<PAGE>
 
--------------------------------------------------------------------------------

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                       _________________________________

                                   FORM 10-Q
(Mark one)

    [X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934
                                        
                      FOR THE QUARTER ENDED MARCH 31, 1999
                                        
                                       OR

    [_]  Transition report pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934
                                        
                        COMMISSION FILE NUMBER 000-24733
                       _________________________________
                                        
                           ENTRUST TECHNOLOGIES INC.
             (Exact name of registrant as specified in its charter)
                                        

            MARYLAND                                   62-1670648
(State or other jurisdiction of            (IRS employer identification no.)
 incorporation or organization)


                             ONE PRESTON PARK SOUTH
                       4975 PRESTON PARK BLVD, SUITE 400
                                PLANO, TX 75093
              (Address of principal executive offices & zip code)

       Registrant's telephone number, including area code: (972) 943-7300
                                        

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes  [X]   No  [ ]

     There were 43,499,722 shares of the registrant's $.01 par value Common
stock outstanding as of May 13, 1999.  There were also 5,157,289 shares of the
registrant's $.01 par value Special voting stock outstanding as of May 13, 1999.

--------------------------------------------------------------------------------
<PAGE>
 
                           ENTRUST TECHNOLOGIES INC.

                               TABLE OF CONTENTS
                                        
 

PART I.  FINANCIAL INFORMATION                                              Page
                                                                            ----

   Item 1.  Financial Statements
            Condensed Consolidated Balance Sheets...........................   3
            Condensed Consolidated Statements of Operations.................   4
            Condensed Consolidated Statements of Cash Flows.................   5
            Notes to Condensed Consolidated Financial Statements............   6

   Item 2.  Management's Discussion and Analysis of Financial Condition and
            Results of Operations...........................................   8

   Item 3.  Quantitative and Qualitative Disclosures about Market Risk......  18

PART II. OTHER INFORMATION

   Item 1.  Legal Proceedings...............................................  19

   Item 2.  Changes in Securities and Use of Proceeds.......................  19

   Item 6.  Exhibits and Reports on Form 8-K................................  20
 
SIGNATURES..................................................................  21
 
INDEX TO EXHIBITS...........................................................  22

                                       2
<PAGE>
 
PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS



                           ENTRUST TECHNOLOGIES INC.
                                        
                     CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
 
                                                           (Unaudited)
                                              DECEMBER 31,  MARCH 31,
                                              ------------  ---------
    
                                                   1998       1999
                                                 --------   --------
(In thousands)
 
<S>                                              <C>        <C>
ASSETS
Current assets:
 Cash and cash equivalents.....................  $  3,712   $  3,585
 Short-term investments........................    77,355     74,267
 Accounts receivable, net......................    14,013     15,710
 Prepaid expenses and other....................     3,096      4,677
                                                 --------   --------
   Total current assets........................    98,176     98,239
Goodwill, net..................................     3,210      3,032
Property and equipment, net....................     4,874      5,825
Other assets...................................     1,569        835
                                                 --------   --------
   Total assets................................  $107,829   $107,931
                                                 ========   ========
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 Accounts payable..............................  $  7,187   $  5,616
 Accrued liabilities...........................     4,981      4,388
 Deferred income...............................     7,791      7,584
 Due to related party..........................       768        596
                                                 --------   --------
   Total current liabilities...................    20,727     18,184
Long-term liabilities..........................        43         21
                                                 --------   --------
   Total liabilities...........................    20,770     18,205
                                                 --------   --------
Shareholders' equity:
 Common and special voting stock and
  additional paid-in capital...................   112,960    115,316
 Unearned deferred compensation and other......      (724)      (747)
 Accumulated deficit...........................   (25,177)   (24,843)
                                                 --------   --------
   Total shareholders' equity..................    87,059     89,726
                                                 --------   --------
   Total liabilities and shareholders' equity..  $107,829   $107,931
                                                 ========   ========
 
</TABLE>

     See accompanying notes to condensed consolidated financial statements

                                       3
<PAGE>
 
                           ENTRUST TECHNOLOGIES INC.

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                                                    (Unaudited)
                                                                 THREE MONTHS ENDED
                                                                      MARCH 31,
                                                                  ------------------
                                                                    1998      1999
                                                                  -------    -------
<S>                                                               <C>       <C>
(In thousands, except per share data)

Revenues:
 License........................................................  $ 7,681    $11,626
 Services and maintenance.......................................    2,243      5,199
                                                                  -------    -------
  Total revenues................................................  $ 9,924    $16,825
                                                                  -------    -------
 
Cost of revenues:
 License........................................................      342        395
 Services and maintenance.......................................    1,478      2,847
                                                                  -------    -------
  Total cost of revenues........................................    1,820      3,242
                                                                  -------    -------
Gross profit....................................................    8,104     13,583
                                                                  -------    -------
Operating expenses:
 Sales and marketing............................................    4,936      8,610
 Research and development.......................................    2,285      3,881
 General and administrative.....................................    1,064      1,494
 Goodwill amortization..........................................       --        178
                                                                  -------    -------
  Total operating expenses......................................    8,285     14,163
                                                                  -------    -------
Loss from operations............................................     (181)      (580)
Interest income.................................................      146        914
                                                                  -------    -------
Income (loss) before benefit for income taxes...................      (35)       334
Benefit for income taxes........................................      160         --
                                                                  -------    -------
Net income......................................................  $   125    $   334
                                                                  =======    =======
Net income per share:
    Basic.......................................................    $0.00      $0.01
    Diluted.....................................................    $0.00      $0.01
Weighted average common shares used in per share computations:
    Basic.......................................................   30,700     42,910
    Diluted.....................................................   45,231     54,642
 
</TABLE>



     See accompanying notes to condensed consolidated financial statements

                                       4
<PAGE>
 
                           ENTRUST TECHNOLOGIES INC.
                                        
