<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  DECEMBER 31, 1997

                                      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 February 8, 1998 was 13,856,161 shares.

                                       1

<PAGE>

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

<TABLE>
<CAPTION>
                                                                             September 30,  December 31,
                                                                                 1997          1997     
                                                                             -------------  ------------
                                  ASSETS                                                                
<S>                                                                                <C>           <C>    
Current Assets:                                                                                         
    Cash and cash equivalents                                                      $55,831       $43,637
    Marketable securities                                                           11,350        10,073
    Accounts receivable, net of allowance for doubtful accounts                                         
         of $173 and $369 as of September 30, 1997 and December 31,1997,                                
         respectively                                                                7,933         4,399
    Inventories                                                                      4,917         3,541
    Prepaid expenses and other current assets                                          379           527
    Deferred income taxes                                                            3,915         4,094
                                                                             -------------  ------------
                   Total current assets                                             84,325        66,271
Property and equipment, net                                                          1,287         1,385
Deferred income taxes                                                               11,198        11,198
Other assets                                                                         1,405         3,639
                                                                             -------------  ------------
                   Total assets                                                    $98,215       $82,493
                                                                             -------------  ------------
                                                                             -------------  ------------
                                                                                                        
                                  LIABILITIES                                                           
                                                                                                        
Current Liabilities:                                                                                    
    Trade accounts payable                                                         $ 5,918       $ 2,283
    Accrued and other liabilities                                                   11,900        18,711
    Deferred revenue                                                                 1,459         1,700
                                                                             -------------  ------------
                   Total current liabilities                                        19,277        22,694
Other long term liabilities                                                            400           932
                                                                             -------------  ------------
                   Total liabilities                                                19,677        23,626
                                                                             -------------  ------------
                             STOCKHOLDERS' EQUITY                                                       
                                                                                                        
Common stock, par value $.001 per share:                                                                
    Authorized: 50,000,000 shares.                                                                      
    Issued and outstanding: 13,735,730  shares and 13,855,089 shares as of                              
         September 30, 1997 and December 31, 1997, respectively                         14            14
    Additional paid-in capital                                                      82,355        85,458
Retained earnings (accumulated deficit)                                             (3,831)      (26,605)
                                                                             -------------  ------------
                   Total stockholders' equity                                       78,538        58,867
                                                                             -------------  ------------
                   Total liabilities and stockholders' equity                      $98,215       $82,493
                                                                             -------------  ------------
                                                                             -------------  ------------
</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)

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED DECEMBER 31, 
                                                                   1996               1997     
                                                               -------------      ------------ 
                                                                (unaudited)                    
<S>                                                                 <C>               <C>      
Net revenue                                                         $ 15,372          $ 22,237 
Cost of net revenue                                                    7,511            10,477 
                                                               -------------      ------------ 
         Gross profit                                                  7,861            11,760 
                                                               -------------      ------------ 
Operating expenses:                                                                            
    Research and development                                           1,140             2,638 
    Sales, general and administrative                                  1,693             3,256 
    Amortization and write-off of technology                              --            26,900 
                                                               -------------      ------------ 
         Total operating expenses                                      2,833            32,794 
                                                               -------------      ------------ 
             Income (loss) from operations                             5,028           (21,034)
                                                                                               
Other income                                                             600                -- 
Interest income                                                           83               590 
                                                               -------------      ------------ 
             Income (loss) before income taxes                         5,711           (20,444)
                                                                                               
Provision for income taxes                                             2,170             2,330 
                                                               -------------      ------------ 
              Net income (loss)                                     $  3,541          $(22,774)
                                                               -------------      ------------ 
                                                               -------------      ------------ 
Basic net income (loss) per share                                   $   0.31          $  (1.65)
                                                               -------------      ------------ 
                                                               -------------      ------------ 
Diluted net income (loss) per share                                 $   0.29          $  (1.65)
                                                               -------------      ------------ 
                                                               -------------      ------------ 
Shares used in basic income (loss) per share calculation              11,582            13,821 
                                                               -------------      ------------ 
                                                               -------------      ------------ 
Shares used in diluted income (loss) per share calculation            12,070            13,821 
                                                               -------------      ------------ 
                                                               -------------      ------------ 
</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)

