<PAGE>   1

                                    FORM 10-Q



                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



              [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934



    For the Quarter ended MARCH 31, 1998      Commission file number:0-16641



                           RAINBOW TECHNOLOGIES, INC.
             (Exact name of Registrant as specified in its charter)



            DELAWARE                               95-3745398
     (State of incorporation)         (I.R.S. Employer Identification No.)



50 TECHNOLOGY DRIVE, IRVINE, CALIFORNIA               92618
(Address of principal executive offices)            (Zip Code)


Indicate by check mark whether the Registrant (i) 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 (ii) has been subject to such filing
requirements for the past 90 days.

                                                  Yes    X       No
                                                       -----         -----

The number of shares of common stock, $.001 par value, outstanding as of March
31, 1998 was 7,759,596.


<PAGE>   2

                           RAINBOW TECHNOLOGIES, INC.


                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
PART I  -  FINANCIAL INFORMATION
     <S>                                                                          <C>
     Item 1.   Condensed Consolidated Balance Sheets at
               March 31, 1998 (unaudited) and December 31, 1997                      3

               Condensed Consolidated Statements of Operations for 
               the three months ended March 31, 1998 and 1997 (unaudited)            4

               Condensed Consolidated Statements of Comprehensive (Loss) Income
               for the three months ended March 31, 1998 and 1997 (unaudited)        5

               Condensed Consolidated Statements of Cash Flows for the three
               months ended March 31, 1998 and 1997 (unaudited)                      6

               Notes to Condensed Consolidated Financial Statements                  7

     Item 2.   Management's Discussion and Analysis of
               Financial Condition and Results of Operations                        10

PART II  -  OTHER INFORMATION

     Item 1 to 5 - Not applicable

SIGNATURES                                                                          13

</TABLE>


                                       2

<PAGE>   3


                           RAINBOW TECHNOLOGIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                   A S S E T S
<TABLE>
<CAPTION>
                                                           March 31,       December 31,
                                                              1998             1997
                                                         ---------------  ---------------
                                                           (unaudited)
<S>                                                         <C>            <C>
Current assets:
    Cash and cash equivalents..........................     $24,248,000      $ 29,556,000
    Marketable securities
    available-for-sale.................................       3,997,000         6,841,000
    Accounts receivable, net of allowance for
    doubtful accounts of $375,000 and $500,000 
    in 1998 and 1997, respectively.....................      17,937,000        16,343,000
    Inventories........................................       9,039,000         9,780,000
    Unbilled costs and fees............................       1,185,000         1,782,000
    Prepaid expenses and other current assets..........       4,674,000         4,803,000
                                                            -----------      ------------
         Total current assets..........................      61,080,000        69,105,000

Property, plant and equipment, at cost:
    Buildings..........................................       7,865,000         8,058,000
    Furniture..........................................       1,203,000         1,191,000
    Equipment..........................................      13,705,000        12,963,000
    Leasehold improvements.............................         664,000           636,000
                                                            -----------      ------------
                                                             23,437,000        22,848,000
    Less accumulated depreciation and amortization.....       6,957,000         6,315,000
                                                            -----------      ------------
         Net property, plant and equipment.............      16,480,000        16,533,000

Goodwill, net of accumulated amortization of
  $9,029,000 and $8,736,000 in 1998 and 1997,
  respectively.........................................       8,189,000         5,543,000
Product licenses, net of accumulated amortization of
  $510,000 and $469,000 in 1998 and 1997,
  respectively.........................................       6,453,000         6,481,000
Other assets, net of accumulated amortization of
  $2,875,000 and $2,763,000 in 1998 and 1997,
  respectively.........................................       6,700,000         5,389,000
                                                            -----------      ------------
                                                            $98,902,000      $103,051,000
                                                            ===========      ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Accounts payable...................................     $ 5,727,000      $  4,937,000
    Accrued payroll and related expenses...............       2,447,000         4,199,000
    Other accrued liabilities..........................       2,293,000         2,986,000
    Income taxes payable...............................       1,046,000           861,000
    Billings in excess of costs and fees...............          87,000            87,000
    Long-term debt, due within one year................         251,000           259,000
                                                            -----------      ------------
         Total current liabilities.....................      11,851,000        13,329,000

