United States
  Securities and Exchange Commission
  Washington, D.C. 20549
  Form 10-Q

(Mark One)

[X] Quarterly Report Pursuant
  to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the
  Period Ended February 1, 2002

or

[   ] Transition
  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  for the Transition Period from ____________________to ____________________.

Commission file number
  0-21236





|Applied Signal
          Technology, Inc.(Exact name
          of registrant as specified in its charter)                                                                                                                                                                          
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|California(State or
          other jurisdiction of incorporation or organization)                                                                                                                                                                                                 
|400 West
          California Avenue, Sunnyvale, CA 94086
        (408) 749-1888(Registrants
          telephone number, including area code)
        Not Applicable
        
        (Former name,
          former address and former fiscal year, if changed since last report)





Indicate by a check 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 periods that the registrant was required to file such reports),
  and (2) has been subject to such filing requirements for the past 90 days.

[ X ] Yes     [  ]
  No





Applicable
  Only to Corporate Issuers

Indicate the number of
  shares outstanding of each of the issuers classes of common stock, as
  of the latest practical date.

Common Stock, no par value,
  9,797,214 shares outstanding as of March 1, 2002.

This Quarterly Report on
  Form 10-Q consists of 24 pages.



---



Index
  Applied Signal Technology, Inc.



|Part
        I.	Financial Information
|-------------------------------------
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|Part
      II. Other Information     
|                                     
|                                     
|Signatures                           



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Part I.	Financial Information

Item 1:	Financial Statements



Applied
  Signal Technology, Inc.
  Consolidated Balance Sheets(In thousands,
  except share data)



|Assets                                              | February 1, 2002
          (Unaudited) | October 31, 2001
          (Note)
|--------------------------------------------------- | -------------------------------------- | ---------------------------------
|Current assets:                                    
|Cash and cash
            equivalents               | $     8,126                            | $     9,743                      
|Accounts receivable:                                |                                        |                                  
|Billed                                              | 16,250                                 | 14,947                           
|Unbilled                                            | 10,035                                 | 9,090                            
|                                                    | _______________                        | _______________                  
|Total accounts
              receivable             | 26,285                                 | 24,037                           
|Inventory                                           | 12,126                                 | 8,714                            
|Refundable income
          taxes                   | 5,053                                  | 5,053                            
|Prepaid and other
          current assets          | 1,326                                  | 985                              
|                                                    | _______________                        | _______________                  
|Total current
            assets                    | 52,916                                 | 48,532                           
|                                                    |                                        |                                  
|Property and equipment,
          at cost:          |                                        |                                  
|Machinery and
            equipment                 | 40,387                                 | 40,310                           
|Furniture and
            fixtures                  | 4,961                                  | 4,954                            
|Leasehold improvements                              | 10,106                                 | 10,077                           
|Construction
            in process                 | 72                                     | 77                               
|                                                    | _______________                        | _______________                  
|                                                    | 55,526                                 | 55,418                           
|Accumulated depreciation
          and amortization | (39,022)                               | (37,736)                         
|                                                    | _______________                        | _______________                  
|Net property
            and equipment              | 16,504                                 | 17,682                           
|                                                    |                                        |                                  
|Other assets                                        | 412                                    | 428                              
|                                                    | _______________                        | _______________                  
|Total assets                                        | $    69,832                            | $    66,642                      
|                                                    | =============                          | =============                    



