SPLASH TECHNOLOGY HOLDINGS INC, 424B4, 1997-08-20

SPLASH TECHNOLOGY HOLDINGS INC
424B4, 1997-08-20
COMPUTER PERIPHERAL EQUIPMENT, NEC

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FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NUMBER: 333-32243

3,250,000 Shares

[LOGO OF SPLASH APPEARS HERE]
SPLASH
Common Stock

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Of the 3,250,000 shares of Common Stock offered hereby, 1,340,500 shares are
being sold by Splash Technology Holdings, Inc. ("Splash" or the "Company") and
1,909,500 shares are being sold by certain Selling Stockholders. The Company
will not receive any of the proceeds from the sale of shares by the Selling
Stockholders. See "Principal and Selling Stockholders." The Company's Common
Stock is listed on the Nasdaq National Market under the symbol "SPLH." On
August 19, 1997, the last reported sale price of the Common Stock as reported
on the Nasdaq National Market was $32.75 per share. See "Price Range of Common
Stock."

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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2)(3) STOCKHOLDERS(3)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............. $32.50 $1.625 $30.875 $30.875
- -----------------------------------------------------------------------------------------------
Total(3)............... $105,625,000 $5,281,250 $41,387,938 $58,955,813
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for information relating to indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $400,000.
(3) The Company and certain of the Selling Stockholders have granted the
Underwriters a 30-day option to purchase up to 487,500 additional shares of
Common Stock solely to cover over-allotments, if any. To the extent that
the option is exercised, the Underwriters will offer the additional shares
at the Price to Public shown above. If the option is exercised in full, the
total Price to Public, total Underwriting Discounts and Commissions, total
Proceeds to Company and total Proceeds to Selling Stockholders will be
$121,468,750, $6,073,438, $48,913,719 and $66,481,594, respectively. See
"Underwriting."

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The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the
offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
August 25, 1997.

Alex. Brown & Sons
INCORPORATED
Montgomery Securities

Piper Jaffray Inc.

THE DATE OF THIS PROSPECTUS IS AUGUST 20, 1997.
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 with respect to the shares
of Common Stock offered hereby, of which this Prospectus forms a part. In
accordance with the rules of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the securities offered hereby, reference is
made to the Registration Statement and the exhibits and schedules filed
therewith. Statements contained in this Prospectus concerning the provisions of
such documents are necessarily summaries of such documents and each such
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission as an exhibit to the Registration
Statement. Copies of the Registration Statement and the exhibits and schedules
thereto may be inspected, without charge, at the offices of the Commission, or
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission at http://www.sec.gov.

The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports and
other information with the Commission. Reports, proxy statements and other
information filed by the Company can be inspected and copied (at prescribed
rates) at the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, as well as the New York Regional Office,
Seven World Trade Center, 13th Floor, New York, New York 10048, and the Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601.
Quotations relating to the Company's Common Stock appear on the Nasdaq National
Market and such reports, proxy statements and other information concerning the
Company can also be inspected at the offices of the Nasdaq Stock Market, Inc.,
1735 K Street, N.W., Washington, D.C. 20006.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH REGULATION M. SEE "UNDERWRITING."

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<PAGE>

NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.

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TABLE OF CONTENTS

<TABLE>
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PAGE
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<S> <C>
Additional Information.................................................... 2
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Price Range of Common Stock............................................... 18
Splash Acquisition........................................................ 18
Capitalization............................................................ 19
Selected Consolidated Financial Data...................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Unaudited Pro Forma Combined Condensed Statements of Operations........... 32
Business.................................................................. 34
Management................................................................ 49
Certain Transactions...................................................... 55
Principal and Selling Stockholders........................................ 56
Description of Capital Stock.............................................. 58
Shares Eligible for Future Sale........................................... 60
Underwriting.............................................................. 61
Legal Matters............................................................. 62
Experts................................................................... 62
Index to Consolidated Financial Statements................................ F-1
</TABLE>

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and consolidated financial statements and
notes thereto, appearing elsewhere in this Prospectus. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in such
forward-looking statements. Factors that may cause such a difference include,
but are not limited to, those discussed in "Risk Factors." Unless the context
otherwise specifies, references in this Prospectus to "Splash" and the
"Company" refer to Splash Technology Holdings, Inc. and its subsidiaries,
including its principal operating subsidiary, Splash Technology, Inc., as well
as predecessor entities.

THE COMPANY

Splash develops, produces and markets color servers that provide an
integrated link between desktop computers and digital color laser copiers and
enable such copiers to provide high quality, high speed, networked color
printing and scanning. These hybrid systems, consisting of color servers and
digital color laser copiers (referred to as connected or multifunction
copiers), support multiple uses including image scanning, image manipulation,
printing and photocopying. The Company's products feature advanced color
correction, color calibration and separations support, ease of use, time-saving
workflow functionality, simulation of many color monitors and printing presses,
and automatic correction for certain printing workflow problems.

Commercial color printing customarily involves multiple iterations of
complex, labor-intensive and costly steps, including design and composition,
color retouching and other manipulation, color separation, image setting and
proofing, and, finally, preparation of printing plates and printing on a large,
expensive commercial press. The process involves high fixed costs and
considerable time, and historically has been justified only for printing in
large volumes. The broader use of desktop color displays, desktop publishing
software, and desktop-based color scanners, as well as the increased
availability of digital color copiers and networked and desktop color printers,
has enabled a greater amount of color design and print preparation to be
performed more rapidly and at lower costs than previously possible. Although
the quality of both color copiers and desktop color displays has improved in
recent years, users hoping to take advantage of such improvements have faced
considerable difficulties due to the complexities inherent in color technology,
thus creating a need for advanced, integrated, high quality, easy-to-use, and
cost-effective color printing solutions.

Splash servers transform color copiers into effective network-based system
solutions for a variety of color printer applications from commercial and short
run printing to desktop publishing and office color printing. The Company's
products utilize open systems that can be readily integrated with corporate
networks, enabling easy access by a broad range of end users. The use of open
systems enables the Company to concentrate its development resources on value-
added solutions for end users, and provides greater flexibility by allowing use
of standard peripheral products and software. The Company believes it was the
first among its direct competitors to commercially offer a number of
significant features for multifunction copiers, including features in the areas
of color calibration, color corrections, color separations and scanning.

Splash sells its color server products to two of the leading providers of
color copiers, Xerox Corporation (including its affiliate in Europe, Rank
Xerox) ("Xerox") and Fuji Xerox Company Ltd. ("Fuji Xerox"). These original
equipment manufacturers ("OEMs") integrate the Company's color servers with
their digital color copiers and sell the connected systems to end users through
a worldwide direct distribution network. Users of the Company's color servers
include magazine publishers, advertising

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firms, graphic arts firms, publishing services providers, prepress and printing
firms, and Fortune 500 companies with in-house graphics, marketing and
advertising and publishing needs.

On May 28, 1997, Splash acquired Quintar Holdings Corporation ("Quintar"), a
company that designs, manufactures and markets embedded controllers for desktop
color printers, as well as proprietary servers for high-speed, multifunction
monochrome and color printers and copiers. Pursuant to the acquisition
agreement, Splash paid to Quintar shareholders an aggregate of approximately
$11.5 million in cash at closing, assumed Quintar's outstanding stock options
valued at $1.6 million and agreed to pay aggregate contingent earn-out payments
of up to $3.2 million, subject to achieving certain net revenue and operating
income targets. See "Risk Factors--Risks Associated with Quintar Acquisition;
General Risks Associated with Acquisitions," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Unaudited Pro
Forma Combined Condensed Statements of Operations," and "Business--Quintar
Acquisition."

Splash Technology Holdings, Inc. was incorporated in Delaware in December
1995. The Company's business operated as the Color Server Group ("CSG")
division of SuperMac Technology, Inc. ("SuperMac") from late 1992 to August
1994, and after the merger of SuperMac into Radius Inc. ("Radius") as the CSG
division of Radius from August 1994 until January 1996. In January 1996, the
Company was acquired by an investor group led by certain entities affiliated
with Summit Partners, L.P. and Sigma Partners, L.P. (the "Splash Acquisition").
The Company's executive offices are located at 555 Del Rey Avenue, Sunnyvale,
CA 94086, and its telephone number is (408) 328-6300. See "Splash Acquisition"
and "Certain Transactions."

5
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THE OFFERING

<TABLE>
<C> <S>
Common Stock offered by the Company.......... 1,340,500 shares
Common Stock offered by the Selling
Stockholders................................ 1,909,500 shares
Common Stock to be outstanding after the
offering (the "Offering")................... 13,449,061 shares(1)
Use of proceeds.............................. For working capital and general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol................ SPLH
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
BUSINESS SPLASH TECHNOLOGY HOLDINGS, INC.
--------------- ---------------------------------
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
--------------- SEPTEMBER 30, -------------------
1994 1995 1996(2) 1996(3) 1997
------- ------- ------------- ----------- -------
(PRO FORMA) (PRO FORMA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenue................ $16,354 $30,472 $ 47,721 $ 31,334 $51,227
Cost of net revenue........ 12,068 20,723 27,808 19,882 24,864
Gross profit............... 4,286 9,749 19,913 11,452 26,363
Operating expenses:
Research and development.. 1,999 3,295 4,125 3,122 3,972
Sales and marketing....... 562 2,076 2,444 1,494 4,126
General and
administrative........... 377 891 1,563 955 1,945
Amortization and write-off
of technology............ -- -- 22,803 22,729 11,039
Income (loss) from
operations................ 1,348 3,487 (11,022) (16,848) 5,281
Other income............... -- -- -- -- (600)
Interest (income) expense,
net....................... -- -- 593 406 (379)
Income (loss) before
provision for income
taxes..................... 1,348 3,487 (11,615) (17,254) 6,260
Provision for (benefit
from) income taxes........ 99 1,395 (4,673) (6,929) 6,447
Net income (loss).......... $ 1,249 $ 2,092 $ (6,942) $(10,325) $ (187)
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
ACTUAL AS ADJUSTED(4)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................................... $10,010 $50,998
Total assets............................................. 40,051 81,039
Total liabilities........................................ 16,099 16,099
Total stockholders' equity............................... 23,952 64,940
</TABLE>
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(1) Based on the number of shares outstanding as of June 30, 1997. Excludes an
aggregate of approximately 802,000 shares of Common Stock issuable on the
exercise of options outstanding as of June 30, 1997 at a weighted average
exercise price of $15.17 per share; approximately 21,000 shares of Common
Stock issuable on the exercise of options granted after June 30, 1997;
approximately 1,749,000 shares of Common Stock reserved for future grants
under the Company's 1996 Stock Option Plan as of the date of this
Prospectus; and approximately 125,000 shares of Common Stock reserved for
issuance under the Company's 1996 Employee Stock Purchase Plan. See "Use of
Proceeds," "Management--Compensation Plans" and Note 8 of Notes to
Consolidated Financial Statements.
(2) Represents the results of operations of CSG for the four months ended
January 31, 1996 plus the results of operations of the Company for the
eight months ended September 30, 1996. There were no material pro forma
adjustments.
(3) Represents the results of operations of CSG for the four months ended
January 31, 1996 plus the results of operations of the Company for the five
months ended June 30, 1996. There were no material pro forma adjustments.
(4) Adjusted to reflect the sale of 1,340,500 shares of Common Stock offered by
the Company hereby at a public offering price of $32.50 per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses. See "Capitalization."
----------------

This Prospectus includes trademarks and trade names of the Company and other
corporations.

----------------

Except as otherwise indicated, all information in this Prospectus (i) assumes
no exercise of the Underwriters' over-allotment option and (ii) gives effect to
the 3.5-for-1 split of the Common Stock that occurred in connection with the
Company's initial public offering in October 1996. See "Underwriting."

6
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RISK FACTORS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, including without limitation
statements regarding the Company's expectations, beliefs, intentions or
strategies regarding the future. 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 the following risk factors and elsewhere
in this Prospectus. In evaluating the Company's business, prospective
investors should consider carefully the following factors in addition to the
other information set forth in this Prospectus.

Short Period of Independent Operations; No Assurance of Future
Profitability. Prior to the Splash Acquisition in January 1996, the business
of the Company had been operated as a division of Radius and, prior to the
merger of SuperMac into Radius, as a division of SuperMac. Moreover, Splash
was dependent on Radius through May 1996 for certain financial and
administrative services and related support functions. Accordingly, the
Company has had limited experience operating as an independent entity.
Moreover, the Company only began implementing independent accounting systems,
financial, operational and management controls, and reporting systems and
procedures in February 1996. The Company believes that further improvements in
financial, management and operational controls will continue to be needed to
manage any expansion of the Company's operations. The failure to implement
such improvements could have a material adverse effect upon the Company's
business, operating results and financial condition.

Although the Company's net revenue has increased each year since fiscal
1994, the Company's limited history of operations as an independent entity
makes reliable predictions of future operating results difficult or
impossible. In particular, the Company's recent revenue growth should not be
considered indicative of future results. There can be no assurance that any of
the Company's business strategies will be successful or that the Company will
be able to sustain growth on a quarterly or annual basis. Although the Company
was profitable for the first eight months of independent operations through
September 30, 1996 and for the first nine months of fiscal 1997, before
purchase accounting adjustments, there can be no assurance that the Company
will continue to be profitable on an annual or quarterly basis in the future.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

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 second
half of the Company's fiscal year. As a result, the Company's sales have
historically been lower, and are expected to continue to be lower, in the
first quarter of the Company's fiscal year than in the immediately preceding
fourth quarter. However, in the event that these customers change their
purchasing patterns in the future, this seasonality may change which could
affect the Company's quarterly operating results. 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
Professional Color Imaging ("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

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products to end users. All other product sales are recorded as net revenue
upon shipment to the OEM customer. There can be no assurance that the Company
will receive sufficient inventory information from its OEM customers over time
or that the Company will be able to prevent a recurrence of a similar problem
in the future. In addition, announcements by the Company or its competitors of
new products and technologies could cause customers to defer purchases of the
Company's existing products. In the event that anticipated orders from end
users fail to materialize, or delivery schedules are deferred or canceled as a
result of the above factors or other unanticipated factors, it would
materially and adversely affect the Company's business, operating results and
financial condition.

Results in any period could also be affected by changes in market demand,
competitive market conditions, 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 this regard, the Company lowered pricing for new versions of its
products which were introduced in June 1997. See "Business--Products and
Technology--New Version Offerings." 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

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

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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. See "Business--Industry Background," "--Markets and Customers"
and "--Competition."

Dependence on Xerox and Fuji Xerox. The Company's products operate only with
certain color laser copiers offered by Xerox and Fuji Xerox, and the Company
currently sells its products solely to Xerox and Fuji Xerox, which resell the
Company's products on an OEM basis to their color copier end users. Sales to
Xerox in fiscal 1994, 1995 and 1996 accounted for approximately 40%, 41% and
43%, respectively, of the Company's net revenue, and sales to Fuji Xerox in
such periods accounted for approximately 60%, 59% and 57%, respectively, of net
revenue. 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 and
cannot begin shipping any version to Xerox or Fuji Xerox until such version
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.

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

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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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

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 1997, 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. See "Business--Competition" and "--Intellectual
Property."

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

10
<PAGE>

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. See "Business--Manufacturing."

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. See "Business--Products and Technology."

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. See "Business--Products and
Technology" and "--Research and Development."

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

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<PAGE>

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

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

Many of the Company's current and potential direct and indirect competitors
have longer operating histories, are substantially larger, and have
substantially greater financial, technical, manufacturing, marketing and other
resources than Splash. A number of these current and potential competitors also
have substantially greater name recognition and a significantly larger
installed base of products than the Company, which could provide leverage to
such companies in their 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. See
"Management Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Competition."

Risks Associated with Quintar Acquisition; General Risks Associated with
Acquisitions. On May 28, 1997, the Company acquired Quintar. In addition to the
risks generally associated with an acquisition (including those specified in
the following paragraph), there are specific risks associated with the Quintar
acquisition, including those specified below. First, Quintar's technology is
currently under development. There can be no assurance that Quintar's
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
Quintar's technology. Second, Quintar has experienced net losses in the past,
including the last three years. There can be no assurance that Quintar will not
continue to incur net losses, which the Company would be required to fund.
Third, Quintar's target market, the low-end and mid-range market for color
servers, is characterized by intense competition and rapid change. Quintar's
principal competitor is EFI, the Company's most significant competitor. Fourth,
the Company is currently planning to distribute Quintar's low-end color
servers, if successfully developed, through the reseller channel. Neither
Quintar nor the Company has previously sold into the reseller channel or has a
sales and marketing force capable of servicing this channel. There can be no
assurance that the Company will be able to successfully sell products into this
distribution channel or that it will be able to develop the sales and marketing
force required to service this channel. See "Unaudited Pro Forma Combined
Condensed Statements of Operations" and "Business--Quintar Acquisition."

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

12
<PAGE>

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 Quintar acquisition, Splash recorded an expense related to
purchased in-process research and development of approximately $11.0 million.
To date, other than the Splash Acquisition, the Company's only acquisition
transaction has been the Quintar acquisition. 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 outsources the
manufacture of its products to third party subcontract manufacturers including
Manufacturing Services, Ltd. ("MSL"), located in Sunnyvale, California and
Logistix Incorporated ("Logistix") located in Fremont, California. 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.

13
<PAGE>

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. See
"Business--Manufacturing."

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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Manufacturing."

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 does not own any issued patent. There can
be no assurance that any 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

14
<PAGE>

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, CSG, 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 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. See "Splash Acquisition," "Business--Intellectual Property" and
"Certain Transactions."

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 the
Offering, 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

15
<PAGE>

acceptable terms or at all. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

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. See "Business--Products and Technology."

International Sales. All sales to Fuji Xerox are international sales. As a
result, international sales accounted for approximately 60%, 59%, and 57% of
net revenue in fiscal 1994, 1995 and 1996, respectively. In addition, although
substantially all sales to Xerox are accounted for as U.S. sales, Xerox has a
significant international customer base, and the Company believes that a
significant portion of Splash products purchased by Xerox are resold outside
the United States. The Company expects that direct and indirect international
sales will continue to represent a substantial portion of its net revenue for
the foreseeable future. While the Company's international sales are generally
denominated in U.S. dollars, fluctuations in currency exchange rates could
cause the Company's products to become relatively more expensive to end users
in a particular country, leading to pressure to reduce the U.S. dollar
denominated price to the Company's OEM customers, which could in turn result
in a reduction in net revenue and profitability. In addition, to the extent
that an increased portion the Company's sales are denominated in foreign
currencies, the Company could be exposed to currency exchange risks. The
Company's business, operating results and financial condition would be
materially adversely affected if foreign markets do not continue to develop.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Business--Sales and Marketing."

Financial Difficulties of a Certain Stockholder; Potential Sales of Common
Stock. Radius, which will beneficially own approximately 6.5% (or 5.6% if the
Underwriters' over-allotment option is exercised in full) of the outstanding
shares of the Common Stock immediately following the Offering, has faced, and
continues to face, significant financial difficulties. Radius has certain
rights to demand that the Company register Radius' shares of Common Stock
under the Securities Act of 1933, as amended (the "Securities Act"), which
registration would permit the sale by Radius of the shares registered in the
public market. In addition, under certain circumstances, IBM Credit
Corporation may require Radius to use its best efforts to dispose of its
Splash Common Stock. See "Shares Eligible for Future Sale." If Radius were to
voluntarily or involuntarily enter bankruptcy, Radius might have the ability
to sell a substantial portion of its holdings of Common Stock in the public
market without regard to requirements for registration of such shares under
the Securities Act or the requirements of Rule 144 promulgated under the
Securities Act and may have the ability to avoid its obligations under the
lock-up agreement with respect to Common Stock held by it. Sales of
substantial amounts of the shares of Common Stock held by Radius in the public
market or the prospect of such a sale could adversely affect the market price
of the Company's Common Stock. See "Principal and Selling Stockholders."

Dependence on Key Personnel. Because of the nature of the Company's
business, the Company is highly dependent on the continued service of, and on
its ability to attract and retain, qualified technical, marketing, sales and
managerial personnel, including senior members of management. The competition
for such personnel is intense, and the loss of any of such persons, as well as
the failure to recruit additional key technical and sales personnel in a
timely manner, would have a material adverse effect

16
<PAGE>

on the Company's business and operating results. There can be no assurance
that the Company will be able to continue to attract and retain the qualified
personnel necessary for the development of its business. The Company currently
does not have employment contracts with any of its employees, other than one
employee of Quintar, and does not maintain key person life insurance policies
on any of its employees. See "Business--Employees" and "Management."

Control by Principal Stockholders, Officers and Directors; Antitakeover
Effects of Certificate of Incorporation and Delaware Law. Immediately
following the Offering, the Company's principal stockholders, officers,
directors and their affiliates will beneficially own approximately 48.8% (or
47.1% if the Underwriters' over-allotment option is exercised in full) of the
outstanding shares of the Common Stock. As a result, such persons, acting
together, would have the ability to control all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. In addition, the Board of Directors has the authority
to issue up to 5,000,000 shares of undesignated Preferred Stock, to determine
the powers, preferences and rights and the qualifications, limitations or
restrictions granted to or imposed upon any unissued series of undesignated
Preferred Stock, and to fix the number of shares constituting any series and
the designation of such series, without any further vote or action by the
Company's stockholders. The Preferred Stock could be issued with voting,
liquidation, dividend and other rights superior to the rights of the Common
Stock. The concentration of ownership and the issuance of Preferred Stock
under certain circumstances could have the effect of delaying or preventing a
change in control of the Company. The Company's Certificate of Incorporation
also provides for a classified board of directors such that only approximately
one-third of the board is selected at each annual meeting of stockholders. A
classified board may have the effect of deferring or discouraging a change in
control of the Company. The Company's Certificate of Incorporation also
eliminates cumulative voting in the election of directors. See "Principal and
Selling Stockholders" and "Description of Capital Stock."

Benefit of Transaction to Existing Stockholders. The Offering will result in
the receipt of a significant amount of proceeds by the Company's existing
stockholders. Two million shares of Common Stock are being sold by certain
Selling Stockholders, including Radius and certain entities affiliated with
Summit Partners, L.P. The Company will not receive any of the proceeds from
the sale of such shares.

Stock Price Volatility. The trading price of the Common Stock has been
subject to significant fluctuation to date, and could be subject to wide
fluctuations in the future in response to quarterly variations in operating
results, announcements of new products by the Company or its competitors,
general conditions in the markets for the Company's products or the color
server industry, changes in earnings estimates by analysts, general economic
or stock market conditions or other events or factors. In addition, the public
stock markets have experienced extreme price and trading volume volatility in
recent months. This volatility has significantly affected the market prices of
securities of many companies, in particular technology companies, for reasons
frequently unrelated to operating performance. The broad market fluctuations
may adversely affect the market price of the Company's Common Stock.

Shares Eligible for Future Sale. Sales of substantial numbers of shares of
Common Stock into the public market after this Offering could adversely affect
the prevailing market price of the Common Stock. In addition to the 3,250,000
shares of Common Stock offered hereby, an aggregate of approximately 4,300,000
shares of Common Stock currently outstanding, issuable on exercise of
outstanding options or issuable pursuant to the Company's 1996 Employee Stock
Purchase Plan will be eligible for sale on or prior to the date of this
Prospectus and approximately 6,800,000 additional shares of Common Stock
currently outstanding, issuable on exercise of outstanding options or issuable
pursuant to the Company's 1996 Employee Stock Purchase Plan will become
eligible for sale 90 days after the date of this Prospectus upon expiration of
certain lock-up agreements with the Company or the Underwriters, subject in
certain cases to certain volume and other resale restrictions under Rule 144.
See "Shares Eligible for Future Sale" and "--Financial Difficulties of a
Certain Stockholder; Potential Sales of Common Stock."

