Financials

2006 Second-Quarter Financial Statements

ENTRUST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

(in thousands, except per share data)

Three Months Ended
June 30

Six Months Ended
June 30

2006

2005

2006

2005

(unaudited)

(unaudited)

Revenues:

Product

$7,388

$9,400

$13,966

$17,467

Services and maintenance

14,666

15,410

29,187

32,249
Total revenues

22,054

24,810

43,153

49,716

Cost of revenues:

Product

1,230

1,009

3,174

1,980

Services and maintenance

7,407

7,503

14,448

16,214

Amortization of purchased product rights

212

190

419

385

Total cost of revenues

8,849

8,702

18,041

18,579

Total gross profit:

13,205

16,108

25,112

31,137

Operating expenses

Sales and marketing

7,208

7,577

14,721

14,771

Research and development

4,403

4,476

8,643

8,638

General and administrative

3,553

2,934

7,228

5,856

Restructuring charges and adjustments

(130)

-

2,765

-

Total operating expenses

15,034

14,987

33,357

29,265

Income (loss) from operations

(1,829)

1,121

(8,245)

1,872

Other income (expense):

Interest income

840

577

1,582

1,105

Gain on sale of asset

-

-

-

200

Foreign exchange gain (loss)

(63)

(58)

(271)

31

Loss from equity investments

(122)

(221)

(293)

(451)

Writedown of long-term strategic and equity investments

-

-

(3,016)

-

Total other income (expense)

655

298

(1,998)

885

Income (loss) before income taxes

(1,174)

1,419

(10,243)

2,757

Provision for (benefit from) income taxes

90

321

189

695

Net income (loss)

$(1,264)

$1,098

$(10,432)

$2,062

Weighted average common shares used

Basic

59,741

61,123

59,818

61,707

Diluted

58,939

62,554

59,613

62,936

Net income (loss) per share

Basic

($0.02)

$0.02

($0.17)

$0.03

Diluted

($0.02)

$0.02

($0.17)

$0.03

ENTRUST, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

Jun. 30, 2006

Dec. 31, 2005
(unaudited)

ASSETS

Cash and marketable investments

$74,745

$82,453

Accounts receivable, net of allowance for doubtful accounts

17,139

20,341

Other current assets

3,428

4,782

Property and equipment, net

3,484

2,677

Purchased product rights and purchased non-contractual customer relationships, net

3,442

2,086

Goodwill, net

19,593

12,713

Long-term equity investment

321

3,630

Other long-term assets, net

1,535

1,767

Total assets

$123,687

$130,449

LIABILITIES AND SHAREHOLDERS’ EQUITY

Accounts payable and accruals

$13,610

$13,634

Accrued restructuring charges

26,795

25,949

Deferred revenue

22,953

20,895

Long-term liabilities

889

859

Total liabilities

64,247

61,337

Shareholders’ equity

59,440

69,112

Total liabilities and shareholders’ equity

$123,687

$130,449

The following supplemental tables provide non-GAAP financial measures used by the company’s management to evaluate operational results. The company believes this information may be useful to investors. In addition to disclosing financial results calculated in accordance with U.S. generally accepted accounting principles (GAAP), the company's earnings release contains non-GAAP financial measures that exclude the income statement effects of share-based compensation, amortization of purchase product rights, non recurring restructuring and impairment charges. The non-GAAP financial measures disclosed by the company should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements should be carefully evaluated. The non-GAAP financial measures used by the company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.

Set forth below are reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

For additional information regarding these non-GAAP financial measures, see the Form 8-K dated July 20, 2006 that Entrust has filed with the Securities and Exchange Commission.

ENTRUST, INC.

SUPPLEMENTAL

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

(in thousands, except per share data)

Three Months Ended
June 30

Six Months Ended
June 30

2006

2005

2006

2005

(unaudited)

(unaudited)

Reconciliation of net income (loss) per GAAP to Non-GAAP income (loss):

GAAP net income (loss)

$(1,264)

$1,098

$(10,432)

$2,062

Adjustments for share-based compensation expense:

Cost of revenues

66

-

123

-

Sales and marketing

183

-

353

-

Research and development

70

-

130

-

General and administrative

339

-

669

-

Amortization of non-contractual customer relationships

17

19

34

37

Amortization of purchased product rights

212

190

419

385

Restructuring charges and adjustments

(130)

-

2,765

-

Write-down of long-term strategic and equity investments

-

-

3,016

-

Tax effect on Non-GAAP adjustments

252

(63)

-

(127)

Non-GAAP income (loss)

$(255)

$1,244

$(2,923)

$2,357

Reconciliation of net income (loss) per diluted share according to GAAP to Non-GAAP income (loss) per diluted share:

GAAP net income (loss) per diluted share

($0.02)

$0.02

($0.17)

$0.03

Adjustments for share-based compensation expense

0.01

-

0.02

-

Amortization of non-contractual customer relationships

-

-

-

-

Amortization of purchased product rights

-

-

0.01

0.01

Restructuring charges and adjustments

-

-

0.04

-

Write-down of long-term strategic and equity investments

-

-

0.05

-

Tax effect on Non-GAAP adjustments

0.01

-

-

-

0.02

-

0.12

0.01

Non-GAAP income (loss) per diluted share

($0.00)

$0.02

($0.05)

$0.04

Weighted average common shares used

58,939

62,554

59,613

62,936

Forward Looking Guidance

for Six Months Ended December 31, 2006

Earnings Per Share Range

U.S. GAAP measure *

($0.02)

($0.11)

Adjustments to exclude the effects of amortization of intangible assets *

$0.01

$0.01

Adjustments to exclude the effects of expenses related to stock-based compensation

$0.02

$0.02

Non-GAAP figures

$0.01

($0.08)

* excludes amoritization of intangible assets that may result from the acquisition of Business Signatures

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