---



Applied Signal Technology, Inc.
Consolidated Balance Sheets (continued)(In thousands, except share data)



|Liabilities and Shareholders Equity                                                                                                                                      | February 1, 2002
          (Unaudited) | October 31, 2001
          (Note)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ---------------------------------
|Current liabilities:                                                                                                                                                     
|Accounts payable                                                                                                                                                          | $     2,107                            | $     1,202                      
|Accrued payroll
            and related benefits                                                                                                                          | 4,105                                  | 4,420                            
|Other accrued
            liabilities                                                                                                                                     | 1,744                                  | 1,703                            
|Income taxes
            payable                                                                                                                                          | 188                                    |                                 
|                                                                                                                                                                          | _______________                        | _______________                  
|Total current
            liabilities                                                                                                                                     | 8,144                                  | 7,325                            
|Shareholders
          equity:                                                                                                                                           |                                        |                                  
|Common stock,
            no par value: 20,000,000 shares authorized; issued and outstanding:
            9,797,214 at February 1, 2002 and 9,604,026 at October 31, 2001 | 25,575                                 | 24,895                           
|Retained earnings                                                                                                                                                         | 36,113                                 | 34,422                           
|                                                                                                                                                                          | _______________                        | _______________                  
|Total shareholders
          equity                                                                                                                                      | 61,688                                 | 59,317                           
|                                                                                                                                                                          | _______________                        | _______________                  
|Total liabilities
            and shareholders equity                                                                                                                    | $    69,832                            | $    66,642                      
|                                                                                                                                                                          | =============                          | =============                    





Note: The balance sheet at October
  31, 2001 has been derived from the audited financial statement at that date
  but does not include all of the information required by accounting principles
  generally accepted in the United States for complete financial statements.

See Notes to Consolidated
  Financial Statements.

---



Applied Signal Technology, Inc.
Consolidated Statements of Operations
(Unaudited)(In thousands, except per share data)



|                                                                                   | Three Months Ended
|---------------------------------------------------------------------------------- | ------------------
|                                                                                   | February 1, 2002  
|Revenues from contracts                                                            | $     16,231      
|                                                                                   |                   
|Operating expenses:                                                                |                   
|Contract costs                                                                     | 9,759             
|Research and development                                                           | 1,917             
|General and administrative                                                         | 2,700             
|                                                                                   | _______________   
|Total operating
          expenses                                                 | 14,376            
|                                                                                   | _______________   
|Operating income
          (loss)                                                  | 1,855             
|Interest income
          (expense), net                                           | 24                
|                                                                                   | _______________   
|Income (loss) before
          provision (benefit) for income taxes                | 1,879             
|Provision (benefit)
          for income taxes                                     | 188               
|                                                                                   | _______________   
|Net income (loss)                                                                  | $	     1,691      
|                                                                                   | =============     
|Net income (loss)
          per common share:                                      |                   
|Basic                                                                              | $	     0.17       
|Diluted                                                                            | $	     0.17       
|                                                                                   |                   
|Number of shares
          used in calculating net income (loss) per common share: |                   
|Basic                                                                              | 9,732             
|Diluted                                                                            | 9,888             





See Notes to Consolidated Financial Statements.

---



Applied Signal Technology, Inc.
Consolidated Statements of Cash Flows
Increase (decrease) in cash and cash equivalents
(Unaudited)(In thousands)



|                                                                                                 | Three Months Ended
|------------------------------------------------------------------------------------------------ | ------------------
|                                                                                                 | February 1, 2002  
|Operating Activities:                                                                           
|Net income (loss)                                                                                | $	     1,691      
|Adjustments to
            reconcile net income (loss) to net cash used in operating activities: |                   
|Depreciation
            and amortization                                                        | 1,286             
|Changes in:                                                                                      |                   
|Accounts receivable                                                                              | (2,248)           
|Inventory, prepaids
            and other assets                                                 | (3,737)           
|Accounts payable,
            taxes payable and accrued expenses                                 | 819               
|                                                                                                 | _______________   
|Net cash used
            in operating activities                                                | (2,189)           
|                                                                                                 |                   
|Investing Activities:                                                                            |                   
|Maturities of
            available-for-sale securities                                          |                  
|Additions to
            property and equipment                                                  | (108)             
|                                                                                                 | _______________   
|Net cash used
            in investing activities                                                | (108)             
|                                                                                                 |                   
|Financing Activities:                                                                            |                   
|Issuance of common
            stock                                                             | 680               
|Dividends paid                                                                                   |                  
|                                                                                                 | _______________   
|Net cash provided
            by financing activities                                            | 680               
|Net decrease
            in cash and cash equivalents                                            | (1,617)           
|Cash and cash
            equivalents, beginning of period                                       | 9,743             
|                                                                                                 | _______________   
|Cash and cash
            equivalents, end of period                                             | $	     8,126      
|                                                                                                 | =============     
|Supplemental
            disclosures of cash flow information:                                   |                   
|Interest paid                                                                                    | $	        13      





See Notes to Consolidated Financial Statements.

