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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 ACTS OF 1934



|For the Quarter ended MARCH 31, 2003 | 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
(Address of principal executive offices) |  | 92618
(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 [   ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes [X] No [   ]

The number of shares of common stock, $.001 par value, outstanding as of May 1,
2003 was 26,845,979.





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TABLE OF CONTENTS



|                           |                                                                                               |                                                           |  |  |  |  |  | 
|-------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------------------------- |  |  |  |  |  | 
|                           | PART I. FINANCIAL INFORMATION                                                                
|                           | Item 1. Condensed Consolidated Financial Statements                                          
|                           |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                    
|                           |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF INCOME              
|                           |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|                           |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS          
|                           |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS     
|                           | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                           | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION
|                           | Item 1. Legal Proceedings                                                                    
|                           | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                
|CERTIFICATIONS            
|EXHIBIT INDEX             
|EXHIBIT 99(a)             



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##### Table of Contents



RAINBOW TECHNOLOGIES, INC.

TABLE OF CONTENTS

|                               |                                                     |                                                                                               |                                                                                                                          |  |      |   | 
|------------------------------ | --------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ |  | ---- | - | 
|                               |                                                     |                                                                                               |                                                                                                                          |  | Page
|                               |                                                     |                                                                                               |                                                                                                                          |  |     
|PART I  FINANCIAL INFORMATION |                                                     |                                                                                               |                                                                                                                          | 
|                               | Item 1. Condensed Consolidated Financial Statements |                                                                                               |                                                                                                                          |  |     
|                               |                                                     |                                                                                               | Condensed Consolidated Balance Sheets at March 31, 2003 (unaudited) and December 31, 2002                                |  |      | 4 | 
|                               |                                                     |                                                                                               | Condensed Consolidated Statements of Income (unaudited) for the three months ended March 31, 2003 and 2002               |  |      | 5 | 
|                               |                                                     |                                                                                               | Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended
March 31, 2003 and 2002 |  |      | 6 | 
|                               |                                                     |                                                                                               | Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2003 and 2002           |  |      | 7 | 
|                               |                                                     |                                                                                               | Notes to Condensed Consolidated Financial Statements (unaudited)                                                         |  |      | 8 | 
|                               |                                                     | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                          |  | 12   |  
|                               |                                                     | Item 3. Not applicable                                                                        |                                                                                                                          |  |      |  
|                               |                                                     | Item 4. Controls and Procedures                                                               |                                                                                                                          |  | 15   |  
|PART II  OTHER INFORMATION    |                                                     |                                                                                               |                                                                                                                          | 
|                               |                                                     | Item 1. Legal Proceedings                                                                     |                                                                                                                          |  | 15   |  
|                               |                                                     | Item 2 to 5 - Not applicable                                                                  |                                                                                                                          |  |      |  
|                               |                                                     | Item 6. Exhibits and reports on Form 8-K                                                      |                                                                                                                          |  | 15   |  
|SIGNATURES                     |                                                     |                                                                                               | 17                                                                                                                       | 
|CERTIFICATIONS                 |                                                     |                                                                                               | 18                                                                                                                       | 

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INTRODUCTORY NOTE

The Quarterly Report on Form 10-Q 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
certain matters discussed in this report are forward-looking statements
intended to qualify for the safe harbor from liability established by the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements can generally be identified by the context of the statement which
may include words such as the Company believes, anticipates, expects,
forecasts, estimates, or other words of similar meaning and context.
Similarly, statements that describe future plans, objectives, outlooks,
targets, models or goals are also deemed forward-looking statements. These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those forecasted or
anticipated as of the date of this report. Certain of such risks and
uncertainties are described in close proximity to such statements and elsewhere
in this report, including Item 2, Managements Discussion and Analysis of
Financial Condition and Results of Operations. Stakeholders, potential
investors and other readers are urged to consider these factors in evaluating
the forward-looking statements and are cautioned not to place undue reliance on
such forward-looking statements or construe such statements to be a
representation by the Company that the objectives or plans of the Company will
be achieved. The forward-looking statements included in this report are made
only as of the date of this report, and the Company undertakes no obligation to
publicly update such forward-looking statements to reflect subsequent events or
circumstances.

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PART I. FINANCIAL INFORMATION




Item 1. Condensed Consolidated Financial Statements




RAINBOW TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

|                                        |                                                                                                                                                     |                                            |                                      |        |  |                |                   |        |         |             |        |        |         |  |  | 
|--------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | ------ |  | -------------- | ----------------- | ------ | ------- | ----------- | ------ | ------ | ------- |  |  | 
|                                        |                                                                                                                                                     |                                            |                                      |        |  | March 31, 2003 | December 31, 2002 |       
|                                        |                                                                                                                                                     |                                            |                                      |        |  |                |                   |       
|                                        |                                                                                                                                                     |                                            |                                      |        |  |                |                   |        |         | (unaudited) |        |        |         | 
|                                        |                                                                                                                                                     |                                            |                                      | ASSETS |  |                |                   |        |         |             |        |        |         |  |  | 
|Current assets:                         |                                                                                                                                                     |                                            |                                      |        |  |                |                   |        |         |             |        |       
|                                        | Cash and cash equivalents                                                                                                                           |                                            |                                      |        |  |                | $                 | 51,074 |         |             | $      | 50,922 |        
|                                        | Marketable available-for-sale and trading securities                                                                                                |                                            |                                      |        |  |                |                   | 794    |         |             |        | 301    |        
|                                        | Accounts receivable, net of allowance for doubtful accounts of $584 and
$626 in 2003 and 2002, respectively                                         |                                            |                                      |        |  |                |                   | 20,773 |         |             |        | 19,221 |        
|                                        | Inventories                                                                                                                                         |                                            |                                      |        |  |                |                   | 7,452  |         |             |        | 9,308  |        
|                                        | Income tax receivable                                                                                                                               |                                            |                                      |        |  |                |                   | 5,973  |         |             |        | 5,572  |        
|                                        | Prepaid expenses and other current assets                                                                                                           |                                            |                                      |        |  |                |                   | 1,968  |         |             |        | 1,765  |        
|                                        |                                                                                                                                                     |                                            |                                      |        |  |                |                   |        |         |             |        |       
|                                        |                                                                                                                                                     | Total current assets                       |                                      |        |  |                |                   |        | 88,034  |             |        |        | 87,089  | 
|Property, plant and equipment, at cost: |                                                                                                                                                     |                                            |                                      |        |  |                |                   |        |         |             |        |       
|                                        | Equipment                                                                                                                                           |                                            |                                      |        |  |                |                   | 22,495 |         |             |        | 21,981 |        
|                                        | Buildings                                                                                                                                           |                                            |                                      |        |  |                |                   | 8,006  |         |             |        | 7,769  |        
|                                        | Furniture                                                                                                                                           |                                            |                                      |        |  |                |                   | 2,952  |         |             |        | 2,909  |        
|                                        | Leasehold improvements                                                                                                                              |                                            |                                      |        |  |                |                   | 3,001  |         |             |        | 2,889  |        
|                                        |                                                                                                                                                     |                                            |                                      |        |  |                |                   |        |         |             |        |       
|                                        |                                                                                                                                                     |                                            |                                      |        |  |                | 36,454            |        |         |             | 35,548 |       
|                                        | Less accumulated depreciation and amortization                                                                                                      |                                            |                                      |        |  |                |                   | 22,688 |         |             |        | 21,628 |        
|                                        |                                                                                                                                                     |                                            |                                      |        |  |                |                   |        |         |             |        |       
|                                        |                                                                                                                                                     | Net property, plant and equipment          |                                      |        |  |                |                   |        | 13,766  |             |        |        | 13,920  | 
|                                        | Software development costs, net of accumulated amortization of $8,638 and
$8,156 in 2003 and 2002, respectively                                     |                                            |                                      |        |  |                |                   | 3,571  |         |             |        | 3,775  |        
|                                        | Product licenses, net of accumulated amortization of $6,013 and $5,567 in
2003 and 2002, respectively                                               |                                            |                                      |        |  |                |                   | 3,330  |         |             |        | 3,726  |        
|                                        | Goodwill                                                                                                                                            |                                            |                                      |        |  |                |                   | 1,953  |         |             |        | 1,898  |        
|                                        | Other assets                                                                                                                                        |                                            |                                      |        |  |                |                   | 1,090  |         |             |        | 1,181  |        
|                                        |                                                                                                                                                     |                                            |                                      |        |  |                |                   |        |         |             |        |       
|                                        |                                                                                                                                                     | Total Assets                               |                                      |        |  |                |                   | $      | 111,744 |             |        | $      | 111,589 | 
|                                        |                                                                                                                                                     |                                            |                                      |        |  |                |                   |        |         |             |        |       
|                                        |                                                                                                                                                     |                                            | LIABILITIES AND SHAREHOLDERS EQUITY |        |  |                |                   |        |         |             |        |        |         |  | 
|Current liabilities:                    |                                                                                                                                                     |                                            |                                      |        |  |                |                   |        |         |             |        |       
|                                        | Accounts payable                                                                                                                                    |                                            |                                      |        |  |                | $                 | 5,938  |         |             | $      | 8,138  |        
|                                        | Accrued payroll and related expenses                                                                                                                |                                            |                                      |        |  |                |                   | 3,861  |         |             |        | 6,602  |        
|                                        | Warranty reserve                                                                                                                                    |                                            |                                      |        |  |                |                   | 1,992  |         |             |        | 1,844  |        
|                                        | Income taxes payable                                                                                                                                |                                            |                                      |        |  |                |                   | 2,122  |         |             |        | 1,442  |        
|                                        | Other accrued liabilities                                                                                                                           |                                            |                                      |        |  |                |                   | 5,183  |         |             |        | 6,908  |        
|                                        |                                                                                                                                                     |                                            |                                      |        |  |                |                   |        |         |             |        |       
|                                        |                                                                                                                                                     | Total current liabilities                  |                                      |        |  |                |                   |        | 19,096  |             |        |        | 24,934  | 
|                                        | Long-term accrued restructuring costs                                                                                                               |                                            |                                      |        |  |                |                   | 2,248  |         |             |        | 2,349  |        
|                                        | Other liabilities                                                                                                                                   |                                            |                                      |        |  |                |                   | 1,556  |         |             |        | 1,926  |        
|                                        | Commitments
and contingencies                                                                                                                       |                                            |                                      |        |  |                |                   |        |         |             |        |        |        
|Shareholders equity:                   |                                                                                                                                                     |                                            |                                      |        |  |                |                   |        |         |             |        |       
|                                        | Common stock, $.001 par value, 55,000,000 shares authorized, 26,698,074 and
26,268,936 shares issued and outstanding in 2003 and 2002, respectively |                                            |                                      |        |  |                |                   | 27     |         |             |        | 26     |        
|                                        | Additional paid-in capital                                                                                                                          |                                            |                                      |        |  |                |                   | 60,463 |         |             |        | 58,313 |        
|                                        | Accumulated other comprehensive income                                                                                                              |                                            |                                      |        |  |                |                   | 1,692  |         |             |        | 348    |        
|                                        | Retained earnings                                                                                                                                   |                                            |                                      |        |  |                |                   | 26,662 |         |             |        | 23,693 |        
|                                        |                                                                                                                                                     |                                            |                                      |        |  |                |                   |        |         |             |        |       
|                                        |                                                                                                                                                     | Total shareholders equity                 |                                      |        |  |                |                   |        | 88,844  |             |        |        | 82,380  | 
|                                        |                                                                                                                                                     |                                            |                                      |        |  |                |                   |        |         |             |        |       
|                                        |                                                                                                                                                     | Total Liabilities and Shareholders Equity |                                      |        |  |                |                   | $      | 111,744 |             |        | $      | 111,589 | 
|                                        |                                                                                                                                                     |                                            |                                      |        |  |                |                   |        |         |             |        |        |        