Long-term debt, net of current portion.................       1,506,000         1,616,000
Minority interest......................................       1,448,000         1,723,000
Other liabilities......................................          19,000            24,000
Shareholders' equity:
    Common stock, $.001 par value, 20,000,000 shares
      authorized, 7,759,596 and 7,817,836 shares issued 
      and outstanding in 1998 and 1997, respectively...           8,000             8,000
    Additional paid-in capital.........................      28,955,000        30,633,000
    Accumulated other comprehensive loss...............      (1,423,000)       (1,906,000)
    Retained earnings..................................      56,717,000        59,811,000
                                                            -----------      ------------
                                                             84,257,000        88,546,000
    Less cost of treasury shares (7,500 and 88,868
       shares in 1998 and 1997, respectively)..........        (179,000)       (2,187,000)
                                                            -----------      ------------
         Total shareholders' equity....................      84,078,000        86,359,000
                                                            -----------      ------------
                                                            $98,902,000      $103,051,000
                                                            ===========      ============

</TABLE>

                             See accompanying notes.



                                       3


<PAGE>   4


                           RAINBOW TECHNOLOGIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)

<TABLE>
<CAPTION>

                                                     Three months ended
                                                  March 31,       March 31,
                                                    1998            1997
                                               ------------------------------
<S>                                            <C>               <C>
Revenues:
     Software protection products............    $14,171,000     $13,973,000
     Information security products...........     10,849,000       6,810,000
     Ion beam surface treatment..............         10,000               -
                                               ------------------------------
          Total revenues.....................     25,030,000      20,783,000

Operating expenses:
     Cost of software protection products....      3,552,000       4,181,000
     Cost of information security products...      8,605,000       5,711,000
     Cost of ion beam surface treatment......         20,000               -
     Selling, general and administrative.....      5,598,000       5,265,000
     Research and development................      2,722,000       1,381,000
     Goodwill amortization...................        535,000         412,000
     Provision for restructured operations...        370,000               -
     Acquired research and development.......      4,000,000               -
                                               ------------------------------
          Total operating expenses...........     25,402,000      16,950,000
                                               ------------------------------
Operating (loss) income......................       (372,000)      3,833,000
Interest income..............................        319,000         426,000
Interest expense.............................        (56,000)        (70,000)
Other expense, net...........................     (1,134,000)       (144,000)
                                               ------------------------------
(Loss) income before provision for taxes.....     (1,243,000)      4,045,000
Provision for income taxes...................      1,851,000       1,613,000
                                               ==============================
Net (loss) income............................    $(3,094,000)    $ 2,432,000
                                               ==============================

Net (loss) income per share:
     Basic ..................................    $     (0.40)    $      0.31
                                               ==============================
     Diluted ................................    $     (0.40)    $      0.31
                                               ==============================

Shares used in computing net (loss) income 
per share:
     Basic...................................      7,767,000        7,794,000
                                               ==============================
     Diluted................................       7,767,000        7,954,000
                                               ==============================
</TABLE>

                       See accompanying notes.


                                       4


<PAGE>   5

                           RAINBOW TECHNOLOGIES, INC.
          CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
                                   (unaudited)

<TABLE>
<CAPTION>

                                                            Three Months Ended
                                                          March 31,      March 31,
                                                            1998           1997
                                                       ----------------------------
<S>                                                    <C>              <C>
Net (loss) income...............................       $(3,094,000)    $ 2,432,000
Other comprehensive income:
     Foreign currency translation adjustment....           805,000      (2,753,000)
     Unrealized loss on securities..............            (7,000)        (55,000)
     Reclassification adjustment................            (6,000)              -
                                                       ----------------------------
     Other comprehensive (loss) income, before 
       income taxes.............................           792,000      (2,808,000)
     Provision for income taxes related to 
       other comprehensive (loss) income........          (309,000)      1,123,000
                                                       ----------------------------
     Other comprehensive (loss) income, 
       net of taxes.............................           483,000      (1,685,000)
                                                       ----------------------------
 Comprehensive (loss) income....................       $(2,611,000)    $   747,000
                                                       ============================
</TABLE>



                             See accompanying notes.



