UNITED STATES
                       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 30, 2002

                           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.)

                                 3131 Jay Street
                          Santa Clara, California 95054
                    (Address of principal executive offices)

                                 (408) 855-6000
              (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 13, 2002,  there were  32,986,000  shares of the  Registrant's
common stock outstanding.

<PAGE>


                               CYLINK CORPORATION
                  FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2002
                                      INDEX


                                                                            Page

                          PART I FINANCIAL INFORMATION

Item 1   Financial Statements

         a)       Condensed Consolidated Balance Sheets at June 30, 2002
                  and December 31, 2001                                        1

         b)       Condensed Consolidated Statements of Operations for the
                  three and six months ended June 30, 2002 and July 1, 2001    2

         c)       Condensed Consolidated Statements of Cash Flows for the
                  six months ended June 30, 2002 and July 1, 2001              3

         d)       Notes to Condensed Consolidated Financial Statements         4

Item 2   Management's Discussion and Analysis of Financial Condition and
         Results of Operations                                                 9

Item 3   Quantitative and Qualitative Disclosures about Market Risk           21


                        PART II OTHER INFORMATION                             22

Item 1.  Legal Proceedings                                                    22

Item 2.  Changes in Securities and Use of Proceeds                            22

Item 3.  Defaults upon Senior Securities                                      22

Item 4.  Submission of Matters to a Vote of the Security Holders              22

Item 5.  Other information                                                    23

Item 6.  Exhibits and Reports on Form 8-K                                     23

         Signature                                                            24

<PAGE>


PART I.  FINANCIAL INFORMATION
Item 1.    Financial Statements

CYLINK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value data; unaudited)


<TABLE>
<CAPTION>
                                                                                                     June 30,           December 31,
                                                                                                       2002                 2001
                                                                                                     ---------            ---------
<S>                                                                                                  <C>                  <C>
Assets
Current assets:
   Cash and cash equivalents                                                                         $  10,535            $   9,606
   Accounts receivable, net of allowances of $768 and $1,057                                             4,419               10,102
   Income tax receivable                                                                                   475                   50
   Inventories                                                                                           4,268                4,832
   Other current assets                                                                                  1,285                2,026
                                                                                                     ---------            ---------
            Total current assets                                                                        20,982               26,616

Restricted cash                                                                                          1,400                1,400
Property and equipment, net                                                                              5,122                6,075
Acquired technology, goodwill and other intangibles, net                                                15,666               16,648
Note receivable from employee                                                                            1,057                1,021
Other assets                                                                                               626                  932
                                                                                                     ---------            ---------
                                                                                                     $  44,853            $  52,692
                                                                                                     =========            =========
Liabilities and Shareholders' Equity
Current liabilities:
   Equipment line of credit                                                                          $      69            $     139
   Accounts payable                                                                                      2,098                2,757
   Accrued liabilities                                                                                   5,515                5,439
   Income taxes payable                                                                                    410                  412
   Deferred revenue                                                                                      2,704                2,130
                                                                                                     ---------            ---------
         Total current liabilities                                                                      10,796               10,877
                                                                                                     ---------            ---------

Deferred revenue, less current portion                                                                      40                  214
Restructuring and other accruals, less current portion                                                   2,594                1,713
                                                                                                     ---------            ---------
         Total long-term liabilities                                                                     2,634                1,927

Commitments and contingencies (Note 6)

Shareholders' equity:
   Preferred stock, $0.01 par value; 5,000,000 shares authorized;
       none issued and outstanding                                                                        --                   --
   Common stock, $0.01 par value; 55,000,000 shares authorized;
        32,984,000 and 32,872,000 shares issued and outstanding                                            331                  329
   Additional paid-in capital                                                                          158,439              158,359
   Accumulated other comprehensive loss                                                                     (4)                 (18)
   Accumulated deficit                                                                                (127,343)            (118,782)
                                                                                                     ---------            ---------
            Total shareholders' equity                                                                  31,423               39,888
                                                                                                     ---------            ---------
                                                                                                     $  44,853            $  52,692
                                                                                                     =========            =========
</TABLE>

   See accompanying notes to condensed consolidated financial statements.

                                     1
<PAGE>


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


<TABLE>
<CAPTION>
                                                                              Three Months Ended              Six Months Ended
                                                                           ------------------------        ------------------------
                                                                           June 30,         July 1,        June 30,         July 1,
                                                                             2002            2001            2002            2001
                                                                           --------        --------        --------        --------
<S>                                                                        <C>             <C>             <C>             <C>
Revenue                                                                    $  7,372        $ 13,571        $ 14,471        $ 26,183
Cost of revenue                                                               2,635           5,953           5,272          10,298
                                                                           --------        --------        --------        --------
Gross profit                                                                  4,737           7,618           9,199          15,885
                                                                           --------        --------        --------        --------

Operating expenses:
   Research and development                                                   2,968           5,190           5,886          11,135
   Selling and marketing                                                      2,774           5,013           5,830          10,762
   General and administrative                                                 1,434           2,729           3,470           5,743
   Amortization of acquired intangibles                                         444             817             954           1,679
   Loss from divestiture of Algorithmic Research, Ltd.                         --             2,503            --             2,503
   Restructuring charges                                                      1,862            --             1,862            --
                                                                           --------        --------        --------        --------
            Total operating expenses                                          9,482          16,252          18,002          31,822
                                                                           --------        --------        --------        --------

Loss from operations                                                         (4,745)         (8,634)         (8,803)        (15,937)

Other income (expense):
   Interest income, net                                                          44             183              90             373
   Other income (expense), net                                                  126            (144)             40            (163)
   Write-down of investment in unaffiliated company                            --              --              (222)           --
                                                                           --------        --------        --------        --------
         Total other income (expense)                                           170              39             (92)            210
                                                                           --------        --------        --------        --------

Loss before income taxes                                                     (4,575)         (8,595)         (8,895)        (15,727)
Income tax expense (benefit)                                                     90          (1,177)           (334)         (1,177)
                                                                           --------        --------        --------        --------
Net loss                                                                   $ (4,665)       $ (7,418)       $ (8,561)       $(14,550)
                                                                           ========        ========        ========        ========

Loss per share - basic & diluted:                                          $  (0.14)       $  (0.23)       $  (0.26)       $  (0.45)
                                                                           ========        ========        ========        ========

Shares used in per share calculation - basic & diluted                       32,892          32,384          32,879          32,331
                                                                           ========        ========        ========        ========
</TABLE>

   See accompanying notes to condensed consolidated financial statements.

                                     2
<PAGE>


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


<TABLE>
<CAPTION>
                                                                                                            Six months ended
                                                                                                       ----------------------------
                                                                                                       June 30,            July 1,
                                                                                                         2002                2001
                                                                                                       --------            --------
<S>                                                                                                    <C>                 <C>
Cash flows from operating activities:
   Net loss                                                                                            $ (8,561)           $(14,550)
   Adjustments to reconcile net loss to net
      cash provided by (used in) operating activities:
         Loss on divestiture of Algorithmic Research, Ltd.                                                 --                 2,503
         Loss on disposition of fixed assets                                                                 60                  29
         Depreciation                                                                                     1,427               1,849
         Amortization                                                                                       953               1,784
         Deferred income taxes                                                                             --                   800
         Amortization of imputed interest on note receivable                                                (36)                (25)
         Deferred compensation related to stock options                                                    --                   412
         Changes in operating assets and liabilities (net of effects of
          acquisitions and divestitures):
            Accounts receivable                                                                           5,683               4,022
            Inventories                                                                                     564               3,070
            Income tax receivable                                                                          (425)               (900)
            Other assets                                                                                   (175)               (556)
            Accounts payable                                                                               (659)             (1,905)
            Accrued liabilities                                                                            (183)             (1,183)
            Restructuring accrual                                                                         1,167                --
            Deferred revenue                                                                                400               1,666
                                                                                                       --------            --------
         Net cash provided by (used in) operating activities                                                215              (2,984)

Cash flows from investing activities:
   Acquisition of property and equipment                                                                   (534)               (526)
   Collection of note receivable from former employee                                                     1,000                --
   Cash transferred with divestiture of Security Design International                                      --                   (28)
   Write-down of investment in unaffiliated company                                                         222                --
                                                                                                       --------            --------
         Net cash provided by (used in)
                   investing activities                                                                     688                (554)
                                                                                                       --------            --------
Cash flows from financing activities:
   Proceeds from issuance of common stock, net                                                               82                  82
   Other                                                                                                    (70)                (93)
                                                                                                       --------            --------
         Net cash provided by (used in) financing activities                                                 12                 (11)
                                                                                                       --------            --------
Effect of exchange rate changes on
   cash and cash equivalents                                                                                 14                  57
                                                                                                       --------            --------
Net increase (decrease) in cash and cash equivalents                                                        929              (3,492)
Cash and cash equivalents at beginning of period                                                          9,606              15,250
                                                                                                       --------            --------
Cash and cash equivalents at end of period                                                             $ 10,535            $ 11,758
                                                                                                       ========            ========

Supplemental disclosures
   Cash refunds of income tax                                                                          $   --              $  2,541
   Cash payments of income tax                                                                         $     90            $   --
</TABLE>

   See accompanying notes to condensed consolidated financial statements.

                                     3
<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  state  fairly  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
consolidated  financial  statements  included in the Company's  Annual Report on
Form 10-K for the year ended  December 31, 2001.  Interim  results of operations
are not necessarily indicative of the results to be expected for the full year.