See accompanying notes.

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RAINBOW TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)

|                                                           |                                        |                         |                          |        |        |                    |       |                |        |        |  | 
|---------------------------------------------------------- | -------------------------------------- | ----------------------- | ------------------------ | ------ | ------ | ------------------ | ----- | -------------- | ------ | ------ |  | 
|                                                           |                                        |                         |                          |        |        | Three Months Ended
|                                                           |                                        |                         |                          |        |        |                   
|                                                           |                                        |                         |                          |        |        | March 31, 2003     |       | March 31, 2002
|                                                           |                                        |                         |                          |        |        |                    |       |               
|                                                           |                                        |                         |                          |        |        | (unaudited)       
|Revenues:                                                  |                                        |                         |                          |        |        |                    |       |               
|                                                           | eSecurity Products                     |                         | $                        | 13,257 |        |                    | $     | 12,053         |       
|                                                           | Secure Communications Products         |                         |                          | 20,612 |        |                    |       | 19,132         |       
|                                                           |                                        |                         |                          |        |        |                    |       |               
|                                                           |                                        |                         | Total revenues           |        |        | 33,869             |       |                |        | 31,185 | 
|Operating expenses:                                        |                                        |                         |                          |        |        |                    |       |               
|                                                           | Cost of eSecurity Products             |                         |                          | 4,981  |        |                    |       | 6,137          |       
|                                                           | Cost of Secure Communications Products |                         |                          | 15,595 |        |                    |       | 15,143         |       
|                                                           | Selling, general and administrative    |                         |                          | 7,718  |        |                    |       | 6,691          |       
|                                                           | Research and development               |                         |                          | 1,736  |        |                    |       | 1,849          |       
|                                                           |                                        |                         |                          |        |        |                    |       |               
|                                                           |                                        |                         | Total operating expenses |        |        | 30,030             |       |                |        | 29,820 | 
|                                                           |                                        |                         |                          |        |        |                    |       |               
|Operating income                                           |                                        |                         | 3,839                    |        |        |                    | 1,365 |               
|Loss on marketable securities                              |                                        |                         | (836                     | )      |        |                    | (31   | )             
|Other income, net                                          |                                        |                         | 592                      |        |        |                    | 289   |               
|                                                           |                                        |                         |                          |        |        |                    |       |               
|Income from continuing operations before income taxes      |                                        |                         | 3,595                    |        |        |                    | 1,623 |               
|Provision for income taxes                                 |                                        |                         | (540                     | )      |        |                    | (349  | )             
|                                                           |                                        |                         |                          |        |        |                    |       |               
|Income from continuing operations                          |                                        |                         | 3,055                    |        |        |                    | 1,274 |               
|Loss from discontinued operations, net of applicable taxes |                                        |                         | (86                      | )      |        |                    | (705  | )             
|                                                           |                                        |                         |                          |        |        |                    |       |               
|Net income                                                 |                                        | $                       | 2,969                    |        |        | $                  | 569   |               
|                                                           |                                        |                         |                          |        |        |                    |       |               
|Basic income (loss) per share:                             |                                        |                         |                          |        |        |                    |       |               
|                                                           |                                        | Continuing operations   |                          | $      | 0.11   |                    |       | $              | 0.05   |       
|                                                           |                                        | Discontinued operations |                          |        |       |                    |       |                | (0.03  | )     
|                                                           |                                        |                         |                          |        |        |                    |       |               
|                                                           |                                        | Net income              |                          | $      | 0.11   |                    |       | $              | 0.02   |       
|                                                           |                                        |                         |                          |        |        |                    |       |               
|Diluted income (loss) per share:                           |                                        |                         |                          |        |        |                    |       |               
|                                                           |                                        | Continuing operations   |                          | $      | 0.11   |                    |       | $              | 0.05   |       
|                                                           |                                        | Discontinued operations |                          |        |       |                    |       |                | (0.03  | )     
|                                                           |                                        |                         |                          |        |        |                    |       |               
|                                                           |                                        | Net income              |                          | $      | 0.11   |                    |       | $              | 0.02   |       
|                                                           |                                        |                         |                          |        |        |                    |       |               
|Weighted average shares:                                   |                                        |                         |                          |        |        |                    |       |               
|                                                           |                                        | Basic                   |                          |        | 26,460 |                    |       |                | 26,405 |       
|                                                           |                                        |                         |                          |        |        |                    |       |               
|                                                           |                                        | Diluted                 |                          |        | 27,735 |                    |       |                | 27,998 |       
|                                                           |                                        |                         |                          |        |        |                    |       |               

See accompanying notes.

