Revenues for the first six months of 2001 are up three percent to $77.5 million from $75.3 million for the first six months of 2000. During the quarter, the Company incurred a net loss of $2.3 million or $0.09 per diluted share compared with net income of $5 million or $0.18 per diluted share in Q2-2000.

In the third quarter, Rainbow is restructuring and consolidating its Digital Rights Management and iVEA operations, resulting in a net staff reduction of more than 20 percent in North America. For Q3-2001, Rainbow anticipates taking charges of $18 to $20 million related to the Company’s restructuring and consolidation of operations. In addition, the Company has instituted expense control measures to improve profitability.

This has been a difficult quarter for Rainbow, our shareholders, employees, and customers, said Walt Straub, president and CEO, Rainbow Technologies. Faced with these losses, we must balance today’s difficult economic reality with our future growth opportunities. We believe the changes that we are making will help the Company return to overall profitability.

Revenues for Secure Communications increased by 46% to $17.1 million compared to $11.7 million in Q2-2000. The backlog remains strong due to continued demand for the KIV-7 link-encryption and satellite ground unit security products business.

Revenues for the Company’s Digital Rights Management (DRM) segment, which focuses on software security and authentication security solutions, were $12.3 million in Q2-2001, down 13 percent from $14.1 million in Q2-2000. The Company’s Sentinel product line continues to be negatively impacted by the slowdown of high-end software sales throughout Europe and North America.

Revenues for the Company’s i-Key product line are expected to double this year. The i-Key was recently certified by Computer Associates for interoperability with CA’s security software solutions.

Revenues for the Rainbow iVEA segment, which manufactures and markets Internet performance and security solutions, were down 47 percent at $4.2 million in Q2-2001 versus $7.9 million in Q2-2000. Revenues for this business segment continue to be impacted by the slowdown in worldwide Internet infrastructure markets and new orders from several OEM customers. During Q2-2001, iVEA shipped first production units of the new NetSwift 2012 wired/wireless acceleration appliance in addition to shipping new versions of the CryptoSwift HSM high assurance accelerator.

Revenues for Spectria, Rainbow’s services segment, were $3.8 million for Q2-2001 compared to $5.1 million in Q2-2000. The decrease in revenue was due to redirecting our business to Fortune 1000 customers. This change and new business direction has resulted in profitable operations for Q2-2001, before goodwill amortization. During the quarter, Spectria’s new business activity generated sales of Rainbow’s DRM and iVEA business products, demonstrating emerging synergy with other Rainbow business segments.

SOURCE: COMPANY PRESS RELEASE