SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549


                                    FORM 10-Q


             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 27, 1997

                           Commission File No. 0-27742


                               CYLINK CORPORATION
             (Exact name of registrant as specified in its charter)


        California                                         95-3891600
(State or other jurisdiction of                         (I.R.S. Employer
 incorporation or organization)                        Identification No.)


                                910 Hermosa Court
                           Sunnyvale, California 94086
                    (Address of principal executive offices)


                                 (408) 735-5800
              (Registrant's telephone number, including area code)


Indicate by check mark whether the Registrant (1) 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  (2) has  been  subject  to such  filing
requirements for the past 90 days.
Yes     X        No
     -------         -------

As of August 7, 1997, there were 25,973,394  shares of the  Registrant's  Common
Stock outstanding.

<PAGE>


PART I.  FINANCIAL INFORMATION
Item 1.   Financial Statements

<TABLE>

CYLINK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data; unaudited)
<CAPTION>

                                                                               June 27,          December 31,
                                                                                1997                  1996 
                                                                             ---------             ---------
<S>                                                                          <C>                   <C>      
                                Assets
Current assets:
   Cash and cash equivalents                                                 $  68,966             $  78,849
   Accounts receivable, net of allowance
      for doubtful accounts of $409 and $644                                    17,242                12,682
   Inventories                                                                  10,163                 8,828
   Deferred income taxes                                                         1,432                 1,432
   Other current assets                                                          1,755                 1,351
                                                                             ---------             ---------
            Total current assets                                                99,558               103,142

Property and equipment, net                                                      4,896                 3,760
Notes receivable from employees                                                  3,473                  --   
Other assets                                                                       940                   186
                                                                             ---------             ---------
                                                                             $ 108,867             $ 107,088
                                                                             =========             =========
                 Liabilities and Shareholders' Equity
Current liabilities:
   Current portion of capital lease obligations                              $     167             $     167
   Accounts payable                                                              2,320                 3,954
   Accrued liabilities                                                           5,566                 5,150
   Deferred revenue                                                                244                   353
                                                                             ---------             ---------
         Total current liabilities                                               8,297                 9,624
                                                                             ---------             ---------

Capital lease obligations, long-term                                               165                   241
                                                                             ---------             ---------

Deferred income taxes                                                               12                    12
                                                                             ---------             ---------

Shareholders' equity:
   Preferred stock, $0.01 par value;
     5,000,000 shares authorized;  none issued and outstanding                    --                    --
   Common stock, $0.01 par value; 40,000,000 shares authorized;
      25,948,000 and 25,597,000 shares issued and outstanding                      259                   257
   Additional paid-in capital                                                   90,330                89,772
   Notes receivable from shareholders                                               (5)                 (301)
   Deferred compensation related to stock options                                 (292)                 (334)
   Cumulative translation adjustment                                               (42)                    4
   Retained earnings                                                            10,143                 7,813
                                                                             ---------             ---------
            Total shareholders' equity                                         100,393                97,211
                                                                             ---------             ---------
                                                                             $ 108,867             $ 107,088
                                                                             =========             =========

<FN>
     See accompanying notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>

                                        2

<PAGE>
<TABLE>

CYLINK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
<CAPTION>

                                                                           Three Months Ended                  Six Months Ended   
                                                                       -------------------------          -------------------------
                                                                        June 27,         June 28,          June 27,         June 28,
                                                                          1997            1996              1997              1996 
                                                                       --------         --------          --------         --------
<S>                                                                    <C>              <C>               <C>              <C>     
Revenue                                                                $ 18,269         $ 12,286          $ 34,451         $ 20,769
Cost of revenue                                                           5,847            4,954            11,722            8,831
                                                                       --------         --------          --------         --------
Gross profit                                                             12,422            7,332            22,729           11,938
                                                                       --------         --------          --------         --------

Operating expenses:
   Research and development, net                                          3,879            3,037             7,787            5,639
   Selling and marketing                                                  5,635            3,389             9,663            6,116
   General and administrative                                             2,232            1,526             4,209            2,661
                                                                       --------         --------          --------         --------
            Total operating expenses                                     11,746            7,952            21,659           14,416
                                                                       --------         --------          --------         --------

Income (loss) from operations                                               676             (620)            1,070           (2,478)

Other income (expense):
   Interest income, net                                                     875              935             1,816            1,299
   Royalty and other income (expense), net                                  196               70               442             (304)
                                                                       --------         --------          --------         --------

Income (loss) before income taxes                                         1,747              385             3,328           (1,483)
Provision (benefit) for income taxes                                        524              131               998             (504)
                                                                       --------         --------          --------         --------
Net income (loss)                                                      $  1,223         $    254          $  2,330         $   (979)
                                                                       ========         ========          ========         ======== 

Net income (loss) per share                                            $   0.05         $   0.01          $   0.09         $  (0.04)
                                                                       ========         ========          ========         ======== 

Shares used to compute net income (loss)
   per share                                                             26,610           26,605            26,567           24,519
                                                                       ========         ========          ========         ======== 
<FN>
     See accompanying notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
                                       3
<PAGE>
<TABLE>