         The accompanying  condensed consolidated financial statements have been
prepared in accordance  with  generally  accepted  accounting  principles in the
United States of America for interim financial  information and the instructions
to Form 10-Q and  Article  10 of  Regulation  S-X.  The  condensed  consolidated
financial  statements  have  been  prepared  on a  going  concern  basis,  which
contemplates  the  realization of assets and the  satisfaction of liabilities in
the normal course of business. As shown in the Company's  consolidated financial
statements,  the Company  has  experienced  declining  annual  revenues  and has
incurred losses from continuing  operations of $8.6 million in the first half of
2002,  $20.1 million in 2001 and $35.4  million in 2000.  These  factors,  among
others  indicate  that the Company may be unable to continue as a going  concern
for a reasonable period of time. The condensed consolidated financial statements
do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and  classification of liabilities that
might be necessary  should the Company be unable to continue as a going concern.
To address  these  issues,  the Company has  effected  significant  cost cutting
measures  beginning  in the  fourth  quarter of 2000 and  continuing  into 2002,
including  staff  reductions  and field office  consolidations,  divestiture  of
unprofitable  operations  and has planned to sublease a portion of its corporate
headquarters  facility.  Management  believes  that the Company  will be able to
continue  operations  through  the  successful  implementation  of its  plan  to
increase  revenues,  continued  reduction  of its cost  structure  and  ultimate
attainment of profitable  operations.  In addition, the Company may seek debt or
equity  financing  if required;  however,  no  assurances  can be given that the
Company will attain profitable  operations or that additional  financing will be
available.

         Certain 2001 financial  statement  amounts were reclassified to conform
with 2002 classifications.  These reclassifications had no effect on net loss or
shareholders' equity as previously reported.

2.       Recent Accounting Pronouncements

         In June 2001, the Financial  Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standards  No. 141 ("SFAS  141"),  "Business
Combinations",  which was effective for business  combinations  initiated  after
June 30,  2001.  In October  2001,  the FASB  issued  SFAS 144,  "Impairment  or
Disposal of Long-Lived  Assets",  which is effective for fiscal years  beginning
after December 15, 2001. In June 2001, the FASB issued SFAS 143, "Accounting for
Retirement  Obligations,"  which is  effective  for the  Company's  fiscal  year
beginning January 1, 2003. We have not yet assessed the impact that the adoption
of FAS 143 will have on our financial  condition or results of  operations.  The
adoption  of  SFAS  141 and  SFAS  144 did not  have a  material  effect  on our
financial condition or results of operations.

         Accounting for Business  Combinations,  Goodwill and Intangible Assets:
In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible  Assets".
SFAS  142  requires  that  goodwill  is no  longer  amortized,  but  tested  for
impairment at least annually,  or more frequently if certain  indications arise.
The Company  adopted SFAS 142 effective  January 1, 2002.  Cylink  completed its
initial  goodwill  impairment  tests on March 31,  2002 and  determined  that no
impairment  of  goodwill  had  occurred  as of that date.  The  Company  further
determined  that no  circumstances  or events occurred in the quarter ended June
30, 2002 that would  require it to conduct an  impairment  test  between  annual
tests.  Subsequent  impairment  losses,  if any,  will be reflected in operating
expense in the consolidated statement of operations.  The Company is not able to
predict at this time whether the determination of fair value under SFAS 142 will
result in an  impairment  of goodwill at a future date.  Given the $15.7 million
net carrying value of the Company's  goodwill and  intangibles at June 30, 2002,
an impairment  determination  could have a material


                                       4
<PAGE>

impact on Cylink's financial position and results of operations. Had the Company
been accounting for its goodwill under SFAS 142 for all periods  presented,  the
Company's net loss and net loss per share would have been as follows:

                                    Three months ended:      Six months ended:
                                   --------------------    --------------------
                                   June 30,     July 1,    June 30,    July 1,
                                     2002        2001        2002        2001
                                   --------------------    --------------------
                                      (in thousands           (in thousands
                                  except per share data)  except per share data)

Reported net loss                  $ (4,665)   $ (7,418)   $ (8,561)   $(14,550)
Add back goodwill
 amortization, net of
 income taxes                          --           307        --           659
                                   --------    --------    --------    --------
Proforma adjusted net loss         $ (4,665)   $ (7,111)   $ (8,561)   $(13,891)
                                   ========    ========    ========    ========

Proforma adjusted net loss
 per share                         $  (0.14)   $  (0.22)   $  (0.26)   $  (0.43)
                                   ========    ========    ========    ========


         In  June  2002,  the  FASB  issued  SFAS  146,  "Accounting  for  Costs
Associated with Exit or Disposal  Activities,"  which  addresses  accounting for
restructuring  and  similar  costs.  SFAS  146  supersedes  previous  accounting
guidance,  principally  Emerging  Issues Task Force Issue No. 94-3.  The Company
will adopt the provisions of SFAS 146 for the restructuring activities initiated
after  December  31,  2002.  SFAS 146  requires  that the  liability  for  costs
associated with an exit or disposal activity be recognized when the liability is
incurred.  Under Issue 94-3, a liability for an exit cost was  recognized at the
date of the Company's commitment to an exit plan. SFAS 146 also established that
the  liability  should  initially  be  measured  and  recorded  at  fair  value.
Accordingly,  SFAS 146 may affect the timing of recognizing future restructuring
costs as well as the amounts recognized.

3.       Inventories

         Inventories   are  stated  at  the  lower  of  standard   costs  (which
approximates actual costs on a first-in,  first-out basis) or market and consist
of:

                                                       June 30,     December 31,
                                                         2002          2001
                                                        ------        ------
                                                           (in thousands)
Inventories:
   Raw materials                                        $1,852        $2,482
   Work in process and subassemblies                     1,821         1,171
   Finished goods                                          595         1,179
                                                        ------        ------
                                                        $4,268        $4,832
                                                        ======        ======

4.       Loss Per Share

         Basic loss per share is based on the weighted-average  number of common
shares outstanding,  excluding shares in escrow. Diluted loss per share is based
on the  weighted-average  number of shares  outstanding  and dilutive  potential
common  shares  outstanding,  excluding  contingent  shares held in escrow.  The
Company's only potentially dilutive securities are stock options. As of June 30,
2002 and July 1, 2001,  the Company had 6,754,000  and  7,135,000  stock options
outstanding  with  a  weighted-average   exercise  price  of  $3.63  and  $5.59,
respectively.   These  options   expire  on  various  dates  through  2008.  All
potentially  dilutive  securities  have been  excluded from the  computation  of
diluted loss per share, as their effect is anti-dilutive on the net loss for the
periods presented.

                                       5
<PAGE>

5.       Comprehensive Loss

         The  components  of  comprehensive  loss,  consisting  of the Company's
reported net loss and unrealized  gains or losses in the  translation of foreign
currencies, are as follows:

                                    Three months ended:     Six months ended:
                                   --------------------    --------------------
                                   June 30,     July 1,    June 30,     July 1,
                                     2002        2001        2002        2001
                                   --------    --------    --------    --------
                                      (in thousands)           (in thousands)

Net loss                           $ (4,665)   $ (7,418)   $ (8,561)   $(14,550)
Other comprehensive income
  (loss)                                (15)        (28)         14          57
                                   --------    --------    --------    --------
Total comprehensive loss           $ (4,680)   $ (7,446)   $ (8,547)   $(14,493)
                                   ========    ========    ========    ========

6.       Commitments and Contingencies

         Cylink is currently engaged in litigation.  See Part II, Item 1. "Legal
Proceedings."

7.       Restructuring Charge

         In the fourth  quarter of 2001,  the  Company  recorded a $1.4  million
charge to accrue a reserve for losses  relative to the estimated costs of excess
leased facilities and related furniture and equipment, net of estimated proceeds
from planned  subleasing  of excess  office space in Santa Clara.  In the second
quarter of 2002,  the  Company  increased  its  estimate by an  additional  $1.2
million based on a continued  weak  sublease  market.  In addition,  the Company
recorded as expense  $0.7  million in  restructuring  charges  during the second
quarter of 2002 related to severance payments to 36 former employees affected by
the workforce  reduction.  Approximately  $0.2 million of the reserves have been
utilized  through June 30, 2002.  The reserves will be utilized for excess lease
costs  associated  with  the  Company's  headquarters  in  future  periods.

         The  following   table   summarizes  the  activity   representing   the
restructuring  charge liability in the condensed  consolidated balance sheet for
the periods presented:

                                              Current     Long-term     Total
                                              -------     ---------     -----
                                                      (in millions)

Balance at December 31, 2001                  $  0.5       $  0.9       $  1.4
Additions                                        0.3          0.9          1.2
Utilization                                     (0.1)        (0.1)        (0.2)
Reclassification from Long-term
  to Current                                     0.2         (0.2)        --
                                              ------       ------       ------
Balance at June 30, 2002                      $  0.9       $  1.5       $  2.4
                                              ======       ======       ======

8.       Goodwill & Other Intangible Assets

         Changes in the  carrying  amount of goodwill  for the six months  ended
June 30, 2002 are as follows (in thousands):

Balance as of December 31, 2001                                         $ 6,222
Write-off of Cylink-Belguim                                                 (29)
                                                                        -------
Balance as of June 30, 2002                                             $ 6,193
                                                                        =======

         In connection with the adoption of SFAS No. 142, the Company  performed
a transitional  impairment  test on goodwill as of March 31, 2002 and determined
that no impairment  of the  Company's  goodwill had occurred and that no further
impairment test was necessary during this quarter. See Note 2.