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<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,340,500 shares of
Common Stock offered by the Company hereby, after deducting underwriting
discounts and commissions and estimated offering expenses, will be
$41.0 million ($48.5 million if the Underwriters' over-allotment option is
exercised in full) (based upon a public offering price of $32.50 per share).
The Company expects that such net proceeds will be used for working capital and
general corporate purposes. A portion of the net proceeds may also be used for
investments in or acquisitions of complementary businesses, products or
technologies. The Company frequently evaluates potential acquisitions of
complementary businesses, products and technologies. However, the Company does
not have any agreements or understandings, and there are currently no active
negotiations, with respect to such transactions. Pending such uses, the Company
expects to invest the net proceeds in short-term, interest-bearing securities.
See "Risk Factors--Risks Associated with Quintar Acquisition; General Risks
Associated with Acquisitions."

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain any earnings for use in its business
and does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. In addition, the Company's borrowing arrangements,
including the Company's line of credit prohibit the payment of cash dividends
without the lender's prior written consent.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is listed on the Nasdaq National Market under the
symbol "SPLH." The following table lists the high and low closing prices since
the Company's Common Stock began trading on the Nasdaq National Market on
October 9, 1996:

<TABLE>
<CAPTION>
FISCAL 1997: HIGH LOW
------------ ------- -------
<S> <C> <C>
Period beginning October 9, 1996 and ending December 31,
1996....................................................... $26 1/2 $10 3/8
Period beginning January 1, 1997 and ending March 31, 1997.. $39 $21
Period beginning April 1, 1997 and ending June 30, 1997..... $36 1/8 $21
Period beginning July 1, 1997 and ending August 19, 1997.... $43 7/8 $31 7/8
</TABLE>

On August 19, 1997, the closing price of the Company's Common Stock as
reported by the Nasdaq National Market was $32.75 per share. As of June 30,
1997, the Company's Common Stock was held by approximately 61 stockholders of
record (including nominees and brokers holding street accounts).

SPLASH ACQUISITION

18
<PAGE>

CAPITALIZATION

The following table sets forth as of June 30, 1997 (i) the actual
capitalization of the Company, and (ii) the capitalization of the Company as
adjusted to give effect to the sale by the Company of 1,340,500 shares of
Common Stock offered by the Company hereby at a public offering price of $32.50
per share (after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company):

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity
Preferred Stock: Authorized: 5,000,000 shares............... $ -- $ --
Common Stock, par value $0.001 per share: Authorized:
50,000,000 shares; issued and outstanding: 12,108,561
shares actual and 13,449,061 shares as adjusted(1)......... 13 14
Additional paid-in capital.................................. 33,048 74,035
Accumulated deficit......................................... (9,109) (9,109)
------- -------
Total stockholders' equity................................. 23,952 64,940
------- -------
Total capitalization..................................... $23,952 $64,940
======= =======
</TABLE>
- --------
(1) Excludes an aggregate of approximately 802,000 shares of Common Stock
issuable on the exercise of options outstanding as of June 30, 1997;
approximately 21,000 shares of Common Stock issuable on the exercise of
options granted after June 30, 1997; approximately 1,749,000 shares of
Common Stock reserved for future grants under the Company's 1996 Stock
Option Plan as of the date of this Prospectus; and approximately 125,000
shares of Common Stock reserved for issuance under the Company's 1996
Employee Stock Purchase Plan. See "Use of Proceeds," "Management--
Compensation Plans" and Note 8 of Notes to Consolidated Financial
Statements.

19
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated statement of operations data presented below for
the years ended September 30, 1994 and 1995, the four months ended January 31,
1996, the five months ended June 30, 1996, the eight months ended September 30,
1996, and the selected consolidated balance sheet data as of September 30, 1995
and 1996 are derived from, and are qualified by reference to, the audited
consolidated financial statements and notes thereto included elsewhere in this
Prospectus. The selected consolidated statement of operations data for the nine
months ended June 30, 1997 and the selected consolidated balance sheet data as
of June 30, 1997 are derived from unaudited consolidated financial statements
included elsewhere in this Prospectus and have been prepared on the same basis
as the annual consolidated financial statements and, in the opinion of
management, contain all adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation of the operating results and
financial position for such periods and as of such dates. The consolidated
operating results for the nine months ended June 30, 1997 are not necessarily
indicative of the results to be expected for the full year or any other future
period.

The financial statements for the periods prior to January 31, 1996 reflect
the operations of the CSG division of Radius and SuperMac, adjusted to reflect
operations as a separate corporation. The financial statements after January
31, 1996 reflect the consolidated operations of the Company after accounting
for the Splash Acquisition using the purchase method of accounting. Operating
results subsequent to January 31, 1996 reflect (i) interest on the debt
incurred in connection with the Splash Acquisition, (ii) non-recurring, non-
cash charges relating to the write-off of in-process research and development
projects and the amortization of purchased technology, and (iii) an income tax
benefit from the net operating loss associated with the Splash Acquisition.

The data set forth on the following page are qualified in their entirety by,
and should be read in conjunction with, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the consolidated
financial statements, notes thereto and other financial and statistical
information appearing elsewhere in this Prospectus.

20
<PAGE>

<TABLE>
<CAPTION>
SPLASH SPLASH
TECHNOLOGY PREDECESSOR TECHNOLOGY
PREDECESSOR BUSINESS HOLDINGS, INC. BUSINESS HOLDINGS, INC.
--------------------------- -------------- ----------- -----------------------
YEAR ENDED FOUR MONTHS EIGHT MONTHS FOUR MONTHS FIVE MONTHS NINE MONTHS
SEPTEMBER 30, ENDED ENDED ENDED ENDED ENDED
--------------- JANUARY 31, SEPTEMBER 30, JANUARY 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1996 1996 1997
------- ------- ----------- -------------- ----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenue............. $16,354 $30,472 $13,008 $ 34,713 $13,008 $ 18,326 $51,227
Cost of net revenue..... 12,068 20,723 8,427 19,381 8,427 11,455 24,864
------- ------- ------- -------- ------- -------- -------
Gross profit............ 4,286 9,749 4,581 15,332 4,581 6,871 26,363
------- ------- ------- -------- ------- -------- -------
Operating expenses:
Research and
development.......... 1,999 3,295 1,498 2,627 1,498 1,624 3,972
Sales and marketing... 562 2,076 688 1,756 688 806 4,126
General and
administrative....... 377 891 287 1,276 287 668 1,945
Amortization and
write-off of
technology........... -- -- -- 22,803 -- 22,729 11,039
------- ------- ------- -------- ------- -------- -------
Total operating
expenses........... 2,938 6,262 2,473 28,462 2,473 25,827 21,082
------- ------- ------- -------- ------- -------- -------
Income (loss) from
operations............. 1,348 3,487 2,108 (13,130) 2,108 (18,956) 5,281
Other income............ -- -- -- -- -- -- (600)
Interest (income)
expense, net........... -- -- 18 575 18 388 (379)
------- ------- ------- -------- ------- -------- -------
Income (loss) before
provision for income
taxes.................. 1,348 3,487 2,090 (13,705) 2,090 (19,344) 6,260
Provision for (benefit
from) income taxes..... 99 1,395 836 (5,509) 836 (7,765) 6,447
------- ------- ------- -------- ------- -------- -------
Net income (loss)....... $ 1,249 $ 2,092 $ 1,254 $ (8,196) $ 1,254 $(11,579) $ (187)
======= ======= ======= ======== ======= ======== =======
Net income (loss) per
share(1)............... $ (0.93) $ (1.25) $ (0.02)
======== ======== =======
Shares used in computing
per share amounts(1)... 9,583 9,580 11,903
======== ======== =======
</TABLE>

<TABLE>
<CAPTION>
SPLASH
PREDECESSOR TECHNOLOGY
BUSINESS HOLDINGS, INC.
------------- -------------------------
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1995 1996 1997
------------- ------------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................... $2,318 $ 8,771 $10,010
Total assets....................... 9,688 31,232 40,051
Long term debt..................... -- 8,600 --
Total liabilities.................. 6,985 20,322 16,099
Total stockholders' equity......... 2,703 10,910 23,952
</TABLE>
- --------
(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute per
share amounts.

21
<PAGE>

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 Prospectus 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 "Risk Factors" and
elsewhere in this Prospectus.

OVERVIEW

The Company operated as the CSG division of SuperMac from late 1992 to
August 1994 and, after the merger of SuperMac into Radius, as the CSG division
of Radius from August 1994 until January 1996. In January 1996, Splash was
acquired by an investor group in a leveraged transaction. See "Splash
Acquisition" and "Certain Transactions." References below to the results of
operations for the fiscal year ended September 30, 1996 refer to the results
of operations of CSG for the four months ended January 31, 1996 plus the
results of operations of the Company for the eight months ended September 30,
1996, and the results of operations for the nine months ended June 30, 1996
refer to the results of operations of CSG for the four months ended January
31, 1996 plus the results of operations of the Company for the five months
ended June 30, 1996.

The Company sells pre-configured color server systems and board-level server
kits to two OEM customers, Xerox and Fuji Xerox, which integrate the Company's
color servers with their color copiers and sell such connected systems on a
worldwide basis. Sales to Xerox accounted for approximately 40%, 41% and 43%
of net revenue in 1994, 1995 and 1996, respectively. Sales to Fuji Xerox
accounted for approximately 60%, 59% and 57% of net revenue in fiscal 1994,
1995 and 1996, respectively. The Company expects that sales to Xerox and Fuji
Xerox will continue to account for all or a substantial portion of its net
revenue for the foreseeable future. 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. See "Risk Factors--Dependence on Xerox and Fuji Xerox."

Substantially all net revenue has been derived from the sale of systems and
color server kits. The Company's policy is to recognize revenue at the time of
shipment of its products to its OEM customers, which have no right to return
products. From inception to September 30, 1993, the Company was engaged
principally in research and development, and recorded approximately $1.3
million of net revenue from product shipments and $1.6 million of research and
development costs. The Company began shipping board-level color server kits in
fiscal 1993 and pre-configured color server systems in fiscal 1995. In May
1996, the Company made the transition from its Power Series products to its
new PCI Series products, and continues to offer Power Series products only as
server kits in limited quantities and as warranty and replacement parts. In
May 1996, 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 and April 1996 were generally recorded as net revenue when Xerox sold
these products to end users. In addition, the Company evaluated the carrying
value of the Power Series product inventory and the related deferred revenue
on a quarterly basis and, as of June 30, 1997, net revenue relating to the
Power Series products was fully recognized. All other product sales are
recorded upon shipment to the OEM customer.

On May 28, 1997, the Company acquired Quintar, which designs, manufactures
and markets embedded controllers for desktop color printers, as well as
proprietary servers for high-speed,

22
<PAGE>

multifunction monochrome and color printers and copiers. For fiscal year 1997,
Splash does not expect Quintar to have a material impact on net revenue or net
income (excluding the related write-off of in-process research and
development). Pursuant to the acquisition agreement, Splash paid to Quintar
shareholders an aggregate of approximately $11.5 million in cash at closing,
assumed Quintar's outstanding stock options valued at $1.6 million and agreed
to pay aggregate contingent earn-out payments of up to $3.2 million, subject to
achieving certain net revenue and operating income targets. Splash wrote off
$11.0 million of the purchase price as in-process research and development in
the third quarter of fiscal 1997 in connection with the Quintar acquisition.
The pro forma effect of the Quintar acquisition, as if the acquisition had
occurred at the beginning of fiscal 1996, is described under "Unaudited Pro
Forma Combined Condensed Statements of Operations." See "Business--Quintar
Acquisition."

The Company has achieved significant growth in net revenue and operating
income each year since fiscal 1994, before purchase accounting adjustments.
However, there can be no assurance that the Company will continue to grow at
similar rates in the future, if at all. 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. Although the Company was
profitable for the eight months of independent operations through September 30,
1996 and the first nine months of fiscal 1997, before purchase accounting
adjustments, there can be no assurance that the Company will continue to be
profitable on an annual or quarterly basis in the future.

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.

23
<PAGE>

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
PREDECESSOR SPLASH TECHNOLOGY
BUSINESS HOLDINGS, INC.
--------------- ------------------------------
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
--------------- SEPTEMBER 30, ----------------
1994 1995 1996 1996 1997
------ ------ ------------- ----------- ----
(PRO FORMA) (PRO FORMA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue................. 100% 100% 100% 100% 100%
Cost of net revenue......... 74 68 58 63 49
------ ------ --- --- ---
Gross margin................ 26 32 42 37 51
------ ------ --- --- ---
Operating expenses:
Research and development.. 12 11 9 10 8
Sales and marketing....... 3 7 5 5 8
General and
administrative........... 3 3 3 3 4
Amortization and write-off
of technology............ -- -- 48 73 21
------ ------ --- --- ---
Total operating expenses.... 18 21 65 91 41
------ ------ --- --- ---
Income (loss) from
operations................. 8 11 (23) (54) 10
Other income................ -- -- -- -- (1)
Interest (income) expense,
net........................ -- -- 1 1 (1)
------ ------ --- --- ---
Income (loss) before
provision for income taxes. 8 11 (24) (55) 12
Provision for (benefit from)
income taxes............... -- 4 (10) (22) 12
------ ------ --- --- ---
Net income (loss)........... 8% 7% (14)% (33)% 0%
====== ====== === === ===
</TABLE>

Net Revenue. The Company's net revenue increased 86% to $30.5 million in
fiscal 1995 from $16.4 million in fiscal 1994, and increased 56% to $47.7
million in fiscal 1996 from fiscal 1995. The Company's net revenue increased
64% to $51.2 million in the nine months ended June 30, 1997 from $31.3 million
in the nine months ended June 30, 1996. These increases were primarily
attributable to higher unit sales of systems and color server kits due to
increasing market acceptance of the Company's PCI Series products and sales of
the new DC Series products (first introduced in September 1996). In addition,
the Company has experienced a shift toward higher priced, pre-configured color
server systems from lower priced color server kits, particularly in the third
quarter of fiscal 1995 with the introduction of the Company's Power Series
product line and in the third quarter of fiscal 1996 with the introduction of
the Company's PCI Series product line. For example, since the Company's
introduction of the PCI Series product line, Fuji Xerox has shifted its
product purchases from substantially all kits to substantially all pre-
configured systems. There can be no assurance that Fuji Xerox or Xerox will
not change its mix of product purchases again in the future. Any sales mix
shift toward kits would result in lower average selling prices and adversely
impact net revenue. Net revenue has also been and may continue to be impacted
by the Company's sales mix of systems and kits in greater or lesser memory
configurations.

Through April 1996, the Company derived substantially all of its revenue
from color server products designed for NuBus-based Apple Macintosh computers,
including the Power Series product line originally introduced in fiscal 1995
and the Company's original Splash color server kit products introduced in
fiscal 1993. Beginning in mid-calendar 1995, Apple began to transition from a
NuBus architecture in its high end Power Macintosh products to a PCI bus
architecture. Accordingly, Splash developed its initial PCI bus-based product
line, the PCI Series, and commenced shipment of such product line in May 1996.
The sales of Power Series products have not represented a material portion

24
<PAGE>

of net revenue since May 1996 (other than net revenue recognized from the sale
to end users of the remaining Power Series products held by Xerox). See "--
Overview" and "Risk Factors -- Dependence on Xerox and Fuji Xerox."

All sales to Fuji Xerox are international sales. As a result, international
sales accounted for 60%, 59% and 57% of net revenue in fiscal 1994, 1995 and
1996, respectively. In addition, although substantially all sales to Xerox are
accounted for as U.S. sales, Xerox has a significant international customer
base and the Company believes that a significant portion of Splash products
purchased by Xerox are resold outside the United States. The Company expects
that direct and indirect international sales will continue to represent a
substantial portion of its net revenue for the foreseeable future. While the
Company's international sales are generally denominated in U.S. dollars,
fluctuations in currency exchange rates could cause the Company's products to
become relatively more expensive to end users in a particular country, leading
to pressure to reduce the U.S. dollar denominated price to the Company's OEM
customers, which could in turn result in a reduction in net revenue and
profitability. See "Risk Factors --International Sales."

Gross Margin. Cost of net revenue consists primarily of the costs of Apple
Power Macintosh computers (in the case of pre-configured systems), memory, and
royalties for Adobe PostScript software, plus, to a lesser extent, the cost of
other components, additional third party software license fees and royalties,
and manufacturing services. Gross margins were 26%, 32% and 42% in fiscal
1994, 1995 and 1996, respectively. Gross margins increased to 51% in the nine
months ended June 30, 1997 from 37% in the nine months ended June 30, 1996.
The increases in gross margin were 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. In this regard, the Company lowered
pricing for new versions of its products which were introduced in June 1997.
See "Business--Products and Technology--New Version Offerings." 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 consist
primarily of compensation and related costs, consulting fees and depreciation
of equipment. Research and development expenses increased 65% to $3.3 million
in fiscal 1995 from $2.0 million in fiscal 1994, and increased 24% to $4.1
million fiscal 1996 from fiscal 1995. Research and development increased 29%
to $4.0 million for the nine months ended June 30, 1997 from $3.1 million in
the nine months ended June 30, 1996. As a percentage of net revenue, however,
research and development decreased to 11% in fiscal 1995 from 12% in fiscal
1994, and 9% of net revenue in fiscal 1996 from 11% in fiscal 1995 and
decreased from 10% in the nine months ended June 30, 1996 to 8% in the nine
months ended June 30, 1997. The increases in the absolute dollar amount of
these expenses in fiscal 1995 and 1996 and for the nine months ended June 30,
1997 were primarily attributable to increased staffing and associated support
required to enhance the Company's product line and to introduce the Company's
Power Series, PCI Series and DC Series product lines, respectively. In
addition, the increase in research and development expenses in the third
quarter of fiscal 1997 reflects the addition of Quintar's engineering
resources. Except for charges related to the Splash Acquisition, all research
and development costs to date have been expensed as incurred. In view of
current projects under development and contemplated, research

25
<PAGE>

and development expenses are expected to increase in absolute dollars and as a
percentage of net revenue in future periods. See "Business--Research and
Development," "Unaudited Pro Forma Combined Condensed Statements of
Operations" and "Business--Quintar Acquisition."

Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and related costs, consulting fees, trade show costs and marketing
materials. Sales and marketing expenses increased 269% to $2.1 million in
fiscal 1995 from $562,000 in fiscal 1994 and increased 14% to $2.4 million in
fiscal 1996 from fiscal 1995. Such expenses represented 7%, 3% and 5% of net
revenue for such respective periods. Sales and marketing expenses increased
173% to $4.1 million in the nine months ended June 30, 1997 from $1.5 million
in the nine months ended June 30, 1996, representing 8% and 5% of net revenue
for such respective periods. The increases in the absolute dollar amount of
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. Sales and marketing expenses are expected to increase in absolute
dollars in future periods, although they may vary as a percentage of net
revenue.

General and Administrative. General and administrative expenses prior to
January 31, 1996 consisted primarily of an allocation of overhead expenses by
Radius and SuperMac based on headcount. Since February 1, 1996, general and
administrative expenses have consisted primarily of compensation and related
costs, and consulting and professional fees. General and administrative
expenses increased 136% to $891,000 in fiscal 1995 from $377,000 in fiscal
1994 and increased 80% to $1.6 million in fiscal 1996 from fiscal 1995,
representing 3% of net revenue in all respective periods. General and
administrative expenses increased 90% to $1.9 million in the nine months ended
June 30, 1997 from $1.0 million in the nine months ended June 30, 1996,
representing 4% and 3% of net revenue from such respective periods. The
increase from fiscal 1994 to fiscal 1995 was primarily due to increased salary
and related costs due to increased headcount. The subsequent increases were
primarily related to the Company's efforts to enhance its corporate
infrastructure to replace services provided by Radius prior to the Splash
Acquisition, to support expansion of the Company's operations and, in
addition, in the nine months ended June 30, 1997, to cover costs related to
being a public company. The Company believes that its general and
administrative expenses will increase in absolute dollars in the foreseeable
future as it continues to implement additional management and operational
systems, expands its administrative staff and incurs additional costs relating
to being a public company.

Acquisition-Related and Non-Operating Expenses. In fiscal 1996, the Company
recorded certain costs related to the Splash Acquisition, including a write-
off of $19.3 million of in-process research and development, and the
amortization in full through May 1996 of $3.4 million of purchased technology.
These in-process research and development projects were related to the
development of the Company's PCI Series product line. Substantially all the
research and development costs incurred from the Splash Acquisition through
May 1996 (the time of the PCI Series product launch) were for the development
of the PCI Series products. Through September 30, 1996, the Company had
incurred interest costs pursuant to the subordinated notes and line of credit
established in connection with the Splash Acquisition, offset in part by
interest earned on short-term investments.

In the nine months ended June 30, 1997, the Company acquired Quintar and
wrote-off approximately $11.0 million of in-process research and development
in connection with such acquisition. These in-process research and development
activities which, related to projects for the development of Quintar's
embedded controllers and low-end color servers, have no alternative future
uses and have not reached technological feasibility. See "Unaudited Pro Forma
Combined Condensed Statements of Operations" and "Business--Quintar
Acquisition."

26
<PAGE>

Other Income. The Splash Acquisition 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. See "Certain Transactions."

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." For
fiscal 1994, 1995 and 1996, the Company estimated a provision for income taxes
as if CSG had been operating as a separate company. In addition, as a result
of the Splash Acquisition (a taxable event), the Company recorded a deferred
tax asset of approximately $9.1 million and realized a corresponding credit to
the provision for income taxes, arising from the difference in treatment of
acquired intangible assets for tax and financial reporting purposes. In
connection with the Quintar acquisition (a non-taxable event for the Company),
the Company recorded $3.3 million of deferred tax assets relating to Quintar's
net operating loss carryforwards. These net operating loss carryforwards are
subject to certain limitations. The Company has not reduced the deferred tax
assets by a valuation allowance as it is more likely than not that all of the
deferred tax assets will be realized through future taxable income. The
Company's effective tax rate (excluding the purchase accounting adjustments
relating to the Quintar acquisition) was 37% for the nine months ended June
30, 1997. See Note 10 of Notes to Consolidated Financial Statements.