CYLINK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
<CAPTION>

                                                                 Six Months Ended       
                                                               --------------------
                                                               June 27,    June 28,
                                                                 1997        1996
                                                               --------    --------
<S>                                                            <C>         <C>      
Cash flows from operating activities:
   Net income (loss)                                           $  2,330    $   (979)
   Adjustments to reconcile net income (loss) to net
      cash used in operating activities:
         Write-down of short-term investments                      --           441
         Depreciation and amortization                              937         647
         Deferred compensation related to stock options              42          42
         Deferred income taxes                                     --          (653)
         Changes in assets and liabilities:
            Accounts receivable                                  (4,560)     (1,044)
            Inventories                                          (1,335)     (1,991)
            Other assets                                         (1,158)        114
            Accounts payable                                     (1,634)      2,082
            Accrued liabilities                                     416         992
            Deferred revenue                                       (109)       (932)
                                                               --------    --------
               Net cash used in operating activities             (5,071)     (1,281)
                                                               --------    --------
Cash flows from investing activities:
   Acquisition of property and equipment                         (2,073)       (679)
   Loans to employees in exchange for notes receivable           (3,473)       --   
                                                               --------    --------
               Net cash used in investing activities             (5,546)       (679)
                                                               --------    --------
Cash flows from financing activities:
   Proceeds from issuance of common stock, net                      555      78,990
   Payment of notes receivable from shareholders                    301        --   
   Repayment of capital lease obligations                           (76)       (204)
   Repayment of borrowings under bank line of credit               --        (1,000)
                                                               --------    --------
               Net cash provided by financing activities            780      77,786
                                                               --------    --------
Effect of exchange rate changes on cash and cash equivalents        (46)          8
                                                               --------    --------
Net increase (decrease) in cash and cash equivalents             (9,883)     75,834
Cash and cash equivalents at beginning of period                 78,849       3,240
                                                               --------    --------
Cash and cash equivalents at end of period                     $ 68,966    $ 79,074
                                                               ========    ========

Supplemental disclosures:
   Cash paid for income taxes                                  $     26    $   --
   Cash paid for interest                                            44          81
   Equipment acquired under capital lease obligations              --           247
   Common stock issued for notes receivable                           5        --   

<FN>

     See accompanying notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
                                       4
<PAGE>
   
CYLINK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


1.      Basis of Presentation

            The unaudited condensed  consolidated  financial statements included
         herein contain all  adjustments,  consisting  only of normal  recurring
         adjustments  which,  in the opinion of  management,  are  necessary  to
         fairly state the consolidated financial position, results of operations
         and cash flows of Cylink  Corporation  ("Cylink" or the  "Company") for
         the periods  presented.  These financial  statements  should be read in
         conjunction with the Company's audited financial statements included in
         the Company's  Annual  Report on Form 10-K for the year ended  December
         31, 1996. Interim results of operations are not necessarily  indicative
         of the results to be expected for the full year.

2.      Notes Receivable From Employees

            Pursuant to their employment agreements, during the first quarter of
         1997 the  Company  loaned  certain  employees  $3,473,000  towards  the
         purchase of their principal residences.  Of this amount,  $2,843,000 is
         receivable  from  officers of the Company.  The notes are interest free
         and are due five years from the dates of the  related  notes,  at which
         time the notes must be repaid or convert into,  and become  subject to,
         the terms of a standard,  interest-bearing  commercial  loan. The notes
         are secured by deeds of trust on the  residences.  The loan  agreements
         provide  for  accelerated  payment  in  the  event  of  termination  of
         employment under certain conditions and, in one instance, under certain
         circumstances  will be  forgiven  to the extent of any  decrease in the
         value of the related residence.

3.      Inventory

                                                    June 27, December 31,
                                                      1997      1996
                                                    -------   -------
                                                       (in thousands)

           Inventories:
                Raw materials                       $ 4,623   $ 4,126
                Work in process and subassemblies     3,340     3,196
                Finished goods                        2,200     1,506
                                                    -------   -------
                                                    $10,163   $ 8,828
                                                    =======   =======
                
4.      Recent Accounting Pronouncement
<TABLE>

            In February 1997, the Financial  Accounting Standards Board ("FASB")
         issued Statement of Financial Accounting Standards No. 128 ("FAS 128"),
         "Earnings Per Share." This statement redefines earnings per share under
         generally  accepted  accounting  principles.  Under  the new  standard,
         primary  earnings per share is replaced by basic earnings per share and
         fully  diluted  earnings per share is replaced by diluted  earnings per
         share.  The Company is required to adopt the new standard in the fourth
         calendar  quarter of 1997.  The  following  table  sets  forth  primary
         earnings  per share as  reported  and  unaudited  pro  forma  basic and
         diluted earnings per share assuming FAS 128 had been applied during the
         periods presented:
        
<CAPTION>
                                            Three Months Ended           Six Months Ended
                                            ------------------          ------------------
                                            June 27,  June 28,          June 27,  June 28,
                                             1997      1996               1997      1996
                                            --------  --------          --------  --------

<S>                                           <C>      <C>              <C>       <C>    
Primary earnings per share as reported        $0.05    $0.01            $0.09     $(0.04)
Pro forma basic net income per share           0.05     0.01             0.09      (0.04)
Pro forma diluted net income per share         0.05     0.01             0.09      (0.04)
</TABLE>

                                       5
<PAGE>

            In June 1997,  the FASB issued  Statement  of  Financial  Accounting
         Standards No. 130 ("FAS 130"),  "Reporting  Comprehensive  Income." FAS
         130 establishes  standards for reporting  comprehensive  income and its
         components  in a financial  statement  that is displayed  with the same
         prominence  as other  financial  statements.  Comprehensive  income  as
         defined  includes  all changes in equity (net  assets)  during a period
         from   nonowner   sources.   Examples   of  items  to  be  included  in
         comprehensive  income,  which are  excluded  from net  income,  include
         foreign currency  translation  adjustments and unrealized  gain/loss on
         available for sale  securities.  The  disclosure  prescribed by FAS 130
         must be made beginning with the first quarter of calendar 1998.

            In  June  1997,  the  FASB issued Statement of Financial  Accounting
         Standards  No.  131 ("FAS  131"),  "Disclosures  about  Segments  of an
         Enterprise  and  Related   Information."   This  statement  establishes
         standards  for the way companies  report  information  about  operating
         segments in annual financial statements.  It also establishes standards
         for related disclosures about products and services,  geographic areas,
         and major customers.  The Company has not yet determined the impact, if
         any, of adopting this new standard.  The disclosures  prescribed by FAS
         131 are effective for calendar 1998.