                                       5

<PAGE>   6

                           RAINBOW TECHNOLOGIES, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                  Three Months Ended
                                                          March 31, 1998      March 31, 1997
                                                        -------------------------------------
<S>                                                       <C>                   <C>
Cash flows from operating activities:
    Net income.........................................     $(3,094,000)         $ 2,432,000
    Adjustments to reconcile net income to net 
     cash provided by operating activities:
       Amortization....................................         692,000              766,000
       Depreciation....................................         698,000              409,000
       Change in deferred income taxes.................        (817,000)              20,000
       Allowance for doubtful
       accounts........................................        (123,000)             100,000
       Loss from retirement of property, plant,
       and equipment...................................          (3,000)              41,000
       Write-down of long-term investment..............       1,320,000               75,000
       Share in investee's loss........................               -              120,000
       Minority interest in subsidiary's earnings......        (186,000)                   -
       Write-off of capitalized software...............         784,000                    -
       Provision for restructured operations...........         370,000                    -
       Write-off of in-process research 
         and development...............................       4,000,000                    -
       Changes in operating assets and liabilities:
          Accounts receivable..........................      (1,288,000)           2,587,000
          Inventories..................................       1,712,000            1,631,000
          Unbilled costs and fees......................         597,000             (862,000)
          Prepaid expenses and other current assets....          64,000             (132,000)
          Accounts payable.............................      (1,064,000)          (1,410,000)
          Accrued liabilities..........................      (3,589,000)          (1,402,000)
          Billings in excess of costs and fees.........               -             (227,000)
          Deferred revenues............................         169,000                    -
          Income taxes payable.........................        (214,000)             664,000
                                                        -------------------------------------
             Net cash provided by operating
             activities................................          28,000            4,812,000

Cash flows from investing activities:
    Purchase of marketable securities..................      (1,300,000)            (561,000)
    Sale of marketable securities......................       4,152,000              995,000
    Purchases of property, plant, and equipment........        (812,000)            (913,000)
    Net cash paid for acquisition of Wyatt River
    Software, Inc................                            (7,239,000)                   -
    Other long-term assets.............................        (522,000)            (851,000)
    Capitalized software development costs.............        (211,000)            (532,000)
                                                        -------------------------------------
             Net cash used in investing
             activities................................      (5,932,000)          (1,862,000)

Cash flows from financing activities:
    Exercise of Rainbow common stock options...........         491,000              158,000
    Payment of long-term debt..........................         (68,000)             (71,000)
    Purchase of treasury stock.........................        (149,000)                   -
    Purchase and retirement of common stock............        (179,000)                   -
                                                        -------------------------------------
             Net cash provided by financing
             activities................................          95,000               87,000

Effect of exchange rate changes on cash................         501,000             (990,000)
                                                        -------------------------------------
Net increase in cash and cash equivalents..............      (5,308,000)           2,047,000
Cash and cash equivalents at beginning of
  period...............................................      29,556,000           31,735,000
                                                        -------------------------------------
Cash and cash equivalents at end of
  period...............................................     $24,248,000          $33,782,000
                                                        =====================================

Supplemental disclosure of cash flow information:
    Income taxes paid..................................     $ 2,004,000          $1,292,000
    Interest paid......................................          56,000              77,000

                             See accompanying notes.
</TABLE>



                                       6

<PAGE>   7


                           RAINBOW TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998
                                   (Unaudited)

1. Basis of presentation

The accompanying financial statements consolidate the accounts of Rainbow
Technologies, Inc. (the Company) and its wholly-owned subsidiaries. All
significant inter-company balances and transactions have been eliminated.
Certain amounts previously reported have been reclassified to conform with the
1998 presentation.

