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 March 31, 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 May 13, 2002,  there were 33,013,000  shares of the  Registrant's
common stock outstanding.
<PAGE>

                               CYLINK CORPORATION

                 FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2002

                                      INDEX

<TABLE>
<CAPTION>
                                                                                      Page
                                                                                      ----
                          PART I FINANCIAL INFORMATION

<S>      <C>                                                                            <C>
Item 1   Financial Statements

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

         b)   Condensed  Consolidated  Statements  of  Operations  for the three
              months ended March 31, 2002 and April 1, 2001                              2

         c)   Condensed  Consolidated  Statements  of  Cashflows  for the  three
              months ended March 31, 2002 and April 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                                                           7

                            PART II OTHER INFORMATION                                   20

Item 1.  Legal Proceedings                                                              20

Item 6.  Exhibits and Reports on Form 8-K                                               21

         Signature                                                                      22
</TABLE>

<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>
                                                                        March 31,          December 31,
                                                                          2002                 2001
                                                                        ---------            ---------
<S>                                                                     <C>                  <C>
Assets
Current assets:
   Cash and cash equivalents                                            $  11,978            $   9,606
   Accounts receivable, net of allowances of $1,028 and $1,057              5,856               10,102
   Recoverable income taxes                                                   474                   50
   Inventories                                                              4,904                4,832
   Other current assets                                                     1,372                2,026
                                                                        ---------            ---------
            Total current assets                                           24,584               26,616

Restricted cash                                                             1,400                1,400
Property and equipment, net                                                 5,541                6,075
Acquired technology, goodwill and other intangibles, net                   16,109               16,648
Notes receivable from employee                                              1,039                1,021
Other assets                                                                  668                  932
                                                                        ---------            ---------
                                                                        $  49,341            $  52,692
                                                                        =========            =========
Liabilities and Shareholders' Equity
Current liabilities:
   Equipment line of credit                                             $     104            $     139
   Accounts payable                                                         2,553                2,757
   Accrued liabilities                                                      5,433                5,439
   Income taxes payable                                                       410                  412
   Deferred revenue                                                         2,970                2,130
                                                                        ---------            ---------
         Total current liabilities                                         11,470               10,877
                                                                        ---------            ---------

Deferred revenue and other accruals, less current portion                   1,844                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;
        32,883,000 and 32,872,000 shares issued and outstanding               329                  329
   Additional paid-in capital                                             158,365              158,359
   Deferred compensation                                                     --                   --
   Accumulated other comprehensive income (loss)                               11                  (18)
   Accumulated deficit                                                   (122,678)            (118,782)
                                                                        ---------            ---------
            Total shareholders' equity                                     36,027               39,888
                                                                        ---------            ---------
                                                                        $  49,341            $  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)

                                                            Three Months Ended
                                                           ---------------------
                                                           March 31,    April 1,
                                                             2002        2001
                                                           --------    --------

Revenue                                                    $  7,099    $ 12,612
Cost of revenue                                               2,637       4,345
                                                           --------    --------
Gross profit                                                  4,462       8,267
                                                           --------    --------

Operating expenses:
   Research and development, net                              2,918       5,945
   Selling and marketing                                      3,056       5,749
   General and administrative                                 2,036       3,014
   Amortization of acquired intangibles                         510         862
                                                           --------    --------
            Total operating expenses                          8,520      15,570
                                                           --------    --------

Loss from operations                                         (4,058)     (7,303)

Other income (expense):
   Interest income, net                                          46         190
   Other expense, net                                           (86)        (19)
   Write-down of investment in unaffiliated company            (222)       --
                                                           --------    --------
         Total other income (expense)                          (262)        171
                                                           --------    --------

Loss before income taxes                                     (4,320)     (7,132)
Income tax benefit                                             (424)       --
                                                           --------    --------
Net loss                                                   $ (3,896)   $ (7,132)
                                                           ========    ========

Loss per share - basic & diluted:                          $  (0.12)   $  (0.22)
                                                           ========    ========

Shares used in per share calculation - basic & diluted       32,956      32,262
                                                           ========    ========