27
<PAGE>

QUARTERLY RESULTS

The following tables set forth consolidated statements of operations data for
the eleven quarters in the period ended June 30, 1997, both in dollar amounts
and as percentages of net revenue. This information has been derived from
unaudited financial statements that, in the Company's opinion, reflect all
normal recurring adjustments that the Company considers necessary to present a
fair statement of the results of operations in the quarterly periods. The data
set forth should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this Prospectus. The operating results for any
quarter are not necessarily indicative of results for future quarters. The
following tables set forth consolidated statements of operations data:

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- -------- --------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue........ $4,559 $6,346 $9,438 $10,129 $7,206 $ 10,791 $13,337 $16,387 $15,372 $16,053 $19,802
Cost of net
revenue........... 3,042 4,171 6,524 6,986 4,847 6,871 8,164 7,926 7,511 7,683 9,671
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Gross profit...... 1,517 2,175 2,914 3,143 2,359 3,920 5,173 8,461 7,861 8,370 10,131
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Operating expenses
Research and
development...... 372 825 837 1,261 1,256 884 982 1,003 1,140 1,145 1,687
Sales and
marketing........ 281 504 720 571 568 438 488 950 953 1,478 1,694
General and
administrative... 222 223 222 224 236 188 531 608 740 651 554
Amortization and
write-off of
technology....... -- -- -- -- -- 21,027 1,702 74 -- -- 11,039
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Total operating
expenses....... 875 1,552 1,779 2,056 2,060 22,537 3,703 2,635 2,833 3,274 14,974
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Income (loss) from
operations........ 642 623 1,135 1,087 299 (18,617) 1,470 5,826 5,028 5,096 (4,843)
Other income....... -- -- -- -- -- -- -- -- (600) -- --
Interest (income)
expense, net...... -- -- -- -- -- 197 209 187 (83) (150) (145)
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Income (loss)
before income
taxes............. 642 623 1,135 1,087 299 (18,814) 1,261 5,639 5,711 5,246 (4,698)
Provision for
(benefit from)
income taxes...... 257 249 454 435 120 (7,550) 501 2,256 2,170 1,993 2,283
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Net income
(loss)........... $ 385 $ 374 $ 681 $ 652 $ 179 $(11,264) $ 760 $3,383 $ 3,541 $ 3,253 $(6,981)
====== ====== ====== ======= ====== ======== ======= ======= ======= ======= =======
<CAPTION>
AS A PERCENTAGE OF NET REVENUE
---------------------------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- -------- --------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue........ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Cost of net
revenue........... 67 66 69 69 67 64 61 48 49 48 49
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Gross profit...... 33 34 31 31 33 36 39 52 51 52 51
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Operating expenses
Research and
development...... 8 13 9 12 18 8 7 6 7 7 8
Sales and
marketing........ 6 8 8 6 8 4 4 6 6 9 9
General and
administrative... 5 3 2 2 3 2 4 4 5 4 3
Amortization and
write-off of
technology....... -- -- -- -- -- 195 13 -- -- -- 56
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Total operating
expenses....... 19 24 19 20 29 209 28 16 18 20 76
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Income (loss) from
operations........ 14 10 12 11 4 (173) 11 36 33 32 (25)
Other income....... -- -- -- -- -- -- -- -- (4) -- --
Interest (income)
expense, net...... -- -- -- -- -- 2 1 1 -- -- (1)
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Income (loss)
before income
taxes............. 14 10 12 11 4 (175) 10 35 37 32 (24)
Provision for
(benefit from)
income taxes...... 6 4 5 5 2 (71) 4 14 14 12 11
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Net income
(loss)........... 8% 6% 7% 6% 2% (104)% 6% 21% 23% 20% (35)%
====== ====== ====== ======= ====== ======== ======= ======= ======= ======= =======
</TABLE>

28
<PAGE>

The Company's net revenue increased on a sequential quarterly basis from the
first quarter of fiscal 1995 to the fourth quarter of fiscal 1995, and the same
pattern was followed for the sequential quarters of fiscal 1996. Increases
within each year reflected higher unit sales quarter to quarter due to
increasing market acceptance of the Company's products. In addition, the
Company has experienced shifts in sales to its higher-priced color server
systems from its lower-priced color server kits, particularly beginning in the
third quarters of fiscal 1995 and 1996 with the introductions of the Power
Series and PCI Series product lines, respectively. The gross margins decreased
in the second half of fiscal 1995 primarily due to a sales shift toward certain
lower margin pre-configured server systems. The subsequent increases in gross
margins for each of the quarters in fiscal 1996 and the first two quarters of
fiscal 1997 were primarily due to the reductions in component costs achieved
through redesigns of the Power Series boards, new product line designs,
continued economies of scales from higher sales volumes and favorable component
pricing, particularly computers and memory. Gross margins decreased slightly in
the third quarter of fiscal 1997 due to the reduction in pricing for new
versions of the Company's PCI Series products introduced in June 1997. Memory
prices have experienced significant fluctuations in the past and there can be
no assurances that current pricing trends will continue. The Company expects
that gross margins will fluctuate quarter to quarter and may decrease in the
future. See "Risk Factors--Fluctuations in Operating Results; Seasonal
Purchasing Patterns."

Research and development expenses have fluctuated from quarter to quarter due
in part to periodic third party funding of development efforts, which totaled
approximately $337,000, $543,000 and $814,000 in fiscal 1994, 1995 and 1996
respectively, ranging from $0 to approximately $300,000 per quarter in the
periods presented. Third party funding of development is included in net
revenue and costs of net revenue for such products. In addition, research and
development spending generally increased quarter to quarter in fiscal 1995 as
the Company expanded its development efforts, and decreased in the second and
third quarters of fiscal 1996 due to the elimination of overhead charges by
Radius following the Splash Acquisition. There can be no assurance that the
Company will continue to receive third party funding of any of its future
development projects. The increase in research and development expenses in the
third quarter of fiscal 1997 reflects the addition of Quintar's engineering
resources and the Company's continued hiring efforts. Sales and marketing
expenses increased in the third quarter of fiscal 1995 and third quarter of
fiscal 1996 due to marketing efforts in connection with the introduction of
Splash's Power Series and PCI Series products, respectively, and increased in
the fourth quarter of fiscal 1996 and the first three quarters of fiscal 1997
due to the 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. General and
administrative expenses decreased in the second quarter of fiscal 1996 as the
Company discontinued use of Radius' administrative services and increased in
the third quarter of fiscal 1996 as the Company began adding its own
administrative infrastructure. The increase in general and administrative
expenses for the first and second quarters of fiscal 1997 are primarily due to
the initial additional costs of being a public company, including the
production of the Company's first annual report and the preparation and filing
of the Company's public disclosure documents.

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 second half of the
Company's fiscal year. As a result, the Company's sales have historically been
lower, and are expected to continue to be lower, in the first quarter of the
Company's fiscal year than the immediately preceding fourth quarter. However,
in the event that these customers change their purchasing patterns in the
future, this seasonality may change which could affect the Company's quarterly
operating results. In addition, any increases in inventories

29
<PAGE>

by the Company's customers could also result in variations in the timing of
purchases by such customers. 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. See "Risk Factors--Fluctuations in Operating Results;
Seasonal Purchasing Patterns."

LIQUIDITY AND CAPITAL RESOURCES

From fiscal 1994 until the Splash Acquisition in January 1996, the Company
satisfied its liquidity requirements through cash flow generated from
operations. The Company had limited cash balances following the Splash
Acquisition and satisfied its cash needs through a $4.0 million revolving line
of credit and cash flow from operations.

As of June 30, 1997, the Company had $6.6 million of cash and cash
equivalents 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 January 1, 1998.

For fiscal 1996, the Company generated $6.7 million in cash from operations,
primarily due to increases in accounts payable, other accrued liabilities,
deferred revenue and income taxes payable and decreases in accounts receivable
partially offset by a decrease in royalties payable. The Company's operating
activities provided $8.6 million in cash in the nine months ended June 30,
1997, primarily due to increases in accounts payable, and other accrued
liabilities, offset in part by an increase in accounts receivable and a
decrease in deferred revenue.

The accounts receivable balance increased to $6.6 million at September 30,
1996 as the Company increased net revenue from fiscal 1995, partially offset by
improved cash collection procedures which were implemented after the Splash
Acquisition. The accounts receivable balance was $11.7 million at June 30, 1997
due primarily to increased quarter-end shipment activity relating to the launch
of the Company's new products in June 1997. Trade accounts payable, other
accrued liabilities and royalties payable increased from $5.6 million at
September 30, 1995 to $5.8 million at September 30, 1996.

Investing activities used $24.0 million in cash in fiscal 1996 and used $11.8
million in cash in the nine months ended June 30, 1997. These amounts resulted
primarily from $23.4 million in cash used in connection with the Splash
Acquisition and $11.2 million in cash used in the Quintar acquisition,
respectively.

30
<PAGE>

Financing activities provided $23.6 million in cash in fiscal 1996,
consisting primarily of financing related to the Splash Acquisition, and
provided $3.6 million in cash in the nine months ended June 30, 1997.
Financing activities in fiscal 1997 included the Company's initial public
offering from which the Company received net proceeds of $26.6 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
initial public offering are being used for working capital and general
corporate purposes. The Company has no material financing commitments other
than the obligations under operating leases. See Note 6 to Notes to
Consolidated Financial Statements.

The Company believes that the proceeds of the Offering received by the
Company, cash flow from operations, existing cash balances and the Company's
bank line of credit will be sufficient to satisfy the Company's cash
requirements for at least the next twelve months. See "Use of Proceeds,"
"Capitalization," and "Certain Transactions."

31
<PAGE>

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS

The Company consummated the Quintar acquisition on May 28, 1997. The
accompanying unaudited pro forma combined condensed statement of operations for
the year ended September 30, 1996 includes the historical consolidated
statement of operations of the Company's predecessor business for the four
months ended January 31, 1996, the historical consolidated statement of
operations of the Company for the eight months ended September 30, 1996 and the
historical consolidated statements of operations of Quintar for the year ended
December 31, 1996, as if the acquisition had occurred on October 1, 1995. The
accompanying unaudited pro forma combined condensed statements of operations
for the nine months ended June 30, 1997 includes the historical consolidated
statements of operations of the Company and of Quintar for the nine months
ended June 30, 1997, as if the acquisition had occurred on October 1, 1995. The
unaudited pro forma combined condensed statements of operations give effect to
the Quintar acquisition using the purchase method of accounting, and are based
upon allocation of the Quintar purchase price, and includes the adjustments
described in the notes set forth below.

The unaudited pro forma combined condensed statements of operations do not
purport to represent what the Company's results of operations would have been
had the Quintar acquisition occurred on the date indicated or for any future
period or date. The pro forma adjustments give effect to available information
and assumptions that the Company believes are reasonable. The unaudited pro
forma combined condensed statements of operations should be read in conjunction
with the Company's historical consolidated financial statements and the
historical consolidated financial statements of Quintar and the notes thereto
included elsewhere herein.

32
<PAGE>

SPLASH TECHNOLOGY HOLDINGS, INC.
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
QUINTAR
PREDECESSOR SPLASH TECHNOLOGY HOLDINGS
BUSINESS HOLDINGS, INC. CORPORATION(1)
----------- --------------------------- --------------
FOUR MONTHS EIGHT MONTHS PRO FORMA PRO FORMA ADJUSTMENTS
ENDED ENDED YEAR ENDED YEAR ENDED --------------------------
JANUARY 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996 AMOUNT COMBINED
----------- ------------- ------------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............. $13,008 $ 34,713 $ 47,721 $ 5,383 $ 53,104
Cost of revenue......... (8,427) (19,381) (27,808) (3,895) (31,703)
------- -------- -------- ------- -----------
Gross profit........... 4,581 15,332 19,913 1,488 21,401
Research and
development............ (1,498) (2,627) (4,125) (1,293) (5,418)
Selling, general and
administrative
expenses............... (975) (3,032) (4,007) (1,714) (5,721)
Amortization and write-
off of technology...... -- (22,803) (22,803) -- (22,803)
------- -------- -------- ------- -----------
Income (loss) from
operations............. 2,108 (13,130) (11,022) (1,519) (12,541)
Interest income
(expense), net......... (18) (575) (593) 17 $ (690)(2) (1,266)
------- -------- -------- ------- ---------- -----------
Income (loss) before
provision for income
taxes................. 2,090 (13,705) (11,615) (1,502) (690) (13,807)
Benefit from (provision
for) income taxes...... (836) 5,509 4,673 -- 604(3) 5,277
------- -------- -------- ------- ---------- -----------
Net income (loss)....... $ 1,254 $ (8,196) $ (6,942) $(1,502) $ (86) $ (8,530)
======= ======== ======== ======= ========== ===========
Net income (loss) per
share.................. $ (0.89)
===========
Shares used in computing
per share amount....... 9,583
===========
</TABLE>

NINE MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SPLASH PRO FORMA
TECHNOLOGY QUINTAR ADJUSTMENTS
HOLDINGS, HOLDINGS --------------------
INC. CORPORATION(1) AMOUNT COMBINED
---------- -------------- ------- --------
<S> <C> <C> <C> <C>
Net revenue.................... $ 51,227 $ 2,595 $ 53,822
Cost of revenue................ (24,864) (1,819) (26,683)
-------- ------- --------
Gross profit.................. 26,363 776 27,139
Research and development....... (3,972) (1,329) (5,301)
Selling, general and
administrative................ (6,071) (895) (6,966)
Write-off of in-process
technology.................... (11,039) -- $11,039(4) --
-------- ------- ------- --------
Income (loss) from operations.. 5,281 (1,448) 11,039 14,872
Interest and other income
(expense), net................ 979 (539) (346)(2) 94
-------- ------- ------- --------
Income (loss) before provision
for income taxes............. 6,260 (1,987) 10,693 14,966
Benefit from (provision for)
income taxes.................. (6,447) -- 869(3) (5,578)
-------- ------- ------- --------
Net income (loss)............. $ (187) $(1,987) $11,562 $ 9,388
======== ======= ======= ========
Net income (loss) per share.... $ (0.02) $ 0.77
======== ========
Shares used in computing per
share amounts................. 11,903 12,251
======== ========
</TABLE>
- -------
(1)The purchase price of Quintar Holdings Corporation is as follows:

<TABLE>
<S> <C>
Cash consideration............................................. $11,519
Value of stock options granted................................. 1,588
Other acquisition costs........................................ 425
-------
$13,532
=======
Net liabilities................................................ $ (807)
Purchased in-process technology................................ 11,039
Deferred tax asset............................................. 3,300
-------
$13,532
=======
</TABLE>
(2) To record effect on interest income as a result of cash used to purchase
Quintar.
(3) To record tax benefit of Quintar Holdings Corporation losses.
(4) The Company recorded the expense related to purchased in-process technology
of approximately $11.0 million upon the consummation of the Quintar
acquisition. This amount has been eliminated from the pro forma statements
of operations due to its non-recurring nature.

33
<PAGE>

BUSINESS

This Business section and other parts of this Prospectus 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 "Risk Factors" and
elsewhere in this Prospectus.

Splash develops, produces and markets color servers that provide an
integrated link between desktop computers and digital color laser copiers and
enable such copiers to provide high quality, high speed, networked color
printing and scanning. These hybrid systems, consisting of color servers and
digital color laser copiers (referred to as connected or multifunction
copiers), support multiple uses including image scanning, image manipulation,
printing and photocopying. The Company's products feature advanced color
correction, color calibration and separations support, ease of use, time-
saving workflow functionality, simulation of many color monitors and printing
presses, and automatic correction for certain printing workflow problems.
Splash's color servers are commonly accessed by users across networks of
Windows-based personal computers, Apple personal computers and UNIX-based
computers.

On May 28, 1997, Splash consummated its acquisition of Quintar, which
designs, manufactures and markets embedded controllers for desktop color
printers, as well as proprietary servers for high-speed, multifunction
monochrome and color printers and copiers. See "Risk Factors--Risks Associated
with Quintar Acquisition; General Risks Associated with Acquisitions,"
"Unaudited Pro Forma Combined Condensed Statements of Operations" and "--
Quintar Acquisition."

INDUSTRY BACKGROUND

The use of color in communications media is becoming ubiquitous. Just as
photography, television, computer monitors and newspapers have migrated from
black and white to color, a similar transition is occurring in electronic
printing. Advances in computer-based color graphics, printing and imaging
technology are fueling increased demand for the ability to produce color
printed materials more easily, more frequently, in smaller batches, and at
lower cost.

Commercial color printing customarily involves a number of complex, labor
intensive and costly steps. Accordingly, color largely has been reserved for
high end and high volume applications, and printing of commercial quality
materials such as magazines, catalogs, brochures and sales material has been
performed primarily by professional independent printing companies. The images
to be printed are typically designed and composed by an end user's in-house
staff or a design house or advertising agency. The images are passed to a
service bureau for prepress preparation, which involves input by a high-
quality scanner (or, more recently, acceptance in electronic file format from
the designer) and other preparation for printing. Preparation for printing
includes color retouching and other manipulation and then separation into the
four colors--cyan, magenta, yellow and black ("CMYK")--utilized by large,
four-color commercial presses. The separated CMYK files are transferred
electronically to an imagesetter which generates a separate CMYK film for each
color. These films are then used to print a pre-proof via a film proofer.
Color separation and proofing are typically performed by service bureaus or,
at times, by commercial printers. These steps are often repeated several times
to ensure that the proof matches the end user's expectations. Once the proof
is approved by the end user, the commercial printer utilizes the CMYK films to
prepare printing plates and then prints the job on a large, expensive
commercial press. Each step in the proofing and prepress process is
technically complex, time consuming, labor intensive and costly, and multiple
cycles are often required. Accordingly, the process involves high fixed costs
and considerable time, and historically has been justified only for printing
in large volumes.

34
<PAGE>

The following diagram depicts the steps involved in a typical commercial
printing process, showing the repetition of certain of the key steps prior to
the final print run.

[DIAGRAM APPEARS HERE]

The broad use of high quality desktop color displays, desktop publishing
software such as Adobe Photoshop and QuarkXPress, and desktop-based color
scanners, as well as the increased availability of digital color copiers and
networked and desktop color printers, has enabled a greater amount of the color
design and production workflow to be performed more rapidly and at lower costs
than was previously possible. As a result, the different organizations in the
traditional printing workflow have begun to broaden their service offerings,
with resultant overlap of roles. For example, end users and designers are
seeking to perform a greater degree of color preparation and to review a
greater number of design proofs earlier in the process, and service bureaus are
seeking to expand their service offerings with faster and lower cost color
alternatives. End users, service bureaus and traditional commercial printers
are all seeking to expand their internal capabilities for inexpensive, low
volume, high quality color printing of final output. In the emerging end user
office market in particular, the improvements in color copier technology make
possible inexpensive production of a broad range of color materials, including
sales brochures, product literature and internal communications.

The use of color printing has historically been limited because color
printing involves significantly greater complexities and requires substantially
more memory and processing power than black and white printing. For example,
accurate printed replication of an electronic color image displayed on a
monitor is difficult to achieve because the monitor creates color by projecting
light in the three display colors of red, green and blue ("RGB")--an additive
process of light creation--while printed output is created through the mixing
of the four CMYK ink colors on paper--a subtractive process of light
absorption. Each display, scanning and printing device has unique color
properties that must be managed and adjusted during production, and each device
must be continually recalibrated over time. The variety of papers, ink and
printing processes also results in variations, as do changes in temperature and
humidity. In addition, different applications and devices may combine multiple
color and file formats when producing an image, resulting in issues of
compatibility and consistency.

The complexities inherent in color reproduction and printing have created a
need for advanced, easy-to-use and cost-effective color printing solutions. As
a result, digital laser color copiers and associated color servers are becoming
increasingly prevalent across a broader printing market. However, the different
segments of the broader market demand a variety of different capabilities. In
the commercial printer segment, printing companies are seeking means to broaden
their market through high quality solutions that can be offered at lower cost;
in design houses and service bureaus, color professionals require both superior
color quality and tools that enhance productivity in color production workflow;
and in the office market, ease of use is as critical as high quality results,
to make technology accessible to a broad range of end users with limited
special expertise in color. Accordingly, as color servers become more prevalent
and broadly used, there is a demand for solutions that offer more powerful
features and more accurate color capabilities with greater ease of use.

35
<PAGE>

THE SPLASH SOLUTION

Splash color servers provide an integrated link between computers and color
copiers and address the demand for high performance, cost effective digital
color printing. The Company's color servers turn a color copier into an
effective network-based solution for a variety of color printing applications
from commercial and short-run printing to desktop publishing and office color
printing. The Company's products feature advanced color correction, color
calibration and separations support, ease of use, time-saving workflow
functionality, simulation of many color monitors and printing presses, and
automatic correction for certain workflow problems.

The diagram below is an example of how Splash color servers and connected
digital color copiers can eliminate certain costly and time consuming steps in
the printing workflow.

[DIAGRAM APPEARS HERE]

Splash servers utilize open systems that can be readily integrated with
corporate networks enabling easy access by a broad range of end users. The
Company's products use Adobe PostScript and are based on the Apple Power
Macintosh computer, both of which are widely used by color graphics
professionals. The Company's servers support popular network protocols. Open
systems enable the Company to concentrate its development resources on value-
added solutions for end users, including improved color quality, workflow and
overall productivity, while being able to leverage ongoing enhancements in
hardware, software and computer performance from IBM, Motorola, Apple and
Adobe. Open systems also provide users with greater flexibility by allowing the
use of standard peripheral products and software. The Company believes that its
open systems approach and color expertise have enabled it to provide
innovative, high performance products.

36
<PAGE>

The diagram below reflects the connection between a Splash color server and
a color copier and a network containing Windows PCs, Mac OS computers and UNIX
workstations via the use of Novell, AppleTalk and TCP/IP network protocols.

[PICTURE OF COMPUTERS APPEARS HERE]

STRATEGY

Splash's objective is to extend its position as a leading provider of
innovative, high quality color server solutions. To achieve this objective,
the Company's business strategy includes the following key elements:

Leverage Technology Expertise. Splash seeks to leverage its expertise in
color technology, application workflow, software and hardware design and
computer systems integration to continue to offer innovative, easy-to-use,
color server products. The Company believes that its technological leadership
has permitted it to offer a number of significant features for multifunction
copiers prior to its direct competitors. For example, Splash was first to
market with a number of key features in the areas of color calibration, color
correction, CMYK separation and mixed RGB/CMYK printing.

Support Open Systems. Splash intends to continue to utilize standards-based
open systems to enable it to bring new products to market more quickly and to
permit operation with a wide variety of computer networks, devices and
complementary software. Splash provides color servers based on open systems
and popular networking protocols in order to focus the Company's development
efforts on advanced software and hardware designs that optimize color quality
and consistency, workflow efficiency and ease of use.

Broaden Markets and Product Lines. Splash intends to continue to pursue the
markets for connected copiers in pre-proof and prepress applications and to
migrate its products to additional computer platforms in order to address both
the high end of the color server market and the broader, office color printing
market. The Company also intends to develop color servers for a wider range of
Xerox and Fuji Xerox color copiers in order to provide systems with different
feature sets across a range of price points and may consider offering color
servers for the systems of additional copier manufacturers.

37
<PAGE>

Expand Sales and Marketing Organizations. Splash intends to continue to
expand its sales and marketing organizations on a worldwide basis in order to
support its Xerox and Fuji Xerox OEM relationships. The Company believes that
such expansion will allow it to better leverage the resources offered by Xerox,
Fuji Xerox and their affiliates, which are among the leading providers of
digital color copiers and have extensive worldwide sales organizations. Splash
is seeking to further develop sales through these channels in Europe and other
geographic regions in which the Company has had lower market penetration.

PRODUCTS AND TECHNOLOGY

Product Lines

Splash offers both pre-configured color server systems and board-level server
kits. The pre-configured color server systems include a Splash copier interface
board and frame buffer installed in an Apple Power Macintosh computer and
feature Splash software, a color display, a keyboard and an interface cable.
The server kits do not include the computer, display and keyboard, thereby
allowing the customer or reseller to install the Splash color server on a
locally procured or existing compatible system. Splash products are sold under
the Splash brand worldwide except in Japan, where they are sold under the SM
ICS brand name of Fuji Xerox. The fundamental architectures of the SM ICS and
Splash products are substantially identical other than localization differences
for user interface and documentation.

Splash's primary product lines are the Splash Professional Color Imaging
("PCI") Series, first introduced in May 1996, and the Splash for DocuColor ("DC
Series"), first introduced in September 1996. These products generally use
Apple Power Macintosh computers and are compatible with the PCI bus
architecture. The Splash Power Series product line, based on a design
originally launched in 1993 and updated over the years with successive software
releases, uses the NuBus architecture found in earlier Apple Power Macintosh
computers. The Company continues to offer Power Series products in limited
quantities, primarily board level kits and spare parts. The retail prices to
end users of Splash products vary by geographical region, model and
configuration. For example, depending on the model and configuration, the
retail prices to end users of PCI Series products currently range from $13,000
to $28,000 in the United States and (Yen)1.6 million to (Yen)3.19 million in
Japan. The retail price to end users of the one DC Series product marketed in
the United States is $50,000 and the retail prices to end users of the three DC
Series products marketed in Japan range from (Yen)4.15 million to (Yen)6.8
million. See "Risk Factors--Dependence on Xerox and Fuji Xerox" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

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The Company's products vary primarily by available frame buffer memory.
Memory configuration impacts print quality, scan resolution and the ability to
scan images of larger sizes. The Company's principal products are as follows:

<TABLE>
<CAPTION>
FRAME
PRODUCT COMPUTER HARDWARE DISPLAY BUFFER
------- ----------------- ------- ------
<S> <C> <C> <C>
PCI Series Servers
Splash PCI 1280 Server PowerPC 604/180 MHz 149 color 128 MB RAM
Splash PCI 640 Server PowerPC 604/180 MHz 149 color 64 MB RAM
Splash PCI 320 Server PowerPC 604/180 MHz 149 color 32 MB RAM
Splash PCI-E Server PowerPC 604/132 MHz 149 color 32 MB RAM
PCI Series Kits(1)
Splash PCI 1280 Kit * * 128 MB RAM
Splash PCI 640 Kit * * 64 MB RAM
Splash PCI 320 Kit * * 32 MB RAM
DC Series Servers
Splash DC 256 PowerPC 604/200 MHz 149 color 256 MB RAM
Splash DC 128 PowerPC 604/200 MHz 149 color 128 MB RAM
Splash DC 64 PowerPC 604/200 MHz 149 color 64 MB RAM
Power Series Servers
Splash P105 Pro PowerPC 601/100 MHz NuBus 179 color 128 MB RAM
Splash P85 PowerPC 601/80 MHz NuBus 179 color 72 MB RAM
Splash P70 PowerPC 601/66 MHz NuBus 149 color 72 MB RAM
Power Series Kits(2)
Splash Power Kit Pro * * 128 MB RAM
Splash Power Kit * * 72 MB RAM
</TABLE>
- --------
* Customer supplied.
(1) Compatible hosts for PCI Series Kits include: Apple Power Macintosh 7200,
7300, 7500, 7600, 8500, 9500.
(2) Compatible hosts for Power Series Kits are: Apple Power Macintosh 7100,
8100 (non-AV configurations).

