<PAGE>   1

                                  FORM 10-Q/A



                                  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 SEPTEMBER 30, 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
November 10, 1998 was 11,721,975.

Item 1 of this Form 10-Q/A contains restated financial statements for the three
and nine month periods ended September 30, 1998 (see Note 2 of Notes to Restated
Condensed Consolidated Financial Statements). Item 2 contains a revised
Management's Discussion and Analysis of Financial Condition and Results of
Operations that give effect to the restated financial statement amounts set
forth in Item 1.


<PAGE>   2

                           RAINBOW TECHNOLOGIES, INC.


                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                           <C>

PART I - FINANCIAL INFORMATION

   Item 1. Condensed Consolidated Financial Statements

       Condensed Consolidated Balance Sheets at
       September 30, 1998 (unaudited, restated) and December 31, 1997                           4

       Condensed Consolidated Statements of Income (unaudited)
       for  the Three and Nine months ended September 30, 1998 (restated - Note 2) and 1997     5

       Condensed Consolidated Statements of Comprehensive Income (unaudited)
       for the Three and Nine months ended September 30, 1998 (restated - Note 2) and 1997      6

       Condensed Consolidated Statements of Cash Flows (unaudited)
       for the Nine months ended September 30, 1998 (restated - Note 2) and 1997                7

       Notes to Condensed Consolidated Financial Statements                                     8

   Item 2. Management's Discussion and Analysis of
           Financial Condition and Results of Operations                                       12

PART II -- OTHER INFORMATION

   Item 1 to 5 - Not applicable

   Item 6. Exhibits and reports on Form 8K                                                     17

SIGNATURES                                                                                     17

</TABLE>



                                       2
<PAGE>   3


INTRODUCTORY NOTE

   The Quarterly Report on Form 10-Q/A contains certain 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 and the Company intends that
such forward-looking statements be subject to the safe harbors created thereby.
These forward-looking statements include (i) the existence and development of
the Company's technical and manufacturing capabilities, (ii) anticipated
competition, (iii) potential future growth in revenues and income, (iv)
potential future decreases in costs, and (v) the need for, and availability of
additional financing.

   The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on the assumption that the Company will not
lose a significant customer or customers or experience increased fluctuations of
demand or rescheduling of purchase orders, that the Company's markets will
continue to grow, that the Company's products will remain accepted within their
respective markets and will not be replaced by new technology, that competitive
conditions within the Company's markets will not change materially or adversely,
that the Company will retain key technical and management personnel, that the
Company's forecasts will accurately anticipate market demand, that there will be
no material adverse change in the Company's operations or business and that the
Company will not experience significant supply shortages with respect to
purchased components, sub-systems or raw materials. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions, and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. In addition, the business and operations of
the Company are subject to substantial risks which increase the uncertainty
inherent in the forward-looking statements. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved.



                                       3
<PAGE>   4


                           RAINBOW TECHNOLOGIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                     ASSETS

<TABLE>
<CAPTION>
                                                                 September 30,      December 31,
                                                                      1998              1997
                                                                 -------------     -------------
                                                                  (unaudited,
                                                                   restated -
                                                                    Note 2)
<S>                                                              <C>               <C>          
Current assets:
 Cash and cash equivalents ..................................    $  29,519,000     $  29,556,000
 Marketable securities available-for-sale ...................        7,969,000         6,841,000
 Accounts receivable, net of allowance for doubtful accounts
  of $340,000 and $500,000 in 1998 and 1997, respectively ...       17,502,000        16,343,000
 Inventories ................................................       11,655,000         9,780,000
 Unbilled costs and fees ....................................                -         1,782,000
 Prepaid expenses and other current assets ..................        4,049,000         4,803,000
                                                                 -------------     -------------
      Total current assets ..................................       70,694,000        69,105,000
Property, plant and equipment, at cost:
 Buildings ..................................................        8,610,000         8,058,000
 Furniture ..................................................        1,323,000         1,191,000
 Equipment ..................................................       15,522,000        12,963,000
 Leasehold improvements .....................................          907,000           636,000
                                                                 -------------     -------------
                                                                    26,362,000        22,848,000
 Less accumulated depreciation and amortization .............        8,298,000         6,315,000
                                                                 -------------     -------------
      Net property, plant and equipment .....................       18,064,000        16,533,000
Goodwill, net of accumulated amortization of $11,454,000 and
  $8,736,000 in 1998 and 1997, respectively .................        8,172,000         5,543,000
Product licenses, net of accumulated amortization of $879,000
 and $469,000 in 1998 and 1997, respectively ................        6,163,000         6,481,000
Other assets, net of accumulated amortization of $3,464,000
 and $2,763,000 in 1998 and 1997, respectively ..............        7,821,000         5,389,000
                                                                 -------------     -------------
                                                                 $ 110,914,000     $ 103,051,000
                                                                 =============     =============

