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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-Q



|(Mark one)
|----------

[X]     Quarterly report
   pursuant to Section 13 or 15(d) of the
 
 Securities Exchange Act of 1934



OR

[]     
   Transition report pursuant to Section 13 or 15(d) of the
 
 Securities Exchange Act of 1934

COMMISSION FILE NUMBER 000-24733

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ENTRUST TECHNOLOGIES INC.
 (Exact name of registrant as specified in its charter)





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



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 44,694,223 shares of the registrant's $.01 par value
   Common stock outstanding as of November 9, 1999. There were
   also 5,157,289 shares of the registrant's $.01 par value Special
   Voting stock outstanding as of November 9, 1999.

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ENTRUST TECHNOLOGIES INC.

TABLE OF CONTENTS



|PART I.  FINANCIAL INFORMATION
|------------------------------
|                              
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|PART II.  OTHER INFORMATION   
|                              
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|SIGNATURES                    



|PART I. | FINANCIAL INFORMATION
|------- | ---------------------
|        |                      
|ITEM 1. | FINANCIAL STATEMENTS 

ENTRUST TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS





|                                                                    | DECEMBER 31, |  | (Unaudited)
   
   SEPTEMBER 30,
|------------------------------------------------------------------- | ------------ |  | --------------------------------
|                                                                    |              |  |                                 
|                                                                    | 1998         |  | 1999                            
|                                                                    |              |  |                                 
|(In thousands)                                                      |              |  |                                 
|                                                                    |              |  |                                 
|ASSETS                                                              |              |  |                                 
|Current assets:                                                     |              |  |                                 
|Cash and cash equivalents                                           | $3,712       |  | $ 20,436                        
|Short-term investments                                              | 77,355       |  | 67,200                          
|Accounts receivable, net                                            | 14,013       |  | 18,154                          
|Prepaid expenses and other                                          | 3,096        |  | 5,074                           
|                                                                    |              |  |                                 
|Total current assets                                                | 98,176       |  | 110,864                         
|Property and equipment, net                                         | 4,874        |  | 6,323                           
|Other long-term assets                                              | 4,779        |  | 4,989                           
|                                                                    |              |  |                                 
|Total assets                                                        | $107,829     |  | $122,176                        
|                                                                    |              |  |                                 
|                                                                    |              |  |                                 
|LIABILITIES AND SHAREHOLDERS' EQUITY                                |              |  |                                 
|Current liabilities:                                                |              |  |                                 
|Accounts payable                                                    | $ 7,187      |  | $ 5,672                         
|Accrued liabilities                                                 | 4,981        |  | 8,523                           
|Deferred income                                                     | 7,791        |  | 9,698                           
|Due to related party                                                | 768          |  | 789                             
|                                                                    |              |  |                                 
|Total current liabilities                                           | 20,727       |  | 24,682                          
|Long-term liabilities                                               | 43           |  | 16                              
|                                                                    |              |  |                                 
|Total liabilities                                                   | 20,770       |  | 24,698                          
|                                                                    |              |  |                                 
|Shareholders' equity:                                               |              |  |                                 
|Common and special voting stock and
     additional paid-in capital | 112,960      |  | 119,988                         
|Unearned deferred compensation and
     other                       | (724)        |  | (583)                           
|Accumulated deficit                                                 | (25,177)     |  | (21,927)                        
|                                                                    |              |  |                                 
|Total shareholders' equity                                          | 87,059       |  | 97,478                          
|                                                                    |              |  |                                 
|Total liabilities and shareholders'
     equity                     | $107,829     |  | $122,176                        
|                                                                    |              |  |                                 

See accompanying notes to condensed consolidated
   financial statements



ENTRUST TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS





|                                                | (Unaudited)
   
   THREE MONTHS ENDED
   
   SEPTEMBER 30, |  | (Unaudited)
   