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                        
<TABLE> 
<CAPTION> 
                                                                (Unaudited)
                                                             THREE MONTHS ENDED
                                                                 MARCH 31,
                                                                 ---------
                                                              1998        1999
                                                           ---------   ---------
<S>                                                        <C>        <C>
(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income............................................  $    125   $    334
   Adjustments to reconcile net income to net cash
   used in operating activities:
 
    Depreciation and amortization........................       130        655
    Adjustment to cumulative translation account.........       (32)       (73)
    Deferred income taxes................................      (308)       (11)
    Deferred compensation earned.........................        --         49
 
   Changes in assets and liabilities:
    Increase in accounts receivable......................    (3,165)    (1,697)
    (Increase) decrease in prepaid expenses and other....       959       (855)
    Increase (decrease) in accounts payable..............     1,259     (1,571)
    Increase (decrease) in accrued liabilities...........       455       (592)
    Increase (decrease) in deferred income...............       662       (207)
    Decrease due to related party........................    (1,316)      (172)
                                                           --------   --------
    Net cash used in operating activities................   ( 1,231)    (4,140)
                                                           --------   --------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchases of property and equipment.....................      (389)    (1,428)
 Purchases of short-term investments.....................    (3,882)   (43,428)
 Dispositions of short-term investments..................     6,889     46,516
                                                           --------   --------
    Net cash provided by investing activities............     2,618      1,660
                                                           --------   --------
 
CASH FLOWS FROM FINANCING ACTIVITIES:
    Repayment of long-term debt..........................        (3)        (3)
    Proceeds from exercise of stock options..............        --      2,356
                                                           --------   --------
    Net cash provided by (used in) financing activities..        (3)     2,353
                                                           --------   --------
NET INCREASE  (DECREASE) IN CASH AND
  CASH EQUIVALENTS.......................................     1,384       (127)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.........     4,025      3,712
                                                           --------   --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...............  $  5,409   $  3,585
                                                           ========   ========
 
</TABLE>

     See accompanying notes to condensed consolidated financial statements

                                       5
<PAGE>
 
                           ENTRUST TECHNOLOGIES INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)
                       (In thousands, except share data)
                                        

NOTE 1.   BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements have
been prepared on the same basis as the audited annual consolidated financial
statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position, results of operations and cash flows.
The results of operations for the three months ended March 31, 1999, are not
necessarily indicative of the results to be expected for the full year. Certain
information and footnote disclosures normally contained in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial statements should
be read in conjunction with the Notes to Consolidated Financial Statements for
the year ended December 31, 1998 contained in Entrust Technologies Inc.'s Form
10-K.

NOTE 2.  NET INCOME PER SHARE

      Basic net income per share is computed by dividing the net income by the
weighted average number of shares of Common stock of all classes outstanding
during the period.  Diluted net income per share is computed by dividing the net
income by the weighted average number of shares of Common stock and potential
Common stock outstanding, and when dilutive, exchangeable Special Voting stock
on an as-if exchanged basis, and options to purchase Common stock using the
treasury stock method.  The dilutive effect of the exchangeable Special Voting
stock and the options to purchase Common stock are excluded from the computation
of diluted net income per share if their effect is antidilutive.

     On August 21, 1998, the Company closed its initial public offering, issuing
5,400,000 shares of its Common stock at an initial public offering price of $16
per share. The net proceeds to the Company from the offering, after deducting
underwriting discounts and commissions and offering expenses incurred by the
Company, were approximately $79.1 million. Concurrent with the closing of the
initial public offering, each of the 20,314,346 outstanding shares of the
Company's Series A Common stock and each of the 1,167,288 outstanding shares of
the Company's Redeemable Series A Common stock were automatically converted into
one share of Common stock. Also, the 260,000 outstanding shares of the Company's
Series B (including non-voting) Common stock were automatically converted into
13,063,836 shares of Common stock.  Furthermore, the majority shareholder of the
Company exercised its option to exchange 2,542,711 shares of the Company's
Special Voting stock into the equivalent number of shares of Common stock.
After this exchange, the remaining number of issued and outstanding Special
Voting shares was 5,157,289.  In addition, 835,007 Common shares were issued in
the three months ended March 31,1999 related to the exercise of employee stock
options and the sale of shares under the employee stock purchase plan.


NOTE 3.  SHORT-TERM INVESTMENTS

      Short-term investments consist of investments in a strategic cash
management account.  This account is invested primarily in highly rated
corporate securities, in securities guaranteed by the U.S. government or its
agencies and highly rated municipal bonds.   The Company has the intent and
ability to hold all investments until maturity.  Therefore, all such investments
are classified as "held to maturity" investments and stated at amortized cost.
At March 31, 1999, the amortized cost of the Company's investments approximated
fair value.

                                       6
<PAGE>
 
NOTE 4.  SEGMENT AND GEOGRAPHIC INFORMATION

Segment information

  The Company conducts business in one operating segment; namely, the design,
production and sale of software products and related services for encryption and
digital signature.  The  nature of the Company's different products and services
is similar and, in general, the type of customers for those products and
services is not distinguishable.

  The Company does, however, prepare information for internal use by the Chief
Operating Decision Maker ("CODM"), the President and Chief Executive Officer, on
a geographic basis.  Accordingly, under SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", the Company has included a
summary of the segment financial information reported to the CODM as follows in
the next section regarding geographic information. The Company's  CODM does not
view geographic segment results below net income (loss) before income taxes and,
therefore, the provision for income taxes is not broken out by geographic
segment below.  The accounting policies of the reportable geographic segments
are the same as those described in the summary of significant accounting
policies in the Company's annual Consolidated Financial Statements.

Geographic information

     Revenues are attributed to specific geographical areas based on where the
sales order originated. Company assets are identified with operations in the
respective geographic areas.