---



Applied Signal Technology, Inc.
  Notes to Consolidated Financial Statements
  (unaudited)February 1, 2002



Note 1:	Summary of Significant Accounting Policies

Description of Business and Basis of Presentation

Applied Signal Technology, Inc.
  ("Applied Signal Technology" or "the Company") provides
  advanced digital signal processing products, systems, and services used in reconnaissance
  of foreign telecommunications signals. The Companys primary customers
  are the United States Government and its foreign allies. In fiscal year 2001,
  the Company reintegrated its wholly owned subsidiaries, Transcendent Technologies,
  Inc. ("Transcendent Technologies") and eNetSecure, Inc. ("eNetSecure")
  into Applied Signal Technology. Transcendent was a provider of sophisticated
  network management and spectrum monitoring systems, and eNetSecure was a developer
  and provider of network monitoring services for both intrusion detection and
  policy enforcement.

The accompanying unaudited consolidated
  financial statements have been prepared in accordance with generally accepted
  accounting principles for interim financial information and with the instructions
  to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
  all of the information and footnotes required by generally accepted accounting
  principles for complete financial statements. In the opinion of management,
  all adjustments (consisting of normal recurring adjustments) considered necessary
  for a fair presentation have been included. Operating results for the three
  month period ending February 1, 2002 are not necessarily indicative of the results
  that may be expected for the year ending October 31, 2002. For further information,
  refer to the consolidated financial statements and footnotes thereto included
  in the Companys Annual Report on Form 10-K for the year ended October
  31, 2001.

Principles of Consolidation

The consolidated financial statements
  of Applied Signal Technology, Inc. include the accounts of the Company and its
  reintegrated subsidiaries. All significant intercompany balances and transactions
  have been eliminated.

Estimates

Applied Signal Technology Inc.s
  consolidated financial statements are prepared in accordance with accounting
  principles generally accepted in the United States, which require management
  to make estimates and assumptions that affect the amounts reported in the financial
  statements and accompanying notes. Actual results could differ significantly
  from those estimates.

Investments

The Companys investment securities,
  which consist primarily of U.S. Treasury Securities, are classified as available-for-sale
  and are carried at fair market value. Unrealized gains and losses, net of tax,
  are reported as a separate component of shareholders equity. Realized
  gains and losses on available-for-sale securities are included in interest income
  (expense), net. The cost of securities sold is based on the specific identification
  method. Interest on securities classified as available-for-sale is included
  in interest income (expense), net.

Revenues from Contracts

Applied Signal Technology accounts
  for fixed price contracts using the percentage-of-completion method of accounting.
  Under this method, contract costs are charged to operations as incurred. A portion
  of the contract revenue, based on estimated profits and the degree of completion
  of the contract as measured by a comparison of the actual and estimated costs,
  is recognized as revenue each period. The Company accounts for cost reimbursement
  contracts by charging contract costs to operations as incurred and recognizing
  contract revenues and profits by applying an estimated fee rate to actual costs
  on an individual contract basis. Management reviews contract performance, costs
  incurred and estimated completion costs regularly and adjusts revenues and profits
  on contracts in the period in which changes become determinable. Anticipated
  losses on contracts are also recorded in the period in which they become determinable.
  At interim periods during the fiscal year, contract costs are stated at target
  indirect rates, and the variances between actual and target spending are inventoried
  (for further information see "Note 2  Inventory").