     See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                Three months ended
                                                               --------------------
                                                               March 31,    April 1,
                                                                 2002         2001
                                                               --------    --------
<S>                                                            <C>         <C>
Cash flows from operating activities:
   Net loss                                                    $ (3,896)   $ (7,132)
   Adjustments to reconcile net loss to net
      cash used in operating activities:
         Loss on disposition of fixed assets                         19        --
         Depreciation                                               706         825
         Amortization                                               510         862
         Amortization of imputed interest on note receivable        (18)       --
         Deferred compensation related to stock options            --           272
         Changes in operating assets and liabilities:
            Accounts receivable                                   4,246       2,476
            Recoverable income taxes                               (424)       --
            Inventories                                             (72)      1,088
            Other assets                                           (293)       (953)
            Accounts payable                                       (204)     (1,372)
            Accrued liabilities                                      12      (1,239)
            Income taxes payable                                     (2)        244
            Deferred revenue                                        757       1,919
                                                               --------    --------
         Net cash provided by (used in) operating activities      1,341      (3,010)

Cash flows from investing activities:
   Acquisition of property and equipment                           (191)       (129)
   Collections of receivable from former employee                 1,000        --
   Write down of investment in unaffiliated company                 222        --
   Adjustments to acquisition price of Celotek Corporation         --          (231)
                                                               --------    --------
               Net cash provided by (used in) investing
                  activities                                      1,031        (360)
                                                               --------    --------
Cash flows from financing activities:
   Proceeds from issuance of common stock, net                        6           7
   Other                                                            (35)        (44)
                                                               --------    --------
               Net cash used in financing activities                (29)        (37)
                                                               --------    --------
Effect of exchange rate changes on
   cash and cash equivalents                                         29          85
                                                               --------    --------
Net increase (decrease) in cash and cash equivalents              2,372      (3,322)
Cash and cash equivalents at beginning of period                  9,606      15,250
                                                               --------    --------
Cash and cash equivalents at end of period                     $ 11,978    $ 11,928
                                                               ========    ========
</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  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 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.

     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.   Accounting Changes

     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
that date. In August 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 July  the  FASB  issued  SFAS  143,  "Accounting  for  Retirement
Obligations."  The  adoption  of SFAS 141,  SFAS 143 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 has adopted SFAS 142 effective  January 1, 2002.  Cylink is required
to complete the transitional  goodwill  impairment test by June 30, 2002. Cylink
completed initial goodwill  impairment tests as of January 1, 2002 and March 31,
2002 and has determined  that no impairment of goodwill had occurred as of those
dates.  Therefore,  no  impairment  loss was recorded for the three months ended
March 31,  2002.  Subsequent  impairment  losses,  if any,  will be reflected in
operating income or loss in the consolidated  statement of operations.  The fair
value of the Company may be dependent on the future  valuation of the  Company's
stock,  projected future cashflows of the business, and other factors that might
affect the  independent  valuation of the Company when  compared to its carrying
value and may require Cylink to make an additional  determination  prior to June
30,  2002. 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 that future date.  Given the $16.1 million net carrying value of its
investment in intangibles at March 31, 2002, an impairment  determination  could
have a material 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 would  have been as follows:

                                       4
<PAGE>

                                                       Three months ended:
                                                   -------------------------
                                                    March 31,       April 1,
                                                      2002            2001
                                                   -------------------------
                                                        (in thousands)

Reported net loss                                    (3,896)        (7,132)
Add back goodwill amortization,
  net of income taxes                                  --              352
                                                   --------       --------
Proforma adjusted net loss                           (3,896)        (6,780)
                                                   ========       ========

3.   Inventories

                                                March 31,    December 31,
                                                  2002           2001
                                                 ------         ------
                                                      (in thousands)
Inventories:
   Raw materials                                 $1,731         $2,482
   Work in process and subassemblies              1,995          1,171
   Finished goods                                 1,178          1,179
                                                 ------         ------
                                                 $4,904         $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 March
31, 2002 and April 1, 2001,  the  Company  had  7,606,000  and  7,156,000  stock
options  outstanding  with a weighted average exercise price of $3.87 and $6.32,
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.   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:

                                       5
<PAGE>

                                                  Three Months Ended
                                             ----------------------------
                                                Mar 31,         April 1,
                                                 2002            2001
                                              --------        --------
      Net loss                                $ (3,896)       $ (7,132)
      Other comprehensive income                    29              85
                                              --------        --------
      Total comprehensive loss                $ (3,867)       $ (7,047)
                                              ========        ========

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 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.  The current and  long-term
portions of the  restructuring  reserve of  approximately  $0.7 million each are
reflected in accrued liabilities and in non-current liabilities in the condensed
consolidated  balance sheet as of March 31, 2002. The reserves were  essentially
unused  through  March  31,  2002,  but will be  utilized  primarily  for  lease
termination costs associated with the Company's headquarters in future periods.