<TABLE>
<CAPTION>
                                                                   Three Months Ended December 31,
                                                                       1996              1997     
                                                                   -------------     ------------ 
                                                                    (unaudited)                   
<S>                                                                     <C>           <C>         
Cash flows from operating activities:                                                             
    Net income (loss)                                                   $  3,541      $   (22,774)
    Adjustments to reconcile net income (loss) to net                                             
         cash provided by operating activities:                                                   
    Depreciation and amortization                                            110              204 
    Provision for doubtful accounts                                         (143)              -- 
    Gain on repayment of subordinated debt                                  (600)              -- 
    Purchased and in-process technology                                       --           26,900 
    Changes in assets and liabilities:                                                            
         Accounts receivable                                               4,472            3,754 
         Inventories                                                        (549)           1,826 
         Prepaid expenses and other current assets                          (217)             (83)
         Other assets                                                        391               -- 
         Trade accounts payable                                            1,307           (4,081)
         Accrued and other liabilities                                     2,090            5,889 
         Deferred revenue                                                   (950)             217 
                                                                   -------------     ------------ 
              Net cash provided by operating activities                    9,452           11,852 
                                                                   -------------     ------------ 
Cash flows from investing activities:                                                             
    Redemption of marketable securities                                       --            1,277 
    Purchase of property and equipment                                      (266)             (67)
    Acquisition of businesses (net of cash acquired)                          --          (25,197)
                                                                   -------------     ------------ 
              Net cash used in investing activities                         (266)         (23,987)
                                                                   -------------     ------------ 
Cash flows from financing activities:                                                             
    Proceeds (expenses) from public offerings                             27,114             (156)
    Redemption of Series A preferred stock                               (14,700)              -- 
    Premium paid on Series A preferred stock                                (726)              -- 
    Repayment of subordinated debt                                        (8,000)            (253)
    Issuance and repurchase of common stock                                                       
         under stock plans                                                    --              350 
                                                                   -------------     ------------ 
              Net cash provided by (used in) financing activities          3,688              (59)
                                                                   -------------     ------------ 
Net increase (decrease) in cash                                           12,874          (12,194)
                                                                                                  
Cash and cash equivalents, beginning of period                             6,179           55,831 
                                                                   -------------     ------------ 
Cash and cash equivalents, end of period                                $ 19,053      $    43,637 
                                                                   -------------     ------------ 
                                                                   -------------     ------------ 

</TABLE>

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

                                       4

<PAGE>

                        SPLASH TECHNOLOGY HOLDINGS, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 its color servers through two 
     original equipment manufacturers ("OEMs") who 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 audited 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 10Q. 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 September 30, 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 
     December 31, 1997 and the results of operations and cash flows for the 
     three months ended December 31, 1997. Such 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.

2.  BALANCE SHEET DETAIL (IN THOUSANDS):

INVENTORIES:

<TABLE>
<CAPTION>
                                                   September 30,  December 31,   
                                                      1997             1997      
                                                  -------------     ------------ 
<S>                                                 <C>               <C>        
    Raw materials                                   $  4,028          $  2,403   
    Finished goods                                       889             1,138   
                                                  -------------     ------------ 
                                                    $  4,917          $  3,541   
                                                  -------------     ------------ 
                                                  -------------     ------------ 
ACCRUED AND OTHER LIABILITIES:                                                   
    Royalties payable                               $  2,812          $  5,391   
    Accrued payables                                   2,006             3,796   
    Accrued product-related obligations                3,706             4,063   
    Accrued compensation and related expenses          1,050               682   
    Income taxes payable                               1,767             4,193   
    Other liabilities                                    559               586   
                                                  -------------     ------------ 
                                                     $11,900         $  18,711   
                                                  -------------     ------------ 
                                                  -------------     ------------ 
</TABLE>

