EXHIBIT 99.2 UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF TUT SYSTEMS, INC. AND XSTREAMIS LIMITED The following unaudited pro forma combined financial information for Tut Systems, Inc. (the "Company") consist of the Unaudited Pro Forma Combined Statements of Operations for the three months ended March 31, 2000 and for the year ended December 31, 1999 and the Unaudited Pro Forma Combined Balance Sheets as of March 31, 2000. This pro forma financial information gives effect to Tut's acquisition of Xstreamis Limited ("Xstreamis") to be accounted for as purchase. The Xstreamis acquisition was consummated on May 26, 2000. The stockholders of Xstreamis received 439,137 shares of Tut common stock and $100,000 in cash on a pro-rata basis among the shareholders in exchange for 16,843,253 shares of Xstreamis. Additionally, Tut exchanged fully vested stock options to purchase 10,863 shares of Tut common stock for fully vested stock options to purchase 416,619 of Xstreamis shares. The unaudited pro forma combined balance sheet at March 31, 2000 gives effect to the acquisition as if it had occurred on March 31, 2000, by consolidating the balance sheet of Xstreamis with the balance sheet of Tut at March 31, 2000. The unaudited pro forma combined statement of operations for the three months ended March 31, 2000 gives effect to the acquisition as if it had occurred on January 1, 2000, by consolidating the results of Xstreamis with the results of Tut. The unaudited pro forma combined statements of operations for the year ended December 31, 1999 gives effect to the acquisition as if it had occurred on January 1, 1999, by consolidating the results of operations of Xstreamis with the results of operations of Tut. The unaudited pro forma combined statements of operations are not necessarily indicative of the operating results that would have been achieved had the transaction been in effect as of the beginning of the periods presented and should not be constructed as being representative of future operating results. 1 TUT SYSTEMS, INC. UNAUDITED PRO FORMA COMBINED BALANCE SHEET (IN THOUSANDS) March 31, 2000 ------------------------------------------------------------------ Pro Forma Tut Xstreamis Adjustments Combined ----------- ----------- ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 157,248 $ 2,032 $ - $ 159,280 Short-term investments 9,246 - - 9,246 Accounts receivable, net 10,378 - - 10,378 Inventory 11,692 - - 11,692 Prepaid expenses and other current assets 3,007 78 - 3,085 ----------- ----------- ----------- ----------- Total current assets 191,571 2,110 - 193,681 Property and equipment, net 4,188 158 - 4,346 Other assets 32,706 - 19,948 A 52,654 ----------- ----------- ----------- ----------- Total assets $ 228,465 $ 2,268 $ 19,948 $ 250,681 =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,286 $ 183 $ - $ 6,469 Accrued expenses and other payables 6,297 1,608 597 A 8,502 Lines of credit 1,571 - - 1,571 Deferred revenue 815 - - 815 ----------- ----------- ----------- ----------- Total current liabilities 14,969 1,791 597 17,357 Deferred revenue, net of current portion 2,338 - - 2,338 Other liabilities 376 - - 376 ----------- ----------- ----------- ----------- Total liabilities 17,683 1,791 597 20,071 ----------- ----------- ----------- ----------- Stockholders' equity: Common stock 15 679 (679) A 15 Additional paid in capital 275,037 8,146 11,682 A 294,865 Note receivable from stockholders (1,372) - - (1,372) Deferred compensation (2,690) - - (2,690) Accumulated comprehensive income 515 15 (15) A 515 Accumulated deficit (60,723) (8,363) 8,363 A (60,723) ----------- ----------- ----------- ----------- Total stockholders' equity 210,782 477 19,351 230,610 ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity $ 228,465 $ 2,268 $ 19,948 $ 250,681 =========== =========== =========== =========== The accompanying notes are an integral part of these unaudited financial statements. 2 TUT SYSTEMS, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA) Three Months Ended March 31, 2000 --------------------------------------------------------------------- Tut Xstremis Adjustments Pro Forma ---------- -------- ----------- --------- Revenues Product and services $ 16,164 $ - $ - $ 16,164 License and royalty 310 - - 310 ---------- ---------- ---------- ---------- Total revenues 16,474 - - 16,474 Cost of goods sold 9,137 - - 9,137 ---------- ---------- ---------- ---------- Gross margin 7,337 - - 7,337 ---------- ---------- ---------- ---------- Operating expenses Sales and marketing 4,819 247 - 5,066 Research and development 3,183 74 - 3,257 General and administrative 2,175 361 - 2,536 In-process research and development 800 - - 800 Amortization of intangibles 746 - 1,011 B 1,757 Noncash compensation expense 114 - - 114 ---------- ---------- ---------- ---------- Total operating expenses 11,837 682 1,011 13,530 ---------- ---------- ---------- ---------- Loss from operations (4,500) (682) (1,011) (6,193) Interest expense (310) - - (310) Interest income and other 575 30 - 605 ---------- ---------- ---------- ---------- Loss before income taxes (4,235) (652) (1,011) (5,898) Income tax expense 1 - - 1 ---------- ---------- ---------- ---------- Net loss (4,236) (652) (1,011) (5,899) Dividend accretion on preferred stock - - - - ---------- ---------- ---------- ---------- Net loss attributable to common stockholders $ (4,236) $ (652) $ (1,011) $ (5,899) ========== ========== ========== ========== Net loss per share attributable to common stockholders, basic and diluted $ (0.34) $ (0.04) $ (0.46) ========== ========== ========== Shares used in computing net loss per share attributable to common stockholders, basic and diluted 12,435 16,718 439 12,874 ========== ========== ========== ========== The accompanying notes are an integral part of these financial statements. 