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, 2002             Commission file number: 0-16641

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

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

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

Indicate by check mark whether the Registrant (i) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (ii) has been subject to such filing
requirements for the past 90 days.

                                 Yes [X] No [_]

The number of shares of common stock, $.001 par value, outstanding as of May 7,
2002 was 26,676,260.

<PAGE>

                           RAINBOW TECHNOLOGIES, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION                                                                                                  Page
                                                                                                                                ----
<S>                                                                                                                              <C>
Item 1.  Condensed Consolidated Financial Statements

         Condensed Consolidated Balance Sheets at March 31, 2002 (unaudited) and December 31, 2001............................    4

         Condensed Consolidated Statements of Operations for the three months ended March 31, 2002 and 2001 (unaudited).......    5

         Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2002 and
         2001 (unaudited).....................................................................................................    6

         Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001 (unaudited).......    7

         Notes to Condensed Consolidated Financial Statements (unaudited).....................................................    8

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

PART II - OTHER INFORMATION

Item 1 to 5 - Not applicable

Item 6.  Exhibits and reports on Form 8K......................................................................................   14

SIGNATURES....................................................................................................................   17
</TABLE>


                                       2
<PAGE>

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
such forward-looking statements be subject to the safe harbors created thereby.
These forward-looking statements include (i) the existence and development of
the Company's technical and manufacturing capabilities, (ii) anticipated
competition, (iii) potential future growth in revenues and income, (iv)
potential future decreases in costs, and (v) the need for, and availability of
additional financing.

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


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                       March 31, 2002  December 31, 2001
                                                                                       --------------  -----------------
                                                                                         (Unaudited)
<S>                                                                                       <C>              <C>
                                                           ASSETS
Current assets:
  Cash and cash equivalents .......................................................       $  34,283        $  28,778
  Marketable available-for-sale and trading securities ............................             344            1,195
  Accounts receivable, net of allowance for doubtful accounts of $1,170 and
       $1,858 in 2002 and 2001, respectively ......................................          22,885           24,492
  Inventories .....................................................................          19,442           20,711
  Income tax receivable ...........................................................           1,526            1,844
  Deferred income taxes ...........................................................          13,955           13,901
  Unbilled costs and fees .........................................................           1,476            2,227
  Prepaid expenses and other current assets .......................................           2,037            1,634
                                                                                          ---------        ---------
    Total current assets ..........................................................          95,948           94,782
Property, plant and equipment, at cost:
  Buildings .......................................................................          21,129           20,838
  Furniture .......................................................................           6,508            6,655
  Equipment .......................................................................           2,805            2,810
  Leasehold improvements ..........................................................           2,951            2,946
                                                                                          ---------        ---------
                                                                                             33,393           33,249
  Less accumulated depreciation and amortization ..................................          18,225           17,336
                                                                                          ---------        ---------
    Net property, plant and equipment .............................................          15,168           15,913
  Goodwill, net of accumulated amortization of $21,624 and $22,104 in 2002
       and 2001, respectively .....................................................          14,004           15,638
  Software development costs, net of accumulated amortization of $12,516 and
      $11,218 in 2002 and 2001, respectively ......................................           9,467           10,768
  Product licenses, net of accumulated amortization of $4,219 and $3,537 in
       2002 and 2001, respectively ................................................           5,256            4,030
  Deferred income taxes ...........................................................           3,516            2,421
  Other assets ....................................................................           2,685            2,413
                                                                                          ---------        ---------
                                                                                          $ 146,044        $ 145,965
                                                                                          =========        =========