3.   ACQUISITIONS

     COLORAGE ACQUISITION

         On October 30, 1997, the Company acquired the shares of ColorAge 
     Inc. ("ColorAge") for an aggregate purchase price of $29.4 million. The 
     purchase price was comprised of a cash payment of approximately $25.5 
     million, issuance of common stock with a fair value of approximately 
     $2.9 million in exchange for all outstanding ColorAge stock, and net 
     acquisition costs of $1.0 million. The shares of the Company's common 
     stock, which have been placed in escrow, have been included in the 
     purchase consideration at consummation because the outcome of the 
     contingency upon which release of the escrowed shares is dependent can 
     be determined in the Company's judgment, based upon the applicable facts 
     and circumstances, beyond reasonable doubt.

                                       5

<PAGE>

         The acquisition was accounted for using the purchase method of 
     accounting and the results of ColorAge were included in the Company's 
     results from the date of acquisition. The Company wrote-off 
     approximately $26.9 million of the purchase price as in-process and 
     purchased technology in the quarter ending December 31, 1997. The 
     purchase price was allocated to the tangible and intangible assets and 
     liabilities acquired based on their fair values at October 30, 1997, as 
     follows (in thousands):

<TABLE>
<S>                                                                  <C>       
    Current assets                                                   $   2,095 
    Other assets                                                           192 
    Goodwill                                                             1,355 
    Liabilities                                                         (1,947)
    In-process research and development and purchased technology        27,735 
                                                                     --------- 
                                                                     $  29,430 
                                                                     --------- 
                                                                     --------- 
</TABLE>

         Summary unaudited pro forma information for the combined results of 
     operations of ColorAge and the Company for the three months ended 
     December 31, 1996 and 1997, is presented below. The pro forma 
     information assumes the acquisition occurred at the beginning of each 
     period and presents the combined results of the companies, excluding the 
     $26.9 million of purchased technology and the nonrecurring write-off of 
     in-process research and development activities for which there were no 
     alternative future uses and technological feasibility had not been 
     established.

<TABLE>
<CAPTION>
                                                                      Three Months Ended December 31,   
                                                                       1996                    1997     
                                                                   -------------           ------------ 
                                                                   (IN THOUSANDS EXCEPT PER SHARE DATA) 
<S>                                                                    <C>                    <C>       
    Net revenue                                                        $  16,883              $  23,025 
    Operating income                                                   $   5,423              $   5,963 
    Net income                                                         $   3,803              $   4,242 
    Basic net income per share                                         $     .33              $     .31 
    Shares used in computing basic net income per share amounts           11,696                 13,859 
    Diluted net income per share                                       $     .31              $     .30 
    Shares used in computing diluted net income per share amounts         12,184                 14,265 
</TABLE>

4.  RECENT ACCOUNTING PRONOUNCEMENTS

         In 1997, the Financial Accounting Standards Board issued Statement 
     of Financial Accounting Standards ("SFAS") No. 130 "Reporting 
     Comprehensive Income", SFAS No. 131 "Disclosures about Segments of an 
     Enterprise and Related Information", and the Accounting Standards 
     Executive Committee issued Statement of Position 97-2 "Software Revenue 
     Recognition." 

         The pronouncements are effective for the Company in calendar 1998. 
     The Company is evaluating these recent pronouncements and the effects, 
     if any, on the Company's current policies.

5.  COMPUTATION OF NET INCOME (LOSS) PER SHARE

         The Company has 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. All prior 
     period earnings per share amounts have been restated to comply with SFAS 
     128. 

