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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





(Mark one)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2008

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number 000-24733





ENTRUST, INC.

(Exact name of
registrant as specified in its charter)







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

ONE HANOVER PARK, SUITE 800

16633 DALLAS PARKWAY

ADDISON, TX 75001

(Address of principal executive offices & zip code)

Registrants telephone number, including area code: (972) 713-5800





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   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer
and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ̈    Accelerated filer  x    Non-accelerated filer   ̈    Smaller reporting
company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act.):    Yes   ̈    No  x

There were 61,356,962 shares of the registrants Common stock, par value $0.01 per share, outstanding as of August 4, 2008.









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ENTRUST, INC.

TABLE OF CONTENTS



|                              |  |          |  |                                                                                       |  |   
|----------------------------- |  | -------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION |  | 3       
|                              |  |          | 
|                              |  | ITEM 1.  |  | FINANCIAL STATEMENTS                                                                  |  | 3 
|                              |  |          |  | CONDENSED CONSOLIDATED BALANCE SHEETS                                                 |  | 3 
|                              |  |          |  | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                                       |  | 4 
|                              |  |          |  | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                       |  | 5 
|                              |  |          |  | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                  |  | 6 
|                              |  | ITEM 2.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 12
|                              |  | ITEM 3.  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 37
|                              |  | ITEM 4.  |  | CONTROLS AND PROCEDURES                                                               |  | 38
|                              | 
|PART II. OTHER INFORMATION    |  | 38      
|                              |  |          | 
|                              |  | ITEM 1.  |  | LEGAL PROCEEDINGS                                                                     |  | 38
|                              |  | ITEM 1A. |  | RISK FACTORS                                                                          |  | 38
|                              |  | ITEM 2.  |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                           |  | 38
|                              |  | ITEM 3.  |  | DEFAULTS UPON SENIOR SECURITIES                                                       |  | 38
|                              |  | ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 39
|                              |  | ITEM 5.  |  | OTHER INFORMATION                                                                     |  | 39
|                              |  | ITEM 6.  |  | EXHIBITS                                                                              |  | 39
|                              | 
|SIGNATURES                    |  | 40      

Entrust, Entrust-Ready, and getAccess are registered trademarks of Entrust, Inc. or a subsidiary of Entrust, Inc.
in certain countries. Entrust Authority, Entrust TruePass, Entrust GetAccess, Entrust Entelligence, Entrust Cygnacom, are trademarks or service marks of Entrust, Inc. or a subsidiary of Entrust, Inc. in certain countries. All other trademarks and
service marks used in this quarterly report are the property of their respective owners.



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PART I. FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

ENTRUST, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                     |  |              |          |   |                  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | -------- | - | ---------------- | - | -------- | -
|(In thousands, except share and per share data)                                                                                                                                      |  | June 30,2008 |          |   | December 31,2007 |  
|Assets                                                                                                                                                                               |  |              |          |   |                  |   |          |  
|Current assets:                                                                                                                                                                      |  |              |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                                                                                            |  | $            | 25,416   |   |                  | $ | 20,485   |  
|Accounts receivable (net of allowance for doubtful accounts of $1,879 at June 30, 2008 and $2,009 at December 31,
2007)                                                              |  |              | 16,738   |   |                  |   | 20,773   |  
|Prepaid expenses and other receivables                                                                                                                                               |  |              | 3,608    |   |                  |   | 4,079    |  
|                                                                                                                                                                                     |  |              |          |   |                  |   |          |  
|Total current assets                                                                                                                                                                 |  |              | 45,762   |   |                  |   | 45,337   |  
|Property and equipment, net                                                                                                                                                          |  |              | 1,148    |   |                  |   | 1,490    |  
|Purchased product rights and other purchased intangible assets, net                                                                                                                  |  |              | 10,377   |   |                  |   | 11,543   |  
|Goodwill                                                                                                                                                                             |  |              | 60,214   |   |                  |   | 60,214   |  
|Long-term strategic and equity investments                                                                                                                                           |  |              | 91       |   |                  |   | 91       |  
|Other long-term assets, net                                                                                                                                                          |  |              | 3,329    |   |                  |   | 3,479    |  
|                                                                                                                                                                                     |  |              |          |   |                  |   |          |  
|Total assets                                                                                                                                                                         |  | $            | 120,921  |   |                  | $ | 122,154  |  
|                                                                                                                                                                                     |  |              |          |   |                  |   |          |  
|                                                                                                                                                                                     |  |             
|Liabilities                                                                                                                                                                          |  |              |          |   |                  |   |          |  
|Current liabilities:                                                                                                                                                                 |  |              |          |   |                  |   |          |  
|Accounts payable                                                                                                                                                                     |  | $            | 10,906   |   |                  | $ | 10,787   |  
|Accrued liabilities                                                                                                                                                                  |  |              | 4,920    |   |                  |   | 5,543    |  
|Accrued restructuring charges, current portion                                                                                                                                       |  |              | 5,472    |   |                  |   | 5,419    |  
|Deferred revenue                                                                                                                                                                     |  |              | 29,299   |   |                  |   | 27,894   |  
|                                                                                                                                                                                     |  |              |          |   |                  |   |          |  
|Total current liabilities                                                                                                                                                            |  |              | 50,597   |   |                  |   | 49,643   |  
|Accrued restructuring charges, long-term portion                                                                                                                                     |  |              | 11,015   |   |                  |   | 13,847   |  
|Other long-term liabilities                                                                                                                                                          |  |              | 816      |   |                  |   | 218      |  
|                                                                                                                                                                                     |  |              |          |   |                  |   |          |  
|Total liabilities                                                                                                                                                                    |  |              | 62,428   |   |                  |   | 63,708   |  
|                                                                                                                                                                                     |  |              |          |   |                  |   |          |  
|Minority interest in subsidiary                                                                                                                                                      |  |              | 4        |   |                  |   | 4        |  
|                                                                                                                                                                                     |  |              |          |   |                  |   |          |  
|                                                                                                                                                                                     |  |             
|Shareholders equity                                                                                                                                                                 |  |              |          |   |                  |   |          |  
|Common stock, par value $0.01 per share: 250,000,000 authorized shares: 61,352,090 and 61,098,702 issued and outstanding shares at
June 30, 2008 and December 31, 2007, respectively |  |              | 613      |   |                  |   | 611      |  
|Additional paid-in-capital                                                                                                                                                           |  |              | 772,739  |   |                  |   | 771,223  |  
|Accumulated deficit                                                                                                                                                                  |  |              | (715,125 | ) |                  |   | (713,523 | )
|Accumulated other comprehensive income                                                                                                                                               |  |              | 262      |   |                  |   | 131      |  
|                                                                                                                                                                                     |  |              |          |   |                  |   |          |  
|Total shareholders equity                                                                                                                                                           |  |              | 58,489   |   |                  |   | 58,442   |  
|                                                                                                                                                                                     |  |              |          |   |                  |   |          |  
|Total liabilities and shareholders equity                                                                                                                                           |  | $            | 120,921  |   |                  | $ | 122,154  |  
|                                                                                                                                                                                     |  |              |          |   |                  |   |          |  

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



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ENTRUST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|-------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                               |  | Three months endedJune 30, |        |   | Six months endedJune 30, |  
|(In thousands, except share and per share data)                |  | 2008                       |        |   | 2007                     |   |        | 2008 |  |   | 2007   |  
|Revenues:                                                      |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Product                                                        |  | $                          | 9,013  |   |                          | $ | 8,930  |      |  | $ | 18,643 |   |  | $ | 18,074 |  
|Services and maintenance                                       |  |                            | 15,466 |   |                          |   | 15,563 |      |  |   | 31,674 |   |  |   | 30,982 |  
|                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Total revenues                                                 |  |                            | 24,479 |   |                          |   | 24,493 |      |  |   | 50,317 |   |  |   | 49,056 |  
|                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Cost of revenues:                                              |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Product                                                        |  |                            | 2,118  |   |                          |   | 2,162  |      |  |   | 4,480  |   |  |   | 3,970  |  
|Services and maintenance                                       |  |                            | 7,048  |   |                          |   | 7,759  |      |  |   | 14,903 |   |  |   | 15,207 |  
|Amortization of purchased product rights                       |  |                            | 315    |   |                          |   | 345    |      |  |   | 660    |   |  |   | 677    |  
|                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Total cost of revenues                                         |  |                            | 9,481  |   |                          |   | 10,266 |      |  |   | 20,043 |   |  |   | 19,854 |  
|                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Gross profit                                                   |  |                            | 14,998 |   |                          |   | 14,227 |      |  |   | 30,274 |   |  |   | 29,202 |  
|                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Operating expenses:                                            |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Sales and marketing                                            |  |                            | 7,806  |   |                          |   | 8,813  |      |  |   | 16,509 |   |  |   | 17,906 |  
|Research and development                                       |  |                            | 4,432  |   |                          |   | 5,312  |      |  |   | 9,174  |   |  |   | 10,661 |  
|General and administrative                                     |  |                            | 3,124  |   |                          |   | 3,258  |      |  |   | 6,240  |   |  |   | 6,518  |  
|                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Total operating expenses                                       |  |                            | 15,362 |   |                          |   | 17,383 |      |  |   | 31,923 |   |  |   | 35,085 |  
|                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Loss from operations                                           |  |                            | (364   | ) |                          |   | (3,156 | )    |  |   | (1,649 | ) |  |   | (5,883 | )
|                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Other income (expense):                                        |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Interest income                                                |  |                            | 98     |   |                          |   | 176    |      |  |   | 229    |   |  |   | 356    |  
|Foreign exchange gain (loss)                                   |  |                            | 55     |   |                          |   | (177   | )    |  |   | 75     |   |  |   | 70     |  
|Gain on sale of long-term strategic investments                |  |                            |       |   |                          |   |       |      |  |   | 18     |   |  |   |       |  
|Loss from equity investments                                   |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   | (77    | )
|                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Total other income (expense)                                   |  |                            | 153    |   |                          |   | (1     | )    |  |   | 322    |   |  |   | 349    |  
|                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Loss before income taxes                                       |  |                            | (211   | ) |                          |   | (3,157 | )    |  |   | (1,327 | ) |  |   | (5,534 | )
|Provision for income taxes                                     |  |                            | 211    |   |                          |   | 72     |      |  |   | 275    |   |  |   | 124    |  
|                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Net loss                                                       |  | $                          | (422   | ) |                          | $ | (3,229 | )    |  | $ | (1,602 | ) |  | $ | (5,658 | )
|                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Net loss per share:                                            |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                          |  | $                          | (0.01  | ) |                          | $ | (0.05  | )    |  | $ | (0.03  | ) |  | $ | (0.09  | )
|Diluted                                                        |  | $                          | (0.01  | ) |                          | $ | (0.05  | )    |  | $ | (0.03  | ) |  | $ | (0.09  | )
|Weighted average common shares used in per share computations: |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                          |  |                            | 61,291 |   |                          |   | 60,777 |      |  |   | 61,228 |   |  |   | 60,582 |  
|Diluted                                                        |  |                            | 61,291 |   |                          |   | 60,777 |      |  |   | 61,228 |   |  |   | 60,582 |  

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



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ENTRUST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                              |  |                          |        |   |      |   |        |  
|------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                              |  | Six months endedJune 30, |       
|                                                              |  | 2008                     |        |   | 2007 |  
|                                                              |  | (In thousands)           |       
|OPERATING ACTIVITIES:                                         |  |                          |        |   |      |   |        |  
|Net loss                                                      |  | $                        | (1,602 | ) |      | $ | (5,658 | )
|Non-cash items in net loss:                                   |  |                          |        |   |      |   |        |  
|Depreciation and amortization                                 |  |                          | 2,448  |   |      |   | 2,281  |  
|Non-cash compensation expense                                 |  |                          | 1,509  |   |      |   | 2,733  |  
|Loss from equity investments                                  |  |                          |       |   |      |   | 77     |  
|Provision for doubtful accounts                               |  |                          | 12     |   |      |   | (10    | )
|Gain on sale of long-term strategic investments               |  |                          | (18    | ) |      |   |       |  
|Changes in operating assets and liabilities:                  |  |                          |        |   |      |   |        |  
|Decrease in accounts receivable                               |  |                          | 4,085  |   |      |   | 3,813  |  
|(Increase) decrease in prepaid expenses and other receivables |  |                          | 484    |   |      |   | (539   | )
|Increase in accounts payable                                  |  |                          | 613    |   |      |   | 1,347  |  
|Decrease in accrued liabilities                               |  |                          | (1,075 | ) |      |   | (5,708 | )
|Decrease in accrued restructuring charges                     |  |                          | (2,779 | ) |      |   | (2,613 | )
|Increase in deferred revenue                                  |  |                          | 1,505  |   |      |   | 4,399  |  
|                                                              |  |                          |        |   |      |   |        |  
|Net cash provided by operating activities                     |  |                          | 5,182  |   |      |   | 122    |  
|                                                              |  |                          |        |   |      |   |        |  
|                                                              |  |                         
|INVESTING ACTIVITIES:                                         |  |                          |        |   |      |   |        |  
|Maturities of marketable investments                          |  |                          |       |   |      |   | 2,639  |  
|Purchases of property and equipment                           |  |                          | (214   | ) |      |   | (175   | )
|Proceeds on disposition of property and equipment             |  |                          |       |   |      |   | 372    |  
|Proceeds on sale of long-term strategic investments           |  |                          | 18     |   |      |   |       |  
|Increase in long-term deposits                                |  |                          | 593    |   |      |   |       |  
|Increase in other long-term assets                            |  |                          | (576   | ) |      |   | (305   | )
|                                                              |  |                          |        |   |      |   |        |  
|Net cash provided by (used in) investing activities           |  |                          | (179   | ) |      |   | 2,531  |  
|                                                              |  |                          |        |   |      |   |        |  
|                                                              |  |                         
|FINANCING ACTIVITIES:                                         |  |                          |        |   |      |   |        |  
|Proceeds from exercise of stock options                       |  |                          | 9      |   |      |   | 1,104  |  
|                                                              |  |                          |        |   |      |   |        |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                       |  |                          | (81    | ) |      |   | 590    |  
|                                                              |  |                          |        |   |      |   |        |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                     |  |                          | 4,931  |   |      |   | 4,347  |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD              |  |                          | 20,485 |   |      |   | 19,888 |  
|                                                              |  |                          |        |   |      |   |        |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                    |  | $                        | 25,416 |   |      | $ | 24,235 |  
|                                                              |  |                          |        |   |      |   |        |  

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



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ENTRUST, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except
share and per share data, unless indicated otherwise)

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 of Entrust, Inc., a Maryland corporation, and
its consolidated subsidiaries (collectively, the Company). The results of operations for the six months ended June 30, 2008 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 accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements
should be read in conjunction with the Consolidated Financial Statements and related Notes contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2007.

NOTE 2. FAIR VALUE MEASUREMENT

In September 2006, the FASB issued
SFAS No. 157, Fair Value Measurements, which establishes a framework for measuring fair value under other accounting pronouncements that require fair value measurements and expands disclosures about such measurements. SFAS
No. 157 does not require any new fair value measurements, but rather it creates a consistent method for calculating fair value measurements to address non-comparability of financial statements containing fair value measurements utilizing
different definitions of fair value. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007.

Relative to SFAS No. 157, the FASB issued FASB Staff Positions (FSP) No. 157-1 and 157-2. FSP No. 157-1 amends SFAS No. 157 to exclude SFAS No. 13, Accounting for Leases, and its related
interpretive accounting pronouncements that address leasing transactions, while FSP No. 157-2 delays the effective date of the application of SFAS No. 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets
and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis.

The Company adopted SFAS
No. 157 as of January 1, 2008, with the exception of the application of the statement to nonfinancial assets and nonfinancial liabilities. Nonfinancial assets and nonfinancial liabilities for which the Company has not applied the
provisions of SFAS No. 157 include those measured at fair value in goodwill impairment testing and indefinite lived intangible assets measured at fair value for impairment testing.

SFAS No. 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are
quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or
indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or
liabilitys classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.



