<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, 1998

             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
   incorporation or organization)                      Identification No.)

  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 June 30, 1998 was 13,896,238 shares.


                                       1

<PAGE>

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

<TABLE>
<CAPTION>
                                                        December 31,   June 30,
                                                           1997          1998
                                                        -----------  ----------
                                                                     (Unaudited)
<S>                                                     <C>          <C>
                      ASSETS  
Current assets:
   Cash and cash equivalents                              $  43,637    $ 54,702
   Marketable securities                                     10,073       1,500
   Accounts receivable, net of allowance for 
    doubtful accounts of $369 and $363 as of December
    31, 1997 and June 30,1998, respectively                   4,399      12,954
   Inventories                                                3,541       1,992
   Prepaid expenses and other current assets                    527         699
   Deferred income taxes                                      4,094       4,094
                                                          ---------   ---------
               Total current assets                          66,271      75,941
 Property and equipment, net                                  1,385       2,124
 Deferred income taxes                                       11,198      11,198
 Other assets                                                 3,639       3,120
                                                          ---------   ---------

               Total assets                               $  82,493   $  92,383
                                                          ---------   ---------
                                                          ---------   ---------
                      LIABILITIES

 Current liabilities:
   Trade accounts payable                                 $   2,283       4,920
   Accrued and other liabilities                             18,711      18,558
   Deferred revenue                                           1,700       1,895
                                                          ---------   ---------
               Total current liabilities                     22,694      25,373
 Other long term liabilities                                    932         848
                                                          ---------   ---------
               Total liabilities                             23,626      26,221
                                                          ---------   ---------

                      STOCKHOLDERS' EQUITY

 Common stock, par value $.001 per share:
   Authorized: 50,000,000 shares 
   Issued and outstanding: 13,855,089  shares and 
     13,896,238 shares as of December 31, 1997 and June
     30, 1998, respectively                                      14          14
 Additional paid-in capital                                  85,458      85,846
 Accumulated deficit                                        (26,605)    (19,698)
                                                          ---------   ---------
               Total stockholders' equity                    58,867      66,162
                                                          ---------   ---------

               Total liabilities and stockholders' equity  $ 82,493    $ 92,383 
                                                          ---------   ---------
                                                          ---------   ---------

</TABLE>

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


                                       2

<PAGE>

                        SPLASH TECHNOLOGY HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                            THREE MONTHS ENDED JUNE 30,         SIX MONTHS ENDED JUNE 30,
                                                              1997              1998              1997             1998
                                                            ---------         --------         ----------       ---------
<S>                                                         <C>               <C>              <C>              <C>
Net revenue                                                 $ 19,802          $ 25,797          $ 35,855         $ 43,795
Cost of net revenue                                            9,671            11,907            17,354           20,171
                                                            --------          --------          --------         --------
       Gross profit                                           10,131            13,890            18,501           23,624
                                                            --------          --------          --------         --------
Operating expenses:
  Research and development                                     1,687             3,398             2,832            6,561
  Sales, general and administrative                            2,248             3,871             4,377            7,542
  Amortization and write off of technology                    11,039                 -            11,039                -
                                                            --------          --------          --------         --------
       Total operating expenses                               14,974             7,269            18,248           14,103
                                                            --------          --------          --------         --------

          Income (loss) from operations                       (4,843)            6,621               253            9,521

Interest income, net                                             145               497               295              938
                                                            --------          --------          --------         --------

          Income (loss) before income taxes                   (4,698)         $  7,118               548           10,459

Provision for income taxes                                     2,283             2,349             4,276            3,552
                                                            --------          --------          --------         --------
               Net income (loss)                            $ (6,981)         $  4,769          $ (3,728)        $  6,907
                                                            --------          --------          --------         --------
                                                            --------          --------          --------         --------

Basic net income (loss) per share                           $  (0.58)         $   0.34          $  (0.31)        $   0.50
                                                            --------          --------          --------         --------
                                                            --------          --------          --------         --------

Diluted net income (loss) per share                         $  (0.58)         $   0.34          $  (0.31)        $   0.49
                                                            --------          --------          --------         --------
                                                            --------          --------          --------         --------
Shares used in basic net income (loss) per share
calculation                                                   12,089            13,884            12,067           13,870
                                                            --------          --------          --------         --------
                                                            --------          --------          --------         --------
Shares used in diluted net income (loss) per share
calculation                                                   12,089            14,076            12,067           14,066
                                                            --------          --------          --------         --------
                                                            --------          --------          --------         --------