   NINE MONTHS ENDED
   
   SEPTEMBER 30,
|----------------------------------------------- | ---------------------------------------------------------- |  | ---------------------------------------------------------
|                                                |                                                            |  |                                                          
|                                                | 1998                                                       |  | 1999                                                     
|                                                |                                                            |  |                                                          
|(In thousands, except per share data)           |                                                            |  |                                                          
|                                                |                                                            |  |                                                          
|Revenues:                                       |                                                            |  |                                                          
|License                                         | $9,795                                                     |  | $16,515                                                  
|Services and maintenance                        | 3,244                                                      |  | 6,108                                                    
|                                                |                                                            |  |                                                          
|Total revenues                                  | 13,039                                                     |  | 22,623                                                   
|                                                |                                                            |  |                                                          
|Cost of revenues:                               |                                                            |  |                                                          
|License                                         | 507                                                        |  | 603                                                      
|Services and maintenance                        | 2,100                                                      |  | 3,385                                                    
|                                                |                                                            |  |                                                          
|Total cost of revenues                          | 2,607                                                      |  | 3,988                                                    
|                                                |                                                            |  |                                                          
|Gross profit                                    | 10,432                                                     |  | 18,635                                                   
|                                                |                                                            |  |                                                          
|Operating expenses:                             |                                                            |  |                                                          
|Sales and marketing                             | 7,330                                                      |  | 10,478                                                   
|Research and development                        | 3,669                                                      |  | 4,225                                                    
|General and administrative                      | 1,356                                                      |  | 1,993                                                    
|Acquired in-process research and                |                                                            |  |                                                          
|development and goodwill amortization           | 178                                                        |  | 178                                                      
|                                                |                                                            |  |                                                          
|Total operating expenses                        | 12,533                                                     |  | 16,874                                                   
|                                                |                                                            |  |                                                          
|Income (loss) from operations                   | (2,101)                                                    |  | 1,761                                                    
|Interest income                                 | 517                                                        |  | 966                                                      
|                                                |                                                            |  |                                                          
|Income (loss) before provision
     (benefit)   |                                                            |  |                                                          
|for income taxes                                | (1,584)                                                    |  | 2,727                                                    
|Provision (benefit) for income taxes            | -                                                          |  | 682                                                      
|                                                |                                                            |  |                                                          
|Net income (loss)                               | $ (1,584)                                                  |  | $ 2,045                                                  
|                                                |                                                            |  |                                                          
|Net income (loss) per share:                    |                                                            |  |                                                          
|Basic                                           | $(0.04)                                                    |  | $0.05                                                    
|Diluted                                         | $(0.04)                                                    |  | $0.04                                                    
|Weighted average common shares used
     in per |                                                            |  |                                                          
|share computations:                             |                                                            |  |                                                          
|Basic                                           | 36,830                                                     |  | 44,106                                                   
|Diluted                                         | 36,830                                                     |  | 54,690                                                   

See accompanying notes to condensed consolidated
   financial statements



ENTRUST TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS





|                                                                                                                                                                       | (Unaudited)
   
   NINE MONTHS ENDED
   
   SEPTEMBER 30,
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------
|                                                                                                                                                                       |                                                          
|                                                                                                                                                                       | 1998                                                     
|                                                                                                                                                                       |                                                          
|(In thousands)                                                                                                                                                         |                                                          
|                                                                                                                                                                       |                                                          
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                                                                  |                                                          
|Net income (loss)                                                                                                                                                      | $(23,023)                                                
|Adjustments to reconcile net income
     (loss) to net cash
   