                                       6
<PAGE>

     Information  regarding the Company's other intangible  assets is as follows
(in thousands):


<TABLE>
<CAPTION>
                                                        June 30, 2002                                 December 31, 2001
                                           ----------------------------------------         ----------------------------------------
                                          Carrying     Accumulated                         Carrying     Accumulated
                                            Amount    Amortization              Net          Amount    Amortization              Net
                                           -------    ------------          -------         -------    ------------          -------
<S>                                        <C>             <C>              <C>             <C>             <C>              <C>
Developed Technology                       $12,077         $(3,168)         $ 8,909         $12,077         $(2,305)         $ 9,772
Customer Base                                  894            (330)             564             894            (240)             654
                                           -------         -------          -------         -------         -------          -------
Total                                      $12,971         $(3,498)         $ 9,473         $12,971         $(2,545)         $10,426
                                           =======         =======          =======         =======         =======          =======
</TABLE>

         Amortization  expense  of other  intangible  assets was  $444,000,  and
$953,000  for  the  three  months  and the  six  months  ended  June  30,  2002,
respectively.

         The estimated amortization for each of the five fiscal years subsequent
to December 31, 2001 is as follows:

                       Year Ended                     Amortization
                       December 31,                     Expense
                       ------------                     -------
                          2002                          $ 1,908
                          2003                            1,908
                          2004                            1,908
                          2005                            1,842
                          2006                            1,728
                          Thereafter                        179
                                                        -------
                               Total                    $ 9,473
                                                        =======

9.       Working Capital Loan

         The  Company's  $7.5 million  revolving  working  capital loan facility
matured on June 27, 2002, and was extended by the bank as described below.  This
loan is secured by all of Cylink's  tangible  assets and  contains a covenant to
maintain a minimum  tangible net worth.  The Company fell out of compliance with
its  covenant in February  2002 and remained  out of  compliance  as of June 30,
2002. The bank has waived the Company's compliance with these covenants, pending
renewal of this credit  facility.  The Company is working with the bank to renew
this credit  facility for one year at $5.0 million and the bank has extended the
maturity  date for $5.0 million of this loan  facility  through  August 27, 2002
pending  its  renewal.  There have been no  borrowings  under the loan since its
inception.

10.      Contingent Liability

         The  Company is  obligated  under its Master  Lease on its Santa  Clara
headquarters  facility to assume  responsibility  for and begin paying rent at a
pre-determined  rental rate on approximately  24,600 sq. ft. currently leased by
the landlord to a third party tenant,  when and if that space becomes available.
In June 2002, the landlord  notified the Company that this tenant was in default
as to a portion of the rent due. Subsequently, the landlord notified the Company
that this tenant had entered  into an  assignment  for the benefit of  creditors
with the  intent of  winding  up its  operations.  The third  party  tenant  has
subleased the facility to a third party subtenant  through August 2004 and it is
uncertain at this date what are the rights and  obligations  of this  subtenant.
Should the space become  available  sooner than the termination of the sublease,
the Company  would be obligated to assume  occupancy  under the Master Lease and
pay  rent  at the  current  rate of  $55,400  per  month  subject  to 3%  annual
escalations  through the September  2009  termination  of its Master  Lease.  No
accrual has been  recorded in the  accompanying  financial  statements  for this
contingent liability because the event that would trigger the obligation has not
occurred and therefore, the obligation is not reasonably estimable.


                                       7
<PAGE>

11.      NASDAQ Listing Notice

         On June 27, 2002,  the Company  received a notice from the staff of the
NASDAQ  National Market that its Common Stock had failed to maintain the minimum
bid price of $1.00  over the prior 30 trading  days as  required  for  continued
listing on the NASDAQ National Market.  The notice stated that, if during the 90
days  following  the date of the  notice  the bid price of Cylink  Common  Stock
failed to close at or above  $1.00  for at least 10  consecutive  trading  days,
Cylink Common Stock could be delisted.


                                       8
<PAGE>

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

Forward Looking Statements

         This Quarterly Report on Form 10-Q contains forward-looking  statements
within the "safe harbor" provisions of the Private Securities  Litigation Reform
Act of 1995.  All  statements  included or  incorporated  by  reference  in this
Quarterly  Report,  other  than  statements  that  are  purely  historical,  are
forward-looking  statements.  Words such as "anticipates," "expects," "intends,"
"plans,"  "believes," "seeks," "estimates" and similar expressions also identify
forward-looking  statements.  Forward-looking statements in this Report include,
without limitation,  statements regarding:  revisions to the Company's financial
plan and  implementation  by the Company of the plan and additional cost cutting
measures in the third  quarter;  failure of the Company to meet covenants in its
loan documents,  renewal of the credit facility,  and the Company's need to seek
additional  funds to  support  working  capital  requirements;  failure to raise
additional  funds as needed;  plans to continue cost reducing  measures in 2002;
the sufficiency of the Company's existing cash balances and available  borrowing
to fund operations through 2002; and the belief that the Company has meritorious
defenses  and  adequate   insurance  for  the  damages  claimed  in  shareholder
litigation actions and the Company's intentions to defend itself vigorously.

         These  forward-looking  statements and any  expectations  based on such
forward-looking  statements  are not  guarantees of future  performance  and are
subject to risks and  uncertainties  that could cause  actual  results to differ
materially from the results contemplated by the forward-looking  statements. Any
of Cylink's  actual results could differ  materially from those included in such
forward-looking  statements. The above forward-looking statements are subject to
the risks and  uncertainties  further  discussed  under "Risk  Factors  That May
Affect Future Results" beginning on page 13.

         All  forward-looking  statements included in this document are based on
information  available  to Cylink on the date  hereof,  and  Cylink  assumes  no
obligation  to update  any such  forward-looking  statements.  Shareholders  are
cautioned not to place undue reliance on such statements, which speak only as of
the  date  of this  Report.  The  reader  should  also  consult  the  cautionary
statements  and risk  factors  listed from time to time in  Cylink's  Reports on
Forms 10-Q, 8-K, 10-K and its Annual Reports to  Shareholders  for other trends,
risks or  uncertainties  which could cause the Company's  results to differ from
those expressed in such forward looking statements.

         The  following  Management's   Discussion  and  Analysis  of  Financial
Condition  and  Results of  Operations  should be read in  conjunction  with the
unaudited condensed consolidated financial statements and notes thereto included
in Part I Item 1 of  this  Report  on Form  10-Q  and the  audited  consolidated
financial statements and notes thereto and Management's  Discussion and Analysis
of  Financial  Condition  and Results of  Operations  included in the  Company's
Report on Form 10-K for the year ended December 31, 2001.

Critical Accounting Policies and Estimates

         Cylink's discussion and analysis of its financial condition and results
of operations  are based upon the  Company's  condensed  consolidated  financial
statements,  which have been prepared in accordance with  accounting  principles
generally  accepted in the United States.  The preparation of these consolidated
financial statements requires Cylink to make estimates and judgments that affect
the reported amounts of assets, liabilities,  revenues and expenses, and related
disclosure of contingent liabilities.  On an ongoing basis, Cylink evaluates its
estimates,   including  those  related  to  allowance  for  doubtful   accounts,
inventories,  investments, deferred tax assets, intangible assets, income taxes,
warranty obligations,  restructuring,  and contingencies and litigation.  Cylink
bases its estimates on historical  experience  and on various other  assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for  making  judgments  about the  carrying  values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.

         A description  of those  accounting  policies that Cylink  believes are
critical is contained in the  Company's  Annual Report on Form 10-K for the year
ended December 31, 2001.


                                       9
<PAGE>

RESULTS OF OPERATIONS

         The  following  table  sets forth  certain  consolidated  statement  of
operations data as a percentage of revenue for the periods indicated:

<TABLE>
<CAPTION>
                                                                 Three months ended              Six months ended
                                                              -----------------------        ------------------------
                                                              June 30,        July 1,        June 30,         July 1,
                                                                2002           2001            2002            2001
                                                              --------        -------        --------         -------
<S>                                                             <C>            <C>             <C>             <C>
 Revenue                                                        100.0%         100.0%          100.0%          100.0%
 Cost of revenue                                                 35.7           43.9            36.4            39.3
                                                                -----          -----           -----           -----
 Gross profit                                                    64.3           56.1            63.6            60.7

 Operating expenses:
   Research and development                                      40.3           38.2            40.6            42.6
   Selling and marketing                                         37.6           37.0            40.3            41.1
   General and administrative                                    19.5           20.1            24.0            21.9
   Amortization of acquired intangibles                           6.0            6.0             6.6             6.4
   Loss from divestiture of Algorithmic Research Ltd.               -           18.4               -             9.6
   Restructuring charges                                         25.3              -            12.9               -
                                                                -----          -----           -----           -----

      Total operating expenses                                  128.7          119.7           124.4           121.6
                                                                -----          -----           -----           -----

 Loss from operations                                           (64.4)         (63.6)          (60.8)          (60.9)

 Other income (expense), net                                      2.3            0.3            (0.7)            0.8
                                                                -----          -----           -----           -----

 Loss before income taxes                                       (62.1)         (63.3)          (61.5)          (60.1)
 Income tax expense (benefit)                                     1.2           (8.6)           (2.3)           (4.5)
                                                                -----          -----           -----           -----

 Net loss                                                       (63.3)%        (54.7)%         (59.2)%         (55.6)%
                                                                =====          =====           =====           =====
</TABLE>

         Revenue.  Revenue decreased 46% from $13.6 million for the three months
ended July 1, 2001 to $7.4 million for the three months ended June 30, 2002, and
decreased  45% from $26.2 million for the six months ended July 1, 2001 to $14.5
million for the six months ended June 30, 2002. The decrease is primarily due to
lower  unit  volumes  resulting  from  the  market  slowdown  generally  and the
divestiture of our Israeli  subsidiary,  Algorithmic  Research,  Limited (ARL) .
International  revenue  comprised  32% and 36% of total  revenue  for the second
quarter of 2001 and 2002,  respectively.  The increase in international revenues
in the second  quarter of 2002 as a percentage  of total  revenue from the prior
year second quarter was due to a smaller decline in international  revenues over
domestic revenues in a weakened global environment.