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The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market
approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

The adoption
of FSP No. 157-2 will not have a significant impact on the Companys consolidated financial position, results of operations or cash flows. The Company will use fair value measurement under SFAS No. 157 in future evaluations of
impairment under SFAS No. 142, Goodwill and Other Intangibles in fiscal years beginning after November 15, 2008.

NOTE 3.
STOCK-BASED COMPENSATION

Compensation cost related to stock options, stock appreciation rights (SARs) and restricted stock units
(RSUs) recognized in operating results was $466 and $1,428 in the three months ended June 30, 2008 and 2007, respectively, and $1,509 and $2,733 in the six months ended June 30, 2008 and 2007, respectively.

The following table sets forth the related weighted-average assumptions, used to determine compensation cost for stock options and SARs.



|                              |  |                                  |   |  |                                  |  
|----------------------------- |  | -------------------------------- | - |  | -------------------------------- | -
|                              |  | Three Months Ended,June 30, 2008 |   |  | Three Months Ended,June 30, 2007 |  
|Weighted average assumptions: |  |                                  |   |  |                                  |  
|Expected volatility           |  | 39                               | % |  | 55                               | %
|Risk free rate of return      |  | 4.43                             | % |  | 4.58                             | %
|Expected option term (years)  |  | 4.75                             |   |  | 4.56                             |  

Summary of activity for the three months ended June 30th, 2008 under the Companys stock option plans is
set forth below:



|                             |  |                 |   |  |                   |   |  |                              |  |                                |  |                                                
|---------------------------- |  | --------------- | - |  | ----------------- | - |  | ---------------------------- |  | ------------------------------ |  | -----------------------------------------------
|                             |  | SharesAvailable |   |  | AwardsOutstanding |   |  | WeightedAverageExercisePrice |  | AggregateIntrinsicValue(000s) |  | WeightedAverageRemainingContractualLife inYears
|Balance at March 31, 2008    |  | 1,184,862       |   |  | 15,173,312        |   |  | 5.19                         |  | 877                            |  | 4.71                                           
|Exercisable                  |  |                 |   |  | 11,557,853        |   |  | 5.72                         |  | 470                            |  | 4.32                                           
|Authorized                   |  | 2,000,000       |   |  |                   |   |  |                              |  |                                |  |                                                
|Terminated under Prior Plans |  | (409,061        | ) |  |                   |   |  |                              |  |                                |  |                                                
|Stock options:               |  |                 |   |  |                   |   |  |                              |  |                                |  |                                                
|Granted                      |  | (216,500        | ) |  | 216,500           |   |  | 2.87                         |  | 26                             |  |                                                
|Forfeited                    |  | 123,623         |   |  | (369,136          | ) |  | 6.38                         |  | 23                             |  |                                                
|Vested                       |  |                |   |  | (209,190          | ) |  | 7.98                         |  | 3                              |  |                                                
|Unvested                     |  |                |   |  | (159,946          | ) |  | 3.12                         |  | 20                             |  |                                                
|Expired                      |  | 13,769          |   |  | (13,769           | ) |  | 6.39                         |  |                               |  |                                                
|Exercised                    |  |                |   |  | (15,424           | ) |  | 0.49                         |  |                               |  |                                                
|Restricted stock units:      |  |                 |   |  |                   |   |  |                              |  |                                |  |                                                
|Granted                      |  | (48,000         | ) |  | 24,000            |   |  |                             |  | 71                             |  |                                                
|Forfeited                    |  | 25,000          |   |  | (17,437           | ) |  |                             |  | 51                             |  |                                                
|Vested                       |  |                |   |  | (12,500           | ) |  |                             |  | 37                             |  |                                                
|Unvested                     |  |                |   |  | (4,937            | ) |  |                             |  | 15                             |  |                                                
|Matured                      |  |                |   |  | (106,241          | ) |  | 2.61                         |  | 277                            |  |                                                
|Stock appreciation rights:   |  |                 |   |  |                   |   |  |                              |  |                                |  |                                                
|Forfeited                    |  |                |   |  | (24,399           | ) |  | 3.83                         |  |                               |  |                                                
|Vested                       |  |                |   |  | (24,399           | ) |  | 3.83                         |  |                               |  |                                                
|Exercised                    |  |                |   |  |                  |   |  |                             |  |                               |  |                                                
|                             |  |                 |   |  |                   |   |  |                              |  |                                |  |                                                
|Balance at June 30, 2008     |  | 2,673,693       |   |  | 14,867,406        |   |  | 5.06                         |  | 1,122                          |  | 4.46                                           
|Exercisable                  |  |                 |   |  | 11,673,397        |   |  | 5.68                         |  | 569                            |  | 4.09                                           



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During the three and six months ended June 30, 2008, the amount of cash received from the exercise of stock options
was $8 and $9, respectively.

At June 30, 2008, there was $2,396 of total unrecognized compensation cost related to non-vested stock option and SARs
awards. Compensation expense related to stock options and SARs for the three and six months ended June 30, 2008 was $229 and $980, respectively, and was $1,093 and $2,059 for the three and six months ended June 30, 2007, respectively.

At June 30, 2008, there was approximately $711 of total unrecognized compensation cost related to non-vested RSUs granted under our stock plans.
Compensation expense related to RSUs for the three and six months ended June 30, 2008 was $237 and $529, respectively, and was $335 and $674 for the three and six months ended June 30, 2007, respectively. During the first six months of
2008, the Company granted 50,000 RSUs, the vesting of which is based upon the achievement of market conditions. Compensation cost for an RSU award with a market condition are recognized ratably for each vesting tranche over the requisite service
period in a similar manner as an award with a service condition, based on the grant date fair value of the award. However, unlike awards with a service or performance condition, the compensation cost for an award with a market condition will
not be reversed solely because the market condition is not satisfied.

NOTE 4. ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company performs ongoing credit evaluations of its customers and, generally, does not require collateral from its customers to support accounts receivable. The
Company maintains an allowance for doubtful accounts due to credit risk to provide adequate protection against estimated losses resulting from the inability of customers to make required payments. The Company bases its ongoing estimate of allowance
for doubtful accounts primarily on the aging of balances in its accounts receivable, historical collection patterns and changes in the creditworthiness of its customers. Based upon this analysis, the Company records an increase in the allowance for
doubtful accounts when the prospect of collecting a specific account receivable becomes doubtful. The allowance for doubtful accounts is established based on the best information available to the Company and is re-evaluated and adjusted as
additional information is received. The following table summarizes the changes in the allowance for doubtful accounts for the six months ended June 30, 2008 and 2007:



|                                                     |  |                          |       |   |      |   |       |  
|---------------------------------------------------- |  | ------------------------ | ----- | - | ---- | - | ----- | -
|                                                     |  | Six Months EndedJune 30, |      
|                                                     |  | 2008                     |       |   | 2007 |  
|Allowance for doubtful accounts, beginning of period |  | $                        | 2,009 |   |      | $ | 1,470 |  
|Provision for doubtful accounts, net                 |  |                          | 12    |   |      |   | (10   | )
|Amounts written-off, net of recoveries               |  |                          | (142  | ) |      |   | 180   |  
|                                                     |  |                          |       |   |      |   |       |  
|Allowance for doubtful accounts, end of period       |  | $                        | 1,879 |   |      | $ | 1,640 |  
|                                                     |  |                          |       |   |      |   |       |  

NOTE 5. ACCRUED RESTRUCTURING CHARGES

May 2003 Restructuring Plan

On May 27, 2003, the Company announced a restructuring plan aimed at
lowering costs and better aligning its resources to customer needs. The plan allowed the Company to have tighter integration between customer touch functions, which better positions the Company to take advantage of the market opportunities for its
new products, and solutions. The restructuring plan included eliminating positions to lower operating costs, closing under-utilized office capacity, primarily from the excess space in the Companys Santa Clara, California and Addison, Texas
facilities, and re-assessing the useful life of related excess long-lived assets. The workforce portion of the restructuring plan had been significantly completed



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by December 31, 2003, while the facilities plan was executed by September 30, 2003. The Company also announced non-cash charges related to the
impairment of a long-term strategic investment and the impairment of purchased product rights acquired through the enCommerce acquisition of June 2000.

The balance of the accrued restructuring charges for the May 2003 restructuring are payable within the next 12 months.

Summary of Accrued
Restructuring Charges for May 2003 Restructuring

The following table is a summary of the accrued restructuring charges related to the May 2003 plan at
June 30, 2008:



|                                   |  |                                         |     |              |     |                                            |   |    
|---------------------------------- |  | --------------------------------------- | --- | ------------ | --- | ------------------------------------------ | - | ---
|(in millions)                      |  | Total ChargesAccrued atBeginning ofYear |     | CashPayments |     | AccruedRestructuringCharges atJune 30,2008
|Consolidation of excess facilities |  | $                                       | 0.2 |              | 0.1 |                                            | $ | 0.1
|                                   |  |                                         |     |              |     |                                            |   |    

June 2001 Restructuring Plan

On June 4, 2001, the Company announced a Board-approved restructuring plan to refocus on the Companys most significant market opportunities and to reduce operating costs due to the macroeconomic factors
that were negatively affecting technology investment in the market. The restructuring plan included a workforce reduction, consolidation of excess facilities, and discontinuance of non-core products and programs.

The consolidation of excess facilities included the closure of eight offices throughout the world, but the majority of the costs related to the Companys facility
in Santa Clara, California. These costs are payable contractually over the remaining term of the Santa Clara facility lease, which runs through 2011, reduced by estimated sublease recoveries. During 2006, the Company made further adjustments to the
restructuring charges that had previously been recorded related to the June 2001 restructuring plan with respect to our Santa Clara, California facility, resulting from the conclusion of an extension agreement with the current sublessee to sublease
the California facility through March 31, 2011, which represents substantially all of the remaining lease period on the building. As a result of the conclusion of the final sublease arrangement during 2006, the Company adjusted its accrual
related to the June 2001 restructuring by $2,765 to reflect the known sublet lease recoveries under the extension agreement.

The Company has evaluated and
pursued all reasonable possibilities to settle the lease obligations associated with the June 2001 restructuring, but has been unable to find an acceptable outcome. Therefore, the Company has concluded that it is appropriate to classify the portion
of the outstanding liabilities that is not payable within the next 12 months to long-term liabilities. However, the current obligations would require the Company to fund $2,700 of its accrued restructuring charges for the June 2001 restructuring
during the remainder of fiscal 2008, with the remaining accrued restructuring charges for the June 2001 restructuring to be paid as follows: $5,500 in fiscal 2009, $5,700 in fiscal 2010 and $2,500 in fiscal 2011.

Summary of Accrued Restructuring Charges for June 2001 Restructuring

The following table is a summary of the accrued restructuring charges net of sublease recoveries related to the June 2001 plan at June 30, 2008:



|                                   |  |                                         |      |              |   |                                            |  |   |     
|---------------------------------- |  | --------------------------------------- | ---- | ------------ | - | ------------------------------------------ |  | - | ----
|(in millions)                      |  | Total ChargesAccrued atBeginning ofYear |      | CashPayments |   | AccruedRestructuringCharges atJune 30,2008
|Consolidation of excess facilities |  | $                                       | 19.1 |              | $ | 2.7                                        |  | $ | 16.4
|                                   |  |                                         |      |              |   |                                            |  |   |     



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As of June 30, 2008, the Company had estimated a total of $7,700 of sublease recoveries in its restructuring
accrual, related to the Santa Clara facility, recoverable under an existing sublease agreement.

NOTE 6. NET INCOME (LOSS) PER SHARE AND SHARES
OUTSTANDING

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, options
to purchase Common stock (including stock options, restricted stock units and stock appreciation rights) using the treasury stock method. The options to purchase Common stock are excluded from the computation of diluted net income (loss) per share
if their effect is antidilutive.

The antidilutive effect excluded from the diluted net loss per share computation related to options to purchase Common
stock or Common stock to be issued under stock award agreements for the three and six months ended June 30, 2008 was 1,194,987 and 1,394,858 shares, respectively, compared to a dilutive effect of 39,525 and 182,903 shares for the three and six
months ended June 30, 2007, respectively, which increased the weighted average common shares outstanding used in the computation. In addition, 11,074,989 and 8,038,796 out-of-the-money exercisable options that had exercise prices in excess of
the average market price for the three months ended June 30, 2008 and 2007, respectively, were excluded from the computation of diluted net income (loss) per share.

In the three and six months ended June 30, 2008, the Company issued 121,665 and 253,388 shares of Common stock, respectively, related to the exercise of employee stock options and restricted stock units.

NOTE 7. MARKETABLE AND OTHER INVESTMENTS

The Company
did not hold any short term marketable investments as of June 30, 2008 and December 31, 2007.

Historically, the Company has not engaged in
formal hedging activities, but the Company does periodically review the potential impact of foreign exchange risk to ensure that the risk of significant potential losses is minimized. In the past, when advantageous, the Company has engaged in
forward contracts to purchase Canadian dollars to cover exposures on the Canadian subsidiarys expenses that are denominated in Canadian dollars, in an attempt to reduce earnings volatility that might result from fluctuations in the exchange
rate between the Canadian and U.S. dollar. During the second quarter of 2008, the Company engaged in forward contracts to purchase Canadian dollars, covering exposures on approximately $3.0 million of its Canadian subsidiarys expenses
denominated in Canadian dollars. None of these contracts extended past June 30, 2008 and no previously purchased foreign exchange contracts had extended past March 31, 2008. The Company currently has not engaged in any forward contracts to
purchase Canadian dollars to cover exposures on expenses denominated in Canadian dollars in the third quarter of 2008 or future periods beyond the third quarter of 2008.

The Company holds equity securities stated at cost, which represent long-term investments in private companies made in 2000 and 2001 for business and strategic alliance purposes. The Companys ownership share in
these companies ranges from 1% to 10% of the outstanding voting share capital. The Company monitors and assesses the ongoing operating performance of the underlying companies for evidence of impairment. Since 2001, the Company has recorded
impairments totaling $14,007, net of recoveries, with respect to these investments as a result of other than temporary declines in fair value. The strategic investments made in 2000 and 2001 had no net remaining carrying value at June 30, 2008.
In addition, the Company holds an investment recorded at cost in ADML Holdings, Ltd., and its affiliate, Ohana Wireless, Inc. (collectively, Ohana), which at June 30, 2008 represented approximately 14% of the voting share capital of
Ohana. The carrying value of the Companys investment in Ohana at June 30, 2008 was $91.

The Company also holds an equity interest in Asia
Digital Media Limited (Asia Digital Media), which at June 30, 2008 represented approximately 44% of the voting share capital of this company. This investment is accounted for by the Company using the equity method of accounting for
investments in common stock.



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There was no remaining carrying value of the Companys investment in Asia Digital Media at June 30, 2008 and
2007.

NOTE 8. 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 securing digital identities and information. 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 Chairman, President and Chief Executive Officer on a geographic basis. Accordingly, the Company has included a summary of the financial information, on a geographic basis, as
reported to the Chairman, President and Chief Executive Officer.

Geographic information

Revenues are attributed to specific geographical areas based on where the sales orders originated. Income (loss) before income taxes is presented based on the allocation
of earnings amongst statutory jurisdictions, and is not necessarily indicative of the geographic distribution of revenues. Company assets are identified with operations in the respective geographic areas.