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RAINBOW TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

|                                   |                                                                                   |   |                    |       |                |   |     |      |  
|---------------------------------- | --------------------------------------------------------------------------------- | - | ------------------ | ----- | -------------- | - | --- | ---- | -
|                                   |                                                                                   |   | Three Months Ended
|                                   |                                                                                   |   |                   
|                                   |                                                                                   |   | March 31, 2003     |       | March 31, 2002
|                                   |                                                                                   |   |                    |       |               
|                                   |                                                                                   |   | (unaudited)       
|Net income                         |                                                                                   | $ | 2,969              |       |                | $ | 569 |     
|Other comprehensive income (loss): |                                                                                   |   |                    |       |                |   |     |     
|                                   | Foreign currency translation adjustment                                           |   |                    | 564   |                |   |     | (524 | )
|                                   | Unrealized gain (loss) on securities                                              |   |                    | 1,017 |                |   |     | (37  | )
|                                   |                                                                                   |   |                    |       |                |   |     |     
|                                   | Other comprehensive income (loss), before income taxes                            |   |                    | 1,581 |                |   |     | (561 | )
|                                   | Benefit (provision) for income taxes related to other comprehensive income (loss) |   |                    | (237  | )              |   |     | 213  |  
|                                   |                                                                                   |   |                    |       |                |   |     |     
|                                   | Other comprehensive income (loss), net of taxes                                   |   |                    | 1,344 |                |   |     | (348 | )
|                                   |                                                                                   |   |                    |       |                |   |     |     
|Comprehensive income               |                                                                                   | $ | 4,313              |       |                | $ | 221 |     
|                                   |                                                                                   |   |                    |       |                |   |     |     

See accompanying notes.

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

|                                                                                            |                                            |                                           |                                                     |       |                    |        |                |       |        |       | 
|------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------------------------------------- | --------------------------------------------------- | ----- | ------------------ | ------ | -------------- | ----- | ------ | ----- | 
|                                                                                            |                                            |                                           |                                                     |       | Three Months Ended
|                                                                                            |                                            |                                           |                                                     |       |                   
|                                                                                            |                                            |                                           |                                                     |       | March 31, 2003     |        | March 31, 2002
|                                                                                            |                                            |                                           |                                                     |       |                    |        |               
|                                                                                            |                                            |                                           |                                                     |       | (unaudited)       
|Cash flows from operating activities:                                                       |                                            |                                           |                                                     |       |                    |        |                |      
|Net income                                                                                  |                                            | $                                         | 2,969                                               |       |                    | $      | 569            |      
|Adjustments to reconcile net income to net cash provided by
(used in) operating activities: |                                            |                                           |                                                     |       |                    |        |                |      
|Amortization                                                                                |                                            |                                           | 837                                                 |       |                    |        | 1,320          |      
|Depreciation                                                                                |                                            |                                           | 943                                                 |       |                    |        | 960            |      
|Provision (benefit) for doubtful accounts                                                   |                                            |                                           | (4                                                  | )     |                    |        | (672           | )    
|Loss on marketable securities                                                               |                                            |                                           | 836                                                 |       |                    |        | 31             |      
|Provision for excess and obsolete inventory                                                 |                                            |                                           | 131                                                 |       |                    |        | 1,248          |      
|Warranty provision (benefit)                                                                |                                            |                                           | 333                                                 |       |                    |        | (338           | )    
|Write-off of capitalized and developed software                                             |                                            |                                           |                                                    |       |                    |        | 394            |      
|Tax benefit of exercise of common stock options                                             |                                            |                                           |                                                    |       |                    |        | 695            |      
|Change in deferred income taxes                                                             |                                            |                                           |                                                    |       |                    |        | (1,077         | )    
|Other                                                                                       |                                            |                                           | 47                                                  |       |                    |        | 44             |      
|Changes in operating assets and liabilities:                                                |                                            |                                           |                                                     |       |                    |        |                |      
|                                                                                            |                                            | Accounts receivable                       |                                                     |       | (1,629             | )      |                |       | 2,173  |      
|                                                                                            |                                            | Inventories                               |                                                     |       | 1,739              |        |                |       | (14    | )    
|                                                                                            |                                            | Prepaid expenses and other current assets |                                                     |       | (229               | )      |                |       | 341    |      
|                                                                                            |                                            | Accounts payable                          |                                                     |       | (2,279             | )      |                |       | (1,756 | )    
|                                                                                            |                                            | Accrued liabilities                       |                                                     |       | (5,166             | )      |                |       | (911   | )    
|                                                                                            |                                            | Income taxes                              |                                                     |       | 267                |        |                |       | 318    |      
|                                                                                            |                                            |                                           |                                                     |       |                    |        |                |      
|                                                                                            |                                            |                                           | Net cash provided by (used in) operating activities |       |                    | (1,205 | )              |       |        | 3,325 | 
|Cash flows from investing activities:                                                       |                                            |                                           |                                                     |       |                    |        |                |      
|                                                                                            | Capitalized software development costs     |                                           |                                                     | (137  | )                  |        |                | (69   | )     
|                                                                                            | Purchases of property, plant and equipment |                                           |                                                     | (638  | )                  |        |                | (357  | )     
|                                                                                            | Purchases of marketable securities         |                                           |                                                     | (489  | )                  |        |                |      |       
|                                                                                            | Other                                      |                                           |                                                     | 74    |                    |        |                | 509   |       
|                                                                                            |                                            |                                           |                                                     |       |                    |        |                |      
|                                                                                            |                                            |                                           | Net cash provided by (used in) investing activities |       |                    | (1,190 | )              |       |        | 83    | 
|Cash flows from financing activities:                                                       |                                            |                                           |                                                     |       |                    |        |                |      
|                                                                                            | Exercise of common stock options           |                                           |                                                     | 2,151 |                    |        |                | 2,198 |       
|                                                                                            | Other                                      |                                           |                                                     | (64   | )                  |        |                | (51   | )     
|                                                                                            |                                            |                                           |                                                     |       |                    |        |                |      
|                                                                                            |                                            |                                           | Net cash provided by financing activities           |       |                    | 2,087  |                |       |        | 2,147 | 
|Effect of exchange rate changes on cash                                                     |                                            |                                           | 460                                                 |       |                    |        | (50            | )    
|                                                                                            |                                            |                                           |                                                     |       |                    |        |                |      
|Net increase in cash and cash equivalents                                                   |                                            |                                           | 152                                                 |       |                    |        | 5,505          |      
|Cash
and cash equivalents at beginning of period                                            |                                            |                                           | 50,922                                              |       |                    |        | 28,778         |      
|                                                                                            |                                            |                                           |                                                     |       |                    |        |                |      
|Cash and cash equivalents at end of period                                                  |                                            | $                                         | 51,074                                              |       |                    | $      | 34,283         |      
|                                                                                            |                                            |                                           |                                                     |       |                    |        |                |      

See accompanying notes.

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RAINBOW TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(unaudited)

1.     Description of the Company and Summary of Significant Accounting Policies

The Company

Rainbow Technologies, Inc. (the Company) develops, manufactures, programs and
markets software and internet security products which prevent the unauthorized
use of intellectual property, including software programs, provides privacy and
security for network communications and develops and manufactures secure
communication products for high assurance satellite communications and voice
and data links.

Basis of Consolidation

The accompanying financial statements consolidate the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.

In the opinion of the Companys management, the accompanying condensed
consolidated financial statements include all normal recurring adjustments
necessary for a fair presentation of the financial position at March 31, 2003
and results of operations for the three months ended March 31, 2003 and 2002.
The condensed consolidated financial statements do not include footnotes and
certain financial information normally presented annually under accounting
principles generally accepted in the United States and, therefore, should be
read in conjunction with the Companys December 31, 2002 Annual Report on Form
10-K. Results of operations for the three months ended March 31, 2003 are not
necessarily indicative of results to be expected for the full year.

The Company has subsidiaries in the United Kingdom, Germany, France,
Netherlands, India, Australia, China, Taiwan, Japan and Hong Kong. Excluding
Hong Kong, the Company utilizes the currencies of the countries where its
foreign subsidiaries operate as the functional currency. Balance sheet accounts
denominated in foreign currencies are translated at exchange rates as of the
date of the balance sheet and income statement accounts are translated at
average exchange rates for the period. Translation gains and losses are
accumulated as a separate component of Accumulated Other Comprehensive Income
within Shareholders Equity. The Company has adopted local currencies as the
functional currencies for these subsidiaries because their principal economic
activities are most closely tied to the respective local currencies. For its
Hong Kong subsidiary, the Company utilizes the U.S. dollar as the functional
currency as the majority of its transactions are in U.S. dollars.