                             LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
 Accounts payable ...........................................    $   5,090,000     $   4,937,000
 Accrued payroll and related expenses .......................        3,790,000         4,199,000
 Other accrued liabilities ..................................        3,515,000         2,986,000
 Income taxes payable .......................................          706,000           861,000
 Billings in excess of costs and fees .......................          417,000            87,000
 Long-term debt, due within one year ........................          278,000           259,000
                                                                 -------------     -------------
      Total current liabilities .............................       13,796,000        13,329,000
Long-term debt, net
of current portion ..........................................        1,524,000         1,616,000
Minority interest ...........................................        1,638,000         1,723,000
Other liabilities ...........................................           12,000            24,000
Shareholders' equity:
 Common stock, $.001 par value, 20,000,000 shares authorized,
   11,715,093 and 11,726,754 shares issued and outstanding
   in 1998 and 1997, respectively ...........................            8,000             8,000
 Additional paid-in capital .................................       29,661,000        30,633,000
 Accumulated other comprehensive loss .......................         (388,000)       (1,906,000)
 Retained earnings ..........................................       64,663,000        59,811,000
                                                                 -------------     -------------
                                                                    93,944,000        88,546,000
 Less cost of treasury shares (133,302 shares in 1997) ......               --        (2,187,000)
                                                                 -------------     -------------
      Total shareholders' equity ............................       93,944,000        86,359,000
                                                                 -------------     -------------
                                                                 $ 110,914,000     $ 103,051,000
                                                                 =============     =============
</TABLE>


                             See accompanying notes.


                                       4
<PAGE>   5


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

<TABLE>
<CAPTION>
                                                       Three months ended                Nine months ended
                                                  September 30,    September 30,   September 30,      September 30,
                                                      1998            1997             1998               1997
                                                  -------------    -------------   --------------     ------------
                                                   (restated -                     (restated -
                                                     Note 2)                           Note 2)
<S>                                               <C>              <C>              <C>              <C>         
Revenues:
  Software Protection Products ...............    $ 14,250,000     $ 14,741,000     $ 42,871,000     $ 44,688,000
  Information Security Products ..............      12,498,000        7,314,000       35,650,000       20,983,000
  Ion Beam Surface Treatment .................           9,000          201,000           27,000          212,000
                                                  ------------     ------------     ------------     ------------
       Total revenues ........................      26,757,000       22,256,000       78,548,000       65,883,000
                                                  ------------     ------------     ------------     ------------
Operating expenses:
  Cost of Software Protection Products .......       4,364,000        4,128,000       11,778,000       12,902,000
  Cost of Information Security Products ......       9,620,000        5,975,000       27,639,000       16,930,000
  Cost of Ion Beam Surface Treatment .........           1,000            2,000           21,000          419,000
  Selling, general and administrative ........       6,551,000        5,305,000       18,559,000       16,021,000
  Research and development ...................       1,924,000        2,010,000        6,581,000        5,985,000
  Goodwill amortization ......................         715,000          429,000        2,019,000        1,289,000
  Provision for reorganized operations .......        (222,000)              --          148,000               --
  Acquired research and development ..........              --               --        1,500,000               --
                                                  ------------     ------------     ------------     ------------
       Total operating expenses ..............      22,953,000       17,849,000       68,245,000       53,546,000
                                                  ------------     ------------     ------------     ------------
Operating income .............................       3,804,000        4,407,000       10,303,000       12,337,000
Interest income ..............................         338,000          442,000          922,000        1,287,000
Interest expense .............................         (53,000)         (52,000)        (162,000)        (192,000)
Other income (expense) .......................         138,000          (73,000)        (852,000)         276,000
                                                  ------------     ------------     ------------     ------------
Income before provision for taxes ............       4,227,000        4,724,000       10,211,000       13,708,000
Provision for income taxes ...................       1,626,000        1,937,000        5,359,000        5,675,000
                                                  ------------     ------------     ------------     ------------
Net income ...................................    $  2,601,000     $  2,787,000     $  4,852,000     $  8,033,000
                                                  ============     ============     ============     ============