                                       6

<PAGE>

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

         The  statements  contained  in this  Report  on Form  10-Q that are not
purely historical are  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,   including  statements   regarding  Cylink's   expectations,   hopes,
intentions,   beliefs  or  strategies  regarding  the  future.   Forward-looking
statements  include:  the Company's  statements in Part I, Item 2  "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations"
regarding  the  sufficiency  of the  Company's  existing  liquidity  and capital
resources,  management's belief that resolution of certain litigation  described
in Part II, Item 1 "Legal  Proceedings"  will not have a material adverse effect
on the Company's  financial  position and results of  operations,  the Company's
expectation that it will introduce a number of new products in 1997 and continue
to make a significant investment in engineering,  research and development,  and
its  intention  to expand  its  foreign  sales  channels  and  enter  additional
international markets. All forward-looking  statements included in this document
are based on information  available to the Company as of the date of this Report
on Form  10-Q,  and the  Company  assumes  no  obligation  to  update  any  such
forward-looking  statements,  or to update the reasons why actual  results could
differ from those projected in the forward-looking  statements.  It is important
to note that the Company's actual results could differ  materially from those in
such  forward-looking  statements for the reasons detailed in "Risk Factors That
May Affect Future  Results" and other  sections of this Report on Form 10-Q. You
should also consult the risk factors  listed from time to time in the  Company's
Reports on Form 10-Q, 8-K, 10-K and Annual Reports to the Shareholders.


RESULTS OF OPERATIONS

         Revenue.  The Company's  revenue is derived primarily from sales of its
family of commercial  information  security products and its medium speed spread
spectrum radio products.  Fees for maintenance and support  services are charged
separately.  Revenue  from  product  sales is  recognized  upon  shipment to the
customer.  Concurrently,  a provision  is made for  estimated  cost to repair or
replace products under warranty arrangements. Revenue from sales to distributors
is  recognized  upon  shipment;  no right of  return,  stock  rotation  or price
protection is given.  Revenue from sales to value added  resellers is recognized
upon shipment and concurrently a provision for estimated returns is recorded.

         The Company's revenue increased by 49% from $12.3 million for the three
months ended June 28, 1996 to $18.3  million for the three months ended June 27,
1997,  and increased by 66% from $20.8 million for the six months ended June 28,
1996 to  $34.5  million  for the six  months  ended  June  27,  1997.  Sales  of
information security products increased by 106% from $5.6 million for the second
quarter of 1996 to $11.6 million for the second  quarter of 1997,  and increased
by 111% from $9.9  million  for the first half of 1996 to $20.9  million for the
first  half of 1997.  The  increase  in  information  security  product  revenue
resulted primarily from increased product shipments in the SecureWan,  SecureLan
and SecureAccess  encryption product lines, which are used in public and private
linked networks. Sales of wireless communications products were $6.7 million for
both the  second  quarter  of 1996 and 1997.  Wireless  communications  revenues
increased 24% from $10.9 million for the first half of 1996 to $13.5 million for
the first half of 1997.  This  increase was  primarily due to higher unit sales,
particularly for the Company's AirLink S-Band radios.

         International  revenue was 53% and 45% of total  revenue for the second
quarter of 1996 and 1997, respectively, and was 55% and 51% of total revenue for
the first half of 1996 and 1997,  respectively.  The  decrease in  international
product  revenue  as a  percentage  of total  revenue  from 1996 to 1997 was due
primarily  to  the  increased   percentage  of  total  revenue   represented  by
information security products, which are mostly sold in the United States.

         Gross Profit.  Gross profit  increased by 69% from $7.3 million for the
three  months  ended June 28, 1996 to $12.4  million for the three  months ended
June 27, 1997,  and increased by 90% from $11.9 million for the six months ended
June 28,  1996 to $22.7  million  for the six months  ended June 27,  1997.  The
increase  in dollars  was  primarily  a result of the  significant  increase  in
revenue.  As a percentage of sales,  gross profit was 60% and 68% for the second
quarter  of 1996 and 1997,  respectively,  and 57% and 66% for the first half of
1996 and 1997,  respectively.  The  increase in gross margin  resulted  from the
increased  percentage  of total  revenue  represented  by  information  security
products, which generally have higher gross margins than wireless communications
products.  In addition,  the  increase in gross margin was due to lower  average
unit  costs  and  higher  average  selling  prices  for the

                                       7
<PAGE>

Company's  wireless  communications  products,  and a decrease in  expenses  for
maintenance and support services related to the Company's  information  security
products.

         Research and  Development.  Research and development  expenses  consist
primarily of salaries and other  personnel  related  expenses,  depreciation  of
development equipment,  facilities and supplies.  Gross research and development
expenses increased 5% from $4.2 million for the three months ended June 28, 1996
to $4.4 million for the three months ended June 27, 1997, and increased 12% from
$7.9  million for the six months ended June 28, 1996 to $8.9 million for the six
months  ended June 27,  1997.  Gross  research  and  development  expenses  as a
percentage of revenue were 34% and 24% for the second  quarter of 1996 and 1997,
respectively, and 38% and 26% for the first half of 1996 and 1997, respectively.
The dollar increases  resulted from the Company's  expanded product  development
efforts,  partially  offset by  reduced  contract  and other  variable  expenses
related to externally  funded  research and  development.  From time to time the
Company  receives  engineering  funding for  development of projects to apply or
enhance the Company's  technology to a particular  customer's  need. The amounts
recognized  under these  research and  development  contracts are offset against
research  and  development  expenses.  Amounts  recognized  under  non-recurring
engineering  contracts  totaled  $1.2  million  and $0.6  million for the second
quarter of 1996 and 1997,  respectively,  and $2.3  million and $1.1 million for
the first half of 1996 and 1997, respectively.