     The Company operates in three main geographic areas as follows:

<TABLE>
<CAPTION>
 
                                                                                         Three Months Ended
                                                                                   ----------------------------
                                                                                             March 31,
                                                                                   ----------------------------
                                                                                        1998                1999
                                                                                   --------------     --------------
<S>                                                                               <C>                   <C> 
Revenues:
      United States..........................................................             $5,553            $10,533
      Canada.................................................................              2,519              3,800
      Europe and Asia........................................................              1,852              2,492
                                                                                         -------            -------
   Total revenues............................................................             $9,924            $16,825
                                                                                         =======            =======
Net income (loss) before income taxes:
      United States..........................................................               $(98)              $117
      Canada.................................................................                (33)              (102)
      Europe and Asia........................................................                 96                319
                                                                                         -------            -------
   Total net income (loss) before income taxes...............................               $(35)              $334
                                                                                         =======            =======
 
                                                                                        December 31,     March 31, 
                                                                                            1998           1999
                                                                                       --------------  --------------
Total assets:
      United States..........................................................            $95,110            $94,583
      Canada.................................................................              8,244              8,735
      Europe and Asia........................................................              4,475              4,613
                                                                                       ---------          ---------
   Total.....................................................................           $107,829           $107,931
                                                                                       =========          =========
</TABLE>

                                       7
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

     This report contains forward-looking statements that involve risks and
uncertainties. The statements contained in this report that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including without limitation statements regarding our expectations,
beliefs, intentions or strategies regarding the future. All forward-looking
statements included in this report are based on information available to us up
to and including the date of this document, and we assume no obligation to
update any such forward-looking statements.  Our actual results could differ
significantly from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth below, under "Overview",
"Certain Factors that May Affect Our Business" and elsewhere in this report.

OVERVIEW

     Entrust develops, markets and sells products and services that allow
enterprises to manage trusted, secure electronic communications and transactions
over today's advanced networks, including the Internet, extranets and intranets.
Our solution automates the management of digital certificates, which are similar
to electronic passports, through public key infrastructure ("PKI") technology
designed to assure the privacy and authenticity of internal and external
electronic communications. The Entrust PKI is an integrated, open and scalable
software framework that operates across multiple platforms, network devices and
applications, including e-mail, browsers, electronic commerce, electronic forms,
remote access and other product offerings from leading vendors.

     Our quarterly operating results have varied substantially in the past and
are likely to vary substantially from quarter to quarter in the future due to a
variety of factors. In particular, our period-to-period operating results are
significantly dependent upon the completion date of large license agreements. In
this regard, the purchase of our products often requires a significant capital
investment which the customer may view as a discretionary cost and, therefore, a
purchase that can be deferred or canceled due to budgetary or other business
reasons.  Estimating future revenues is also difficult because we ship our
products soon after an order is received and, therefore, we do not have a
significant backlog. Thus, quarterly license revenues are heavily dependent upon
orders received and shipped within the same quarter. Moreover, we have generally
recorded a significant portion of our total quarterly revenues in the third
month of a quarter, with a concentration of these revenues in the last half of
that third month. This concentration of revenues is influenced by customer
tendencies to make significant capital expenditures at the end of a fiscal
quarter. We expect these revenue patterns to continue for the foreseeable
future. In addition, quarterly license revenues are dependent on the timing of
revenue recognition, which can be affected by many factors, including the timing
of customer installations and acceptance. In this regard, we have from time to
time experienced delays in recognizing revenues with respect to certain orders.
In any period a significant portion of our revenue may be derived from large
sales to a limited number of customers. Despite the uncertainties in our revenue
patterns, our operating expenses are based upon anticipated revenue levels and
such expenses are incurred on an approximately ratable basis throughout the
quarter. As a result, if expected revenues are delayed or otherwise not realized
in a quarter for any reason, our business, operating results and financial
condition would be significantly adversely affected. See "Certain Factors That
May Affect Our Business."

                                       8
<PAGE>
 
RESULTS OF OPERATIONS

     The following table sets forth certain condensed consolidated statement of
operations data expressed as a percentage of total revenues for the periods
indicated:

<TABLE>
<CAPTION>
                                     (Unaudited)
                                  Three Months Ended
                                      March 31,
                                      --------
                                     1998   1999
                                     ----   ----
 
<S>                                 <C>     <C>
Revenues:
  License.........................   77.4%   69.1%
  Services and maintenance........   22.6    30.9
                                    -----   -----
    Total revenues................  100.0   100.0
                                    -----   -----
 
Cost of revenues:
  License.........................    3.4     2.4
  Services and maintenance........   14.9    16.9
                                    -----   -----
    Total cost of revenues........   18.3    19.3
                                    -----   -----
 
Gross profit......................   81.7    80.7
                                    -----   -----
 
Operating expenses:
  Sales and marketing.............   49.8    51.2
  Research and development........   23.0    23.0
  General and administrative......   10.7     8.9
  Goodwill amortization...........     --     1.0
                                    -----   -----
 
    Total operating expenses......   83.5    84.1
                                    -----   -----
 
Loss from operations..............   (1.8)   (3.4)
Interest income...................    1.5     5.4
                                    -----   -----
 
Income (loss) before benefit for
   income taxes...................   (0.3)    2.0
Benefit for income taxes..........    1.6      --
                                    -----   -----
 
Net income........................    1.3%    2.0%
                                    =====   =====
</TABLE>

REVENUES

     We recognize revenues in accordance with the provisions of the American
Institute of Certified Public Accountants' Statement of Position 97-2 "Software
Revenue Recognition." We generate revenues primarily from licensing the rights
to our software products to end-users and, to a lesser extent, from sublicense
fees from resellers. We also generate revenues from consulting, training and
post-contract support ("maintenance") performed for customers who license our
products.

     Accordingly, revenues from perpetual software license agreements are
recognized as revenues upon receipt of an executed license agreement, or an
unconditional order under an existing license agreement, and shipment of the
software, if there are no significant remaining vendor obligations and
collection of the receivable is probable.