Net income per share:
  Basic ......................................    $       0.22     $       0.24     $       0.42     $       0.69
                                                  ============     ============     ============     ============
  Diluted ....................................    $       0.21     $       0.24     $       0.40     $       0.68
                                                  ============     ============     ============     ============

Shares used in computing net income per share:
  Basic ......................................      11,715,000       11,553,000       11,686,000       11,635,000
                                                  ============     ============     ============     ============
  Diluted ....................................      12,136,000       11,823,000       12,051,000       11,840,000
                                                  ============     ============     ============     ============
</TABLE>


                             See accompanying notes.


                                       5
<PAGE>   6





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

<TABLE>
<CAPTION>
                                                  Three Months Ended              Nine Months Ended
                                             September 30,   September 30,   September 30,   September 30,
                                                1998            1997            1998            1997
                                             ------------    ------------     -----------     -----------
                                             (restated -                     (restated -
                                                Note 2)                        Note 2)
<S>                                          <C>             <C>             <C>             <C>        
Net income .............................     $ 2,601,000     $ 2,787,000     $ 4,852,000     $ 8,033,000
Other comprehensive income:
    Foreign currency translation
         adjustment ....................       1,323,000       1,567,000       2,448,000      (2,328,000)
    Unrealized loss on securities ......           2,000        (112,000)         (2,000)       (327,000)
    Reclassification adjustment ........              --              --          (6,000)             --
                                             -----------     -----------     -----------     -----------
    Other comprehensive (loss)
     income, before income taxes .......       1,325,000       1,455,000       2,440,000      (2,655,000)
                                             -----------     -----------     -----------     -----------
    Provision for income taxes
         related to other
         comprehensive (loss) income....        (501,000)       (582,000)       (922,000)      1,062,000
                                             -----------     -----------     -----------     -----------
    Other comprehensive (loss) income,
         net of taxes ..................         824,000         873,000       1,518,000      (1,593,000)
                                             -----------     -----------     -----------     -----------
Comprehensive income ...................     $ 3,425,000     $ 3,660,000     $ 6,370,000     $ 6,440,000
                                             ===========     ===========     ===========     ===========
</TABLE>

                             See accompanying notes.


                                       6
<PAGE>   7

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

<TABLE>
<CAPTION>
                                                                    Nine Months Ended
                                                               September 30,    September 30,
                                                                   1998            1997
                                                               ------------     ------------
                                                               (unaudited,
                                                                restated -
                                                                  Note 2)
<S>                                                            <C>              <C>         

Cash flows from operating activities:
 Net income ...............................................    $  4,852,000     $  8,033,000
 Adjustments to reconcile net income to net cash
   provided by operating activities:
   Amortization ...........................................       3,014,000        2,041,000
   Depreciation ...........................................       2,177,000        1,504,000
   Provision for loss in ..................................              --          400,000
   Change in deferred income taxes ........................         (78,000)      (1,153,000)
   Allowance for doubtful accounts ........................        (165,000)          90,000
   Loss from retirement of property, plant, and equipment .          47,000           34,000
   Write-down of long-term investment .....................       1,320,000               --
   Share in investee's loss ...............................              --           45,000
   Minority interest in subsidiary's earnings .............        (241,000)        (392,000)
   Write-off of capitalized software ......................         784,000               --
   Provision for reorganized operations ...................          98,000               --
   Write-off of in-process research and development .......       1,500,000               --
   Changes in operating assets and liabilities:
    Accounts receivable ...................................      (1,080,000)       2,073,000
    Inventories ...........................................        (951,000)      (1,733,000)
    Unbilled costs and fees ...............................       1,782,000         (152,000)
    Prepaid expenses and other current assets .............          23,000         (232,000)
    Accounts payable ......................................         121,000         (455,000)
    Accrued liabilities ...................................      (1,887,000)         (80,000)
    Billings in excess of costs and fees ..................         330,000         (227,000)
    Income taxes payable ..................................         591,000       (2,765,000)
                                                               ------------     ------------
      Net cash provided by operating activities ...........      12,237,000        7,031,000
Cash flows from investing activities:
 Purchase of marketable securities ........................      (5,336,000)      (9,930,000)
 Sale of marketable securities ............................       4,216,000       16,211,000
 Purchases of property, plant, and equipment ..............      (3,280,000)      (5,732,000)
 Net cash paid for acquisition of Wyatt River Software, Inc      (7,871,000)              --
 Other non-current assets .................................      (1,597,000)        (775,000)
 Acquired cash from QM Technologies, ......................              --          556,000
 Capitalized software development costs ...................        (872,000)      (1,150,000)
                                                               ------------     ------------
      Net cash used in investing activities ...............     (14,740,000)        (820,000)
Cash flows from financing activities:
 Exercise of Rainbow common stock options .................       1,439,000          936,000
 Investment by new partners in QM Technologies, Inc.
      and Rainbow Technologies, Russia ....................         998,000               --
 Payment of long-term debt ................................        (205,000)        (214,000)
 Purchase of treasury stock ...............................        (662,000)        (814,000)
 Purchase and retirement of common stock ..................              --       (2,767,000)
                                                               ------------     ------------
      Net cash provided by (used in) financing activities .       1,570,000       (2,859,000)
Effect of exchange rate changes on cash ...................         896,000         (348,000)
                                                               ------------     ------------
Net (decrease) increase in cash and cash equivalents ......         (37,000)       3,004,000
Cash and cash equivalents at beginning of period ..........      29,556,000       31,735,000
                                                               ------------     ------------
Cash and cash equivalents at end of period ................    $ 29,519,000     $ 34,739,000
                                                               ============     ============