         Gross Profit.  Gross profit  decreased  from $7.6 million for the three
months  ended July 1, 2001 to $4.7  million for the three  months ended June 30,
2002,  and decreased from $15.9 million for the six months ended July 1, 2001 to
$9.2 million for the six months ended June 30,  2002.  This  decrease in dollars
primarily  was a result of the overall  decrease in revenue for the same period.
As a percentage  of sales,  gross profit was  approximately  56% and 64% for the
quarters ended July 1, 2001 and June 30, 2002, respectively, and 61% and 64% for
the six months ended July 1, 2001 and June 30, 2002, respectively.  The increase
in gross profit as a  percentage  of revenue was due to higher  service  revenue
margins due to benefits realized from cost reduction programs implemented by the
Company in 2002, reduced excess and obsolete inventory and warranty adjustments,
offset by lower product margins resulting from the spread of fixed manufacturing
and facility costs over a much lower revenue base.

         Research and  Development.  Research and development  expenses  consist
primarily of salaries and other  personnel  related  expenses,  depreciation  of
development  equipment,   facilities  and  supplies.  Research  and  development
expenses decreased 43% from $5.2 million for the three months ended July 1, 2001
to $3.0 million for


                                       10
<PAGE>

the three months ended June 30, 2002 and  decreased  47% from $11.1  million for
the six months  ended July 1, 2001 to $5.9 million for the six months ended June
30, 2002. Research and development  expenses as a percentage of revenue were 38%
for the second  quarter of 2001 and 40% for the second quarter 2002, and 43% for
the first six  months  of 2001 and 41% for the  first  six  months of 2002.  The
dollar  decrease in research  and  development  expenses was a result of reduced
project spending and headcount,  due to cost savings initiatives  implemented by
the Company, and the divestiture of ARL. The increase in expense as a percentage
of revenue for the second quarter of each period was due to a greater decline in
revenues than the reduction in product development expenditures. The decrease in
expense as a  percentage  of revenue  for the first six months of each period is
due to revenue  increases in the second  quarter of each period when compared to
the dollar decrease in expenses for reasons mentioned above.

         Selling and Marketing. Selling and marketing expenses consist primarily
of personnel expenses, including sales commissions and bonuses, and expenses for
public  relations,  seminars and trade  shows.  Selling and  marketing  expenses
decreased  45% from $5.0 million for the three months ended July 1, 2001 to $2.8
million for the three  months ended June 30, 2002 and  decreased  46% from $10.8
million for the six months ended July 1, 2001 to $5.8 million for the six months
ended June 30, 2002.  Selling and marketing  expenses as a percentage of revenue
were 37% for the second  quarter of 2001 and 38% for the second quarter of 2002,
and 41% for the  first six  months  of 2001 and 40% for the first six  months of
2002.  The dollar  decrease in selling and  marketing  expenses  was a result of
lower commission  spending due to decreased  revenues,  lower headcount spending
driven by the  reduction in  workforce  actions  taken  during  2002,  and lower
marketing  and  bonus  spending  due  to  the  implementation  of  cost  savings
initiatives  by the Company.  The increase in expense as a percentage of revenue
for the second  quarter of each period was due to a greater  decline in revenues
than the  reduction  in selling and  marketing  expenditures.  For the first six
months of each period, the percentages were essentially comparable.

         General and Administrative. General and administrative expenses consist
primarily of personnel and related costs,  information systems costs, and audit,
legal and other professional  service fees. General and administrative  expenses
decreased  47% from $2.7 million for the three months ended July 1, 2001 to $1.4
million for the three  months  ended June 30, 2002 and  decreased  40% from $5.7
million for the six months ended July 1, 2001 to $3.5 million for the six months
ended June 30, 2002.  General and  administrative  expenses as a  percentage  of
revenue were 20% for the second  quarter of 2001 and 19% for the second  quarter
2002,  and 22% for the first six months of 2001 and 24% for the first six months
of 2002. The dollar decrease in general and  administrative  expenses was due to
lower  headcount  spending  driven by the  reduction in workforce  actions taken
during 2002, and lower bonus spending due to the  implementation of cost savings
initiatives  by the Company.  The decrease in expense as a percentage of revenue
for  the  second  quarter  of  each  period  was  due to a  greater  decline  in
expenditures  than the  reduction  in  revenues.  The  increase  in expense as a
percentage  of  revenues  for the first six  months of each  period was due to a
faster decline in revenues than expenses could be adjusted.

         Restructuring  Charges.  Restructuring  charges  consist  of  severance
expenses due or paid to former employees and the estimated cost of excess leased
facilities and related furniture and equipment,  net of estimated  proceeds from
planned  subleasing of excess office space.  In the second  quarter of 2002, the
Company  eliminated 36 positions  incurring a pre-tax  severance  charge of $0.7
million. In light of the workforce reduction,  and the continued weak demand for
vacant  office space in Santa Clara,  CA, the Company  increased its estimate of
the loss from excess leased facilities by $1.2 million.

         Amortization of Acquired Intangibles. Amortization of intangible assets
declined  from $0.8  million  for the three  months  ended  July 1, 2001 to $0.4
million for the three months ended June 30, 2002 and declined  from $1.7 million
for the six months ended July 1, 2001 to $1.0 million for the three months ended
June 30,  2002.  Pursuant  to the  adoption  of SFAS  142,  "Goodwill  and Other
Intangibles," on January 1, 2002, Cylink ceased amortizing its goodwill.

         Other  Income  (Expense),  Net.  Other income  (expense),  net consists
primarily of interest  income and interest  expense,  foreign  exchange gains or
losses,  royalty income, and impairment losses from investments in non-operating
companies.  Other income,  net increased from $39 thousand for the quarter ended
July 1, 2001 to $170 thousand for the quarter  ended June 30, 2002,  principally
due to foreign  exchange  gains in the current period versus losses in the prior
period.  Other income,  net  decreased  from income of $210 thousand for the six
months  ended July 1, 2001 to a loss of $92  thousand  for the six months  ended
June  30,  2002,  principally  due to the  write-down  of our  investment  in an
unaffiliated company in 2002.


                                       11
<PAGE>

         Provision  for  Income  Taxes.  A  charge  for  state  taxes  paid  was
recognized in the quarter ended June 30, 2002.  Cylink  recognized a tax benefit
of $1.2  million for the  quarter  ended July 1, 2001  representing  the partial
recognition of the Company's net operating loss for income tax purposes.

LIQUIDITY AND CAPITAL RESOURCES

         At June 30,  2002,  the Company had  working  capital of $10.2  million
(including  cash and cash  equivalents  of $10.5  million)  and $2.6  million of
long-term  obligations.  For the six months  ended June 30,  2002,  the  Company
recorded a net loss of $8.6 million.  Net cash provided by operating  activities
for the first six months of 2002 was $0.2 million,  consisting  primarily of the
loss from  operations,  offset by $2.4  million  of  non-cash  depreciation  and
amortization  and a net  decrease in working  capital.  The  decrease in working
capital included a decrease in accounts  receivable of $5.7 million, an increase
in deferred revenue of $0.4 million,  a decrease in inventories of $0.6 million,
an increase in  restructuring  accruals of $1.2 million,  partially  offset by a
decrease  in  accounts  payable  and accrued  liabilities  of $0.8  million,  an
increase in income tax  receivables  of $0.4  million,  and an increase in other
assets of $0.2  million.  The decrease in accounts  receivable  was due to lower
shipments during the second quarter of 2002, and improved collection activities.
The decrease in  inventories  and accounts  payable was due to continued  strict
purchasing controls.  The decrease in accrued liabilities was due principally to
decreased  commission and bonus  liabilities,  along with  decreased  employment
liabilities resulting from reduced headcount.

         Net cash used in  operating  activities  for the first half of 2001 was
$3.0 million consisting  primarily of the loss from operations of $14.6 million,
partially  offset by a decrease in working  capital which included a decrease in
accounts  receivable of $4.0 million, a decrease in inventories of $3.1 million,
an increase in deferred revenue of $1.7 million,  partially offset by a decrease
in accounts  payable and accrued  liabilities  of $3.1  million,  an increase in
income tax receivables of $0.4 million,  and an increase in other assets of $0.6
million.  The  decrease in  accounts  receivable  was due to lower than  average
shipments during the quarter supported by improved  collection  activities.  The
decrease in inventories and the decrease in accounts  payable were the result of
stricter  purchasing  controls.  The  decrease  in accrued  liabilities  was due
principally to decreased commission, bonus, and legal liabilities.

         Cash  provided by  investing  activities  was $0.7  million for the six
months ended June 30, 2002 as compared to cash used by investing  activities  of
$0.6 million for the six months ended July 1, 2001.  Cash  provided by investing
activities  for the first six months of 2002 resulted  from the  collection of a
$1.0  million  note  receivable,  and  the  write-down  of an  investment  in an
unaffiliated  company,  partially  offset by the  acquisition of $0.5 million of
property,  plant and equipment.  Cash used in investing activities for the first
six months of 2001  consisted  primarily of the  acquisition  of $0.5 million of
property, plant and equipment.

         Cash  provided  by (used in)  financing  activities  for the six months
ended June 30,  2002 and July 1, 2001,  respectively,  was not  material in both
periods.