Product Features and Technology

Splash servers are based on open systems, enabling the Company to leverage
the development efforts of computer and operating system suppliers, and thereby
concentrate its development resources in those areas specific to the concerns
of color users. This open systems approach has provided an advantage in
bringing innovative color and workflow solutions to the market rapidly. It has
also enabled the Company to provide its customers with performance increases by
taking advantage of improvements in industry standard computers.

The Company's products include a Splash-designed copier interface board
integrated with a standard computer system and Splash software written for the
server and its networked clients. The Splash copier interface board uses
double-sided surface mount technology and includes a number of advanced design
features such as a proprietary application specific integrated circuit (ASIC),
certain other custom ASICs and a large frame buffer--all in a single-slot PCI
form factor.

Splash software includes: driver software written for several different types
of client workstations; server software including network interface, spooling,
and imaging engine modules that reside on the standard computer system; and
server software including print interface and device control modules that
reside on the Splash board itself. These software modules are layered on a
standard computer operating system to provide compatibility with a variety of
off-the-shelf peripherals and third-party software applications.

Technical innovations first introduced to market by Splash include techniques
that enhance color quality, such as accurate printing of RGB monitor blues
(avoiding the common blue to purple shift upon

39
<PAGE>

printing); techniques that enhance print quality, such as traps and overprints
(as described below); and features that enhance productivity workflow, such as
advanced color calibration capabilities and the ability to interpret and print
multiple RGB formats or mixed RGB and CMYK formats from the same electronic
file.

The following describes these and other key features offered by Splash.

CMYK Separation Support. Splash's CMYK separation capability enables users
to employ page layout and publishing software to print pre-proofs from color
copiers that incorporate overprinting (overlapping mixing of colors) and
Desktop Color Separations (high-resolution separation files). This feature
allows the printing of high quality pre-proofs and thereby saves professional
color publishing end users time and money by reducing the number of cycles of
film proofs required for the design and production process.

Splash Match. Splash Match is a unique color management solution that
permits rapid, automatic and accurate color correction of image files. The
user can select among a variety of color profiles--including RGB monitor
matching and CMYK press matching--through "check box" selections within a
printing window in the graphical user interface from a networked client.

Splash ColorCal. Splash ColorCal is a fast, easy-to-use calibration utility
that utilizes a unique randomized calibration target and a copier's built-in
digital scanning capability for calibration. By making calibration fast and
simple and eliminating the need for separate, expensive densitometers, Splash
provides a mechanism for frequent calibration that assures reproducible,
consistent color. All Splash Match color profiles (RGB and CMYK) are updated
simultaneously upon completion of calibration. Splash Match also provides an
"expert mode" of operation that allows the user to customize a copier's output
to the unique print characteristics of a given press intended for final
printing.

Splash AccuColor. Splash AccuColor, implemented as part of Splash Match,
allows for more accurate translation and printing of monitor blues without the
significant purple shift that occurs with almost all other printing
alternatives. This is a performance advantage in printing applications where
the desired goal is producing output that comes as close as possible to
matching the RGB colors on a user's display. Splash AccuColor allows for
screen-to-press matching through the use of one of several Splash press
profiles selectable in Adobe Photoshop.

Splash IntelliColor. Splash IntelliColor compensates for mistakes commonly
made during the design process such as mixing different RGB file formats or
combining RGB and CMYK formats in the same document. Images combined in the
same file are separately and accurately color corrected. This capability is
independent of the end user's application or computer workstation.

Splash Scan and Splash Print. Both Splash Scan and Splash Print are Adobe
Photoshop Plug-in modules that provide 400-dpi, 24-bit color scanning from the
copier and ultra high-speed bit map printing to a copier, respectively. In
this way, scans can be made, retouched and printed locally without tying up
the network.

Splash Colortone. Splash Colortone enhances the print quality of color
servers that have limited frame buffer memory. Splash Colortone delivers true,
continuous tone (contone) or near-contone quality output optimized to the
available frame buffer memory. Splash Colortone is automatically engaged
whenever the Splash server has too little memory to print a given page size
with full color quality. The Splash Colortone feature can print with either a
2:1 memory savings, yielding near-contone quality, or a 4:1 memory savings,
yielding prints with some but often minimal degradation. Splash automatically
switches back to true contone printing when sufficient memory is available.

Splash Edit. Splash Edit is a utility that enables the user to change
certain print settings at the Splash server after the print job has been sent
by the user across the network. Changeable print settings

40
<PAGE>

include number of copies, tray selection, color correction choice, page range
and sorter. Because these settings can be changed at the Splash server next to
the copier, the user saves time by not having to return to the client computer
to resend the file.

New Version Offerings

In June 1997, the Company released new versions of its PCI Series and DC
Series products which offer the following additional features as well as a
variety of other features.

Spot Color Matching. Spot Color Matching allows the printing of spot colors
(within the color gamut of the copier) without converting them to process
color and without interrupting the user's existing workflow.

Progressives. The Progressives feature enables the printing of any of the
four CMYK plates, in any combination, and in the resulting color of that
combination. Proofing four-color work on a two-color press is one of the many
uses of Progressives.

Further Enhanced Calibration (ColorCal). The ColorCal feature enhances the
ability to store up to 10 custom color profiles. In addition, ColorCal works
with Fuji Xerox DocuColor 40 copiers and Xerox DocuColor 4040 copiers through
the use of desktop scanners.

World Wide Web/Internet/Intranet Printing. The Web Server option allows
users to print or manage a print job from any workstation on an intranet or
the Internet.

SALES AND MARKETING

Splash sells its color server products to two of the leading providers of
color copiers, Xerox and Fuji Xerox. These OEMs integrate the Company's color
servers with their digital color copiers and sell the connected systems to end
users through a worldwide direct distribution network. Xerox sells primarily
in North America, South America and (through its affiliate, Rank Xerox)
Europe, while Fuji Xerox sells primarily in Japan and the Asia Pacific region.
Xerox and Fuji Xerox each provide primary customer service through their
worldwide networks, while Splash provides backup support to Xerox and Fuji
Xerox. These relationships allow Splash to provide strong customer support at
the local level as well as providing Splash with a valuable source of input
for product enhancement. Splash believes that the strength of Xerox and Fuji
Xerox in the office equipment market provides the Company with a significant
opportunity to expand its presence in the end user office printing market.

Xerox and Fuji Xerox sell Splash products as well as competing color
servers. The Company does not have contracts with Xerox and Fuji Xerox with
respect to its PCI Series and DC Series products and is currently operating on
a purchase order basis with these customers. There can be no assurance that
the Company will continue to receive orders from Xerox or 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. See "Risk Factors--Dependence on Xerox and Fuji Xerox."

As of June 30, 1997, the Company employed 30 people in sales and marketing.
These people support Xerox's sales force while Fuji Xerox is supported by its
own personnel. Splash's sales and marketing personnel typically provide
support to Xerox and Fuji Xerox through sales literature, periodic training,
customer symposia, pre-sales support and joint sales calls. The Company also
participates in industry trade shows and conferences, distributes sales and
product literature and has a public relations plan intended to generate
coverage of the Company's products and technology by editors of trade
journals.

Splash believes that in order to increase its market penetration and enhance
brand awareness, it must continue to expand its sales and marketing efforts.
The Company plans to recruit and hire

41
<PAGE>

additional field personnel in Europe, the United States, the Asia Pacific
region and Latin America, as well as to expand its marketing programs. There
can be no assurance that the Company will be able to hire additional
personnel, expand its marketing programs or that the Company will be able to
increase its market penetration.

MARKETS AND CUSTOMERS

Splash products are employed by users in five principal markets: commercial
and short-run printing, prepress and photo labs, graphic arts and professional
color publishing, print-for-pay and office color printing. The Company to date
has focused principally on the prepress and graphic arts markets, where end
users who are discerning about color and print quality require high quality
innovative color server solutions. The Company believes that the emerging use
of color in a variety of printing applications is creating an opportunity for
the Company's products in the other market segments. Below is a diagram
showing the five markets in which Splash products are sold.

[DIAGRAM APPEARS HERE]

Commercial and Short-Run Printing. The commercial printing market represents
the highest quality and highest volume color printing production. Firms in
this market typically have their roots in traditional offset press printing,
in which output is developed in-house at businesses and other organizations,
prepared for printing by service bureaus and trade shops (which often perform
prepress services as described below) and then delivered to the commercial
printer for printing on large, expensive printing presses. In recent years,
many firms in the commercial printing market have begun to expand into
prepress and short-run printing services. These firms use color server-based
printing devices to more rapidly and less expensively produce pre-proofs of
color output. In addition, many of these firms have begun to use color server-
based printing devices as a less expensive alternative for printing in smaller
quantities. End users of Splash products in this segment include Applied
Computer Services, Inc. and R.R. Donnelley & Sons Company.

Prepress and Photo Labs. The prepress market consists of service bureaus and
trade shops which handle complex color production for end users that intend to
send print jobs to short-run and commercial printing firms for high quality or
high volume printing, as well as photo labs which provide high-end
photographic services. Prepress firms work closely with end users and the
local commercial printers that perform the print jobs. Prepress firms provide
high end scanning, image retouching, imagesetter output of color separation
films for proofing and, in some cases, the production of contract proofs which
serve as the standard for the commercial print run. Firms in this market are
utilizing color

42
<PAGE>

server-based printing devices as a means to reduce the cost and turnaround time
for image design, modification and pre-proofing. End users of Splash products
in this segment include the Digital Cafe, a wholly-owned subsidiary of Boston
Photo Imaging and smaller, local operators.

Graphic Arts and Professional Color Publishing. The graphic arts and
professional color publishing market consists of in-house creative staffs and
advertising agencies and design firms. These creative professionals perform
extensive color design and layout, but historically have not performed print
production. Users typically utilize networked personal computers and
workstations for color design and use color server-based printing devices for
conceptual and comprehensive designs as well as pre-proofs. Users typically
compose the color image to be printed utilizing applications such as Adobe
Photoshop, Adobe Illustrator, QuarkXPress, Adobe PageMaker, Corel Corp Corel,
Corel Ventura Publisher, MetaTools Live Picture and Macromedia Freehand. End
users of Splash products in this segment include DRC Advertising, Hearst
Magazines and Gibson Greetings, Inc.

Print-for-Pay. Print-for-pay firms provide a broad range of walk-in services
including faxing, copying and desktop publishing. Recently these firms have
begun to use connected color copiers to offer expanded color printing and
copier services. Users in this market segment range from franchised and local
storefronts traditionally focused on black and white copying services to
specialized firms. End users of Splash products in this segment include PIP
Printing.

Office Color Printing. The office color printing market consists of networked
office printing and central reproduction departments in businesses and other
organizations. These organizations, which have typically used black and white
laser printers and desktop color ink jet printers for production of word
processed documents, spreadsheets and presentations, are increasingly using
connected copiers to produce materials such as product brochures and internal
communications. This market segment is still emerging, but the Company believes
the ability of color servers to operate across corporate networks will help
expand this market.

MANUFACTURING

The Company outsources the manufacture of its products to third party
subcontract manufacturers including MSL, located in Sunnyvale, California, and
Logistix, located in Fremont, California. MSL purchases the components used in
Splash boards from its 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 Splash PCI Series products, on a turnkey basis. MSL
also performs in-warranty and out-of-warranty repair of failed boards for the
Splash PCI Series products. The Company 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. Other subcontract
manufacturers perform similar services with respect to the Splash Power Series
product line.

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 its business, there
can be no assurance that quality problems will not occur again in the future or
that any such problem will not have a material adverse effect on its business,
operating results and financial condition.

If the Logistix, MSL or other third party manufacturing facilities utilized
by the Company become unavailable to the Company, or if the manufacturing
operations at these facilities are slowed, interrupted or terminated, the
Company's business, operating results and financial condition could be
materially and adversely affected. Although the Company believes that there are
other companies available with the capability to provide the Company with such
services, there can be no assurance that the Company

43
<PAGE>

would be able to enter into alternative third party arrangements on terms
satisfactory to the Company, on a timely basis, or at all. See "Risk Factors--
Dependence on Third Party Manufacturers."

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. In addition, 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. The Company has also experienced difficulties related to
Apple's delay in the release of new models. If Apple were to continue to
experience such delays or discontinue production of the Power Macintosh models
with which Splash products operate or were unable to provide or otherwise
ceased to provide an acceptable level of end user customer support, the
Company's business, operating results and financial condition would be
materially and adversely affected. The Company 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 short memory supply. 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 increased its
inventory of components for which the Company is dependent upon sole or limited
source suppliers. As a result, the Company may be subject to an increasing risk
of inventory obsolescence in the future, which could materially and adversely
affect the operating results and financial condition. See "Risk Factors--
Dependence on Component Availability and Cost" and "--Dependence on Apple
Computer, Inc."

The market prices and availability of certain components, particularly memory
and 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 business, operating results and financial condition. See "Risk
Factors--Fluctuations in Operating Results; Seasonal Purchasing Patterns," "--
Dependence on Component Availability and Cost" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

RESEARCH AND DEVELOPMENT

Splash's research and development efforts are focused on color science,
application workflow, ASIC and board design, software and computer systems
integration and the continued development of new and enhanced products. The
Company also works closely with key technology partners including Adobe, Apple,
Fuji Xerox and Xerox.

The Company has historically devoted a significant amount of its resources to
research and development. As of June 30, 1997, the Company had 48 employees
engaged in research and development. Research and development expenses in
fiscal 1994, 1995 and 1996 and the first nine months of fiscal 1997 were $2.0
million, $3.3 million, $4.1 million and $4.0 million, respectively.

44
<PAGE>

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
products under development, effective manufacturing processes and the success
of promotional efforts.

There can be no assurance that any 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. See "Risk Factors--Rapid Technological Changes; Dependence
on New Product Introductions."

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. Splash 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 capability. As component prices decrease and
the processing power and other functionality of copiers, printers and computers
increase, 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 this software typically is
complementary to the Company's systems, it may also be competitive and may
become increasingly competitive to the extent that the providers of such
software extend the functionality of their products in future releases. See
"Risk Factors--Dependence on Adobe Systems Incorporated."

The Company believes that the principal competitive factors in its markets
are product features, functionality and performance; strength of distribution
channels, including sales capability and after-market support; brand name
recognition and market share; and price. The Company believes that it competes
favorably with respect to product features, functionality and performance,
including color and print quality and the open architecture of the Company's
systems. Splash was the first to introduce a number of significant features to
the multifunction color copier market, and its products currently provide
certain features and functionality not offered by competitors. However,
Splash's competitors also offer certain unique features and functionality that
are not offered by the Company. EFI also has substantially greater name
recognition and a significantly larger installed base than the Company, its
products operate with a broader range of color photocopier systems and its
products are generally

45
<PAGE>

priced less than those of Splash. EFI has historically had higher operating
margins than Splash which could allow EFI to increase pricing pressure on
Splash or to respond more effectively to any third party pricing pressures. The
Company also believes that it competes favorably in many distribution channels
addressed by Xerox and Fuji Xerox, but the Company's products do not support
the range of products from different manufacturers supported by EFI and other
competitors, and the Company's relationship with the Xerox distribution channel
is currently not as strong in certain geographical areas, such as Europe, where
the Company historically has had a smaller market presence and lesser support
capabilities.

INTELLECTUAL PROPERTY

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 assurance 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 does not own any issued patent. There can be
no assurance that any 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 competition 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.

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<PAGE>

unspecified monetary damages and injunctive 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 the 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 this suit or any other third party claims that the
Company is infringing on proprietary rights of others, with or without merit,
could be time consuming to defend, result in costly litigation, divert
management's attention and resources, and cause product shipment delays. If
the Company were found to be infringing on the intellectual property rights of
any third party, the Company could be subject to liabilities for such
infringement, which liabilities could be material, and could be required to
seek licenses from other companies or to refrain from using, manufacturing or
selling certain products or using certain processes. Although holders of
patents and other intellectual property rights often offer licenses to their
patent or other intellectual property rights, no assurance can be given that
licenses would be offered or that the terms of any offered license would be
acceptable to the Company. 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. See "Certain
Transactions."

The Company has been required to place the source code for certain of its
software in escrow for the benefit of Xerox, and such software will be
released to Xerox in the event that the Company either files bankruptcy and as
a result is unable to deliver products for the thirty (30) days of the
previously committed date, or ceases operations.

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. See "Risk Factors--Dependence on Proprietary Technology; Reliance
on Third Party Licenses" and "--Dependence on Adobe Systems Incorporated."

EMPLOYEES

As of June 30, 1997, the Company employed 100 people, including 48 in
research and development, 7 in operations, 30 in sales and marketing, and 15
in a general and administrative capacity. The Company also employs a number of
temporary employees and consultants on a contract basis. None of the Company's
employees is represented by a labor union with respect to his or her
employment by the Company. The Company has not experienced any work stoppages
and considers its relations with its employees to be good.

The Company's future success will depend, in part, upon its ability to
attract and retain qualified personnel. Competition for qualified personnel in
the Company's industry is intense, and there can be no assurance that the
Company will be successful in retaining its key employees or that it will be
able to attract skilled personnel necessary for the development of its
business. See "Risk Factors--Dependence on Key Personnel."

FACILITIES

The Company's principal operations are located in a leased facility of
approximately 24,000 square feet in Sunnyvale, California. The lease on this
building expires in 2001, and the Company has an option

47
<PAGE>

to extend the lease for a period of up to five additional years. The Company
also leases three office suites in Paris, France, primarily for sales and
marketing efforts in Europe. The initial lease term on these offices expires
in April 1998, and the lease is automatically renewed every three months after
April 1998 unless one of the parties to the lease gives prior notice of
termination. The Company also leases office space in Torrance, California.
This lease expires in August 1998. The Company believes that its existing
facilities are adequate to meet its needs for the near term and is evaluating
its future facility needs.

QUINTAR ACQUISITION

On May 28, 1997, the Company acquired Quintar. Pursuant to the acquisition
agreement, Splash paid to Quintar shareholders approximately $11.5 million in
cash at closing, assumed Quintar's outstanding stock options valued at $1.6
million and agreed to provide for aggregate contingent earn-out payments of up
to $3.2 million, subject to achieving certain net revenue and operating income
targets. The contingent payments will be payable, if at all, as of
December 31, 1997 and June 30, 1998.

Quintar designs, manufacturers and markets embedded controllers for desktop
color printers, as well as proprietary servers for high-speed, multifunction
monochrome and color printers and copiers. The Quintar acquisition is expected
to enable the Company to better address the market for certain low-end and
mid-range embedded controllers and color servers. In addition, the Quintar
acquisition increased the Company's engineering resources. Quintar is
currently developing products which are expected to be sold through the
reseller channel. The Company may also seek to offer additional products
through this channel in the future. In recent years, Quintar has incurred net
losses. See "Unaudited Pro Forma Combined Condensed Statements of Operations."

In addition to the risks generally associated with an acquisition (including
those specified in the paragraph below), there are specific risks associated
with the Quintar acquisition, including those specified below. First,
Quintar's technology is currently under development. There can be no assurance
that Quintar's 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 Quintar's technology. Second, Quintar has experienced
net losses in the past, including the last three years. There can be no
assurance that Quintar will not continue to incur net losses, which the
Company would be required to fund. Third, Quintar's target market, the low-end
and mid-range market for color servers, is characterized by intense
competition and rapid change. Quintar's principal competitor is EFI, the
Company's most significant competitor. Fourth, the Company is currently
planning to distribute Quintar's low-end color servers, if successfully
developed, through the reseller channel. Neither Quintar nor the Company has
previously sold into the reseller channel or has a sales and marketing force
capable of servicing this channel. There can be no assurance that the Company
will be able to successfully sell products into this distribution channel or
that it will be able to develop the sales and marketing force required to
service this channel.

The Company frequently evaluates potential acquisitions of complementary
businesses, products and technologies. Any acquisition would subject the
Company to numerous risks, including risks associated with integration into
the Company of new employees and technology. In addition, such acquisitions
could result in large one-time writeoffs or the creation of goodwill or other
intangible assets that would result in amortization expenses. For example, in
connection with the Quintar acquisition, Splash recorded an expense related to
purchased in-process research and development of approximately $11.0 million.
See "Risk Factors--Risks Associated with Quintar Acquisition; General Risks
Associated with Acquisitions."

48
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL

The following table sets forth certain information regarding the executive
officers, directors and other key personnel of the Company as of June 30,
1997:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kevin K. Macgillivray***........ 38 President, Chief Executive Officer and
Director
Joan P. Platt................... 43 Chief Financial Officer and
Vice President, Finance and Administration
Timothy D. Kleffman............. 39 Vice President, Business Development and
Product Planning
Christine A. Beheshti........... 35 Vice President, Software Engineering
Gregory M. Avis(1)***........... 38 Director
Charles W. Berger(1)**.......... 43 Director
Peter Y. Chung(2)*.............. 29 Director
Lawrence G. Finch(2)**.......... 63 Director
Richard A. Falk................. 38 Chief Scientist
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
* Class I Director
** Class II Director
*** Class III Director

Kevin K. Macgillivray has served as President, Chief Executive Officer and a
director of the Company since January 1996. From April 1995 until the Splash
Acquisition, Mr. Macgillivray was Vice President and General Manager of the
Publishing Division of Radius Inc., a manufacturer of computer video cards and
display products. From May 1993 to April 1995, Mr. Macgillivray held other
managerial positions within Radius Inc. and SuperMac Technology, Inc., which
merged into Radius Inc. in 1994. From May 1991 to May 1993, Mr. Macgillivray
was Vice President and General Manager of Oce Graphics USA, a computer
peripherals manufacturer. Mr. Macgillivray received a B.S. in Mechanical
Engineering from Stanford University.

Joan P. Platt joined the Company in March 1996 as Vice President, Finance
and Administration and Chief Financial Officer. From October 1986 to March
1996, Ms. Platt was a general practice partner at Coopers & Lybrand L.L.P., a
public accounting firm. Prior to 1986, Ms. Platt was a staff accountant and
manager in the business advisory, accounting and audit practice of Coopers &
Lybrand L.L.P. Ms. Platt received a B.S. in Business Administration from The
Pennsylvania State University.

Timothy D. Kleffman has served as Vice President, Business Development and
Product Planning since July 1997 and served as Vice President Engineering
Operations from the Splash Acquisition to June 1997. Mr. Kleffman was Director
of Printer Systems within the CSG at Radius and SuperMac from October 1992
until the Splash Acquisition. From August 1985 to October 1992, Mr. Kleffman
held various management positions at ROLM Corporation. Mr. Kleffman received a
B.S. in Electrical and Computer Engineering from the University of California,
Davis.