Supplemental disclosure of cash flow information:
 Income taxes paid ........................................    $  4,679,000     $  8,748,000
 Interest paid ............................................         159,000          199,000

</TABLE>


                             See accompanying notes.

                                        7


<PAGE>   8


                           RAINBOW TECHNOLOGIES, INC.
          NOTES TO RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 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 September 30, 1998 and results of operations for the three and nine
months ended September 30, 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 and nine months
ended September 30, 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, India and Russia. 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 statements of operations 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 three and nine months ended September 30, 1998 total comprehensive
income amounted to $3,425,000 and $6,370,000, respectively. The total
comprehensive income for the three and nine months ended September 30, 1997
amounted to $3,660,000 and $6,440,000, respectively.

In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 131, "Disclosures about Segments 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. The Company will adopt
SFAS No. 131 effective December 31, 1998 and will restate all periods presented.



                                       8
<PAGE>   9



2.  Restatement

Items 1 And 2 of the accompanying Form 10-Q/A have been restated and amended. In
September 1998, the Securities and Exchange Commission issued a letter to the
American Institute of Certified Public Accountants wherein a new valuation
method for in-process R&D was given. The new valuation method was to be
retro-actively applied to all acquisitions in 1998. During February 1999 the
Company performed a new valuation analysis related to the acquisition of Wyatt
River Software, Inc. in February 1998 (see Note 6 to the Notes to Consolidated
Financial Statements). Initial calculations of value of the purchased in-process
R&D in connection with the Company's 1998 acquisition of Wyatt River Software,
Inc. were based on the after-tax cash flows attributable to each project, the
selection of an appropriate rate of return to reflect the risk associated with
the stage of completion of each project. Revised calculations of the value of
the purchased in-process R&D are based on adjusted after-tax cash flows taking
into account the stage of completion of the purchased R&D at the date of the
acquisition, the contributions of the company's own distinct and unique
proprietary advantages, and the estimated total project costs of the purchased
in-process R&D in arriving at the valuation amount. As a result of the
modification, the Company increased goodwill by $1.3 million, developed
technology by $200 thousand and reduced in the in-process R&D write-off by $2.5
million.

The restatement resulted in the following impact on the Company's previously
reported results of operations for the three and nine month period ended
September 30, 1998.