                                            LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable ................................................................       $   8,170        $   9,929
  Accrued payroll and related expenses ............................................           4,382            5,063
  Accrued restructuring costs .....................................................           2,864            3,130
  Warranty reserve ................................................................           1,817            2,417
  Other accrued liabilities .......................................................           5,531            5,041
  Long-term debt, due within one year .............................................             207              211
                                                                                          ---------        ---------
    Total current liabilities .....................................................          22,971           25,791
  Long-term debt, net of current portion ..........................................             413              476
  Other liabilities ...............................................................           2,807            2,959
  Commitments and contingencies
  Shareholders' equity:
  Common stock, $.001 par value, 55,000,000 shares authorized, 26,472,362 and
       26,157,594 shares issued and outstanding in 2002 and 2001, respectively ....              27               26
  Additional paid-in capital ......................................................          59,777           56,885
  Accumulated other comprehensive loss ............................................          (1,887)          (1,539)
  Retained earnings ...............................................................          61,936           61,367
                                                                                          ---------        ---------
    Total shareholders' equity ....................................................         119,853          116,739
                                                                                          ---------        ---------
                                                                                          $ 146,044        $ 145,965
                                                                                          =========        =========
</TABLE>

                             See accompanying notes.


                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                               Three Months Ended
                                                             -----------------------
                                                             March 31,     March 31,
                                                               2002          2001
                                                             ---------     ---------
                                                                   (unaudited)
<S>                                                          <C>           <C>
Revenues:
  eSecurity Products....................................     $ 12,053      $ 17,247
  Secure Communications Products........................       19,132        18,648
  Spectria .............................................        1,835         4,305
                                                             --------      --------
    Total revenues .....................................       33,020        40,200

Operating expenses:
  Cost of eSecurity Products ...........................        6,137         7,531
  Cost of Secure Communications Products ...............       15,143        15,178
  Cost of Spectria .....................................        1,334         2,635
  Selling, general and administrative ..................        7,895        13,021
  Research and development .............................        1,849         3,028
  Goodwill amortization ................................           --           763
                                                             --------      --------
    Total operating expenses ...........................       32,358        42,156
                                                             --------      --------

Operating income (loss) ................................          662        (1,956)

Loss on marketable trading securities ..................          (31)       (2,589)
Interest income ........................................           88           226
Interest expense .......................................          (51)          (31)
Other income, net ......................................          250           203
                                                             --------      --------
Income (loss) before income taxes ......................          918        (4,147)
Provision (benefit) for income taxes ...................          349        (1,576)
                                                             --------      --------
Net income (loss) ......................................     $    569      $ (2,571)
                                                             ========      ========

Net income (loss) per share:
   Basic ...............................................     $   0.02      $  (0.10)
                                                             ========      ========
   Diluted .............................................     $   0.02      $  (0.10)
                                                             ========      ========

Shares used in computing net income (loss) per share:
   Basic ...............................................       26,405        26,022
                                                             ========      ========
   Diluted .............................................       27,998        26,022
                                                             ========      ========
</TABLE>

                             See accompanying notes.


                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                        Three Months Ended
                                                                  ------------------------------
                                                                  March 31, 2002  March 31, 2001
                                                                  --------------  --------------
                                                                           (unaudited)

<S>                                                                   <C>            <C>
Net income (loss) ...............................................     $  569          $ (2,571)
Other comprehensive loss:
  Foreign currency translation adjustment .......................       (524)           (1,702)
  Unrealized loss on securities .................................        (37)              (50)
                                                                      ------          --------
  Other comprehensive loss, before income taxes .................       (561)           (1,752)
  Benefit for income taxes related to other comprehensive loss ..        213               666
                                                                      ------          --------
  Other comprehensive loss, net of taxes ........................       (348)           (1,086)
                                                                      ------          --------
Comprehensive income (loss) .....................................     $  221          $ (3,657)
                                                                      ======          ========
</TABLE>

                             See accompanying notes.