                                       9
<PAGE>
 
     Revenues from maintenance services are recognized ratably over the term of
the maintenance period, which is typically one year. If maintenance services are
included free of charge or discounted in a license agreement, such amounts are
unbundled from the license fee at their fair market value based upon the value
established by independent sales of such maintenance services to customers.

     We use the percentage of completion method to account for large custom
development contracts. Under this method, we recognize revenues and profit as
the work on the contract progresses. Revenues are recognized by applying the
percentage of the total cost incurred to date divided by the total estimated
contract cost to the total contract value, and any projected loss is recognized
immediately. The project cost estimates in each case are reviewed on a regular
basis.

     Consulting and training revenues are generally recognized as the services
are performed. Consulting services are typically performed under separate
service agreements and are usually performed on a time and materials basis.
Such services primarily consist of implementation services related to the
installation and deployment of our products and do not include significant
customization or development of the underlying software code.

Total Revenues

     Total revenues increased 70% from $9.9 million for the three months ended
March 31, 1998 to $16.8 million for the three months ended March 31, 1999.
Geographically, revenues derived from sales outside North America accounted for
19% and 15% of total revenues for the three months ended March 31, 1998 and
1999, respectively.   We continue to execute our strategy of expanding our
direct sales and marketing organization while focusing on targeted customers and
vertical market segments.  However, there can be no assurance that sales will
continue to grow at the rate experienced in prior periods.

License Revenues

     License revenues increased 51% from $7.7 million for the three months ended
March 31, 1998 to $11.6 million for the three months ended March 31, 1999,
representing 77% and 69% of total revenues in the respective periods.  The
increase in license revenues in absolute dollars was primarily due to increasing
market awareness and acceptance of our product offerings, continued enhancement
and increasing breadth of our product offerings, expansion of our sales and
marketing organization and sales to new industry segments. The decrease in
license revenues as a percentage of total revenues was primarily a result of the
increasing support revenue stream and increased demand for consulting services.

Services and Maintenance Revenues

     Services and maintenance revenues increased 132% from $2.2 million for the
three months ended March 31, 1998 to $5.2 million for the three months ended
March 31, 1999, representing 23% and 31% of total revenues in the respective
periods. The increase in services and maintenance revenues was primarily the
result of increases in maintenance revenues from a larger installed product base
and an increased demand for consulting services.

                                       10
<PAGE>
 
COST OF REVENUES

Cost of License Revenues

     Cost of license revenues consists primarily of costs associated with
product media, documentation, packaging and royalties to third-party software
vendors.  Cost of license revenues increased from $342,000 for the three months
ended March 31, 1998 to $395,000 for the three months ended March 31, 1999,
representing 3% and 2% of total revenues for the respective periods. The
increase in cost of license revenues in absolute dollars for the three months
ended March 31, 1999 was primarily a result of higher royalty fees paid to
third-party software vendors because of a higher level of sales.  The decrease
in the percentage of total revenues was primarily the result of a slight shift
in the mix of third-party products sold in the first quarter of 1999.

Cost of Services and Maintenance Revenues

     Cost of services and maintenance revenues consists primarily of personnel
costs associated with customer support, training and consulting services, as
well as costs paid to third-party consulting firms for those services.  Cost of
services and maintenance revenues increased 93% from $1.5 million for the three
months ended March 31, 1998 to $2.8 million for the three months ended March 31,
1999, representing 15% and 17% of total revenues for the respective periods. The
increase in absolute dollars reflected the increased costs associated with the
higher levels of services and maintenance revenues during the three months ended
March 31, 1999.  The increase as a percentage of total revenues, for the three
months ended March 31, 1999, was primarily a result of the increasing support
revenue and increasing demand for consulting services.

     The gross profit on services and maintenance revenues was 34% and 45% for
the three months ended March 31, 1998 and 1999, respectively.  This increase in
the services and maintenance margin reflects the shift in the mix of services
revenue to higher-margin maintenance revenues.  In addition, the services
personnel hired in 1998 are now achieving higher productivity levels.

OPERATING EXPENSES

Sales and Marketing

     Sales and marketing expenses increased from $4.9 million for the three
months ended March 31, 1998 to $8.6 million for the comparable period in 1999.
Sales and marketing expenses represented 50% of total revenues for the three
months ended March 31, 1998, compared to 51% for the comparable period in 1999.
These increases in absolute dollars and as a percentage of total revenues were
primarily the result of costs associated with the expansion of our sales and
marketing organization, both domestically and internationally. We have continued
our strategy of investing in hiring and training our direct sales organization
in anticipation of future market growth, and investing in marketing efforts in
support of new products launches. Failure of these investments to generate
future revenues could have a significant adverse effect on our operations.

Research and Development

     Research and development expenses increased from $2.3 million for the three
months ended March 31, 1998 to $3.9 million for the comparable period in 1999.
Research and development expenses represented 23% of total revenues for the
three months ended March 31, 1998 and 1999.  The increased investment in
research and development expenses in absolute dollars primarily reflected higher
expenses related to increased staffing of software engineers and contractors.
These employees were added in connection with the continuing expansion and
enhancement of our product offerings and commitment to quality assurance and
testing.  In addition, our acquisition of r3 Security Engineering AG ("r3") in
June 1998 increased the size of our research and development team.  The
investment in research and development as a percentage of revenues remained
constant for the three months ended March 31, 1999 compared to the same period
in 1998.  We believe that we must continue to invest in research and development
in order to maintain our technological leadership position and, thus, expect
research and development expenses to continue to increase in absolute dollars as
we hire additional experienced security experts and software engineers.

                                       11
<PAGE>
 
General and Administrative

     General and administrative expenses increased from $1.1 million for the
three months ended March 31, 1998 to $1.5 million for the comparable period in
1999. General and administrative expenses represented 11% of total revenues for
the three months ended March 31, 1998, compared to 9% for the comparable period
in 1999.  The increase in general and administrative expenses in absolute
dollars reflected our continued investment in increased staffing and related
expenses for the enhancement of the infrastructure required to support our
growth, including investor relation programs, improved management information
systems and outside professional service firms.  The decrease as a percentage of
revenues reflected efficiencies gained as we have grown.