Christine A. Beheshti has served as Vice President, Software Engineering of
the Company since the Splash Acquisition. From March 1993 until the Splash
Acquisition, Ms. Beheshti held various engineering management positions with
Radius and SuperMac. From August 1987 to March 1993, Ms. Beheshti worked for
ROLM Corporation, where she held various software development, management and
engineering positions. Ms. Beheshti received a B.S. in Computer Science from
the University of Wisconsin.

49
<PAGE>

Gregory M. Avis has been a director of the Company since its formation in
December 1995. Mr. Avis has served as a General Partner of Summit Partners,
L.P., a venture capital partnership, since 1987 and has served as a Managing
Partner of Summit Partners, L.P. since 1990. Mr. Avis is also a director of
CMG Information Services, Inc., a direct marketing service provider, Digital
Link Corporation, a manufacturer of digital access products for wide area
networks, and Powerwave Technologies, Inc., a designer and manufacturer of
linear power amplifiers for wireless communications.

Charles W. Berger has been a director of the Company since January 1996. Mr.
Berger has been Chairman and Chief Executive Officer of IMGIS, Inc. since July
1997. Mr. Berger has also been Chairman of the Board of Directors of Radius
Inc. since March 1994 and was Chief Executive Officer for Radius Inc. from
March 1993 until July 1997. From April 1992 until he joined Radius Inc., Mr.
Berger was Senior Vice President, Worldwide Sales, Operations and Support for
Claris Corporation, a software subsidiary of Apple Computer, Inc., a personal
computer manufacturer, that develops and markets application software. From
March 1989 to April 1992, Mr. Berger held various executive positions at
Sun Microsystems, Inc. and its subsidiaries.

Peter Y. Chung has been a director of the Company since its formation in
December 1995. Mr. Chung has served as a Vice President at Summit Partners,
L.P., a venture capital partnership, since December 1996. From August 1994 to
December 1996, Mr. Chung served as a Senior Associate at Summit Partners, L.P.
From August 1989 to July 1992, Mr. Chung was employed by Goldman, Sachs & Co.,
an investment banking firm.

Lawrence G. Finch has been a director of Splash since January 1996. Mr.
Finch has served as a General Partner of Sigma Partners, L.P., a venture
capital firm, since January 1989. Mr. Finch is also a director of
International Network Services, a networking services company, and Phoenix
Technologies Ltd., a developer of computer firmware and software.

Richard A. Falk has served as Splash's Chief Scientist since the Splash
Acquisition in January 1996. From October 1992 until the Acquisition, Mr. Falk
served in various engineering positions with SuperMac and Radius. From July
1983 to October 1992, Mr. Falk worked for ROLM Corporation in a variety of
development, engineering and management positions. Mr. Falk received a B.A. in
Physical Sciences and an M.B.A. from the University of California, Berkeley.

The Company's Board of Directors is divided into three classes. The term of
the Class I director expires at the Company's annual meeting of stockholders
in 2000, the term of the Class II directors expires at the Company's annual
meeting of stockholders in 1998, and the term of the Class III directors
expires at the Company's annual meeting of stockholders in 1999. Thereafter,
the term of each class of directors shall be three years. All directors hold
office until the annual meeting of stockholders at which their respective
class is subject to re-election and until their successors are duly elected
and qualified, or until their earlier resignation or removal. Officers serve
at the discretion of the Board and are elected annually. There are no family
relationships among the directors or officers of the Company.

BOARD COMMITTEES

The Board of Directors has had a Compensation Committee and an Audit
Committee since July 1996. The Compensation Committee makes recommendations to
the Board concerning salaries and incentive compensation for the Company's
officers and employees and administers the Company's 1996 Stock Option Plan
and 1996 Employee Stock Purchase Plan. The Audit Committee aids management in
the establishment and supervision of the Company's financial controls,
evaluates the scope of the annual audit, reviews audit results, consults with
management and the Company's independent auditors prior to the presentation of
financial statements to stockholders and, as appropriate, initiates inquiries
into aspects of the Company's financial affairs.

50
<PAGE>

DIRECTOR COMPENSATION

Directors receive no cash remuneration for serving on the Board of Directors,
although directors are reimbursed for all reasonable expenses incurred by them
in attending Board and Committee meetings. Non-employee directors are eligible
to receive stock options under the 1996 Stock Option Plan. See "--Compensation
Plans."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors currently consists of
Messrs. Avis and Berger. Neither of these individuals were at any time since
the formation of the Company, an officer or employee of the Company. No
executive officer of the Company serves as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.

EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS

The Company does not currently have any employment contract in effect with
its Chief Executive Officer or any other Named Executive Officer (as defined
below).

EXECUTIVE COMPENSATION

The following table sets forth a summary of (i) the compensation paid by
Radius Inc., the Company's predecessor business, during the fiscal year ended
September 30, 1995 and (ii) the compensation paid by Radius Inc. for the four
months ended January 31, 1996 and paid by the Company for the eight months
ended September 30, 1996 to the Company's Chief Executive Officer and the
Company's three other most highly compensated executive officers (collectively,
the "Named Executive Officers") for services rendered in all capacities to
Radius Inc. and the Company:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------------
SECURITIES
NAME AND PRINCIPAL INCENTIVE UNDERLYING ALL OTHER
POSITION YEAR SALARY(1) BONUS OPTIONS(2) COMPENSATION(3)
------------------ ---- --------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Kevin K. Macgillivray.... 1996 $163,232 $184,100 48,124 $691
President, Chief 1995 135,711 44,845 -- --
Executive Officer and
Director
Joan P. Platt(4)......... 1996 68,019 32,875 96,659 476
Vice President, Finance 1995 -- -- -- --
and Administration and
Chief Financial Officer
Timothy D. Kleffman...... 1996 131,616 123,240 48,124 696
Vice President, 1995 127,285 36,000 -- --
Business Development and
Product Planning
Christine A. Beheshti.... 1996 131,616 65,500 48,124 671
Vice President, 1995 117,596 33,750 -- --
Software Engineering
</TABLE>
- -------
(1) Includes compensation deferred by the employee under the Company's
qualified 401(k) retirement plan.
(2) Consists of options to purchase shares of the Company's Common Stock under
the Company's 1996 Stock Option Plan.
(3) Consists of vested contributions made by the Company under its qualified
401(k) retirement plan.
(4) The Company hired Ms. Platt on March 29, 1996.

51
<PAGE>

OPTION GRANTS AND EXERCISES IN LAST FISCAL YEAR

The following tables set forth information regarding stock options granted to
and exercised by the Named Executive Officers during fiscal 1996, as well as
options held by such officers as of September 30, 1996, the last day of the
Company's 1996 fiscal year:

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(1) VALUE AT ANNUAL
---------------------------------------------- RATES OF STOCK PRICE
NUMBER OF % OF APPRECIATION
SECURITIES TOTAL OPTIONS FOR OPTION TERM(2)
UNDERLYING GRANTED TO EXERCISE --------------------
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED IN FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- -------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kevin K. Macgillivray... 48,124 5.5% $0.14 2/21/06 $ 4,237 $ 10,738
Joan P. Platt........... 96,659 11.1 0.29 3/29/06 17,629 44,674
Timothy D. Kleffman..... 48,124 5.5 0.14 2/21/06 4,237 10,738
Christine A. Beheshti... 48,124 5.5 0.14 2/21/06 4,237 10,738
</TABLE>

- --------
(1) Each of these options was granted pursuant to the 1996 Plan, as defined
below, and is subject to the terms of such plan.

(2) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), shown are the hypothetical gains or "options spreads" that
would exist for the respective options. These gains are based on assumed
rates of annual compounded stock price appreciation of 5% and 10% from the
date the option was granted over the full option term. The 5% and 10%
assumed rates of appreciation are mandated by the rules of the Commission
and do not represent the Company's estimate or projection of future
increases in the price of its Common Stock.

AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND YEAR-END VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
SHARES ------------------------- -------------------------
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kevin K. Macgillivray... 48,124 $41,387 -- -- $ -- $ --
Joan P. Platt........... 96,659 68,628 -- -- -- --
Timothy D. Kleffman..... 48,124 41,387 -- -- -- --
Christine A. Beheshti... 48,124 41,387 -- -- -- --
</TABLE>

COMPENSATION PLANS

1996 Stock Option Plan

The Company's 1996 Stock Option Plan (the "1996 Plan") was adopted in January
1996 and amended in July 1996. The 1996 Plan provides for the grant to
employees of the Company (including officers and employee directors) of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and for the grant of
nonstatutory stock options to employees and consultants of the Company. The
1996 Plan is administered by the Board of Directors or a Committee of the Board
of Directors (the "Administrator"), which selects the optionees, determines the
number of shares to be subject to each option and determines the exercise price
of each option. The 1996 Plan authorizes the issuance of an aggregate of up to
3,150,000 shares of Common

52
<PAGE>

Stock. As of June 30, 1997, approximately 610,000 shares had been issued under
the 1996 Plan, options for approximately 802,000 shares were outstanding, and
approximately 1,749,000 shares remained available for future grants. The
exercise price of all incentive stock options granted under the 1996 Plan must
be at least equal to the fair market value of the Common Stock on the date of
grant. The exercise price of all nonstatutory stock options granted under the
1996 Plan shall be determined by the Administrator. With respect to any
participant who owns stock possessing more than 10% of the voting power of all
classes of stock of the Company, the exercise price of any incentive stock
option granted must equal at least 110% of the fair market value on the grant
date and the maximum term of the option must not exceed five years. The term of
all other options granted under the 1996 Plan may not exceed ten years.

In the event of a merger of the Company with or into another corporation or a
sale of substantially all the Company's assets, the 1996 Plan requires that
each outstanding option be assumed or an equivalent option substituted by the
successor corporation; provided, however, that in the event the successor
corporation refuses to assume or substitute for the outstanding options, such
options will become fully vested and exercisable for a period of fifteen days
after notice from the Administrators. Unless terminated sooner, the 1996 Plan
will terminate ten years from its effective date. The Board has authority to
amend or terminate the 1996 Plan, provided that no such action may impair the
rights of the holder of any outstanding options without the written consent of
such holder.

1996 Employee Stock Purchase Plan

The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted in July 1996 and became effective upon the closing of the Company's
initial public offering. A total of 175,000 shares of Common Stock has been
reserved for issuance under the Purchase Plan. As of June 30, 1997,
approximately 50,000 shares of Common Stock had been issued under the Purchase
Plan. The Purchase Plan is intended to qualify under Section 423 of the Code.
Offering periods may be up to 24 months in duration and may include several
purchase periods as determined by the Board. The initial offering period
commenced on the date of the Company's initial public offering and will end on
the last business day on or prior to April 30, 1997, and subsequent offering
periods are initially expected to be May 1 to October 31 and November 1 to
April 30 of each year. Employees are eligible to participate if they are
regularly employed by the Company for at least twenty hours per week and more
than five months in any calendar year.

The Purchase Plan permits eligible employees to purchase Common Stock through
payroll deductions, which may not exceed 10% of an employee's base compensation
(20% in the first offering period), including commissions, bonuses and
overtime, at a price equal to 85% of the fair market value of the Common Stock
at the beginning of each offering period or the purchase date, whichever is
lower. In the event of certain changes in control of the Company, the Purchase
Plan provides that the Board of Directors will shorten the offering period by
setting a new purchase date to occur before the change in control event. Unless
terminated sooner, the Purchase Plan will terminate ten years after its
effective date. The Board of Directors has authority to amend or terminate the
Purchase Plan provided no such action may adversely affect the rights of any
participant.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Amended and Restated Certificate of Incorporation limits the
liability of directors to the fullest extent permitted by the Delaware General
Corporation Law (the "Delaware Law"). Under the Delaware Law, a director's
liability to a company or its stockholders may not be limited with respect to
(i) any breach of his duty of loyalty to the company or its stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) unlawful payments or dividends or unlawful
stock repurchases or redemptions, or (iv) transactions from which the director
derived an improper personal benefit.

53
<PAGE>

The Company's Bylaws provide that the Company shall indemnify its officers
and directors and may indemnify its employees and other agents to the fullest
extent permitted under the Delaware Law. The Company has also entered into
agreements to indemnify its directors and executive officers, in addition to
the indemnification provided for in the Company's Bylaws. The Company believes
that these provisions and agreements are necessary to attract and retain
qualified directors and executive officers. The Company's Bylaws also permit it
to secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions, regardless of whether the
Delaware Law would permit indemnification.

There is no pending litigation or proceeding involving any director, officer,
employee or agent of the Company where indemnification will be required or
permitted. The Company is not aware of any pending or threatened litigation or
proceeding that might result in a claim for such indemnification.

54
<PAGE>

CERTAIN TRANSACTIONS

On January 30, 1996, the Company was acquired by an investor group (the
"Acquisition Group") led by certain entities affiliated with Summit Partners,
L.P. and certain entities affiliated with Sigma Partners, L.P. The Splash
Acquisition was effected through the following series of transactions: (i) the
Acquisition Group formed and capitalized a new corporation, the Company, called
Splash Technology Holdings, Inc., a Delaware corporation; (ii) the Company
formed and capitalized a new wholly-owned subsidiary, Splash Merger Company,
Inc., a Delaware corporation; (iii) Radius created a new corporation, Splash
Technology, Inc., a Delaware corporation, into which Radius placed
substantially all of the assets and liabilities of its Color Server Group in
exchange for all of the capital stock of Splash Technology, Inc.; and (iv)
Splash Merger Company, Inc. was merged with and into Splash Technology, Inc.,
thereby effecting the Splash Acquisition. As a result of these transactions,
the surviving corporation in the merger was Splash Technology, Inc., a wholly-
owned subsidiary of the Company, which in turn was owned principally by the
Acquisition Group. As a result of these transactions, Radius received (i) a
payment of approximately $21.9 million in cash on January 30, 1996
(approximately $2.35 million of which remains in escrow for the benefit for the
Company and its stockholders, as described below), (ii) an aggregate of 4,282
shares of Series B Preferred Stock of the Company, which was converted into a
total of 1,741,129 shares of Common Stock of the Company (representing
approximately 19% of the outstanding Common Stock of the Company prior to the
Company's initial public offering) and (iii) a payment of approximately $1.5
million in cash on June 9, 1996. None of the entities within the Acquisition
Group which are affiliated with Summit Partners, L.P. or Sigma Partners, L.P.
were affiliated with Radius immediately prior to the Splash Acquisition.
Entities affiliated with Sigma Partners, L.P. collectively held more than 5% of
the outstanding capital stock of SuperMac until January 1993 and Lawrence G.
Finch was a director of Radius until October 1995.

The Splash Acquisition was funded by the purchase of approximately $15.5
million of Series A Preferred Stock and Common Stock by entities associated
with Summit Partners, L.P. and entities associated with Sigma Partners, L.P.
and the purchase of $8.0 million of subordinated promissory notes by entities
associated with Summit Partners, L.P. The following table shows the aggregate
amount of Common Stock, Series A Preferred Stock and subordinated promissory
notes acquired by each of the principal parties in connection with the initial
capitalization of Splash Technology Holdings, Inc. and the amount and type of
consideration contributed therefor.

<TABLE>
<CAPTION>
PRINCIPAL
PURCHASE PURCHASE AMOUNT OF
PRICE SHARES OF PRICE FOR SUBORDINATED
SHARES OF FOR SERIES A SERIES A PROMISSORY
COMMON COMMON PREFERRED PREFERRED NOTES
STOCK STOCK STOCK STOCK PURCHASED TOTAL
--------- -------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Entities associated with
Summit Partners, L.P. . 5,888,749 $67,300 13,933 $13,933,000 $8,000,000 $22,000,300
Entities associated with
Sigma Partners, L.P. .. 586,249 6,700 1,493 1,493,000 -- 1,499,700
Management.............. 533,748 6,100 -- -- -- 6,100
--------- ------- ------ ----------- ---------- -----------
Total................. 7,008,746 $80,100 15,426 $15,426,000 $8,000,000 $23,506,100
========= ======= ====== =========== ========== ===========
</TABLE>

The Splash Acquisition constituted a leveraged transaction. As of January 30,
1996, the Company had approximately $12.6 million in assets and approximately
$9.6 million of liabilities. Immediately following the Splash Acquisition, the
Company had $18.2 million in assets and $19.7 million of liabilities. See
"Splash Acquisition," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Principal and Selling Stockholders."

In October 1996, the Company used approximately $15.4 million and $8.0
million of the net proceeds of the Company's initial public offering to redeem,
in accordance with their terms, all the outstanding shares of the Company's
Series A Preferred Stock and all outstanding subordinated promissory notes.

55
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of July 10, 1997 and as
adjusted to reflect the sale of the shares of Common Stock offered hereby with
respect to (i) each person (or group of affiliated persons) known by the
Company to own beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each of the Company's directors, (iii) each of the Named Executive
Officers, (iv) all directors and executive officers as a group and (v) each
Selling Stockholder:

<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP PRIOR OWNERSHIP AFTER
TO OFFERING(1) NUMBER OF OFFERING(1)(2)
----------------- SHARES -----------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
------------------------ --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Summit Partners, L.P.(3)(4)....... 5,888,749 48.6% 875,000 5,013,749 37.3%
499 Hamilton Avenue, Suite 200
Palo Alto, CA 94301
Gregory M. Avis(3)(4)............. 5,888,749 48.6 875,000 5,013,749 37.3
Peter Y. Chung(3)(4).............. -- -- -- -- --
Radius Inc.(5).................... 1,741,127 14.4 875,000 866,127 6.4
215 Moffett Park Drive
Sunnyvale, CA 94089
Charles W. Berger(5).............. 1,741,127 14.4 875,000 866,127 6.4
Putnam Investments, Inc.(6)....... 1,247,689 10.4 -- 1,247,689 9.3
One Post Office Square
Boston, MA 02109
Lawrence G. Finch................. 44,356 * -- 44,356 *
Kevin K. Macgillivray(7).......... 286,965 2.4 43,000 243,965 1.8
Joan P. Platt(8).................. 119,031 1.0 10,000 109,031 *
Timothy D. Kleffman(9)............ 217,147 1.8 43,000 174,147 1.3
Christine A. Beheshti(10)......... 167,778 1.4 33,500 134,278 1.0
All directors and executive
officers as a group
(8 persons)(3)(5)(11)............ 8,465,153 69.3 1,879,500 6,585,653 48.6
Other Selling Stockholders:
Non-executive employee selling
stockholders(12)................ 167,471 1.4 30,000 137,471 1.0
</TABLE>
- --------
*Less than 1%

(1) Beneficial ownership is determined in accordance with the rules of
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by that
person that are currently exercisable or exercisable within 60 days of
July 10, 1997 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of any
other person. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, each stockholder named in
the table has sole voting and investment power with respect to the shares
set forth opposite such stockholder's name.

(2) Percentage of ownership is based on 12,108,561 shares of Common Stock
outstanding on July 10, 1997 and 13,449,061 shares of Common Stock
outstanding after completion of the Offering assuming no exercise of the
Underwriters' over-allotment option. If the Underwriters' over-allotment
option is exercised in full, the Company and certain stockholders will
sell an aggregate of 487,500 additional shares of Common Stock.
Specifically, (i) subject to Note (12) below, the Company will sell an
additional 243,750 shares, (ii) Summit Partners, L.P. will sell an
additional 121,875 shares and beneficially own 4,891,874 shares or 35.7%
of the outstanding Common Stock, after completion of the Offering and
(iii) Radius Inc. will sell an additional 121,875 shares and beneficially
own 744,252 shares or 5.4% of the outstanding Common Stock, after
completion of the Offering. See "Description of Capital Stock."

56
<PAGE>

(3) Includes 5,254,812, 224,175 and 409,762 shares of Common Stock held of
record by Summit Ventures IV, L.P., Summit Investors III, L.P. and Summit
Subordinated Debt Fund, L.P., respectively. Summit Partners IV, L.P. is a
General Partner of Summit Ventures IV, L.P. and Summit Partners SD, L.P.
is a General Partner of Summit Subordinated Debt Fund, L.P. Stamps,
Woodsum & Co., IV is a General Partner of Summit Ventures IV, L.P. and
Stamps, Woodsum & Co., III is a General Partner of Summit Subordinated
Debt Fund, L.P. Gregory M. Avis, a director of the Company, is a General
Partner of Stamps, Woodsum & Co., III, Stamps, Woodsum & Co., IV and
Summit Investors III, L.P. See Note (4).

(4) Includes shares described in Note (3) above. Mr. Avis, a director of the
Company, is a general partner of affiliates of Summit Partners, L.P. Mr.
Avis exercises shared investment and voting power with respect to such
shares, but disclaims beneficial ownership of such shares.

(5) Includes 1,741,127 shares beneficially owned by Radius Inc. Mr. Berger, a
director of the Company, is Chairman of the Board of Directors of Radius
Inc. Mr. Berger exercises shared investment and voting power with such
shares, but disclaims beneficial ownership of such shares.

(6) According to an amended Schedule 13G filed with the Securities and
Exchange Commission on May 8, 1997, Putnam Investments, Inc. has shared
voting power with respect to 237,427 of these shares and shared
dispositive power with respect to all 1,247,689 shares.

(7) Includes 109,646 shares that are subject to a right of repurchase in favor
of the Company which expires ratably through February 2000. Also includes
40,000 shares issuable upon the exercise of an option which vests over
four years; such option may be exercised immediately as to all shares,
provided that the unvested shares shall be subject to a right of
repurchase in favor of the Company.

(8) Includes 66,453 shares that are subject to a right of repurchase in favor
of the Company which expires ratably through March 2000. Also includes
20,000 shares issuable upon the exercise of an option which vests over
four years; such option may be exercised immediately as to all shares,
provided that the unvested shares shall be subject to a right of
repurchase in favor of the Company.

(9) Includes 88,757 shares that are subject to a right of repurchase in favor
of the Company which expires ratably through February 2000. Also includes
20,000 shares issuable upon the exercise of an option which vests over
four years; such option may be exercised immediately as to all shares,
provided that the unvested shares shall be subject to a right of
repurchase in favor of the Company.

(10) Includes 67,853 shares that are subject to a right of repurchase in favor
of the Company which expires ratably through February 2000. Also includes
20,000 shares issuable upon the exercise of an option which vests over
four years; such option may be exercised immediately as to all shares,
provided that the unvested shares shall be subject to a right of
repurchase in favor of the Company.

(11) Includes 330,695 shares that are subject to a right of repurchase in favor
of the Company which expires ratably through March 2000. Also includes
100,000 shares issuable upon the exercise of options which vest over four
years; such options may be exercised immediately as to all shares,
provided that the unvested shares shall be subject to a right of
repurchase in favor of the Company.

(12) Includes 67,853 shares that are subject to a right of repurchase in favor
of the Company which expires ratably through February 2000. Also includes
20,000 shares issuable upon the exercise of an option which vests over
four years; such option may be exercised immediately as to all shares,
provided that the unvested shares shall be subject to a right of
repurchase in favor of the Company.

57
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, par value $0.001 per share, and 5,000,000 shares of Preferred
Stock, par value $0.001 per share.

The following summary of certain provisions of the Common Stock and Preferred
Stock does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the Company's Amended and Restated Certificate
of Incorporation, which is included as an exhibit to the Registration Statement
of which this Prospectus is a part, and by the provisions of applicable law.

COMMON STOCK

As of June 30, 1997, there were 12,108,561 shares of Common Stock outstanding
held of record by approximately 61 stockholders, as well as options to purchase
an aggregate of approximately 802,000 shares of Common Stock. The holders of
Common Stock are entitled to one vote per share on all matters to be voted on
by the stockholders. Subject to preferences that may be applicable to
outstanding shares of Preferred Stock, if any, the holders of Common Stock are
entitled to receive ratably such dividends as may be declared from time to time
by the Board of Directors out of funds legally available therefor. In the event
of the liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior liquidation rights of Preferred Stock,
if any, then outstanding. The Common Stock has no preemptive conversion rights
or other subscription rights. There are no redemption or sinking funds
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are fully paid and non-assessable, and the shares of Common Stock to be
outstanding upon completion of the Offering will be fully paid and non-
assessable.