                                       6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                     Three Months Ended
                                                                              --------------------------------
                                                                              March 31, 2002    March 31, 2001
                                                                              --------------    --------------
                                                                                         (unaudited)
<S>                                                                              <C>               <C>
Cash flows from operating activities:
  Net income (loss) ....................................................         $    569          $ (2,571)
  Adjustments to reconcile net income (loss) to net cash provided by
    operating activities:
  Amortization .........................................................            1,320             1,818
  Depreciation .........................................................              960               874
  Change in deferred income taxes ......................................           (1,077)             (175)
  Reversal of allowance for doubtful accounts ..........................             (672)             (131)
  Minority interest in subsidiary's earnings (loss) ....................               44                --
  Unrealized loss on marketable trading securities .....................               31             2,589
  Provision for excess and obsolete inventory ..........................            1,248             1,161
  Write-off of capitalized and developed software ......................              394                --
  Tax benefit of exercise of common stock options ......................              695               137
  Changes in operating assets and liabilities:
    Accounts receivable ................................................            2,173             9,599
    Inventories ........................................................              (14)             (243)
    Unbilled costs and fees ............................................              751              (968)
    Prepaid expenses and other current assets ..........................             (410)               19
    Accounts payable ...................................................           (1,756)           (2,155)
    Accrued liabilities ................................................           (1,249)           (4,891)
    Income taxes .......................................................              318            (1,636)
                                                                                 --------          --------
      Net cash provided by operating activities ........................            3,325             3,427
Cash flows from investing activities:
  Purchases of property, plant and equipment ...........................             (357)           (2,490)
  Other non-current assets .............................................              509              (655)
  Capitalized software development costs ...............................              (69)           (2,153)
                                                                                 --------          --------
      Net cash provided by (used in) investing activities ..............               83            (5,298)
Cash flows from financing activities:
  Exercise of common stock options .....................................            2,198               404
  Repayment of line of credit ..........................................               --            (3,129)
  Repayment of long-term debt ..........................................              (51)              (51)
                                                                                 --------          --------
      Net cash provided by (used in) financing activities ..............            2,147            (2,776)
Effect of exchange rate changes on cash ................................              (50)              928
                                                                                 --------          --------
Net increase (decrease) in cash and cash equivalents ...................            5,505            (3,719)
Cash and cash equivalents at beginning of period .......................           28,778            19,458
                                                                                 --------          --------
Cash and cash equivalents at end of period .............................         $ 34,283          $ 15,739
                                                                                 ========          ========
</TABLE>

                             See accompanying notes.


                                       7
<PAGE>

                           RAINBOW TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2002
                                   (Unaudited)

1. Basis of presentation

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 and provides privacy
and security for network communications; develops and manufactures secure
communication products for satellite communications; and provides customized
eBusiness consulting services. The accompanying financial statements consolidate
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. Certain amounts
previously reported have been reclassified to conform to the 2002 presentation.

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.

Management determines the appropriate classification of its investments in
marketable securities at the time of purchase. 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. 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 loss within Shareholders'
Equity.

In the opinion of the Company's management, the accompanying condensed
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position at March 31, 2002 and results of operations for the three months ended
March 31, 2002 and 2001. The condensed consolidated financial statements do not
include footnotes and certain financial information normally presented annually
under generally accepted accounting principles and, therefore, should be read in
conjunction with the Company's December 31, 2001 Annual Report on Form 10-K.
Results of operations for the three months ended March 31, 2002 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 and Japan. The Company utilizes the
currencies of the countries where its foreign subsidiaries operate as the
functional currency. Balance sheet accounts denominated in foreign currency 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 Loss within Shareholders' Equity. The Company
has adopted local currencies as the functional currencies for its subsidiaries
because their principal economic activities are most closely tied to the
respective local currencies.

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 reflect the assumed conversion of all diluted
securities.

3. 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 completed contracts.

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.


                                       8
<PAGE>

4. 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.