         On  June  27,  2001,  the  Company  entered  into a loan  and  security
agreement  with a bank under  which it may  borrow up to $7.5  million by way of
revolving  advances.  This loan matured on June 27, 2002. The loan is secured by
all of Cylink's  tangible  assets and  contains a covenant to maintain a minimum
tangible  net worth.  The Company  fell out of  compliance  with its covenant in
February  2002 and remains not in  compliance  with said covenant as of June 30,
2002. The bank has waived the Company's  compliance with said covenant,  pending
renewal of this credit  facility.  The Company is working with the bank to renew
this credit  facility for one year at $5.0 million and the bank has extended the
maturity  date for $5.0 million of this loan  facility  through  August 27, 2002
pending  its  renewal.  There have been no  borrowings  under the loan since its
inception.

         In conjunction  with the  acquisition of Celotek  Corporation in August
2000,  Cylink  assumed an  equipment  loan with an  outstanding  balance of $0.3
million. This loan matures December 1, 2002 and bears interest at the prime rate
plus 1%. As of June 30, 2002, the  outstanding  balance under the equipment line
was $0.1 million.  The equipment  line requires the Company to maintain  certain
liquidity  and  profitability  covenants,  with  which  the  Company  was not in
compliance as of June 30, 2002.


                                       12
<PAGE>

         As of the date of filing  of this  Quarterly  Report  on Form 10Q,  the
Company's  revenue  to  date  for  2002  is  significantly   below  the  revenue
anticipated under its current financial plan. Under the Company's financial plan
for 2002, the Company had projected a positive  operating  cashflow for the 2002
fiscal year.  Due to the decrease in the  Company's  revenues  below the amounts
anticipated  by the Company under its financial  plan,  the Company  undertook a
workforce reduction in June 2002 and is prepared to undertake certain additional
cost cutting actions  predicated on actual revenue  performance during the third
quarter.  However,  there can be no  assurance  that the Company will be able to
implement or achieve a revised plan,  that such a revised plan, if  implemented,
would be  sufficient  for the  Company  to  achieve  profitability,  or that the
Company's  existing cash balances and available  borrowing will be sufficient to
fund operations through 2002.

         In the event the Company's financial plan is unsuccessful,  the Company
may  require  additional  funds  in the near  term to  support  working  capital
requirements or for other purposes and may seek to raise such  additional  funds
through public or private  equity or debt  financing,  sales of assets,  or from
other  sources.  No assurance  can be given that  additional  financing  will be
available or that,  if available,  will be on terms  favorable to the Company or
its  shareholders.  If Cylink  is  unsuccessful  in  implementing  it's  revised
financial plan, and cannot raise additional  funds, the Company may not have the
resources to maintain its operations.

         On June 27, 2002,  the Company  received a notice from the staff of the
NASDAQ  National Market that its Common Stock had failed to maintain the minimum
bid price of $1.00  over the prior 30 trading  days as  required  for  continued
listing on the NASDAQ National  Market.  The notice stated that if during the 90
days  following  the date of the  notice  the bid price of Cylink  Common  Stock
failed to close at or above $1.00 for at least 10 consecutive trading days, then
Cylink Common Stock could be delisted.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

We have a history of losses,  and may not be able to meet our needs for  working
capital.

         We incurred  significant  net losses in 2001 and in prior years. We had
an  accumulated  deficit of $127.3 million as of June 30, 2002. Our prior losses
may also adversely impact our ability to raise additional capital if required to
sustain our operations.

         As of the date of filing of this  Quarterly  Report on Form  10-Q,  our
revenue to date for 2002 is significantly  below the revenue  anticipated  under
our current  financial plan. Under our financial plan for 2002, we had projected
a positive  operating cash flow for the 2002 fiscal year. Due to the decrease in
the Company's  revenues  below the amounts  anticipated by the Company under its
financial plan, we undertook a workforce reduction in June 2002 and are prepared
to undertake  certain  additional  cost  cutting  actions  predicated  on actual
revenue performance during the third quarter. However, there can be no assurance
that we will be able to  implement  or achieve  our  revised  plan,  that such a
revised plan,  if  implemented,  would be sufficient  for the Company to achieve
profitability,  or that our principal  sources of liquidity,  which include cash
and cash  equivalents  of $10.5  million as of June 30,  2002,  will satisfy our
current anticipated working capital and capital expenditure requirements through
at least the next twelve months.  Our previous  credit line expired in June 2002
and it undergoing the renewal  process.  In February  2002, we breached  certain
financial  covenants  contained in the loan  agreement for such credit line. The
bank has waived compliance with the covenants pending renewal of the loan. There
is no guarantee that we will satisfy the renewal covenants or other covenants in
the loan  agreement in the future,  and there is no guarantee that the bank will
renew the credit line after its extended  expiration  in August 2002. If we fail
to meet our financial covenants or if the bank does not renew the facility,  the
line of credit will not be available to fund our operations if it is needed.

         In 2001,  we began to realize the benefits of the actions  taken in the
fourth  quarter of 2000, and throughout  2001 to reduce  operating  costs in our
core business. We plan to continue such cost reducing measures in 2002. However,
there can be no assurance  that we will be able to continue  reducing costs at a
pace that reflects  further  reduction in revenues,  or that we will not need to
raise  additional  capital  to  fund  operations  within  this  period  or  that
additional  financing  can be  obtained  on  acceptable  terms,  or at  all.  If
additional  funds  are  raised  by  issuing  equity   securities,   dilution  to
shareholders may result. If adequate funds are not available,  we, our business,
and the price of our Common Stock will be adversely affected.

Our quarterly  operating  results may vary in the future,  which could cause our
stock price to drop.


                                       13
<PAGE>

         We  have  historically  experienced  significant  fluctuations  in  our
operating results on a quarterly basis and could experience such fluctuations in
the future.  Our revenues and operating results could be affected by a number of
factors outside of our control, including the following:

         o        our inability to accurately forecast revenues and respond in a
                  timely manner to changes in revenue levels;

         o        the timing of the  introduction by us or by our competitors of
                  new or enhanced products;

         o        market  acceptance  of  our  new  products  and  those  of our
                  competitors;

         o        the  timing,   cancellation  or  delay  of  customer   orders,
                  including cancellation or delay in anticipation of new product
                  introductions or enhancements;

         o        changes in our pricing policies or those of our competitors;

         o        changes  in  operating  costs and  expenses,  including  those
                  resulting  from  changes in available  production  capacity of
                  independent foundries and other suppliers and the availability
                  of raw materials;

         o        changes in the revenue mix from products or services sold;

         o        changes in the  percentage of products sold through our direct
                  sales force;

         o        loss of an important customer;

         o        failure to grow our customer  base in  accordance  with market
                  expectations;

         o        customer discounts and credits;

         o        our  limited   ability  to  reduce   expenses  to  offset  any
                  unexpected shortfall in revenue growth or decrease in revenue;

         o        delays in  manufacturing  due to  shortages in  components  or
                  unanticipated revisions in product design;

         o        expenses  incurred in seeking to enforce or defend claims with
                  respect to intellectual property rights;

         o        changes in the economy that affect the purchasing decisions of
                  our customers;

         o        defaults by existing  subtenants under our long term lease for
                  leasehold  space may increase our net costs in a deteriorating
                  office rental market; and

         o        disruption  in our  operations  caused  by  reductions  in our
                  workforce.

         Many of these factors are outside of our control. Unforeseen reductions
in revenue can materially  and adversely  affect our ability to raise capital or
sustain ongoing operations.

We are currently involved in litigation.

         Several  securities class action  complaints have been filed against us
and certain of our current and former  directors and officers in federal  courts
in California.  These complaints allege, among other things, that our previously
issued  financial  statements were materially  false and misleading and that the
defendants knew or should have known that these financial  statements caused our
common stock price to rise  artificially and allege  violations of Section 10(b)
of the Securities  Exchange Act of 1934, as amended,  and Rule 10b-5 promulgated
thereunder,  and Section 20 of the  Exchange  Act. The  securities  class action
lawsuits  have been ordered  consolidated  into a single  action  pending in the
United States District Court for the Northern District of California,  captioned
In Re Cylink Securities Litigation,  No. C98-4292 (VRW). For more information on
this lawsuit, see Part II, Item 1. "Legal  Proceedings."  Although we believe we
have  meritorious  defenses and adequate  insurance  for the damages  claimed in
these  actions,  it is not feasible to predict or determine the final outcome of
these  proceedings,  and if the outcome  were to be  unfavorable  and exceed our
applicable insurance, our business,  financial condition, cash flows and results
of operations could be materially adversely affected.

Our  sales  cycles  are long and  unpredictable,  which  makes  period-to-period
revenues difficult to predict.


                                       14
<PAGE>

         Sales of our 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 our  products is typically  lengthy and subject to a number of  significant
risks over which we have  little or no  control.  We are often  required to ship
products  shortly after we receive  orders.  Consequently,  order backlog at the
beginning  of any period  has,  at times in the past,  represented  only a small
portion of that period's  expected  revenue.  Furthermore,  increases in backlog
from quarter to quarter may be due to  placement of orders  calling for delivery
dates  extended  over  a  much  longer  period  of  time  into  future  periods.
Consequently,   our  order   backlog   becomes  more   vulnerable   to  customer
cancellations.  As a result of these  fluctuations  in our sales cycle and order
backlog,  product  revenue  in any  period  has  been and  will  continue  to be
substantially  dependent  on  orders  booked  and  shipped  in that  period.  We
typically plan our production and inventory  levels based on internal  forecasts
of  customer  demand,   which  are  highly   unpredictable   and  can  fluctuate
substantially.  In  particular,  market  forces  beyond our  control,  including
recession,  and  limits or changes in  government  spending  may have a material
affect on customer demand for our products. If revenue falls significantly below
anticipated  levels, as it has at times in the past, our financial condition and
results of operations would be materially and adversely  affected.  In addition,
our  operating  expenses  are based on  anticipated  revenue  levels  and a high
percentage of our 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. It is possible that in the future
our  operating  results  will  again 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 our
business,  or the  market  sector in which we  operate,  the price of our Common
Stock would likely be  adversely  affected.  These  factors make it difficult to
predict our financial performance.  As our quarterly results fluctuate, they may
fall below the  expectations  of public market  analysts or  investors.  If this
occurs, the price of our Common Stock may drop.