</TABLE>

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


                                       3

<PAGE>

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

<TABLE>
<CAPTION>
                                                       Six Months Ended June 30,
                                                          1997           1998
                                                       ----------      ----------
<S>                                                    <C>             <C>
Cash flows from operating activities:
  Net income (loss)                                     $ (3,728)        $  6,907
  Adjustments to reconcile net income 
    to net cash provided by operating
    activities:
  Depreciation and amortization                              271              816
  Provision for doubtful accounts                              -                -
    Amortization and write off 
      of technology                                       11,039                -
  Changes in assets and liabilities:
    Accounts receivable                                   (9,244)          (8,555)
    Inventories                                            1,289            1,549
    Prepaid expenses and other                                59             (172)
      current assets
    Other assets                                            (271)               -
    Trade accounts payable                                 2,137            2,637
    Accrued and other liabilities                         (1,020)            (237)
    Deferred revenue                                      (1,373)             195
                                                        --------         --------
      Net cash provided by (used in)
        operating activities                                (841)           3,140
                                                        --------         --------
Cash flows from investing activities:
  Redemption of marketable securities                          -            8,573
  Purchase of property and equipment                        (367)          (1,036)
  Acquisition of business (net of cash)                  (11,196)               -
                                                        --------         --------
      Net cash provided by (used in)
        investing activities                             (11,563)           7,537
                                                        --------         --------
Cash flows from financing activities:
  Proceeds (expenses) from public
    offering/exercise/repurchase of 
    stock under stock plans                                  (48)             388
                                                        --------         --------
      Net cash provided by (used in)
        financing activities                                 (48)             388
                                                        --------         --------
      
Net increase (decrease) in cash                          (12,452)          11,065
      
Cash and cash equivalents, beginning of period            19,053           43,637
                                                        --------         --------
Cash and cash equivalents, end of period                $  6,601         $ 54,702
                                                        --------         --------
                                                        --------         --------

</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 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 generally accepted
     accounting principles 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,
     1997 balance sheet was derived from audited financial statements but does
     not include all disclosures required by generally accepted accounting
     principles. 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,
     1998, the results of operations for the three months and six months ended
     June 30, 1998 and cash flows for the six months ended June 30, 1998, which
     results are not necessarily indicative of results on an annual basis.
     Effective January 1, 1998, the Company changed its fiscal year end from
     September 30 to December 31. 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 September 30, 1997 and the form 10-Q for the period ended
     December 31, 1997.
     
2.   BALANCE SHEET DETAIL (IN THOUSANDS):
     
     INVENTORIES:

<TABLE>
<CAPTION>

                                                  December 31,        June 30,
                                                     1997               1998
                                                  -----------        ---------
      <S>                                         <C>                <C>
      Raw Materials                                $  2,403          $  1,186
      Finished goods                                  1,138               806
                                                   --------          --------
                                                   $  3,541          $  1,992
                                                   --------          --------
                                                   --------          --------

      ACCRUED AND OTHER LIABILITIES:
        Royalties payable                          $  5,391          $  5,557
        Accrued payables                              3,796             2,918
        Accrued product-related obligations           4,063             4,137
        Accrued compensation and related                682             1,603
          expenses
        Income taxes payable                          4,193             3,917
        Other liabilities                               586               426
                                                   --------          --------
                                                    $18,711          $ 18,558
                                                   --------          --------
                                                   --------          --------

</TABLE>

3.  RECENT ACCOUNTING PRONOUNCEMENTS
           
          In 1997, the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standards No. 131 "Disclosures about Segments of an
     Enterprise and Related Information." The pronouncement is effective for the
     year ended December 31, 1998.  The Company is evaluating this recent
     pronouncement and the effects, if any, on the Company's current policies.
           