PREFERRED STOCK

The Company is authorized to issue 5,000,000 shares of undesignated Preferred
Stock. The Board of Directors will have the authority to issue the undesignated
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
shares of undesignated Preferred Stock and to fix the number of shares
constituting any series in the designations of such series, without any further
vote or action by the stockholders. The Board of Directors, without stockholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plan
to issue Preferred Stock.

REGISTRATION RIGHTS

Under the terms of the Registration Rights Agreement dated as of January 30,
1996 among the Company and certain holders of its securities (the "Rights
Agreement"), after the Offering the holders of approximately 6,600,000 shares
of Common Stock (the "Registrable Securities") will be entitled to certain
rights with respect to the registration of such shares of Common Stock under
the Securities Act. Under the Rights Agreement, if the Company proposes to
register any of its Common Stock under the Securities Act, certain holders of
Registrable Securities are entitled to notice of such registration and to
include their Registrable Securities therein; provided, among other conditions,
that the underwriters have the right to limit the number of shares included in
any such registration. Beginning in April 1997, the holders of at least fifty
percent (50%) of the Registrable Securities have the right to require the
Company, on not more than two occasions, to file a registration statement under
the Securities Act in order to register all or any part of their Registrable
Securities. The Company may, in certain circumstances, defer such registration
and the underwriters have the right, subject to certain limitations, to limit
the number of shares included in such registrations. Further, the holders of
Registrable Securities may require the Company to register all or any portion
of their Registrable Securities

58
<PAGE>

on Form S-3, when such form becomes available to the Company, subject to
certain conditions and limitations.

ANTITAKEOVER EFFECTS OF PROVISIONS OF AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION, AMENDED AND RESTATED BYLAWS AND DELAWARE LAW

The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws, among other things, (i) permit vacancies on the Board of
Directors that may occur between annual meetings and any newly created seats to
be filled only by the Board of Directors and not by the stockholders, subject
to any rights of holders of the Preferred Stock that may be granted by the
Board of directors in the future, (ii) limit the rights of stockholders to call
special meetings of stockholders, (iii) provide for classification of the Board
of Directors into three classes having terms of three years each, and (iv)
provide that the Board of Directors, without action by the stockholders, may
issue and fix the rights and preferences of shares of Preferred Stock. These
provisions may have the effect of delaying, deferring or preventing a change of
control of the Company without further action by the stockholders, may
discourage bids for the Common Stock at a premium over the market price of the
Common Stock, may adversely affect the market price of, and the voting and
other rights of, the holders of the Common Stock and could have the effect of
discouraging certain attempts to acquire the Company or remove incumbent
management, including incumbent members of the Company's Board of Directors,
even if some or a majority of the Company's stockholders deemed such an attempt
to be in their best interests. See "Risk Factors--Control by Principal
Stockholders, Officers and Directors; Antitakeover Effects of Certificate of
Incorporation and Delaware Law" and "Management--Executive Officers, Directors
and Key Personnel."

The Company is subject to Section 203 of the Delaware General Corporation Law
("Section 203"). Section 203 prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) prior to such date, the board of
directors of the corporation approves either the business combination of the
transaction that resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owns
at least 85% of the outstanding voting stock, excluding certain shares held by
employee directors and employee stock plans, or (iii) on or after the
consummation date the business combination is approved by the board of
directors and by the affirmative vote of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder. For purposes of
Section 203, a "business combination" includes, among other things, a merger,
asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and an "interested stockholder" is generally a person
who, together with affiliates and associates, owns (or within three years, did
own) 15% or more of the corporation's voting stock.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is The First National
Bank of Boston. Its telephone number is (617) 575-2000.

LISTING

The Company's Common Stock is listed on the Nasdaq National Market under the
trading symbol "SPLH."

59
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding 13,449,061
shares of Common Stock (assuming no exercise of options after June 30, 1997).
Of these shares, in addition to the 3,250,000 shares sold in the Offering, an
aggregate of approximately 4,300,000 shares of Common Stock currently
outstanding, issuable on exercise of outstanding options or issuable pursuant
to the Purchase Plan will be eligible for sale on or prior to the date of this
Prospectus and approximately 6,800,000 additional shares of Common Stock
currently outstanding, issuable on exercise of outstanding options or issuable
pursuant to the Purchase Plan will become eligible for sale 90 days after the
date of this Prospectus upon the expiration of certain lock-up agreements with
the Company and the Underwriters, subject in certain cases to certain volume
and other resale restrictions under Rule 144.

The holders of approximately 6,650,000 shares of, or options to purchase
shares of, the Company's Common Stock (including all of the Company's officers
and each of the Selling Stockholders) have agreed with the Company or the
Representatives that until 90 days after the Effective Date they will not sell,
offer to sell, contract to sell or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of Common Stock, any options or
warrants to purchase shares of Common Stock, or any securities convertible or
exchangeable for shares of Common Stock, owned directly by such holders or with
respect to which they have power of disposition, except as set forth below with
respect to Radius. The Company has also agreed not to sell, offer to sell,
contract to sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or any rights to acquire Common Stock for a
period of 90 days after the Effective Date without the prior written consent of
Alex. Brown & Sons Incorporated subject to certain limited exceptions. The
lock-up agreements may be released at any time as to all or any portion of the
shares subject to such agreements at the sole discretion of Alex. Brown & Sons
Incorporated.

Pursuant to the Amended and Restated Working Capital Financing and Term Loan
Agreement between Radius and IBM Credit Corporation ("IBM Credit"), Radius
pledged all of its shares to IBM Credit to secure the repayment of debt. Radius
also agreed that, upon the request of IBM Credit, Radius will use its best
efforts to dispose of a specified percentage of its ownership interest in
Splash as of August 30, 1996 (excluding any shares subject to any option issued
by Radius in favor of IBM Credit). As of August 30, 1996, Radius owned
1,741,127 shares of Common Stock. During the first, second and third year
following Splash's October 1996 initial public offering, the specified
percentage of Radius' interest in Splash required to be disposed of at IBM
Credit's request is 50%, 75% (minus the percent sold in the previous year) and
100% (minus the percent sold in the previous years), respectively, and in each
case excluding any shares subject to any option granted by Radius to IBM
Credit. In addition, as of any date that Radius' outstanding term loans under
the foregoing agreement exceed 90% of the market value of Radius' interest in
Splash (excluding any shares subject to any option granted by Radius to
IBM Credit), upon the request of IBM Credit, Radius must use its best efforts
to dispose of the balance of its ownership interest in Splash. Subject to
certain rights of Radius to demand that the Company register Radius' shares of
Common Stock under the Securities Act, Radius' ability to dispose of such
shares may be subject to the volume and other resale restrictions under Rule
144. See "Risk Factors--Financial Difficulties of a Certain Stockholder;
Potential Sales of Common Stock."

In connection with this Offering, Radius has agreed with IBM Credit to apply
all of its net proceeds from the Offering to reduce its obligations to IBM
Credit. Radius' remaining shares will continue to secure its remaining
obligations to IBM Credit. Additionally, Radius has agreed to use reasonable
efforts to dispose of approximately 10% of its current holdings prior to the
end of 1997, subject to the lock-up agreement described above.

60
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), Alex. Brown & Sons Incorporated,
Montgomery Securities and Piper Jaffray Inc., have severally agreed to purchase
from the Company and the Selling Stockholders the following respective numbers
of shares of Common Stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Alex. Brown & Sons Incorporated.................................... 1,083,334
Montgomery Securities.............................................. 1,083,333
Piper Jaffray Inc. ................................................ 1,083,333
---------
Total.......................................................... 3,250,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares
are purchased.

The Company and the Selling Stockholders have been advised by the
Underwriters that the Underwriters propose to offer the shares of Common Stock
to the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $0.94 per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $0.10 per share to certain other dealers. After the
Offering, the offering price and other selling terms may be changed by the
Underwriters.

The Company and certain Selling Stockholders have granted to the Underwriters
an option, exercisable not later than 30 days after the date of this
Prospectus, to purchase up to 487,500 additional shares of Common Stock at the
public offering price less the underwriting discounts and commissions set forth
on the cover page of this Prospectus. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof that the number of shares of
Common Stock to be purchased by it shown in the above table bears to 3,250,000
and the Company and such Selling Stockholders will be obligated, pursuant to
the option, to sell such shares to the Underwriters. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of Common Stock offered hereby. If purchased, the Underwriters will offer
such additional shares on the same terms as those on which the 3,250,000 shares
are being offered.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.

The Selling Stockholders and all of the officers of the Company have agreed
not to offer, sell, contract to sell, or otherwise dispose of any of such
Common Stock for a period of 90 days after the date of this Prospectus without
the prior written consent of the Representatives of the Underwriters. See
"Shares Eligible for Future Sale."

The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.

61
<PAGE>

In general, the rules of the Securities and Exchange Commission (the
"Commission") will prohibit the Underwriters from making a market in the
Company's Common Stock during the restricted period immediately preceding the
pricing of the Common Stock offered hereby. The Commission has, however,
adopted exemptions from its rules that permit passive market making under
certain conditions. The rules permit an Underwriter to continue to make a
market subject to certain conditions, including that its bid not exceed the
highest bid by a market maker not connected with the Offering and that its net
purchases on any one trading day not exceed prescribed limits. Pursuant to
these exemptions, certain Underwriters, selling group members (if any) or their
respective affiliates intend to engage in passive market making in Common Stock
during the restricted period.

In connection with the Offering, the Underwriters and other persons
participating in the Offering may engage in transactions that stabilize,
maintain or otherwise affect the price of Common Stock. Specifically, the
Underwriters may over-allot in connection with the Offering, creating a short
position in Common Stock for their own account. To cover over-allotments or to
stabilize the price of Common Stock the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. The Underwriters may also impose a
penalty bid whereby they may reclaim selling concessions allowed to an
underwriter or a dealer for distributing Common Stock in the Offering, if the
Underwriters repurchase previously distributed Common Stock in transactions to
cover their short position, in stabilization transactions or otherwise.
Finally, the Underwriters may bid for, and purchase, shares of Common Stock in
market making transactions. These activities may stabilize or maintain the
market price of Common Stock above market levels that may otherwise prevail.
The Underwriters are not required to engage in these activities and may end any
of these activities at any time.

LEGAL MATTERS

The validity of the issuance of shares of Common Stock offered hereby will be
passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Certain legal matters in connection with
the Offering will be passed upon for the Underwriters by Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park, California. Jeffrey D.
Saper, a member of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
is the Secretary of the Company.

EXPERTS

The consolidated balance sheets of the Company as of September 30, 1995 and
1996 and the consolidated statements of operations and cash flows for each of
the two years in the period ended September 30, 1995 and the four months ended
January 31, 1996, the eight months ended September 30, 1996 and the five months
ended June 30, 1996; and statement of parent company investment for each of the
two years in the period ended September 30, 1995 and the four months ended
January 31, 1996 and the consolidated statement of stockholders' equity for the
eight months ended September 30, 1996, included in this Prospectus have been so
included in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of such firm as experts in auditing and
accounting.

The consolidated financial statements of Quintar Holdings Corporation at
December 31, 1995 and 1996, and for each of the years then ended, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

62
<PAGE>

SPLASH TECHNOLOGY HOLDINGS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SPLASH TECHNOLOGY HOLDINGS, INC.
Report of Independent Accountants......................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1995 and 1996; and June
30, 1997 (unaudited)................................................... F-3
Consolidated Statements of Operations for the years ended September 30,
1994 and 1995; the four months ended January 31, 1996; the eight months
ended September 30, 1996; the four months ended January 31, 1996; the
five months ended June 30, 1996; and the nine months ended June 30,
1997 (unaudited)....................................................... F-4
Consolidated Statements of Stockholders' Equity for the eight months
ended September 30, 1996; and the nine months ended June 30, 1997
(unaudited)............................................................ F-5
Predecessor Business Statement of Parent Company Investment for the
years ended September 30, 1994 and 1995; and the four months ended
January 31, 1996....................................................... F-6
Consolidated Statements of Cash Flows for the years ended September 30,
1994 and 1995; the four months ended January 31, 1996; the eight months
ended September 30, 1996; the four months ended January 31, 1996; the
five months ended June 30, 1996, and the nine months ended June 30,
1997 (unaudited)....................................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
QUINTAR HOLDINGS CORPORATION
Report of Independent Auditors............................................ F-18
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1996............ F-19
Consolidated Statements of Operations for the years ended December 31,
1995 and 1996.......................................................... F-20
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995 and 1996............................................. F-21
Consolidated Statements of Cash Flows for the years ended December 31,
1995 and 1996.......................................................... F-22
Notes to Consolidated Financial Statements.............................. F-23
Condensed Consolidated Financial Statements (unaudited):
Condensed Consolidated Balance Sheet as of March 31, 1997............... F-28
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1996 and 1997.......................................... F-29
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and 1997.......................................... F-30
Notes to Condensed Consolidated Financial Statements.................... F-31
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
Splash Technology Holdings, Inc.

We have audited the accompanying consolidated balance sheet of Splash
Technology Holdings, Inc. and its subsidiaries as of September 30, 1996 and the
related consolidated statements of operations and cash flows for the eight
months ended September 30, 1996 and the five months ended June 30, 1996 and the
related consolidated statement of stockholders' equity for the eight months
ended September 30, 1996. We have also audited the balance sheet at September
30, 1995, and the statements of operations, cash flows and parent company
investment of the Predecessor Business for the years ended September 30, 1994
and 1995 and the four months ended January 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Splash Technology Holdings, Inc. and its subsidiaries as of September 30,
1996, and the consolidated results of their operations and their cash flows for
the eight months ended September 30, 1996 and the five months ended June 30,
1996, in conformity with generally accepted accounting principles. Also in our
opinion, the financial statements of the Predecessor Business referred to
above, present fairly, in all material respects, the financial position of the
Predecessor Business as of September 30, 1995 and the results of its operations
and its cash flows for the years ended September 30, 1994 and 1995, and the
four months ended January 31, 1996, in conformity with generally accepted
accounting principles.

Coopers & Lybrand L.L.P

San Jose, California
October 14, 1996, except for Note 5, for
which the date is October 16, 1996 and
for Note 7, for which the date is
October 18, 1996.

F-2
<PAGE>

SPLASH TECHNOLOGY HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
PREDECESSOR SPLASH TECHNOLOGY
BUSINESS HOLDINGS, INC.
------------- -------------------------
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1995 1996 1997
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ -- $ 6,179 $ 6,601
Accounts receivable, net of
allowance for doubtful accounts
of $84, $299 and $304 as of
September 30, 1995 and 1996 and
June 30, 1997 (unaudited),
respectively..................... 4,716 6,582 11,713
Inventories....................... 3,965 3,651 3,112
Prepaid expenses and other
current assets................... -- 119 321
Deferred income taxes............. 622 3,962 3,962
------ ------- -------
Total current assets............ 9,303 20,493 25,709
Property and equipment, net........ 385 913 1,270
Deferred income taxes.............. -- 8,315 11,615
Other long term assets............. -- 1,511 1,457
------ ------- -------
Total assets.................... $9,688 $31,232 $40,051
====== ======= =======
LIABILITIES
Current liabilities:
Trade accounts payable............ $2,538 $ 1,239 $ 3,226
Other accrued liabilities......... 1,074 3,348 6,377
Royalties payable................. 1,978 1,260 1,950
Deferred revenue.................. -- 4,150 2,068
Income taxes payable.............. 1,395 1,725 2,078
------ ------- -------
Total current liabilities....... 6,985 11,722 15,699
Subordinated promissory notes
payable to stockholders........... -- 8,600 --
Other long term liabilities........ -- -- 400
------ ------- -------
Total liabilities............... 6,985 20,322 16,099
------ ------- -------
Commitments (Note 6)
STOCKHOLDERS' EQUITY
Preferred stock:
Authorized: 5,000,000 shares
Series A preferred stock, par
value $.001 per share:
Authorized, issued and
outstanding: 15,426 shares as
of September 30, 1996 and no
shares as of June 30, 1997
(unaudited).................... -- 1 --
Series B preferred stock, par
value $.001 per share:
Authorized, issued and
outstanding: 4,282 shares as of
September 30, 1996 and no
shares as of June 30, 1997
(unaudited).................... -- 1 --
Parent company investment.......... 2,703
Common stock, par value $.001:
Authorized: 50,000,000 shares;
issued and outstanding:
7,603,123 shares as of September
30, 1996 and 12,108,561 as of
June 30, 1997 (unaudited)........ -- 8 13
Additional paid-in capital......... -- 19,826 33,048
Retained earnings (accumulated
deficit).......................... -- (8,926) (9,109)
------ ------- -------
Total stockholders' equity...... 2,703 10,910 23,952
------ ------- -------
Total liabilities and
stockholders' equity........... $9,688 $31,232 $40,051
====== ======= =======
</TABLE>

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

F-3
<PAGE>

SPLASH TECHNOLOGY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
SPLASH
TECHNOLOGY PREDECESSOR SPLASH TECHNOLOGY
PREDECESSOR BUSINESS HOLDINGS, INC. BUSINESS HOLDINGS, INC.
--------------------------- -------------- ----------- -----------------------
YEAR ENDED FOUR MONTHS EIGHT MONTHS FOUR MONTHS FIVE MONTHS NINE MONTHS
SEPTEMBER 30, ENDED ENDED ENDED ENDED ENDED
--------------- JANUARY 31, SEPTEMBER 30, JANUARY 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1996 1996 1997
------- ------- ----------- -------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............. $16,354 $30,472 $13,008 $ 34,713 $13,008 $ 18,326 $51,227
Cost of net revenue..... 12,068 20,723 8,427 19,381 8,427 11,455 24,864
------- ------- ------- -------- ------- -------- -------
Gross profit.......... 4,286 9,749 4,581 15,332 4,581 6,871 26,363
------- ------- ------- -------- ------- -------- -------
Operating expenses:
Research and
development.......... 1,999 3,295 1,498 2,627 1,498 1,624 3,972
Sales and marketing... 562 2,076 688 1,756 688 806 4,126
General and
administrative....... 377 891 287 1,276 287 668 1,945
Amortization and
write-off of
technology........... -- -- -- 22,803 -- 22,729 11,039
------- ------- ------- -------- ------- -------- -------
Total operating
expenses........... 2,938 6,262 2,473 28,462 2,473 25,827 21,082
------- ------- ------- -------- ------- -------- -------
Income (loss) from
operations............. 1,348 3,487 2,108 (13,130) 2,108 (18,956) 5,281
Other income............ -- -- -- -- -- -- (600)
Interest (income)
expense, net........... -- -- 18 575 18 388 (379)
------- ------- ------- -------- ------- -------- -------
Income (loss) before
provision for income
taxes.................. 1,348 3,487 2,090 (13,705) 2,090 (19,344) 6,260
Provision for (benefit
from) income taxes..... 99 1,395 836 (5,509) 836 (7,765) 6,447
------- ------- ------- -------- ------- -------- -------
Net income (loss)....... $ 1,249 $ 2,092 $ 1,254 $ (8,196) $ 1,254 $(11,579) $ (187)
======= ======= ======= ======== ======= ======== =======
Net income (loss) per
share.................. $ (0.93) $ (1.25) $ (0.02)
======== ======== =======
Shares used in computing
per share amounts...... 9,583 9,580 11,903
======== ======== =======
</TABLE>

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

F-4
<PAGE>

SPLASH TECHNOLOGY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE DATA)

<TABLE>
<CAPTION>
PREFERRED RETAINED
STOCK COMMON STOCK ADDITIONAL EARNINGS
--------------- ------------------ PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
------- ------ ---------- ------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, February 1,
1996
Issuance of preferred
stock:
Series A............... 15,426 $ 1 -- $-- $ 14,699 $ -- $ 14,700
Series B............... 4,282 1 -- -- 4,099 -- 4,100
Issuance of common
stock................. -- -- 7,008,746 8 198 -- 206
Exercise of employee
stock options......... -- -- 599,627 -- 101 -- 101
Accretion for dividends
on Series A and B
preferred stock....... -- -- -- -- 730 (730) --
Repurchase of common
stock................. -- -- (5,250) -- (1) -- (1)
Net loss............... -- -- -- -- -- (8,196) (8,196)
------- --- ---------- --- -------- ------- --------
Balances, September 30,
1996................... 19,708 2 7,603,123 8 19,826 (8,926) 10,910
Redemption of preferred
stock:
Series A............... (15,426) (1) -- -- (14,699) (726) (15,426)
Series B............... (4,282) (1) 1,741,127 2 -- -- 1
Reversal of accretion
for dividends on
Series A and B
preferred stock....... -- -- -- -- (730) 730 --
Issuance of common
stock (IPO)........... -- -- 2,700,500 3 26,617 -- 26,620
Exercise of employee
stock options and
employee stock
purchase plan and
warrants.............. -- -- 69,286 -- 447 -- 447
Repurchase of common
stock................. -- -- (5,475) -- (1) -- (1)
Quintar acquisition
compensation.......... -- -- -- -- 1,588 -- 1,588
Net loss............... -- -- -- -- -- (187) (187)
------- --- ---------- --- -------- ------- --------
Balance, June 30, 1997
(unaudited)............ -- $-- 12,108,561 $13 $ 33,048 $(9,109) $ 23,952
======= === ========== === ======== ======= ========
</TABLE>

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

F-5
<PAGE>

SPLASH TECHNOLOGY HOLDINGS, INC.