Inventories consist of the following:
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                           March 31, 2002      December 31, 2001
                                                                           --------------      -----------------
<S>                                                                          <C>                  <C>
          Raw materials............................................          $  12,353            $  14,016
          Work in process..........................................              2,317                2,643
          Finished goods...........................................              6,193                5,883
          Inventoried costs relating to long-term contracts, net of
             amounts attributed to revenues recognized to date.....              4,855                4,569
          Reserve for excess and obsolete inventory................             (6,276)              (6,400)
                                                                             ---------            ---------
                                                                             $  19,442            $  20,711
                                                                             =========            =========
</TABLE>

5. Goodwill and other intangible assets

Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations" and No. 142 "Goodwill and
other Intangible Assets." SFAS No. 141 addresses financial accounting and
reporting for a business combination and requires all business combinations to
be accounted for using the purchase method. SFAS No. 141 is effective for any
business combinations initiated after June 30, 2001. SFAS No. 142 addresses the
initial recognition and measurement of goodwill and other intangible assets
acquired in a business combination. Goodwill and other intangible assets with
indefinite lives will no longer be amortized but instead be subject to
impairment tests at least annually. Under SFAS No. 142, the Company ceased to
amortize its remaining goodwill balance which will result in reduced
amortization of approximately $1.9 million, net of tax, in fiscal 2002. Total
amortization expense for the three months ended March 31, 2002 for other
intangible assets, subject to amortization was $1.3 million. The Company will
perform the first of the required impairment tests of goodwill and
indefinite-lived intangible assets under the new rules prior to June 30, 2002.
The Company has not yet determined the effect, if any, these tests will have on
its consolidated results of operations and financial condition. If impairment
is indicated as a result of the tests, the Company will record such impairment
as a cumulative effect of a change in accounting principle effective January 1,
2002.

The following table reconciles the Company's net income (loss) and net income
(loss) per share as reported, to the amounts adjusted for the exclusion of
goodwill amortization, net of the related income tax effect for the period prior
to the adoption of SFAS No. 142 (dollars in thousands, except per share
amounts):

<TABLE>
<CAPTION>
                                                                            Three Months Ended
                                                                    ---------------------------------
                                                                    March 31, 2002     March 31, 2001
                                                                    --------------     --------------
<S>                                                                    <C>               <C>
          Net income (loss):
               As reported ...................................         $     569         $  (2,571)
               eSecurity goodwill amortization ...............                --               156
               Spectria goodwill amortization ................                --               317
                                                                       ---------         ---------

               As adjusted ...................................         $     569         $  (2,098)
                                                                       =========         =========

          Basic and diluted net income (loss) per share:
               As reported ...................................         $    0.02         $   (0.10)
               eSecurity goodwill amortization ...............                --              0.01
               Spectria goodwill amortization ................                --              0.01
                                                                       ---------         ---------

               As adjusted ...................................         $    0.02         $   (0.08)
                                                                       =========         =========
</TABLE>

The following table presents details of the Company's other intangible assets
that are subject to amortization (dollars in thousands):

<TABLE>
<CAPTION>
                                      March 31, 2002                       December 31, 2001
                             -----------------------------------   -----------------------------------
                                        Accumulated                           Accumulated
                              Gross     Amortization      Net       Gross     Amortization      Net
                             --------   ------------    --------   --------   ------------    --------
<S>                          <C>        <C>             <C>        <C>        <C>             <C>
Software development costs   $ 21,983   $    (12,516)   $  9,467   $ 21,986   $    (11,218)   $ 10,768
Product license ..........      9,475         (4,219)      5,256      7,567         (3,537)      4,030
                             --------   ------------    --------   --------   ------------    --------
Total ....................   $ 31,458   $    (16,735)   $ 14,723   $ 29,553   $    (14,755)   $ 14,798
                             ========   ============    ========   ========   ============    ========
</TABLE>

At March 31, 2002, the amortization of the remaining balance of other intangible
assets of $14.7 million will be $3.3 million for the remainder of 2002. The
amortization for each of the fiscal years 2003, 2004, 2005, 2006 and thereafter
will be $3.6 million, $2.5 million, $1.2 million, $0.9 million and $0.8 million,
respectively. At March 31, 2002, the Company had $2.4 million of unamortized
software development costs included in the remaining balance of other intangible
assets of $14.7 million, which has not begun amortization. Amortization of
software development costs commences when the products are available for general
release to customers.