Goodwill Amortization

     On June 8, 1998, we completed the acquisition of  r3, a company based in
Zurich, Switzerland, which  provides consulting, applied research and product
development services related to commercial security and encryption solutions.
We have recorded $178,000 of amortization with respect to the goodwill that
arose as a result of this acquisition in the three months ended March 31, 1999.

Interest Income

     Interest income increased to $914,000 for the three months ended March 31,
1999 from $146,000 for the comparable period in 1998.  This increase reflects
the interest earned on the net proceeds of our initial public offering in August
1998.

Provision for Income Taxes

     We did not record any income tax provision for the three months ended March
31, 1999 compared with a $160,000 income tax benefit recognized for the three
months ended March 31, 1998.  We account for income taxes in accordance with
Statement of Financial Accounting Standards No. 109.  Accordingly, the effective
income tax rates differed from statutory rates due to an adjustment to the
valuation allowance for net operating loss carry forwards from prior periods in
the first quarter of 1999, which resulted in no tax provision for the period.
For the three months ended March 31, 1998, the tax benefit of $160,000 arose
primarily from Canadian research and development tax credits.

LIQUIDITY AND CAPITAL RESOURCES

     Entrust utilized cash of $4.1 million for operating activities during the
three months ended March 31, 1999.  This cash outflow was primarily a result of
an increase in accounts receivable, an increase in prepaid expenses and other
assets, a decrease in accounts payable, and a decrease in accrued liabilities.
The average days sales outstanding remained consistent at 84 days from December
31, 1998 to March 31, 1999. For purposes of calculating average days sales
outstanding, we divide ending accounts receivable by the current quarter's
revenues and multiply this amount by 90 days. The level of accounts receivable
at each quarter end will be affected by the concentration of revenues in the
final weeks of each quarter and may be negatively affected by expanded
international revenues in relation to total revenues as licenses to
international customers often have longer payment terms.

     During the three months ended March 31, 1999, we reduced our short-term
investments by $3.1 million (net of $43.4 million of short-term investment
purchases) and invested $1.4 million in property and equipment. The property and
equipment investments were primarily computer hardware and leasehold
improvements to support the growing organization.

     Cash provided by financing activities for the three months ended March 31,
1999 was $2.4 million primarily due to the exercise of employee stock options
and the sale of shares under our employee stock purchase plan.

                                       12
<PAGE>
 
     As of March 31, 1999, our principal sources of liquidity were our cash and
short-term investments of  $77.9 million. It is our belief that cash flows from
operations, existing cash and cash equivalents and short-term investments will
be sufficient to meet our needs for at least the next twelve months.

CERTAIN FACTORS THAT MAY AFFECT OUR BUSINESS

We Have a Limited Operating History

     We have only a limited operating history on which to base an evaluation of
our business and prospects.  Our quarterly revenues and operating results have
varied substantially and may continue to fluctuate due to a number of factors,
including, but not limited to, the following:

 .  The timing, size and nature of our licensing transactions;
 .  The market acceptance of new products or product enhancements by us or our
   competitors;
 .  Product and price competition;
 .  The relative proportions of revenues derived from licenses and services and
   maintenance;
 .  Changes in our operating expenses;
 .  Personnel changes;
 .  Fluctuations in foreign currency exchange rates; and
 .  Fluctuations in economic and financial market conditions.

     To address these risks we must, among other things:

 .  Successfully market our products to our new and existing customers;
 .  Attract, integrate, train, retain and motivate qualified personnel;
 .  Respond to competitive developments;
 .  Successfully introduce new products; and
 .  Successfully introduce enhancements to our product line to address new
   technologies and standards.

     We cannot be certain that we will successfully address any of these risks.

Certain of Our PKI Solution Transactions Have Lengthy Sales and Implementation
Cycles

     The timing, size and nature of individual licensing transactions are
important factors in our quarterly results of operations. Transactions for the
Entrust PKI solution often involve large expenditures, and the sales cycles for
these transactions are often lengthy and unpredictable. In addition, the sales
cycle associated with these transactions is subject to a number of
uncertainties, including, but not limited to:

 .  customers' budgetary constraints;
 .  the timing of customers' budget cycles; and
 .  customers' internal approval processes.

     There can be no assurance that we will be successful in closing such large
transactions on a timely basis or at all.

                                       13
<PAGE>
 
     Estimating future revenues is difficult because we ship our products soon
after an order is received and as such we do not have a significant backlog.
Thus, quarterly license revenues are heavily dependent upon orders received and
shipped within the same quarter. Moreover, we historically have recorded 60% to
80% of our total quarterly revenues in the third month of the quarter, with a
concentration of revenues in the second half of that month. We expect that this
concentration of revenues which is, in part, attributable to the tendency of
certain customers to make significant capital expenditures at the end of a
fiscal quarter and to sales patterns within the software industry, will continue
for the foreseeable future.

     Our expense levels are based, in significant part, on our expectations as
to future revenues and are largely fixed in the short term.   Therefore, the
following uncertainties exist:

 .  we may be unable to adjust spending in a timely manner to compensate for any
   unexpected shortfall in revenues;
 .  any significant shortfall of revenues in relation to our expectations would
   have an immediate and significantly adverse effect on our financial condition
   and results of operations for that quarter;
 .  we plan to increase operating expenses to expand our research and
   development, managerial, finance, sales and marketing and service and support
   organization; and
 .  the timing of such expansion and the rate at which new personnel become
   productive could cause significant fluctuations in quarterly and annual
   results of operations.

     Due to all of the foregoing factors, we believe that:

 .  period-to-period comparisons of our results of operations are not necessarily
   meaningful;
 .  results in any particular quarter are not necessarily indicative of future
   performance;
 .  future revenues and results of operations may vary substantially from quarter
   to quarter; and
 .  in future quarters, our results of operations may be below the expectations
   of public market analysts and investors.