         Selling and Marketing. Selling and marketing expenses consist primarily
of  personnel   expenses,   including  sales   commissions,   and  expenses  for
advertising,  public relations,  seminars and trade shows. Selling and marketing
expenses  increased  66% from $3.4  million for the three  months ended June 28,
1996 to $5.6 million for the three months ended June 27, 1997, and increased 58%
from $6.1 million for the six months ended June 28, 1996 to $9.7 million for the
six months ended June 27, 1997.  Selling and marketing  expenses as a percentage
of  revenue  were  28% and  31%  for  the  second  quarter  of  1996  and  1997,
respectively, and 29% and 28% for the first half of 1996 and 1997, respectively.
The dollar  increases  were due to expenses  associated  with  expansion  of the
Company's  direct sales force,  personnel  increases in the marketing group, and
increased  expenses  associated  with  advertising,  public  relations and trade
shows.

         General and Administrative. General and administrative expenses consist
primarily of personnel  and related  costs,  recruitment  expenses,  information
system costs, and audit, legal and other professional  service fees. General and
administrative  expenses  increased  46% from $1.5  million for the three months
ended June 28, 1996 to $2.2  million for the three  months  ended June 27, 1997,
and 56% from $2.7 million for the six months ended June 28, 1996 to $4.2 million
for the six months ended June 27, 1997. General and administrative expenses as a
percentage of revenue were 12% for both the second quarter of 1996 and 1997, and
13% and 12% for the  first  half of 1996  and  1997,  respectively.  The  dollar
increases  were  primarily  due to  increased  staffing  and  professional  fees
necessary  to manage  and  support  the  Company's  recent  growth  and  provide
infrastructure required for a public company.

         Other Income  (Expense),  Net. Other income (expense),  net,  primarily
consists of royalties,  interest  income,  interest expense and investment gains
and losses. Interest income, net, increased from $1.3 million for the first half
of 1996 to $1,8 million for the first half of 1997,  principally due to interest
income  resulting from funds derived from the Company's  initial public offering
in  February  and  March of 1996.  In the first  quarter  of 1997,  the  Company
recorded a benefit of $632,000 primarily related to the reversal of an allowance
provided on the  receivable  related to the  Company's  interest in the residual
value of a former  partnership known as Public Key Partners ("PKP").  Management
considers the uncertainty regarding ultimate collection to have been resolved as
a result of the settlement  agreement between the Company and RSA Data Security,
Inc., a subsidiary of Security  Dynamics  ("RSA DSI").  The assets of the former
partnership,  consisting  primarily of cash, are being held in trust pending the
resolution  of  certain   litigation   described  in  Part  II,  Item  1  "Legal
Proceedings."  Management does not believe that the ultimate  resolution of this
matter will have a material adverse effect on the Company's  financial  position
or results of  operations.  The first quarter of 1996 includes a $441,000  write
down of the Company's short-term investments as management concluded the decline
in value  was  permanent.  These  investments  were  sold at an  actual  loss of
$432,000 in the third quarter of 1996. The Company also experienced a decline in
royalty income during the six months ended June 27, 1997 as compared to the same
period in 1996.

LIQUIDITY AND CAPITAL RESOURCES

         At June 27, 1997,  the Company had cash and cash  equivalents  of $69.0
million, working capital of $91.3 million and minimal long-term obligations. Net
cash used in operating  activities  consisted  primarily of increases in current
assets other than cash and a decrease in accounts  payable,  partially offset by
net income and an increase in accrued  liabilities.

                                       8
<PAGE>

         The Company made capital  expenditures of approximately $2.1 million in
the six months ended June 27, 1997.  The Company  also made  long-term  loans to
employees of approximately $3.5 million.

         The Company is currently  engaged in litigation  and has certain assets
subject  to  litigation.  See Part II,  Item 1 "Legal  Proceedings."  Management
believes that the ultimate  resolution of these matters will not have a material
adverse effect on the Company's financial position or results of operations.

         The Company  believes that  existing  cash balances and cash  generated
from  operations,  if any,  will be sufficient  to fund  necessary  purchases of
capital  equipment and to provide working capital through at least the remainder
of 1997.  However,  the  Company  may  require  additional  funds to support its
working  capital  requirements  or for other purposes and may seek to raise such
additional  funds  through  public or  private  equity  financing  or from other
sources.  No assurance can be given that additional  financing will be available
or that,  if available,  will be available on terms  favorable to the Company or
its shareholders.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

Recent Losses;  Potential  Fluctuations in Operating  Results,  Future Operating
Results Uncertain.

         Due  primarily  to  increased  research  and  development,   sales  and
marketing, and litigation expenses, the Company incurred losses in 1994 and 1995
and the first six months of 1996.  There can be no  assurances  that the Company
will  increase or maintain  its revenue or be  profitable  on a quarterly  or an
annual basis in the future.

         The Company has historically  experienced  significant  fluctuations in
its operating  results on an annual and a quarterly  basis and could  experience
such fluctuations in the future. The Company's operating results are affected by
a number  of  factors,  many of which  are  outside  of the  Company's  control,
including:  the timing of the  introduction  of new or enhanced  products by the
Company or its  competitors;  market  acceptance of new products of the Company,
its customers and its competitors; the timing, cancellation or delay of customer
orders,   including  cancellation  or  delay  in  anticipation  of  new  product
introduction   or  enhancement  or  resulting  from   uncertainty   relating  to
intellectual property claims;  competitive factors, including pricing pressures;
changes  in  operating  expenses,  including  those  resulting  from  changes in
available  production capacity of independent  foundries and other suppliers and
the availability of raw materials; expenses associated with obtaining, enforcing
and defending claims with respect to intellectual  property  rights;  the mix of
products sold;  changes in the percentage of products sold through the Company's
direct  sales  force;  personnel  changes;  general  economic  conditions;   and
fluctuations  in  foreign  currency  exchange  rates.  The  Company  expects  to
introduce a number of new products in 1997.  The failure of such new products to
achieve market  acceptance at the time  anticipated  by the Company,  or at all,
would  materially  and adversely  affect the Company's  financial  condition and
results of operations.