                                       9
<PAGE>

6. Software development costs


Statement of Financial Accounting Standards 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 on 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
are determined using the straight-line method over the expected useful lives of
the respective products. These amounts are written-off if it is determined that
the projects cannot be brought to market.

7. Other assets

Other assets primarily represent investments in early stage companies that are
accounted for on the cost basis. The Company periodically reviews these
investments for other-than-temporary declines in fair value and writes down
investments to their fair value when an other-than-temporary decline has
occurred based on the specific identification method. The Company generally
believes an other-than-temporary decline has occurred when the fair value of the
investment is below the carrying value for two consecutive quarters, absent
evidence to the contrary.

8. Industry segments

The Company operates in three business segments. 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 third segment offers consulting services
for developing specialized applications including solutions for secure
enterprise web portals, wireless applications, enterprises network intrusion
auditing and security training for enterprise IT staff (Spectria segment). These
three business segments are increasing working closely together. The
identifiable assets, after applicable eliminations, for each segment as of March
31, 2002 were $104.0 million, $27.7 million and $14.3 million, respectively,
compared with $101.9 million, $27.7 million and $16.4 million as of December 31,
2001.

Intercompany revenues for the three months ended March 31, 2002 and 2001 were
$2,000 and $175,000, respectively. Intercompany revenues are generated by the
secure communications segment.

9. New accounting pronouncements

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 supersedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," for the disposal of a segment of a business (as
previously defined in that opinion). SFAS No. 144 requires that one accounting
model be used for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and broadens the presentation of
discontinued operations to include more disposal transactions than were included
under the previous standards. The Company's adoption of SFAS No. 144 in January,
2002, did not have a material effect in the Company's results of operations and
financial condition.


                                       10
<PAGE>

10. Restructuring charges

In the third quarter of 2001, the Company restructured and consolidated its DRM
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 $6.4 million.

The following table summarizes the Company's restructuring costs and activities
in the restructuring reserves (dollars in thousands):

                                                 FACILITIES
                                                     AND
                                                  EQUIPMENT  SEVERANCE   Total
                                                 ----------  ---------   -----

Charged to costs and expenses at
  September 30, 2001                               $ 5,271    $ 1,131   $ 6,402
Cash payments                                         (698)      (931)   (1,629)
                                                   -------    -------   -------
Restructuring balance, December 31, 2001             4,573        200     4,773
Cash payments                                         (320)       (86)     (406)
                                                   -------    -------   -------

Restructuring balance, March 31, 2002              $ 4,253    $   114   $ 4,367
                                                   =======    =======   =======

The current portion of the restructuring reserve of $2.9 million relating to
office space reduction and severance is shown separately under current
liabilities while the long-term portion of the reserve of $1.5 million is
recorded in other liabilities. Exit activities are anticipated to continue
through 2002 with certain lease obligations currently expiring in 2005.


                                       11
<PAGE>

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

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

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 in the proportion that costs incurred to date
bear to total estimated costs. Spectria recognizes revenues from eBusiness
consulting fees as services are performed on a time and materials basis.

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 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. It is possible
that changes in required inventory reserves may continue to occur in the future
due to market conditions.

Income Taxes

      The Company currently has significant deferred tax assets, which are
subject to periodic recoverability assessments. There is no valuation allowance
provided against the deferred tax assets as the Company believes it is more
likely than not that these assets will be realized. This conclusion is based
upon the expectation of future taxable income and tax planning strategies. The
Company's judgment regarding future taxable income may change due to future
market conditions and its ability to continue to successfully execute its
restructuring program and other factors. These changes, if any, may require
possible material adjustments to these deferred tax asset balances.