4.  COMPUTATION OF NET INCOME (LOSS) PER SHARE
          
          The Company adopted the provisions of Statement of Financial
     Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128") effective
     December 31, 1997.  SFAS 128 requires the presentation of basic and diluted
     earnings per share (EPS).  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>

          In accordance with the disclosure requirements of SFAS 128, 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 Ended June 30,   Six Months Ended June 30,
                                                1997         1998              1997        1998
                                              --------     --------          --------    --------
     <S>                                      <C>          <C>               <C>         <C>
     Numerator - Basic and Diluted EPS
         Net income (loss) attributable
         to common stockholders               $ (6,981)    $  4,769          $ (3,728)   $  6,907
                                              --------     --------          --------    --------
                                              --------     --------          --------    --------
     Denominator - Basic EPS
         Weighted average shares outstanding    12,089       13,884            12,067      13,870
                                              --------     --------          --------    --------
                                              --------     --------          --------    --------
         Basic net income (loss) per share    $  (0.58)    $   0.34          $  (0.31)   $   0.50
                                              --------     --------          --------    --------
                                              --------     --------          --------    --------
     Denominator - Diluted EPS
         Denominator - Basic EPS                12,089       13,884            12,067      13,870
         Effect of dilutive securities:
             Common stock options                    -          192                 0         196
                                              --------     --------          --------    --------
                                                12,089       14,076            12,067      14,066
                                              --------     --------          --------    --------
                                              --------     --------          --------    --------
         Diluted net income (loss) per share  $  (0.58)    $   0.34          $  (0.31)   $   0.49
                                              --------     --------          --------    --------
                                              --------     --------          --------    --------

</TABLE>

     Options to purchase 1,460,392 shares of common stock were outstanding at
     June 30, 1998, 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. Options to purchase 808,412 shares of
     common stock were outstanding at June 30, 1997 but were not included in the
     calculation of diluted earnings per share because their inclusion would
     have been anti-dilutive.


                                       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 significant growth in net revenue and 
operating income each year since fiscal 1994, before purchase accounting 
adjustments.  The Company's growth is 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 economic conditions in 
Japan (including the dollar/yen currency exchange rate) on the demand for 
Splash's products and customer purchasing patterns.  Due to these and other 
factors (including an increasingly higher base from which to grow), the 
Company's historical growth rate will be difficult to sustain or exceed in 
the future.  In addition, the Company's overall expense level is expected 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,
                                                   1997         1998                  1997        1998
                                                 --------     --------              --------    --------
     <S>                                         <C>          <C>                   <C>         <C>
     Net revenue                                    100%         100%                  100%        100%
     Cost of net revenue                             49           46                    48          46
                                                    ---          ---                   ---         ---
       Gross profit                                  51           54                    52          54
                                                    ---          ---                   ---         ---
     Operating expenses:
        Research and development                      9           13                     8          15
        Sales, general and administrative            11           15                    12          17
        Amortization and write off of technology     56            -                    31           -
                                                    ---          ---                   ---         ---
           Total operating expenses                  76           28                    51          32
                                                    ---          ---                   ---         ---
     Income from operations                         (25)          26                     1          22
     Interest income                                  1            2                     1           2
                                                    ---          ---                   ---         ---
             Income before income taxes             (24)          28                     2          24
     Provision for income taxes                      11           10                    12           8
                                                    ---          ---                   ---         ---
        Net income, (loss)                          (35)%         18%                  (10)%        16%
                                                    ---          ---                   ---         ---
                                                    ---          ---                   ---         ---
</TABLE>

      NET REVENUE. The Company's net revenue increased 30% to $25.8 million in 
the three months ended June 30, 1998 from $19.8 million in the three months 
ended June 30, 1997. The Company's net revenue increased 22% to $43.8 million 
in the six months ended June 30, 1998 from $35.9 million in the six months 
ended June 30, 1997. These increases were primarily attributable to higher 
unit sales of the Company's products due to increasing market acceptance of 
the Company's PCI and DC Series products and expanded product offerings.  
Primarily due to poor economic conditions in Asia, the Company has 
experienced a significant decrease in sales to its customer in Japan, offset 
by a significant increase in sales to other regions. The Company sells a 
range of products, and the revenue for any period will be determined by the 
product mix sold in that period. In addition, the Company sells a substantial 
portion of its products to two customers, Fuji Xerox Company Ltd. ("Fuji 
Xerox") and Xerox Corporation ("Xerox") on an OEM basis and, historically, 
fluctuations in net revenue are in part due to the purchasing patterns of 
these customers.  Because of a recent change in year end of one of these 
customers, and consequently, a change in purchasing patterns, the remaining 
1998 quarterly sales patterns are expected to change in comparison to the 
same period last year. There can be no assurance that either of the Company's 
two major customers, Fuji 


                                       7

<PAGE>

Xerox, particularly in light of the current adverse economic circumstances in 
Japan, or Xerox will not change their mix of product or purchasing patterns 
in a manner which would adversely impact net revenue. 