Potential Volatility of Stock Price

         The trading of the Company's  Common Stock has been and may continue to
be subject to wide fluctuations in response to quarter to quarter  variations in
operating results, announcements of technological innovations or new products by
the  Company  or its  competitors,  developments  with  respect  to  patents  or
proprietary rights,  general conditions in the information  security systems and
wireless communications  industries,  changes in earnings estimates by analysts,
or other  events or  factors.  In  addition,  the stock  market has  experienced
extreme  price and volume  fluctuations,  which have  particularly  affected the
market prices of many  technology  companies and which have often been unrelated
to the operating performance of such companies. The Company's sales or operating
results  in future  quarters  may be below  the  expectations  of public  market
securities  analysts and  investors.  In such event,  the price of the Company's
Common Stock would likely decline, perhaps substantially. These Company-specific
factors or broad market fluctuations may materially  adversely affect the market
price of the Company's Common Stock.

Pending Litigation

See Part II, Item 1. "Legal Proceedings."
  
                                       9
<PAGE>

Dependence on Key Personnel

         The  Company's  future  success  will  depend to a large  extent on the
abilities and successful contributions of its executive officers, key management
and technical  personnel.  The Company has been able to recruit  several  senior
managers  in the last year and its  future is closely  linked to the  ability to
successfully integrate these key employees into the Company, and to maintain and
extend  its  base  of  talented  management,   technical  and  other  personnel.
Competition for  highly-skilled  business,  product  development,  technical and
other  personnel is intense,  and the loss of the services of one or more of the
Company's  executive officers or key personnel,  or the inability to continue to
attract qualified personnel, could delay product development cycles or otherwise
have a material adverse effect on the Company's  financial  position and results
of operations.

Lengthy Sales Cycle

         Sales  of  the  Company's  products  generally  involve  a  significant
commitment  of  capital  by  customers,  with the  attendant  delays  frequently
associated  with large capital  expenditures.  For these and other reasons,  the
sales cycle  associated  with the  Company's  products is typically  lengthy and
subject to a number of significant risks over which the Company has little or no
control.  The  Company  is often  required  to ship  products  shortly  after it
receives orders and, consequently,  order backlog at the beginning of any period
has in the past  represented  only a small  portion  of that  period's  expected
revenue. As a result,  product revenue in any period is substantially  dependent
on orders  booked and shipped in that period.  The Company  typically  plans its
production and inventory levels based on internal  forecasts of customer demand,
which are highly unpredictable and can fluctuate substantially. If revenue falls
significantly  below anticipated  levels, the Company's  financial condition and
results of operations would be materially and adversely  affected.  In addition,
the Company's  operating expenses are based on anticipated  revenue levels and a
high percentage of the Company's expenses are generally fixed in the short term.
Based on these  factors,  a small  fluctuation  in the timing of sales can cause
operating results to vary significantly  from period to period. In addition,  it
is possible that in the future the Company's operating results will be below the
expectations of securities  analysts and investors.  In such an event, or in the
event that adverse  conditions  prevail or are perceived to prevail generally or
with respect to the Company's business,  the price of the Company's Common Stock
would likely be materially adversely affected.

Dependence on Recently Introduced and New Information Security Products

         The Company's  future results of operations will be highly dependent on
the successful completion of the design,  development,  introduction,  marketing
and  manufacture  of  the  SecureManager  products,  some  of  which  are  under
development,  and the SecureGate,  SecureTraveler,  SecureFrame and SecureDomain
products,  which were recently  introduced.  To date,  the Company has made only
limited  commercial  shipments of certain of such products.  No assurance can be
given that any of such products will not require  additional  development  work,
enhancement,  testing or further  refinement  before they can be introduced  and
made  commercially  available  by the Company or that they will  achieve  market
acceptance.  If such new and  recently  introduced  products  have  performance,
reliability,  quality or other  shortcomings,  then such products  could fail to
achieve market acceptance and the Company may experience reduced orders,  higher
manufacturing  costs,  delays in collecting  accounts  receivable and additional
warranty and service expenses,  which in each case could have a material adverse
effect on the Company's financial condition and results of operations.

Competition

         Competition is intense among providers of information  security systems
and wireless communications  equipment and systems, and the Company expects such
competition to increase in the future.  Significant competitive factors in these
markets  include the  development of new products and features,  product quality
and  performance,  the quality and  experience  of sales,  marketing and service
organizations,  product  price and name  recognition.  Many of these factors are
beyond the Company's control.

         The Company's  competitors in the information  security markets include
Security  Dynamics,   Semaphore,  Cray  Research,   Racal-Guardata,   Inc.,  and
Information Resource Engineering,  Inc. Northern Telecom Limited, AT&T, Motorola
Corporation,  Digital  Equipment  Corporation and Sun  Microsystems,  Inc. offer
certain  information  security  products  as part of  their  overall  networking
solutions.  In addition,  a number of significant  vendors,  including Microsoft
Corporation, Netscape Communications Corporation and Cisco Systems have embedded
security  solutions  in their  software.  To the extent  that these  embedded or
optional  security  capabilities  provide all or a 

                                       10
<PAGE>

portion of the functionality  provided by the Company's products,  the Company's
products may no longer be required by customers to attain information security.