      provided by (used in) operating activities:                                                      |                                                          
|Depreciation and amortization                                                                                                                                          | 843                                                      
|Adjustment to cumulative translation
     account                                                                                                                      | 4                                                        
|Deferred income taxes                                                                                                                                                  | (257)                                                    
|Deferred compensation earned                                                                                                                                           | 100                                                      
|Acquired in-process research and
     development                                                                                                                      | 20,208                                                   
|Changes in operating assets and
     liabilities:                                                                                                                      |                                                          
|Increase in accounts receivable                                                                                                                                        | (4,556)                                                  
|Increase in prepaid expenses and other                                                                                                                                 | (153)                                                    
|Increase (decrease) in accounts
     payable                                                                                                                           | 2,425                                                    
|Increase in income taxes payable                                                                                                                                       | -                                                        
|Increase in accrued liabilities                                                                                                                                        | 1,553                                                    
|Increase in deferred income                                                                                                                                            | 3,627                                                    
|Increase (decrease) due to related
     party                                                                                                                          | (2,576)                                                  
|                                                                                                                                                                       |                                                          
|Net cash provided by (used in)
     operating activities                                                                                                               | ( 1,805)                                                 
|                                                                                                                                                                       |                                                          
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                                                                  |                                                          
|Purchases of property and equipment                                                                                                                                    | (1,345)                                                  
|Increase in other long-term assets                                                                                                                                     | -                                                        
|Purchases of short-term investments                                                                                                                                    | (52,227)                                                 
|Dispositions of short-term investments                                                                                                                                 | 21,531                                                   
|Payment on purchase of r3 Security
     Engineering AG                                                                                                                 | (4,391)                                                  
|                                                                                                                                                                       |                                                          
|Net cash provided by (used in)
     investing activities                                                                                                               | (36,432)                                                 
|                                                                                                                                                                       |                                                          
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                                                                  |                                                          
|Repayment of long-term debt                                                                                                                                            | (1,422)                                                  
|Proceeds from exercise of stock
     options and employee stock purchase plan                                                                                          | 31                                                       
|Proceeds from issuance of common
     stock, net of issuance costs                                                                                                     | 79,098                                                   
|                                                                                                                                                                       |                                                          
|Net cash provided by financing
     activities                                                                                                                         | 77,707                                                   
|                                                                                                                                                                       |                                                          
|NET INCREASE IN CASH AND CASH
     EQUIVALENTS                                                                                                                         | 39,470                                                   
|CASH AND CASH EQUIVALENTS AT
     BEGINNING OF PERIOD                                                                                                                  | 4,025                                                    
|                                                                                                                                                                       |                                                          
|CASH AND CASH EQUIVALENTS AT END OF
     PERIOD                                                                                                                        | $ 43,495                                                 
|                                                                                                                                                                       |                                                          
|NON-CASH INVESTING AND FINANCING
     ACTIVITIES:                                                                                                                      |                                                          
|Issuance of redeemable Series A common stock (and
     subsequent
   
   conversion into common stock) related to the acquisition of r3
   
   Security Engineering AG | $ 17,013                                                 
|                                                                                                                                                                       |                                                          

See accompanying notes to condensed consolidated
   financial statements



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 nine months ended September 30, 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 (LOSS) PER SHARE
|------- | ---------------------------

Basic net income (loss) per share is computed by dividing the net
   income (loss) by the weighted average number of shares of Common
   stock of all classes outstanding during the period. Diluted net
   income (loss) per share is computed by dividing the net income
   (loss) 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 (loss) 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, 2,055,419 shares of Common stock were
   issued in the nine months ended September 30, 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
   September 30, 1999, the amortized cost of the Company's investments
   approximated fair value.



|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, the Company has included a summary of the
   segment financial information reported to the CODM as follows in the
   next section regarding geographic information.