8.   Goodwill & Other Intangible Assets

         Changes in the  carrying  amount of goodwill for the three months ended
March 31, 2002 are as follows (in thousands):

                                                      Total
                                                   ----------
        Balance as of December 31, 2001              $ 5,888
        Goodwill Acquired during the period                -
        Write-off of Cylink-Belgium                      (29)
                                                   ----------
        Balance as of March 31, 2002                 $ 5,859
                                                   ==========


         In  connection  with the  adoption  of SFAS No.  142 "See Note 2",  the
company performed a transitional impairment test on goodwill and determined that
no impairment was necessary.

     Information  regarding the  Company's  other  intangible  assets follow (in
thousands):
<TABLE>
<CAPTION>

                                   As of March 31, 2002                    As of December 31, 2001
                           ------------------------------------    ------------------------------------
                            Carrying   Accumulated                  Carrying    Accumulated
                             Amount    Amortization      Net         Amount     Amortization     Net
                           ----------   ----------   -----------   ----------   ----------   ----------
<S>                         <C>          <C>          <C>           <C>          <C>          <C>
Developed Technology        $ 12,077     $ (2,736)    $   9,341     $ 12,077     $ (2,304)    $  9,773
Customer Base                    894         (285)          609          894         (240)         654
Acquired Workforce               509         (209)          300          509         (176)         333
                           ----------   ----------   -----------   ----------   ----------   ----------
Total                       $ 13,480     $ (3,230)    $  10,250     $ 13,480     $ (2,720)    $ 10,760
                           ==========   ==========   ===========   ==========   ==========   ==========
</TABLE>


         Amortization  expense of other intangible assets was $510,000,  for the
three months ended March 31, 2002.

         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                  $ 2,040
                     2003                    2,040
                     2004                    1,996
                     2005                    1,848
                     2006                    1,728
                  ------------             ---------
                    Total                  $ 9,652
                                           =========


                                       6
<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:  the Company's  expectations  regarding
adoption  of SFAS 141,  143 and 144;  predictions  regarding  the  impact of the
adoption of its goodwill impairment tests;  revisions to the Company's financial
plan and  implementation  by the Company of the plan and cost cutting  measures;
failure of the Company to meet  covenants in its loan  documents and the 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;
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 11.

     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  financial  statements and notes thereto  included in Part I Item 1 of
this Report on Form 10-Q and the audited financial  statements and notes thereto
and Management's  Discussion and Analysis of Financial  Condition and Results of
Operations included in the Company's 2001 Report on Form 10-K.

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  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  assets and  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. In addition,
Cylink  believes the following  accounting  policies  became critical during the
current quarter and affect its more significant  judgments and estimates used in
the preparation of its consolidated financial statements:

                                       7
<PAGE>

     Valuation of Goodwill  and other  intangibles.  Our  business  acquisitions
typically  result in goodwill  and other  intangible  assets,  which  affect the
amount of future period  amortization  expense and possible  impairment  expense
that we will incur.  The  determination  of the value of such intangible  assets
requires   management  to  make  estimates  and  assumptions   that  affect  our
consolidated financial statements.

RESULTS OF OPERATIONS

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

                                                      Three months ended
                                                       ----------------
                                                      March 31,  April 1,
                                                       2002       2001
                                                       -----      -----

Revenue                                                100.0%     100.0%
Cost of revenue                                         37.2       34.5
                                                       -----      -----
Gross profit                                            62.8       65.5
Operating expenses:
  Research and development, net                         41.1       47.1
  Selling and marketing                                 43.0       45.6
  General and administrative                            28.7       23.9
  Amortization of purchased intangibles                  7.2        6.8
                                                       -----      -----
     Total operating expenses                          120.0      123.4
                                                       -----      -----
Loss from operations                                   (57.2)     (57.9)
Other income (loss), net                                (3.7)       1.4
                                                       -----      -----
Loss before income taxes                               (60.9)     (56.5)
Income tax benefit                                      (6.0)       --
                                                       -----      -----
Net loss                                               (54.9)%    (56.5)%
                                                       =====      =====