         Several   vendors   including  RSA  DSI  license   various  methods  of
implementing  cryptographic  technology,  including some that are different than
(and incompatible with) the method of implementing  cryptography  currently used
by the Company in most of its products. Although Cylink has a license to use all
of the  leading  methods  promoted  by the  Company  and RSA DSI,  to the extent
relevant  industries impose technical  standards  different than those currently
used by the Company in any segment of the information  security market, sales of
the  Company's  existing  and planned  products  in that  market  segment may be
adversely impacted,  which could have a material adverse effect on the Company's
financial condition and results of operations.

         The Company  competes  with a large number of companies in the wireless
communications  markets,  including  U.S.  local  exchange  carriers and foreign
telephone  companies.  The most significant  competition for sub-T1 rate AirLink
products in the wireless  market is from  telephone  companies that offer leased
line data services.  The Company also competes with other  suppliers of wireless
products such as Digital  Wireless,  Utilicom,  Western Multiplex and California
Microwave, Inc.

         Many of the Company's competitors have substantially greater financial,
technical, marketing, distribution and other resources, greater name recognition
and longer standing  relationships with customers than the Company.  Competitors
with greater  financial  resources are better able to engage in sustained  price
reductions  in order  to gain  market  share.  Any  period  of  sustained  price
reductions  would  have a material  adverse  effect on the  Company's  financial
condition and results of operations.  There can be no assurance that the Company
will be able to compete successfully in the future or that competitive pressures
will not materially and adversely affect the Company's  financial  condition and
results of operations.

Product Liability Risks

         Customers  rely  on the  Company's  information  security  products  to
prevent  unauthorized  access  to  their  networks  and  data  transmissions.  A
malfunction or the inadequate  design of the Company's  products could result in
tort or warranty  claims.  Although  the Company  attempts to reduce the risk of
such losses through warranty disclaimers and liability limitation clauses in its
sales agreements and by maintaining product liability insurance, there can be no
assurance  that such  measures  will be  effective  in  limiting  the  Company's
liability  for any such  damages.  Any  liability  for  damages  resulting  from
security  breaches could be substantial and could have a material adverse effect
on  the  Company's   business  and  results  of  operations.   In  addition,   a
well-publicized  actual or perceived  security breach could adversely affect the
market's  perception of security products in general,  or the Company's products
in  particular,  regardless  of  whether  such  breach  is  attributable  to the
Company's  products.  This could result in a decline in demand for the Company's
products,  which would have a material adverse effect on the Company's financial
condition and results of operations.

Management of Growth

         The Company has recently  experienced  and may  continue to  experience
substantial  growth  in the  number  of  its  employees  and  the  scope  of its
operations,  resulting in increased  responsibilities for management.  To manage
growth   effectively,   the  Company  will  need  to  continue  to  improve  its
operational,  financial and management  information  systems and to hire, train,
motivate and manage a growing  number of employees.  Competition  is intense for
qualified  technical,  marketing and management  personnel,  particularly highly
skilled  engineers.  In  particular,   the  current  availability  of  qualified
engineers  is  quite  limited,   and  competition   among  companies,   academic
institutions,  government  entities  and other  organizations  for  skilled  and
experienced  engineering  personnel  is very  intense.  The Company is currently
attempting to hire a number of engineering  personnel and has experienced delays
in  filling  such  positions.   The  Company  expects  to  experience  continued
difficulty  in filling its needs for qualified  engineers  and other  personnel.
There can be no assurance that the Company will be able to  effectively  achieve
or manage any  future  growth,  and its  failure  to do so could  delay  product
development  cycles or otherwise have a material adverse effect on the Company's
financial condition and results of operations.

Intellectual Property and Other Proprietary Rights

         The Company  relies on patents,  trademarks,  copyrights,  licenses and
trade secret law to establish and preserve its intellectual property rights. The
Company owns twelve U.S. patents covering certain aspects of its 

                                       11
<PAGE>

product  designs and has one additional  U.S. patent  application  pending.  The
Company also has the  exclusive  right to sublicense  certain  patents that were
granted to Stanford  University  with respect to the original Public Key methods
(the "Stanford Patents"), which expire in the United States in the third quarter
of 1997.  There can be no  assurance  that any patent,  trademark,  copyright or
license owned or held by the Company will not be  invalidated,  circumvented  or
challenged,   that  the  rights  granted  thereunder  will  provide  competitive
advantages to the Company or that any of the Company's  pending or future patent
applications  will be issued with the scope of the claims sought by the Company,
if at all.  Further,  there can be no  assurance  that  others  will not develop
technologies that are similar or superior to the Company's technology, duplicate
the Company's  technology or design around the patents owned by the Company. The
Company may be subject to or may initiate  interference  proceedings in the U.S.
Patent Office, which can require significant financial and management resources.
In addition,  the laws of certain countries in which the Company's  products are
or may be developed, manufactured or sold may not protect the Company's products
and  intellectual  property  rights to the same extent as the laws of the United
States.  The  inability  of the  Company to protect  its  intellectual  property
adequately could have a material  adverse effect on its financial  condition and
results of operations.