Impairment of Goodwill

      The Company periodically evaluates acquired businesses for potential
impairment indicators. The Company's judgment regarding the existence of
impairment indicators is based on legal factors, market conditions and
operational performance of acquired businesses. Future events could cause the
Company to conclude that impairment indicators exist and that goodwill
associated with acquired businesses is impaired. Any resulting impairment loss
could have a material adverse impact on the Company's consolidated financial
condition and results of operations.

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 professional judgment in determining whether
development costs meet the criteria for immediate expense or capitalization.

      Statement of Financial Accounting Standards 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.

RESULTS OF OPERATIONS
(dollars in thousands)

                                                   Three Months Ended March 31,
                                                   ----------------------------
                                                      2002              2001
                                                   ---------          ---------
          Revenues
            eSecurity                               $ 12,053          $ 17,247
            Secure Communications                     19,132            18,648
            Spectria                                   1,835             4,305
                                                    --------          --------
              Total revenues                        $ 33,020          $ 40,200
                                                    ========          ========

          Operating Income (Loss)
            eSecurity                               $ (2,320)         $ (4,689)
            Secure Communications                      3,685             3,193
            Spectria                                    (703)             (460)
                                                    --------          --------
              Total operating income (loss)         $    662          $ (1,956)
                                                    ========          ========

REVENUES

On a consolidated basis, revenues for the three months ended March 31, 2002
decreased by 18% to $33.0 million from the same period in the prior year. The
decrease is due to lower revenues in the eSecurity and Spectria segments,
slightly offset by higher revenues in the Secure Communications segment.
Revenues from international markets for the three months ended March 31, 2002
decreased 30% to $5.2 million from the same period in the prior year. Revenues
from domestic markets also decreased by 15% to $27.8 million from the same
period in the prior year. The decrease in domestic revenues was due to the
aforementioned decreases in the eSecurity and Spectria segments. The decrease in
revenues from the international markets was primarily due to a decrease in
revenues in Europe partially offset by an increase in revenues in Asia Pacific.
The decrease in revenues in Europe was primarily due to lower demand for
security products while the increase in revenues in Asia Pacific was primarily
due to revenues generated by the Company's office in Japan, which was opened in
the fourth quarter of 2001.

eSecurity revenues for the three months ended March 31, 2002 decreased by 30% to
$12.1 million when compared to the same period in 2001. The decrease in revenues
was primarily due to decreased demand in North America and Europe for business
software applications and a decline in OEM markets for Cryptoswift SSL
acceleration devices.

Secure Communications revenues for the three months ended March 31, 2002
increased 3% to $19.1 million when compared to the same period in 2001. The
increase in revenues was primarily due to continued growth demand for network
security products.

Spectria revenues for the three months ended March 31, 2002 decreased 57% to
$1.8 million when compared to the same period in 2001. The decrease was due to
the decline in demand for IT consulting services, resulting in several contracts
being scaled back, delayed or discontinued.

GROSS PROFIT

Gross profit from eSecurity products for the three months ended March 31, 2002
decreased to 49% of revenues compared to 56% of revenues for the corresponding
period in 2001. The decrease in gross profit as a percentage of revenues was
primarily due to increased overhead costs allocated over a lower revenue base.


                                       12
<PAGE>

Gross profit from Secure Communications for the three months ended March 31,
2002 increased to 21% of revenues as compared to 19% of revenues for the
corresponding period in 2001. The increase in gross profit was primarily due to
a change in mix to more profitable products.

Gross profit from Spectria for the three months ended March 31, 2002 decreased
to 27% of revenues as compared to 39% of revenues for the corresponding period
in 2001. The decrease in gross profit was primarily due to the significant
decline in revenues per consultant.

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 for the three
months ended March 31, 2002 were $7.9 million or 24% of revenues as compared to
$13.0 million or 32% of revenues for the three months ended March 31, 2001. The
decrease reflected the overall reduction in expenses primarily in the eSecurity
and Spectria segments, as a result of a decrease in staff and lower marketing
expenses.