Basis of Presentation

In the second quarter of 2002, the Company announced that its Spectria segment
had experienced rapidly deteriorating business prospects due to a severe
decline in IT services infrastructure spending. Consequently, the Company
discontinued Spectria and closed its facility in Long Beach, California. In
accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, Spectrias
results of operations are included in the loss from discontinued operations in
the consolidated statements of income for the quarters ended March 31, 2003 and
2002 (see Note 11). Certain amounts previously reported have been reclassified
to conform with the 2003 presentation. Unless otherwise indicated, the Notes
to Consolidated Financial Statements relate to continuing operations.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the accompanying
financial statements. Actual results could differ from those estimates.
Significant estimates made in preparing these financial statements include the
allowance for doubtful accounts, the reserve for excess and obsolete inventory,
goodwill valuations, accrued warranty costs, restructuring costs, the valuation
allowance for deferred tax assets and total estimated contract costs associated
with billed and unbilled contract revenue.

Marketable Securities

All investment securities are
considered to be either trading or available-for-sale.
Management determines the classification of its investments in marketable
securities at the time of purchase and re-evaluates its appropriateness at each
balance sheet date. Securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities
and carried at fair value with the unrealized holding gains and losses included
in earnings.

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Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of Accumulated
Other Comprehensive Income within Shareholders Equity.

2.     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 for the three months ended March 31,
2003 and 2002 assumes the conversion of stock options of 1,275,000 and
1,593,000, respectively.

3.     Stock Option Plans

The Company follows the disclosure-only provisions of SFAS 123, Accounting for
Stock-Based Compensation, as amended, and, accordingly, accounts for its
stock-based compensation plans using the intrinsic value method under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees and related interpretations.

For purposes of pro forma disclosures, the following table illustrates the
effect on net income and income per share, had compensation expense for the
employee stock-based plans been recorded based on the fair value method under
SFAS 123:

(in thousands, except per share amounts)

|                                                                                                                             |                                  |   |                    |       |                |   |        |        |  
|---------------------------------------------------------------------------------------------------------------------------- | -------------------------------- | - | ------------------ | ----- | -------------- | - | ------ | ------ | -
|                                                                                                                             |                                  |   | Three Months Ended
|                                                                                                                             |                                  |   |                   
|                                                                                                                             |                                  |   | March 31, 2003     |       | March 31, 2002
|                                                                                                                             |                                  |   |                    |       |               
|Net income, as reported                                                                                                      |                                  | $ | 2,969              |       |                | $ | 569    |       
|Deduct: total stock-based employee compensation
expense determined under fair value based method,
net of related tax effects |                                  |   | (1,450             | )     |                |   | (1,871 | )     
|                                                                                                                             |                                  |   |                    |       |                |   |        |       
|                                                                                                                             | Net income (loss), as adjusted   |   | $                  | 1,519 |                |   | $      | (1,302 | )
|                                                                                                                             |                                  |   |                    |       |                |   |        |       
|                                                                                                                             | Basic income (loss) per share:   |   |                    |       |                |   |        |        |  
|                                                                                                                             | As reported                      |   | $                  | 0.11  |                |   | $      | 0.02   |  
|                                                                                                                             | As adjusted                      |   | $                  | 0.06  |                |   | $      | (0.05  | )
|                                                                                                                             | Diluted income (loss) per share: |   |                    |       |                |   |        |        |  
|                                                                                                                             | As reported                      |   | $                  | 0.11  |                |   | $      | 0.02   |  
|                                                                                                                             | As adjusted                      |   | $                  | 0.05  |                |   | $      | (0.05  | )

4.     Government Contracts

The Company is both a prime contractor and subcontractor under fixed-price and
cost reimbursement 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 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. The provisional billing
rates are adjusted to actual at year-end and are subject to adjustment after
Government audit.

5.     Inventories

Inventoried costs relating to long-term contracts are stated at 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.

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Inventories consist of the following:

(in thousands)

|                                                                                                            |  |                |        |                   |  |   |        |  
|----------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | ----------------- |  | - | ------ | -
|                                                                                                            |  | March 31, 2003 |        | December 31, 2002
|                                                                                                            |  |                |        |                  
|Raw materials                                                                                               |  | $              | 7,447  |                   |  | $ | 8,095  |  
|Work in process                                                                                             |  |                | 1,443  |                   |  |   | 1,662  |  
|Finished goods                                                                                              |  |                | 3,533  |                   |  |   | 3,573  |  
|Inventoried costs relating to long-term contracts, net of
amounts attributed to revenues recognized to date |  |                | 3,896  |                   |  |   | 5,158  |  
|Reserve for excess and obsolete inventory                                                                   |  |                | (8,867 | )                 |  |   | (9,180 | )
|                                                                                                            |  |                |        |                   |  |   |        |  
|                                                                                                            |  | $              | 7,452  |                   |  | $ | 9,308  |  
|                                                                                                            |  |                |        |                   |  |   |        |  

6.     Income
taxes

The effective tax rates for the three
months ended March 31, 2003 and 2002 were 15% and 22%,
respectively. The reduction in the effective rate was due primarily
to the use of the Company's federal valuation allowance which reduced
income tax expense for the quarter ended March 31, 2003.

7.     Warranty

The Company generally warrants its products for periods of ninety days to two
years. The standard warranties require the Company to repair or replace
defective products returned at no cost to the customer. The Company records an
estimate for warranty related costs based on amounts required to cover warranty
expense on products sold and actual historical return rates at the time revenue
is recognized. While warranty costs have historically been within managements
expectations and the provisions established, the Company cannot guarantee that
it will continue to experience the same warranty return rates as in the past.
A significant increase in product return rates could have a material adverse
effect on the Companys operating results for the period in which such returns
materialize.

The following details the
Companys warranty reserve:
(in thousands)

|                  |  |                  |     |          |  |              |      |                  |  |            |     |  |  |   |       | 
|----------------- |  | ---------------- | --- | -------- |  | ------------ | ---- | ---------------- |  | ---------- | --- |  |  | - | ----- | 
|                  |  |                  |     |          |  |              |      |                  |  | Changes in |     |  |  |  
|                  |  | Additions        |     |          |  |              |      | Estimate         |  |            |     | 
|Balance at        |  | Charged to Costs |     |          |  |              |      | Charged to Costs |  | Balance at
|December 31, 2002 |  | and Expenses     |     | Payments |  | and Expenses |      | March 31, 2003  
|                  |  |                  |     |          |  |              |      |                 
|$1,844            |  | $                | 225 |          |  | $            | (186 | )                |  | $          | 109 |  |  | $ | 1,992 | 

8.     Industry segments

The Company has two business segments comprising continuing operations. The
first segment focuses on commercial security products, including solutions for
reliable identity, secure internet and wireless transaction acceleration,
licensing solutions for software publishers and easy to deploy Web security
solutions (eSecurity segment). The second segment provides products and
services for enterprise, government and defense applications for products
providing security for classified information, for products providing personal
identity authentification for government and defense applications, and custom
design services for enterprises, government and defense applications requiring
either extraordinary performance and/or security (Secure Communications
segment). The identifiable assets, after applicable eliminations, for each
segment as of March 31, 2003 were $92.0 million and $19.7 million,
respectively, compared with $90.7 million and $20.9 million as of December 31,
2002. Operating income (loss) for each segment for the quarter ended
March 31, 2003 was $52,000 and $3.8 million, respectively,
compared with ($2.0) million and $3.4 million for the
quarter ended March 31, 2002.

There were no intercompany revenues for the three months ended March 31, 2003
while intercompany revenues for the three months ended March 31, 2002 were
$2,000. Intercompany revenues are generated by the Secure Communications
segment.