The Company operates in three main geographic areas as follows:



|                                        |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|--------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                        |  | Three months endedJune 30, |        |   | Six months endedJune 30, |  
|(In thousands)                          |  | 2008                       |        |   | 2007                     |   |        | 2008 |  |   | 2007   |  
|Revenues:                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|United States                           |  | $                          | 12,126 |   |                          | $ | 12,217 |      |  | $ | 24,107 |   |  | $ | 23,762 |  
|Canada                                  |  |                            | 4,452  |   |                          |   | 4,966  |      |  |   | 9,676  |   |  |   | 11,261 |  
|Europe, Asia and Other                  |  |                            | 7,901  |   |                          |   | 7,310  |      |  |   | 16,534 |   |  |   | 14,033 |  
|                                        |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Total revenues                          |  | $                          | 24,479 |   |                          | $ | 24,493 |      |  | $ | 50,317 |   |  | $ | 49,056 |  
|                                        |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                        |  |                            |        |  
|Income (loss) before income taxes:      |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|United States                           |  | $                          | (1,465 | ) |                          | $ | (615   | )    |  | $ | (304   | ) |  | $ | (376   | )
|Canada                                  |  |                            | 1,218  |   |                          |   | (2,690 | )    |  |   | (851   | ) |  |   | (5,056 | )
|Europe, Asia and Other                  |  |                            | 36     |   |                          |   | 148    |      |  |   | (172   | ) |  |   | (102   | )
|                                        |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Total income (loss) before income taxes |  | $                          | (211   | ) |                          | $ | (3,157 | )    |  | $ | (1,327 | ) |  | $ | (5,534 | )
|                                        |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  



|                       |  |              |         |                  |   |        
|---------------------- |  | ------------ | ------- | ---------------- | - | -------
|                       |  | June 30,2008 |         | December 31,2007
|Total assets:          |  |              |         |                  |   |        
|United States          |  | $            | 92,756  |                  | $ | 95,988 
|Canada                 |  |              | 22,302  |                  |   | 22,146 
|Europe, Asia and Other |  |              | 5,863   |                  |   | 4,020  
|                       |  |              |         |                  |   |        
|Total                  |  | $            | 120,921 |                  | $ | 122,154
|                       |  |              |         |                  |   |        

NOTE 9. COMPREHENSIVE INCOME (LOSS)

The components of comprehensive income (loss) are as follows:



|                                         |  |                            |      |   |                          |   |        |      |  |   |        |   |  |   |        |  
|---------------------------------------- |  | -------------------------- | ---- | - | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                         |  | Three months endedJune 30, |      |   | Six months endedJune 30, |  
|(In thousands)                           |  | 2008                       |      |   | 2007                     |   |        | 2008 |  |   | 2007   |  
|Net loss                                 |  | $                          | (422 | ) |                          | $ | (3,229 | )    |  | $ | (1,602 | ) |  | $ | (5,658 | )
|Foreign currency translation adjustments |  |                            | (190 | ) |                          |   | (483   | )    |  |   | 131    |   |  |   | (571   | )
|                                         |  |                            |      |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Comprehensive loss                       |  | $                          | (612 | ) |                          | $ | (3,712 | )    |  | $ | (1,471 | ) |  | $ | (6,229 | )
|                                         |  |                            |      |   |                          |   |        |      |  |   |        |   |  |   |        |  



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NOTE 10. LEGAL PROCEEDINGS

The Company is subject, from time to time, 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 material adverse effect on the Companys consolidated results of operations or consolidated financial position. Certain legal proceedings in which we are
involved are discussed in Part 1. Item 3. of our Annual Report on Form 10-K for the year ended December 31, 2007. Unless otherwise indicated, all proceedings in that earlier Report remain outstanding with no change in status.

NOTE 11. RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2007,
the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 (revised 2007), Business Combinations, which replaces SFAS No 141. The statement retains the
purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities
assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141(R) is effective for financial statements issued
for fiscal years beginning after December 15, 2008 and will apply prospectively to business combinations completed on or after that date. The impact of the adoption of SFAS No. 141(R) on the Companys financial position, results of operations
and cash flows will depend on the terms and timing of future acquisitions, if any.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB 51, which changes the accounting and reporting for minority interests. Minority interests will be recharacterized as noncontrolling interests and will be reported as a
component of equity separate from the parents equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income statement and, upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings.
SFAS No. 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and will apply prospectively, except for the presentation and disclosure requirements, which will apply retroactively. The adoption of SFAS
No. 160 will not have a significant impact on the Companys financial position, results of operations or cash flows.

In March 2008, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement
No. 133. SFAS No. 161 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related
contingent features contained within derivatives. SFAS No. 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of SFAS 133
have been applied, and the impact that hedges have on an entitys financial position, financial performance, and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15,
2008. The Company currently does not anticipate the adoption of SFAS No. 161 will have a material impact on the disclosures already provided.

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Companys management believes
that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial statements upon adoption.



|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. You can find many
of these statements by looking for words such as approximates, believes, expects, anticipates, estimates, intends, plans, would, may or
similar expressions in this quarterly report on Form 10-Q. These forward-looking statements are subject to numerous assumptions, risks and uncertainties. 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 and Risk Factors and elsewhere in this report. The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our condensed consolidated financial statements and notes thereto appearing elsewhere in this report.

EXECUTIVE
OVERVIEW

As a trusted security expert, Entrust secures digital identities and information through a layered security approach that help provide
confidence for consumers, enterprises and governments, enabling them to do transactions more securely. With more than 125 patents granted or pending, our solutions help secure information-sharing among stakeholders and enables compliance with
information security and government regulations. More than 1,700 customers in 60 different countries across the globe leverage Entrusts world-class solutions.



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We conduct business in one operating segment. We develop, market and sell software solutions that secure digital
identities and information. We also perform professional services to architect, install, support, and integrate our software solutions with other applications. All of these activities may be fulfilled in conjunction with partners and are managed
through our global organization.

As an innovator and pioneer in the Internet security software and Public Key Infrastructure (PKI) fields,
Entrusts market leadership and expertise in delivering award-winning identity and data protection management software solutions is demonstrated by the diversity of our products, geographic representation, and customer segments. We continue to
drive revenue in our key products.

We have three key layered approaches that we take to our customers; our Layered Consumer, Enterprise and Government
Security Architectures. These layered approaches to security help give our customers a roadmap for building security across their enterprise and customer facing applications, and for governments, citizens facing applications. The layered approach
allows our customers to customize the level of security to the value of the data or transaction. A layered security strategy from a single, trusted vendor affords security-conscious organizations a level of synergy, interoperability and
cost-effectiveness unmatched by a collection of third-party products. Further, layered security models foster environments of easy-to-use security solutions that increase end-user acceptance and reduce help-desk calls. Entrust has attractive
capabilities in the market to assist our customers with their growing identity and information protection needs.

Our Layered Consumer Architecture
approach consists of six layers:



| | 1. | Extended Validation (EV) SSL Certificates
| | -- | -------------------------------------------



| | 2. | Versatile Authentication & Single Sign-On (SSO)
| | -- | -------------------------------------------------



| | 3. | Fraud Detection & Risk-based Authentication
| | -- | -------------------------------------------



| | 4. | Transaction Signing & Encryption
| | -- | --------------------------------



| | 5. | Secure Web & E-mail
| | -- | -------------------



| | 6. | Open Fraud Intelligence Network
| | -- | -------------------------------

Our Layered Enterprise Architecture
approach consists of five layers:



| | 1. | Workstation & Network Authentication
| | -- | ------------------------------------



| | 2. | SSL, Unified Communications Certificates
| | -- | ----------------------------------------



| | 3. | Remote Access Authentication
| | -- | ----------------------------



| | 4. | Secure Shared Folders
| | -- | ---------------------



| | 5. | Secure Boundary & End-to-End Messaging
| | -- | --------------------------------------

Entrust has three key
platforms, Authentication and Transaction Monitoring, Information Protection and Public Key which support our layered security architectures. We have a unique end-to-end platform for securing digital identities and information. This end-to-end
software platform is easy to implement, user friendly and cost effective with the ability to evolve over time to grow with our customers needs.

Authentication and Transaction Monitoring came together in 2007 to provide a new level of assurance for both internal and external parties, through Risk-Based Authentication.

Entrust offers a range of authentication capabilities with our authentication platform so that specific methods can be used with specific users and applications. First steps can be as simple as deploying SSL
certificates or user name and password. Entrust has long played a key role in this space through our SSL and single sign-on products. Risk-Based Authentication, however, goes much deeper than SSL and single sign-on. Risk-Based Authentication has the
ability to judge each individual transaction on its own merits driven by policy level decisions on the level of risk associated with certain transactions. With Entrusts Risk-Based



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Authentication solution, transactions can be monitored in real time and then a determination can be made on the level of security required for that
transaction. This is done through the combination of Entrust IdentityGuard and Entrust TransactionGuard. This combined offering is a modern architecture for consumer authentication which has a layered approach of non-invasive anomaly detection and
selective intervention with minimal impact on the user experience.

Product Category Financial Metrics:



| |  |  | Entrust Emerging Growth Products accounted for 29% ($2.6 million) of product revenue for Q2, 2008.
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | Entrust PKI Products accounted for 68% ($6.2 million) of product revenue for Q2, 2008.
| | - |  | --------------------------------------------------------------------------------------



| |  |  | Entrust Single Sign-On Products accounted for 3% ($255 thousand) of product revenue for Q2, 2008.
| | - |  | -------------------------------------------------------------------------------------------------

These three categories are how we report our product revenue externally, but do not directly correlate to our three platforms that we use with customers.

We also provide support and maintenance services to our customers. Support and maintenance revenues increased 10% for the first half of 2008 and now
accounts for over $10.0 million of quarterly revenue. It is important to note that we achieved record renewals in the first half of 2008 of over 95% in terms of customer retention rate. We also provide professional services, including architecture,
installation, and integration services related to the products that we sell.

In Q2, 2008 deferred revenue achieved a record level of $29.3 million, an
increase of $800 thousand from Q2, 2007. The increase in deferred revenue was driven by an increase in subscription product bookings and support and maintenance renewals. These numbers show the continued strength of our support and maintenance
renewals and the growth in our subscription based software bookings.

In the first half of 2008, Entrust increased our profitability by $4.1 million or
$0.06 per share. During 2007 and the first half of 2008, we have significantly reduced our total expenses through a combination of managed headcount reductions, lowering of contracting expenses and controlling variable operating costs. Those expense
reduction initiatives were somewhat offset by the additional costs we experienced due an unfavorable shift in the exchange rates between the U.S dollar and other major currencies in 2007 and the first half of 2008.
This unfavorable shift in exchange rates has cost Entrust $3.5 million in additional reported expense in 2007 and an additional $3.3 million in the first half of 2008.

Entrust sells solutions globally, with an emphasis on North America, Europe and Asia. These primary areas have demonstrated the most potential for early adoption of the broadest set of Entrust solutions. Entrust
extends to other non-core geographies through strategic partner relationships, which increases the leverage of our direct sales channel worldwide. In North America, Entrust is targeting a return to revenue growth in our software business by
leveraging Entrusts historical strength in selling to key verticals such as government (Federal, State, Provincial), financial services and global 1000 enterprises. Europe and the Middle East are regions where Entrusts products and
solutions continue to experience strong demand and we believe that this market will provide growth, with increased momentum from governments and enterprises leveraging Entrusts solutions to transform their business processes and to leverage
the Internet and networking applications.

We market and sell our products and services in both the enterprise and government market space. In Q2, 2008,
the extended Government vertical was up 42% from the second quarter of last year and made up 47% of product revenue in the quarter.This revenue has been driven by key global projects that have started to increase product purchases. In the
extended government vertical market, we have a strong penetration in the U.S. Federal government, the governments of Canada, Singapore, Denmark, the United Kingdom, Kingdom of Saudi Arabia and across continental Europe. In fact, Entrust now counts
17 of the top 22 e-governments, as set forth in a report of Accenture issued in June 2007, as customers.

A key change in the government space has been the
movement from purely internal security solutions that our customers require to more external citizen facing applications. These projects include ePassports,



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national ID programs, eBorders, physical and logical access programs for government employees, and a growing number of citizen facing applications. Security
is at the core of all these projects and our wide product set positions Entrust well in this space. We have already announced six ePassport projects that Entrust has won and we have been selected as the infrastructure for a number of national ID and
Ministry of Defense programs. In 2007, we won national PKI infrastructures in the Kingdom of Saudi Arabia, Brunei and Slovenia. Specifically, we had a one million dollar transaction in the third quarter of 2007 for the Saudi Arabia PKI
infrastructure, while in the fourth quarter of 2007 their ePortal infrastructure was our largest transaction. Further, in the first quarter of 2008 our largest transaction was for an eBorders project in Europe, while in the second quarter we won our
first Extended Access Control passport from a large European Union country.

In Q2, 2008, 53% of our product sales were in our extended enterprise vertical
market. We continue to see demand from global enterprises as they continue to respond to regulatory and governance compliance demands and extend their internal and external networks to more and more individuals inside and outside their domain. We
have experienced a change in the shape of many enterprise deals. Specifically, enterprises are buying for their immediate need and then adding to their purchases as the projects begin roll out.

Our largest vertical within the enterprise market is the financial services vertical. In Q2, 2008 the financial services vertical accounted for approximately 29% of
product revenue and was up 16% over the first half of 2007. In this quarter, we had very good success in the financial vertical with our Risk Based Authentication solutions where we delivered our largest transaction in the quarter to DnB Nor,
Norways largest financial services group.

A key driver of our product growth has been the recent spotlight on identity theft due to breaches at
companies like Choicepoint, LexisNexis and TJX. These breaches have proven that self-regulation over the past few years has been insufficient at addressing the underlying issues. Recent legislation has addressed these concerns. California S.B. 1386
has cast more visibility on the issue for citizens, corporations, and the government. The law requires both corporations and the government to notify California residents if their sensitive data has been breached unless encryption technology is
deployed. Additionally, more than 35 states have now passed breach notification requirements.

Entrust for years has been a leader in securing digital identities and information. Entrust has built on that heritage to become a leader in the Risk-Based Authentication market. In Q2, 2008, Risk-Based Authentication accounts for 23% of
product revenue and is up 126% from a year ago.The key driver for our Risk-Based Authentication platform is Entrust IdentityGuard. In the second quarter, Entrust IdentityGuard continued to have positive momentum, making up 50 of our 103
transactions.We have also closed another large European bank in the third quarter and have a number of additional opportunities in the second half of 2008.

As of June 30, 2008, we have gone well over 10.0 million licensed users of IdentityGuard and have gone over $14.0 million in total sales of the solution. IdentityGuards low cost point, its simplicity for the mass market, and its
effectiveness in countering online theft and phishing, are the key drivers for the increased revenue growth we are experiencing. Along with the revenue growth for second factor authentication, we are also seeing customers increasingly interested in
data protection and encryption. With a combination of Entrust IdentityGuard, GetAccess and TruePass, customers can accomplish authentication and role based access control, digital signature, and encryption from one solution provider.

In the first quarter of 2007, Entrust introduced the industrys first $5 one-time-passcode (OTP) security token. In the second quarter of 2007, we made the product
commercially available and delivered our tokens to our first customers. In addition to the OTP token, Entrust IdentityGuard customers enjoy a range of authentication methods from a single platform. This provides unprecedented flexibility and choice
customers currently do not have with existing OTP token vendors. We have received a customer commitment on our largest IdentityGuard token deal, which is for 500,000 tokens over the next three years.

In April 2006, Entrust introduced a Managed Public Key Infrastructure (PKI) service. This service was launched in response to customer requests for Entrust to offer a
hosted service to give them a choice between a service offering for PKI certificates and our traditional PKI software purchase option. Our



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service offering is designed to help enterprises and government agencies grow and accelerate their core business security, without having to develop PKI
expertise internally. In December 2006, the Entrust managed PKI service made the General Services Administration (GSA) list of approved shared service providers. This status enables Entrust to help federal agencies reap the security
benefits of PKI without having to maintain the certification authority (CA) themselves. Our core PKI, government opportunity and Managed Services offerings have us positioned to continue our leadership position.

Our managed service is not our first entrance into the services business. We have been helping our customers for years design, deploy and manage our solutions. We have
also been successful in growing our SSL certificate business, which was up 37% for the first half of the year. Year-to-year comparison showed an increase of 34% which accounted for $2.4 million of PKI product revenue in Q2, 2008. We are also seeing
increased momentum with business development partners and channels to market theses offerings.

Entrust in the past has relied significantly on large
deals, meaning deals of $1 million or more, in each quarter. We have over the past few years reduced this dependence, and saw no product transactions over $1 million in Q2, 2008.The top five product transactions accounted for 9% of Q2, 2008
revenues. These numbers were at the low end of our historical range, which is generally between 10% and 25% of revenue from the top five customers and zero to two transactions over $1 million. In the quarter, the average purchase size in the second
quarter was $58,000, a decrease from $61, 000 in Q2, 2007 and an increase from $50,000 in Q1, 2008. Total transactions in Q2, 2008 reached 103. Thirty-one transactions or 30% of the total transactions were from new customers.