The overall economic climate continues to be weak.

         Our products typically  represent  substantial  capital  commitments by
customers,  involving a  potentially  long sales  cycle.  As a result,  customer
purchase  decisions  may be  significantly  affected  by a  variety  of  factors
including  trends  in  capital  spending  for  communication  networks,   market
competition,  and the availability or announcement of alternative  technologies.
Continued recent weakness in general economic conditions has resulted in many of
our  customers  delaying  and/or  reducing  their  capital  spending  related to
information  systems.  If the  economy  continues  to be  weak,  demand  for our
products  could  decrease,  resulting  in lower  revenues  and a decline  in the
overall rate of our revenue growth.

We are dependent on recently introduced and new network security products.

         Our  future  results  of  operations  will be highly  dependent  on the
successful  marketing  and  manufacture  of the  NetHawk  product,  as  well  as
successful  marketing and  manufacture  of the Cylink Link  Encryptors,  PrivaCy
Manager,  Cylink ATM, and Cylink Frame  Encryptor  products.  Through the second
quarter of 2002, we have made only limited  commercial  shipments of our NetHawk
product, which began shipping in mid-year 2000. This product requires additional
development  work,  enhancement,  and testing to achieve  widespread  commercial
success.  If this or other new or recently introduced products have performance,
reliability,  quality or other shortcomings, such products could fail to achieve
adequate  market  acceptance.  The  failure of our new or  existing  products to
achieve or enjoy market  acceptance,  whether for these or other reasons,  could
cause us to 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 our  business,
financial condition and results of operations.

         Due to  insufficient  market  acceptance  of  stand  alone  public  key
infrastructure ("PKI") products,  such as our Net Authority and similar products
of our competitors, we revised our marketing approach in the second half of 2001
by  discontinuing  efforts to sell Net  Authority  as a stand alone  product and
focused our efforts on potential  customers  seeking to embed our PKI as part of
their  application  or service.  In addition,  on February 8, 2002,  we received
notice from the United States Postal  Service  ("USPS") that it was  terminating
its license to Cylink's Net Authority  product as of March 17, 2002, noting that
its decision was "not a reflection of the quality of work  performance  provided
by Cylink" but was due to "USPS' immediate need to reduce cost" and downsize its
non core businesses following the anthrax attack on its operations in October of
2001. After granting USPS a continuation of its license, at its request, through
May 30,  2002,  this  license  and all further  revenue  earned  under  Cylink's
contract with the USPS finally  expired in the second  quarter of 2002.  Revenue
for the second  quarter of 2002, and the first six months of 2002 resulting from
USPS was $0.2  million,  and $0.5 million,  respectively.  We  discontinued  all
further development of our PKI technology in July 2002.

                                       15
<PAGE>

We face significant competition from other providers of network security systems

         Competition is intense among providers of network security systems, and
we expect such  competition to increase in the future.  Significant  competitive
factors in these markets include:

         o        the development of new products and features;

         o        product quality and performance;

         o        customer   perception   regarding  the  adequacy  of  security
                  provided by existing software and routers;

         o        adoption  of embedded  security  solutions  in other  vendors'
                  hardware and software products;

         o        the quality and experience of our sales, marketing and service
                  organizations;

         o        product price;

         o        name recognition; and

         o        perception of our stability and long-term viability.

         Many of these competitive factors are beyond our control.

         Our  competitors  in  the  information   security  markets,   including
companies that offer products similar to, or are perceived as an alternative to,
our products,  are Checkpoint Software  Technologies,  Ltd., Network Associates,
Inc., SafeNet, Inc., Secure Computing Corporation,  RSA Security, Inc., Symantec
Corporation, and Thales e-Security, Inc. Our NetHawk VPN appliance competes with
numerous other products,  including those offered or under  development by Cisco
Systems,  Inc., Newbridge Networks Corporation,  Netscreen  Technologies,  Inc.,
Nokia Corp,  and Sonic Wall,  Inc. A number of  significant  vendors,  including
Microsoft Corporation,  and Cisco Systems, Inc. have embedded security solutions
in their  software.  To the extent  that these  embedded  or  optional  security
capabilities  provide  all or a portion  of the  functionality  provided  by our
products,  our products may no longer be required by customers to attain network
security.

         Many  of  our  competitors  have   substantially   greater   financial,
technical, marketing, distribution and other resources, greater name recognition
and longer standing  relationships  with customers than we possess.  Competitors
with greater  financial  resources are better able to engage in more  aggressive
marketing  campaigns  and  sustained  price  reductions  in order to gain market
share.  Any period of sustained price  reductions  would have a material adverse
effect on our financial condition and results of operations.  We may not be able
to compete  successfully in the future and  competitive  pressures may result in
price  reductions,  loss of market  share or otherwise  have a material  adverse
effect on our financial condition and results of operations.

We face the risks from tort and warranty claims that may be made against us.

         We face the  risks  from  tort  and  warranty  claims  that may be made
against  us.  Customers  rely  on  our  network  security  products  to  prevent
unauthorized access to their networks and data  transmissions.  A malfunction or
the inadequate design of our products could result in tort or warranty claims. A
breach of a customer's  network by an unauthorized  party, which is attributable
to an alleged defect in our products,  may cause substantial damages due to loss
or compromise of the  customer's  valuable  information.  Furthermore,  there is
inadequate legal precedent for allocating  responsibility for such losses caused
by the wrongful acts of third parties. Although we attempt to reduce the risk of
such losses through warranty disclaimers and liability limitation clauses in our
sales and license  agreements and by maintaining  product  liability  insurance,
there can be no assurance  that such  measures will be effective in limiting our
liability  for any such  damages.  Any  liability  for  damages  resulting  from
security breaches or other product defects could be substantial and could have a
material  adverse  effect on our  business,  financial  condition 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 our products in particular, regardless of whether such breach is attributable
to our  products.  This could  result in a decline  in demand for our  products,
which would have a material adverse effect on our business,  financial condition
and results of operations.

                                       16
<PAGE>


         On August 2, 2001, Cylink determined that a hardware design could cause
a premature  failure of the backup battery on its Cylink Frame  Encryptor  (CFE)
product.  Shortly  thereafter,  Cylink announced a program to give its customers
the option of updating  their CFE units by  returning  them to the  factory,  or
receiving an extended  warranty covering the battery through the end of December
2002.  Cylink  accrued  approximately  $1.0 million in warranty costs during the
second  quarter of 2001  associated  with this  program.  While we believe  this
reserve was based on reasonable  estimates based on information  available to us
at the time,  actual costs could exceed these  reserves.  Since  announcing this
program, two of our major customers stated their intention to submit substantial
claims related to their costs of avoiding product failures.  Although we believe
such  claims  may be barred or  significantly  reduced  by the  limitations  and
exclusions in the governing contracts of sale, there can be no assurance that we
will be found free from liability and any obligation to reimburse  customers may
have a material effect on our operations.

We may be unable to retain our  executive  officers and key  personnel  that are
critical to our business.

         Our future  success  will depend in large part on the  abilities of our
executive  officers,  key management and technical  personnel and our ability to
retain  qualified and  competent  individuals  following  our  reductions in the
employee workforce.  There is no guarantee that our present executive management
and  technical  staff  will  remain  with  the  Company,   particularly  if  our
performance is not up to  expectations,  and  particularly  if general  economic
recovery leads to expanded  alternative  opportunities  for such employees.  The
loss of the services of one or more of our executive  officers or key personnel,
or the inability to attract and retain additional executives and other qualified
personnel,  could delay product  development cycles or otherwise have a material
adverse effect on our business and operating results.

We may not be able  to hire  and  retain  sufficient  technical,  marketing  and
management personnel that we need to succeed because these people are limited in
number and are in high demand.

         We may not be able to hire and retain sufficient  technical,  marketing
and  management  personnel  that we  need to  succeed  because  we have  limited
resources to expand our work force. We recently experienced, and may continue to
experience, substantial fluctuations in the number of employees and the scope of
our  operations  in  the  network  security  business,  resulting  in  increased
responsibilities  for management.  To manage our business  effectively,  we will
need  to  continue  to  improve  our   operational,   financial  and  management
information  systems and to retain,  motivate and manage our  employees.  In the
recent past, competition has been intense for qualified technical, marketing and
management personnel.  Furthermore,  the recent reductions in our workforce, and
fluctuation  in our stock  price,  may create  greater  uncertainty  amongst our
existing employees,  who may decide not to continue employment with the Company.
There can be no assurance that we will be able  effectively to achieve or manage
any future  growth,  and our  failure to do so could delay  product  development
cycles or otherwise have a material  adverse  effect on our financial  condition
and results of operations.

Any inability to protect our intellectual  property could reduce our competitive
advantage,  divert management  attention,  and require  additional  intellectual
property to be developed or cause us to incur expenses to enforce our rights.