9.     Legal proceedings

In July 1998, a patent infringement claim was filed against the Company by
Andrew Pickholtz, alleging that certain of the Companys products infringe
patents owned by Pickholtz. The complaint seeks unspecified monetary damages.
The Company filed a motion for summary judgment of non-infringement that was
decided in favor of the Company in December 2000. In January 2001, Mr.
Pickholtz filed a notice of appeal. After considering legal briefs filed by
the Company and by Mr. Pickholtz, the Court of Appeals for the Federal Circuit
heard oral arguments in the case on November 7, 2001. On April 3, 2002, the
United States Court of Appeals issued an opinion that modified the trial
courts construction of the patent claims in certain respects, revised the
summary judgment for non-infringement in favor of the Company, and remanded the
case to the trial court for further proceedings. The Company continues to
believe the claims are without merit as found by the trial court and intends to
continue to vigorously defend against any infringement claims made by Mr.
Pickholtz.

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The Company is also involved in other legal proceedings and claims arising in
the ordinary course of business. The Company believes that the outcome of all
current litigation will not have a material adverse effect on its business,
financial condition, cash flows or results of operations.

10.     Restructuring

In the third quarter of 2001, the Company restructured and consolidated its
Digital Rights Management and iVEA operations (eSecurity segment), resulting in
a net staff reduction of 97 employees across all employee groups, primarily in
the U.S. and recorded restructuring charges of $5.8 million.

The following table summarizes the Companys restructuring costs and activities
in the restructuring reserves:

(in thousands)

|                                                    |  |            |        |           |  |       |       |   |  |   |        |  
|--------------------------------------------------- |  | ---------- | ------ | --------- |  | ----- | ----- | - |  | - | ------ | -
|                                                    |  | Facilities |        |           |  |       |       |   |  |  
|                                                    |  | and        |        |           |  |       |       |   |  |  
|                                                    |  | Equipment  |        | Severance |  | Total
|                                                    |  |            |        |           |  |      
|Charged to costs and expenses at September 30, 2001 |  | $          | 4,699  |           |  | $     | 1,131 |   |  | $ | 5,830  |  
|Cash payments                                       |  |            | (538   | )         |  |       | (931  | ) |  |   | (1,469 | )
|                                                    |  |            |        |           |  |       |       |   |  |   |        |  
|Restructuring balance, December 31, 2001            |  |            | 4,161  |           |  |       | 200   |   |  |   | 4,361  |  
|Cash payments                                       |  |            | (1,348 | )         |  |       | (200  | ) |  |   | (1,548 | )
|                                                    |  |            |        |           |  |       |       |   |  |   |        |  
|Restructuring balance, December 31, 2002            |  |            | 2,813  |           |  |       |      |   |  |   | 2,813  |  
|Cash payments                                       |  |            | (150   | )         |  |       |      |   |  |   | (150   | )
|                                                    |  |            |        |           |  |       |       |   |  |   |        |  
|Restructuring balance, March 31, 2003               |  | $          | 2,663  |           |  | $     |      |   |  | $ | 2,663  |  
|                                                    |  |            |        |           |  |       |       |   |  |   |        |  

The current portion of the restructuring reserve of $0.4 million relating to
office space reduction is recorded in other accrued liabilities while the
long-term portion of the reserve of $2.3 million is shown separately as
long-term accrued restructuring costs.

11.     Discontinued operations

The revenues and loss from discontinued operations for the quarters ended March
31, 2003 and 2002 related to the disposal of Spectria are as follows:

(in thousands)

|                                  |  |                    |     |                |  |   |       |  
|--------------------------------- |  | ------------------ | --- | -------------- |  | - | ----- | -
|                                  |  | Three Months Ended
|                                  |  |                   
|                                  |  | March 31, 2003     |     | March 31, 2002
|                                  |  |                    |     |               
|Revenues                          |  | $                  | 19  |                |  | $ | 1,836 |  
|Loss from discontinued operations |  | $                  | (86 | )              |  | $ | (705  | )

The assets and liabilities of Spectria at March 31, 2003 and December 31, 2002
consisted of the following:

(in thousands)

|                                             |  |                |     |                   |  |   |       | 
|-------------------------------------------- |  | -------------- | --- | ----------------- |  | - | ----- | 
|                                             |  | March 31, 2003 |     | December 31, 2002
|                                             |  |                |     |                  
|Cash and accounts receivable                 |  | $              | 103 |                   |  | $ | 98    | 
|Prepaid expenses and other assets            |  |                | 40  |                   |  |   | 40    | 
|                                             |  |                |     |                   |  |   |       | 
|Total assets of discontinued operations      |  | $              | 143 |                   |  | $ | 138   | 
|                                             |  |                |     |                   |  |   |       | 
|Accounts payable and other liabilities       |  | $              | 949 |                   |  | $ | 1,156 | 
|Accrued payroll and related expenses         |  |                |    |                   |  |   | 2     | 
|                                             |  |                |     |                   |  |   |       | 
|Total liabilities of discontinued operations |  | $              | 949 |                   |  | $ | 1,158 | 
|                                             |  |                |     |                   |  |   |       | 

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Item 2. 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 accompanying notes.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Companys financial statements are based on the selection and application
of significant accounting policies, which require management to make
significant estimates and assumptions. The Company believes that the following
are some of the more critical judgment areas in the application of its
accounting policies that currently affect its consolidated financial condition
and results of operations.

Revenue Recognition

eSecurity recognizes revenues from product sales at the time of shipment.
Secure Communications recognizes revenue and profit as work progresses on
long-term contracts using the percentage-of-completion method, which relies on
estimates of total expected contract revenue and costs. Catalog product
revenues and revenues under certain fixed-price contracts calling for delivery
of a specified number of units are recognized as deliveries are made. Revenues
under cost-reimbursement contracts are recognized as costs are incurred and
include estimated earned fees in the proportion that costs incurred to date
bear to total estimated costs. Certain contracts are awarded on a fixed-price
incentive fee basis. Incentive fees on such contracts are considered when
estimating revenues and profit rates and are recognized when the amounts can
reasonably be determined. The costs attributed to units delivered under
fixed-price contracts are based on the estimated average cost per unit at
contract completion. Profits expected to be realized on long-term contracts are
based on total revenues and estimated costs at completion. Revisions to
contract profits are recorded in the accounting period in which the revisions
are known. Estimated losses on contracts are recorded when identified. For
research and development and other cost-plus-fee type contracts, the Company
recognizes contract earnings using the percentage-of-completion method. The
estimated contract revenues are recognized based on percentage-of-completion as
determined by the cost-to-cost basis whereby revenues are recognized as
contract costs are incurred.

Accounts Receivable

The Company is required to estimate the collectibility of its trade receivables
and unbilled costs and fees. A considerable amount of judgment is required in
assessing the ultimate realization of these receivables including the current
credit-worthiness of each customer. Significant changes in required reserves
have been recorded in prior periods and may occur in the future depending on
future market conditions.

Inventory

The Company is required to state its inventories at the lower of cost or
market. In assessing the ultimate realization of inventories, the Company is
required to exercise judgment in its assessment of future demand requirements
and compare that with the current or committed inventory levels. The Company
has recorded charges for required reserves in prior periods and it is possible
that changes in required inventory reserves may continue to occur in the future
due to market conditions.

Deferred Taxes

The Company records a valuation allowance to reduce its deferred tax assets to
the amount that it believes is more likely than not to be realized. In
assessing the need for a valuation allowance, the Company considers all
positive and negative evidence, including reversals of existing deferred tax
liabilities, estimated future taxable income, prudent and feasible tax planning
strategies, and recent financial performance. As a result of recent cumulative
losses and the full utilization of the Companys loss carryback potential, the
Company had concluded that a full valuation allowance against its
net deferred tax assets at December 31, 2002 was appropriate. For
the quarter ended March 31, 2003, the Company realized certain
deferred tax assets which resulted in a reduction in the
Companys valuation allowance and the effective tax rate for the
quarter.

Capitalized Software Development Costs

The Companys policy on capitalized software costs determines the timing of
recognition of certain development costs. In addition, this policy determines
whether the cost is classified as development expense or cost of license fees.
Management is required to use

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professional judgment in determining whether development costs meet the
criteria for immediate expense or capitalization. SFAS No. 86, Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,
requires capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based upon the Companys product
development process, technological feasibility is established upon completion
of a working model. Amortization of capitalized software development costs
commences when the products are available for general release to customers and
is determined using the straight-line method over the expected useful lives of
the respective products. Software development costs are written-off when
projects are abandoned or when the estimated cash flows from a product are not
expected to be sufficient to recover the capitalized software development
costs.