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:



|                                                 |                               |  |                                  |  |              |  |                                 
|------------------------------------------------ | ----------------------------- |  | -------------------------------- |  | ------------ |  | --------------------------------
|                                                 | (Unaudited)Three Months Ended |  | (Unaudited)
   Nine Months Ended
|                                                 |                               |  |                                 
|                                                 | September 30,                 |  | September 30,                   
|                                                 |                               |  |                                 
|                                                 | 1998                          |  | 1999                             |  | 1998         |  | 1999                            
|                                                 |                               |  |                                  |  |              |  |                                 
|Revenues:                                        |                               |  |                                  |  |              |  |                                 
|United States                                    | $ 7,927                       |  | $15,294                          |  | $ 18,443     |  | $ 41,178                        
|Canada                                           | 2,582                         |  | 3,805                            |  | 7,649        |  | 9,538                           
|Europe, Asia and Other                           | 2,530                         |  | 3,524                            |  | 7,885        |  | 8,487                           
|                                                 |                               |  |                                  |  |              |  |                                 
|Total revenues                                   | $ 13,039                      |  | $22,623                          |  | $ 33,977     |  | $ 59,203                        
|                                                 |                               |  |                                  |  |              |  |                                 
|                                                 |                               |  |                                  |  |              |  |                                 
|Net income (loss) before income taxes:           |                               |  |                                  |  |              |  |                                 
|United States                                    | $ (724)                       |  | $ 1,388                          |  | $(22,112)    |  | $ 2,273                         
|Canada                                           | (266)                         |  | 759                              |  | (664)        |  | 580                             
|Europe, Asia and Other                           | (594)                         |  | 580                              |  | (407)        |  | 1,324                           
|                                                 |                               |  |                                  |  |              |  |                                 
|Total net income (loss) before
     income taxes | $ (1,584)                     |  | $ 2,727                          |  | $ (23,183)   |  | $ 4,177                         
|                                                 |                               |  |                                  |  |              |  |                                 
|                                                 |                               |  |                                  |  |              |  |                                 
|                                                 |                               |  |                                  |  | December 31, |  | (Unaudited)
   
   September 30,
|                                                 |                               |  |                                  |  |              |  |                                 
|                                                 |                               |  |                                  |  | 1998         |  | 1999                            
|                                                 |                               |  |                                  |  |              |  |                                 
|Total assets:                                    |                               |  |                                  |  |              |  |                                 
|United States                                    |                               |  |                                  |  | $95,110      |  | $104,044                        
|Canada                                           |                               |  |                                  |  | 8,244        |  | 11,772                          
|Europe, Asia and Other                           |                               |  |                                  |  | 4,475        |  | 6,360                           
|                                                 |                               |  |                                  |  |              |  |                                 
|Total                                            |                               |  |                                  |  | $107,829     |  | $122,176                        
|                                                 |                               |  |                                  |  |              |  |                                 



|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 Technologies is a global leader in solutions that bring
   trust to e-business. We are committed to enabling organizations to
   conduct e-commerce securely, ensuring they benefit from increased
   service efficiency, technology cost savings and the confidence
   associated with trusted e-business technologies. Our products and
   services enable organizations and their partners to manage trusted,
   secure electronic transactions and communications over today's
   advanced networks, including intranets, extranets and the Internet.

Since 1994, Entrust Technologies has been providing award-winning
   security solutions to global enterprises, government entities,
   small- to mid-sized businesses and individuals. Over 1,000 customers
   have been licensed with digital certificates by Entrust Technologies
   to date.

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 that 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
   historically 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.
   "



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:



|                                                               | (Unaudited)
   
   THREE MONTHS ENDED
   
   SEPTEMBER 30, |  | (Unaudited)
   