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 for the three months
ended March 31, 2002 were $1.8 million or 6% of revenues, as compared with
research and development expenses of $3.0 million or 8% of revenues for the
three months ended March 31, 2001. The decrease in research and development
expenses was primarily due to a decrease in compensation as a result of the
decrease in staff and greater use of research and development resources in India
and China, partially offset by higher costs capitalized in the corresponding
period in 2001.

MARKETABLE TRADING SECURITIES

During the second quarter and third quarter of fiscal 2000, the Company acquired
securities and classified them as trading securities, as defined by SFAS No. 115
"Accounting for Certain Investments in Debt and Equity Securities." At March 31,
2001, the difference between the estimated fair value and the cost of the
securities acquired resulted in an unrealized loss of $2.6 million, which was
recognized in earnings for the three months ended March 31, 2001. Unrealized
losses for the three months ended March 31, 2002 amounted to $31,000.

PROVISION FOR INCOME TAXES

The effective tax rate was 38% for the three months ended March 31, 2002 and
2001.

ACCOUNTS RECEIVABLE

Accounts receivable at March 31, 2002 decreased by approximately $1.6 million to
$22.9 million as compared with $24.5 million at December 31, 2001. This decrease
was due to increased collection activities.

INVENTORIES

Raw materials decreased approximately $1.6 million to $12.4 million at March 31,
2002 as compared with $14.0 million at December 31, 2001. The decrease was
primarily due to a write-off of obsolete inventory recorded against the reserve.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of operating funds have been from operations.
Net cash provided by operations for the three months ended March 31, 2002 and
2001 were $3.3 million and $3.4 million, respectively. Operating activities in
2002 included a decrease in accounts receivable of $2.2 million primarily due to
increased collection activities and a non-cash charge of $1.2 million for
provision for excess and obsolete inventory. Operating activities in 2001
included a decrease in accounts receivable of $9.6 million primarily due to the
decrease in revenues relating to the Company's Cryptoswift product line and
non-cash charges of $2.6 million for unrealized loss on marketable trading
securities and $1.2 million for provision for excess and obsolete inventory.


                                       13
<PAGE>

Net cash provided by investing activities for the three months ended March 31,
2002 was $83,000 while net cash used in investing activities for the three
months ended March 31, 2001 was $5.3 million. Investing activities in 2001
included $2.5 million on capital expenditures and $2.2 million on development of
new products.

Net cash provided by financing activities for the three months ended March 31,
2002 was $5.5 million while net cash used in financing activities for the three
months ended March 31, 2001 was $2.8 million. Financing activities in 2002
included $2.2 million of exercise of common stock options while financing
activities in 2001 included a $3.1 million repayment of the line of credit.

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, 2002, the Company's subsidiaries in the United Kingdom, Germany,
France, Netherlands and Japan carry approximately $1.0 million, $0.8 million,
$1.5 million, $2.6 million and $2.1 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 $73.0 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.

PART II. OTHER INFORMATION

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 September 30, 1996, by and among
            the Company, RNBO Acquisition Corporation, a Nevada corporation and
            a wholly-owned subsidiary of the Company, and Software Security,
            Inc., a Connecticut corporation (incorporated by reference to
            Exhibit 2(ii) of the Company's 1996 Annual Report on Form 10-K under
            the Securities Exchange Act of 1934 filed in March 1997 (the "1996
            10-K")).

  2(iii)    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)     Lease for premises at 50 Technology Drive, Irvine, California, dated
            June 1, 1995, between the Company and Birtcher Medical Systems,
            Inc., a California corporation (filed as an exhibit to the Company's
            1995 Form 10-K).

  10(b)     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(c)     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).


                                       14
<PAGE>

 EXHIBIT
  NUMBER                                 DESCRIPTION
 -------                                 -----------

  10(d)     1990 Incentive Stock Option Plan as amended (incorporated by
            reference to Exhibit 10(j) of the 1991 10-K).