RESULTS OF OPERATIONS

(in thousands)

|                        |                       |                        |   |                    |        |                |   |        |        | 
|----------------------- | --------------------- | ---------------------- | - | ------------------ | ------ | -------------- | - | ------ | ------ | 
|                        |                       |                        |   | Three Months Ended
|                        |                       |                        |   |                   
|                        |                       |                        |   | March 31, 2003     |        | March 31, 2002
|                        |                       |                        |   |                    |        |               
|                        |                       |                        |   | (unaudited)       
|Revenues                |                      
|                        | eSecurity             |                        | $ | 13,257             |        |                | $ | 12,053 |       
|                        | Secure Communications |                        |   | 20,612             |        |                |   | 19,132 |       
|                        |                       |                        |   |                    |        |                |   |       
|                        |                       | Total revenues         |   | $                  | 33,869 |                |   | $      | 31,185 | 
|                        |                       |                        |   |                    |        |                |   |       
|Operating
Income (Loss) |                      
|                        | eSecurity             |                        | $ | 52                 |        |                | $ | (2,020 | )     
|                        | Secure Communications |                        |   | 3,787              |        |                |   | 3,385  |       
|                        |                       |                        |   |                    |        |                |   |       
|                        |                       | Total operating income |   | $                  | 3,839  |                |   | $      | 1,365  | 
|                        |                       |                        |   |                    |        |                |   |       

REVENUES

On a consolidated basis, revenues from continuing operations for the three
months ended March 31, 2003 increased by 9% to $33.9 million from the same
period in the prior year. The increase was due to higher revenues in both
eSecurity and Secure Communications segments. Revenues from international
markets for the three months ended March 31, 2003 increased 36% to $7.1 million
from the same period in the prior year. The increase in revenues from
international markets was primarily due to increase in revenues in both Asia
Pacific and Europe. Revenues from domestic markets also increased by 3% to
$26.8 million from the same period in the prior year. The increase in domestic
revenues was primarily due to a decrease in revenues in North America in the
eSecurity segment being offset by an increase in revenues in the Secure
Communications segment. The decrease in revenues in eSecurity-North America
was primarily due to a decline in OEM markets for Cryptoswift SSL acceleration
devices.

eSecurity revenues for the three months ended March 31, 2003 increased by 10%
to $13.3 million when compared to the same period in 2002. The increase in
revenues was primarily due to increased demand for sentinel software and
authentication products.

Secure Communications revenues for the three months ended March 31, 2003
increased by 8% to $20.6 million when compared to the same period in 2002. The
increase in revenues was primarily due to continued growth in demand for
network link encryptors, voice and data security solutions and high-assurance
commercial security products.

GROSS PROFIT

Gross profit from eSecurity products for the three months ended March 31, 2003
increased to 62% of revenues compared to 49% of revenues for the corresponding
period in 2002. The gross profit as a percentage of revenues for 2002 was lower
primarily due to higher cost of revenues, which included charges of
$1.3 million for inventory reserves.

Gross profit from Secure Communications for the three months ended March 31,
2003 increased to 24% of revenues as compared to 21% of revenues for the
corresponding period in 2002. The increase in gross profit was primarily due to
increased margins on product contracts.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses consist primarily of
personnel-related expenses, sales commissions, promotional activities, and
professional fees. Selling, general and administrative expenses from continuing
operations for the three months ended March 31, 2003 were $7.7 million or 23%
of revenues as compared to $6.7 million or 21% of revenues for the three months
ended March 31, 2002. The increase was primarily attributable to additional
expenses incurred in connection with the opening of the Companys new office in
Hong Kong and higher legal expenses.

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RESEARCH AND DEVELOPMENT

Research and development expenses consist primarily of salaries and other
personnel-related expenses, costs related to engineering development tools, and
subcontracting costs. Research and development expenses from continuing
operations for the three months ended March 31, 2003 were $1.7 million or 5% of
revenues, as compared with research and development expenses of $1.9 million or
6% of revenues for the three months ended March 31, 2002. The decrease in
research and development expenses was primarily due to a decrease in
compensation as a result of the decrease in engineering staff and greater use
of research and development resources in India and China.

MARKETABLE SECURITIES

All investment securities are considered to be either trading or
available-for-sale and are carried at fair value. At March 31,
2003, it was determined by the Company that certain
available-for-sale securities had incurred an other-than-temporary
decline in fair value which resulted in realized losses of
$0.8 million and were recognized in earnings for the three months ended March 31, 2003. Unrealized gains on the trading securities for the
three months ended March 31, 2003 were $15,000 while unrealized losses on the
trading securities for the three months ended March 31, 2002
were $31,000 and were recognized in earnings for the three months
ended March 31, 2003 and 2002, respectively.

PROVISION FOR INCOME TAXES

The effective tax rates for the three months ended March 31, 2003 and 2002 were
15% and 22%, respectively. The reduction in the effective rate was
due primarily to the use of the Companys federal valuation allowance
which reduced income tax expense for the quarter ended March 31,
2003.

RESULTS OF DISCONTINUED OPERATIONS

Discontinued operations for the three months ended March 31, 2003 reported
operating results and net losses of $0.1 million as compared with losses of
$0.7 million for the corresponding period in 2002 (see Note 11
of Notes to Condensed Consolidated Financial Statements).

LIQUIDITY AND CAPITAL RESOURCES

The Companys principal sources of funds have been from operations and proceeds
from exercises of the Companys common stock options. Net cash used in
operating activities for the three months ended March 31, 2003 was $1.2 million
while net cash provided by operating activities for the three months ended
March 31, 2002 was $3.3 million. Operating activities in 2003 included an
increase in accounts receivable of $1.6 million, as a direct result of increase
in revenues, and a decrease in operating liabilities of $7.5 million, which was
primarily related to a reduction in accounts payable and salaries, wages and
bonus accruals. Operating activities in 2002 included a non-cash charge of $1.3
million for provision for excess and obsolete inventory.

Net cash used in investing activities for the three months ended March 31, 2003
was $1.2 million while net cash provided by investing activities for the three
months ended March 31, 2002 was $0.1 million. Investing activities in 2003
included $0.5 million of purchases of marketable securities, $0.6 million in capital expenditures and $0.1 million of
capitalized software development costs.

Net cash provided by financing activities for the three months ended March 31,
2003 and 2002 were $2.1 million and $2.2 million, respectively. Financing
activities in 2003 and 2002 primarily included proceeds from exercises of
common stock options.

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

At March 31, 2003, the Companys subsidiaries in the United Kingdom, Germany,
France, Netherlands, Switzerland and Japan carry approximately $1.7 million,
$0.4 million, $5.2 million, $1.2 million, $3.9 million and $1.3 million,
respectively, in interest earning deposits which may result in foreign exchange
gains or losses due to the fact that the functional currency in those
subsidiaries is not the U.S. dollar.

The Company believes that its current working capital of $68.9 million and
anticipated working capital to be generated by future operations will be
sufficient to support the Companys working capital requirements for at least
the next twelve months and for the foreseeable future. The foregoing is a
forward-looking statement.

14



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##### Table of Contents






Item 4. Controls and Procedures

(a)  Evaluation of Disclosure Controls and Procedures

The Chief Executive Officer and Chief Financial Officer of the Company have
concluded, based on their evaluation as of the date within 90 days prior to the
date of the filing of this quarterly report on Form 10-Q, the effectiveness of
the Companys disclosure controls and procedures pursuant to Exchange Act Rule
13a-14 and 15d-14. Based on that evaluation, the Companys Chief Executive
Officer and Chief Financial Officer concluded that the disclosure controls and
procedures were effective in ensuring that all material information required to
be filed in this quarterly report have been made known to them, to allow timely
decisions regarding required disclosure.

(b)  Changes in Internal Controls

There have been no significant changes in internal controls, or in other
factors that could significantly affect internal controls subsequent to the
date the Chief Executive Officer and Chief Financial Officer completed their
evaluation.