   NINE MONTHS ENDED
   
   SEPTEMBER 30,
|-------------------------------------------------------------- | ---------------------------------------------------------- |  | ---------------------------------------------------------
|                                                               |                                                            |  |                                                          
|                                                               | 1998                                                       |  | 1999                                                     
|                                                               |                                                            |  |                                                          
|Revenues:                                                      |                                                            |  |                                                          
|License                                                        | 75.1%                                                      |  | 73.0%                                                    
|Services and maintenance                                       | 24.9                                                       |  | 27.0                                                     
|                                                               |                                                            |  |                                                          
|Total revenues                                                 | 100.0                                                      |  | 100.0                                                    
|                                                               |                                                            |  |                                                          
|Cost of revenues:                                              |                                                            |  |                                                          
|License                                                        | 3.9                                                        |  | 2.7                                                      
|Services and maintenance                                       | 16.1                                                       |  | 14.9                                                     
|                                                               |                                                            |  |                                                          
|Total cost of revenues                                         | 20.0                                                       |  | 17.6                                                     
|                                                               |                                                            |  |                                                          
|Gross profit                                                   | 80.0                                                       |  | 82.4                                                     
|                                                               |                                                            |  |                                                          
|Operating expenses:                                            |                                                            |  |                                                          
|Sales and marketing                                            | 56.2                                                       |  | 46.3                                                     
|Research and development                                       | 28.1                                                       |  | 18.7                                                     
|General and administrative                                     | 10.4                                                       |  | 8.8                                                      
|Acquired in-process research and                               |                                                            |  |                                                          
|development and goodwill
     amortization                     | 1.4                                                        |  | 0.8                                                      
|                                                               |                                                            |  |                                                          
|Total operating expenses                                       | 96.1                                                       |  | 74.6                                                     
|                                                               |                                                            |  |                                                          
|Income (loss) from operations                                  | (16.1)                                                     |  | 7.8                                                      
|Interest income                                                | 4.0                                                        |  | 4.2                                                      
|                                                               |                                                            |  |                                                          
|Income (loss) before provision (benefit) for
     income taxes | (12.1)                                                     |  | 12.0                                                     
|Provision (benefit) for income
     taxes                      | -                                                          |  | 3.0                                                      
|                                                               |                                                            |  |                                                          
|Net income (loss)                                              | (12.1)%                                                    |  | 9.0%                                                     
|                                                               |                                                            |  |                                                          

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.



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 74% from $13.0 million for the three
   months ended September 30, 1998 to $22.6 million for the three
   months ended September 30, 1999. Total revenues increased 74% from
   $34.0 million for the nine months ended September 30, 1998 to $59.2
   million for the nine months ended September 30, 1999. 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.

Total revenues derived from North America increased 82% from $10.5
   million for the three months ended September 30, 1998 to $19.1
   million for the three months ended September 30, 1999, while total
   revenues derived from outside of North America increased 40% from
   $2.5 million for the three months ended September 30, 1998 to $3.5
   million for the three months ended September 30, 1999. Total
   revenues derived from North America increased 94% from $26.1 million
   for the nine months ended September 30, 1998 to $50.7 million for
   the nine months ended September 30, 1999, while total revenues
   derived from outside of North America increased 8% from $7.9 million
   for the nine months ended September 30, 1998 to $8.5 million for the
   nine months ended September 30, 1999. Although the majority of the
   overall growth in total revenues in 1999 has been experienced in
   North America, we have also focused on growing our revenue base
   internationally particularly in Europe and Asia. However, the level
   of non-North American revenues has fluctuated from period to period
   and is expected to continue that trend in the foreseeable future.

License Revenues

License revenues increased 68% from $9.8 million for the three
   months ended September 30, 1998 to $16.5 million for the three
   months ended September 30, 1999, representing 75% and 73% of total
   revenues in the respective periods. License revenues increased 64%
   from $25.6 million for the nine months ended September 30, 1998 to
   $42.1 million for the nine months ended September 30, 1999,
   representing 76% and 71% 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 91% from $3.2 million
   for the three months ended September 30, 1998 to $6.1 million for
   the three months ended September 30, 1999, representing 25% and 27%
   of total revenues in the respective periods. Services and
   maintenance revenues increased 106% from $8.3 million for the nine
   months ended September 30, 1998 to $17.1 million for the nine months
   ended September
 30, 1999, representing 25% and 29% of total revenues in the respective
   periods. Services and maintenance revenues have continued to
   increase in absolute dollars and as a percentage of total revenues
   as our installed customer base has grown and as these customers
   continue to renew their maintenance agreements. In addition, our
   increasing customer base has resulted in an acceleration of demand
   for consulting services to assist these customers as they deploy our
   solutions. We continue to focus on building our relationships with
   outside service providers to ensure that we have adequate resources
   available to meet the demand of our customers.