         The network information security and wireless communications industries
in which the  Company  sells  its  products  are  characterized  by  substantial
litigation regarding patent and other intellectual property rights. From time to
time, the Company has received  communications from third parties asserting that
the Company's patents,  features or content of certain of the Company's products
infringe upon the  intellectual  property rights held by third parties,  and the
Company may receive such  communications in the future. The Company is not aware
that any of the features or content of its products  wrongfully  infringe on any
valid  intellectual  property  rights of others.  There can be no assurance that
third  parties  will not  assert  claims  against  the  Company  that  result in
litigation.  Any litigation,  whether or not determined in favor of the Company,
could result in significant  expense to the Company and could divert  management
and  other  resources.  In the  event of an  adverse  ruling  in any  litigation
involving  intellectual  property,  the Company might be required to discontinue
the use of certain processes, cease the manufacture,  use and sale of infringing
products,  expend significant resources to develop non-infringing  technology or
obtain licenses to the infringing technology and may suffer significant monetary
damages,  which could include  treble  damages.  There can be no assurance  that
under  such  circumstances  a  license  would be  available  to the  Company  on
reasonable  terms or at all.  In the event of a  successful  claim  against  the
Company and the Company's failure to develop or license a substitute  technology
on commercially  reasonable terms, the Company's financial condition and results
of  operations  would be  adversely  affected.  There can be no  assurance  that
existing claims or any other  assertions (or claims for indemnity from customers
resulting from infringement claims) will not materially and adversely affect the
Company's financial condition and results of operations.

Evolving Information Security Market

         The market for the  Company's  information  security  products  is only
beginning  to  emerge.   This  market  is   characterized  by  rapidly  changing
technology,  emerging industry standards,  new product introductions and changes
in customer  requirements  and  preferences.  The Company's  future success will
depend in part upon end  users'  demand for  information  security  products  in
general,  and upon the Company's ability to enhance its existing products and to
develop  and  introduce  new  products  and  technologies   that  meet  customer
requirements.   Any   significant   advance  in   technologies   for   attacking
cryptographic systems could render some or all of the Company's existing and new
products  obsolete or  unmarketable.  To the extent that a specific method other
than the  Company's  is adopted as the  standard  for  implementing  information
security  in any  segment  of the  information  security  market,  sales  of the
Company's  existing and planned products in that market segment may be adversely
impacted,  which could have a material adverse effect on the Company's financial
condition and results of operations.  There can be no assurance that information
security-related products or technologies developed by others will not adversely
affect the Company's competitive position or render its products or technologies
noncompetitive or obsolete.

         In  addition,  a  portion  of the  sales of the  Company's  information
security  products  will depend upon a robust  industry and  infrastructure  for
providing access to public switched networks, such as the Internet. There can be
no assurance that the infrastructure or complementary products necessary to make
these networks into viable  commercial  marketplaces  will be developed,  or, if
developed, that these networks will become viable commercial marketplaces.

                                       12
<PAGE>

Rapid Technological Change

         The markets for the  Company's  products are  characterized  by rapidly
changing  technologies,  extensive research and new product  introductions.  The
Company believes that its future success will depend in part upon its ability to
continue to enhance its existing products and to develop, manufacture and market
new products. As a result, the Company expects to continue to make a significant
investment in engineering,  research and development.  There can be no assurance
that  the  Company  will  be able to  develop  and  introduce  new  products  or
enhancements to its existing  products in a timely manner which satisfy customer
needs, achieve market acceptance or address  technological changes in its target
markets.  The  failure of the Company to develop  products  and  introduce  them
successfully  and in a  timely  manner  could  adversely  affect  the  Company's
competitive position, financial condition and results of operations.

Wireless Communications Industry Regulatory Environment

         Wireless communications are subject to regulations by United States and
foreign laws and  international  treaties.  In the United States,  the Company's
wireless  communications  products  are  subject to various  regulations  of the
Federal  Communications  Commission  ("FCC").  Current  FCC  regulations  permit
license-free operation of certain FCC certified wireless products. The future of
remote  wireless  communications  is  highly  volatile,  due in part to  ongoing
uncertainty  regarding   telecommunications   deregulation  and  the  status  of
initiatives  relating  to the auction of licenses  for  personal  communications
service  ("PCS")  frequencies.  Regulatory  changes,  including  changes  in the
allocation of available  frequencies,  could significantly  affect the Company's
operations  by diverting  the  Company's  development  efforts,  making  current
products  obsolete or increasing the  opportunity  for  additional  competition.
There can be no assurance that new  regulations  will not be  promulgated  which
could have a material  adverse effect on the Company's  financial  condition and
results of operations.

         The  Company  also is subject  to  regulatory  requirements  in foreign
markets.  Equipment  can be marketed in a country  only if permitted by suitable
frequency  allocations and regulations,  and only if such equipment has received
type  approval by the country in  question.  The process of  complying  with new
regulations  and of obtaining type approval is often complex and lengthy and can
result in significant  expense and delays in the introduction of products in new
countries.

         Changes in, or the failure by the  Company to comply  with,  applicable
domestic and  international  regulations could have a material adverse effect on
the Company's business and operating results. There can be no assurance that the
Company will be able to comply with regulations in any particular country.

Risks  Associated  with  International  Sales;  Reliance  Upon  Local  Partners;
Restrictions on Export

         International product sales represented approximately 35%, 47%, 59% and
51% of revenue in 1994,  1995,  1996 and for the six months ended June 27, 1997,
respectively.  In  particular,  sales of the Company's  wireless  communications
products are currently  concentrated in developing countries.  The Company plans
to  continue  to expand  its  foreign  sales  channels  and to enter  additional
international  markets,  both  of  which  will  require  significant  management
attention and financial  resources.  International sales are subject to a number
of risks, including unexpected changes in regulatory  requirements,  tariffs and
other trade  barriers,  political and economic  instability in foreign  markets,
difficulties in the staffing,  management and integration of foreign operations,
longer payment cycles,  greater  difficulty in collecting  accounts  receivable,
currency  fluctuations and potentially  adverse tax consequences.  Since most of
the  Company's  foreign sales are  denominated  in U.S.  dollars,  the Company's
products  become less price  competitive in countries in which local  currencies
decline in value  relative  to the U.S.  dollar.  The  uncertainty  of  monetary
exchange values has caused,  and may in the future cause, some foreign customers
to delay new orders or delay payment for existing  orders.  The long-term impact
of such  devaluation,  including any possible effect on the business  outlook in
other developing countries, cannot be predicted.