PART II. OTHER INFORMATION




Item 1. Legal Proceedings

In July 1998, a patent infringement claim was filed against the Company by
Andrew Pickholtz, alleging that certain of the Companys products infringe
patents owned by Pickholtz. The complaint seeks unspecified monetary damages.
The Company filed a motion for summary judgment of non-infringement that was
decided in favor of the Company in December 2000. In January 2001, Mr.
Pickholtz filed a notice of appeal. After considering legal briefs filed by
the Company and by Mr. Pickholtz, the Court of Appeals for the Federal Circuit
heard oral arguments in the case on November 7, 2001. On April 3, 2002, the
United States Court of Appeals issued an opinion that modified the trial
courts construction of the patent claims in certain respects, revised the
summary judgment for non-infringement in favor of the Company, and remanded the
case to the trial court for further proceedings. The Company continues to
believe the claims are without merit as found by the trial court and intends to
continue to vigorously defend against any infringement claims made by Mr.
Pickholtz.

The Company is also involved in other legal proceedings and claims arising in
the ordinary course of business. The Company believes that the outcome of all
current litigation will not have a material adverse effect on its business,
financial condition, cash flows or results of operations.




Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  | 
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  |  | 
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  | 
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                          |  |  |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  | 
|2(i)    |  | Agreement and Plan of Reorganization, dated as of January 26, 1995 among the Company, Rainbow Acquisition
Inc., a California corporation and a wholly owned subsidiary of Rainbow, and Mykotronx, Inc., a
California corporation (Mykotronx) (incorporated by reference to the Companys Registration Statement
on Form S-4 under the Securities Act of 1933, as amended, effective on April 20, 1995, Registration No.
33-89918).
|2(ii)   |  | Agreement and Plan of Merger, dated March 6, 1998, by and among the Company, WRS Acquisition Corp, a
California corporation and wholly owned subsidiary of the Company, and Wyatt River Software, Inc.
(incorporated by reference to Exhibit 2(iii) of the Companys 1997 Annual Report on Form 10-K under the
Securities Exchange Act of 1934 filed in March 1998 (the 1997 10-K)).                                              
|3(i)    |  | Articles of Incorporation of Rainbow, as amended (incorporated by reference to Exhibit 3(a) to Rainbows
Registration Statement on Form S-18 under the Securities Act of 1933, as amended, filed on July 20, 1987
 File No. 33-15956-LA (the S-18 Registration Statement)).                                                                                                                                                      
|3(ii)   |  | By-Laws of Rainbow (incorporated by reference to Exhibit 3(b) to the S-18 Registration Statement).                                                                                                                                                                                                                                                                                                                                  
|4(a)    |  | See Exhibit 3(i).                                                                                                                                                                                                                                                                                                                                                                                                                   
|4(b)    |  | See Exhibit 3(ii).                                                                                                                                                                                                                                                                                                                                                                                                                  
|4(c)    |  | Rights Agreement, dated as of July 29, 1997, between the Company and U.S. Stock Transfer Corporation, as
Rights Agent (incorporated by reference to Exhibit 4(c) to the Companys 1997 10-K).                                                                                                                                                                                                                                       

15



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                   |  |  |  | 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit |  |                                                                                                                                                                                                                                                                                   |  |  |  | 
|Number  |  | Description                                                                                                                                                                                                                                                                       |  |  |  | 
|        |  |                                                                                                                                                                                                                                                                                   |  |  |  | 
|10(a)   |  | Agreement, dated October 1996, between the Company and National Semiconductor Corporation (incorporated
by reference to Exhibit 10(b) of the Companys 1998 Annual Report on Form 10-K under the Securities
Exchange Act of 1934 filed in March, 1999 (the 1998 10-K)).        
|10(b)   |  | Agreement, dated December 1998, between the Company and EM Microelectronic  Marin S.A. (incorporated by
reference to Exhibit 10(c) of the 1998 10-K).                                                                                                                           
|10(c)   |  | 1990 Incentive Stock Option Plan as amended (incorporated by reference to Exhibit 10(j) of the 1991 10-K).                                                                                                                                                                       
|10(d)   |  | Employment Agreement, dated February 16, 1990, between the Company and Walter W. Straub (incorporated by
reference to Exhibit 10(j) of the 1989 10-K).                                                                                                                           
|10(e)   |  | Change of Control Agreement, dated February 16, 1990, between the Company and Walter W. Straub
(incorporated by reference to Exhibit 10(k) of the 1989 10-K).                                                                                                                    
|10(f)   |  | Employment Agreement, dated January 5, 1995, between the Company and Patrick E. Fevery (incorporated by
reference to Exhibit 10(l) of the 1994 10-K).                                                                                                                            
|10(g)   |  | Change of Control Agreement, dated January 5, 1995, between the Company and Patrick E. Fevery
(incorporated by reference to Exhibit 10(m) of the 1994 10-K).                                                                                                                     
|10(h)   |  | Agreement for Design and Product Purchase, dated September 4, 1997, between IBM Microelectronics and
Rainbow Technologies, Inc. and Mykotronx, Inc. (incorporated by reference to Exhibit 10(w) of the 1998
10-K).                                                               
|10(i)   |  | Lease for premises at 371 Van Ness Way, Torrance, California, dated October 2, 1997, between Surf
Management Associates, a California limited partnership, and Mykotronx, Inc., a California Corporation
(incorporated by reference to Exhibit 10(x) of the 1999 Form 10-K).     
|10(j)   |  | Lease for premises at 111 West Ocean Boulevard, Long Beach, California, between Stevens Creek Associates,
a California general partnership, and the Company (incorporated by reference to Exhibit 10(y) of the 1999
Form 10-K).                                                  
|10(k)   |  | Lease for premises at 8 Hughes, Irvine, California, between Alton Irvine Partners, LLC, a California
limited liability company, and the Company (incorporated by reference to Exhibit 10(z) of the 2000 Form
10-K).                                                              
|10(l)   |  | 2000 Incentive Stock Option Plan (incorporated by reference to Rainbows Registration Statement on Form
S-8 filed under the Securities Act of 1933).                                                                                                                             
|10(m)   |  | 2001 Nonstatutory Stock Option Plan (incorporated by reference to Rainbows Registration Statement on
Form S-8 filed under Securities Act of 1933).                                                                                                                              
|10(n)   |  | Lease for premises at 50 Technology Drive, Irvine, California, dated April 14, 2000, between The Irvine
Company, a California Corporation, and the Company (incorporated by reference to Exhibit 10(o) of the
September 2002 10-Q).                                              
|10(o)   |  | Leases for premises at 357 and 359 Van Ness Way, Torrance, California, dated May 1, 2002, between Surf
Management Associates, a California limited partnership, and Mykotronx, Inc., a California Corporation
(incorporated by reference to Exhibit 10(o) of the 2002 Form 10-K).
|10(p)   |  | Employment Agreement, dated April 1, 2000, between the Company and Cheryl Baffa (incorporated by
reference to Exhibit 10(p) of the 2002 Form 10-K).                                                                                                                              
|10(q)   |  | Change of Control Agreement, dated April 1, 2000, between the Company and Cheryl Baffa (incorporated by
reference to Exhibit 10(q) of the 2002 Form 10-K).                                                                                                                       
|10(r)   |  | Employment Agreement, dated April 1, 2000, between the Company and James Kopycki (incorporated by
reference to Exhibit 10(r) of the 2002 Form 10-K).                                                                                                                             
|10(s)   |  | Change of Control Agreement, dated April 1, 2000, between the Company and James Kopycki (incorporated by
reference to Exhibit 10(s) of the 2002 Form 10-K).                                                                                                                      
|10(t)   |  | Consultant Agreement, dated January 1, 2000, between the Company and Abbott Investments (incorporated by
reference to Exhibit 10(t) of the 2002 Form 10-K).                                                                                                                      
|99(a)   |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002  Walter W. Straub, President and Chief Executive Officer and Patrick E.
Fevery, Vice President and Chief Financial Officer.                              

(b)  Reports on Form 8-K

None.