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 $507,000 for the three months ended September 30, 1998 to
   $603,000 for the three months ended September 30, 1999, representing
   4% and 3% of total revenues for the respective periods. Cost of
   license revenues increased from $1.3 million for the nine months
   ended September 30, 1998 to $1.4 million for the nine months ended
   September 30, 1999, representing 4% and 2% of total revenues for the
   respective periods. While the cost of license revenues was
   relatively flat for the first nine months of 1999 compared to the
   first nine months of 1998, the decrease in cost of license revenues
   as a percentage of total revenues for the three and nine months
   ended September 30, 1999 was primarily the result of a shift in the
   mix of third-party software vendor products sold in the first three
   quarters of 1999 compared to the same period in 1998. The mix of
   third-party products may vary from period to period and our gross
   margins and, therefore, our results of operations could be adversely
   affected.

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 amounts paid to third-party
   consulting firms for those services. Cost of services and
   maintenance revenues increased 62% from $2.1 million for the three
   months ended September 30, 1998 to $3.4 million for the three months
   ended September 30, 1999, representing 16% and 15% of total revenues
   for the respective periods. Cost of services and maintenance
   revenues increased 83% from $5.2 million for the nine months ended
   September 30, 1998 to $9.5 million for the nine months ended
   September 30, 1999, representing 15% and 16% of total revenues for
   the respective periods. The increase in absolute dollars during the
   three and nine months ended September 30, 1999, and as a percentage
   of total revenues during the nine months ended September 30, 1999,
   reflected the increased costs associated with the increased levels
   of services and maintenance revenues experienced during these
   periods. The decrease in the cost of services and maintenance
   revenues as a percentage of total revenues in the three months ended
   September 30, 1999 reflects improved productivity and utilization of
   available services resources compared to the same period of the
   previous year.

The gross margin on services and maintenance revenues was 35% and
   45% for the three months ended September 30, 1998 and 1999,
   respectively. The services and maintenance gross margin was 38% and
   45% for the nine months ended September 30, 1998 and 1999,
   respectively. This increase in the services and maintenance margin,
   during the three and nine month periods ended September 30, 1999
   compared to the same periods in 1998, reflects the shift in the mix
   of services revenue toward 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 $7.3 million and $18.3
   million for the three and nine months ended September 30, 1998 to
   $10.5 million and $28.9 million for the comparable periods in 1999.
   Sales and marketing expenses represented 56% and 54% of total
   revenues for the three and nine months ended September 30, 1998,
   compared to 46% and 49% for the comparable periods in 1999. The
   increase in absolute dollars was primarily the result of costs
   associated with the expansion of our sales and marketing
   organization,
 both domestically and internationally, as well as significant
   investments in marketing during the first three quarters of 1999 as
   we launched a number of new products and marketing programs. 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 product
   launches. Failure of these investments to generate future revenues
   could have a significant adverse effect on our operations. The
   decrease as a percentage of total revenues reflects the higher
   revenue base as well as improvements achieved in productivity of
   sales and marketing personnel and efficiencies gained in the related
   processes.

Research and Development

Research and development expenses increased from $3.7 million and
   $9.0 million for the three and nine months ended September 30, 1998
   to $4.2 million and $12.1 million for the comparable periods in
   1999. Research anddevelopment expenses
   represented 28% and 27% of total revenues for the three and nine
   months ended September 30, 1998, compared to 19% and 21% for the
   comparable periods in 1999. The increased investment in research and
   development expenses in absolute dollars reflects expenses related
   to increased staffing of software developers. These employees were
   added primarily in the second half of 1998 in connection with the
   continuing expansion and enhancement of our product offerings and
   our commitment to quality assurance and testing, and as a result of
   our acquisition of r3 Security Engineering AG ("r3") in
   June 1998. The investment in research and development as a
   percentage of total revenues decreased for the three and nine months
   ended September 30, 1999 compared to the same periods in 1998, as a
   result of growth of revenues outpacing our expansion of the
   development team in 1999. However, 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.