     In any case, the price of our common stock could be adversely affected in a
serious manner. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

Our Business Success Depends on Risks Associated with the Information Security
Market

     The market for Entrust's PKI solution is at an early stage of development.
A decline in demand for our products could result from:

 .  competition;
 .  technology change;
 .  the public's perception of the need for security products;
 .  developments in the hardware and software environments in which these
   products operate; and
 .  general economic conditions.

     Any such decline could have a significant adverse effect on our business,
financial condition or results of operations.

     Continued growth of this market will depend, in large part, on the
following:

 .  the continued expansion of Internet usage and in the number of organizations
   adopting or expanding intranets and extranets;
 .  the ability of their respective infrastructures to support an increasing
   number of users and services;
 .  the public recognition of the potential threat posed by computer hackers and
   other unauthorized users; and
 .  the continued development of new and improved services for implementation
   across private and public networks.

                                       14
<PAGE>
 
     In addition, a well-publicized actual or perceived breach of network or
computer security at one of our customers, regardless of whether such breach is
attributable to our products, or any significant advance in techniques for
decoding or "cracking" encrypted information could adversely affect the market's
perception of us and our products, and could have an adverse effect on our
business, financial condition or results of operations.

We Face Intense Competition in Our Market

     Our products are targeted at the new and rapidly evolving market for PKI
solutions. Although the competitive environment in this market has yet to
develop fully, we anticipate that it will be intensely competitive, subject to
rapid change and significantly affected by new product and service introductions
and other market activities of industry participants.

     Because of the broad functionality of our PKI solution, we compete with
vendors offering a wide range of security products and services, as follows:

 .  we compete with companies offering commercial certification authority
   products and services, such as VeriSign, GTE Cybertrust Solutions, Baltimore
   Technologies and IBM;
 .  we compete with established companies, such as Security Dynamics and Network
   Associates, which have each announced their intention to introduce PKI
   products that would be integrated with their other security offerings, as
   well as Microsoft, which has announced its intention to offer a certificate
   server product building on its existing security framework in the near
   future;
 .  other major networking vendors could, in the future, bundle digital
   certificates with their product offerings;
 .  we expect that competition from established and emerging companies in the
   financial and telecommunications industries will also increase in the near
   term; and
 .  certain of our primary long-term competitors may not yet have entered the
   market.

     Increased competition could result in pricing pressures, reduced margins or
the failure of our products and services to achieve or maintain market
acceptance, any of which could have a serious adverse effect on our business,
financial condition and results of operations.

Our Industry is Subject to Rapid Technological Change

     The emerging market for network security products and related services is
characterized by rapid technological developments, frequent new product
introductions and evolving industry standards.

     The emerging nature of this market and its rapid evolution will require us
to improve the performance, features and reliability of our products and
services, particularly in response to competitive offerings, and to be first to
market with new products and services or enhancements to existing products and
services.  Our failure to develop and introduce new products and  services
successfully on a timely basis and to achieve market acceptance for such
products and services could have a significant adverse effect on our business,
financial condition and results of operations.

Our Industry Faces Strict Regulation

     Certain of our products are subject to export controls under laws of the
U.S., Canada and other countries, and we believe that we have obtained all
necessary export approvals. There can be no assurance, however, that the list of
products and countries for which exports are restricted, and the regulatory
policies with respect thereto, will not be revised from time to time. Our
inability to obtain required government approvals under these regulations could
adversely affect our ability to sell products abroad or make products available
for sale via international computer networks such as the Internet. Furthermore,
U.S. governmental controls on the exportation of encryption products and
technology may in the future restrict our ability to freely export some of our
products with the most powerful information security encryption technology. We
are currently authorized under exemptions contained in an interim U.S. export
procedure to export products with encryption technology that is more powerful
than would be permitted in the absence of such authorization. There can be no
assurance that the interim regulations will not be modified, and that we will
continue to meet the qualifications for

                                       15
<PAGE>
 
exemption thereunder. Furthermore, there can be no assurance that foreign
customers will seek export versions of our products. As a result, foreign
competitors subject to less stringent export controls on their products may be
able to compete more effectively than us in the global information security
market. There can be no assurance that these factors will not have a material
adverse effect on our business, financial condition or results of operations.

We Must Manage Our Growth

     We are currently experiencing rapid growth that places a significant strain
on our management and other resources. Our business has grown significantly in
size and complexity over the past three years.  The growth in the size and
complexity of our business as well as its customer base has placed, and is
expected to continue to place, a significant strain on our management and
operations. In addition, certain of our senior management have had limited
experience in managing publicly traded companies. We anticipate that continued
growth, if any, will require us to recruit and hire a substantial number of new
development, managerial, finance, sales and marketing and support personnel. We
may not be successful at hiring or retaining such personnel. Our ability to
compete effectively and to manage future growth, if any, will depend on, among
other things:

 .  our ability to continue to implement and improve operational, financial and
   management information systems on a timely basis; and
 .  to expand, train, motivate and manage our work force.

     Our personnel, systems, procedures and controls may not be adequate to
support our operations. The geographic dispersal of our operations, including
the separation of our headquarters in Plano, Texas, from our research and
development facility in Ottawa, Canada, may make it more difficult to manage our
growth.

Possible Future Acquisitions Could Impact Our Expected Results

     It is possible, as part of our future growth strategy, that we will from
time-to-time acquire or make investments in companies, technologies, product
solutions, or professional services offerings.  With respect to these
acquisitions, we would face the difficulties of assimilating their personnel and
operations with our present business, and the problems of retaining and
motivating key personnel from acquired businesses.  In addition, these
acquisitions may disrupt ongoing operations, divert management from day-to-day
business, and adversely impact our results of operations.  Certainly, these
types of transactions often result in charges to earnings for such things as
amortization of goodwill, that might arise under purchase accounting, or in-
process research and development expenses.

