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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 SEPTEMBER 30, 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 October 31, 2002, was 26,216,249.

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RAINBOW TECHNOLOGIES, INC.

TABLE OF CONTENTS

						Page
PART I - FINANCIAL INFORMATION
Item 1.		Condensed Consolidated Financial Statements
		Condensed Consolidated Balance Sheets at September 30, 2002 (unaudited) and December 31, 2001					4
		Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2002 and 2001 (unaudited)					5
		Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2002 and 2001 (unaudited)					6
		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 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					14
Item 3.		Not applicable
Item 4.		Controls and Procedures					18
PART II - OTHER INFORMATION
Item 1 to 5 - Not applicable
Item 6.		Exhibits and reports on Form 8K					19
SIGNATURES							21
CERTIFICATIONS OF FINANCIAL REPORTS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002							22

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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 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.

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

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

						September 30, 2002				December 31, 2001
						(unaudited)
ASSETS
Current assets:
		Cash and cash equivalents				$	42,128			$	28,778
		Marketable available-for-sale and trading securities					160				1,195
		Accounts receivable, net of allowance for doubtful accounts of $988 and $1,858 in 2002 and 2001, respectively					17,045				24,492
		Inventories					10,080				20,711
		Income tax receivable					5,013				1,844
		Deferred income taxes					—				13,901
		Unbilled costs and fees					1,470				2,227
		Prepaid expenses and other current assets					1,558				1,634
				Total current assets			77,454				94,782
Property, plant and equipment, at cost:
		Equipment					22,167				20,838
		Buildings					7,344				6,655
		Furniture					2,937				2,810
		Leasehold improvements					2,941				2,946
							35,389				33,249
		Less accumulated depreciation and amortization					21,013				17,336
				Net property, plant and equipment			14,376				15,913
		Goodwill, net of accumulated amortization of $35,496 and $22,104 in 2002 and 2001, respectively					1,684				15,638
		Software development costs, net of accumulated amortization of $19,050 and $11,218 in 2002 and 2001, respectively					3,945				10,768
		Product licenses, net of accumulated amortization of $5,094 and $3,537 in 2002 and 2001, respectively					4,425				4,030
		Deferred income taxes					—				2,421
		Other assets					1,861				2,413
						$	103,745			$	145,965
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
		Accounts payable				$	7,464			$	9,929
		Accrued payroll and related expenses					6,039				5,063
		Accrued restructuring costs					2,326				3,130
		Warranty reserve					2,261				2,417
		Other accrued liabilities					6,024				5,041
		Long-term debt, due within one year					234				211
				Total current liabilities			24,348				25,791
		Long-term debt, net of current portion					351				476
		Other liabilities					2,713				2,959
		Commitments and contingencies
		Shareholders’ equity:
		Common stock, $.001 par value, 55,000,000 shares authorized, 26,713,270 and 26,157,594 shares issued and outstanding in 2002 and 2001, respectively					27				26
		Additional paid-in capital					60,250				56,885
		Accumulated other comprehensive loss					(363	)			(1,539	)
		Retained earnings					18,830				61,367
							78,744				116,739
Less cost of treasury shares (517,000 shares)							(2,411	)			—
				Total shareholders’ equity			76,333				116,739
						$	103,745			$	145,965

See accompanying notes.

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

See accompanying notes.

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

See accompanying notes.

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