supplier or a limited group of
      suppliers. These include motherboards and processors, from Intel and
      Motorola, certain ASICs and other

                                     11
<PAGE>

      semiconductor components. The Company does not maintain any long-term
      agreements with any of its suppliers of components. Because the
      purchase of certain key components involves long lead times, in the
      event of unanticipated increases in demand for the Company's products,
      the Company could be unable to manufacture certain products in a
      quantity sufficient to meet end user demand. The Company has
      experienced difficulties related to Apple's delay in the release of new
      systems and the discontinuation of computers used in Splash's current
      products. There can be no assurance that the Company will not
      experience similar difficulties in the future. The Company also
      purchases memory modules from several suppliers. A change in memory
      suppliers could require time to effect and could impact production.
      This risk would be exacerbated in times of memory supply shortages. For
      instance, during the second half of 1999, the memory market was
      extremely volatile. Any inability to obtain adequate deliveries of any
      of the components or any other circumstance that would require the
      Company to seek alternative sources of supply could affect the
      Company's ability to ship its products on a timely basis, which could
      damage relationships with current and prospective customers and could
      therefore have a material adverse effect on the Company's business,
      financial condition and operating results. Moreover, there can be no
      assurance that alternative sources of supply would be available on
      reasonably acceptable terms, on a timely basis, or at all. The Company
      has from time to time, including several instances in 1999, experienced
      shortages in deliveries of certain ASICs sourced exclusively from
      Toshiba Corporation, which have impacted production. In order to
      attempt to mitigate the risk of such shortages in the future, the
      Company has substantially increased its inventory of components for
      which the Company is dependent upon sole or limited source suppliers.
      As a result, the Company is subject to an increasingly substantial risk
      of inventory obsolescence, which could materially and adversely affect
      its operating results and financial condition.

             The Company purchases components comprising a portion of the
      total cost of its color servers. The balance of the inventory required
      to manufacture the Company's products is purchased by Logistix and SCI.
      The Company currently sources most of its Apple Macintosh computers
      that serve as the platforms for its G Series color servers from Apple.
      The Company is currently operating on a purchase order basis with Apple.

             The market prices and availability of certain components,
      particularly memory, other semiconductor components, Apple Macintosh
      computers and Intel designed components, which collectively represent a
      substantial portion of the total manufactured cost of the Company's
      products, have fluctuated significantly in the past. Significant
      fluctuations in the future could have a material adverse effect on the
      Company's operating results and financial condition. During late 1999, the
      Company experienced a significant increase in the price of memory. This
      resulted in, and may continue to result in, a reduction in gross margins.

             DEPENDENCE ON SINGLE PRODUCT LINE. Substantially all of Splash's
      current shipments consist, and are expected to continue to consist, of
      the Company's color server products. Because of this product
      concentration, a significant decline in demand for or pricing of these
      products would have a material adverse effect on the Company's
      business, operating results and financial condition, whether as a
      result of a decline in sales of complementary Xerox and Fuji Xerox
      copiers; a decline in the market for Apple Macintosh computers;
      increased sales by Xerox or Fuji Xerox of color servers offered by
      competitors of the Company or developed internally by Xerox or Fuji
      Xerox; new product introductions by competitors; price competition; or
      technological change. Any decline in the market for this product line
      or any failure to timely produce new and enhanced products would have a
      material adverse effect on the Company's business, financial condition
      and results of operations.

             RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCT
       INTRODUCTIONS. The graphics and color reproduction, color processing and
       personal computing markets are characterized by rapid changes in customer
       requirements, frequent introductions of new and enhanced products, and
       continuing and rapid technological advancement. To compete successfully,
       the Company must continue to design, develop, manufacture and sell new
       products that provide increasingly higher levels of performance and
       reliability, take advantage of technological advancements and changes and
       respond to new customer requirements. In 1998, the Company's main
       competitor added enhancements to its product that competed with the
       Company's DC Series products. These enhancements had an adverse effect on
       the market acceptance of the Company's DC Series products and its
       successor, the G710 product. The Company's success in designing,
       developing, manufacturing and selling new products will depend on a
       variety of factors, including the identification of market demand for new
       products, product selection, timely implementation of product design and
       development, product performance, cost-effectiveness of current products
       and products under development, effective manufacturing processes and the
       success of promotional efforts.