We are a Global Company

     Entrust has experienced a degree of success in expanding sales outside of
the U.S. and Canada in the past.  In 1998, 23% of our sales were derived from
outside North America compared to 5% in 1997.  In the future, we may establish
additional foreign operations, hire additional personnel and establish
relationships with additional partners.  This expansion would require
significant management attention and financial resources and could have an
adverse effect on our business, financial condition and results of operations.
In addition, there can be no assurance that we will be able to maintain or
increase international market demand for our products and services.  Although
our international sales are primarily denominated in U.S. dollars, we may
increasingly denominate sales in local foreign currencies in the future.  Also,
we expect to incur an increasing amount of payroll and other obligations in
foreign currencies.  A change in the value of the U.S. dollar relative to
foreign currencies could make our products more expensive and, therefore,
potentially less competitive in those markets and could otherwise impact on our
ability to meet our foreign currency denominated obligations.  In addition, our
international business may be subject to a variety of other risks, including:

 .  difficulties in collecting international accounts receivable;
 .  difficulties in obtaining U.S. export licenses, especially for products
   containing encryption technology;
 .  potentially longer payment cycles for customer payments;
 .  increased costs associated with maintaining international marketing efforts;
 .  introduction of non-tariff barriers and higher duty rates;

                                       16
<PAGE>
 
 .  difficulties in enforcement of contractual obligations and intellectual
   property rights;
 .  difficulties managing personnel and operations in remote locations;
 .  increased complexity in corporate tax structure globally; and
 .  potential adverse impact resulting from introduction of Euro dollar currency.

     There can be no assurance that we will be able to resolve all these risks
without adverse effects on our future international sales and, consequently, on
our business, financial condition or results of operations.

Our Stock Price May be Volatile in Future

     The trading price of our common stock has been, and is expected to continue
to be, highly volatile and may be significantly and adversely affected by
factors such as:

 .  actual or anticipated fluctuations in our operating results;
 .  announcements of technological innovations;
 .  new products or new contracts by us or our competitors;
 .  developments with respect to patents, copyrights or propriety rights;
 .  conditions and trends in the software industry;
 .  changes in financial estimates by securities analysts; and
 .  general market conditions and other factors.

     The public equity markets have from time to time experienced significant
price and volume fluctuations that have particularly affected the market prices
for the stock of technology companies as a group but have been unrelated to the
performance of particular companies. The market price of our Common stock may be
adversely affected by these broad market fluctuations, as well as:

 .  shortfalls in sales or earnings as compared with securities analysts'
   expectations;
 .  changes in such analysts' recommendations or projections;  and
 .  general economic and market conditions.

YEAR 2000 COMPLIANCE

     The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century for a given year. For example,
software with date-sensitive functions that is not Year 2000 Compliant may not
be able to distinguish whether "00" means 1900 or 2000, which may result in
failures or the creation of erroneous results.

     We have developed a Year 2000 readiness plan for the current versions of
our products. The plan includes assessment, implementation, validation testing,
and contingency planning.  We have assessed the capability of the current
versions of our products sold to handle the Year 2000 and have identified the
code changes (if any) required to make each of these products Year 2000
Compliant.  We have a plan in place, with resources assigned, to complete any
necessary code changes and testing by June 1999.  The costs of this effort are
not significant and are included in our operating costs.  We believe that, upon
completion of the updates mentioned above, our products and systems will be Year
2000 Compliant and, therefore, that the likelihood of a significant impact due
to problems is remote.  In addition, we expect that the cost of these projects
over the next twelve months will not have a significant effect on our business,
results of operations or financial condition.  We continue to maintain an up-to-
date listing of the Year 2000 readiness of our various products on our Web site
and we plan to respond to customer concerns about prior versions of our products
on a case-by-case basis.

     We have defined "Year 2000 Compliant" to mean the ability to perform date
and time dependent operations between December 31, 1999, and January 1, 2000,
without any significant, service-affecting non-conformances to the accompanying
user documentation.  This does not, however, mean that the software will be free
of all defects, errors or inaccuracies.  The definition of Year 2000 Compliant
assumes that our software products receive accurate and correctly formatted date
and time information from the underlying operating system, firmware, hardware
and any other software with which our products interact.  Year 2000 Compliance
also assumes that our customers continue to contract for maintenance and support
of our products. We have not

                                       17
<PAGE>
 
specifically tested software obtained from third parties (licensed software,
shareware, and freeware) that is incorporated into our products, but we are
seeking assurances from our vendors that licensed software is Year 2000
Compliant. We believe that due to the relatively small third-party component,
the likelihood of a significant impact is remote. We also have not tested our
products on all platforms or all versions of operating systems that we currently
support and have advised our customers to verify that their platforms and
operating systems support the transition to the year 2000. We are preparing a
contingency plan for unanticipated product failures which we anticipate
completing by mid-1999.

     Our internal systems include both our information technology ("IT") and
non-IT systems. We completed an assessment of our material internal IT systems
during 1998 and expect to complete an assessment of our non-IT systems in the
first half of 1999. With respect to the IT systems, we have applied available
software updates and "patches" as required by our vendors to make their software
Year 2000 Compliant.  Certain vendors have yet to provide such updates to their
software.  However, these updates will be made as the software is available or
an alternate source will be found for the required functionality.  In addition,
we plan to test our internal computing environment for Year 2000 Compliance in
the third quarter of 1999.  To the extent that we are not able to test certain
technology provided by third-party vendors, we are seeking assurances from our
vendors that their systems are Year 2000 Compliant.  We are obtaining these
assurances in writing from published vendor materials and expect this activity
to be completed in mid-1999.  Although we are not currently aware of any
significant operational issues or costs associated with preparing our internal
IT and non-IT systems for the Year 2000, we may experience unanticipated
problems and costs caused by undetected errors or defects in the technology used
in our internal IT and non-IT systems.  We are preparing a contingency plan for
unanticipated system failures which we anticipate completing by mid-1999.