  10(e)     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(f)     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(g)     Employment Agreement, dated January 15, 1992, between the Company
            and Peter M. Craig (incorporated by reference to Exhibit 10(m) of
            the 1991 10-K).

  10(h)     Change of Control Agreement, dated January 15, 1992, between the
            Company and Peter M. Craig (incorporated by reference to Exhibit
            10(n) of the 1991 10-K).

  10(i)     Employment Agreement, dated January 5, 1995, between the Company and
            Norman L. Denton, III (incorporated by reference to Exhibit 10(j) of
            the Company's 1994 Annual Report on Form 10-K under the Securities
            Exchange Act of 1934, filed in March 1995 (the "1994 10-K")).

  10(j)     Change of Control Agreement, dated January 5, 1995, between the
            Company and Norman L. Denton, III (incorporated by reference to
            Exhibit 10(k) to the 1994 10-K).

  10(k)     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(l)     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(m)     Employment Agreement, dated January 5, 1995, between the Company and
            Paul A. Bock (incorporated by reference to Exhibit 10(n) of the 1994
            10-K).

  10(n)     Change of Control Agreement, dated January 5, 1995, between the
            Company and Paul A. Bock (incorporated by reference to Exhibit 10(o)
            of the 1994 10-K).

  10(o)     Employment Agreement, dated April 7, 1997, between the Company and
            Aviram Margalith (incorporated by reference to Exhibit 10(o) of the
            1997 10-K).

  10(p)     Change of Control Agreement, dated April 7, 1997, between the
            Company and Aviram Margalith (incorporated by reference to Exhibit
            10(p) of the 1997 10-K).

  10(q)     Employment Agreement, dated January 1, 1998, between the Company and
            Laurie Casey (incorporated by reference to Exhibit 10(q) of the 1997
            10-K).

  10(r)     Change of Control Agreement, dated January 1, 1998, between the
            Company and Laurie Casey (incorporated by reference to Exhibit 10(r)
            of the 1997 10-K).

  10(s)     Employment Agreement, dated January 1, 1998, between the Company and
            Richard Burris (incorporated by reference to Exhibit 10(s) of the
            1997 10-K).

  10(t)     Change of Control Agreement, dated January 1, 1998, between the
            Company and Richard Burris (incorporated by reference to Exhibit
            10(t) of the 1997 10-K).

  10(u)     Manufacturing Agreement, dated September 30, 1997, between
            AlliedSignal, Inc. and Mykotronx, Inc. (incorporated by reference to
            Exhibit 10(u) of the 1998 10-K).

  10(v)     Development Agreement, dated September 30, 1997, between
            AlliedSignal, Inc. and Mykotronx, Inc. (incorporated by reference to
            Exhibit 10(v) of the 1998 10-K).

  10(w)     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(x)     Leases for premises at 357, 359, and 371 Van Ness Way, Torrance,
            California, dated September 8, 1993, September 25, 1996 and October
            2, 1997, respectively, 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(y)     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(z)     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).


                                       15
<PAGE>

 EXHIBIT
  NUMBER                                 DESCRIPTION
 -------                                 -----------

  10(aa)    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(bb)    Asset Purchase Agreement, dated December 29, 2000 between Kaster
            Chase Applied Research Limited and Mykotronx, Inc. (incorporated by
            reference to Exhibit 10(bb) of the 2000 Form 10-K).

  10(cc)    2001 Nonstatutory Stock Option Plan (incorporated by reference to
            Rainbow's Registration Statement on Form S-8 filed under Securities
            Act of 1933).

(b) Reports on Form 8-K

      None


                                       16
<PAGE>

                                   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, 2002

                                        RAINBOW TECHNOLOGIES, INC.


                                        By:         /s/ Patrick Fevery
                                            ------------------------------------
                                                  Chief Financial Officer


                                       17