             In 1999, the Company began significant volume shipments of products
      based on Intel designed components as well as its new generation of Apple
      based product. The Company recently introduced its T200 product line which
      is compatible with Canon print engines. There can be no assurance that
      these products or, for that matter, any of the Company's future products
      will achieve widespread market acceptance. In addition, the Company has,
      in the past, experienced delays in the development of new products and the
      enhancement of existing products, and such delays may occur in the future.
      If the Company is unable, due to resource constraints or technological or
      other reasons, to develop and introduce new products or versions in a
      timely manner, if such new products or releases do not achieve timely and
      widespread market acceptance, or if the Company's customers reduce, delay
      or cease the introduction of new models of color copies which use the
      Company's products, it would have a material adverse effect on the
      Company's business, operating results and financial condition.

             COMPETITION. The markets for the Company's products are
      characterized by intense competition and rapid change. The

                                    12
<PAGE>

      Company competes directly with other independent manufacturers of color
      servers and with copier manufacturers, and indirectly with printer
      manufacturers and others. The Company has a number of direct
      competitors for color server products, the most significant of which is
      EFI. Splash also faces competition from copier manufacturers that offer
      internally developed color server products, such as a non-PostScript
      color server offered by Fuji Xerox, or that incorporate color server
      features into their copiers. In addition, the Company faces competition
      from desktop color laser printers that offer increasing speed and color
      server capability. As component prices decrease and the processing
      power and other functionality of copiers, printers and computers
      increases, it becomes more likely that copier, printer and computer
      manufacturers will continue to add color server functionality to their
      systems, which could reduce the market for the Company's existing line
      of products.

             The Company also competes indirectly with manufacturers of
      electronic color prepress systems, which offer similar functionality for
      the short-run and commercial printing market as is provided by the
      Company's products. In addition, the Company competes indirectly with
      providers of color separation, color editing and page layout software.
      While such software typically is complementary to the Company's systems,
      this software can also be competitive with the Company's systems and may
      become increasingly competitive to the extent that the providers of such
      software extend the functionality of their products in future releases.

             Many of the Company's current and potential direct and indirect
      competitors have longer operating histories, are substantially larger, and
      have substantially greater financial, technical, manufacturing, marketing
      and other resources than Splash. A number of these current and potential
      competitors also have substantially greater name recognition and a
      significantly larger installed base of products than the Company, which
      could provide leverage to such companies in their competition with Splash.
      The Company expects competition to increase to the extent the color server
      market grows, and such increased competition may result in price
      reductions, reduced gross margins and loss of market share, any of which
      could materially adversely affect the Company's business, operating
      results and financial condition. As a result of their greater resources,
      many of such competitors are in a better position than Splash to withstand
      significant price competition or downturns in the economy. There can be no
      assurance that Splash will be able to continue to compete effectively, and
      any failure to do so would have a material adverse effect upon the
      Company's business, operating results and financial condition.

             RISKS ASSOCIATED WITH ACQUISITIONS. The Company frequently
      evaluates potential acquisitions of complementary businesses, products and
      technologies. As part of the Company's expansion plans, the Company has
      acquired and may continue to acquire companies that have an installed base
      of products not yet offered by the Company, have strategic distribution
      channels or customer relationships, or otherwise present opportunities
      which management believes may enhance the Company's competitive position.
      The success of any acquisition could depend not only upon the ability of
      the Company to acquire such businesses, products and technologies on a
      cost-effective basis, but also upon the ability of the Company to
      integrate the acquired operations or technologies effectively into its
      organization, to retain and motivate key personnel of the acquired
      businesses, and to retain the significant customers of the acquired
      businesses. Any acquisition, depending upon its size, could result in the
      use of a significant portion of the Company's cash, or if such acquisition
      is made utilizing the Company's securities, could result in significant
      dilution to the Company's stockholders. Moreover, such transactions
      involve the diversion of substantial management resources and evaluation
      of such opportunities requires substantial diversion of engineering and
      technological resources. In addition, such transactions could result in
      large one time write-offs or the creation of goodwill or other intangible
      assets that would result in amortization expenses. To date, the Company
      has completed two acquisitions: Quintar Company and ColorAge in May and
      October of 1997, respectively.