Per Share Data

Basic per share data is based on
  the weighted effect of all common shares issued and outstanding, and is calculated
  by dividing net income (loss) available to common shareholders by the weighted
  average shares outstanding during the period. Diluted per share data is calculated
  by dividing net income available to common shareholders by the weighted average
  number of common shares used in the basic earnings per share calculation, plus
  the number of common shares that would be issued assuming conversion of all
  potentially dilutive securities outstanding using the treasury stock method.
  When a net loss occurs, diluted per share data is the same as basic.

A reconciliation of shares used
  in the calculation of basic and diluted per share data follows (in thousands,
  except per share data):



|                                                                            | Three Months Ended
|--------------------------------------------------------------------------- | ------------------
|                                                                            | February 1, 2002  
|Numerator:                                                                  |                   
|Net income (loss)                                                           | $    1,691        
|                                                                            | =============     
|Denominator:                                                                |                   
|Shares used to compute net
          income (loss) per common sharebasic   | 9,732             
|Effect of dilutive stock
          options                                  | 156               
|                                                                            | _______________   
|Shares used to compute net
          income (loss) per common sharediluted | 9,888             
|                                                                            | =============     
|Net income (loss) per common
          sharebasic                          | $    0.17         
|                                                                            | _______________   
|Net income (loss) per common
          sharediluted                        | $    0.17         
|                                                                            | _______________   





For the three months ended February
  2, 2001, 143,000stock options were excluded from the number of
  shares used to compute diluted net loss per common share, as their effect would
  be antidilutive.

Dividends

In an effort to reduce future cash
  expenditures, the Board of Directors voted on May 17, 2001 to suspend the dividend
  payment. The Company paid no dividends for the three months ended February 1,
  2002, and $566,000 for the three months ended February 2, 2001.

Comprehensive Income

As of February 1, 2002 and October
  31, 2001, accumulated comprehensive income (loss) was zero.

The components of comprehensive
  income, net of tax are as follows (in thousands):

|                                           | Three Months Ended
|------------------------------------------ | ------------------
|                                           | February 1, 2002  
|Net income (loss)                          | $    1,691        
|Unrealized
      gain (loss) on securities |                  
|                                           | _______________   
|Comprehensive income
        (loss)        | $    1,691        
|                                           | =============     



Note 2: Inventory

The components of inventory consist
  of the following (in thousands):





|                  | February 1, 2002
          (unaudited) | October 31, 2001
|----------------- | -------------------------------------- | ----------------
|Raw materials     | $     1,237                            | $     1,310     
|Work in process   | 10,411                                 | 6,859           
|Finished goods    | 434                                    | 277             
|                  | _______________                        | _______________ 
|                  | 12,082                                 | 8,446           
|Precontract costs | 44                                     | 268             
|                  | _______________                        | _______________ 
|                  | $    12,126                            | $    8,714      
|                  | =============                          | =============   





The Company records contract revenues
  and costs for interim reporting purposes based on annual targeted indirect rates.
  At year-end, the revenues and costs are adjusted for actual indirect rates.
  During the interim reporting periods, variances may accumulate between the actual
  indirect rates and the annual targeted rates. All timing-related indirect spending
  variances are inventoried as part of work in process during these interim reporting
  periods. These rates are reviewed regularly, and the Company records reserves
  for any permanent variances in the statement of operations in the period they
  become known. At February 1, 2002 the inventoried variance was approximately
  $3,508,000 (unfavorable). At February 2, 2001, the inventoried unfavorable variance
  was approximately $986,000. At October 31, 2001 and 2000, the variance was zero
  since all revenues and costs were recorded at the actual indirect rates for
  each fiscal year end. Management believes the rate variance at February 1, 2002
  will be absorbed by expected contract activities during the remainder of fiscal
  year 2002.

Precontract costs represent costs
  incurred in connection with ongoing level-of-effort contracts for which contract
  modifications have not been definitized and costs incurred in anticipation of
  specific expected future contract awards.