                                       6

<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 December 31, 
                                                       1996               1997      
                                                   -------------      ------------  
<S>                                                     <C>                <C>      
    Numerator - Basic and Diluted EPS                                               
         Net income (loss)                              $ 3,541           $(22,774) 
         Less: preferred stock dividends                     (4)                --  
                                                  -------------       ------------  
         Income available to common stockholders        $ 3,537           $(22,774) 
                                                  -------------       ------------  
                                                  -------------       ------------  
    Denominator - Basic EPS                                                         
         Weighted average shares outstanding             11,582             13,821  
                                                  -------------       ------------  
                                                  -------------       ------------  
         Basic earnings (loss) per share                $  0.31           $  (1.65) 
                                                  -------------       ------------  
                                                  -------------       ------------  
    Denominator - Diluted EPS                                                       
          Denominator - Basic EPS                        11,582             13,821  
         Effect of dilutive securities:                                             
                   Common stock options                     337                 --  
                   Convertible preferred stock              151                 --  
                                                  -------------       ------------  
                                                         12,070             13,821  
                                                  -------------       ------------  
                                                  -------------       ------------  
    Diluted earnings (loss) per share                   $  0.29           $  (1.65) 
                                                  -------------       ------------  
                                                  -------------       ------------  
</TABLE>

     As of December 31, 1997, options to purchase approximately 1.7 
     million shares of common stock were outstanding but not included in the 
     calculation of diluted EPS as they were anti-dilutive.

                                       7

<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".

RECENT DEVELOPMENTS

    On October 13, 1997, the Company's Board of Directors approved a change 
in the Company's fiscal year end from September 30 to December 31, commencing 
January 1, 1998.

    On October 30, 1997, the Company acquired ColorAge, Inc. ("Colorage") a 
privately-held company located in Billerica, Massachusetts.  The acquisition 
was accounted for under the purchase method of accounting.  Splash agreed to 
pay ColorAge stockholders an aggregate of $28.4 million in a combination of 
approximately $25.5 million cash and the fair value of $2.9 million in common 
stock.  Splash wrote off approximately $26.9 million of the purchase price as 
in-process and purchased technology in the quarter ending December 31, 1997.

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 and the impact of economic conditions in Japan 
(including the dollar/yen currency exchange rate) on the demand for Splash's 
products and its customer's purchasing pattern. 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 December 31, 
                                                         1996               1997     
                                                     -------------      ------------ 
<S>                                                           <C>               <C>  
Net revenue                                                   100%              100% 
Cost of net revenue                                            49                47  
                                                     -------------      ------------ 
    Gross profit                                               51                53  
                                                     -------------      ------------ 
Operating expenses:                                                                  
    Research and development                                    7                12  
    Sales, general and administrative                          11                15  
    Amortization and write-off of technology                   --               121  
                                                     -------------      ------------ 
         Total operating expenses                              18               148  
                                                     -------------      ------------ 
Income (loss) from operations                                  33               (95) 
                                                     -------------      ------------ 
Other income                                                    4                --  
Interest income                                                 1                 3  
                                                     -------------      ------------ 
         Income (loss) before income taxes                     38               (92) 
Provision for income taxes                                     14                10  
                                                     -------------      ------------ 
Net income (loss)                                              24%             (102)%
                                                     -------------      ------------ 
                                                     -------------      ------------ 
</TABLE>

    NET REVENUE. The Company's net revenue increased 44% to $22.2 million in 
the three months ended December 31, 1997 from $15.4 million in the three 
months ended December 31, 1996. 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. The Company sells a range of products and the revenue for any 
period will be determined by the product mix sold in that period. There can 
be no assurance that Fuji Xerox Company Ltd. ("Fuji Xerox") or Xerox 
Corporation ("Xerox"), Splashes two major customers, will not change the mix 
of their product purchases in a manner which would adversely impact net 
revenue.

                                       8

<PAGE>

    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 53% in the three months ended 
December 31, 1996 and 1997, 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, partially offset by a sales shift toward certain 
lower margin pre-configured server models. 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. 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 
136% to $2.6 million in the three months ended December 31, 1997 from $1.1 
million in the three months ended December, 31 1996. As a percentage of net 
revenue, research and development increased to 12% in the three months ended 
December 31, 1997 from 7% in the three months ended December 31, 1996. The 
increases in these expenses were primarily attributable to increased staffing 
and associated support required to enhance the Company's product line. In 
addition, the increase in research and development expenses in the three 
months ended December 31, 1997 reflects the addition of engineering resources 
through the acquisition of Quintar Holdings Corporation and ColorAge in 1997. 
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 contemplated, 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 94% to $3.3 million in the three months ended December 31, 
1997 from $1.7 million in the three months ended December 31, 1996. As a 
percentage of net revenue, sales, general and administrative expenses 
increased to 15% in the three months ended December 31, 1997 from 11% in the 
three months ended December 31, 1996. 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 the Company's 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, expand its administrative staff and incur additional 
costs relating to being a public company. Sales, general, and marketing 
expenses are expected to increase in absolute dollars in future periods, 
although they may vary as a percentage of net revenue.