      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 particular country, leading to pressure to reduce 
the U.S. dollar denominated price to the Company's OEM customers.  Such 
pressure could in turn result in a reduction in net revenue and 
profitability. 
      
      GROSS MARGIN. Gross margins were 51% and 54% in the three months ended 
June 30, 1997 and 1998, respectively. Gross margins were 52% and 54% in the 
six months ended June 30, 1997 and 1998, respectively. The increase in gross 
margin was primarily due to economies of scale derived from higher sales 
volumes and reductions in component costs achieved through new product 
designs and favorable component pricing. 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 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 and competitors. 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 
100% to $3.4 million in the three months ended June 30, 1998 from $1.7 
million in the three months ended June 30, 1997. Research and development 
expenses increased 136% to $6.6 million in the six months ended June 30, 1998 
from $2.8 million in the six months ended June 30, 1997. As a percentage of 
net revenue, research and development increased to 13% in the three months 
ended June 30, 1998 from 9% in the three months ended June 30, 1997. The 
increase in research and development expenses reflects the addition of 
engineering resources through the acquisitions of Quintar Holdings 
Corporation ("Quintar") and ColorAge Corporation ("ColorAge") in May 1997 and 
October 1997, respectively. In addition, the increases in these expenses were 
also attributable to increased staffing and associated support required to 
enhance the Company's product line. Except for charges related to 
acquisitions, all research and development costs to date have been expensed 
as incurred. In view of the acquisitions and current projects under 
development and planned, research and development expenses are expected to 
increase in absolute dollars and as a percentage of net revenue in future 
periods. 

SALES, GENERAL AND ADMINISTRATIVE. Sales, general and administrative 
expenses increased 77% to $3.9 million in the three months ended June 30, 
1998 from $2.2 million in the three months ended June 30, 1997. Sales, 
general and administrative expenses increased 70% to $7.5 million in the six 
months ended June 30, 1998 from $4.4 million in the six months ended June 
30, 1997. As a percentage of net revenue, sales, general and administrative 
expenses increased to 15% in the three months ended June 30, 1998 from 11% in 
the three months ended June 30, 1997. As a percentage of net revenue, sales, 
general and administrative expenses increased to 17% in the six months ended 
June 30, 1998 from 12% in the six months ended June 30, 1997. The increases 
in these expenditures were 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 Xerox's 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 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 
absolute dollars 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 expected to increase 
in absolute dollars in future periods, although such expenses may vary as a 
percentage of net revenue.
      
      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 37% (excluding purchase accounting 
adjustments) and 34% for the six months ended June 30, 1997 and 1998, 
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 has obtained sufficient cash from its public offerings 
and operations to satisfy its current liquidity requirements.
      
      As of June 30, 1998, the Company had $56.2 million of cash, cash 
equivalents and marketable securities and had no borrowings under its $10 
million bank line of credit. Borrowings under the line of credit bear 
interest at the prime rate and are available under the line of credit based 
on a percentage of eligible accounts receivable. 

      For the six months ended June 30, 1997, the Company consumed $0.8 
million in cash from operating activities, primarily due to an increase in 
accounts receivable and decreases in deferred revenue and accrued and other 
liabilities, partially offset by a decrease in inventories and an increase in 
trade accounts payable. The Company's operating activities provided $3.1 
million in cash in the six months ended June 30, 1998, primarily from an 
increase in trade accounts payable and a decrease in inventory, offset by an 
increase in accounts receivable.

      In the six months ended June 30, 1997, investing activities consumed 
$11.6, million primarily related to the acquisition of Quintar. In the six 
months ended June 30, 1998, investing activities provided $7.5 million, 
primarily from the redemption of marketable securities.