         The Company's  ability to compete  successfully in foreign countries is
dependent  in part on the  Company's  ability to obtain and retain  reliable and
experienced  in-country  distributors and other strategic partners.  The Company
does not have long-term  relationships with any of its value added resellers and
distributors  and,  therefore,  has no assurance  of a  continuing  relationship
within a given market.

         United  States  government  regulations  restrict the export of certain
cryptographic  devices,  including certain of the Company's information security
products.  As a result,  the Company may be at a  disadvantage  in competing 

                                       13
<PAGE>

for international  sales compared to companies located outside the United States
that are not subject to such restrictions.

Dependence  on  Component  Availability,   Subcontractor   Performance  and  Key
Suppliers

         The Company's  ability to timely deliver its products is dependent upon
the  availability  of quality  components and subsystems used in these products.
The Company depends in part upon  subcontractors  to  manufacture,  assemble and
deliver certain items in a timely and satisfactory  manner.  The Company obtains
certain  components and subsystems from single, or a limited number of, sources.
A significant  interruption  in the delivery of such items could have a material
adverse effect on the Company's financial condition and results of operations.


PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings

         On  September  6, 1995,  the  Company  obtained  an  arbitration  award
dissolving  a  former   partnership,   known  as  PKP,   between  the  Company's
wholly-owned  subsidiary,  Caro-Kann Corporation,  and RSA DSI. Although various
claims  between the Company and RSA DSI were  settled on December  31,  1996,  a
third  party  continues  to pursue  various  claims  against PKP and RSA DSI for
wrongful  business  practices in action  C-94-20512  SW before the United States
District Court for the Northern District of California.  An unfavorable  outcome
might  affect  the  residual  value the  Company  may  receive  from the  former
partnership.

         On March 7, 1997,  ten former  employees  of the Company  filed suit in
action No. CV764647 in the Superior Court of California,  County of Santa Clara,
against the Company,  each of its Directors and its General  Counsel,  asserting
claims for wrongful  termination,  fraud,  libel,  slander,  age discrimination,
invasion of privacy,  and violation of the federal RICO statute. The Company has
removed the action to the United States  District  Court,  Northern  District of
California, No. C-97-20331 PVT. On July 23, 1997, one additional former employee
served a summons and complaint in action No.  CV767448 in the Superior  Court of
the State of  California,  County of Santa  Clara,  against  the Company and one
additional  defendant  alleging  grounds  similar to those  asserted  by the ten
pending  plaintiffs.  Although  the Company has placed its insurers on notice of
these claims,  only some of them have  admitted  coverage  with  reservation  of
certain rights and defenses.  The Company believes the terminations  were lawful
and  intends to defend the matter  vigorously.  The  defense of this  matter may
divert a material amount of  management's  attention and require the expenditure
of significant  legal fees and costs.  An unfavorable  outcome which exceeds the
Company's  insurance  coverage,  if any, could also result in a material adverse
effect on the Company's financial condition.

Item 4.   Submission of Matters to a Vote of Security Holders

(a)  The Registrant's Annual Meeting of Shareholders was held on May 22, 1997.

(b)  The following directors were elected at the Meeting:

                                             For              Withheld        
                                             ---              --------        
                Fernand B. Sarrat          23,690,338         162,877      
                Jimmy K. Omura             23,691,988         161,227
                Leo A. Guthart             23,690,838         162,377
                James H. Simons            23,691,488         161,727
                Howard L. Morgan           23,691,488         161,727
                Elwyn Berlecamp            23,668,305         184,910
                William W. Harris          23,690,238         162,977
                King W.W. Harris           23,690,688         162,527

(c)  Other matters voted on at the Meeting were the following:

     (i)    Approval and  ratification of the Cylink  Corporation  1994 Flexible
            Stock  Incentive  Plan, as Amended,  which (i) increases the maximum
            aggregate  number of  shares  available  for the grant of  incentive
            stock options to 5,950,000,  (ii) provides for discretionary  awards
            to the Company's Non-Employee Directors, and (iii)

                                       14
<PAGE>

            increases the maximum number of shares with respect to which options
            and stock  appreciation  rights may be granted  to any  employee  to
            1,000,000.

                        For                    14,539,614
                        Against                 1,846,491       
                        Abstain                    48,913  
                        Broker non-votes        7,418,197

     (ii)   Approval of an amendment to the Company's  bylaws granting the Board
            of  Directors  the  authority  to approve  loans to,  and  guarantee
            obligations  of,  officers  of the  Company and to ratify a loan for
            approximately  $2,000,000 made to the Company's  President and Chief
            Executive Officer.

                        For                    15,689,549
                        Against                   670,775 
                        Abstain                    74,694  
                        Broker non-votes        7,418,197

     (iii)  Ratification  of the  appointment  of  Price  Waterhouse  LLP as the
            Company's  independent  auditors for the fiscal year ending December
            31, 1997.

                        For                    23,708,626
                        Against                    92,668  
                        Abstain                    51,921  
        

Item 6.   Exhibits and Reports on Form 8-K

(a)   Exhibits Index:

        Exhibit         
        Number  Description of Exhibit          
        ------  ----------------------          

        27.1    Financial Data Schedule

(b)   No reports on Form 8-K were filed during the quarter ended June 27, 1997.

                                       15
<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


Date:  August 11, 1997              CYLINK CORPORATION
                                
                                    By: /s/  JOHN H. DAWS       
                                       -----------------------------------------
                                       John H. Daws
                                       Vice President of Finance 
                                       and Administration and 
                                       Chief Financial Officer
                                       (Duly Authorized Officer and    
                                       Principal Financial Officer)


                                       16