         We rely on patents, trademarks,  copyrights,  licenses and trade secret
law to establish and preserve our intellectual  property rights. We own a number
of U.S.  patents  covering  certain  features  of our network  security  product
designs, and have additional U.S. patent applications  pending.  There can be no
assurance that any patent,  trademark,  copyright or license owned or held by us
will not be  invalidated,  circumvented  or challenged,  that the rights granted
thereunder will provide competitive  advantages to us or that any of our pending
or future patent applications will be issued with the scope of the claims sought
by us,  if at all.  Further,  there can be no  assurance  that  others  will not
develop  technologies that are similar or superior to our technology,  duplicate
our technology,  misappropriate our trade secrets,  or design around the patents
owned by us. Resorting to the courts to protect our intellectual  property would
require significant financial and management resources. In addition, the laws of
certain countries in which our products are or may be developed, manufactured or
sold may not protect our products and  intellectual  property rights to the same
extent  as the  laws  of  the  United  States.  Our  inability  to  protect  our
intellectual  property  adequately  could have a material  adverse effect on our
financial condition and results of operations.

         The computer, communications,  software and network security industries
are  characterized  by  substantial   litigation   regarding  patent  and  other
intellectual property rights. In the past, we have received  communications from
third parties asserting that our patents,  features or content of certain of our
products  infringe upon the intellectual

                                       17
<PAGE>


property rights held by third parties, and we may receive such communications in
the future.  There can be no assurance that third parties will not assert claims
against us that result in litigation. Any litigation,  whether or not determined
in our  favor,  could  result in  significant  expense  to us and  could  divert
management  and  other  resources.  In the  event of an  adverse  ruling  in any
litigation involving  intellectual property, we 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 we 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 us on reasonable
terms or at all. In the event of a successful  claim  against us and our failure
to develop or license a substitute technology on commercially  reasonable terms,
our 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  our  financial   condition  and  results  of
operations.

If we are unable to adapt our services to rapidly changing technology, or if the
market  for our  network  security  products  fails to grow,  our  business  and
operating results could suffer.

         The  market for our  network  security  products  is  characterized  by
rapidly  changing   technology,   emerging  industry   standards,   new  product
introductions and changes in customer  requirements and preferences.  Our future
success will depend in part upon end users' demand for network security products
in general, and upon our ability to enhance our existing products and to develop
and introduce new products and technologies that meet customer requirements.  We
face continuing  challenges to educate customers as to the value of our security
products.  We believe that many  potential  customers do not appreciate the need
for our  security  products  unless and until  they have faced a major  security
breach.  Many potential  customers prefer not to disclose  significant  security
breaches of their  networks or are reluctant to invest in the  development  of a
professional  security  architecture  to protect  their  networks.  This  market
resistance  is  compounded  by our  limited  resources  to invest  in  marketing
campaigns for our products and services.

         If we are unable  successfully to educate potential customers as to the
value of, and thereby  obtain  broad  market  acceptance  for,  our products and
services,  we will  continue  to rely  primarily  on  selling  new and  existing
products to our base of existing  customers,  which will significantly limit any
opportunity for growth. In addition, any significant advance in technologies for
attacking cryptographic systems could render some or all of our existing and new
products  obsolete or  unmarketable.  To the extent that a specific method other
than ours is adopted as the standard for  implementing  network  security in any
segment of the  network  security  market,  sales of our  existing  and  planned
products in that market  segment may be adversely  impacted,  which could have a
material  adverse  effect on our  business,  financial  condition and results of
operations.  The National  Institute of Standards and Technology has announced a
new Advanced Encryption Standard,  or AES, which we expect to integrate into our
products.  Our  ability  to  timely  implement  the AES  into our  products  may
materially  affect  our  development  costs and  ability  to timely  market  our
solutions. Network security-related products or technologies developed by others
may  adversely  affect  our  competitive  position  or render  our  products  or
technologies noncompetitive or obsolete.

         In addition,  a portion of the sales of our network  security  products
will depend upon a robust industry and  infrastructure  for providing  access to
public  switched  networks,   such  as  the  Internet.   The  infrastructure  or
complementary  products  necessary to turn these networks into viable commercial
marketplaces may not be fully developed, and once developed,  these networks may
not become viable commercial marketplaces.

If our research and development activities are unsuccessful, we will not be able
to market new products and services and our business  operations  and  financial
results could be harmed.

         The markets for our  products  are  characterized  by rapidly  changing
technologies,  extensive research and new product introductions. We believe that
our future  success  will depend in part upon our ability to continue to enhance
our existing products and to develop,  manufacture and market new products. As a
result,  we expect to continue to make a significant  investment in engineering,
research  and  development.  We may not be able to  develop  and  introduce  new
products  or  enhancements  to our  existing  products  in a timely  manner that
satisfy  customer  needs,  achieve  market  acceptance or address  technological
changes in our target markets. If we fail to develop products and introduce them
successfully and in a timely manner, this could adversely affect our competitive
position, financial condition and results of operations.

We face risks associated with our international operations.

                                       18
<PAGE>


         We plan to continue  to maintain  our  foreign  sales  channels,  which
require significant management attention and financial resources.  International
sales  are  subject  to a number  of  risks,  including  unexpected  changes  in
regulatory requirements,  export control laws, 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 our foreign
sales  are  denominated  in  U.S.  dollars,   our  products  become  less  price
competitive in countries in which local currencies  decline in value relative to
the U.S. dollar.  The uncertainties of monetary exchange values have 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.

         Our ability to compete  successfully in foreign  countries is dependent
in part on our ability to obtain and retain reliable and experienced  in-country
distributors and other strategic  partners.  We do not have long-term  contracts
with most of our value added resellers and distributors and, therefore,  have no
assurance of a continuing relationship within a given market.

         Due  to  U.S.   government   regulations   restricting  the  export  of
cryptographic  devices and software,  including our network security products to
non-civilian agencies of foreign governments,  we are often at a disadvantage in
competing for  international  sales  compared to companies  located  outside the
United States that are not subject to such restrictions. Furthermore, in certain
foreign  countries,  our  distributors are required to secure licenses or formal
permission before encryption  products can be imported.  Although the Department
of Commerce continues to relax the export control laws as they apply to sales of
our products to our commercial customers, we still face export controls on sales
to certain  foreign  governments  and  transfers  of our  technology  to foreign
partners.  To date, we have been able to secure the necessary  export and import
licenses to compete effectively in the international market. However, we may not
be able to secure such licenses in a timely manner in the future, or at all.

We face risks from our dependence on third party subcontractors and suppliers.

         Our ability to deliver our  products  in a timely  manner is  dependent
upon  the  availability  of  quality  components  and  subsystems  used in these
products.  We depend in part upon  subcontractors  to manufacture,  assemble and
deliver  certain items in a timely and  satisfactory  manner.  We obtain certain
components and subsystems  from a single,  or a limited  number of,  sources.  A
significant delay in obtaining a source of supply for components selected by our
design  engineers  or  interruption  in the  delivery of such items could have a
material adverse effect on our financial condition and results of operations.

         On  February  14,  2002,  we  notified  our OEM  supplier  of our  ISDN
encryption  products,  Biodata  Information  Technology  AG  ("Biodata")  of our
decision to terminate our development and supply agreement  following  Biodata's
declaration of insolvency.  Due to Biodata's financial failure,  and that of the
previous  supplier of our ISDN encryption  products,  Dica, in the first half of
2001, we have  discontinued all further sales and support for this product line.
Although we attempted to disclaim all liability  for Biodata and Dica's  failure
in our supply contract with our principal customer for ISDN encryption products,
there can be no assurance that the suppliers' failure, and our discontinuance of
this ISDN product line, will not cause claims for breach of warranty and support
by our customer and end users.

We face risks of additional losses from excess leased facilities.

         In the fourth  quarter of 2001,  we recorded a $1.4  million  charge to
accrue a reserve for losses  relative to the  estimated  costs of excess  leased
facilities in Santa Clara and related furniture and equipment,  net of estimated
proceeds from planned  subleasing of excess office space.  In the second quarter
of 2002, the Company  increased its estimate by an additional $1.2 million based
on a continued  weak  sublease  market.  These losses  reflect  decreased  space
utilization  from our reduced  workforce along with estimates of sublease income
and the time to market that excess space for sublease.  The Company is obligated
to assume  occupancy  and pay rent on space  covered by its Master  Lease on its
Santa Clara facility,  currently  leased by its landlord to a third party tenant
through August 2004.  Various events might require  additional  increases in our
reserves  for  potential  losses  due to  excess  leased  facilities,  including
additional  workforce  reductions,  further  deterioration  in  the  market  for
sublease  space,  or early  termination of existing  subleases.  If any of these
events occur, we would incur  additional  losses form excess leased  facilities,
which would have a material adverse affect on our financial position and results
of operations.

                                       19
<PAGE>


Cylink Common Stock could be delisted  from the NASDAQ  National  Market,  which
could adversely affect Cylink and its shareholders.

         On June 27, 2002,  the Company  received a notice from the staff of the
NASDAQ  National Market that its Common Stock had failed to maintain the minimum
bid price of $1.00  over the prior 30 trading  days as  required  for  continued
listing on the NASDAQ National  Market.  The notice stated that if during the 90
days  following  the date of the  notice  the bid price of Cylink  Common  Stock
failed to close at or above $1.00 for at least 10 consecutive trading days, then
Cylink Common Stock could be delisted.

         If Cylink  Common  Stock were to be delisted  from the NASDAQ  National
Market,  we could  apply for  listing on the  NASDAQ  SmallCap  Market,  the OTC
Bulletin  Board or  another  quotation  system  or  exchange  for which we could
qualify.  We cannot  guarantee,  however,  that we could  apply for  listing  on
another quotation system or exchange if we are delisted from the NASDAQ National
Market or that if we do apply for listing that we will be eligible initially for
such  listing or that if we do become  listed,  that we will be able to maintain
eligibility.  Listing on another  quotation  system or exchange  may  negatively
affect the price of our Common Stock because stocks trading on  over-the-counter
markets are typically less liquid and trade with larger  variations  between the
bid and ask prices.  In  addition,  the  delisting  of our Common Stock from the
NASDAQ National  Market would adversely  affect or limit or restrict our ability
to raise funds through stock issuances.