     Revenue.  Revenue  decreased  44% from $12.6  million for the three  months
ended April 1, 2001 to $7.1  million for the three  months ended March 31, 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) by the Company.  International revenue comprised 19% and
39% of total revenue for the first quarter of 2002 and 2001,  respectively.  The
decline in  international  revenues in the first quarter of 2002 as a percentage
of total  revenue from the prior year first  quarter  primarily was due to lower
revenues  generally,   reduced  sales  to  international   customers,   and  the
divestiture of ARL.

     Gross Profit. Gross profit decreased from $8.3 million for the three months
ended April 1, 2001 to $4.5  million for the three  months ended March 31, 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  66% and 63% for the  quarters  ended  April 1, 2001 and March 31,
2002, respectively.  The decrease in gross profit as a percentage of revenue was
due to lower product  margins  resulting from the spread of fixed  manufacturing
and facility costs

                                       8
<PAGE>

over a much lower  revenue  base,  and  modest  excess  and  obsolete  inventory
adjustments,  offset by higher service revenue margins due to benefits  realized
from cost reduction programs implemented by the Company in 2001.

     Research  and  Development.   Research  and  development  expenses  consist
primarily of salaries and other personnel related expenses,  and depreciation of
development  equipment,   facilities  and  supplies.  Research  and  development
expenses  decreased  51% from $5.9  million for the three  months ended April 1,
2001 to $2.9 million for the three months ended March 31, 2002.  Gross  research
and  development  expenses  as a  percentage  of revenue  were 47% for the first
quarter of 2001 and 41% for the first quarter 2002. The decrease in research and
development  expenses  in dollars and as a  percentage  of revenue for the first
quarter of 2002 as compared to the first quarter of 2001 was a result of reduced
project  spending and headcount due to cost savings  initiatives  implemented by
the Company and the divestiture of ARL.

     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 46% from $5.7 million for the three months ended April 1, 2001 to $3.1
million  for the three  months  ended  March 31,  2002.  Selling  and  marketing
expenses as a percentage  of revenue  were 46% and 43% for the first  quarter of
2001 and 2002, respectively. The decrease in sales expenses, both in dollars and
as a  percentage  of revenue,  for the first  quarter of 2002 as compared to the
first quarter of 2001,  primarily was due to lower commission spending driven by
decreased  revenues,  lower  headcount  spending  driven  by  the  reduction  in
workforce  actions taken during 2001, and lower marketing and bonus spending due
to the  implementation of cost savings  initiatives by the Company.  Selling and
marketing  expenses,  expressed as a percentage of revenue,  decreased more as a
result of the above spending reductions rather than the revenue declines for the
same period.

     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 33% from $3.0 million for the three months ended April 1, 2001 to $2.0
million for the three months ended March 31,  2002.  General and  administrative
expenses as a percentage  of revenue  were 24% and 29% for the first  quarter of
2001 and 2002, respectively. The decrease of general and administrative expenses
in  dollars  for the first  quarter  of 2002  versus  the first  quarter of 2001
primarily  was due to  lower  headcount  spending  driven  by the  reduction  in
workforce  actions  taken  during  2001,  and lower  bonus  spending  due to the
implementation  of cost  savings  initiatives  by the  Company.  The increase in
general and  administrative  expenses as a  percentage  of revenue for the first
quarter of 2002 as compared  to the first  quarter of 2001 is due to the decline
in  revenues  for  the  period   rather  than  the   reduction  in  general  and
administrative expenditures.

     Amortization of Acquired  Intangibles.  Amortization  of intangible  assets
declined  from $0.9  million for the first three  months  ended April 1, 2001 to
$0.5 million for the three months ended March 31, 2002. Pursuant to the adoption
of Financial  Accounting  Standards  Board  Statement  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 decreased from $0.2 million for the quarter ended
April 1, 2001 to a loss of ($0.3)  million for the quarter ended March 31, 2002,
principally due to reduced  interest income from lower interest rates applied to
lower average cash balances,  foreign currency losses, and an impairment loss of
$0.2 million on the Company's investment in an unaffiliated company.

