Rainbow (RNBO) 8-K Rainbow Technologies Q2-2003 Financial Results

Exhibit 99

NEWS RELEASE

Donna Smith, Manager Investor Relations	Dan Chmielewski
Rainbow Technologies, Inc.	Rainbow Technologies, Inc.
(949) 450-7350	949-450-7377
f: (949) 753-9507	dchm@rainbow.com
dsmith@rainbow.com

Rainbow Technologies Q2-2003 Financial Results

Legal Settlement Expense Impacts Earnings That Met Revised Guidance

     IRVINE, California – July 23, 2003 —Rainbow Technologies, Inc. (Nasdaq:RNBO) today announced revenues for Q2 2003 of $33.3 million, up 8 percent year-over-year. The company reported a loss of $0.02 per share, which includes a $3.6 million litigation settlement expense, versus a $1.09 loss per share from continuing operations in Q2 2002.

     Last week, the company negotiated a settlement relating to a pending litigation matter for which it has been incurring substantial legal expenses. Excluding the settlement cost of $3.6 million and tax effect, the company earned $0.09 per share, in line with revised estimates issued by the company on July 2, 2003.

     Revenue for the company’s Secure Communications business segment for the second quarter was $21.3 million, up 14% year-over-year. The growth is attributed to strong demand for network link encryptors, voice and data security solutions, and commercial high-assurance security products. The company forecasts continued favorable performance for this segment as a result of increased product demand and strong backlog.

     Second quarter revenue for the eSecurity business segment was $12.1 million, down 2 percent year-over-year due to planned attrition in OEM product revenues. On a global basis, the company is experiencing solid demand for its software protection products, and sales activity for its iKey and iGate products has shown improvement. During the quarter, the company acquired Proteq, Ltd., the largest supplier of software protection technology in South America, to create Rainbow-Brazil. The Brazilian IT market is anticipated to

grow about 10 percent over the next three years and has strong government support for PKI. The company anticipates sequential revenue improvement for the eSecurity segment in Q4 2003.

     “Rainbow anticipates that total revenues for Q3 and Q4 2003 will be up sequentially, due primarily to continued strength in the government business and international markets. Ongoing softness in IT spending, particularly in North America, continues to impact our eSecurity division,” said Walt Straub, President and CEO of Rainbow.

     Rainbow will host a conference call and Web cast on Wednesday, July 23, 2003, at 1:30 p.m., PDT. Participants may access the conference at (888) 261-2573. To access the live Web cast, go to the company’s Website at www.rainbow.com and select the Investor Relations navigation button. Click on the Web cast link. The Web cast will be available for seven business days following the conference, and will be available thereafter at the Investor Relations Archive navigation button. Audio replay will be available at (800) 642-1687 or (706) 645-9291 at approximately 4:30 p.m., PDT, on July 23, 2003, reference passcode 1638236.

About Rainbow Technologies, Inc.

     Making security simple since 1979, Rainbow Technologies is a leading provider of proven information security solutions for mission-critical data and applications used in business, organization and government computing environments. Rainbow has been breaking the security paradigm by making complex security simple to implement and use for more than two decades. With headquarters in Irvine, Calif., Rainbow maintains offices and authorized distributors throughout the world. For more information, visit the Web site at http://www.rainbow.com.

     Rainbow Technologies, Rainbow Mykotronx, NetSwift iGate and iKey are trademarks of Rainbow Technologies, Inc. All other company and product names are trademarks of their respective organizations.

# # #

     The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements, certain of which are contained in this press release and include, but are not limited to, the outlook for business segment performance, revenue, backlog, litigation, tax effect, IT spending, particularly in North America, outlook for future business performance, and global business environment. These statements speak only as of the date of this press release and are subject to various risks and uncertainties that could impact actual results.

RAINBOW TECHNOLOGIES, INC
Financial Highlights
(in thousands, except per share amounts)

		Three months ended						Six months ended
		June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002
Revenues		$	33,304		$	30,980		$	67,173		$	62,165
Income (loss) from continuing operations		$	(693	)	$	(28,959	)	$	2,362		$	(27,686	)
Loss from discontinued operations		$	—		$	(15,963	)	$	(86	)	$	(16,668	)
Net income (loss)		$	(693	)	$	(44,922	)	$	2,276		$	(44,354	)
Basic income (loss) per share:
	Continuing operations	$	(0.03	)	$	(1.09	)	$	0.09		$	(1.05	)
	Discontinued operations		—			(0.60	)		—			(0.63	)
Net income (loss)		$	(0.03	)	$	(1.69	)	$	0.09		$	(1.68	)
Diluted income (loss) per share:
	Continuing operations	$	(0.02	)	$	(1.09	)	$	0.08		$	(1.05	)
	Discontinued operations		—			(0.60	)		—			(0.63	)
Net income (loss)		$	(0.02	)	$	(1.69	)	$	0.08		$	(1.68	)
Weighted average shares:
	Basic		26,830			26,546			26,645			26,476
	Diluted		28,103			26,546			27,919			26,476

By Business Segment

		Three months ended						Six months ended
		June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002
Revenues:
	eSecurity Products	$	12,053		$	12,280		$	25,310		$	24,333
	Secure Communications Products		21,251			18,700			41,863			37,832
Consolidated		$	33,304		$	30,980		$	67,173		$	62,165
Operating Income (Loss):
	eSecurity Products	$	(2,349	)	$	(17,803	)	$	(2,297	)	$	(19,823	)
	Secure Communications Products		1,869			2,170			5,656			5,555
Consolidated		$	(480	)	$	(15,633	)	$	3,359		$	(14,268	)