PREDECESSOR BUSINESS STATEMENT
OF PARENT COMPANY INVESTMENT

(IN THOUSANDS)

<TABLE>
<S> <C>
Balance, October 1, 1993.............................................. $ (20)
Net change in parent company investment............................... 3,097
Net income............................................................ 1,249
-------
Balance, September 30, 1994........................................... 4,326
Net change in parent company investment............................... (3,715)
Net income............................................................ 2,092
-------
Balance, September 30, 1995........................................... 2,703
Net change in parent company investment............................... (12)
Net income............................................................ 1,254
-------
Balance, January 31, 1996............................................. $ 3,945
=======
</TABLE>

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

F-6
<PAGE>

SPLASH TECHNOLOGY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SPLASH
TECHNOLOGY PREDECESSOR SPLASH TECHNOLOGY
PREDECESSOR BUSINESS HOLDING, INC. BUSINESS HOLDINGS, INC.
----------------------------- ------------- ----------- -----------------------
YEAR ENDED FOUR MONTHS EIGHT MONTHS FOUR MONTHS FIVE MONTHS NINE MONTHS
SEPTEMBER 30, ENDED ENDED ENDED ENDED ENDED
---------------- JANUARY 31, SEPTEMBER 30, JANUARY 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1996 1996 1997
------- ------- ----------- ------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)....... $ 1,249 $ 2,092 $ 1,254 $ (8,196) $ 1,254 $(11,579) $ (187)
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and
amortization.......... 80 259 102 195 102 57 381
Provision for doubtful
accounts.............. 16 68 17 198 17 199 (143)
Gain on repayment of
promissory notes...... -- -- -- -- -- -- (600)
Purchased and in-
process technology.... -- -- -- 22,729 -- 22,729 11,039
Deferred income taxes.. (622) -- 622 (11,409) 622 (11,014) --
Changes in assets and
liabilities:
Accounts receivable.... (3,947) 490 (4,597) 3,330 (4,597) 5,059 (4,772)
Inventories............ (513) (2,678) 2,231 (1,917) 2,231 (2,211) 740
Prepaids and other
current assets........ -- -- -- (119) -- (119) (158)
Other long term assets. -- -- -- (464) -- (118) 120
Trade accounts payable. (914) 1,766 (2,391) 1,093 (2,391) 2,008 3,444
Other accrued
liabilities........... 317 743 1,986 (464) 1,986 (1,042) 27
Royalties payable...... 796 745 1,434 (2,112) 1,434 (2,302) 690
Deferred revenue....... -- -- 905 1,080 905 2,157 (2,323)
Income taxes payable... 721 674 (559) 1,725 (559) 1,974 353
------- ------- ------- -------- ------- -------- -------
Net cash provided by
(used in) operating
activities............. (2,817) 4,159 1,004 5,669 1,004 5,798 8,611
------- ------- ------- -------- ------- -------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property and
equipment.............. (280) (444) (63) (604) (63) (306) (633)
Acquisition of
businesses (net of cash
acquired).............. -- -- -- (23,421) -- (23,421) (11,196)
------- ------- ------- -------- ------- -------- -------
Net cash used in
investing activities... (280) (444) (63) (24,025) (63) (23,727) (11,829)
------- ------- ------- -------- ------- -------- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from initial
public offering........ -- -- -- -- -- -- 26,620
Proceeds from Series A
preferred stock........ -- -- -- 14,700 -- 14,700 --
Redemption of Series A
preferred stock........ -- -- -- -- -- -- (14,700)
Premium paid on Series A
preferred stock........ -- -- -- -- -- -- (726)
Proceeds from common
stock.................. -- -- -- 206 -- 206 --
Proceeds from
subordinated debt...... -- -- -- 8,600 -- 8,600 --
Repayment of
subordinated debt...... -- -- -- -- -- -- (8,000)
Exercise of stock
options/repurchase of
common stock/proceeds
of Employee Stock
Purchase Plan.......... -- -- -- 100 -- 95 446
Net change in Parent
Company Investment..... 3,097 (3,715) (12) -- (12) -- --
------- ------- ------- -------- ------- -------- -------
Net cash provided by
(used in) financing
activities............. 3,097 (3,715) (12) 23,606 (12) 23,601 3,640
------- ------- ------- -------- ------- -------- -------
Net increase in cash.... -- -- 929 5,250 929 5,672 422
Cash and cash
equivalents at
beginning of period.... -- -- -- 929 -- 929 6,179
------- ------- ------- -------- ------- -------- -------
Cash and cash
equivalents at end of
period................. $ -- $ -- $ 929 $ 6,179 $ 929 $ 6,601 $ 6,601
======= ======= ======= ======== ======= ======== =======
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Taxes paid.............. $ -- $ -- $ -- $ 4,175 $ -- $ 1,275 $ 6,010
Interest paid........... $ -- $ -- $ -- $ 704 $ -- $ 198 $ --
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Accretion of preferred
stock.................. $ -- $ -- $ -- $ 730 $ -- $ 365 $ (730)
Issuance of Series B
preferred stock........ $ -- $ -- $ -- $ 4,100 $ -- $ -- $ 4,100
Conversion of Series B
preferred stock........ $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of options in
connection with
acquisition............ $ -- $ -- $ -- $ -- $ -- $ -- $ 1,588
</TABLE>

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

F-7
<PAGE>

SPLASH TECHNOLOGY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. RECENT REORGANIZATION AND BASIS OF PRESENTATION

Splash Technology Holdings, Inc. (the "Company"), through its wholly-owned
subsidiaries Splash Technology, Inc., Splash Foreign Sales Corporation and
Splash Technology S.a.r.l., 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 business of the Company was previously operated as the unincorporated
Color Server Group of SuperMac Technology Inc. ("SuperMac") until August 1994
when SuperMac merged with Radius Inc. ("Radius"). In January 1996, the assets
and liabilities of the Color Server Group of Radius were transferred by Radius
into its newly created wholly-owned subsidiary, Splash Technology, Inc. In
December 1995, Splash Technology Holdings, Inc. was incorporated in Delaware
and was capitalized by the sale of Series A preferred stock and common stock
and subordinated debt to an investor group led by certain affiliates of Summit
Partners, L.P., and Sigma Partners, L.P. On January 31, 1996, Splash
Technology, Inc. merged with a wholly-owned subsidiary of Splash Technology
Holdings, Inc. and as part of the consideration for the merger, Splash
Technology Holdings, Inc. issued Series B preferred stock to Radius. The
surviving corporation in the merger was Splash Technology, Inc., a wholly-owned
subsidiary of the Company.

The acquisition of Splash Technology, Inc. (the "Splash Acquisition") was
regarded as a purchase of net assets accounted for under the purchase method of
accounting as of January 31, 1996. The total purchase price of $27,843,000
(including the costs of the acquisition of $321,000), consisting of cash and
the fair value of Series B preferred stock of $4,100,000, has been allocated to
the net assets acquired based on their estimated fair values as of January 31,
1996. The two principal components of the initial excess purchase price
allocation included in-process research and development projects ($19,324,000)
and existing purchased technology ($3,405,000). The Company allocated a portion
of the purchase price to various in-process research and development projects
that had identifiable economic value and expensed this value as of the date of
the acquisition. The purchased technology is related to the Company's Power
Series product for which the Company was developing a replacement product at
the time of the Splash Acquisition due to the discontinuance of the Apple NuBus
architecture on which the Power Series product relied. The Company transitioned
to the new product in May 1996 and accordingly, the fair value of the purchased
technology was fully amortized over the four months to May 31, 1996.

The fair value of the assets acquired (net of cash acquired of $929,000) and
liabilities assumed were as follows:

<TABLE>
<S> <C>
In-process technology............................................ $19,324
Purchased technology............................................. 3,405
Receivables...................................................... 9,296
Inventories...................................................... 1,734
Property and equipment........................................... 430
Other long term assets........................................... 1,121
Payables......................................................... (147)
Other accrued liabilities........................................ (6,049)
Deferred revenue................................................. (2,200)
-------
$26,914
=======
</TABLE>

F-8
<PAGE>

SPLASH TECHNOLOGY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Of the purchase consideration, $2,350,000 remains in escrow pending
resolution of certain events including unasserted claims.

The Predecessor Business' financial statements presented herein include the
results of operations and cash flows for the years ended September 30, 1994 and
1995, and for the four months ended January 31, 1996 and the balance sheet as
of September 30, 1995, as if the Color Server Group existed as a corporation
separate from Radius and SuperMac during such periods on a historical basis.
The Company's financial statements presented herein include the results of
operations and cash flows for the five months ended June 30, 1996, eight months
ended September 30, 1996 and the nine months ended June 30, 1997 (unaudited)
and the balance sheet as of June 30, 1996 and 1997.

Radius and SuperMac each performed certain corporate headquarter functions on
behalf of the Color Server Group and provided certain marketing, technology,
human resource and financial and accounting services. Costs associated with
these services have been allocated to the Color Server Group based on relative
headcount, which management believes to be a reasonable basis for allocation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, Splash Technology, Inc., Splash
Foreign Sales Corporation, Splash Technology S.a.r.l. and, at and for the
period ended June 30, 1997, Quintar Holdings Corporation and its wholly owned
subsidiary, Quintar Company. All significant intercompany transactions between
the entities have been eliminated.

Use of Estimates

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Revenue Recognition

Revenue is generally recognized upon shipment of the product to the customer.
The Company generally does not grant rights of return. In May 1996, the Company
made the transition from its Power Series products to its new PCI Series
products. In calendar year 1996, one of the Company's OEM customers accumulated
a substantial quantity of the Power Series product.

During the year ended September 30, 1996, due to the transition of products
and the accumulation of Power Series product, the Company had recognized
revenue from the sales of the Power Series product upon notification from the
OEM that the product had been sold to their end user and accordingly at
September 30, 1996, the Company had deferred revenue of $4.2 million from sales
of Power Series products to one of its OEM customers.

For the nine months ended June 30, 1997 the Company continued to evaluate the
carrying value of the Power Series product inventory and the related deferred
revenue on a quarterly basis and determined that the amount of future returns
of the Power Series product could be reasonably estimated

F-9
<PAGE>

SPLASH TECHNOLOGY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

based on historical experience. Accordingly, the net revenues relating to the
Power Series products were fully recognized and, in accordance with the
Company's policy, an allowance for expected returns of the Power Series
products was recorded in the nine months ended June 30, 1997.

Warranties

The Company's products are generally warranted for 15 months. Estimated
future costs of repair, replacement, or customer accommodations are reflected
in the accompanying consolidated financial statements.

Research and Development

Costs incurred in the research and development of new software products are
expensed as incurred until technological feasibility has been established. To
date, the establishment of technological feasibility of the Company's products
and general release substantially coincide. As a result, the Company has not
capitalized any software development costs since such costs have not been
significant.

Income Taxes

The Company uses the liability method to calculate deferred income taxes. The
realization of deferred tax assets is based on historical tax positions and
expectations about future taxable income.

Income taxes have been provided in the Predecessor Business statements of
operations as if the Predecessor Business was a separate taxable entity. Since
the division was not a separate taxable entity but was included in the
consolidated income tax returns of the Radius and SuperMac companies, the
current benefit from or provision for U.S. federal and state income taxes was
ultimately assumed to be receivable from or payable to Radius or SuperMac in
the period presented. In accordance with the merger agreement with Radius, the
Company is not required to repay Radius for the utilization of their tax losses
against the Company's taxable income as a Predecessor Business. Such benefits
are reflected as capital contributions as of each fiscal year end.

Cash and Cash Equivalents

All highly liquid investments with an original, or remaining, maturity of
three months or less at the date of purchase and money market funds are
considered cash equivalents.

Cash and cash equivalents consist primarily of money market funds held in
banks and other financial institutions in the United States and France.

Financial Instruments

The Company's financial instruments, including cash and cash equivalents and
the subordinated promissory notes payable to stockholders, are stated at fair
value.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined on
a first-in, first-out basis.

Property and Equipment

Property and equipment are stated at cost and are depreciated using the
straight line method over their estimated useful lives ranging from three to
seven years or, in the case of leasehold improvements,

F-10
<PAGE>

SPLASH TECHNOLOGY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the lease period, if shorter. Upon disposal, the assets and related accumulated
depreciation are removed from the Company's accounts, and the resulting gains
or losses are reflected in the statements of income. The Predecessor Business'
accounting policy was to expense all items of property and equipment upon
acquisition. Accordingly, appropriate adjustments have been included in the
financial statements to reflect the capitalization and depreciation of property
and equipment during the periods presented.

Concentration of Credit Risks

Cash and cash equivalents are deposited with major banks in the United States
and France. Deposits in these banks may exceed the amount of insurance provided
on such deposits. The Company has not experienced any losses on its deposits of
cash and cash equivalents.

The Company sells its products to two OEM customers who distribute the
Company's products with their own color photocopier systems on a worldwide
basis. The Company performs ongoing credit evaluations of its customers. The
Company does not require collateral for its receivables and maintains an
allowance for potential credit losses. At September 30, 1996, the accounts
receivable balance is comprised primarily of one customer, which represents 93%
of accounts receivable.

Certain components necessary for the manufacture of the Company's products
are obtained from a sole supplier or a limited group of suppliers.

Recent Pronouncements

During March 1995, the Financial Accounting Standards Board issued Statement
No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," which requires the Company to review
for impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets whenever events or changes in circumstances
indicate that the carrying amount of an asset might not be recoverable. In
certain situations, an impairment loss would be recognized. SFAS 121 will
become effective for the Company's year ending September 30, 1997. The Company
believes the impact will not be significant.

During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation,"
which established a fair value based method of accounting for stock-based
compensation plans and requires additional disclosures for those companies who
elect not to adopt the new method of accounting. The Company intends to
continue to account for stock options under Accounting Practice Bulletin
Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123 will
be effective for fiscal years beginning after December 15, 1995, and will
require the Company to provide additional disclosures in the financial
statements for the year ending September 30, 1997. The Company believes the
impact will not be significant.

Computation of Net Income (Loss) Per Share

Net income (loss) per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.

The Company has determined the number of shares used in calculating earnings
per share for all periods presented prior to the Company's initial public
offering pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin ("SAB") No. 83. SAB 83 requires the Company to include all common
shares and all common share equivalents issued during the 12 month period
preceding the filing date of an initial public offering in its calculation of
the number of shares used to determine earnings per share as if the shares had
been outstanding for all periods presented. Net loss for the purposes of the
computation reflects the dividend accretion on the shares of preferred stock.

F-11
<PAGE>

SPLASH TECHNOLOGY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Unaudited Interim Financial Information

The accompanying interim balance sheet as of June 30, 1997, the statements of
operations and cash flows for the nine months ended June 30, 1997 and the
statement of stockholders' equity for the nine months ended June 30, 1997
together with the related notes are unaudited but include all adjustments,
consisting of only normal recurring adjustments, which the Company considers
necessary to present fairly, in all material respects, the financial position
of the Company as of June 30, 1997 and the results of operations and cash flows
for the period ended June 30, 1997. Results for the period ended June 30, 1997
are not necessarily indicative of results for an entire year.

Reclassifications

Certain items have been reclassified within the balance sheets at September
30, 1995 and 1996 to be consistent with the presentation at June 30, 1997. The
reclassifications have no effect on previously disclosed net income or
stockholders' equity.

3. BALANCE SHEET DETAIL (IN THOUSANDS)

Inventories

<TABLE>
<CAPTION>
SPLASH
PREDECESSOR TECHNOLOGY
BUSINESS HOLDINGS, INC.
------------- -------------------------
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1995 1996 1997
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials........................ $ 591 $1,580 $2,253
Work in process...................... 166 -- --
Finished goods....................... 3,208 2,071 859
------ ------ ------
$3,965 $3,651 $3,112
====== ====== ======
</TABLE>

Property and Equipment

<TABLE>
<CAPTION>
SPLASH
PREDECESSOR TECHNOLOGY
BUSINESS HOLDINGS, INC.
------------- -------------------------
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1995 1996 1997
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures.............. $ 201 $ 392 $ 732
Computer equipment.................. 523 415 729
Leasehold improvements.............. -- 81 81
Trade show booth.................... -- 146 146
----- ------ ------
724 1,034 1,688
Less accumulated depreciation and
amortization....................... (339) (121) (418)
----- ------ ------
$ 385 $ 913 $1,270
===== ====== ======
</TABLE>

4. REVOLVING CREDIT FACILITY

In September 1996, the Company entered into an agreement with a bank to
borrow up to a maximum of $5,000,000 under a revolving line of credit subject
to a borrowing base of 80% and 75% of eligible domestic and foreign accounts
receivable, respectively. The line bears interest at prime rate, is
collateralized by accounts receivable, owned property and equipment and
inventory of the Company

F-12
<PAGE>

SPLASH TECHNOLOGY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

and matures on January 1, 1998. The agreement contains dividend restrictions
and certain financial covenants concerning required liquidity, net worth and
indebtedness ratios as well as required profitability. The Company has no
borrowings outstanding under the line of credit as of September 30, 1996 or
June 30, 1997 (unaudited).

5. SUBORDINATED PROMISSORY NOTES PAYABLE TO STOCKHOLDERS

The Company issued subordinated promissory notes payable to stockholders,
with a face value totaling $8,000,000, which bear interest at 12%, payable
quarterly. The subordinated promissory notes were issued to certain
stockholders concurrent with the issuance of the Series A preferred stock and
the fair value of the notes was established at $8,600,000 by an independent
third party valuation. On October 16, 1996, the Company repaid the subordinated
promissory notes payable to stockholders with proceeds of its initial public
offering (see Note 12).

6. COMMITMENTS

The Company leases certain office facilities under noncancelable operating
leases which expire in April 2001. The Company is responsible for taxes,
insurance and maintenance expenses related to the leased facilities. Under the
term of certain lease agreements, the leases may be extended, at the Company's
options, and certain of the leases provide for adjustments of the minimum
monthly rent.

Future minimum annual lease payments under the leases are as follows (in
thousands):

<TABLE>
<CAPTION>
PERIOD ENDING
-------------
<S> <C>
September 30, 1997...................... $413
September 30, 1998...................... 416
September 30, 1999...................... 417
September 30, 2000...................... 431
September 30, 2001...................... 294
</TABLE>

Rent expense for the eight months ended September 30, 1996, the five months
ended June 30, 1996 and the nine months ended June 30, 1997 (unaudited) was
$226, $84 and $288, respectively.

7. PREFERRED STOCK

The Company has authorized and issued 15,426 shares of Series A preferred
stock at a face value of $1,000 per share and 4,282 shares of Series B
preferred stock in a non cash transaction as part of the consideration for the
Acquisition. The valuation of the Series A and Series B preferred stock by an
independent third party resulted in values of $14,700,000 and $4,100,000,
respectively for those instruments. The carrying amounts of both Series A and
Series B preferred stock have been increased by amounts representing dividends
not currently declared or paid but which may be payable under each series'
dividend rights. The increases have been effected by a charge against retained
earnings.

On October 9, 1996, the Company initiated trading of its common stock
following an initial public offering and the Series B preferred stock converted
to common stock. On October 18, 1996, the Company redeemed the Series A
preferred stock.

8. COMMON STOCK

On January 31, 1996, the Company sold 7,008,746 shares of common stock for
$80,100. The shares have been valued at $206,000 based on a independent third
party appraisal. The Company has granted certain registration rights to certain
holders of common shares, options, warrants and convertible securities in the
event of any registration of shares by the Company under the Securities Act.

F-13
<PAGE>

SPLASH TECHNOLOGY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In connection with the line of credit, the Company issued the bank a warrant
to purchase 8,750 shares of common stock with an exercise price of $0.011 per
share. The warrant became exercisable upon the Company's initial public
offering. The warrant was exercised in April 1997.

Stock Options and Repurchase Agreements

The Company reserved 3,150,000 shares of common stock for issuance under its
stock option plan. Under this plan, the Board of Directors may grant incentive
or nonstatutory stock options at a price not less than 100% or 85%,
respectively, of fair market value of common stock at grant date. Options under
the plan are immediately exercisable. Stock issued through option exercises are
subject to the Company's right of repurchase at the original exercise price.
The number of shares subject to repurchase generally decrease by 25% of the
options shares one year after the grant date, and, thereafter, ratably over
36 months.

Activity for the Company's stock option plan is summarized as follows:

<TABLE>
<CAPTION>
AVERAGE
PRICE
AVAILABLE OUTSTANDING PER SHARE AMOUNT
--------- ----------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Options authorized....... 3,150,000
Options granted.......... (894,880) 894,880 $0.14-$11.00 $ 776
Options canceled......... 27,128 (27,128) $0.14 (4)
Options repurchased...... 5,250
Options exercised........ (599,627) $0.14-$ 0.29 (101)
--------- -------- -------
Balances, September 30,
1996.................... 2,287,498 268,125 $0.14-$11.00 671
Options granted.......... (545,948) 545,948 $0.80-$37.00 11,490
Options canceled......... 1,531 (1,531) $1.60-$ 2.41 (2)
Options repurchased...... 5,471
Options exercised........ (10,537) $0.14 (1)
--------- -------- -------
Balances, June 30, 1997
(unaudited)............. 1,748,552 802,005 $0.14-$37.00 $12,158
========= ======== =======
</TABLE>

The terms of each option are no more than 10 years from the date of grant. At
September 30, 1996, all options and shares outstanding under the Plan were
subject to repurchase. At June 30, 1997 options to purchase 479,000 shares of
Common Stock were subject to the Company's right of repurchase.

9. BUSINESS SEGMENTS, EXPORTS AND MAJOR CUSTOMERS

The Company operates in a single industry segment encompassing the
development, manufacture, sales and support of high performance color servers.

The Company sells its product to OEM customers in the United States and
Japan. Net revenue from export sales accounted for 60%, 59%, 61% and 55% of net
revenue for the years ended September 30, 1994 and 1995, the four months ended
January 31, 1996 and the eight months ended September 30, 1996, respectively.
All export sales were made to Japan.

In the years ended September 30, 1994 and 1995, the four months ended January
31, 1996 and the eight months ended September 30, 1996, each of the two
customers accounted for 60% and 40%; 59% and 41%; 62% and 38%; and 55% and 45%
of net revenue, respectively. In addition, although all sales made to the
Company's U.S. based customer are considered U.S. sales, this customer has a
significant international customer base, and the Company believes that a
significant portion of the Company's products purchased by the customer are
resold outside the U.S.

F-14
<PAGE>

SPLASH TECHNOLOGY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10. INCOME TAXES

The provision for (benefit from) income taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
SPLASH
TECHNOLOGY
PREDECESSOR BUSINESS HOLDINGS, INC.
--------------------------- -------------------------
YEAR ENDED FOUR MONTHS EIGHT MONTHS FIVE MONTHS
SEPTEMBER 30, ENDED ENDED ENDED
--------------- JANUARY 31, SEPTEMBER 30, JUNE 30,
1994 1995 1996 1996 1996
------ ------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Current:
Federal............. $ 522 $ 1,095 $192 $ 4,690 $ 2,551
State............... 199 300 22 1,210 698
------ ------- ---- -------- -------
721 1,395 214 5,900 3,249
------ ------- ---- -------- -------
Deferred:
Federal............. (537) -- 537 (9,794) (9,365)
State............... (85) -- 85 (1,615) (1,649)
------ ------- ---- -------- -------
(622) -- 622 (11,409) (11,014)
------ ------- ---- -------- -------
$ 99 $ 1,395 $836 $ (5,509) $(7,765)
====== ======= ==== ======== =======
</TABLE>

The Company's effective tax rate differs from the statutory federal income
tax rate as shown in the following schedule:
<TABLE>
<CAPTION>
SPLASH
TECHNOLOGY
PREDECESSOR BUSINESS HOLDINGS, INC.
---------------------------- -------------------------
YEAR ENDED FOUR MONTHS EIGHT MONTHS FIVE MONTHS
SEPTEMBER 30, ENDED ENDED ENDED
------------- JANUARY 31, SEPTEMBER 30, JUNE 30,
1994 1995 1996 1996 1996
------- ------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Tax provision (benefit
from) at federal
statutory rate......... 34.0% 34.0% 34.0% (35.0)% (34.0)%
State taxes, net of
federal tax benefit.... 6.1 6.1 6.1 (6.0) (6.1)
Net operating losses.... (33.3) -- -- -- --
Other................... 0.6 (0.1) (0.1) 1.0 --
------- ------ ---- ----- -----
7.4% 40.0% 40.0% (40.0)% (40.1)%
======= ====== ==== ===== =====
</TABLE>

The components of the deferred tax assets are as follows (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- JUNE 30,
1995 1996 1996
-------------- --------
<S> <C> <C> <C>
Deferred tax assets:
In-process and purchased technology.............. $ -- $ 8,903 $8,865
Receivable allowances............................ 34 511 80
Inventory valuation allowance.................... 221 422 334
Warranty accruals................................ 128 191 92
State taxes...................................... 102 424 240
Deferred revenue................................. -- 1,704 2,055
All other........................................ 137 122 216
----- -------- ------
Total deferred tax assets...................... 622 12,227 11,882
Long-term portion of in-process and purchased
technology...................................... -- (8,315) (8,249)
----- -------- ------
Current portion of deferred tax asset.......... $ 622 $ 3,962 $3,633
===== ======== ======
</TABLE>

F-15
<PAGE>

SPLASH TECHNOLOGY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At September 30, 1996, the Company assessed the recoverability of the
deferred tax asset and based on its expectations about taxable income for
future periods, determined that it was more likely than not that the deferred
tax asset would be recovered.

11. EMPLOYEE BENEFIT PLAN

The Company adopted the Splash Technology, Inc. 401(k) Profit Sharing Plan
(the "Plan") effective April 1996, which qualifies under Section 401(k) of the
Internal Revenue Code of 1986, as amended, and covers essentially all
employees. Each eligible employee may elect to contribute to the Plan, through
payroll deductions, up to 15% of compensation, subject to certain limitations.
The Company, at its discretion, may make additional contributions. All employer
contributions are 100% vested after four years. During the eight months ended
September 30, 1996, the Company recorded approximately $119,000 in
contributions to the Plan.

On July 31, 1996, the Board of Directors adopted a payroll deduction Employee
Stock Purchase Plan (the "Purchase Plan") effective upon the closing of the
Company's initial public offering, and reserved an aggregate of 175,000 shares
of Common Stock for issuance thereunder. As of June 30, 1997, the Company
issued 50,000 shares under the Purchase Plan.