      Financing activities were not material for the six months ended June 30, 
1997 and 1998. 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 result 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 
customers, Xerox and Fuji Xerox. These customers have historically made a 
significant portion of their purchases of the Company's products in the June 
quarter and September quarter. As a result, the Company's sales have 
historically been lower in the December quarter than in the immediately 
preceding September quarter. However, the Company expects that these 
customers will change their purchasing patterns in the future (particularly 
in light of the recent change in year end by Fuji Xerox to December 31, from 
a fiscal year end of October 20).  Consequently, this seasonality is 
expected to change in 1998 and affect the Company's quarterly operating 
results.  For example, sales in the March quarter were lower than in the 
December quarter. In addition, any increases in inventories held by the 
Company's customers could also result in variations in the timing of 
purchases by such customers. For example, in May 1996, as the Company 
transitioned from its Power Series line of products to its PCI Series line of 
products, Xerox informed Splash that it held in its inventory a substantial 
quantity of Power Series products accumulated since January 1996. As a result 
of the Company's product transition and Xerox's accumulation of inventory of 
these products, sales of Power Series products shipped to Xerox between 
January 1996 and April 1996 were generally recorded as net revenue when Xerox 
sold these products to end users. All other product sales are recorded as net 
revenue upon shipment to the OEM customer. There can be no assurance that the 
Company will receive sufficient inventory information from its OEM customers 
over time or that the Company will be able to prevent a recurrence of a 
similar problem in the future. In addition, 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 from end users 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 by changes in market 
demand, competitive market conditions and 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, 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. In the event this results in the Company's financial 
performance being below the expectations of public market analysts and 
investors, the price of the Company's common stock would be materially and 
adversely affected.


                                       9

<PAGE>

      The Company's gross margin is affected by a number of factors, 
including product mix, product pricing, and manufacturing and component 
costs. The average selling price 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 and competitors. The 
Company expects this trend to continue.  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 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. 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. 
Moreover, the Company's overall expense level has increased and is expected 
to continue to increase as the Company continues to build corporate 
infrastructure and to support expansion of operations. Accordingly, if sales 
are below expectations in any given period, 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. 
     
      EMERGING COLOR SERVER MARKET. The market for the Company's color server 
products has only recently begun to develop. Because the markets for digital 
color copiers and connected color servers are relatively new, and 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 color server market fails to grow, or grows more 
slowly than anticipated, 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 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, sales of the Company's products have been and 
will continue to be heavily influenced 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 Inc. ("Canon"), which the Company believes has 
the largest 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 materially and adversely affected. 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 
such 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 a material adverse effect on the Company's 
business, operating results and financial condition.

      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 Inc. ("EFI"). The Company is the 
principal 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 meets their respective quality standards. Either Xerox 
or Fuji Xerox may choose to promote the use of color servers manufactured by 
competitors of the Company to the detriment of sales of the Company's 
products, may choose to manufacture color servers themselves, may choose to 
manufacture only color copiers that are not compatible with Splash products, 
or may otherwise 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 Fuji Xerox. Any 


                                       10

<PAGE>

decrease in the level of sales to Xerox or Fuji Xerox would have a material 
adverse effect on the Company's business, operating results and financial 
condition.
      
      INTERNATIONAL SALES. All sales to Fuji Xerox, and a portion of the 
Company's sales to Xerox, are international sales. In addition, given Xerox's 
significant 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 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 of 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, adverse and 
other trade barriers and uncertainties relative to regional circumstances.  
These risks, and in particular risks related to the adverse economic 
circumstances in Asia, and in particular 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. 
      
      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. For example, in May 1996, as the 
Company transitioned from its Power Series line of products to its PCI Series 
line of products, Xerox informed Splash that it held in its inventory a 
substantial quantity of Power Series products accumulated since January 1996. 
Xerox indicated to Splash that, to eliminate this inventory and to permit 
Xerox to introduce the PCI Series products, Xerox substantially reduced the 
selling prices of the Power Series products beginning in June 1996. Sales by 
Xerox of the Power Series products at a discount may have resulted in reduced 
sales of the Company's PCI Series products. 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 a similar problem 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. 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 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 
September 1998, 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 APPLE COMPUTER INC. The majority of the Company's 
current products require the use of an Apple Power Macintosh computer as a 
computer platform. 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 
the Power Macintosh models with which Splash products operate or were unable 
to provide or 


                                       11

<PAGE>

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. For example, Apple phased out the 
manufacture of Power Macintosh products based on the NuBus architecture in 
the second half of calendar 1995 in favor of Power Macintosh products based 
on the PCI bus architecture. As a result, the Company had to expend 
significant resources and faced substantial risk of technological failure or 
lack of market acceptance in developing and introducing its PCI-based 
products. In addition, the Company has experienced sourcing difficulties 
related to Apple's delay in the release of new models. 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 a different 
computer platform would 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. 