In the opinion of the Company's management, the accompanying condensed
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position at March 31, 1998 and results of operations for the three months ended
March 31, 1998 and 1997. The condensed consolidated financial statements do not
include footnotes and certain financial information normally presented annually
under generally accepted accounting principles and, therefore, should be read in
conjunction with the Company's December 31, 1997 Annual Report on Form 10-K.
Results of operations for the three months ended March 31, 1998 are not
necessarily indicative of results to be expected for the full year.

The Company has subsidiaries in the United Kingdom, Germany, France, Belarus,
the Netherlands and India. The Company utilizes the currencies of the countries
where its foreign subsidiaries operate as the functional currency. In accordance
with Statement of Financial Accounting Standards No. 52, the balance sheets of
the Company's foreign subsidiaries are translated into U.S. dollars at the
exchange rates at the respective dates. The income statements of those
subsidiaries are translated into U.S. dollars at the weighted average exchange
rates for the respective periods presented.

As of January 1, 1998, the Company adopted Statement 130, "Reporting
Comprehensive Income" (SFAS No. 130). SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Company's net income or
shareholders' equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities and foreign currency translation
adjustments, which prior to adoption were reported separately in shareholders'
equity to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of SFAS 130.
During the first quarter of 1998 total comprehensive loss amounted to $2,611,000
while during the first quarter of 1997 total comprehensive income amounted to
$747,000.

In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 131, "Disclosures about Segment of an Enterprise and Related Information,"
(SFAS No. 131), which requires publicly-held companies to report financial and
descriptive information about its operating segments in financial statements
issued to shareholders for interim and annual periods. The statement also
requires additional disclosures with respect to products and services,
geographical areas of operations, and major customers. SFAS No. 131 is effective
for fiscal years beginning after December 15, 1997 and requires restatement of
earlier periods presented.



                                       7

<PAGE>   8

2. Earnings per share

The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS No. 128) effective December 31, 1997. SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Basic earnings per share is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding for the period. Diluted earnings per share reflects
the assumed conversion of all diluted securities. Earnings per share amounts for
all periods presented have been calculated in accordance with the requirements
of SFAS No. 128.

3. Government Contracts

The Company is both a prime contractor and a subcontractor under fixed-price and
cost-plus-fixed-fee contracts with the U.S. Government (Government). At the
commencement of each contract or contract modification, the Company submits
pricing prososals to the Government to establish indirect cost rates applicable
to such contracts. These rates, after audit and approval by the Government, are
used to settle costs on contracts completed during the previous fiscal year.

To facilitate interim billings during the performance of its contracts, the
Company establishes provisional billing rates, which are used in recognizing
contract revenue and contract accounts receivable amounts in these financial
statements. These provisional billing rates are adjusted to actual at year-end
and are subject to adjustment after Government audit.

The Company has unbilled costs and fees at March 31, 1998 of $1,185,000. Based
on the Company's experience with similar contracts in recent years, the unbilled
costs and fees are expected to be collected within one year.

4. Inventories

Inventoried costs relating to long-term contracts are stated at the actual
production costs, including pro-rata allocations of factory overhead and general
and administrative costs incurred to date, reduced by amounts identified with
revenue recognized on units delivered. The costs attributed to units delivered
under such long-term contracts are based on the estimated average cost of all
units expected to be produced.

Inventories, other than inventoried costs relating to long-term contracts, are
stated at the lower of cost (first-in, first-out basis) or market. Inventories
consist of the following:

<TABLE>
<CAPTION>

                                             March 31, 1998     December 31, 1997
                                             --------------     -----------------
<S>                                          <C>                 <C>
           Raw materials                      $  618,000           $  271,000
           Work in process                       537,000              761,000
           Finished goods                      4,239,000            4,257,000
           Inventoried costs related
             to long-term contracts            3,645,000            4,491,000
                                              ----------           ----------
                                              $9,039,000           $9,780,000
                                              ==========           ==========

</TABLE>


                                       8

<PAGE>   9

5. Acquisitions

In March 1998, the Company purchased certain assets from Elan Computer Group,
Inc. ("Elan") in a cash transaction. The assets included Elan's license manager
software technology, which the Company had previously licensed from Elan, and
Elan's end-user maintenance and support relationships.