    ACQUISITION-RELATED AND NON-OPERATING EXPENSES. In the three months ended 
December 31, 1997, the Company recorded certain costs related to the ColorAge 
acquisition, including a write-off of $26.9 million of purchased technology 
and in-process research and development. These in-process research and 
development projects were related to the development of ColorAge's next 
generation product line, which has no alternative future uses and have not 
reached technological feasibility.

    OTHER INCOME. The Splash acquisition in fiscal 1996 was recorded under 
the purchase method of accounting. Concurrent with the Splash acquisition, 
the Company issued subordinated promissory notes with an aggregate face value 
of $8.0 million. The valuation of the subordinated debt by an independent 
third party resulted in an assigned value of $8.6 million. In October 1996, 
the Company utilized $8.0 million of the proceeds of its initial public 
offering to repay the subordinated promissory notes payable and recorded 
$600,000 of other income to eliminate the face value of the subordinated debt 
from the consolidated balance sheet. 

    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". In 
connection with the ColorAge acquisition (a non-taxable event for the 
Company), the Company recorded $0.5 million of deferred tax liabilities 
relating to the acquisition. The Company's effective tax rate (excluding the 
purchase accounting adjustments relating to the ColorAge acquisition) was 38% 
and 36% for the three months ended December 31, 1996 and 1997, respectively .

                                       9

<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 December 31, 1997, the Company had $53.7 million of cash, cash 
equivalents and marketable securities and had no borrowings under its $5.0 
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. The line of credit expires 
on March 1, 1998.

    For the three months ended December 31, 1996, the Company generated $9.5 
million in cash from operations, primarily due to increases in accounts 
payable, accrued and other liabilities and decreases in accounts receivable, 
partially offset by a decrease in deferred revenue. The Company's operating 
activities provided $11.9 million in cash in the three months ended December 
31, 1997, primarily from a decrease in accounts receivable and inventories, 
and increase in accrued and other liabilities, offset by a decrease in 
accounts payable.

    Investing activities used $24.0 million in cash in the three months ended 
December 31, 1997. These amounts resulted primarily from $25.2 million in net 
cash used in connection with the ColorAge acquisition in October 1997. In 
addition, investing activities provided $1.3 million from the sale of 
marketable securities in the three months ended December 31, 1997.

    Financing activities provided $3.7 million in cash in the three months 
ended December 31, 1996. Financing activities included the Company's public 
offering on October 9, 1996, from which the Company received net proceeds of 
$27.1 million. From these net proceeds, the Company redeemed all of its 
Series A Preferred Stock for $15.4 million and repaid outstanding promissory 
notes payable to stockholders of $8.0 million. The remaining net proceeds 
from the Company's public offerings were used for working capital, 
acquisitions and general corporate purposes. Financing activities were not 
material for the three months ended December 31, 1997. 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, and are 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 which would affect the Company's 
quarterly operating results with sales in the March quarter expected to be 
lower than in the December quarter. In addition, any increases in inventories 
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.

                                       10

<PAGE>

    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.

    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. 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 is expected 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

                                       11

<PAGE>

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 
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 
international customer base, the Company believes that a significant 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, 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. 

    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. Moreover, Xerox had difficulty 
selling color server kits for the Power Series products, which do not include 
a computer platform, because these units require the use of an Apple Power 
Macintosh based upon the NuBus architecture no longer used in Apple Power 
Macintosh computers. Thus, a purchaser of the earlier generation color server 
kit was required to purchase or already own a NuBus based Apple Power 
Macintosh. 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 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. 