General and Administrative

General and administrative expenses increased from $1.4 million and
   $3.6 million for the three and nine months ended September 30, 1998
   to $2.0 million and $5.4 million for the comparable periods in 1999.
   General and administrative expenses represented 10% and 11% of total
   revenues for the three and nine months ended September 30, 1998,
   compared to 9% for each of the comparable periods 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 necessary to
   support our growing business, including improved management
   information systems and the increased utilization outside
   professional service firms. The decrease as a percentage of total
   revenues reflected efficiencies gained throughout our administrative
   processes as we have grown as a company.

Acquired In-process Research and Development and 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. In connection with the
   acquisition in 1998, an appraisal was done of the intangible assets,
   resulting in $20.2 million of the purchase price being allocated to
   in-process research and development that had not yet reached
   technological feasibility and had no alternative future use. This
   in-process research and development was expensed in the nine months
   ended September 30, 1998. 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 September 30, 1999, with total
   amortization of $534,000 for the nine months ended September 30,
   1999, compared to $178,000 for the three and nine months ended
   September 30, 1998.

Interest Income

Interest income increased from $517,000 and $734,000 for the three
   and nine months ended September 30, 1998 to $966,000 and $2.7
   million for the comparable periods in 1999. This increase reflects
   the investment income earned on the net proceeds of our initial
   public offering in August 1998 and on cash provided by operations in
   1999.



Provision for Income Taxes

We have recorded an income tax provision of $682,000 and $927,000
   for the three and nine months ended September 30, 1999 compared with
   an income tax benefit of $160,000 recognized for the nine months
   ended September 30, 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 three
   quarters of 1999, which resulted in tax provisions of $682,000 and
   $927,000 for the three and nine months ended September 30, 1999. For
   the nine months ended September 30, 1998, the tax benefit of
   $160,000 arose primarily from Canadian research and development tax
   credits.

LIQUIDITY AND CAPITAL RESOURCES

Entrust generated cash of $4.2 million from operating activities
   during the nine months ended September 30, 1999. This cash inflow
   was primarily a result of an increase in income taxes payable,
   accrued liabilities and deferred income and the net income achieved
   over the period. These inflows were partially offset by cash
   outflows relating to an increase in accounts receivable, prepaid
   expenses, and a decrease in accounts payable. Our average days sales
   outstanding this quarter was 72 days, which represents an increase
   over the 58 days that we reported for the second quarter, but a
   reduction over the 84 days we reported in the three quarters
   previous to that. The overall decrease in days sales outstanding
   from the first quarter of 1999 reflects the improved collection
   efforts over the quarters and the quality of our relationships with
   our customers. 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 nine months ended September 30, 1999, cash from
   investing activities was provided by the reduction of our short-term
   investments by $10.2 million (net of $87.6 million of short-term
   investment purchases) while we invested $3.1 million in property and
   equipment and $1.5 million in other long-term assets. The property
   and equipment investments were primarily computer hardware and
   leasehold improvements to support the growing organization.

Cash provided by financing activities for the nine months ended
   September 30, 1999 was $7.0 million, primarily due to the exercise
   of employee stock options and the sale of shares under our employee
   stock purchase plan.

As of September 30, 1999, our principal sources of liquidity were
   our cash and short-term investments of $87.6 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 Public Key Infrastructure ("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.

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.

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, RSA Security, GTE
   Cybertrust Solutions, Baltimore Technologies and IBM;
- we compete with established companies, such as Network
   Associates, which has introduced PKI products that will eventually
   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 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 few 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;
- 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 the Euro.