<TABLE>
<CAPTION>
                                                   Three months       Nine months
                                                       ended             ended 
                                                   September 30,     September 30, 
                                                        1998             1998
                                                   -------------     -------------
<S>                                                <C>               <C>          

Net income (loss):
  As previously reported ......................    $   2,675,000     $   2,525,000
  Adjustment related to acquired in-process R&D               --         2,500,000
  Adjustment related to additional
     amortization of intangible assets ........          (74,000)         (173,000)
                                                   -------------     -------------
  As restated .................................    $   2,601,000     $   4,852,000
                                                   =============     =============

Net loss per share - basic:
  As previously reported ......................    $        0.23     $        0.22
  Adjustment related to acquired in-process R&D               --              0.21
  Adjustment related to additional
     amortization of intangible assets ........            (0.01)            (0.01)
                                                   -------------     -------------
  As restated .................................    $        0.22     $        0.42
                                                   =============     =============

Net loss per share - diluted:
  As previously reported ......................    $        0.22     $        0.21
  Adjustment related to acquired in-process R&D               --              0.20
  Adjustment related to additional
     amortization of intangible assets ........            (0.01)            (0.01)
                                                   -------------     -------------
  As restated .................................    $        0.21     $        0.40
                                                   -------------     -------------
</TABLE>


3.  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


                                       9
<PAGE>   10



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 proposals 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.


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>
                               September 30,      December 31,
                                    1998              1997
                               -------------      ------------
<S>                            <C>                <C>         
 Raw materials                 $     722,000      $    271,000
 Work in process                     500,000           761,000
 Finished goods                    4,306,000         4,257,000
 Inventoried costs related
   to long-term contracts          6,127,000         4,491,000
                               -------------      ------------
                               $  11,655,000      $  9,780,000
                               =============      ============
</TABLE>


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 Company will also pay the Wyatt River shareholders an
additional sum based upon sales of Wyatt River technology through June 30, 1999.


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.



                                       10
<PAGE>   11

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 was July 1, 1998 and the
payout date was July 15, 1998. These financial statements have been adjusted to
reflect the impact of the stock split.


8.  Subsequent Event

Globetrotter Software, Inc. filed suit against Rainbow Technologies, Inc and
Rainbow Technologies North America, Inc. on or about September 1, 1998, alleging
that Rainbow Technologies' Sentinel LM product infringes US Patent No. 5,390,297
which Globetrotter Software, Inc. purchased from another company. Rainbow
Technologies, Inc. believes that the Sentinel LM product does not infringe on
this patent and intends to vigorously defend the suit. The Company does not
believe the outcome will have a material adverse effect on the financial
position of the Company.




                                       11
<PAGE>   12


                           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.

The accompanying Form 10-Q/A has been restated and amended to incorporate the
results of a new valuation analysis related to the acquisition of Wyatt River
Software, Inc. The new calculations were based on the after-tax cash flows
attributable to each project, the selection of an appropriate rate of return to
reflect the risk associated with the stage of completion of each project.
Revised calculations of the value of the purchased in-process R&D are based on
adjusted after-tax cash flows taking into account the stage of completion of the
purchased R&D at the date of the acquisition, the contributions of the company's
own distinct and unique proprietary advantages, and the estimated total project
costs of the purchased in-process R&D in arriving at the valuation amount. As a
result of the modification, the Company increased goodwill by $1.3 million,
developed technology by $200 thousand and reduced in the in-process R&D
write-off by $2.5 million.


RESULTS OF OPERATIONS
(dollars in thousands)

<TABLE>
<CAPTION>
                                       Three Months Ended 
                                           September 30, 
                                      ---------------------
                                        1998         1997
                                      --------     --------
<S>                                   <C>          <C>     
Revenues
     Software Protection Products     $ 14,250     $ 14,741
     Information Security Products      12,498        7,314
     IBEST                                   9          201
                                      --------     --------
     Consolidated                     $ 26,757     $ 22,256
                                      ========     ========

Operating Income (restated)
     Software Protection Products     $  2,332     $  4,176
     Information Security Products       1,697          303
     IBEST                                (225)         (72)
                                      --------     --------
     Consolidated                     $  3,804     $  4,407
                                      ========     ========
</TABLE>

<TABLE>
<CAPTION>
                                        Nine Months Ended 
                                         September 30, 
                                      --------------------- 
                                        1998         1997
                                      --------     --------
<S>                                   <C>          <C>     
Revenues
     Software Protection Products     $ 42,871     $ 44,688
     Information Security Products      35,650       20,983
     IBEST                                  27          212
                                      --------     --------
     Consolidated                     $ 78,548     $ 65,883
                                      ========     ========

Operating Income (restated)
     Software Protection Products     $  6,751     $ 11,616
     Information Security Products       4,251        1,718
     IBEST                                (699)        (997)
                                      --------     --------
     Consolidated                     $ 10,303     $ 12,337
                                      ========     ========
</TABLE>