                                       12

<PAGE>

    DEPENDENCE ON APPLE COMPUTER INC.  Substantially all of the Company's 
current products require the use of an Apple Power Macintosh computer as a 
computer platform. Apple has experienced, and continues to experience, 
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 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

                                       13

<PAGE>

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 THE COLORAGE ACQUISITION; GENERAL RISKS ASSOCIATED 
WITH ACQUISITIONS. On October 30, 1997, Splash acquired ColorAge, a company 
that designs, manufactures and markets DocuPress, a line of color document 
print servers targeted principally at the emerging market for high speed 
color printing in the office.  In addition to the risks generally associated 
with an acquisition (including those specified in the following paragraph), 
there are specific risks associated with this acquisition, including those 
specified below.  ColorAge has technology  under development. There can be no 
assurance that the 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 target market for 
ColorAge, the low-end and mid-range market for color servers, is 
characterized by intense competition and rapid change. The common principal 
competitor is EFI, the Company's most significant competitor. Splash plans to 
sell DocuPress, the ColorAge product, as a complementary product to its 
product line in the Xerox sales channel.  There can be no assurance that 
Xerox will sell the DocuPress in the same manner in which it currently sells 
other Splash products, or that the Xerox sales personnel will choose to sell 
the DocuPress product at all. 

    The Company frequently evaluates potential acquisitions of complementary 
businesses, products and technologies. As part of the Company's expansion 
plans, the Company may 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. To date, other than the Splash 
acquisition, the Company's only acquisition transactions have been the 
Quintar and ColorAge acquisitions. 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. In 
this regard, the Company currently does not have, but is seeking to identify 
and recruit, a Vice President, Sales and Marketing. 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. 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 Apple Power Macintosh 
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.

                                       14

<PAGE>

    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. 

    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 Macintosh 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 Apple Power Macintosh 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 Apple Power Macintosh 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 one 
patent. 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 
in the Splash acquisition, and 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 

                                       15

<PAGE>

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. 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. Any such 
event would materially adversely affect the Company's business, 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.

                                       16

<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 AND REPORTS ON FORM 8-K AND 8-K/A

         EXHIBITS
         11.1 COMPUTATION OF EARNINGS PER SHARE
         27.1 FINANCIAL DATA SCHEDULE

         REPORTS ON FORM 8-K AND 8-K/A

         OCTOBER 28, 1997
              CHANGE IN FISCAL YEAR FROM SEPTEMBER 30 TO DECEMBER 31.
         NOVEMBER 13, 1997
              ACQUISITION OF COLORAGE INC. ON OCTOBER 30, 1997.
              RESIGNATION OF AN OFFICER
         DECEMBER 24, 1997
              HISTORICAL FINANCIALS OF COLORAGE INC.
                   REPORT OF INDEPENDENT AUDITORS
                   CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1997 AND 1996
                   CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED 
                        JUNE 30, 1997, 1996 AND 1995
                   CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE 
                        YEARS ENDED JUNE 30, 1997, 1996 AND 1995
                   CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 
                        JUNE 30, 1997, 1996 AND 1995
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
                   INTRODUCTORY PARAGRAPH TO PRO FORMA COMBINED CONDENSED 
                        STATEMENTS OF OPERATIONS
                   PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE NINE 
                        MONTHS ENDED JUNE 30, 1997
                   PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR 
                        ENDED SEPTEMBER 30, 1996
                   NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF 
                        OPERATIONS
                   PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 1997
                   NOTES TO UNAUDITED PRO FORMA BALANCE SHEET

                                       17

<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 February 17, 1998.


                                       SPLASH TECHNOLOGY HOLDINGS, INC


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

                                       18

<PAGE>

                                  EXHBIT INDEX

<TABLE>
<S>                                    <C>
Exhibit Number                         Description of Document

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. 

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.

11.1                                   Computation of Earnings Per Share

21.1                                   Subsidiaries of the Company

27.1                                   Financial Data Schedule
</TABLE>

                                       19