We continue to be impacted from time to time on our software revenue by the timing of our customers buying process, which may include proof of concepts, senior
management reviews and budget delays that sometimes results in longer than anticipated sales cycles. We are also impacted by our customers recent buying behavior, which is to buy only for immediate need as opposed to making a larger purchase
in order to get a better discount. Any of these factors may impact our revenue on a quarterly basis.

Our management uses the following metrics to measure
performance:



| |  |  | Number and average size of product revenue transactions;
| | - |  | --------------------------------------------------------



| |  |  | Number of revenue transactions over $1 million and < $500 thousand;
| | - |  | -------------------------------------------------------------------



| |  |  | Top-five product revenue transactions as a percentage of total revenues;
| | - |  | ------------------------------------------------------------------------



| |  |  | Product revenue split between extended enterprise and extended government verticals;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | Product revenue split between three key product areas: Emerging Growth Products, Public Key Infrastructure and Single Sign-on;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | Geographic revenue split;
| | - |  | -------------------------



| |  |  | Product and services revenues as a percentage of total revenues;
| | - |  | ----------------------------------------------------------------



| |  |  | Gross profit as a percentage of services and maintenance revenues; and
| | - |  | ----------------------------------------------------------------------



| |  |  | Deferred revenue, cash and cash equivalents, and accounts receivable.
| | - |  | ---------------------------------------------------------------------

BUSINESS OVERVIEW

During the second quarter of 2008, we continued our strategy of focusing on
core vertical and geographic markets. Revenues of $24.5 million were consistent with the second quarter of 2007, and consisted of 37% product sales and 63% services and maintenance. Services and maintenance revenues decreased 1% from the second
quarter of 2007, due to slightly decreased demand for consulting services, while product revenues also increased 1% from the second quarter of 2007, driven by improved subscription-based product revenues, despite a lower average purchase value and
closure rate for product transactions, compared to the same quarter of 2007. Net loss for the second quarter of 2008 was $422 thousand, or $0.01 per share, compared to net loss of $3.2 million, or $0.05 per share for the same period of 2007, with
total expenses decreasing 10% to $24.9 million. We generated $2.7 million in cash flow from operations in the second quarter of 2008, compared to net cash flow from operations of $2.7 million in the same quarter of



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2007. Entrust Emerging Growth Products (Entrust IdentityGuard, Boundary Messaging and Fraud Detection) accounted for 29% of product revenue, which is an
increase of 56% from Q2, 2007 and 1% from Q1, 2008. Entrust PKI Products accounted for 68% of product revenue, which is a decrease of 3% from Q2, 2007 and 9% from Q1, 2008. Entrust Certificate Services revenues, a component of our PKI Product
solutions suite, increased 34% over Q2, 2007 and 8% over Q1, 2008. Entrust Single Sign-On Products accounted for 3% of product revenue, which is a decrease of 71% from Q2, 2007 and 10% from Q1, 2008. Extended Government accounted for 47% and
Extended Enterprise accounted for 53% of the product revenue in the quarter. The financial vertical accounted for approximately 29% of second quarter 2008 product revenues, a decrease of 22% from Q2, 2007 and a decrease of 24% from Q1, 2008.

Other highlights from the second quarter of 2008 included:



| |  |  | The top five product transactions accounted for 9% of Q2, 2008 revenues. The average purchase size this quarter was $58,000, down from $61,000 in Q2, 2007 and up
from $50,000 in Q1, 2008. Total transactions in Q2, 2008 were 103, which is down from 106 in Q2, 2007, and 136 in Q1, 2008. Thirty-one (or 30%) of the transactions were from new customers, an increase of 7% from Q2, 2007.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Revenue from subscription based product and services accounted for 56% of total revenue for Q2, 2008, an increase of 11% from Q2, 2007 and 3% from Q1 2008.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Deferred revenue was $29.3 million, which is an increase of 3% from Q2, 2007 and 1% from Q1, 2008.
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | We ended Q2, 2008 with $25.4 million in cash and cash equivalents, which is up from $24.2 million at the end of Q2, 2007 and $22.8 million at the end of Q1, 2008,
and no debt.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We had no product transactions over $1 million in Q2, 2008, which is consistent with Q2, 2007. Revenue from transactions under $500 thousand increased 3% from Q2,
2007, continuing to drive our strategy to be less reliant on large deals. Transactions under $500 thousand accounted for 93% of product revenue in Q2, 2008, compared to 91% in Q2, 2007.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Entrust announced its inclusion to the Russell 3000 Index. The addition to the Russell 3000 Index, which remains in place for one fiscal year, also includes Entrust
in additional Russell indexes. The index is a trusted, proven barometer for businesses success, stock growth and investment forecasting for U.S.-based companies.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Entrust and the Acxiom Corporation signed an agreement for joint sales and marketing of an integrated consumer verification and authentication solution. Acxiom is
now a member of the Entrust TrustedPartner Program and will resell Entrusts risk-based authentication solution, which includes multifactor authentication, fraud detection and transaction-monitoring capabilities. Acxiom also will join
Entrusts Open Fraud Intelligence Network (OFIN), which consolidates and shares key fraud behavior patterns and data among network participants to help fight online fraud. Entrust will integrate Acxioms real-time consumer verification
capabilities with its portfolio and jointly sell the solution with Acxiom.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Entrust announced that the Taiwanese government selected Entrust PKI to help authenticate sensitive biometric information stored on machine readable travel
documents (MRTDs)  also known as ePassports  which will be available to nearly 23 million citizens by the end of 2008.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Kotak Securities Limited, the stock broking arm of the Kotak Mahindra group, announced the implementation of Entrust IdentityGuard for its customers. Kotaks
Security Key solution, powered by Entrust, uses the concept of a dual-password system. It is a user-friendly product enabling risk-based authentication that allows Kotak Securities to apply an appropriate level of security and reduces the chances of
fraudulent practices.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Entrust was chosen for Hydro Ottawas Companies for Conservation award in June 2008. Between August of 2006 and January of 2007, Entrust cut power
use by more than 40 percent  from more than 5 million kilowatt hours per year to less than 3 million. The 2 million kilowatt hours now being conserved annually by Entrust is enough energy to power roughly 222 homes for an entire
year. Several initiatives contributed to this achievement.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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CRITICAL ACCOUNTING POLICIES

The preparation of our financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. We believe our estimates and assumptions are reasonable. However, actual results and the timing of the recognition of such amounts could differ from those estimates.

In the second quarter of 2008, our most complex accounting judgments were made in the areas of software revenue recognition, allowance for doubtful accounts, the
provision for income taxes, accounting for uncertain tax positions, valuation of goodwill, purchased intangibles and other long-term assets, and stock-based compensation. These areas are expected to continue to be ongoing elements of our critical
accounting processes and judgments.

Software Revenue Recognition

With respect to software revenue recognition, we recognize revenues in accordance with the provisions of the American Institute of Certified Public Accountants Statement of Position No. 97-2, Software
Revenue Recognition, Statement of Position No. 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions and related accounting guidance and pronouncements. Due to the complexity of
some software license agreements, we routinely apply judgments to the application of software revenue recognition accounting principles to specific agreements and transactions. We analyze various factors, including a review of the specifics of each
transaction, historical experience, credit worthiness of customers and current market and economic conditions. Changes in judgments based upon these factors could impact the timing and amount of revenues and cost recognized. Different judgments
and/or different contract structures could lead to different accounting conclusions, which could have a material effect on our reported earnings.

Revenues
from perpetual software license agreements are recognized when we have received an executed license agreement or an unconditional order under an existing license agreement, the software has been shipped (if there are no significant remaining vendor
obligations), collection of the receivable is reasonably assured, the fees are fixed and determinable and payment is due within twelve months. Revenues from license agreements requiring the delivery of significant unspecified software products in
the future are accounted for as subscriptions and, accordingly, are recognized ratably over the term of the agreement from the first instance of product delivery. License revenues are generated both through direct sales to end users as well as
through various partners, including system integrators, value-added resellers and distributors. License revenue is recognized when the sale has occurred for an identified end user, provided all other revenue recognition criteria are met. We are
notified of a sale by a reseller to the end user customer in the same period that the product is delivered through to the end user customer. We do not offer a right of return on sales of our software products.

We do not generally include acceptance provisions in arrangements with customers. However, if an arrangement includes an acceptance provision, we recognize revenue upon
the customers acceptance of the product, which occurs upon the earlier of receipt of a written customer acceptance or expiration of the acceptance period.

For all sales, we use a binding contract, purchase order or another form of documented agreement as evidence of an arrangement with the customer. Transactions with our distributors are evidenced by a master agreement governing the
relationship, together with binding purchase orders on a transaction-by-transaction basis. We consider delivery to occur when we ship the product, so long as title and risk of loss have passed to the customer. If an arrangement includes undelivered
products or services that are essential to the functionality of the delivered product, delivery is not considered to have occurred until these products or services are delivered.

At the time of a transaction, we assess whether the sale amount is fixed or determinable based upon the terms of the documented agreement. If we determine the fee is not fixed or determinable at the outset, we
recognize revenue when the fee becomes fixed and determinable. We assess if collection is reasonably assured based on a number of factors, including past transaction history with the customer and the creditworthiness of the customer. If we determine
that collection is not reasonably assured, we do not record revenue until such time as collection becomes probable, which is generally upon the receipt of cash.



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We are sometimes subject to fiscal funding clauses in our software licensing transactions with the United States
government and its agencies. Such clauses generally provide that the license is cancelable if the legislature or funding authority does not appropriate the funds necessary for the governmental unit to fulfill its obligations under the licensing
arrangement. In these circumstances, software licensing arrangements with governmental organizations containing a fiscal funding clause are evaluated to determine whether the uncertainty of a possible license arrangement cancellation is remote. If
the likelihood of cancellation is assessed as remote, then the software licensing arrangement is considered non-cancelable and the related software licensing revenue is recognized when all other revenue recognition criteria have been met.

For arrangements involving multiple elements, we allocate revenue to each component based on the vendor-specific objective evidence of the fair value of
the various elements. These elements may include two or more of the following: software licenses, maintenance and support, consulting services and training. For arrangements where vendor-specific objective evidence is not available for a delivered
element, we first allocate the arrangement fee to the undelivered elements based on the total fair value of those undelivered elements, as indicated by vendor-specific objective evidence. This portion of the arrangement fee is deferred. Then the
difference (residual) between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements. We attribute the discount offered in a multiple-element arrangement entirely to
the delivered elements of the transaction, which are typically software licenses. Fair values for the future maintenance and support services are based upon substantially similar sales of renewals of maintenance and support contracts to other
customers. Fair value of future services, training or consulting services is based upon substantially similar sales of these services to other customers. In some instances, a group of contracts or agreements with the same customer may be so closely
related that they are, in effect, part of a single multiple-element arrangement, and therefore, we would undertake to allocate the corresponding revenues amongst the various components, as described above.

Our consulting services generally are not essential to the functionality of the software. Our software products are fully functional upon delivery and do not require any
significant modification or alteration. Customers purchase these consulting services to facilitate the adoption of our technology and dedicate personnel to participate in the services being performed, but they may also decide to use their own
resources or appoint other consulting service organizations to provide these services. When the customization is essential to the functionality of the licensed software, then both the software license and consulting services revenues are recognized
under the percentage of completion method, which requires revenue to be recognized based upon the percentage of work effort completed on the project.

Allowance for Doubtful Accounts

We maintain doubtful accounts allowances for estimated losses resulting from the inability of our
customers to make required payments. We assess collection based on a number of factors, including previous transactions with the customer and the creditworthiness of the customer. We do not request collateral from our customers.

We base our ongoing estimate of allowance for doubtful accounts primarily on the aging of the balances in the accounts receivable, our historical collection patterns and
changes in the creditworthiness of our customers. Based upon the analysis and estimates of the uncollectibility of our accounts receivable, we record an increase in the allowance for doubtful accounts when the prospect of not collecting a specific
account receivable becomes probable. The allowance for doubtful accounts is established based on the best information available to us and is re-evaluated and adjusted as additional information is received. We exhaust all avenues and methods of
collection, including the use of third party collection agencies, before writing-off a customer balance as uncollectible. While credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we
will continue to experience the same credit loss rates that we have in the past. Each circumstance in which we conclude that a provision for non-payment by a customer may be required must be carefully considered in order to determine the true
factors leading to that potential non-payment to ensure that it is proper for it to be categorized as an allowance for bad debts.



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However, a significant change in the financial condition of a major customer, such as the European distributor discussed
below, could have a material impact on our estimates regarding the sufficiency of our allowance. Our accounts receivable include material balances from a limited number of customers, with five customers accounting for 22% of gross accounts
receivable at June 30, 2008, compared to 23% of gross accounts receivable at June 30, 2007. No customer accounted for 10% or more of net accounts receivable at June 30, 2008. For more information on our customer concentration, see our
related discussion in Risk Factors. Therefore, changes in the assumptions underlying this assessment or changes in the financial condition of our customers, resulting in an impairment of their ability to make payments, and the timing of
information related to the change in financial condition could result in a different assessment of the existing credit risk of our accounts receivable and thus, a different required allowance, which could have a material impact on our reported
earnings.

During 2006, we became aware of financial concerns regarding one of our European distributors and, as a result, we concluded that it was
necessary to record an increase to our provision for doubtful accounts, which accounts for approximately $1.0 million of the $1.9 million balance of allowance for doubtful accounts at June 30, 2008. These balances remain outstanding and, as a
result, the allowance for doubtful accounts remains substantially unchanged from the end of 2006 for these items, other than to adjust for the effect of changes in foreign exchange rates. However, the allowance for doubtful accounts did increase by
approximately $300 thousand in 2007 to provide for miscellaneous accounts that have continued to age from the end of 2006 and the earlier quarters of 2007. The allowance for doubtful accounts remains substantially unchanged from the end of 2007.

Provision for Income Taxes

The preparation of
our consolidated financial statements requires us to assess our income taxes in each of the jurisdictions in which we operate, including those outside the United States. In addition, we have based the calculation of our income taxes in each
jurisdiction upon inter-company agreements, which could be challenged by tax authorities in these jurisdictions. The income tax accounting process involves our determining our actual current exposure in each jurisdiction together with assessing
temporary differences resulting from differing treatment of items, such as deferred revenue and accrued restructuring charges, for tax and accounting purposes. These differences result in the recognition of deferred tax assets and liabilities. We
then record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.

Significant management
judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets. We recorded a valuation allowance of $156.0 million as of December 31,
2007, which offsets deferred income tax assets relating to United States and foreign net operating loss (NOL) and tax credit carry-forwards in the amount of $129.3 million and $26.7 million of deferred tax assets resulting from
temporary differences. This valuation allowance represents the full value of our deferred tax assets, due to uncertainties related to our ability to utilize our deferred tax assets as a result of our recent history of financial losses. Therefore,
our balance sheet includes no net deferred tax benefits related to these deferred tax assets. Valuation allowances are provided against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the timing of the temporary differences becoming deductible. We consider, among other available
information, historical earnings, scheduled reversals of deferred tax liabilities, projected future taxable income, prudent and feasible tax planning strategies and other matters in making this assessment. Until an appropriate level of profitability
is sustained, we expect to continue to record a full valuation allowance and will not record any benefit from the deferred tax assets.



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Accounting for Uncertain Tax Positions

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109, (FIN No. 48), which clarifies
the accounting for uncertainty in tax positions. FIN No. 48 requires that we recognize in our financial statements, the impact of a tax position, if that position is more likely than not of not being sustained on audit, based on the technical
merits of the position. FIN No. 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The provisions of FIN No. 48 were effective for us as
of the beginning of our 2007 fiscal year.

We adopted the provisions of FIN No. 48 on January 1, 2007. As a result of the implementation of FIN
No. 48, we were not required to record a liability for unrecognized tax benefits, resulting in no adjustment to the January 1, 2007 accumulated deficit balance. Correspondingly, the amount of unrecognized tax benefits at January 1,
2007 was zero and, thus, did not impact our effective tax rate. The amount of unrecognized tax benefits did not change as of June 30, 2008.