      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 further decline in the market 
for Apple Power 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. 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.

      There can be no assurance that 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, or if such new products or releases do not achieve timely and 
widespread market acceptance, 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 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. The 
Company also competes indirectly with providers of color separation, color 
editing and page layout software. While such software typically is 
complementary to the Company's systems, such 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 


                                       12

<PAGE>

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. For example, in connection with the ColorAge 
acquisition, Splash recorded an expense related to purchased in-process 
research and development of $ 26.9 million. The Company's recent acquisition 
transactions were the Quintar and ColorAge acquisitions, which occurred on 
May 28, 1997 and October 30, 1997, respectively. Both acquired companies had 
technology under development. There can be no assurance that the acquired 
technology can be successfully developed on a timely basis or at all, or that 
products based on this technology will receive widespread market acceptance. 
Moreover, there can be no assurance that the Company can successfully 
integrate the 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 MSL and Logistix.  For example, MSL purchases the 
components used in Splash boards from its component suppliers and performs 
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. MSL also performs in-warranty and out-of-warranty repair 
of failed boards for the Company's products. The Company directly purchases 
Power PC computers, monitors and memory, and furnishes these components, as 
well as the MSL-assembled boards, to Logistix for final assembly. Logistix 
directly purchases a small portion of the components used in Splash color 
servers and does 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. Although the Company does 
not believe any such problem had a material adverse effect on the Company's 
business, 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 the Logistix, MSL 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 are 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. 


                                       13

<PAGE>

      DEPENDENCE ON COMPONENT AVAILABILITY AND COST. The Company purchases 
components comprising a significant 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. The Company currently sources most of its 
Power PC computers that serve as the platforms for its color servers from 
Apple. The Company is currently operating on a purchase order basis with 
Apple.

      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 Power PC computers, certain ASICs and other 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. There can be no assurance that the Company will 
not experience similar difficulties in the future. The Company also purchases 
memory modules from a single supplier. Although other sources are available, 
a change in memory supplier could require time to effect and could impact 
production. This risk would be exacerbated in times of memory supply 
shortages. 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 experienced shortages in deliveries of ASICs 
from Toshiba Corporation, which shortages have impacted production volume 
capabilities. In order to attempt to mitigate the risk of such shortages in 
the future, the Company has 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 increasing risk of inventory obsolescence, which 
could materially and adversely affect its operating results and financial 
condition.

      The market prices and availability of certain components, particularly 
memory, other semiconductor components and Power PC computers, 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. 

      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. In particular, EFI filed suit against 
Radius in November 1995, alleging infringement of an EFI patent by Splash's 
predecessor, and requesting unspecified monetary damages and injunction 
relief. The technology which is the subject of the patent claim was acquired 
by Splash from Radius. EFI could add Splash as a defendant to this suit at 
any time. Although a portion of the purchase price in the Splash acquisition 
was placed in escrow pending resolution of the EFI litigation, there can be 
no assurance that any such litigation against Splash would not have a 
material adverse effect on the Company's business, operating results and 
financial condition. The addition of Splash as a defendant in the EFI suit or 
any other 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 

                                       14

<PAGE>

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. Any need to redesign the products or enter into 
any royalty or licensing agreement 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. In addition 
certain software licensed from third parties maybe subject to governmental 
export regulations. The inability to meet such export regulatory 
requirements could result in shipment delays and would have a material 
adverse effect on the Company's business. Any such events would materially 
adversely affect the Company's operating results and financial condition.  

      NEED FOR ADDITIONAL CAPITAL. The Company believes that in order to 
remain competitive it may require additional financial resources over the 
next several years for working capital, research and development, expansion 
of sales and marketing resources, capital expenditures and potential 
acquisitions. Although the Company believes that it will be able to fund 
planned expenditures for at least the next twelve months from a combination 
of the proceeds of its public offerings, cash flow from operations, existing 
cash balances and the Company's bank line of credit, there can be no 
assurance that the Company will be able to obtain any additional financing 
which may be required in the future on acceptable terms or at all. 

      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. 
Although the Company has not experienced material adverse effects resulting 
from any errors to date, 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 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. 