             There can be no assurance that acquired technology can be
      successfully developed on a timely basis or at all, or that products based
      on acquired technology will receive widespread market acceptance.
      Moreover, there can be no assurance that the Company can successfully
      integrate acquired technology. The failure to successfully evaluate,
      negotiate and effect acquisition transactions could have a material
      adverse effect on the Company's business, operating results and financial
      condition.

             MANAGEMENT OF EXPANDING OPERATIONS. The growth in the Company's
      business has placed, and any further expansion would continue to place, a
      significant strain on the Company's limited personnel, management and
      other resources. The Company's ability to manage any future expansion
      effectively will require it to attract, train, motivate and manage new
      employees successfully, to integrate new management and employees into its
      overall operations and to continue to improve its operational, financial
      and management systems. Moreover, the Company expects to continue to
      increase the size of its domestic and international sales support staff
      and the scope of its sales and marketing activities, and to hire
      additional research and development personnel. The Company's failure to
      manage any expansion effectively, including any failure to integrate new
      management and employees or failure to continue to implement and improve
      financial, operational and management controls, systems and procedures,
      could have a material adverse effect on the Company's business, operating
      results and financial condition.

             DEPENDENCE ON THIRD PARTY MANUFACTURERS. The Company generally
      outsources the manufacture of its products to third party subcontract
      manufacturers including SCI Systems, Logistix, Arrow Electronics, and
      Flash Electronics. Flash Electronics and SCI purchase the components
      used in Splash boards from their component suppliers and perform
      double-sided active surface mount assembly, in-circuit test, functional
      test and system test of the printed circuit boards used in the Company's
      products, on a turnkey basis.

                                       13
<PAGE>

      SCI also performs in-warranty and out-of-warranty repair of failed
      boards for the Company's products. The Company directly purchases Apple
      Macintosh computers, Intel designed components, Motorola motherboards,
      monitors and memory, and furnishes these components, as well as the
      SCI-assembled boards, to Logistix and SCI for final assembly. Logistix
      and SCI directly purchase a portion of the components used in Splash
      color servers and do all final assembly and system configuration.

             While the Company's subcontract manufacturers conduct quality
      control and testing procedures specified by the Company, the Company has
      from time to time experienced manufacturing quality problems. There can be
      no assurance that quality problems will not occur again in the future or
      that any such problem would not have a material adverse effect on the
      Company's business, operating results and financial condition.

             If SCI, Logistix, or other third party manufacturing facilities
      utilized by the Company become unavailable to the Company, or if the
      manufacturing operations at these facilities are slowed, interrupted or
      terminated, the Company's business, operating results and financial
      condition could be adversely affected. Although the Company believes that
      there is a variety of companies available with the capability to provide
      the Company with such services, there can be no assurance that the Company
      would be able to enter into alternative third party manufacturing
      arrangements on terms satisfactory to the Company, in a timely fashion, or
      at all.

             DEPENDENCE ON PROPRIETARY TECHNOLOGY; RELIANCE ON THIRD PARTY
       LICENSES. The Company relies, in part, on trademark, copyright and trade
       secret law to protect its intellectual property in the United States and
       abroad. The Company seeks to protect its software, documentation and
       other written materials under trade secret and copyright laws, which
       afford only limited protection, and there can be no assurances that the
       steps taken by the Company will prevent misappropriation of its
       technology. The Splash software included as a part of the Company's
       products is sold pursuant to "shrink wrap" licenses that are not signed
       by the end user and, therefore, may be unenforceable under the laws of
       certain jurisdictions. The Company owns several patents. There can be no
       assurance that any patent, trademark or copyright owned by the Company,
       or any patent, trademark or copyright obtained by the Company in the
       future, will not be invalidated, circumvented or challenged, that the
       rights granted thereunder will provide competitive advantages to the
       Company or that any of the Company's pending or future patent
       applications will be issued with the scope of the claims sought by the
       Company, if at all. In addition, the laws of some foreign countries do
       not protect the Company's proprietary rights as fully as do the laws of
       the United States. Thus, effective intellectual property protection may
       be unavailable or limited in certain foreign countries. There can be no
       assurance that the Company's means of protecting its proprietary rights
       in the United States or abroad will be adequate or that others will not
       independently develop technologies that are similar or superior to the
       Company's technology, duplicate the Company's technology or design around
       any patent of the Company. Moreover, litigation may be necessary in the
       future to enforce the Company's intellectual property rights, to
       determine the validity and scope of the proprietary rights of others or
       to defend against claims of infringement or invalidity. Such litigation
       could result in substantial costs and diversion of management time and
       resources and could have a material adverse effect on the Company's
       business, operating results and financial condition.