     Provision for Income Taxes.  A benefit from income taxes was  recognized in
the  quarter  ended  March  31,  2002,  resulting  from a change in the tax laws
effective  in the first  quarter  of 2002  allowing  the  Company  to  recapture
alternative minimum taxes previously paid in a prior period.

LIQUIDITY AND CAPITAL RESOURCES

     At March 31,  2002,  the  Company  had  working  capital  of $13.1  million
(including  cash and cash  equivalents of $12.0  million) and minimal  long-term
obligations.  For the three months ended March 31, 2002, the Company  recorded a
net loss of $3.9  million.  Net cash  provided by operating  activities  for the
first three months of 2002 was

                                       9
<PAGE>

$1.6 million, consisting primarily of the loss from operations, more than offset
by a decrease in working  capital,  which decrease in working capital included a
decrease in accounts receivable of $4.2 million, an increase in deferred revenue
of $0.8 million, partially offset by an increase in inventories of $0.1 million,
a decrease in accounts payable and accrued  liabilities of $0.2 million,  and an
increase in other assets of $0.3  million.  The decrease in accounts  receivable
was due to lower  shipments  during the first quarter of 2002, but was supported
by  improved  collection  activities.  The  increase in  inventories  was due to
procurements made by the Company in anticipation of higher shipments,  which did
not  materialize.  The  decrease in accounts  payable was the result of stricter
purchasing  controls  implemented  by  the  Company.  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 three months of 2001
was $3.0  million  consisting  primarily of the loss from  operations  partially
offset by a decrease in working capital  requirements  which included a decrease
in  accounts  receivable  of $2.5  million,  a decrease in  inventories  of $1.1
million, an increase in deferred revenue of $1.9 million,  partially offset by a
decrease in accounts  payable and  accrued  liabilities  of $2.6  million and an
increase in other assets of $1.0 million.

     Cash provided by investing activities was $1.0 million for the three months
ended March 31, 2002 as compared to $0.4 million used for the three months ended
April 1, 2001. Cash provided by investing  activities for the first three months
of  2002  resulted  from  the  collection  of a $1.0  million  note  receivable,
partially  offset by the  acquisition  of $0.2  million of  property,  plant and
equipment.  Cash used in investing activities for the first three months of 2001
provided for the  acquisition  of $0.1 million of property,  plant and equipment
and $0.2 million adjustment to the acquisition price of Celotek Corporation.

     Cash used in financing activities for the three months ended March 31, 2002
and April 1, 2001 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 can borrow up to $7.5  million by way of  revolving
advances. 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  continues  not to be in
compliance as of March 31, 2002.  The Company is working with the bank to revise
its  covenants so that it can be in  compliance  in the future;  however,  until
those covenants are reset,  no borrowings are available  under this loan.  There
have been no borrowings made 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 March 31, 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
March 31, 2002.

     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 is in the
process of revising its financial plan and intends to initiate  certain  actions
with the  purpose of cutting  costs in  accordance  with its actual and  lowered
revenue.  However,  there can be no  assurance  that the Company will be able to
implement  or  achieve a  revised  plan,  or that the  Company's  existing  cash
balances and available  borrowing will be sufficient to fund operations  through
2002.  Cylink's revolving line of credit is subject to borrowing limits based on
the amount of the Company's eligible accounts receivable. This line of credit is
also  subject to the  Company's  satisfaction  of a certain  financial  covenant
during  the  term of the  loan  with  which  the  Company  is not  currently  in
compliance.

     In the  event  the  Company's  financial  plan  is  unsuccessful,  or it is
otherwise  unable to satisfy the conditions for its use of the revolving line of
credit,  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

                                       10
<PAGE>

unsuccessful  in  implementing  it's revised  financial  plan,  and cannot raise
additional  funds,  either  through  its line of  credit or other  sources,  the
Company may not have the resources to maintain its operations.

