878436--2/23/2006--TUT_SYSTEMS

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{customer, product, revenue}

{product, market, service}

{acquisition, growth, future}

{stock, price, operating}

{personnel, key, retain}

{control, financial, internal}

{operation, international, foreign}

{product, liability, claim}

{capital, credit, financial}

{regulation, change, law}

{financial, litigation, operation}

{provision, law, control}

{property, intellectual, protect}

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We have a history of significant losses, and we may never achieve profitability. Each sale of our digital headend systems represents a significant portion of our revenue for any given quarter. Our failure to meet our quarterly forecast of sales of digital headend systems in any given quarter could have a material adverse impact on our financial results for a given quarter. We operate in an intensely competitive marketplace, and many of our competitors have greater resources than we do. Commercial acceptance of any technological solution that competes with technology based on communication over copper telephone wire could materially and adversely impact demand for our products, our revenue and growth strategy. If the projected growth in demand for video services from telephone service providers does not materialize or if our customers find alternative methods of delivering video services, future sales of our video content processing systems will suffer. Our operating results fluctuate significantly from quarter to quarter, and this may cause the price of our stock to decline. We depend on international sales for a significant portion of our revenue, which subjects our business to a number of risks. If we are unable to generate significant international sales, our revenue, profitability and share price could be materially and adversely affected. The sales cycle for video content processing systems is long and unpredictable, which requires us to incur high sales and marketing expenses with no assurance that a sale will result. If we fail to accurately forecast demand for our products, our revenue, profitability and reputation could be harmed. If we fail to develop and introduce new products in response to the rapid technological changes in the markets in which we compete, we will not remain competitive. Fluctuations in interest and currency exchange rates may decrease demand for our products. If our contract manufacturers, third-party OEMs and third-party suppliers fail to produce quality products or parts in a timely manner, we may not be able to meet our customers demands. Design defects in our products could harm our reputation, revenue and profitability. Our business depends on the integrity of our intellectual property rights. If we fail to adequately protect our intellectual property, our revenue, profitability, reputation or growth strategy could be adversely affected. If we fail to provide our customers with adequate and timely customer support, our relationships with our customers could be damaged, which would harm our revenue and profitability. We routinely evaluate acquisition candidates and other diversification strategies. Failure to integrate acquired businesses into our operations successfully could adversely affect our business. If we fail to manage our expanding operations, our ability to increase our revenues and improve our results of operations could be harmed. If material weaknesses in our internal control over financial reporting were to develop and we were unable to remedy such weaknesses in an effective and timely manner, such weaknesses could materially and adversely affect our ability to provide the public with timely and accurate material information about Tut Systems. We are currently engaged in a securities class action lawsuit which, if it were to result in an unfavorable resolution, could adversely affect our reputation, profitability and share price. If our products do not comply with complex government regulations, our product sales will suffer. If we lose key personnel or are unable to hire additional qualified personnel as necessary, we may not be able to manage our business successfully, which could materially and adversely affect our growth strategy, reputation and share price. Our stock price is volatile, and, if you invest in Tut Systems, you may suffer a loss of some or all of your investment. Future sales of shares of our common stock could cause our stock price to decline. Our charter, bylaws, retention and change of control plans and Delaware law contain provisions that could delay or prevent a change in control. Recent and proposed regulations related to equity compensation could adversely affect earnings, affect our ability to raise capital and affect our ability to attract and retain key personnel. We are exposed to additional costs and risks associated with complying with increasing and new regulation of corporate governance and disclosure standards.

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878436--2/23/2006--TUT_SYSTEMS_INC