             There have been substantial amounts of litigation in the computer
      and related industries regarding intellectual property rights, and there
      can be no assurance that third parties will not claim infringement by the
      Company of their intellectual property rights. The addition of Splash as a
      defendant in any claims that the Company is infringing on proprietary
      rights of others, with or without merit, could be time-consuming to
      defend, result in costly litigation, divert management's attention and
      resources, and cause product shipment delays. If the Company were found to
      be infringing on the intellectual property rights of any third party, the
      Company could be subject to liabilities for such infringement, which
      liabilities could be material, and could be required to seek licenses from
      other companies or to refrain from using, manufacturing or selling certain
      products or using certain processes. Although holders of patents and other
      intellectual property rights often offer licenses to their patent or other
      intellectual property rights, no assurance can be given that licenses
      would be offered or that the terms of any offered license would be
      acceptable to the Company. In December 1999, EFI filed suit against Splash
      for patent infringement. Any need to redesign the products or enter into
      any royalty or licensing agreement as the result of any alleged
      infringement could have a material adverse effect on the Company's
      business, operating results and financial condition.

             The Company relies upon certain software licensed from third
      parties. There can be no assurance that the software licensed by the
      Company will continue to provide competitive features and functionality or
      that licenses for software currently utilized by the Company or other
      software which the Company may seek to license in the future will be
      available to the Company on commercially reasonable terms. The loss of, or
      inability to maintain, existing licenses could result in shipment delays
      or reductions until equivalent software or suitable alternative products
      could be developed, identified, licensed and integrated, and the inability
      to license key new software that may be developed, on commercially
      reasonable terms, would have a material adverse effect on the Company's
      competitive position. Any such event would materially adversely affect the
      Company's business, operating results and financial condition.

             RISK OF PRODUCT DEFECTS. The Company's products consist of hardware
       and software developed by Splash and others. Products such as those of
       the Company may contain undetected errors when first introduced or when
       new versions are released, and the Company has in the past discovered
       software and hardware errors in certain of its new products after their
       introduction. There can be no assurance that errors would not be found in
       new versions of Splash products after commencement of commercial
       shipments, or that any such errors would not result in a loss of or delay
       in market acceptance

                                       14
<PAGE>

       and have a material adverse effect upon the Company's business,
       operating results and financial condition. In addition, errors in the
       Company's products (including errors in licensed third party software)
       detected prior to new product release could result in delay in the
       introduction of new products and incurring of additional expense, which
       also could have a material adverse effect upon the Company's business,
       operating results and financial condition.

             INTERNATIONAL SALES. All sales to Fuji Xerox and some Xerox
       affiliated entities are international sales. Although a majority of sales
       to Xerox are accounted for as U.S. sales, Xerox has a significant
       international customer base, and the Company believes that a portion of
       Splash products purchased by Xerox are resold outside the United States.
       The Company expects that direct and indirect international sales will
       continue to represent a substantial portion of its net revenue for the
       foreseeable future. While the Company's international sales are generally
       denominated in U.S. dollars, fluctuations in currency exchange rates
       could cause the Company's products to become relatively more expensive to
       end users in a particular country, leading to pressure to reduce the U.S.
       dollar denominated price to the Company's OEM customers, which could in
       turn result in a reduction in net revenue and profitability. In addition,
       to the extent that an increased portion the Company's sales are
       denominated in foreign currencies, the Company could be exposed to
       currency exchange risks. Other risks inherent in international sales
       include unexpected changes in regulatory requirements, tariffs and other
       trade barriers and uncertainties relative to regional circumstances.
       These risks, and in particular risks related to the economic
       circumstances in Japan, could have a material adverse affect on the
       Company's business, operating results and financial condition. In
       addition, the Company's business, operating results and financial
       condition would be materially adversely affected if foreign markets do
       not continue to develop.