3 TUT SYSTEMS, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA) Year Ended December 31, 1999 -------------------------------------------------------- Tut Xstreamis Adjustments Pro Forma --------- ---------- ----------- ----------- Revenues Product and services $ 26,266 $ 12 $ - $ 26,278 License and royalty 1,541 - - 1,541 --------- ------- ------- ----------- Total revenues 27,807 12 - 27,819 Cost of goods sold 15,459 4 - 15,463 --------- ------- ------- ----------- Gross margin 12,348 8 - 12,356 --------- ------- ------- ----------- Operating expenses Sales and marketing 10,523 469 - 10,992 Research and development 7,618 1,031 - 8,649 General and administrative 4,429 1,294 - 5,723 In-process research and development 2,600 - - 2,600 Amortization of intangibles 52 - 4,044 B 4,096 Noncash compensation expense 455 - - 455 --------- ------- ------- ----------- Total operating expenses 25,677 2,794 4,044 32,515 --------- ------- ------- ----------- Loss from operations (13,329) (2,786) (4,044) (20,159) Interest expense (608) - - (608) Interest income and other (2,204) 28 - 2,232 --------- ------- ------- ----------- Loss before income taxes (11,733) (2,758) (4,044) (18,535) Income tax expense 1 - - 1 --------- ------- ------- ----------- Net loss (11,734) (2,758) (4,044) (18,536) Dividend accretion on preferred stock 235 - - 235 --------- ------- ------- ----------- Net loss attributable to common stockholders $ (11,969) $(2,758) $(4,044) $ (18,771) ========= ======= ======= =========== Net loss per share attributable to common stockholders, basic and diluted $ (1.12) $ (0.19) $ (1.68) ========= ======= =========== Shares used in computing net loss per share attributable to common stockholders, basic and diluted 10,729 14,447 439 11,168 ========= ======= ======= =========== The accompanying notes are an integral part of these financial statements. 4 TUT SYSTEMS, INC. NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 - BASIS OF PRESENTATION: The pro forma combined financial information give effect to Tut's acquisition of Xstreamis consummated on May 26, 2000. The acquisition will be accounted for as purchase. Xstreamis stockholders and optionholders received an aggregate total of 450,000 shares of Tut common stock and shares subject to options. The pro forma combined financial information has been prepared on the basis of assumptions described in the following notes and include assumptions relating to the allocation of the consideration paid for the assets and liabilities based on estimated of their fair values. The Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 1999 gives effect to the acquisition as if it had taken place on January 1, 1999. The Unaudited Pro Forma Combined Balance Sheet as of December 31, 1999 gives effect to the acquisition as if it had taken place on December 31, 1999. The Unaudited Pro Forma Combined Statement of Operations for the three months ended March 31, 2000 gives effect to the acquisition as if it had taken place on January 1, 2000. The Unaudited Pro Forma Combined Balance Sheet as of March 31, 2000 gives effect to the acquisition as if it had taken place on March 31, 2000. The pro forma combined financial information is not necessarily indicative of what the actual financial results would have been had the transaction taken place as of the beginning of the periods presented and do not purport to be indicative of the results of future operations. NOTE 2 - PURCHASE PRICE ALLOCATION: The unaudited pro forma combined information reflects a total purchase price for the Xstreamis acquisition of $19.8 million. The Xstreamis acquisition was consummated on May 26, 2000. The stockholders of Xstreamis received 439 shares of Tut common stock and $100 in cash on a pro-rata basis among the shareholders in exchange for 16,843 shares of Xstreamis. Additionally, Tut exchanged fully vested stock options to purchase 11 shares of Tut common stock for fully vested stock options to purchase 417 Xstreamis shares. The Company valued the options using the Black-Scholes option pricing model, applying an average expected life of four years, a weighted average risk free rate of 6%, an expected dividend yield of zero percent, a volatility of 80% and a deemed fair value of common stock of $41.75. 5 TUT SYSTEMS, INC. NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA) The Company's allocation of the aggregate purchase price to the tangible and identifiable assets acquired in connection with the Xstreamis acquisition has been based on a preliminary analysis by the Company: March 31, --------- 2000 Net liabilities assumed $ (120) Purchased technology 7,180 Assembled workforce 410 Goodwill 12,358 --------- Total purchase price $ 19,828 ========= Net liabilities assumed are derived as follows: Total stockholders' equity $ 477 Transaction costs accrued (597) --------- Total $ (120) ========= 6 TUT SYSTEMS, INC. NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 3 - UNAUDITED PRO FORMA COMBINED NET LOSS PER SHARE: The net loss per share and shares used in computing the net loss per share for the three months ended March 31, 2000 and for the year ended December 31, 1999 is based upon the Tut historical weighted average common shares outstanding together with the shares issued in the transactions as if such shares were issued January 1, 2000 and January 1, 1999, respectively. Common stock issuable upon the conversion of convertible preferred stock and exercise of Tut stock options and warrants has been excluded as the effect would be anti-dilutive. NOTE 4 - PURCHASE ADJUSTMENTS: The following adjustments were applied to the pro forma combined financial information: (A) To reflect the issuance of shares in the acquisition and to record estimated transactions costs and other assets and liabilities at their fair values. (B) To reflect amortization of goodwill and other intangibles related to the acquisition over their estimated useful lives of five years for goodwill and purchased technology and three years for assembled workforce. 7