The
implementation of FIN No. 48 required us to use judgment in establishing the tax positions undertaken by us in our tax filings across the world, as well as determining which of these positions are certain or uncertain. In making these
determinations, we were required to make interpretations of tax legislation and administrative enforcement of this legislation in multiple jurisdictions, but primarily in the United States and Canada. In addition, we used judgment to assess whether
the identified uncertain tax positions were more likely than not of being sustained upon audit examination by the tax authority in the relevant jurisdictions. If applicable, we are also required to make estimates of the value of unrecognized tax
benefits and the significance of any change to our results of operations and financial position. Finally, we were required to estimate, if applicable, the financial impact of interest and penalties of any position that would not likely be sustained
on audit.

Valuation of Goodwill, Purchased Intangibles and Other Long-term Assets

We have completed several acquisitions in recent years, from which we have acquired goodwill and other purchased intangible assets, in the form of purchased product
rights, customer relationships, partner relationships and non-competition agreement assets. We purchased CygnaCom Security Solutions, Inc. and enCommerce, Inc. in 2000, Entrust Japan Co. Limited and certain assets of AmikaNow! Corporation in 2004,
and Orion Security Solutions, Inc. and Business Signatures Corporation in 2006.

These acquisitions were accounted for under the purchase method of
accounting, and, accordingly, the purchase prices were allocated to the fair value of the tangible and intangible assets and liabilities acquired, with the remainder allocated to goodwill. In determining the fair value of the intangible assets
acquired, we are required to make significant assumptions and judgments regarding such things as the estimated future cash flows that we believe will be generated as a result of the acquisition of customer/partner relationships and purchased product
rights, and the estimated useful life of these acquired intangible assets. We believe that our assumptions and resulting conclusions are the most appropriate based on existing information and market expectations. However, different assumptions and
judgments as to future events could have resulted in different fair values being allocated to the intangible assets acquired.

We will review these assets
for impairment in future, in accordance with the guidance in Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Intangible Assets, which
require goodwill to be reviewed for impairment at least annually or whenever events indicate that their carrying amount may not be recoverable, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

Goodwill with a balance of $60.2 million at June 30, 2008 is tested for impairment annually and also in the event of an impairment indicator. To
determine any goodwill impairment, we perform a two-step process on an annual basis, or more frequently if necessary, to determine 1) whether the fair value of the relevant business unit exceeds carrying value and 2) the amount of impairment loss,
if any. This test requires us to make judgments as to what is the appropriate business unit with which to associate the individual components of goodwill for the purposes of determining whether the carrying value of the goodwill has exceeded the
fair value or market value of the relevant business unit. In our judgment, we operate in only one business segment. The assumptions used to test for impairment, including expected revenues, discount



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rates, and terminal values, are highly subjective. Valuation models are sensitive to changes in assumptions, and therefore changes in these assumptions in
the future could result in significant impairment charges or changes to our expected amortization. No impairment was required as a result of the annual impairment test as of December 31, 2007.

Purchased product rights, customer relationships, partner relationships and non-competition agreements of key personnel of acquired companies totaling $10.4 million at
June 30, 2008 are amortized using the straight-line method over their estimated useful lives, generally four to ten years. These assets are reviewed for impairment whenever events indicate that their carrying amount may not be recoverable. In
such reviews, the related expected undiscounted cash flows are compared with their carrying values to determine if a write-down to fair value is required. These reviews required significant judgment and estimation regarding the amount and timing of
future revenues and related expenses associated with these acquired assets.

In addition, we have a net balance of $3.3 million from our investment in
other long-term assets at June 30, 2008, which consist primarily of capitalized software development costs, which includes costs to develop video based training, for both general security and Entrust specific solutions, for sale to our
customers. These capitalized costs are amortized ratably as the underlying revenues are recognized on sales of capitalized software or over a three year period. The economic useful life of these capitalized software development costs is periodically
re-assessed.

We are not aware of any impairment events during the three months ended June 30, 2008. However, if the demand for the technologies,
products and assets acquired and developed materializes slowly, to a minimum extent, or not at all in the relevant market, we could lose all or substantially all of our investment in these assets, which would have a significant impact on our
consolidated financial position and results of operations.

Stock-Based Compensation

Our stock award program is a broad-based, long-term retention program that is intended to contribute to our success by attracting, retaining and motivating talented
employees and to align employee interests with the interests of our existing shareholders. Stock based awards may be granted to employees when they first join us, when there is a significant change in an employees responsibilities and,
occasionally, to achieve equity within a peer group. Stock based awards may also be granted in specific circumstances for retention or reward purposes. The Compensation Committee of the Board of Directors may, however, grant additional awards to
executive officers and key employees for other reasons. Under the stock based award plans, the participants may be granted options to purchase shares of Common stock and substantially all of our employees and directors participate in at least one of
our plans. Options issued under these plans generally are granted at fair market value at the date of grant and become exercisable at varying rates, generally over three or four years. Options issued before April 29, 2005 generally expire ten
years from the date of grant; awards issued on or after April 29, 2005 generally expire seven years from the date of grant.

In addition, we use
restricted stock units (RSUs) and stock appreciation rights (SARs) in incentive compensation plans for employees and members of the Board of Directors, in place of, or in combination with stock options to purchase shares of
our stock. RSUs allow the employees to receive our Common stock once the units vest. The RSUs generally vest over two to four years.

Beginning in 2006,
the Compensation Committee of the Board of Directors has issued performance stock units to certain key employees. These performance grants are based on the achievement of certain pre-determined criteria such as budgeted level of revenue attainment
or target stock price. The associated compensation expense for awards with performance conditions is accrued over the service period when that the performance criteria are reasonably certain to be achieved. Compensation cost for an award with a
market condition will be recognized ratably for each vesting tranche over the requisite service period in a similar manner as an award with a service condition.

We recognize that stock options and other stock-based incentive awards dilute existing shareholders and have attempted to control the number granted while remaining competitive with our compensation packages. Accordingly, from 2003 to 2005
we reduced our gross stock option grant rate, which contributed



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to a low net grant rate under our stock-based incentive plans during that time. In 2006 the gross grant rate increased for a number of reasons including
issuing employee equity pursuant to two acquisitions and hiring a key executive. The equity plan overhang also increased as a result of assuming the equity plan of one acquired company. In 2007 we returned to our practice from 2003 to 2005 of
reducing our gross stock option grant rate and keeping a low net grant rate. The Compensation Committee of the Board of Directors oversees the granting of all stock-based incentive awards.

SFAS No. 123(R) requires us to measure compensation cost for stock awards at fair value and recognize compensation expense over the service period for awards
expected to vest. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the
period estimates are revised. We consider many factors when estimating awards expected to vest including type of awards, employee class, and our historical experience. Actual results, and future changes in estimates, may differ substantially from
our current estimates.

We use the Black-Scholes option pricing model to determine the fair value of our stock options. The determination of the fair value
of stock-based awards using an option pricing model is affected by our stock price as well as assumptions regarding a number of subjective variables. Changes in the input assumptions can materially affect the fair value estimate of our stock
options. Those assumptions include estimating the expected volatility of the market price of our common stock over the expected term, the expected term of the award, the risk free interest rate expected during the option term and the expected
dividends to be paid.

We have reviewed each of these assumptions and determined our best estimate for these variables. Of these assumptions, the expected
volatility of our common stock is the most difficult to estimate since it is based on expected performance of our common stock. We use the implied volatility of historical market prices for our common stock on the public stock market to estimate
expected volatility. An increase in the expected volatility, expected term, and risk free interest rate, all will cause an increase in compensation expense. The dividend yield on our common stock is assumed to be zero since we do not pay dividends
and have no current plans to do so in the future.

For the three and six months ended June 30, 2008 compensation expense of $0.5 million and $1.5
million, respectively, was recognized for stock options, RSUs and SARs. Total remaining compensation estimated to be recognized over the remaining service periods for these awards is $3.1 million. This compensation cost included estimation of
expected forfeitures. Forfeiture estimations are based on analysis of historical forfeiture rates.

Accordingly, stock based compensation will continue to
have a significant impact on our results of operations depending on levels of stock-based awards granted in the future. In general, the annual stock-based compensation expense is expected to decline in future years when compared to the expense
reported in prior years, since we plan to reduce our gross stock based award grants. This decline is primarily the result of a change in stock-based compensation strategy as determined by management.

RECENTLY ISSUED ACCOUNTING STANDARDS

In December
2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 (revised 2007), Business Combinations, which replaces SFAS No 141. The statement
retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141(R) is effective for financial
statements issued for fiscal years beginning after December 15, 2008 and will apply prospectively to business combinations completed on or after that date. The impact of the adoption of SFAS No. 141(R) on our financial position, results of
operations and cash flows will depend on the terms and timing of future acquisitions, if any.

In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51, which changes the accounting and reporting for minority interests. Minority interests will be recharacterized as noncontrolling interests and
will be reported as a component of equity separate from the parents equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable
to the noncontrolling interest will be included in consolidated net income on the face of the income statement and, upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS No. 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and will apply prospectively, except for the presentation and disclosure requirements, which will apply
retroactively. The adoption of SFAS No. 160 will not have a significant impact on our financial position, results of operations or cash flows.

In March
2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB
Statement No. 133. SFAS No. 161 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of
credit-risk-related contingent features contained within derivatives. SFAS No. 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the
provisions of SFAS 133 have been applied, and the impact that hedges have on an entitys financial position, financial performance, and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after
November 15, 2008. We currently do not anticipate the adoption of SFAS No. 161 will have a material impact on the disclosures already provided.

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, our management believes that the impact of
recently issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.



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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:



|                                                |  |                            |    |  |                          |    |  |       |    |  |       |   
|----------------------------------------------- |  | -------------------------- | -- |  | ------------------------ | -- |  | ----- | -- |  | ----- | --
|                                                |  | Three months endedJune 30, |    |  | Six months endedJune 30, |   
|                                                |  | 2008                       |    |  | 2007                     |    |  | 2008  |    |  | 2007  |   
|Revenues:                                       |  |                            |    |  |                          |    |  |       |    |  |       |   
|Product                                         |  | 36.8                       | %  |  | 36.5                     | %  |  | 37.1  | %  |  | 36.8  | % 
|Services and maintenance                        |  | 63.2                       |    |  | 63.5                     |    |  | 62.9  |    |  | 63.2  |   
|                                                |  |                            |    |  |                          |    |  |       |    |  |       |   
|Total revenues                                  |  | 100.0                      |    |  | 100.0                    |    |  | 100.0 |    |  | 100.0 |   
|                                                |  |                            |    |  |                          |    |  |       |    |  |       |   
|Cost of revenues:                               |  |                            |    |  |                          |    |  |       |    |  |       |   
|Product                                         |  | 8.6                        |    |  | 8.8                      |    |  | 8.9   |    |  | 8.1   |   
|Services and maintenance                        |  | 28.8                       |    |  | 31.7                     |    |  | 29.6  |    |  | 31.0  |   
|Amortization of purchased product rights        |  | 1.3                        |    |  | 1.4                      |    |  | 1.3   |    |  | 1.4   |   
|                                                |  |                            |    |  |                          |    |  |       |    |  |       |   
|Total cost of revenues                          |  | 38.7                       |    |  | 41.9                     |    |  | 39.8  |    |  | 40.5  |   
|                                                |  |                            |    |  |                          |    |  |       |    |  |       |   
|Gross profit                                    |  | 61.3                       |    |  | 58.1                     |    |  | 60.2  |    |  | 59.5  |   
|                                                |  |                            |    |  |                          |    |  |       |    |  |       |   
|                                                |  |                            |    | 
|Operating expenses:                             |  |                            |    |  |                          |    |  |       |    |  |       |   
|Sales and marketing                             |  | 31.9                       |    |  | 36.0                     |    |  | 32.8  |    |  | 36.5  |   
|Research and development                        |  | 18.1                       |    |  | 21.7                     |    |  | 18.2  |    |  | 21.7  |   
|General and administrative                      |  | 12.8                       |    |  | 13.3                     |    |  | 12.4  |    |  | 13.3  |   
|                                                |  |                            |    |  |                          |    |  |       |    |  |       |   
|Total operating expenses                        |  | 62.8                       |    |  | 71.0                     |    |  | 63.4  |    |  | 71.5  |   
|                                                |  |                            |    |  |                          |    |  |       |    |  |       |   
|Loss from operations                            |  | (1.5                       | )  |  | (12.9                    | )  |  | (3.2  | )  |  | (12.0 | ) 
|                                                |  |                            |    |  |                          |    |  |       |    |  |       |   
|Other income (expense):                         |  |                            |    |  |                          |    |  |       |    |  |       |   
|Interest income                                 |  | 0.4                        |    |  | 0.7                      |    |  | 0.5   |    |  | 0.7   |   
|Foreign exchange gain (loss)                    |  | 0.2                        |    |  | (0.7                     | )  |  | 0.1   |    |  | 0.1   |   
|Gain on sale of long-term strategic investments |  |                           |    |  |                         |    |  |      |    |  |      |   
|Loss from equity investments                    |  |                           |    |  |                         |    |  |      |    |  | (0.1  | ) 
|                                                |  |                            |    |  |                          |    |  |       |    |  |       |   
|Total other income (expense)                    |  | 0.6                        |    |  |                         |    |  | 0.6   |    |  | 0.7   |   
|                                                |  |                            |    |  |                          |    |  |       |    |  |       |   
|Loss before income taxes                        |  | (0.9                       | )  |  | (12.9                    | )  |  | (2.6  | )  |  | (11.3 | ) 
|Provision for income taxes                      |  | 0.8                        |    |  | 0.3                      |    |  | 0.6   |    |  | 0.2   |   
|                                                |  |                            |    |  |                          |    |  |       |    |  |       |   
|Net loss                                        |  | (1.7                       | )% |  | (13.2                    | )% |  | (3.2  | )% |  | (11.5 | )%
|                                                |  |                            |    |  |                          |    |  |       |    |  |       |   

REVENUES

Total Revenues



|                      |  |                            |      |                          |   |                   |  |      |      |                           |   |      |                         |    |   |  |    |  
|--------------------- |  | -------------------------- | ---- | ------------------------ | - | ----------------- |  | ---- | ---- | ------------------------- | - | ---- | ----------------------- | -- | - |  | -- | -
|                      |  | Three months endedJune 30, |      | Six months endedJune 30, |   | Percentage change | 
|(millions)            |  | 2008                       |      | 2007                     |   | 2008              |  | 2007 |      | Three months endedJune 30 |   |      | Six months endedJune 30 |   
|North America         |  | $                          | 16.6 |                          | $ | 17.2              |  | $    | 33.8 |                           | $ | 35.0 |                         | -3 | % |  | -3 | %
|Outside North America |  |                            | 7.9  |                          |   | 7.3               |  |      | 16.5 |                           |   | 14.1 |                         | 8  | % |  | 17 | %
|                      |  |                            |      |                          |   |                   |  |      |      |                           |   |      |                         |    |   |  |    |  
|Total                 |  | $                          | 24.5 |                          | $ | 24.5              |  | $    | 50.3 |                           | $ | 49.1 |                         | 0  | % |  | 2  | %
|                      |  |                            |      |                          |   |                   |  |      |      |                           |   |      |                         |    |   |  |    |  



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Our total revenues were $24.5 million for the three months ended June 30, 2008, which remained largely unchanged
from total revenues for the three months ended June 30, 2007. Total revenues were $50.3 million for the six months ended June 30, 2008, which represented an increase of 2% from the $49.1 million of total revenues for the six months ended
June 30, 2007. Total revenues derived from North America of $16.6 million and $33.8 million in the second quarter and first half of 2008, respectively, represented a decrease of 3% from the $17.2 million and $35.0 million in the same periods of
2007. Total revenues derived from outside of North America of $7.9 million and $16.5 million for the second quarter and first half of 2008, respectively, represented an increase of 8% and 17% from the $7.3 million and $14.1 million in the same
periods of 2007.