             DEPENDENCE ON KEY PERSONNEL. Because of the nature of the Company's
       business, the Company is highly dependent on the continued service of,
       and on its ability to attract and retain, qualified technical, marketing,
       sales and managerial personnel, including senior members of management.
       The competition for such personnel is intense, and the loss of any of
       such persons, as well as the failure to recruit additional key technical
       and sales personnel in a timely manner, would have a material adverse
       effect on the Company's business and operating results. There can be no
       assurance that the Company will be able to continue to attract and retain
       the qualified personnel necessary for the development of its business.
       The Company currently does not have employment contracts with any of its
       employees and does not maintain key person life insurance policies on any
       of its employees. The Company is highly dependent on the services of its
       Executive Officers. The loss of service of any of these executive
       officers could have a material adverse effect on the Company's business.

                                       15
<PAGE>
                                     PART II

      ITEM 1.        LEGAL PROCEEDINGS

                     In January 1999, two class action complaints were filed in
                     the United States District Court for the Northern District
                     of California against the Company, certain of its officers
                     and directors, and certain underwriters. The complaints
                     allege that defendants made false and misleading statements
                     about the Company's business condition and prospects during
                     a class period of January 7, 1997 - October 13, 1998, and
                     assert claims for violations of Sections 10(b) and 20(a) of
                     the Securities Exchange Act of 1934 and SEC Rule 10b-5. The
                     complaints in both actions seek damages of an unspecified
                     amount. There has been no discovery to date and no trial is
                     scheduled in these actions.

                     On December 20, 1999, Electronics For Imaging ("EFI") filed
                     a complaint in the United States District Court for the
                     Northern District of California against the Company. The
                     complaint alleges that the defendant's products infringe
                     upon three EFI patents. The suit is aimed at enforcing
                     patents in the areas of color management, color
                     calibrations, and continuous printing technologies.

                     On January 10, 2000, the Company filed a counter complaint
                     in the United States District Court for the Northern
                     California District of California against EFI. The
                     complaint alleges EFI infringed upon a Company patent. The
                     EFI litigation is in the initial stages of discovery. No
                     trial date has been set.

                     The Company believes it has meritorious defenses in all
                     these actions and intends to defend them vigorously.
                     Failure by the Company to obtain a favorable resolution of
                     the claims set forth in these actions could have a material
                     adverse affect on the Company's business, results of
                     operations and financial condition. Currently, the amount
                     of such material effect cannot be reasonably estimated.

      ITEM 2.        CHANGES IN SECURITIES
                     NONE

      ITEM 3.        DEFAULT UPON SENIOR SECURITIES
                     NONE

      ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                     At the Company's Annual Meeting of Shareholders held on May
                     24, 2000, Mark Hill and Peter Y. Chung were elected to
                     serve as Class I directors of the Company with 12,242,902
                     and 12,242,502 votes for and 22,774 and 23,174 votes
                     withheld, respectively. Mssrs. Hill and Chung will
                     serve for a three-year term expiring upon the Annual
                     Meeting of Stockholders in 2003.

      ITEM 5.        OTHER INFORMATION
                     NONE

      ITEM 6.        EXHIBITS

                     27.1      FINANCIAL DATA SCHEDULE

                     REPORTS ON FOR 8-K

                     NONE


                                       16
<PAGE>

                                   SIGNATURE

           Pursuant to the requirements of the Securities Act of 1934, this
      report has been signed and thereunto duly authorized, in the City of
      Sunnyvale, State of California, on August 14, 2000.

                                  SPLASH TECHNOLOGY HOLDINGS, INC

                                  By:        /s/  Kevin MACGILLIVRAY
                                        -------------------------------------
                                                  Kevin Macgillivray
                                        President and Chief Executive Officer






                                       17