      YEAR 2000 ISSUES. Many currently installed computer systems and 
software products are coded to accept only two digit entries in the date code 
field.  These date code fields will need to accept four digit entries to 
distinguish twenty-first century dates from twentieth century dates.  As a 
result, many companies' software and computer systems may need to be upgraded 
or replaced in order to comply with such "Year 2000" requirements. Although 
the Company believes that its products and systems are Year 2000 compliant, 
the Company utilizes third party equipment and software that may not be Year 
2000 compliant.  Failure of such third-party equipment or software to operate 
properly with regard to the year 2000 and thereafter could require the 
Company to incur unanticipated expenses to remedy any problems, which could 
have a material adverse effect on the Company's business, operating results 
and financial condition.  Furthermore, the purchasing patterns of customers 
or potential customers may be affected by Year 2000 issues as companies 
expend significant resources to correct their current systems for Year 2000 
compliance.  These expenditures may result in reduced funds available to 
purchase products and services such as those offered by the Company, which 
could have a material adverse effect on the Company's business, operating 
results and financial condition.


                                       15

<PAGE>

                                    PART II

ITEM 1.   LEGAL PROCEEDINGS
          NONE

ITEM 2.   CHANGES IN SECURITIES
          NONE

ITEM 3.   DEFAULT UPON SENIOR SECURITIES
          NONE

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE HOLDERS
          NONE

ITEM 5.   OTHER INFORMATION
          NONE

ITEM 6.   EXHIBITS 

<TABLE>
          <S>    <C>
          10.5B  AMENDMENT NO. 4 TO THE CONFIGURABLE POSTSCRIPT 
                 INTERPRETER OEM LICENSE AGREEMENT AND AMENDMENT NO. 4 TO 
                 APPENDIX NO. 1, AMENDMENT NO. 2 TO APPENDIX NO. 2 AND 
                 AMENDMENT NO. 2 TO APPENDIX NO. 3 BETWEEN THE COMPANY AND
                 ADOBE SYSTEMS INCORPORATED AND AMENDMENT NO. 5 TO THE 
                 CONFIGURABLE POSTSCRIPT INTERPRETER OEM LICENSE AGREEMENT 
                 BETWEEN THE COMPANY AND ADOBE SYSTEMS INCORPORATED. (1)

          10.6B  AMENDMENT TO XEROX HARDWARE PURCHASE AND SOFTWARE
                 DEVELOPMENT/LICENSE AGREEMENT BETWEEN THE COMPANY AND XEROX 
                 CORPORATION AND AMENDMENT TO ATTACHMENT III TO XEROX HARDWARE 
                 PURCHASE AND SOFTWARE DEVELOPMENT/LICENSE AGREEMENT BETWEEN THE
                 COMPANY AND XEROX CORPORATION. (1)

          27.1   FINANCIAL DATA SCHEDULE


                 (1) CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF
                     THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH 
                     THE SECURITIES AND EXCHANGES COMMISSION PURSUANT TO AN 
                     APPLICATION FOR CONFIDENTIAL TREATMENT.

</TABLE>


                                       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, 1998.


                                  SPLASH TECHNOLOGY HOLDINGS, INC


                                  By:  /s/ Joan P. Platt
                                     ----------------------------------
                                           Joan P. Platt
                                     Vice President, Finance & Administration,
                                     Chief Financial  Officer





                                       17

<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>

Exhibit Number                         Description of Document
<S>                  <C>
10.5b                Amendment No. 4 to the Configurable Postscript Interpreter
                     OEM License Agreement and Amendment No. 4 to Appendix No.
                     1, Amendment No. 2 to Appendix No. 2 and Amendment No. 2 to
                     Appendix No. 3 between the Company and Adobe Systems
                     Incorporated and Amendment No. 5 to the Configurable
                     Postscript Interpreter OEM License Agreement between the
                     Company and Adobe Systems Incorporated. (1)

10.6b                Amendment to Xerox Hardware Purchase and Software
                     Development/License Agreement between the Company and Xerox
                     Corporation and Amendment to Attachment III to Xerox
                     Hardware Purchase and Software Development/License Agreement 
                     between the Company and Xerox Corporation. (1)

27.1                 Financial Data Schedule

</TABLE>

(1) Confidential Treatment Requested. Confidential portions of this exhibit 
have been omitted and filed separately with the Securities and Exchange 
Commission pursuant to an application for confidential treatment.


                                       18