The overall increase in total revenues during the six months ended June 30, 2008, when compared to the same period in 2007, was
driven by year over year increases from our Risk Based Authentication solutions and our subscription based businesses. Products revenues from global governments and financial institutions increased 7% and 16%, respectively, in the first half of
2008, representing 50% and 32% of product revenues, respectively. However, extended government revenues in the United States were $4.6 million and $9.0 million for the three and six months ended June 30, 2008, respectively, compared to $5.4
million and $10.1 million for the same periods in 2007, representing a 15% decrease and an 11% decrease, respectively. Our subscription based product and services revenues grew 25% in the second quarter of 2008, accounting for 56% and 53% of total
revenues for the second quarter and first half of 2008, respectively, including support & maintenance revenues, up from 51% and 48% in the same periods of 2007, an increase of 6% for the first half of the year. The United States and
Canadian governments represented 14% and 8% of total revenues in the second quarter of 2008, respectively, when including revenues sold through resellers to the government end users. However, direct sales to the United States and Canadian
governments represented 7% and 4% of total revenues in the second quarter of 2008, respectively. Overall, the United States and Canadian governments represented 13% and 9% of total revenues in the first half of 2008, when including revenues sold
through resellers to the government end users. However, direct sales to the United States and Canadian governments represented 7% and 5% of total revenues in the first half of 2008. No individual customer accounted for 10% or more of total revenues
in the three and six months ended June 30, 2008.

The level of non-North American revenues has fluctuated from period to period and this trend is
expected to continue for the foreseeable future. We believe the improved revenues for the first half of 2008, compared to the same period in 2007, reflects the strength of our evolving product portfolio, distribution network, strong customer
relationships and the quality of our support and services.

Product Revenues



|                             |  |                            |     |   |                          |   |     |                   |  |   |      |   |  |                           |      |   |                         |    |   |  |    |  
|---------------------------- |  | -------------------------- | --- | - | ------------------------ | - | --- | ----------------- |  | - | ---- | - |  | ------------------------- | ---- | - | ----------------------- | -- | - |  | -- | -
|                             |  | Three months endedJune 30, |     |   | Six months endedJune 30, |   |     | Percentage change | 
|(millions)                   |  | 2008                       |     |   | 2007                     |   |     | 2008              |  |   | 2007 |   |  | Three months endedJune 30 |      |   | Six months endedJune 30 |   
|North America                |  | $                          | 5.7 |   |                          | $ | 5.8 |                   |  | $ | 11.5 |   |  | $                         | 12.7 |   |                         | -2 | % |  | -9 | %
|Outside North America        |  |                            | 3.3 |   |                          |   | 3.1 |                   |  |   | 7.1  |   |  |                           | 5.4  |   |                         | 6  | % |  | 31 | %
|                             |  |                            |     |   |                          |   |     |                   |  |   |      |   |  |                           |      |   |                         |    |   |  |    |  
|Total                        |  | $                          | 9.0 |   |                          | $ | 8.9 |                   |  | $ | 18.6 |   |  | $                         | 18.1 |   |                         | 1  | % |  | 3  | %
|                             |  |                            |     |   |                          |   |     |                   |  |   |      |   |  |                           |      |   |                         |    |   |  |    |  
|Percentage of total revenues |  |                            | 37  | % |                          |   | 36  | %                 |  |   | 37   | % |  |                           | 37   | % |                         |    |   |  |    |  



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##### Table of Contents

Product revenues of $9.0 million for the three months ended June 30, 2008 represented an increase of 1% from the
$8.9 million for the three months ended June 30, 2007, representing 37% and 36% of total revenues in the respective periods. Product revenues of $18.6 million for the six months ended June 30, 2008 represented an increase of 3% from the
$18.1 million for the six months ended June 30, 2007, representing 37% of total revenues in each of the respective periods. The increase in the second quarter and first half of 2008 when compared to the same periods in 2007 was primarily driven
by demand for risk based authentication and our SSL certificate business. The growth is due in large part to our emerging growth products; namely IdentityGuard, Boundary Messaging and Fraud Detection, which represented 28% of product revenues in the
first half of 2008, compared to 22% for the same period in 2007, an increase of 31%. In addition, our revenue from PKI products has remained strong, representing 69% of product revenues in the first half of 2008, compared to 71% for the same period
of last year, with growth from our Entrust certificate services (SSL certificates), which increased 37% to $4.6 million of revenue in the first half of 2008, compared to the same period in 2007, offsetting the planned decrease in sales of the full
disk products that we resell from Checkpoint.

We had 103 product revenue transactions (a product revenue transaction is defined as an IdentityGuard
product sale of any size plus all other product sales in excess of $10 thousand) in the second quarter of 2008, down from 106 in the same quarter of 2007, or a 3% decrease. Overall, we had 239 product revenue transactions in the first half of 2008,
up from 219 in the first half of 2007, or a 9% increase, with 31% of the transactions in the first half of 2008 being from new customers. The average product revenue transaction size decreased 5% to $58 thousand for the second quarter of 2008 from
$61 thousand for the same quarter of 2007, while the average product transaction size decreased 11% to $54 thousand for the first half of 2008 from $61 thousand for the first half of 2007. This downward trend in transaction size is due to a shift in
our product mix toward our lower cost emerging growth products. However, growth in deals under $500 thousand is fueling our overall top line product revenue growth in the first half of 2008 compared to the same period last year. Revenue from deals
under $500 thousand increased 8% from the same half a year ago, and is continuing to drive our strategy of being less reliant on large deals. These transactions accounted for 93% and 92% of product revenue in the second quarter and first half of
2008, respectively, compared with 91% and 87% for the respective periods of last year. Further, there were no product deals greater than $1 million in the first half of 2008, compared to one for the same period in 2007. We would expect transaction
levels to remain high going forward and the trend of lower average deal size to continue in the coming quarters. In general, the top-five average quarterly product revenue transactions as a percentage of total revenues for the first half of 2008
equaled the same period in 2007 at 10%. The combination of customer buying patterns, generally smaller-sized IdentityGuard transactions and increased subscription business gives us a more predictable revenue base. This is consistent with our
expectations, due to the increased volume of product transactions and lower reliance on deals greater than $1 million.

Product revenues as a percentage of
total revenues for the three months ended June 30, 2008 remained consistent compared to the same periods in 2007.



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##### Table of Contents

Services and Maintenance Revenues



|                             |  |                            |      |   |                          |   |      |                    |  |   |      |   |  |                           |      |   |                         |    |   |  |   |  
|---------------------------- |  | -------------------------- | ---- | - | ------------------------ | - | ---- | ------------------ |  | - | ---- | - |  | ------------------------- | ---- | - | ----------------------- | -- | - |  | - | -
|                             |  | Three months endedJune 30, |      |   | Six months endedJune 30, |   |      | Percentage change, | 
|(millions)                   |  | 2008                       |      |   | 2007                     |   |      | 2008               |  |   | 2007 |   |  | Three months endedJune 30 |      |   | Six months endedJune 30 |   
|North America                |  | $                          | 10.9 |   |                          | $ | 11.4 |                    |  | $ | 22.3 |   |  | $                         | 22.4 |   |                         | -4 | % |  | 0 | %
|Outside North America        |  |                            | 4.6  |   |                          |   | 4.2  |                    |  |   | 9.4  |   |  |                           | 8.6  |   |                         | 10 | % |  | 9 | %
|                             |  |                            |      |   |                          |   |      |                    |  |   |      |   |  |                           |      |   |                         |    |   |  |   |  
|Total                        |  | $                          | 15.5 |   |                          | $ | 15.6 |                    |  | $ | 31.7 |   |  | $                         | 31.0 |   |                         | -1 | % |  | 2 | %
|                             |  |                            |      |   |                          |   |      |                    |  |   |      |   |  |                           |      |   |                         |    |   |  |   |  
|Percentage of total revenues |  |                            | 63   | % |                          |   | 64   | %                  |  |   | 63   | % |  |                           | 63   | % |                         |    |   |  |   |  

Services and maintenance revenues of $15.5 million for the three months ended June 30, 2008 represented a
decrease of 1% from the $15.6 million for the three months ended June 30, 2007, representing 63% and 64% of total revenues in the respective periods. Services and maintenance revenues of $31.7 million for the six months ended June 30, 2008
represented an increase of 2% from the $31.0 million for the six months ended June 30, 2007, representing 63% of total revenues in each of the respective periods. The slight decrease in services and maintenance revenues for the second quarter
of 2008 compared to the same period of 2007 is due to lower professional services revenues, despite strong support and maintenance revenues in the quarter. The increase in services and maintenance revenues for the first half of 2008 compared to the
same period of 2007 is due to our continued strength in our subscription based support and maintenance revenues, despite a decline in our professional services revenues over the same period. Our customers continued to renew their support agreements
at a rate of over 95% in the first half of 2008, increasing support and maintenance revenues by 10% when compared to the same period in 2007. Services and maintenance revenues as a percentage of total revenues for the three and six months ended
June 30, 2008 remained consistent compared to the same periods in 2007.

EXPENSES

Total Expenses



|                             |  |                            |      |   |                          |   |      |                   |  |   |      |   |  |                           |      |   |                         |     |   |  |    |  
|---------------------------- |  | -------------------------- | ---- | - | ------------------------ | - | ---- | ----------------- |  | - | ---- | - |  | ------------------------- | ---- | - | ----------------------- | --- | - |  | -- | -
|                             |  | Three months endedJune 30, |      |   | Six months endedJune 30, |   |      | Percentage change | 
|(millions)                   |  | 2008                       |      |   | 2007                     |   |      | 2008              |  |   | 2007 |   |  | Three months endedJune 30 |      |   | Six months endedJune 30 |    
|Total expenses               |  | $                          | 24.8 |   |                          | $ | 27.6 |                   |  | $ | 52.0 |   |  | $                         | 54.9 |   |                         | -10 | % |  | -5 | %
|                             |  |                            |      |   |                          |   |      |                   |  |   |      |   |  |                           |      |   |                         |     |   |  |    |  
|Percentage of total revenues |  |                            | 101  | % |                          |   | 113  | %                 |  |   | 103  | % |  |                           | 112  | % |                         |     |   |  |    |  

Total expenses consist of costs of revenues associated with products and services and maintenance, amortization of
purchased products rights and operating expenses associated with sales and marketing, research and development, and general and administrative. Total expenses of $24.8 million and $52.0 million



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##### Table of Contents

for the three and six months ended June 30, 2008, respectively, represented a decrease of 10% and 5% in each of their respective periods, from $27.6
million and $54.9 million for the same periods of 2007, respectively. The overall decrease in spending in the first half of 2008, when compared to the same period in 2007, was primarily due to the effect of an 8% decrease in our overall headcount
year over year, as we continue to manage our headcount resources and discretionary spending carefully. This expense decrease was offset by higher third party royalty costs and an unfavorable shift in the exchange rates between the U.S. dollar and
other major currencies that increased our reported expenses by $1.0 million and $3.3 million for the three and six months ended June 30, 2008, respectively, when compared to the same periods in 2007. As of June 30, 2008 we had 441
full-time employees globally, compared to 477 full-time employees at June 30, 2007 and 455 full-time employees at December 31, 2007.

COST OF
REVENUES

Cost of Product Revenues



|                               |  |                            |     |   |                          |   |     |                   |  |   |      |   |  |                           |     |   |                         |    |   |  |    |  
|------------------------------ |  | -------------------------- | --- | - | ------------------------ | - | --- | ----------------- |  | - | ---- | - |  | ------------------------- | --- | - | ----------------------- | -- | - |  | -- | -
|                               |  | Three months endedJune 30, |     |   | Six months endedJune 30, |   |     | Percentage change | 
|(millions)                     |  | 2008                       |     |   | 2007                     |   |     | 2008              |  |   | 2007 |   |  | Three months endedJune 30 |     |   | Six months endedJune 30 |   
|Cost of product revenues       |  | $                          | 2.1 |   |                          | $ | 2.2 |                   |  | $ | 4.5  |   |  | $                         | 4.0 |   |                         | -5 | % |  | 13 | %
|                               |  |                            |     |   |                          |   |     |                   |  |   |      |   |  |                           |     |   |                         |    |   |  |    |  
|Percentage of product revenues |  |                            | 23  | % |                          |   | 25  | %                 |  |   | 24   | % |  |                           | 22  | % |                         |    |   |  |    |  

Cost of product revenues consists primarily of costs associated with our SSL and managed PKI businesses, product
media, documentation, packaging and royalties to third-party software vendors. Cost of product revenues was $2.1 million for the three months ended June 30, 2008, which represented a 5% decrease from $2.2 million for the three months ended
June 30, 2007, representing 23% and 25% of product revenues in each of the respective periods. Cost of product revenues of $4.5 million for the six months ended June 30, 2008 represented a 13% increase from $4.0 million for the six months
ended June 30, 2007, which represented 24% and 22% of product revenues in their respective periods. The slight decrease in the cost of product revenues in absolute dollars and as a percentage of total product revenues for the three months ended
June 30, 2008, compared to the same period in 2007 is due to a shift in product sales mix away from products that incorporate third party technologies relative to the prior year. The increase in the cost of product revenues in absolute dollars
and as a percentage of total product revenues from the first half of 2007 to the same period of 2008 is primarily attributable to higher third-party software royalties and costs associated with sales of our IdentityGuard token product that was
introduced subsequent to the first quarter of 2007. The mix of third-party products and the relative gross margins achieved with respect to these products may vary from period to period and from transaction to transaction and, consequently, our
gross margins and results of operations could be adversely affected. Also, the unfavorable shift in the exchange rates between the U.S. and other major currencies resulted in increased reported expenses of $0.1 million and $0.3 million for three and
six months ended June 30, 2008, respectively, when compared to the same periods in 2007.



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##### Table of Contents

Cost of Services and Maintenance Revenues



|                                                |  |                            |     |   |                          |   |     |                   |  |   |      |   |  |                           |      |   |                         |    |   |  |    |  
|----------------------------------------------- |  | -------------------------- | --- | - | ------------------------ | - | --- | ----------------- |  | - | ---- | - |  | ------------------------- | ---- | - | ----------------------- | -- | - |  | -- | -
|                                                |  | Three months endedJune 30, |     |   | Six months endedJune 30, |   |     | Percentage change | 
|(millions)                                      |  | 2008                       |     |   | 2007                     |   |     | 2008              |  |   | 2007 |   |  | Three months endedJune 30 |      |   | Six months endedJune 30 |   
|Cost of services and maintenance revenues       |  | $                          | 7.1 |   |                          | $ | 7.8 |                   |  | $ | 14.9 |   |  | $                         | 15.2 |   |                         | -9 | % |  | -2 | %
|                                                |  |                            |     |   |                          |   |     |                   |  |   |      |   |  |                           |      |   |                         |    |   |  |    |  
|Percentage of services and maintenance revenues |  |                            | 46  | % |                          |   | 50  | %                 |  |   | 47   | % |  |                           | 49   | % |                         |    |   |  |    |  

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 was $7.1 million for the three months ended June 30, 2008, which represented a 9% decrease
from $7.8 million for the three months ended June 30, 2007, representing 29% and 32% of total revenues for the respective periods. Cost of services and maintenance revenues was $14.9 million for the six months ended June 30, 2008, which
represented a 2% decrease from $15.2 million for the six months ended June 30, 2007, representing 30% and 31% of total revenues for the respective periods.



|                                 |  |                                    |      |                         |   |     
|-------------------------------- |  | ---------------------------------- | ---- | ----------------------- | - | ----
|                                 |  | Year over year change 2007 to 2008
|(millions)                       |  | Three months endedJune 30          |      | Six months endedJune 30
|Staff related costs              |  | $                                  | -0.5 |                         | $ | -0.6
|Outside professional services    |  |                                    | -0.3 |                         |   | -0.2
|Third party hardware and support |  |                                    | 0.1  |                         |   | 0.5 
|                                 |  |                                    |      |                         |   |     
|                                 |  | $                                  | -0.7 |                         | $ | -0.3
|                                 |  |                                    |      |                         |   |     

The decrease in the cost of services and maintenance revenues in the second quarter and first half of 2008,
compared to the same periods in 2007, was mainly attributable to decreased staff related costs and outside



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professional services contractors. Outside professional services purchased externally decreased as we made a concerted effort to rebalance the work performed
by our staff and work performed by subcontractors, improving utilization of internal resources. These savings were partly offset by hardware and related support costs and the unfavorable shift in the exchange rates between the U.S. dollar and other
major currencies, which resulted in increased reported expenses of $0.3 million and $0.9 million for the second quarter and first half of 2008, respectively, when compared to the same periods in 2007, the majority of which related to staffing costs.
The decrease in services and maintenance expenses as a percentage of total revenues was the result of lower services and maintenance expenses for the three months ended June 30, 2008, which accounted for the three-percentage point decrease,
when compared to the same period in 2007. The decrease for the six months ended June 30, 2008 in services and maintenance expenses as a percentage of total revenues, compared to the prior year, was primarily the result of higher total revenues,
which, when combined with lower overall spending, accounted for a one-percentage point decrease in the services and maintenance expenses as a percentage of total revenues.