In February 1998, the Company acquired Wyatt River Software, Inc. ("Wyatt
River"), including its "LicenseServe" and "LicenseTrack" technology in a cash
transaction. The final consideration is subject to a determination based upon a
balance sheet audit of Wyatt River as of the closing. The Company will also pay
the Wyatt River shareholders an additional sum based upon sales of Wyatt River
technology through June 30, 1999. From the consideration paid at closing, the
Wyatt River shareholders established certain escrows to serve as a fund for
various contingent liabilities.

6. Other assets

Included in other assets are certain investments in early-stage companies. The
Company closely monitors the operations and cash flows of these companies to
evaluate their status and ensure that amounts reported for these investments do
not exceed net realizable value. If the Company determines that impairment in
the investment of any such company exists, an adjustment would be made to reduce
the investment amount to net realizable value.

Also included in other assets are capitalized software development costs. Based
on the Company's product development process, technological feasibility is
established upon completion of a working model. Amortization of capitalized
software development costs commence when the products are available for general
release to customers and are determined using the straight line method over the
expected useful lives of the respective products. These amounts are written off
if it is determined that the projects can not be brought to market.

7. Stock split

On March 17, 1998 the Company announced that its Board of Directors approved a
3-for-2 split of its common stock. The effective date will be established at
the Company's upcoming Board of Directors meeting. These financial statements
have not been adjusted to reflect the impact of the proposed stock split.

                                       9
<PAGE>   10

                           RAINBOW TECHNOLOGIES, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is management's discussion and analysis of certain significant
factors which have affected the consolidated results of operations and the
consolidated financial position of the Company during the periods included in
the accompanying condensed consolidated financial statements. This discussion
should be read in conjunction with the related condensed consolidated financial
statements and associated notes.

RESULTS OF OPERATIONS
(dollars in thousands)

<TABLE>
<CAPTION>

                                               Three Months Ended March 31,
                                               ---------------------------
                                                   1998          1997
                                                   ----          ----
<S>                                            <C>            <C>
         Revenues
         --------
              Software Protection Products       $14,171       $13,973
              Information Security Products       10,849         6,810
              Ion Beam Surface Treatment              10             -
                                                 -------       -------
              Consolidated                       $25,030       $20,783
                                                 =======       =======

         Operating Income
         ----------------
              Software Protection Products       $  (660)      $ 3,024
              Information Security Products          576           809
              Ion Beam Surface Treatment            (288)            -
                                                 -------       -------
              Consolidated                       $  (372)      $ 3,833
                                                 ========      =======
</TABLE>

REVENUES

Revenues from software protection products increased by 1% to $14,171,000, when
compared to the same period in 1997. The overall business has been impacted by
the economic problems in Asia and other emerging markets, as well as the strong
dollar. Revenues from Europe increased by 17% while revenues from the US
decreased by 6%. The decrease in US revenues is due to the slower sales to US
customers who export their products to Asia. The average selling price per
product in the quarter ended March 31, 1998 decreased approximately 14% when
compared to the same period in 1997. Unit volume for the three months ended
March 31, 1998 increased by 15% when compared to the corresponding 1997 period.
The decrease in the average selling price and the increase in unit volume is due
to a change in customer mix.

Revenues from information security products increased by 59% to $10,849,000,
when compared to the same period in 1997. The revenue growth was primarily due
to strong demand for network security products.

GROSS PROFIT

Gross profit from software protection products for the quarter ended March 31,
1998 increased to 75% of revenues compared to 70% of revenues for the quarter
ended March 31, 1997. The increase in gross profit is due to the absence of
royalty expenses on the revenues generated from sales of Elan software as well
as benefits from manufacturing efficiencies.

Gross profit from information security products for the quarter ended March 31,
1998 increased to 21% of revenues compared to 16% of revenues for the quarter
ended March 31, 1997. The increase is due to the change in mix from
predominantly contract revenues to predominantly product revenues.