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

		Three months ended															Six months ended
		June 30,			% of			June 30,			% of			%			June 30,			% of			June 30,			% of			%
		2003			Revenues			2002			Revenues			Change			2003			Revenues			2002			Revenues			Change
Revenues:
	eSecurity Products	$	12,053			36	%	$	12,280			40	%		-2	%	$	25,310			38	%	$	24,333			39	%		4	%
	Secure Communications Products		21,251			64	%		18,700			60	%		14	%		41,863			62	%		37,832			61	%		11	%
	Total revenues		33,304			100	%		30,980			100	%		8	%		67,173			100	%		62,165			100	%		8	%
Operating expenses:
	Cost of eSecurity Products		4,163			13	%		19,225			62	%		-78	%		9,144			14	%		25,362			41	%		-64	%
	Cost of Secure Communications Products		15,620			47	%		15,107			49	%		3	%		31,215			46	%		30,250			49	%		3	%
	Selling, general and administrative		8,164			25	%		9,400			30	%		-13	%		15,882			24	%		16,091			26	%		-1	%
	Research and development		2,205			7	%		2,881			9	%		-23	%		3,941			6	%		4,730			8	%		-17	%
	Litigation settlement		3,632			11	%		—			0	%		—			3,632			5	%		—			0	%		—
	Total operating expenses		33,784			101	%		46,613			150	%		-28	%		63,814			95	%		76,433			123	%		-17	%
Operating income (loss)			(480	)		-1	%		(15,633	)		-50	%		-97	%		3,359			5	%		(14,268	)		-23	%		-124	%
	Loss on long-term investments and marketable securities		(371	)		-1	%		(59	)		0	%		529	%		(1,207	)		-2	%		(90	)		0	%		1241	%
	Interest income		135			0	%		119			0	%		13	%		249			0	%		207			0	%		20	%
	Interest expense		(18	)		0	%		(31	)		0	%		-42	%		(36	)		0	%		(79	)		0	%		-54	%
	Other income, net		19			0	%		29			0	%		-34	%		515			1	%		277			0	%		86	%
Income (loss) from continuing operations before income taxes			(715	)		-2	%		(15,575	)		-50	%		-95	%		2,880			4	%		(13,953	)		-22	%		-121	%
	Provision for income taxes		22			0	%		(13,384	)		-43	%		-100	%		(518	)		-1	%		(13,733	)		-22	%		-96	%
Income (loss) from continuing operations			(693	)		-2	%		(28,959	)		-93	%		-98	%		2,362			4	%		(27,686	)		-45	%		-109	%
	Loss from discontinued operations, net of applicable taxes		—			0	%		(15,963	)		-52	%		-100	%		(86	)		0	%		(16,668	)		-27	%		-99	%
Net income (loss)		$	(693	)		-2	%	$	(44,922	)		-145	%		-98	%	$	2,276			3	%	$	(44,354	)		-71	%		-105	%
Basic income (loss) per share:
	Continuing operations	$	(0.03	)				$	(1.09	)							$	0.09					$	(1.05	)
	Discontinued operations		—						(0.60	)								—						(0.63	)
	Net income (loss)	$	(0.03	)				$	(1.69	)							$	0.09					$	(1.68	)
Diluted income (loss) per share:
	Continuing operations	$	(0.02	)				$	(1.09	)							$	0.08					$	(1.05	)
	Discontinued operations		—						(0.60	)								—						(0.63	)
	Net income (loss)	$	(0.02	)				$	(1.69	)							$	0.08					$	(1.68	)
Weighted average shares:
	Basic		26,830						26,546									26,645						26,476
	Diluted		28,103						26,546									27,919						26,476

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

		June 30, 2003			December 31, 2002
ASSETS
Current assets:
	Cash and cash equivalents	$	58,973		$	50,922
	Marketable available-for-sale and trading securities		249			301
	Accounts receivable, net of allowance for doubtful accounts of $583 and $626 in 2003 and 2002, respectively		18,327			19,221
	Inventories		9,549			9,308
	Income tax receivable		5,967			5,572
	Prepaid expenses and other current assets		3,324			1,765
	Total current assets		96,389			87,089
Property, plant and equipment, at cost:
	Equipment		22,806			21,981
	Buildings		8,449			7,769
	Furniture		3,038			2,909
	Leasehold improvements		3,068			2,889
			37,361			35,548
	Less accumulated depreciation and amortization		23,919			21,628
	Net property, plant and equipment		13,442			13,920
Software development costs, net of accumulated amortization of $9,190 and and $8,156 in 2003 and 2002, respectively			3,379			3,775
Product licenses, net of accumulated amortization of $6,465 and $5,567 in 2003 and 2002, respectively			2,902			3,726
Goodwill			2,724			1,898
Other assets			692			1,181
	Total Assets	$	119,528		$	111,589
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable	$	7,673		$	8,138
	Accrued payroll and related expenses		4,701			6,602
	Warranty reserve		2,185			1,844
	Income taxes payable		2,075			1,442
	Other accrued liabilities		8,148			6,908
	Total current liabilities		24,782			24,934
Long-term accrued restructuring costs			2,121			2,349
Other liabilities			1,605			1,926
Commitments and contingencies
Shareholders’ equity:
	Common stock, $001 par value, 55,000,000 shares authorized, 26,775,462 and 26,268,936 shares issued and outstanding in 2003 and 2002, respectively		27			26
	Common stock to be issued		1,632			—
	Additional paid-in capital		61,515			58,313
	Accumulated other comprehensive income		2,762			348
	Retained earnings		25,969			23,693
			91,905			82,380
	Less cost of treasury shares (102,973 shares)		(885	)		—
	Total shareholders’ equity		91,020			82,380
	Total Liabilities and Shareholders’ Equity	$	119,528		$	111,589