Services and maintenance gross profit as a percentage of services and maintenance revenues was 54% for the three months ended June 30, 2008 compared to 50% for the same quarter of 2007, while services and
maintenance gross profit as a percentage of services and maintenance revenues was 53% for the six months ended June 30, 2008 compared to 51% for the same period of 2007. The increase in this gross profit percentage was primarily as a result of
improved support and maintenance margins, which accounted for 4% and 3% of the gross profit percentage point increase in the second quarter and first half of 2008, respectively, while a decline in professional services margins partially offset the
first half gross profit percentage increase by 1%.

We plan to continue to optimize the utilization of existing professional services resources, while
addressing incremental customer opportunities that may arise with the help of partners and other sub-contractors, until an investment in additional full-time resources is justifiable. This plan may have an adverse impact on the gross profit for
services and maintenance, as the gross profit realized by using partners and sub-contractors is generally lower. The mix and volume of services and maintenance revenues may vary from period to period and from transaction to transaction, which will
also affect our gross margins and results of operations.

OPERATING EXPENSES

Operating ExpensesSales and Marketing



|                             |  |                            |     |   |                          |   |     |                   |  |   |      |   |  |                           |      |   |                         |     |   |  |    |  
|---------------------------- |  | -------------------------- | --- | - | ------------------------ | - | --- | ----------------- |  | - | ---- | - |  | ------------------------- | ---- | - | ----------------------- | --- | - |  | -- | -
|                             |  | Three months endedJune 30, |     |   | Six months endedJune 30, |   |     | Percentage change | 
|(millions)                   |  | 2008                       |     |   | 2007                     |   |     | 2008              |  |   | 2007 |   |  | Three months endedJune 30 |      |   | Six months endedJune 30 |    
|Sales and marketing expenses |  | $                          | 7.8 |   |                          | $ | 8.8 |                   |  | $ | 16.5 |   |  | $                         | 17.9 |   |                         | -11 | % |  | -8 | %
|                             |  |                            |     |   |                          |   |     |                   |  |   |      |   |  |                           |      |   |                         |     |   |  |    |  
|Percentage of total revenues |  |                            | 32  | % |                          |   | 36  | %                 |  |   | 33   | % |  |                           | 36   | % |                         |     |   |  |    |  

Sales and marketing expenses decreased to $7.8 million for the three months ended June 30, 2008 from $8.8
million for the comparable period in 2007. For the six months ended June 30, 2008, sales and marketing expenses decreased to $16.5 million from $17.9 million for the comparable period in 2007. Sales and marketing expenses represented 32% and
33% of total revenues for the three and six months ended June 30, 2008, respectively, compared to 36% for each of the three and six months ended June 30, 2007.



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|                                               |  |                                    |      |                         |   |     
|---------------------------------------------- |  | ---------------------------------- | ---- | ----------------------- | - | ----
|                                               |  | Year over year change 2007 to 2008
|(millions)                                     |  | Three months endedJune 30          |      | Six months endedJune 30
|Staff related costs (includes travel expenses) |  | $                                  | -0.9 |                         | $ | -1.2
|Marketing programs                             |  |                                    | -0.3 |                         |   | -0.4
|Outside professional services                  |  |                                    | 0.2  |                         |   | 0.3 
|Facilities related costs                       |  |                                    | -0.1 |                         |   | -0.2
|Bad debt expense                               |  |                                    | 0.1  |                         |   | 0.1 
|                                               |  |                                    |      |                         |   |     
|                                               |  | $                                  | -1.0 |                         | $ | -1.4
|                                               |  |                                    |      |                         |   |     

The decrease in sales and marketing expenses for the three and six months ended June 30, 2008, compared to
the same periods of 2007, was primarily due to lower staff related costs as a result of lower headcount and reduced spending on outside marketing programs in 2008. Sales and marketing headcount decreased 7% overall when compared to the prior year,
resulting in decreased compensation expenses for the first half of 2008, when compared to the same period in 2007. These decreased costs were offset by an unfavorable shift in the exchange rates between the U.S. dollar and other major currencies,
which resulted in higher reported expenses of $0.3 million and $0.7 million for the three and six months ended June 30, 2008, respectively, the majority of which was related to staffing costs. The decrease in sales and marketing expenses as a
percentage of total revenues for the three and six months ended June 30, 2008 compared to the same periods in 2007, reflects the lower expenses for the first six months of 2008, which resulted in a four- and two- percentage point decrease for
the three and six months ended June 30, 2008, respectively, combined with a one-percentage point decrease in sales and marketing expenses as a percentage of total revenues due to higher total revenues for the six months ended June 30, 2008
when compared to the same period of 2007.

We intend to continue to focus on improving the productivity of the sales and marketing teams. As required, we
will add additional sales coverage, which should allow us to better execute on any opportunities we see in both the United States and abroad. We will continue to focus on our channels, with a view to providing the executive team time to focus on
strategically growing the business. However, when necessary we will make significant investments in sales and marketing to support the launch of any new products, services and marketing programs by maintaining our strategy of (a) investing in
hiring and training our sales force in anticipation of future market growth, and (b) investing in marketing efforts in support of new product launches. We believe it is necessary to invest in marketing programs that will improve the awareness
and understanding of information security governance, and we will continue to invest in marketing toward that goal. Failure to make such investments could have a significant adverse effect on our operations. While we are focused on marketing
programs and revenue-generating opportunities to increase software revenues, there can be no assurances that these initiatives will be successful.

During
the first six months of 2008, the provision for doubtful accounts dropped $0.1 million to $1.9 million, due to foreign exchange fluctuation.



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Operating ExpensesResearch and Development



|                                  |  |                            |     |   |                          |   |     |                   |  |   |      |   |  |                           |      |   |                         |     |   |  |     |  
|--------------------------------- |  | -------------------------- | --- | - | ------------------------ | - | --- | ----------------- |  | - | ---- | - |  | ------------------------- | ---- | - | ----------------------- | --- | - |  | --- | -
|                                  |  | Three months endedJune 30, |     |   | Six months endedJune 30, |   |     | Percentage change | 
|(millions)                        |  | 2008                       |     |   | 2007                     |   |     | 2008              |  |   | 2007 |   |  | Three months endedJune 30 |      |   | Six months endedJune 30 |    
|Research and development expenses |  | $                          | 4.4 |   |                          | $ | 5.3 |                   |  | $ | 9.2  |   |  | $                         | 10.7 |   |                         | -17 | % |  | -14 | %
|                                  |  |                            |     |   |                          |   |     |                   |  |   |      |   |  |                           |      |   |                         |     |   |  |     |  
|Percentage of total revenues      |  |                            | 18  | % |                          |   | 22  | %                 |  |   | 18   | % |  |                           | 22   | % |                         |     |   |  |     |  

Research and development expenses decreased to $4.4 million for the second quarter of 2008 from $5.3 million for
the same period in 2007, while these expenses decreased from $10.7 million for the six months ended June 30, 2007 to $9.2 million for the six months ended June 30, 2008. Research and development expenses represented 18% of total revenues
for each of the three and six months ended June 30, 2008, respectively, compared to 22% for each of the comparable periods in 2007.



|                              |  |                                    |      |                         |   |     
|----------------------------- |  | ---------------------------------- | ---- | ----------------------- | - | ----
|                              |  | Year over year change 2007 to 2008
|(millions)                    |  | Three months endedJune 30          |      | Six months endedJune 30
|Staff related costs           |  | $                                  | -0.6 |                         | $ | -0.8
|Outside professional services |  |                                    | -0.2 |                         |   | -0.6
|Facilities related costs      |  |                                    | -0.1 |                         |   | -0.1
|                              |  |                                    |      |                         |   |     
|                              |  | $                                  | -0.9 |                         | $ | -1.5
|                              |  |                                    |      |                         |   |     

The decrease in research and development expenses for the three and six months ended June 30, 2008 when
compared to the same periods in 2007 was primarily due to lower outside professional services and staff related costs. We have successfully reduced external research and development contractor resources associated with the Business Signatures
acquisition, significantly reducing our outside professional services expenses for the three and six months ended June 30, 2008, when compared to the same periods in 2007. In addition, our internal research and development headcount decreased
10% year over year from the prior year. Offsetting these savings, we experienced a shift in exchange rates between Canada and the U.S. that resulted in higher reported costs of $0.3 million and $0.9 million for the three and six months ended
June 30, 2008, respectively, compared to the same periods in 2007. The decrease in research and development expenses as a percentage of total revenues for the three and six months ended June 30, 2008, compared to the same periods in 2007,
primarily reflects the lower expenses in the first half of 2008, which resulted in a four- and three-percentage point decrease in the second quarter and first half of 2008, respectively, in addition to a one-percentage point decrease in research and
development expenses as a percentage of total revenues due to higher total revenues for the six months ended June 30, 2008, when compared to the same period of 2007.



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We believe that we must continue to maintain our investment in research and development in order to protect our
technological leadership position, software quality and security assurance leadership. We therefore expect that research and development expenses may have to increase in the future.

Operating ExpensesGeneral and Administrative



|                                    |  |                            |     |   |                          |   |     |                   |  |   |      |   |  |                           |     |   |                         |    |   |  |    |  
|----------------------------------- |  | -------------------------- | --- | - | ------------------------ | - | --- | ----------------- |  | - | ---- | - |  | ------------------------- | --- | - | ----------------------- | -- | - |  | -- | -
|                                    |  | Three months endedJune 30, |     |   | Six months endedJune 30, |   |     | Percentage change | 
|(millions)                          |  | 2008                       |     |   | 2007                     |   |     | 2008              |  |   | 2007 |   |  | Three months endedJune 30 |     |   | Six months endedJune 30 |   
|General and administrative expenses |  | $                          | 3.1 |   |                          | $ | 3.3 |                   |  | $ | 6.2  |   |  | $                         | 6.5 |   |                         | -6 | % |  | -5 | %
|                                    |  |                            |     |   |                          |   |     |                   |  |   |      |   |  |                           |     |   |                         |    |   |  |    |  
|Percentage of total revenues        |  |                            | 13  | % |                          |   | 13  | %                 |  |   | 12   | % |  |                           | 13  | % |                         |    |   |  |    |  

General and administrative expenses decreased to $3.1 million and $6.2 million for the three and six months ended
June 30, 2008, respectively, from $3.3 million and $6.5 million for the comparable periods in 2008. General and administrative expenses represented 13% and 12% of total revenues for the three and six months ended June 30, 2008,
respectively, compared to 13% for each of the respective periods in 2007.



|                              |  |                                    |      |                         |   |     
|----------------------------- |  | ---------------------------------- | ---- | ----------------------- | - | ----
|                              |  | Year over year change 2007 to 2008
|(millions)                    |  | Three months endedJune 30          |      | Six months endedJune 30
|Facilities related costs      |  | $                                  | 0.1  |                         | $ | -0.1
|Outside professional services |  |                                    | 0.5  |                         |   | 0.8 
|Staff related costs           |  |                                    | -0.8 |                         |   | -1.0
|                              |  |                                    |      |                         |   |     
|                              |  | $                                  | -0.2 |                         | $ | -0.3
|                              |  |                                    |      |                         |   |     

The decrease in staff-related costs in absolute dollars in the second quarter and first half of 2008 compared to
the same periods of 2007 was due to the effect of continued management discipline in this area, with net savings of $0.2 million and $0.3 million, respectively, primarily the result of a 12% decline in headcount compared to the prior year.
Offsetting this decrease in staff related spending was increased spending on outside professional services in the second quarter and first half of 2008 when compared to the same periods in 2007. Also, an unfavorable shift in the exchange rates
between the U.S. dollar and other major currencies resulted in higher reported expenses of $0.1 million and $0.5 million for three and six months ended June 30, 2008, respectively, the majority of which related to staffing costs. We believe
that the



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increases in outside professional services expenses were non-recurring in nature and expect that these costs will reduce to historical levels in the second
half of 2008. General and administrative expenses as a percentage of total revenues remained the same for the second quarter of 2008 compared to the same quarter of 2007, while general and administrative expenses as a percentage of total revenues
decreased one-percentage point for the first half of 2008 compared to the same period of 2007, primarily because of the lower spending in this area.

We
continue to explore opportunities to gain additional efficiencies in our administrative processes and to contain expenses in these functional areas.

Amortization of Purchased Product Rights and Other Purchased Intangibles

Amortization of purchased product rights was $315 thousand
and $660 thousand for the three and six months ended June 30, 2008, respectively, compared to $345 thousand and $677 thousand for the same periods in 2007. These costs are related to the developed technology purchased in connection with the
acquisitions of Business Signatures in 2006, as well as the acquisition of certain business assets from AmikaNow! during 2004. This expense was recorded as a component of cost of revenues.

Amortization of other purchased intangibles totaled $250 thousand and $499 thousand for three and six months ended June 30, 2008, respectively, compared to $267
thousand and $533 thousand for the same periods of 2007. These costs are related to the customer/partner relationships and non-competition agreement assets purchased in connection with the acquisitions of Orion and Business Signatures in 2006, as
well as the acquisition of certain business assets from AmikaNow! during 2004. Of this expense, $211 thousand and $422 thousand was recorded as a component of sales and marketing expenses for the first three and six months of 2008, respectively,
compared to $229 thousand and $457 thousand for the same periods of 2007, while $38 thousand and $76 thousand was recorded as a component of cost of services and maintenance revenues for each of the first three and six months of 2008 and 2007,
respectively.

Interest Income

Interest income
was $98 thousand and $229 thousand for the three and six months ended June 30, 2008, respectively, compared to $176 thousand and $356 thousand for the same periods of 2007, representing less than 1% of total revenues for each of the respective
periods. The decrease in investment income for the second quarter and first half of 2008, compared to the same periods of 2007, was primarily due to the reduced rate of return on our funds invested in cash equivalents, as the interest rates
available in the first half of 2008 decreased compared to the same period in 2007, despite the fact that the funds available increased to $25.4 million at June 30, 2008 from $24.2 million at June 30, 2007.

Loss from Equity Investments

We recorded $77 thousand, net of
intercompany profit eliminations, related to our investments in Asia Digital Media for the six months ended June 30, 2007. The carrying value of this investment was zero as at December 31, 2007, and therefore, no further losses were
recorded in 2008. We began accounting for this investment under the equity method of accounting in the fourth quarter of 2004, since we had the potential to significantly influence its operations and management.

Provision for Income Taxes

We recorded an income tax
provision of $211 thousand and $275 thousand for the three and six months ended June 30, 2008, respectively, compared to $72 thousand and $124 thousand for the same periods of 2007. These provisions represented primarily the taxes payable in
certain foreign jurisdictions for which no U.S. benefit is expected. The increase in the second quarter of 2008 over the same quarter of the prior year was due in large part to an ongoing examination of a subsidiarys income tax filings in the
United Kingdom. The effective income tax rates differed from statutory rates primarily due to the impairment of long-term



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strategic investments, stock option expenses, purchased product rights, restructuring charges, foreign research and development tax credits, as well as an
adjustment of the valuation allowance that has offset the tax benefits from the significant net operating loss and tax credit carry-forwards available.