                                       10



<PAGE>   11
SELLING, GENERAL AND ADMINISTRATIVE

Sellling, general and administrative expenses for the three months ended March
31, 1998 increased by 6% when compared to the corresponding 1997 period. The
increase was due to increased staffing, new product introductions in software
protection and information security products, and higher marketing expenses.

RESEARCH AND DEVELOPMENT

Total research and development expenses for the three months ended March 31,
1998 increased by 97% when compared to the corresponding 1997 period. The
increase was primarily due to the write-off of previously capitalized computer
software development costs of $784,000.

PROVISION FOR RESTRUCTURED OPERATIONS

The sum of $370,000 represents the Company's estimate of the costs of
reorganizing certain operations.

ACQUIRED RESEARCH AND DEVELOPMENT

Based on the results of third-party appraisals, the Company recorded charges of
$4,000,000 in the three months ended March 31, 1998 to expense in-process
research and development costs related to the acquisition of Wyatt River. In the
opinion of management and the appraiser, the acquired in-process research and
development has not yet reached technological feasibility and had no alternative
future use.

OTHER INCOME (EXPENSE)

Interest income for the quarter ended March 31, 1998 decreased by 25% to
$319,000 because of lower balances of cash and cash equivalents.

The minority interest share in QMT's operating losses in the three months ended
March 31, 1998 was $186,000. In the quarter ended March 31, 1997, the company
held a minority investment in QMT. The Company's share of operating losses in
QMT during the quarter ended March 31, 1997 amounted to approximately $120,000.

With the purchase of certain Elan assets in March 1998 the original investment
in Elan was written off.

PROVISION FOR INCOME TAXES

The effective tax rate in the first three months of 1998 was negatively affected
due to the non-deductibility of the charges related to the acquired in-process
research and development. Excluding the effect of these charges, the effective
tax rate was 39% for the three months ended March 31, 1998 and 40% for the three
months ended March 31, 1997. The lower tax rate is due to the anticipated
benefits of the international restructuring of foreign operations.



                                       11


<PAGE>   12
LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of operating funds have been from operations and
proceeds from sales of the Company's equity securities. The Company's cash flow
from operations for the three months ended March 31, 1998 and 1997 were $28,000
and $4,812,000, respectively. The decrease in cash flow from operations is
attributable to the acquisitions of Wyatt River Software and certain assets of
Elan Computer Group.

The Company intends to use its capital resources to expand its product lines and
for the acquisition of additional products and technologies. The Company has no
significant capital commitments or requirements at this time.

The Company's use of cash includes purchases of property, plant and equipment,
repayment of long-term debt and investment in long-term assets.

Management believes the Company's current working capital of $49,229,000 and
anticipated working capital to be generated by future operations will be
sufficient to support the Company's requirement for at least the next twelve
months.

IMPACT OF YEAR 2000

The Company has completed a partial assessment and will have to modify portions
of its software so that its computer systems will function properly with respect
to dates in the year 2000 and thereafter. The total Year 2000 project cost is
estimated at less than $100,000 which will be expensed as incurred. To date, the
Company has not incurred nor expensed any of these amounts.

The project is estimated to be complete no later than December 31, 1998, which
is prior to any anticipated impact on its operating systems. The Company
believes that with modifications to existing software the Year 2000 Issue will
not pose significant operational problems for its computer systems. However, if
such modifications and conversions are not made, or are not completed timely,
the Year 2000 Issue could have a material impact on the operations of the
Company.

The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived using assumptions of future events. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.




                                       12


<PAGE>   13

PART II   OTHER INFORMATION

Item 6    Exhibits and Reports on Form 8-K

      (a) Exhibits

          27 Financial Data Schedule

      (b) Reports on Form 8-K
          None

                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.

Dated:  May 14, 1998

                                            RAINBOW TECHNOLOGIES, INC.


                                            By:  /s/ Patrick Fevery
                                                 Chief Financial Officer


                                       13