         If the market price for our Common Stock  remains below $1.00 per share
and we are no longer listed on the NASDAQ National Market, our Common Stock will
be deemed to be penny stock. If our Common Stock were considered penny stock, it
would  be  subject  to  rules  that  impose   additional   sales   practices  on
broker-dealers who sell our securities. For example,  broker-dealers must make a
special  suitability  determination  for the  purchaser  and have  received  the
purchaser's written consent to the transaction prior to sale. Also, a disclosure
schedule must be prepared prior to any  transaction  involving a penny stock and
disclosure is required about sales commissions payable to both the broker-dealer
and the registered  representative  and current  quotations for the  securities.
Monthly  statements  are  also  required  to be  sent  disclosing  recent  price
information  for the penny  stock held in the  account  and  information  on the
limited market in penny stock.  Because of these  additional  obligations,  some
brokers may be unwilling to effect transactions in penny stocks. This could have
an  adverse   effect  on  the   liquidity   of  our  Common  Stock  under  those
circumstances.

Terrorist attacks may negatively impact all aspects of our operations, revenues,
costs and stock price.

         Recent terrorist attacks in the United States, as well as future events
occurring in response or  connection  to them,  including,  without  limitation,
future  terrorist  attacks against United States  targets,  rumors or threats of
war, actual  conflicts  involving the United States or its allies or military or
trade  disruptions  impacting our domestic or foreign  suppliers of merchandise,
may impact our  operations,  including,  among other things,  causing  delays or
losses in the  delivery of goods and supplies to us and  decreased  sales of the
products we carry.  More generally,  any of these events may have affected,  and
may continue to affect,  the general  economy and customers'  demand for capital
equipment.  Any of these  occurrences  could  have a  significant  impact on our
operating  results,  revenues  and costs,  may result in the  volatility  of the
market  price for our Common  Stock,  and have an  adverse  impact on the future
price of our Common Stock.

Recent accounting  pronouncements  may impact our financial position and results
of operations.

         We have adopted recent changes in financial  accounting  standards.  In
June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets". The
valuation of the Company's goodwill and intangible assets under SFAS 142 depends
on certain factors outside of our control, including our stock price, and we may
be required to write down some or all of the $15.7 million net carrying value of
our  investment in intangibles  reported as of June 30, 2002. Any  determination
under SFAS 142 of an impairment of our  investment in  intangibles  could have a
material  impact on Cylink's  financial  position and results of operations.  In
June,  July  and  August,   2001,  the  FASB  also  issued  SFAS  141  "Business
Combinations", SFAS 143, "Accounting for Asset Retirement Obligations", and SFAS
144,"Impairment  or  Disposal of  Long-Lived  Assets",  respectively,  which are
effective for fiscal years  beginning  after  December 15, 2001. The adoption of
these  statements did not have a material  effect on our financial  condition or
results of operations. There can be no assurances, however, that the issuance by
FASB of  additional  statements  of  financial  accounting  standards  would not
materially adversely affect our business,  financial  condition,  and results of
operations if such are required to be adopted by us in the future.

                                       20
<PAGE>


         In  June  2002,  the  FASB  issued  SFAS  146,  "Accounting  for  Costs
Associated with Exit or Disposal  Activities,"  which  addresses  accounting for
restructuring  and  similar  costs.  SFAS  146  supersedes  previous  accounting
guidance,  principally  Emerging  Issues Task Force Issue No. 94-3.  The Company
will adopt the provisions of SFAS 146 for the restructuring activities initiated
after  December  31,  2002.  SFAS 146  requires  that the  liability  for  costs
associated with an exit or disposal activity be recognized when the liability is
incurred.  Under Issue 94-3, a liability for an exit cost was  recognized at the
date of the Company's commitment to an exit plan. SFAS 146 also established that
the  liability  should  initially  be  measured  and  recorded  at  fair  value.
Accordingly,  SFAS 146 may affect the timing of recognizing future restructuring
costs as well as the amounts recognized.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

         As of June 30, 2002,  we held a total of $10.5 million of cash and cash
equivalents.  These  securities  consist  primarily  of money  market  funds and
high-grade,  short-term corporate  obligations.  Certain of these securities are
subject to interest rate risk and will decline in value if market interest rates
increase. If market interest rates were to increase immediately and uniformly by
10% from levels as of June 30, 2002,  the decline in fair value of the portfolio
would not be material.

         We transact substantially all of our revenues and costs in U.S. dollars
and our results of operations  would not be materially  affected by fluctuations
in foreign  exchange  rates.  Accordingly,  to date,  we have not used  material
amounts of  derivative  financial  instruments.  As of June 30, 2002,  we had no
fixed  rate  obligations  except  for  an  equipment  loan  with  a  balance  of
approximately  $69,000. As such, the fair value of our fixed rate obligations is
not subject to a material adverse impact from changes in interest rates.

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<PAGE>


PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings

Securities Class Action.

         In 1998, we filed amended Forms 10-Q for the first and second  quarters
of 1998 and an amended Form 10-K for 1997, reflecting restated financial results
for those quarters, and for the fourth quarter of 1997. Between November 6, 1998
and December 14, 1998,  several  securities  class action  complaints were filed
against us and  certain of our  current  and former  directors  and  officers in
federal courts in California.  These complaints allege, among other things, that
our previously issued financial  statements were materially false and misleading
and  that  the  defendants  knew or  should  have  known  that  these  financial
statements  caused our common  stock  price to rise  artificially.  The  actions
variously allege  violations of Section 10(b) of the Securities  Exchange Act of
1934  (the  "Exchange  Act"),  as  amended,   and  SEC  Rule  10b-5  promulgated
thereunder, and Section 20 of the Exchange Act.

         The  securities  class action  lawsuits have been ordered  consolidated
into a single  action  pending  in the  United  States  District  Court  for the
Northern District of California,  captioned In Re Cylink Securities  Litigation,
No. C98-4292 (VRW). The action is currently pending before the Court.

         We believe we have meritorious  defenses and adequate insurance for the
damages claimed in these actions and we intend to defend the Company vigorously.
However,  it is not feasible to predict or determine  the final outcome of these
proceedings, and if the outcome were to be unfavorable and exceed our applicable
insurance,  our  business,  financial  condition,  cash  flows  and  results  of
operations could be materially adversely affected.

         Other Litigation

         In addition,  in the normal course of business,  we, from time to time,
receive inquiries or other communication with regard to possible infringement of
third party  intellectual  property  rights by our  patents,  or the features or
content of certain of our  products.  We believe it is unlikely that the outcome
of these  infringement  inquiries  will have a  material  adverse  effect on our
financial position or results of operations,  however if litigation results from
any of these  inquires  and the  outcome is  unfavorable  to us, it could have a
material  adverse effect on our cash flows,  results of operations and financial
condition.

         There  has been  substantial  litigation  regarding  patent  and  other
intellectual  property  rights in the  software  and  network  security  related
industries.  Further  commercialization  of our products could provoke claims of
infringement from third parties.  In the future,  litigation may be necessary to
enforce  our  patents,  to protect  our trade  secrets or  know-how or to defend
against claimed  infringement of the rights of others and to determine the scope
and validity of the  proprietary  rights of others.  Any such  litigation  could
result in substantial  cost and diversion of our efforts,  which by itself could
have a material adverse effect on our financial condition and operating results.
Further,  adverse  determinations  in such  litigation  could  result in loss of
proprietary  rights,  subject us to  significant  liabilities  to third parties,
require us to seek licenses from third parties or prevent us from  manufacturing
or selling our products,  any of which could have a material  adverse  effect on
our business, financial condition or results of operations.

Item 2.  Changes in Securities and Use of Proceeds

         Not applicable

Item 3.  Defaults upon Senior Securities

         Not applicable

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

(a)      The Registrant's  Annual Meeting of Shareholders was held May 15, 2002.
         The vote of the  holders  of record of  33,035,017  shares of  Cylink's
         common stock outstanding at the close of business on March 29, 2002 was
         solicited by proxy  pursuant to Regulation 14A under the Securities Act
         of 1934.

                                       22
<PAGE>


(b)      The  following  persons were elected  Directors of Cylink at the Annual
         Meeting:


                                                   Votes                  Votes
Name of Director                                    For                  Against
----------------                                  -------                -------
Mr. Paul Gauvreau                                21,825,592              111,004
Mr. Regis McKenna                                21,612,948              323,648


(c)      The  shareholders  ratified the appointment of Deloitte & Touche LLP as
         Cylink's  independent  auditor for the fiscal year ending  December 31,
         2002.


              Votes                      Votes                      Votes
               For                      Against                    Withheld
               ---                      -------                    --------
            21,860,396                   56,585                     19,615


(d)      There were no other matters voted on at the meeting.

Item 5.  Other Information.

Notice was received  June 27, 2002 from the NASDAQ  National  Market  indicating
possible delisting for failure to meet NASDAQ's minimum bid requirements.


Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits:

         None

(b)      Reports on Form 8-K:

         None

                                       23
<PAGE>


                                    SIGNATURE

         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, thereunto duly authorized.


Date: August 13, 2002                      CYLINK CORPORATION

                                    By:    /s/ R. Christopher Chillingworth
                                           -------------------------------------
                                           R. Christopher Chillingworth
                                           Vice President of Finance
                                           and Chief Financial Officer
                                           (Duly Authorized Officer and
                                           Principal Financial Officer)

                                       24