                                       12
<PAGE>   13



REVENUES

Revenues from software protection products for the three and nine months ended
September 30, 1998 decreased by 3% and 4%, respectively, 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 by the erosion of average
selling prices. Revenues from Europe increased by 5% while revenues from the US
decreased by 9% for the nine months ended September 30, 1998 compared with the
same period in 1997. The decrease in US revenues is due to slower sales to US
customers who export their products to Asia as well as lower direct sales to
Asian distributors. The average selling price per product in the quarter ended
September 30, 1998 decreased approximately 3% when compared to the same period
in 1997. Unit volume for the three months ended September 30, 1998 decreased by
6% while unit volume for the nine months ended September 30, 1998 increased by
4% when compared to the corresponding 1997 periods. The decrease in average
selling prices and the increase in unit volume is primarily due to a change in
customer mix.

Revenues from information security products for the three and nine months ended
September 30, 1998 increased by 71% and 70%, respectively, 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 three months ended
September 30, 1998 decreased to 69% of revenues compared to 72% of revenues for
the corresponding period in 1997. For the nine months ended September 30, 1998
gross profit increased to 73% of revenues compared to 71% of revenues for the
same period in 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 three months ended
September 30, 1998 increased to 23% of revenues compared to 18% for the three
months ended September 30, 1997. Gross profit from information security products
for the nine months ended September 30, 1998 decreased to 22% of revenues
compared to 19% for the nine months ended September 30, 1997. The decrease for
the nine month period is due to the change in mix from predominantly contract
revenues to predominantly product revenues.


SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses for the three and nine months ended
September 30, 1998 increased by 23% and 16%, respectively, when compared to the
corresponding 1997 period. The increase was due to increased staffing and
professional expenses, 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 September 30,
1998 decreased by 4% when compared to the corresponding 1997 period. The
decrease in research and development expenses was due primarily to the deferral
of non-recurring engineering expenses related to several projects. Total
research and development expenses for the nine months ended September 30, 1998
increased by 12% when compared to the corresponding 1997 period. The increase
was primarily due to the write-off of previously capitalized computer software
development expenses of $784,000 in the first quarter of 1998.



                                       13
<PAGE>   14


PROVISION FOR REORGANIZED OPERATIONS

The sum of $148,000 for the nine months ended September 30, 1998 represents the
Company's estimate of the costs of reorganizing certain operations.
Approximately $222,000 previously reserved for cancellation of the lease on a
building was reversed in the current quarter when the Company was successful in
securing a third party to assume the lease.


ACQUIRED RESEARCH AND DEVELOPMENT

Based on the results of third-party appraisals, the Company recorded charges of
$1,500,000 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 had not yet reached technological feasibility and had no alternative
future use.


OTHER INCOME (EXPENSE)

Interest income for the quarter ended September 30, 1998 decreased by 24%
compared to $442,000 for the quarter ended September 30, 1997 because of lower
balances of cash and cash equivalents.

The Company recorded $65,000 in other income related to the minority interest in
QMT for the three months ended September 30, 1998 compared to a loss of $36,000
in the corresponding period in 1997. The income of $65,000 is a result of
adjustments to prior quarters' losses. QMT received additional investment of
$962,000 from a third party during the three months ended September 30, 1998.


PROVISION FOR INCOME TAXES

The effective tax rate was 38% for the three months ended September 30, 1998
compared to 41% for the corresponding period in 1997. The effective tax rate for
the first nine months of 1998 was negatively affected due to non-deductibility
of the charges related to acquired in-process research and development, and a
timing difference related to the write-off of the original investment in Elan.
Excluding the effect of these charges, the effective tax rate was 41% for the
nine months ended September 30, 1998 and 1997. The lower tax rate is due to the
benefits of restructuring foreign operations.


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 nine months ended September 30, 1998 and 1997 were
$12,237,000 and $7,031,000, respectively. The increase in cash flow from
operations is attributable to benefits from overall operating efficiencies of
its information security product line.

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 $56,898,000 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.