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, completed and
   tested the code changes (if any) required to make each of these
   products Year 2000 Compliant. The costs of this effort were not
   significant and were included in our operating costs. We believe
   that our products and systems are 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 for the remainder of 1999 will not have a significant
   effect on our business, results of operations or financial condition.
   Wecontinue 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. In addition, we
   have completed a contingency plan for providing customer support
   during the period immediately surrounding January 1, 2000 to address
   any unforeseen customer issues that may arise.

While we have conducted tests of our software and have informed our
   customers that the current versions of our products are Year 2000
   Compliant, we cannot guarantee that our products, particularly when
   they incorporate third-party software, will contain all date code
   changes necessary to ensure Year 2000 compliance. 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
   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 have prepared a contingency plan for unanticipated
   product failures and will be testing it in the fourth quarter of
   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 completed an
   assessment of our non-IT systems during 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. To the extent that we have not
   been able to test certain technology provided by third-party
   vendors, we have sought assurances from our vendors that their
   systems are Year 2000 Compliant. 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 have completed a contingency plan for
   unanticipated system failures that we will be testing during the
   fourth quarter of 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 September 30, 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.

The following table presents the cash and cash equivalents and
   short-term investments that we held at September 30, 1999, that
   would have been subject to market risk, and the related ranges of
   maturities as of that date:

|                                                    |  |                 |  | MATURITY
   
   (in thousands) |  |           
|--------------------------------------------------- |  | --------------- |  | ------------------------------ |  | ----------
|                                                    |  |                 |  |                                |  |           
|                                                    |  | Within 3 Months |  | 3-6 Months                     |  | > 6 Months
|                                                    |  |                 |  |                                |  |           
|Investments classified as cash and cash equivalents |  | $12,002         |  | -                              |  | -         
|Investments classified as short-term investments    |  | $11,969         |  | $24,381                        |  | $30,850   
|                                                    |  |                 |  |                                |  |           
|Total                                               |  | $23,971         |  | $24,381                        |  | $30,850   
|                                                    |  |                 |  |                                |  |           
|Fair value                                          |  | $23,971         |  | $24,381                        |  | $30,850   
|                                                    |  |                 |  |                                |  |           



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 November 4, 1999, judgment was entered in favor of Entrust in
   the United States District Court for the Eastern District of
   Virginia in Civil Action 99-203. On February 19, 1999, Surety
   Technologies, Inc. (Surety) filed Civil Action 99-203 against
   Entrust alleging that the Entrust/Timestamp product infringed
   various claims of U.S. Patent Re 34,954 (the "954 Patent"
   ). In a verdict returned on November 3, 1999, a federal jury found
   that all of the claims of the 954 Patent asserted by Surety against
   Entrust were invalid for reasons of both anticipation and
   obviousness. As a result of the jury's decision, Surety's complaint
   has been dismissed with prejudice. Reference is hereby made to the
   "Legal Proceedings" described in our Annual Report on Form
   10-K for the year ended December 31, 1998 and the Quarterly Reports
   on Form 10-Q for the quarters ended March 31, 1999 and June 30,
   1999.

|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.

As of September 30, 1999, approximately $10.0 million of the net
   proceeds of the Offering had been used to fund working capital,
   expansion of our facilities and our investments in other long-term
   assets. The remaining net proceeds are 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



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:  November 12, 1999 |                                                                                                                                                                    
|                          |                                                                                                                                                                    
|                          | /s/ David L. Thompson
    David L. Thompson
   
   Chief Financial Officer and Senior Vice President of Finance
   
   (Principal Financial and Accounting Officer)







ENTRUST TECHNOLOGIES INC.

INDEX TO EXHIBITS



|EXHIBIT | DESCRIPTION            
|------- | -----------------------
|        |                        
|27      | Financial Data Schedule