LIQUIDITY AND CAPITAL RESOURCES

We generated cash of $5.2 million in operating activities during the six months
ended June 30, 2008. This cash inflow was primarily a result of a net income after adjusting for non-cash charges of $2.3 million, a decrease in accounts receivable of $4.1 million, an increase in deferred revenue of $1.5 million, and a
decrease in prepaid expenses and other receivables of $0.5 million, partially offset by cash outflows resulting from a decrease in accounts payable and accrued liabilities of $0.4 million, and a decrease in accrued restructuring charges of $2.8
million. The reduction in accounts payable and accrued liabilities was the result of the pay down of accruals related to third party royalties, as well as the timing of accruals related to employee compensation. Our average days sales outstanding at
June 30, 2008 was 62 days, which represents a decrease from the 67 days that we reported at March 31, 2008. The overall decrease in days sales outstanding from March 31, 2008 was mainly due to higher in-quarter collections due to
improved sales linearity compared to the first quarter of 2008. For purposes of calculating average days sales outstanding, we divide ending accounts receivable by the applicable quarters revenues and multiply this amount by 90 days. The level
of accounts receivable at each quarter end is 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.

Any increase or decrease in our accounts receivable balance and days sales outstanding will affect our cash
flow from operations and liquidity. Our accounts receivable and days sales outstanding may increase due to changes in factors such as the timing of when sales are invoiced and the length of customers payment cycle. Generally, international and
indirect customers pay at a slower rate than domestic and direct customers, so that an increase in revenue generated from international and indirect customers may increase our days sales outstanding and accounts receivable balance. We have observed
an increase in the length of our customers payment cycles, which may result in higher accounts receivable balances, and could expose us to greater general credit risks with our customers and increased bad debt expense.

During the first six months of 2008, we used $0.2 million of cash related to investing activities, primarily related the investment of $0.2 million in property and
equipment, largely for computer hardware upgrades throughout our organization and $0.6 million in other long-term assets related to capitalized costs associated with subletting space in our Canadian facility, partially offset by $0.6 million of cash
provided by long-term deposits received from our subtenant in our Canadian facility.

As of June 30, 2008, our cash and cash equivalents in the amount
of $25.4 million provided our principal sources of liquidity. Overall, we generated $2.6 million and $4.9 million in cash and cash equivalents during the second quarter and first six months of 2008, respectively, despite the expenditure of $1.4
million and $2.8 million, respectively, to satisfy obligations under our restructuring accruals during those periods. Although we continue to target operating profitability, based on sustainable revenue and operating expense structures, we estimate
that we may continue to use cash in fiscal 2008 to satisfy the obligations provided for under our restructuring program.

However, if operating losses
continue to occur, then cash, cash equivalents and marketable investments will be negatively affected.

While there can be no assurance as to the extent of
usage of liquid resources in future periods, we believe that our cash flows from operations and existing cash and cash equivalents will be sufficient to meet our needs for at least the next twelve months.



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In terms of long-term liquidity requirements, we will need to fund the $16.5 million of accrued restructuring charges at
June 30, 2008 through fiscal 2011. This amount is net of expected sublet recoveries on restructured facilities of $3.2 million. The gross operating lease obligations for these restructured facilities are detailed in the table of contractual
commitments below. In addition, we expect to spend approximately $2.0 million per year on capital expenditures, primarily for computer equipment needed to replace existing equipment that is coming to the end of its useful life, a significant portion
of which are expected to be procured under operating leases.

We believe that our existing cash and cash equivalents as well as future operating cash
flows, will be sufficient to fund these long-term requirements.

We have commitments that will expire at various times through 2015. We lease
administrative and sales offices and certain property and equipment under non-cancelable operating leases that will expire at various dates to 2015. A summary of our contractual commitments at June 30, 2008 is as follows:



|                                                                        |  |                       |        |                 |   |          |  |          |        |                  |   |       |  |   |      
|----------------------------------------------------------------------- |  | --------------------- | ------ | --------------- | - | -------- |  | -------- | ------ | ---------------- | - | ----- |  | - | -----
|                                                                        |  | Payment Due by Period
|                                                                        |  | Total                 |        | Less than1 Year |   | 1-3Years |  | 3-5Years |        | More than5 Years
|                                                                        |  | (in thousands)       
|Operating lease obligationscurrently utilized facilities and equipment |  | $                     | 20,958 |                 | $ | 4,660    |  | $        | 5,464  |                  | $ | 4,906 |  | $ | 5,928
|Operating lease obligationsrestructured facilities                     |  |                       | 19,676 |                 |   | 6,599    |  |          | 13,077 |                  |   |      |  |   |     
|2008 Entrust Deferred Retention Bonus Plan                              |  |                       | 1,239  |                 |   | 875      |  |          | 364    |                  |   |      |  |   |     
|Other commitments                                                       |  |                       | 127    |                 |   | 127      |  |          |       |                  |   |      |  |   |     
|                                                                        |  |                       |        |                 |   |          |  |          |        |                  |   |       |  |   |      
|Total                                                                   |  | $                     | 42,000 |                 | $ | 12,261   |  | $        | 18,905 |                  | $ | 4,906 |  | $ | 5,928
|                                                                        |  |                       |        |                 |   |          |  |          |        |                  |   |       |  |   |      

In addition to the lease commitments included above, we have provided letters of credit totaling $1.8 million as
security deposits in connection with certain office leases.

Other commitments include financing arrangements entered into for the purpose of funding
annual insurance premiums, with a remaining balance as of June 30, 2008 of $127 thousand, to be paid during fiscal 2008.

The 2008 Entrust Deferred
Retention Bonus Plan (the 2008 Deferred Plan) was adopted by the Compensation Committee of the Board of Directors on February 19, 2008. The primary objective of the 2008 Deferred Plan is to attract and retain valued employees by
remunerating selected executives and other key employees with cash awards based on the contribution of the individual employee. The Compensation Committee, in its sole discretion, shall determine which employees are eligible to receive awards under
the plan and shall grant awards in such amounts and on such terms as it shall determine. Subject to limited exceptions, an employees award under the plan shall vest in one-seventh of the amount of the award over the seven calendar quarters
commencing on January 1, 2008, provided that the employee continues to be employed by us on each of such dates. During the first quarter of 2008, we granted awards to employees under the plan that potentially could result in payments of $1.5
million over the subsequent seven quarters, assuming that all employees receiving the awards remain employed with us for the entire seven quarter vesting period of the awards. Of this amount, it was estimated that, as of June 30, 2008, $1.2
million was remaining to be paid out under this plan.

In the ordinary course of business, we enter into standard indemnification agreements with our
business partners and customers. Pursuant to these agreements, we agree to modify, repair or replace the product, pay royalties for a right to use, defend and reimburse the indemnified party for actual damages awarded by a court against the
indemnified party for an intellectual property infringement claim by a third party with respect to our products and services, and indemnify for property damage that may be caused in connection with consulting services performed at a customer site by
our employees or our subcontractors. The term of these indemnification agreements is generally perpetual. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. We have
general and umbrella insurance policies that generally enable us to recover a portion of any amounts paid.



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We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a
result, we believe the estimated fair value of these agreements is minimal. Accordingly, we have no liabilities recorded for these agreements as of June 30, 2008.

We generally warrant for ninety days from delivery to a customer that our products will perform free from material errors that prevent performance in accordance with user documentation. Additionally, we warrant that
our consulting services will be performed consistent with generally accepted industry standards including other warranties. We have only incurred nominal expense under our product or service warranties. As a result, we believe the estimated fair
value of our obligations under these agreements is minimal. Accordingly, we have no liabilities recorded for these agreements as of June 30, 2008.

We
have entered into employment and executive retention agreements with certain employees and executive officers, which, among other things, include certain severance and change of control provisions. We have also entered into agreements whereby we
indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity.



|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 marketable investments, in investments that are designed to preserve principal, maintain liquidity and maximize return. We actively manage our investments in accordance with these objectives. Some of these investments are subject to
interest rate risk, whereby a change in market interest rates will cause the principal amount of the underlying investment to fluctuate. Therefore, 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.

The fair value of investments, classified as cash equivalents,
entered into for purposes other than trading purposes, of $4.8 million, that would have been subject to interest rate risk, approximated amortized cost at June 30, 2008.

We try to manage this risk by maintaining our cash, cash equivalents and marketable investments with high quality financial institutions and investment managers. As a result, we believe that our exposure to market
risk related to interest rates is minimal. Our financial instrument holdings at period-end were analyzed to determine their sensitivity to interest rate changes. The fair values of these instruments were determined by net present values. In this
sensitivity analysis, we used the same change in interest rate for all maturities. All other factors were held constant. If there were an adverse change in interest rates of 10%, the expected effect on net income related to our financial instruments
would be less than $50 thousand.

Risk Associated with Exchange Rates

We are subject to foreign exchange risk as a result of exposures to changes in currency exchange rates, specifically between the United States and Canada, the United Kingdom, the European Union and Japan. This
exposure is not considered to be material with respect to the United Kingdom, European and Japanese operations due to the fact that the net earnings of these operations, denominated in local currencies, are not significant. However, because a
disproportionate amount of our expenses are denominated in Canadian dollars, through our Canadian operations, while our Canadian denominated revenue streams are cyclical, we are exposed to exchange rate fluctuations in the Canadian dollar, and in
particular, fluctuations between the U.S. and Canadian dollar. Therefore, a favorable change in the exchange rate for the Canadian subsidiary would result in higher revenues when translated into U.S. dollars, but would also mean expenses would be
higher in a corresponding fashion and to a greater degree.

Historically, we have not engaged in formal hedging activities, but we do periodically review
the potential impact of foreign exchange risk to ensure that the risk of significant potential losses is minimized. However, as a significant portion of our expenses are incurred in Canadian dollars, our reported expense base increased by $3.3
million in the first half of 2008, when compared to the same period in 2007, due to fluctuations in the exchange rate between the United States and Canadian dollars. Taking into account the effect of exchange rate fluctuations on reported Canadian
revenues, the net effect on reported earnings was $0.3 million for the first half of 2008, when compared to same period in 2007.



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In the past, when perceived by management to be advantageous, we have engaged in forward contracts to purchase Canadian
dollars to cover exposures on Canadian subsidiarys expenses that are denominated in Canadian dollars, in an attempt to reduce earnings volatility that might result from fluctuations in the exchange rate between the Canadian and U.S. dollar.
During the second quarter of 2008, we engaged in forward contracts to purchase Canadian dollars, covering exposures on approximately $3.0 million of our Canadian subsidiarys expenses denominated in Canadian dollars. None of these contracts
extended past June 30, 2008 and no previously purchased foreign exchange contracts had extended past March 31, 2008. We currently have not engaged in any forward contracts to purchase Canadian dollars to cover exposures on expenses
denominated in Canadian dollars in the third quarter of 2008 or future periods beyond the third quarter of 2008.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our
disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934), as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act of 1934 and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of
1934) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

The Company is subject, from time to time, 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 material adverse effect on the Companys consolidated results of operations or consolidated financial position. Certain legal proceedings in which we are involved are discussed in Part 1. Item 3. of our Annual
Report on Form 10-K for the year ended December 31, 2007. Unless otherwise indicated, all proceedings in that earlier Report remain outstanding.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

There were no material changes to the Risk Factors
disclosed in our annual report on Form 10-K for the year ended December 31, 2007.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

None.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

Not applicable.



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|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

On May 2,
2008, we held our Annual Meeting of Shareholders. Shares of Common stock with 51,055,110 votes were represented at the meeting out of a total of 61,201,982 shares entitled to vote. The following sets forth a description of each matter voted on and
the votes cast:



|1) | A proposal to elect Butler Derrick, Jr., Jerry Jones and Michael McGrath as Class I Directors for three-year terms. The results of the voting were as follows:
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



|                    |  |            |  |                |  |                 |  |                  
|------------------- |  | ---------- |  | -------------- |  | --------------- |  | -----------------
|Director            |  | Votes For: |  | Votes Against: |  | Votes Withheld: |  | Broker non-votes:
|Butler Derrick, Jr. |  | 48,739,198 |  |               |  | 2,315,912       |  |                 
|Jerry Jones         |  | 48,464,222 |  |               |  | 2,590,888       |  |                 
|Michael McGrath     |  | 48,815,675 |  |               |  | 2,239,435       |  |                 



|2) | A proposal to amend the Entrust, Inc. 2006 Stock Incentive Plan to increase the number of shares of common stock of the Company available for award under the plan by two million
(2,000,000) and related closure to new grants of the Business Signatures 2002 Stock Plan. The results of the voting were as follows:
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|           |  |                |  |                 |  |                  
|---------- |  | -------------- |  | --------------- |  | -----------------
|Votes For: |  | Votes Against: |  | Votes Withheld: |  | Broker non-votes:
|30,450,484 |  | 3,848,355      |  | 2,578,627       |  |                 



|3) | Ratification of the appointment of Grant Thornton LLP as our independent public accountants for the year ending December 31, 2008. The results of the voting were as follows:
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|           |  |                |  |                 |  |                  
|---------- |  | -------------- |  | --------------- |  | -----------------
|Votes For: |  | Votes Against: |  | Votes Withheld: |  | Broker non-votes:
|50,763,512 |  |               |  | 291,598         |  |                 

Directors who were not elected at the meeting but whose term of office continued after the meeting
are F. William Conner, Douglas Schloss, Michael P. Ressner., Terdema Ussery II, and Ray W. Washburne.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

Not applicable.



|ITEM 6. | EXHIBITS
|------- | --------



|              |  |                                                                                     
|------------- |  | ------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                         
|10.1          |  | Revised Form of Entrust, Inc. Officer Non-Statutory Stock Option Agreement.         
|              | 
|10.2          |  | Revised Form of Entrust, Inc. Officer Incentive Stock Option Agreement.             
|              | 
|10.3          |  | Revised Form of Entrust, Inc. Restricted Stock Unit Award Agreement.                
|              | 
|10.4          |  | Revised Form of Entrust, Inc. Restricted Stock Unit Award Agreement CEO.            
|              | 
|10.5          |  | Letter Agreement between the Registrant and Neill Duff, dated March 8, 2007.*       
|              | 
|10.6          |  | Contract of Employment between the Registrant and Neill Duff, dated August 1, 2002.*
|              | 
|31.1          |  | Rule 13a-14(a) Certification of Chief Executive Officer.                            
|              | 
|31.2          |  | Rule 13a-14(a) Certification of Chief Financial Officer.                            
|              | 
|32.1          |  | Section 1350 Certification of Chief Executive Officer.                              
|              | 
|32.2          |  | Section 1350 Certification of Chief Financial Officer.                              



|* | Management contract or compensatory agreement.
|- | ----------------------------------------------



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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, INC.                                    
|                      |  | (Registrant)                                     
|                      | 
|Dated: August 6, 2008 |  | /s/ David J. Wagner                              
|                      |  | David J. Wagner                                  
|                      |  | Chief Financial Officer and Senior Vice President
|                      |  | (Principal Financial and Accounting Officer)     



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EXHIBIT INDEX



|              |  |                                                                                     
|------------- |  | ------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                         
|10.1          |  | Revised Form of Entrust, Inc. Officer Non-Statutory Stock Option Agreement.         
|              | 
|10.2          |  | Revised Form of Entrust, Inc. Officer Incentive Stock Option Agreement.             
|              | 
|10.3          |  | Revised Form of Entrust, Inc. Restricted Stock Unit Award Agreement.                
|              | 
|10.4          |  | Revised Form of Entrust, Inc. Restricted Stock Unit Award Agreement CEO.            
|              | 
|10.5          |  | Letter Agreement between the Registrant and Neill Duff, dated March 8, 2007.*       
|              | 
|10.6          |  | Contract of Employment between the Registrant and Neill Duff, dated August 1, 2002.*
|              | 
|31.1          |  | Rule 13a-14(a) Certification of Chief Executive Officer.                            
|              | 
|31.2          |  | Rule 13a-14(a) Certification of Chief Financial Officer.                            
|              | 
|32.1          |  | Section 1350 Certification of Chief Executive Officer.                              
|              | 
|32.2          |  | Section 1350 Certification of Chief Financial Officer.                              



|* | Management contract or compensatory agreement.
|- | ----------------------------------------------



41