     We do not have any information concerning the Year 2000 Compliance status
of our customers. As is the case with other similarly situated software
companies, if our current or future customers fail to achieve Year 2000
Compliance, our business, results of operations or financial condition could be
significantly adversely affected.  Furthermore, the purchasing patterns of our
customers or potential customers may be affected by Year 2000 issues as
companies expend significant resources to correct their current systems for Year
2000 Compliance. These expenditures may result in reduced funds being available
to our customers to implement or to purchase our products.  This would have a
significant adverse effect on our business, financial condition and results of
operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Risk Associated with Interest Rates

     Our investment policy states that we will invest our cash reserves,
including cash, cash equivalents and short-term investments, in investments that
are designed to preserve principal, maintain liquidity and maximize return.   We
actively manage our investments in accordance with the objectives above.
Accordingly, some of these investments are subject to market risk, whereby a
change in market interest rates will cause the principal amount of the
underlying investment to fluctuate.  Therefore, a depreciation in principal
value of an investment is possible in situations where the investment is made at
a fixed interest rate and the market interest rate then subsequently increases.
We try to manage this risk by maintaining our cash and cash equivalents, and
short-term investments with high quality financial institutions and investment
managers.  We also restrict the investments to securities with short-term
maturities, such that, at March 31, 1999, the majority of our short-term
investments had maturities of less than six-months from that date.   As a
result, we believe that our exposure to market risk related to interest rates is
minimal.

                                       18
<PAGE>
 
     The following table presents the cash and cash equivalents and short-term
investments that we held at March 31, 1999, that would have been subject to
market risk, and the related ranges of maturities as of that date:

<TABLE>
<CAPTION>

                                                                                             MATURITY
                                                                                          (in thousands)

                                                                       Within 3 Months       3-6 Months    Greater than 6 Months
                                                                       ---------------      ------------  -----------------------
<S>                                                                    <C>                  <C>             <C>
Investments classified as cash and cash equivalents...........                   $100                 --                 --
Investments classified as short-term investments..............                $26,798            $23,209            $24,260
                                                                              -------            -------            -------
  Total.......................................................                $26,898            $23,209            $24,260
                                                                              =======            =======            =======
Fair Value....................................................                $26,898            $23,209            $24,260
                                                                              =======            =======            =======

</TABLE> 

Risk Associated with Exchange Rates

     We are subject to foreign currency exchange risk as a result of exposures
to changes in currency exchange rates, specifically between the United States
and Canada, the United Kingdom, Germany and Switzerland.  However, this exposure
is considered to be minimal due to the fact that the United Kingdom, German and
Swiss operations are not significant, and the Canadian operations are naturally
hedged against exchange rate fluctuations since both revenues and expenses are
denominated in Canadian dollars.  Therefore, an unfavorable change in the
exchange rate for the Canadian subsidiary would result in lower revenues when
translated into U.S. dollars, but the expenses would be lowered in a
corresponding fashion.

     As a result, we do not engage in formal hedging activities, but we do
periodically review the potential impact of this risk to ensure that the risk of
significant potential losses remains minimal.

PART II.   OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

     Entrust is subject to various legal proceedings and claims, either asserted
or unasserted, which arise in the ordinary course of business.  While the
outcome of these claims cannot be predicted with certainty, management does not
believe that the outcome of any of these legal matters will have a significant
adverse effect on our consolidated results of operations or consolidated
financial position.

     On February 19, 1999, Surety Technologies Inc. and Bell Communications
Research, Inc. filed a complaint against Entrust Technologies Inc. in the United
States District Court for the Eastern District of Virginia alleging that the
Entrust/Timestamp product and services infringe U.S. Patent No. 5,136,647
(reissued as Re 34,954).  The plaintiffs have requested that Entrust be enjoined
from further infringement and pay damages for infringement, treble damages for
willful infringement and costs. We believe that the allegations are without
merit and are vigorously defending ourselves against this lawsuit.

ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

(d)  Use of Proceeds.

     On August 21, 1998, Entrust closed an initial public offering of our Common
Stock, $.01 par value (the "Offering"). The Registration Statement on Form S-1
(No. 333-57275) was declared effective by the Securities and Exchange Commission
(the "SEC") on August 17, 1998 and we commenced the offering on that date.

     After deducting the underwriting discounts and commissions and the Offering
expenses, the net proceeds to Entrust from the Offering were approximately
$79,097,515.

                                       19
<PAGE>
 
     As of March 31, 1999, approximately $5,200,000 of the net proceeds of the
Offering had been used to fund working capital and expansion of our facilities,
with the remainder having been invested in short-term, interest-bearing,
investment grade securities. The entire amount of the net proceeds has been
allocated for general corporate purposes and working capital, including product
development and the possible acquisition of additional businesses and
technologies that are complementary to our current or future business.  None of
the proceed amounts were paid directly or indirectly to any director, officer,
or general partner of Entrust or our associates, persons owning 10 percent or
more of any class of equity securities of Entrust, or an affiliate of Entrust.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

List of Exhibits

     27   Financial Data Schedule (available in EDGAR format only)


Reports on Form 8-K:

     None

                                       20
<PAGE>
 
                                   SIGNATURES
                                        
     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                         ENTRUST TECHNOLOGIES INC.
                                    -----------------------------------
                                            (Registrant)

Dated: May 14, 1999
 
                                          /s/ Michele L. Axelson
                                    -----------------------------------
                                             Michele L. Axelson
                              Senior Vice President and Chief Financial Officer 
                                (Principal Financial and Accounting Officer)
                                        

                                       21
<PAGE>
 
                           ENTRUST TECHNOLOGIES INC.

                               INDEX TO EXHIBITS
                                        


EXHIBIT                         DESCRIPTION                             PAGE
-------                         -----------                             -----

27                      Financial Data Schedule

                                       22