16



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##### Table of Contents






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, 2003 |  |                            |                                         
|                    |  | RAINBOW TECHNOLOGIES, INC. |                                         
|                   
|                    |  | By:                        | /s/    
               Patrick E. Fevery
|                    |  |                            |                                         
|                    |  |                            | Vice President and                      
|                    |  |                            | Chief Financial Officer                 

17



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##### Table of Contents






CERTIFICATIONS

I, Walter W. Straub, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Rainbow
Technologies, Inc.;                                                                                                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a14 and 15d14) for the registrant and
we have:                                                                                                     



| |  |  | a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | b) evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the Evaluation
Date); and                                                                                                  
|
| |  |  | c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data
and have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   |  |                            |                              
|------------------ |  | -------------------------- | -----------------------------
|Dated:May 14, 2003 |  |                            |                              
|                   |  | RAINBOW TECHNOLOGIES, INC. |                              
|                  
|                   |  | By:                        | /s/          Walter W. Straub
|                   |  |                            |                              
|                   |  |                            | President and                
|                   |  |                            | Chief Executive Officer      

18



---



##### Table of Contents



CERTIFICATIONS

I, Patrick E. Fevery, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Rainbow
Technologies, Inc.;                                                                                                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a14 and 15d14) for the registrant and
we have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the Evaluation
Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data
and have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                    |  |                            |                                         
|------------------- |  | -------------------------- | ----------------------------------------
|Dated: May 14, 2003 |  |                            |                                         
|                    |  | RAINBOW TECHNOLOGIES, INC. |                                         
|                   
|                    |  | By:                        | /s/    
               Patrick E. Fevery
|                    |  |                            |                                         
|                    |  |                            | Vice President and                      
|                    |  |                            | Chief Financial Officer                 

19



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##### Table of Contents






EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  | 
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  |  | 
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  | 
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                          |  |  |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |  |  | 
|2(i)    |  | Agreement and Plan of Reorganization, dated as of January 26, 1995 among the Company, Rainbow Acquisition
Inc., a California corporation and a wholly owned subsidiary of Rainbow, and Mykotronx, Inc., a
California corporation (Mykotronx) (incorporated by reference to the Companys Registration Statement
on Form S-4 under the Securities Act of 1933, as amended, effective on April 20, 1995, Registration No.
33-89918).
|2(ii)   |  | Agreement and Plan of Merger, dated March 6, 1998, by and among the Company, WRS Acquisition Corp, a
California corporation and wholly owned subsidiary of the Company, and Wyatt River Software, Inc.
(incorporated by reference to Exhibit 2(iii) of the Companys 1997 Annual Report on Form 10-K under the
Securities Exchange Act of 1934 filed in March 1998 (the 1997 10-K)).                                              
|3(i)    |  | Articles of Incorporation of Rainbow, as amended (incorporated by reference to Exhibit 3(a) to Rainbows
Registration Statement on Form S-18 under the Securities Act of 1933, as amended, filed on July 20, 1987
- File No. 33-15956-LA (the S-18 Registration Statement)).                                                                                                                                                      
|3(ii)   |  | By-Laws of Rainbow (incorporated by reference to Exhibit 3(b) to the S-18 Registration Statement).                                                                                                                                                                                                                                                                                                                                  
|4(a)    |  | See Exhibit 3(i).                                                                                                                                                                                                                                                                                                                                                                                                                   
|4(b)    |  | See Exhibit 3(ii).                                                                                                                                                                                                                                                                                                                                                                                                                  
|4(c)    |  | Rights Agreement, dated as of July 29, 1997, between the Company and U.S. Stock Transfer Corporation, as
Rights Agent (incorporated by reference to Exhibit 4(c) to the Companys 1997 10-K).                                                                                                                                                                                                                                       
|10(a)   |  | Agreement, dated October 1996, between the Company and National Semiconductor Corporation (incorporated
by reference to Exhibit 10(b) of the Companys 1998 Annual Report on Form 10-K under the Securities
Exchange Act of 1934 filed in March, 1999 (the 1998 10-K)).                                                                                                                                                           
|10(b)   |  | Agreement, dated December 1998, between the Company and EM Microelectronic  Marin S.A. (incorporated by
reference to Exhibit 10(c) of the 1998 10-K).                                                                                                                                                                                                                                                                              
|10(c)   |  | 1990 Incentive Stock Option Plan as amended (incorporated by reference to Exhibit 10(j) of the 1991 10-K).                                                                                                                                                                                                                                                                                                                          
|10(d)   |  | Employment Agreement, dated February 16, 1990, between the Company and Walter W. Straub (incorporated by
reference to Exhibit 10(j) of the 1989 10-K).                                                                                                                                                                                                                                                                              
|10(e)   |  | Change of Control Agreement, dated February 16, 1990, between the Company and Walter W. Straub
(incorporated by reference to Exhibit 10(k) of the 1989 10-K).                                                                                                                                                                                                                                                                       
|10(f)   |  | Employment Agreement, dated January 5, 1995, between the Company and Patrick E. Fevery (incorporated by
reference to Exhibit 10(l) of the 1994 10-K).                                                                                                                                                                                                                                                                               
|10(g)   |  | Change of Control Agreement, dated January 5, 1995, between the Company and Patrick E. Fevery
(incorporated by reference to Exhibit 10(m) of the 1994 10-K).                                                                                                                                                                                                                                                                        
|10(h)   |  | Agreement for Design and Product Purchase, dated September 4, 1997, between IBM Microelectronics and
Rainbow Technologies, Inc. and Mykotronx, Inc. (incorporated by reference to Exhibit 10(w) of the 1998
10-K).                                                                                                                                                                                                                  
|10(i)   |  | Lease for premises at 371 Van Ness Way, Torrance, California, dated October 2, 1997, between Surf
Management Associates, a California limited partnership, and Mykotronx, Inc., a California Corporation
(incorporated by reference to Exhibit 10(x) of the 1999 Form 10-K).                                                                                                                                                        
|10(j)   |  | Lease for premises at 111 West Ocean Boulevard, Long Beach, California, between Stevens Creek Associates,
a California general partnership, and the Company (incorporated by reference to Exhibit 10(y) of the 1999
Form 10-K).                                                                                                                                                                                                     
|10(k)   |  | Lease for premises at 8 Hughes, Irvine, California, between Alton Irvine Partners, LLC, a California
limited liability company, and the Company (incorporated by reference to Exhibit 10(z) of the 2000 Form
10-K).                                                                                                                                                                                                                 
|10(l)   |  | 2000 Incentive Stock Option Plan (incorporated by reference to Rainbows Registration Statement on Form
S-8 filed under the Securities Act of 1933).                                                                                                                                                                                                                                                                                
|10(m)   |  | 2001 Nonstatutory Stock Option Plan (incorporated by reference to Rainbows Registration Statement on
Form S-8 filed under Securities Act of 1933).                                                                                                                                                                                                                                                                                 
|10(n)   |  | Lease for premises at 50 Technology Drive, Irvine, California, dated April 14, 2000, between The Irvine
Company, a California Corporation, and the Company (incorporated by reference to Exhibit 10(o) of the
September 2002 10-Q).                                                                                                                                                                                                 
|10(o)   |  | Leases for premises at 357 and 359 Van Ness Way, Torrance, California, dated May 1, 2002, between Surf
Management Associates, a California limited partnership, and Mykotronx, Inc., a California Corporation
(incorporated by reference to Exhibit 10(o) of the 2002 Form 10-K).                                                                                                                                                   
|10(p)   |  | Employment Agreement, dated April 1, 2000, between the Company and Cheryl Baffa (incorporated by
reference to Exhibit 10(p) of the 2002 Form 10-K).                                                                                                                                                                                                                                                                                 
|10(q)   |  | Change of Control Agreement, dated April 1, 2000, between the Company and Cheryl Baffa (incorporated by
reference to Exhibit 10(q) of the 2002 Form 10-K).                                                                                                                                                                                                                                                                          
|10(r)   |  | Employment Agreement, dated April 1, 2000, between the Company and James Kopycki (incorporated by
reference to Exhibit 10(r) of the 2002 Form 10-K).                                                                                                                                                                                                                                                                                
|10(s)   |  | Change of Control Agreement, dated April 1, 2000, between the Company and James Kopycki (incorporated by
reference to Exhibit 10(s) of the 2002 Form 10-K).                                                                                                                                                                                                                                                                         
|10(t)   |  | Consultant Agreement, dated January 1, 2000, between the Company and Abbott Investments (incorporated by
reference to Exhibit 10(t) of the 2002 Form 10-K).                                                                                                                                                                                                                                                                         
|99(a)   |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002  Walter W. Straub, President and Chief Executive Officer and Patrick E.
Fevery, Vice President and Chief Financial Officer.                                                                                                                                                                                 

20