                                       14
<PAGE>   15

IMPACT OF YEAR 2000


Year 2000 Compliance. Many existing computer systems and applications, and other
control devices, use only two digits to identify a year in the date field,
without considering the impact of the upcoming change in the century. Others do
not correctly process "leap year" dates. As a result, such systems and
applications could fail or create erroneous results unless corrected to process
data related to the year 2000 and beyond. The problems are expected to increase
in frequency and severity as the year 2000 approaches, and are commonly referred
to as the "Year 2000 Problem." The Company relies on its systems, applications
and devices in operating and monitoring all major aspects of its business,
including systems (such as general ledger, accounts payable, and payroll
modules), customer services, infrastructure, embedded computer chips, networks
and telecommunications equipment. The Company also relies, directly and
indirectly, on external systems of business enterprises such as customers,
suppliers, creditors, financial organizations and governmental entities, both
domestic and international, for accurate exchange of data.

The Company is continuing to assess the impact that the Year 2000 Problem may
have on its operations and has identified the following four key areas of its
business that may be affected:

Products: The Company has completed Year 2000 compliance testing on its
currently supported products. The products were classified into two categories:
category I having no date related processing and category II having internal
date clocks which will properly handle and roll-over calendar data. Based upon
the evaluation and testing completed, the Company believes that its currently
supported products are Year 2000 compliant. The Company's testing did not assess
compliance of products modified by customers or third parties nor did it assess
compliance of products connected to individual customer work environments. The
Company has listed its currently supported products and test data on its
Internet site.

Internal Business Systems. The Year 2000 Problem could affect the systems,
transaction processing computer applications and devices used by the Company to
operate and monitor all major aspects of its business, including financial
systems (such as general ledger, accounts payable and payroll), customer
services, infrastructure, materials requirement planning, master production
scheduling, networks and telecommunications systems. The Company has completed
its assessment phase and believes that it has identified substantially all of
the major systems, software applications and related equipment used in
connection with its internal operations that must be modified or upgraded in
order to minimize the possibility of a material disruption to its business. The
Company is currently in its remediation phase of modifying and upgrading all
affected systems and expects to complete this phase by the end of the first
quarter of 1999. The Company estimates that it will be Year 2000 compliant by
the end of the fourth quarter of 1999. However, any unforeseen problems which
occur during the testing phase may adversely effect the Company's Year 2000
readiness.

Third-Party Suppliers. The Company relies, directly and indirectly, on external
systems utilized by its suppliers for products used in the manufacture of its
products. The Company will request confirmation from its suppliers of their Year
2000 compliance; however, there can be no assurance that these suppliers will
resolve any or all Year 2000 Problems with their systems in a timely manner. Any
failure of these third parties to resolve their Year 2000 Problems in a timely
manner could result in the material disruption of the business of the Company.
Any such disruption could have a material adverse effect on the Company's
business, financial condition and results of operations.

Facility Systems. Systems such as heating, sprinklers, elevators, test equipment
and security systems at the Company's facilities may also be affected by Year
2000 Problem. The Company has contacted the Irvine facility owners seeking
assurances of Year 2000 compliance. The Company has not yet assessed its
facilities at other locations.

The Company has incurred approximately $150,000 as of the nine-month period
ended September 30, 1998, to address its Year 2000 issues. The Company presently
estimates that the total cost of addressing its Year 2000 issues will be
approximately $250,000. This estimate was derived utilizing numerous
assumptions. First, the current staff is adequate to finish the project. Second,
the product is already Year 2000 compliant. Next, to the best of its knowledge,
the Company estimates that approximately half of the work is already done and
that no system changes 



                                       15
<PAGE>   16

are anticipated. However, there can be no guarantee that these assumptions are
accurate, and actual results could differ materially from those anticipated.

The Company recognizes the need for developing contingency plans to address the
Year 2000 issues that may pose a significant risk to its on-going operations.
Such plans could include the implementation of manual procedures to compensate
for system deficiencies. During the remediation phase of the internal business
systems, the Company will be evaluating potential failures and attempt to
develop responses in a timely manner. However, there can be no assurance that
any contingency plans evaluated and potentially implemented by the Company would
be adequate to meet the Company's needs without materially impacting its
operations, that any such plan would be successful or that the Company's results
of operations would not be materially and adversely affected by the delays and
inefficiencies inherent in conducting operations in an alternative manner.



                                       16
<PAGE>   17


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: March 29, 1999


                                            RAINBOW TECHNOLOGIES, INC.


                                            By:


                                            /s/ Patrick Fevery
                                            Chief Financial Officer



                                       17