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 $122.7 million as of March 31, 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
our revenues below the amounts  anticipated  by us under our financial  plan, we
are in the process of revising our financial plan and intend to initiate certain
actions  with the  purpose of cutting  costs in  accordance  with our actual and
lowered  revenue.  However,  there can be no  assurance  that we will be able to
implement  or  achieve  our  revised  plan,  or that our  principal  sources  of
liquidity,  which include cash and cash equivalents of $12.0 million as of March
31,  2002 and  prospective  borrowing  via our  revolving  line of credit,  will
satisfy  our  current   anticipated  working  capital  and  capital  expenditure
requirements through at least the next twelve months. Our credit line expires in
June 2002. In February 2002, we breached certain financial  covenants  contained
in the  loan  agreement  for  such  credit  line  and we  continue  not to be in
compliance with such covenants. There is no guarantee that we will satisfy these
covenants or other  covenants in the loan agreement in the future,  and there is
no guarantee  that the bank will renew the credit line in June 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.

     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;

                                       11
<PAGE>

         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; 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.

     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

                                       12
<PAGE>

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.  To date,  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.  We recently  granted a  continuation  of USPS'  license,  at its request,
through May 30, 2002, but we expect this license and all further  revenue earned
under  Cylink's  contract with the USPS to expire in the second quarter of 2002.
Although  we  continue  to explore  alternative  sources of funding  for our PKI
development activity with other potential OEM customers,  any effort to continue
development  and  marketing  of  Cylink's  PKI  technology  may fail to generate
sufficient  revenue to cover its costs if we continue in this  business  for the
balance of 2002.

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

                                       13
<PAGE>

         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.

     On August 2, 2001,  Cylink  determined that a hardware design could cause a
premature  failure of its 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.

                                       14
<PAGE>

     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 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

                                       15
<PAGE>

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
that it will adopt 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.

     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

                                       16
<PAGE>

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 may incur  additional  claims arising from the Algorithmic  Research  Limited
("ARL") Divestiture.

     Under the terms of the ARL  Divestiture,  ARL assumes  liability for all of
the tax  consequences of the  divestiture,  the forgiveness of debt, and for the
sale and licenses of ARL's intellectual property. ARL also retains liability for
its contractual  obligations,  including  those arising under certain  contracts
assigned to ARL. Although Cylink is indemnified by ARL under the ARL Divestiture
from such obligations,  third parties may seek to hold Cylink liable, instead of
or in addition to ARL, for ARL's legal  obligations  that arose or were incurred
prior to Cylink's divestiture of its wholly owned interest in ARL.

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.

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

     On July 25,  2001,  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.

                                       17
<PAGE>

     On September 27, 2001, NASDAQ suspended its minimum bid price  requirements
until January 2002. Since that date, our Common Stock has traded within NASDAQ's
minimum  requirements for maintaining our listing on the NASDAQ National Market.
However, there can be no assurance that we will satisfy such requirements in the
future,  or that we will be able to preserve our listing on the NASDAQ  National
Market. Prior to any actual delisting, we would have an opportunity to request a
hearing to present our plan to comply with the continued listing requirements.

     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 were to fall below $1.00 per share
such that we were no longer  listed on the NASDAQ  National  Market,  our Common
Stock could 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 Financial  Accounting  Standards  Board ("FASB")  issued  Statement of
Financial  Accounting  Standards  No.  142  ("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 $16.1M net carrying value of our  investment in  intangibles  reported as of
March  31,  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.

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<PAGE>

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     As of March 31,  2002,  we held a total of $12.0  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  March  31,  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 March 31, 2002, we had no fixed rate
obligations  except  for an  equipment  loan  with a  balance  of  approximately
$104,000.  As such, the fair value of our fixed rate  obligations is not subject
to a material adverse impact from changes in interest rates.

                                       19
<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 10K 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.

                                       20
<PAGE>

Items 2, 3, 4 and 5 have been omitted as they are not applicable.

Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits:

         None

(b)  Reports on Form 8-K:

         On April 4, 2002, Cylink filed a report on Form 8-K, announcing that it
         expected revenues for the first quarter,  which ended March 31st, to be
         approximately  $7.0 - 7.4 million,  subject to adjustments during final
         closing of the  quarter.  In the same  quarter  last year,  the company
         reported revenues of $12.6 million,  including revenue of approximately
         $1.4 million from divested subsidiaries.  The Company ended the quarter
         with cash and cash  equivalents in excess of $11 million,  up from $9.6
         million at December 31, 2001.

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<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: May 14, 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)

                                       22