12. SUBSEQUENT EVENTS

On October 3, 1996, the following corporate matters were completed:

. The Company's Amended and Restated Certificate of Incorporation was
amended to increase the Company's authorized number of shares to an
aggregate of 50,000,000 shares of common stock, par value $.001 per
share and 5,000,000 shares of preferred stock, par value $.001 per
share.

. The Company's common stock was split 3.5 shares to one share. The
accompanying financial statements reflect the stock split.

On October 9, 1996, the Company initiated trading of 2,600,000 shares of its
common stock following an initial public offering and the Series B preferred
stock was converted into the Company's common stock (see Note 7). On October
16, 1996, the proceeds from the initial public offering were used to retire the
subordinated debt (see Note 5). On October 18, 1996, the Company redeemed its
Series A preferred stock.

13. QUINTAR ACQUISITION (UNAUDITED)

On May 28, 1997, the Company acquired the shares of Quintar Holdings
Corporation ("Quintar") for an aggregate purchase price of $13,532,000 plus
contingent earn-out payments of up to $3,200,000, subject to achieving certain
net revenue and operating income targets. The purchase price was comprised of a
cash payment of $11,519,000, issuance of Company stock options valued at
$1,588,000 in exchange for Quintar stock options and net acquisition costs of
$425,000.

F-16
<PAGE>

SPLASH TECHNOLOGY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The acquisition was accounted for using the purchase method of accounting and
the results of Quintar were included in the Company's results from the date of
acquisition. The purchase price was allocated to the tangible and intangible
assets and liabilities acquired based on their estimated fair values at May 28,
1997, as follows (in thousands):

<TABLE>
<S> <C>
Current assets.................................................. $ 784
Other assets.................................................... 170
Deferred tax asset.............................................. 3,300
Liabilities..................................................... (1,761)
In-process research and development............................. 11,039
-------
$13,532
=======
</TABLE>
Summary unaudited pro forma information for the combined results of
operations of Quintar and the Company for the year ended September 30, 1996 and
the nine months ended June 30, 1997 is presented below. The pro forma
information assumes the acquisition occurred on October 1, 1995 and presents
the combined results of the companies, excluding the $11,039,000 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>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- --------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net revenue....................................... $ 53,104 $53,822
Operating income (loss)........................... $(12,541) $14,872
Net income (loss)................................. $ (8,530) $ 9,388
Net income (loss) per share....................... $ (0.89) $ 0.77
Shares used in computing per share amounts........ 9,583 12,251
</TABLE>

F-17
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Quintar Holdings Corporation

We have audited the accompanying consolidated balance sheets of Quintar
Holdings Corporation as of December 31, 1995 and 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Quintar Holdings Corporation at December 31, 1995 and 1996, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.

Ernst & Young LLP

March 27, 1997, except for Note 8, as to which the
date is May 6, 1997

F-18
<PAGE>

QUINTAR HOLDINGS CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 709,000 $ 976,000
Accounts receivable, net of an allowance for
doubtful accounts of $36,000 in 1995 and $158,000
in 1996........................................... 667,000 604,000
Inventories........................................ 535,000 517,000
Prepaid expenses and other current assets.......... 55,000 56,000
----------- -----------
Total current assets............................. 1,966,000 2,153,000
----------- -----------
Property and equipment:
Machinery and equipment............................ 706,000 535,000
Furniture and fixtures............................. 64,000 64,000
Leasehold improvements............................. 45,000 52,000
----------- -----------
815,000 651,000
Accumulated depreciation and amortization.......... 673,000 537,000
----------- -----------
Property and equipment, net.......................... 142,000 114,000
Other assets, net.................................... 246,000 39,000
----------- -----------
Total assets..................................... $ 2,354,000 $ 2,306,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 537,000 $ 731,000
Deferred revenue................................... 426,000 464,000
Accrued warranty expense........................... 40,000 90,000
Other accrued expenses............................. 432,000 504,000
----------- -----------
Total current liabilities........................ 1,435,000 1,789,000
Deferred revenue, long-term.......................... -- 350,000
Stockholders' equity:
Series A convertible preferred stock, no par value:
Authorized shares--4,200,000
Issued and outstanding shares--4,160,445 in 1995
and 1996.......................................... 4,641,000 4,641,000
Series C convertible preferred stock, no par value:
Authorized shares--2,166,668
Issued and outstanding shares--833,333 in 1995 and
1,500,001 in 1996 1,250,000 2,250,000
Common stock, no par value:
Authorized shares--10,000,000
Issued and outstanding shares--972,541 in 1995 and
1996.............................................. 49,000 49,000
Additional paid in capital........................... 85,000 85,000
Stock subscription................................... 250,000 --
Accumulated deficit.................................. (5,356,000) (6,858,000)
----------- -----------
Total stockholders' equity....................... 919,000 167,000
----------- -----------
Total liabilities and stockholders' equity....... $ 2,354,000 $ 2,306,000
=========== ===========
</TABLE>

See accompanying notes.

F-19
<PAGE>

QUINTAR HOLDINGS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
REVENUES:
Product sales...................................... $ 3,117,000 $ 4,361,000
Engineering and royalty revenues................... 1,389,000 1,022,000
----------- -----------
Total revenues................................... 4,506,000 5,383,000
COST AND EXPENSES:
Cost of revenues
Product........................................... 2,183,000 3,327,000
Engineering....................................... 1,033,000 568,000
Engineering expense................................ 756,000 1,293,000
Selling, general and administrative expenses....... 1,582,000 1,714,000
Interest (income) expense, net..................... 32,000 (17,000)
----------- -----------
Total costs and expenses......................... 5,586,000 6,885,000
----------- -----------
Net loss............................................. $(1,080,000) $(1,502,000)
=========== ===========
Net loss per share................................... $ (1.11) $ (1.54)
=========== ===========
Shares used in computing net loss per share.......... 972,541 972,541
=========== ===========
</TABLE>

See accompanying notes.

F-20
<PAGE>

QUINTAR HOLDINGS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
SERIES A SERIES C
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- -------------------- --------------- PAID IN STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL SUBSCRIPTIONS DEFICIT TOTAL
--------- ---------- --------- ---------- ------- ------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994... 3,200,000 $3,200,000 833,333 $1,250,000 972,541 $49,000 $ -- $ -- $(4,276,000) $ 223,000
Conversion of bridge
loan into equity... 960,445 1,441,000 -- -- -- -- -- -- -- 1,441,000
Stock options and
subscriptions...... -- -- -- -- -- -- 85,000 250,000 -- 335,000
Net loss............ -- -- -- -- -- -- -- -- (1,080,000) (1,080,000)
--------- ---------- --------- ---------- ------- ------- ------- --------- ----------- -----------
Balance at
December 31, 1995... 4,160,445 4,641,000 833,333 1,250,000 972,541 49,000 85,000 250,000 (5,356,000) 919,000
Issuance of
preferred stock.... -- -- 666,668 1,000,000 -- -- -- (250,000) -- 750,000
Net loss............ -- -- -- -- -- -- -- -- (1,502,000) (1,502,000)
--------- ---------- --------- ---------- ------- ------- ------- --------- ----------- -----------
Balance at
December 31, 1996... 4,160,445 $4,641,000 1,500,001 $2,250,000 972,541 $49,000 $85,000 $ -- $(6,858,000) $ 167,000
========= ========== ========= ========== ======= ======= ======= ========= =========== ===========
</TABLE>

See accompanying notes.

F-21
<PAGE>

QUINTAR HOLDINGS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss............................................ $(1,080,000) $(1,502,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... 148,000 99,000
Discontinued product line......................... -- 368,000
Change in operating assets and liabilities:
Accounts receivable.............................. (319,000) 63,000
Inventories...................................... (3,000) (132,000)
Prepaid expenses and other assets................ 114,000 38,000
Accounts payable................................. (55,000) 194,000
Deferred revenue................................. (113,000) 388,000
Accrued warranty expense......................... -- 50,000
Other accrued expenses........................... 201,000 22,000
----------- -----------
Net cash used in operating activities............... (1,107,000) (412,000)
INVESTING ACTIVITIES
Purchase of property and equipment.................. (21,000) (71,000)
FINANCING ACTIVITIES
Issuance of preferred stock......................... -- 750,000
Stock options and subscriptions..................... 335,000 --
Repayment of line-of-credit......................... (100,000) --
----------- -----------
Net cash provided by financing activities........... 235,000 750,000
----------- -----------
Increase (decrease) in cash and cash equivalents.... (893,000) 267,000
Cash and cash equivalents at beginning of year...... 1,602,000 709,000
----------- -----------
Cash and cash equivalents at end of year............ $ 709,000 $ 976,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid....................................... $ 5,000 $ 900
Taxes paid.......................................... 800 800
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Conversion of notes payable and accrued interest
into common stock.................................. $ 1,441,000 $ --
</TABLE>

See accompanying notes.

F-22
<PAGE>

QUINTAR HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Quintar Holdings Corporation (the "Company") is a California corporation,
established in November 1989 to design, manufacture and market computer
presentation graphics and image processing products. The Company generates
revenues primarily in the United States and Japan through product sales,
engineering fees and software licensing agreements.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Quintar Company. All significant
intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates. Significant estimates
made in preparing these financial statements include inventory reserves,
deferred revenue and the allowance for doubtful accounts.

Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents.

Concentration of Credit Risks

Certain financial instruments potentially subject the Company to
concentrations of credit risk. These financial instruments consist primarily of
accounts receivable. The Company performs credit evaluations and generally does
not require collateral. Credit losses have traditionally been minimal and such
losses have been within management's expectations.

Three customers accounted for 14%, 12% and 10% of net revenues in 1995 and
23%, 13% and 11% of net revenues in 1996. Export sales in 1995 and 1996 were
$1,239,000 and $2,106,000, respectively. Concentrations of credit risk with
respect to accounts receivable are limited due to the high credit quality of
the Company's customer base and the customers geographic dispersion.

Inventories

Inventories are stated at the lower of cost (average costs method) or market.
At December 31, 1995 and 1996, inventories consisted of the following:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Raw materials and purchased parts......................... $484,000 $307,000
Work-in-process........................................... 36,000 152,000
Finished goods............................................ 15,000 58,000
-------- --------
$535,000 $517,000
======== ========
</TABLE>

F-23
<PAGE>

QUINTAR HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over estimated useful lives of one to five years.
Leasehold improvements are amortized over the shorter of their estimated five-
year life or the related lease term.

Other Assets

Other assets consist primarily of prepaid license fees, which are amortized
using the straight-line method over the estimated one-year to ten-year lives of
the related licenses.

Revenue Recognition

The Company records revenues from product sales upon shipment. Revenues from
engineering and license fees related to the modification of existing products
to meet particular customer requirements are recognized on a percentage of
completion basis. Amounts received from customers in excess of revenues
recognized to date are recorded as deferred revenues.

Research and Development Expenses

Research and development expenses represent the costs of modifying and
testing products and are expensed as incurred. In accordance with Statement of
Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed, the Company has not
capitalized any production costs of computer software, as the technological
feasibility of the related products is established concurrently with the sale
of such products to customers. These costs have been expensed as incurred and
are included in engineering expenses in the accompanying statements of
operations.

Net Loss Per Share

Net loss per share is computed using the weighted average number of shares of
common stock outstanding during the year.

2. INCOME TAXES

Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of December 31, 1995
and 1996 are as follows:

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Tax operating loss carryforwards.................. $ 2,025,000 $ 2,352,000
Research and development credit carryforwards..... 386,000 481,000
Accruals not currently deductible................. 100,000 254,000
Inventory reserves................................ 44,000 143,000
Depreciation...................................... 29,000 30,000
----------- -----------
Total deferred tax assets...................... 2,584,000 3,260,000
Valuation reserve................................. (2,584,000) (3,260,000)
----------- -----------
Net deferred tax assets........................ $ -- $ --
=========== ===========
</TABLE>

F-24
<PAGE>

QUINTAR HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

A valuation allowance has been established to fully reserve deferred tax
assets because the Company cannot yet determine if the asset will be realized.

At December 31, 1996, the Company had net operating loss carryforwards of
$6,070,000 and $2,544,000 available to reduce future federal and state taxable
income, respectively. The federal carryforwards expire in 2004 through 2011,
and the state carryforwards began to expire in 1996. The ultimate realization
of the benefit of these carryforwards is dependent on future profitable
operations. In addition, their utilization may also be limited on an annual
basis if a cumulative change in ownership of more than 50% occurs within any
three-year period.

3. STOCK WARRANTS

In connection with a credit facility which expired in December 1995, the
Company granted the bank a warrant to purchase 20,000 shares of common stock at
a price of $2.00 per share, which exceeded the fair market value at the date of
the grant. The warrant, which expires on December 13, 1998, is exercisable, at
the bank's option, in whole or in part, and is subject to certain anti-dilution
provisions.

In addition, the Company granted the holders of certain subordinated notes
(later converted to Series A preferred stock) warrants to purchase a variable
number of shares of the Company's common stock for an aggregate purchase price
of $62,500. On a monthly basis, from the date of issuance through October 1,
1994, the aggregate purchase price increased by 2% of the notes payable balance
outstanding to $362,500. The warrants are exercisable, at the holders' option,
from time to time, in whole or in part. The exercise price is the lesser of
$1.00 per share or the price of the stock at the date of the exercise, as
determined in conjunction with an initial public offering, a private placement
exceeding $500,000, or the acquisition of the Company by a third party. The
number of shares exercisable is determined by dividing the aggregate purchase
price balance by the exercise price per share at the time of exercise. The
warrants, which expire on October 17, 1998, are subject to certain anti-
dilution provisions.

4. CONVERTIBLE PREFERRED STOCK

During 1994, the Company issued 833,333 shares of Series C preferred stock at
a purchase price of $1.50 per share. In addition, the preferred shareholder
paid $85,000 for an option to acquire additional shares of preferred stock
which expired on May 31, 1995.

In 1996, the Company issued an additional 666,668 shares of Series C
Convertible preferred stock at $1.50 per share. The purchaser made an advance
payment of $250,000 which has been reflected as a stock subscription in the
consolidated balance sheet in 1995. The remaining payment of $750,000 was made
during 1996.

Each share of the Company's Series A and Series C preferred stock is, at the
holder's option, convertible into one share of common stock, subject to
adjustment for dilution. If 75% of previously issued shares of preferred stock
are converted into common stock, conversion of the remaining outstanding shares
of preferred stock is mandatory. Conversion of outstanding preferred stock into
common stock is also mandatory if the Company issues common stock in an
underwritten public offering registered under the Securities Act of 1933 in
which the per share and aggregate public offering price equals or exceeds $5.00
and $5,000,000, respectively.

Holders of preferred stock are entitled to vote on all matters based upon the
number of shares of common stock into which the preferred stock may be
converted. The Company is authorized to seat five directors on its board, three
of whom are elected by holders of the preferred stock and two of whom

F-25
<PAGE>

QUINTAR HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

are elected by holders of the common stock. Among other provisions, the
Company is restricted from amending any of the rights, preferences or
privileges of the preferred stock, issuing other preferred equity securities,
or transferring substantially all of the Company's assets to others without
the consent of a majority of the holders of preferred stock.

Upon the declaration of cash dividends on common stock, the Company is
required to declare cash dividends on the preferred stock. The preferred stock
dividend must at least equal the per share amount of the common stock dividend
and must be paid prior to the payment of any common stock dividends. As of
December 31, 1996, the Company had not declared any dividends. The Series A
and Series C preferred stock also carries a liquidation preference equal to
$1.00 and $1.50 per share, respectively, ($6,891,000 in the aggregate) plus an
amount equal to unpaid preferred stock dividends.

5. COMMON STOCK AND STOCK OPTION PLAN

Pursuant to the Company's Restricted Stock Plan, common stock is held solely
by Company officers, employees and former employees and vests ratably over
forty-eight months. Common stock is subject to certain restrictions which
relate principally to the transfer of ownership. Shares may be sold to third
parties, but only after first being offered to the Company at prevailing
market prices as determined in accordance with the Company's stock
subscription agreement.

On April 29, 1993, the board of directors and stockholders of the Company
approved the 1993 Stock Option Plan (the Plan). Under the Plan as amended,
1,510,500 shares of common stock have been reserved for issuance to eligible
employees, directors, consultants and advisors, subject to certain
limitations, as defined in the Plan. Incentive stock options may be granted at
prices not less than 100% of the fair market value at the date of the grant.
All options granted expire ten years after the date of the grant.

Information regarding options outstanding under the Plan is summarized
below:

<TABLE>
<CAPTION>
1995 1996
----------------- --------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year..... 349,500 $0.08 349,500 $0.08
Granted.............................. -- -- 1,188,500 0.15
Terminated........................... -- -- (27,500) 0.10
------- ---------
Outstanding at end of year........... 349,500 0.08 1,510,500 0.13
======= =========
Exercisable at end of year........... 259,250 $0.08 749,250 $0.13
======= ===== ========= =====
Weighted-average fair value of
options granted during the year..... $0.08 $0.13
===== =====
</TABLE>

Exercise prices on options outstanding at December 31, 1996 ranged from
$0.05 to $0.15. The weighted average remaining contractual life of the options
is eight and one half years.

The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for
the Plan. Accordingly, no compensation expense has been recognized for the
Plan. The impact on the Company's net loss would have been insignificant had
compensation cost for the Plan been determined consistent with the methodology
prescribed under Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation.

F-26
<PAGE>

QUINTAR HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. PROFIT SHARING PLAN

The Company's 401(k) savings and profit sharing plan is available to
substantially all of its employees. Company contributions to the plan are made
at the discretion of the Board of Directors. The Company contributed $5,000 to
the plan during both 1995 and 1996.

7. DISCONTINUED PRODUCT LINE

The Company has adopted a plan to cease production of one of its product
lines. The Company will complete its contractual obligations through fiscal
1997, and cease production of the products by December 1997. In connection with
the decision, the Company charged $368,000 to 1996 operations, consisting of
inventory write-downs, warranty costs, and the accelerated amortization of
intangible assets.

8. PROPOSED CHANGE IN OWNERSHIP

The Company has agreed to be acquired by Splash Technology Holdings, Inc. for
$11.5 million plus additional compensation based on future operations. The
proposed transaction is expected to be completed in the second quarter of 1997.
The Company's financial position and results of operations reflect the
operating plans of current management without consideration of strategic
changes which may take place upon consummation of the change in ownership.

F-27
<PAGE>

QUINTAR HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 799,000
Accounts receivable, net of an allowance for doubtful accounts
of $158,000.................................................. 108,000
Inventories................................................... 373,000
Prepaid expenses and other current assets..................... 154,000
-----------
Total current assets........................................ 1,434,000
-----------
Property and equipment, net................................... 66,000
Other assets, net............................................. 73,000
-----------
Total assets................................................ $ 1,573,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................. $ 576,000
Deferred revenue.............................................. 227,000
Accrued warranty expense...................................... 105,000
Other accrued expenses........................................ 648,000
-----------
Total current liabilities................................... 1,556,000
-----------
Deferred revenue, long term................................... 350,000
-----------
Stockholders' equity:
Series A convertible preferred stock, no par value:
Authorized shares--4,200,000; Issued and outstanding
shares--4,160,445.......................................... 4,641,000
Series C convertible preferred stock, no par value:
Authorized shares--2,166,668; Issued and outstanding
shares--1,500,001.......................................... 2,250,000
Common stock, no par value:
Authorized shares--10,000,000; Issued and outstanding
shares--972,541............................................ 49,000
Additional paid in capital.................................... 85,000
Accumulated deficit........................................... (7,358,000)
-----------
Total stockholders' equity.................................. (333,000)
-----------
Total liabilities and stockholders' equity.................. $ 1,573,000
===========
</TABLE>

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

F-28
<PAGE>

QUINTAR HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues:
Product sales........................................ $ 706,000 $ 771,000
Engineering and royalty revenues..................... 314,000 193,000
---------- ----------
Total revenues................................... 1,020,000 964,000
---------- ----------
Cost and expenses:
Cost of revenues
Product............................................ 412,000 474,000
Engineering........................................ 176,000 83,000
Engineering expense.................................. 544,000 641,000
Selling, general and administrative expenses......... 304,000 258,000
Interest (income) expense, net....................... (5,000) 8,000
---------- ----------
Total costs and expenses......................... 1,431,000 1,464,000
---------- ----------
Net loss............................................. $ (411,000) $ (500,000)
========== ==========
Net loss per share................................... $ (0.42) $ (0.51)
========== ==========
Shares used in computing net loss per share.......... 973,000 973,000
========== ==========
</TABLE>

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

F-29
<PAGE>

QUINTAR HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss............................................... $(411,000) $(500,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 54,000 73,000
Change in operating assets and liabilities:
Accounts receivable................................. (106,000) 496,000
Inventories......................................... 4,000 144,000
Prepaid expenses and other assets................... (50,000) (132,000)
Accounts payable.................................... 287,000 (156,000)
Deferred revenue.................................... (16,000) (243,000)
Accrued warranty expense............................ 41,000 80,000
Other accrued expenses.............................. 50,000 86,000
--------- ---------
Net cash used in operating activities.................. (147,000) (152,000)
INVESTING ACTIVITIES
Purchase of property and equipment..................... (12,000) (25,000)
FINANCING ACTIVITIES
Issuance of preferred stock............................ 249,000 --
--------- ---------
Increase (decrease) in cash and cash equivalents....... 90,000 (177,000)
Cash and cash equivalents at beginning of the period... 709,000 976,000
--------- ---------
Cash and cash equivalents at end of the period......... $ 799,000 $ 799,000
========= =========
</TABLE>

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

F-30
<PAGE>

QUINTAR HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial information has been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial statements. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all normal, recurring adjustments necessary to present
fairly the Company's consolidated financial position as of March 31, 1997 and
the results of operations and cash flows for the three months ended March 31,
1996 and 1997, which results are not necessarily indicative of results on an
annual basis. Such consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
contained in the Company's financial statements for the year ended December 31,
1996.

2. INVENTORIES

Substantially all of the Company's inventories at March 31, 1997 are composed
of raw materials and purchased parts.

F-31
<PAGE>

[Graphical chart inserted here illustrating how Splash fits in the creative
workflow by depicting the input, design, photo retouching, layout and comping
and preproofing phases.]

HOW SPLASH FITS IN THE CREATIVE WORKFLOW
<TABLE>
<S> <C> <C>
Design Layout Comping and Preproofing
Illustrator QuarkXPress Splash
Freehand PageMaker . Accurate Press Simulation
Corel Ventura . Spot Color Matching
PC PC . Mixed RGB/CMYK
. Macintosh Platform
. Graphics Workstation
. Unlimited Separations
. Easy, Fast Calibration
Scanning

Input Slide Scanner Photo Retouching
PhotoShop
Live Picture
PC
</TABLE>

[Graphical chart inserted here illustrating how Splash fits in the corporate
workflow by depicting the needs and uses of the creative/marketing, executive
and sales, service provider, engineering and finance and operations functions.]

HOW SPLASH FITS IN THE CORPORATE WORKFLOW

Creative/Marketing Executive and Sales Service Provider
Department Proofing/ Short Run Reprographics Center
Brochures Presentations Provide volume
Short Run Overheads printing for all
Advertisements Posters other departments,
Newsletters Financials using all applications
Cards Memos Mac
Invitations PC
Mac or PC

Engineering Finance and Operations Proofing and Printing
Proofing/ Short Run
Short Run Billing
Schedules Communications
Schematics Memos
Tech Manuals Forms
Posters PC
Presentations
Unix or PC

Splash
. Identical Color
Across Platform
. Intranet Access
. Handles Problem Files
. Simultaneous Network
Access
. Collated Sets of
Documents
. Color Accuracy
. Monitor Matching
(Blue to Purple)
. Job Accounting
<PAGE>

[Graphical artwork appears here with Splash logo and five colored stripes.]