Note 3: Recent Accounting Pronouncements

In August 2001, the Financial Accounting
  Standards Board issued Statement of Financial Accounting Standards No. 144,
  Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
  144), which addresses financial accounting and reporting for the impairment
  or disposal of long-lived assets and supersedes SFAS 121, Accounting for
  the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
  Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting
  the Results of Operations, for a disposal of a segment of a business. SFAS
  144 is effective for fiscal years beginning after December 15, 2001, with earlier
  application encouraged. The Company will adopt FAS 144 as of November 1, 2002,
  and the Company is in the process of evaluating what, if any, impact adoption
  will have on its results of operations and financial condition.

Note 4: Segment Reporting

The financial information relating
  toApplied Signal Technology is reviewed and evaluated by the chief operating
  decision-maker as a whole, and not its individual divisions. During the first
  quarter of fiscal year 2001, there were two additional reporting segments, eNetSecure
  and Transcendent Technologies, that were reintegrated into Applied Signal Technology
  during subsequent quarters of fiscal year 2001. The remaining business activities
  from these former separate segments are minimal, and divisional financial information
  for Applied Signal Technology is not available or reviewed by the chief operating
  decision maker belowthegross margin level. Thus, there is only
  one reportable segment during the first quarter of fiscal year 2002.

Financial data by segment for the
  three-month period ended February 2, 2001 was as follows (in thousands):





|                    | Applied Signal Technology | eNetSecure | Transcendent Technologies | Consolidated Total
|------------------- | ------------------------- | ---------- | ------------------------- | ------------------
|                    |                           |            |                           |                   
|Revenues:           | $21,567                   | $80        | $50                       | $21,697           
|                    | ==========                | ========== | ==========                | ==========        
|Operating expenses: | $22,801                   | $1,883     | $1,106                    | $25,790           
|                    | ==========                | ========== | ==========                | ==========        
|Interest income:    | $129                      | $9         | $16                       | $154              
|                    | ==========                | ========== | ==========                | ==========        
|Interest expense:   | ($12)                     | ($8)       |                          | ($20)             
|                    | ==========                | ========== | ==========                | ==========        
|Net income (loss):  | $24                       | ($1,803)   | ($1,040)                  | ($2,819)          
|                    | ==========                | ========== | ==========                | ==========        
|Total assets:       | $78,213                   | $1,422     | $858                      | $80,493           
|                    | ==========                | ========== | ==========                | ==========        





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Item 2:	Managements Discussion and Analysis
  of Financial Condition and Results of Operations

The following information should
  be read in conjunction with the attached financial statements and notes thereto.

Forward-looking statements in this
  report are made pursuant to the safe harbor provisions of Section 21E of the
  Securities Exchange Act of 1934. In this report, the words "anticipates,"
  "believes," "expects," "future," "intends,"
  and similar expressions identify forward-looking statements. Shareholders are
  cautioned that all forward-looking statements pertaining to the Company involve
  risks and uncertainties, including, without limitation, those contained under
  the caption, "Summary of Business Considerations and Certain Factors that
  May Affect Future Results of Operations and/or Stock Price," and other
  risks detailed from time to time in the Companys periodic reports and
  other information filed with the Securities and Exchange Commission. Actual
  events and results may differ materially from the Companys current expectations
  and beliefs.

Description of the Business

Applied Signal Technology, Inc.
  ("Applied Signal Technology" or "the Company") provides
  advanced digital signal processing products, systems, and services used in reconnaissance
  of foreign telecommunications signals. The Companys primary customers
  are the United States Government and its foreign allies. The Company develops
  and manufactures equipment for both the collection and processing of signals.
  Its signal collection equipment consists of sophisticated receivers that scan
  through potentially thousands of cellular telephone, microwave, ship-to-shore,
  and military transmissions in the radio frequency (RF) spectrum with the goal
  of collecting certain specific signals. The Companys signal processing
  equipment uses advanced software and hardware to evaluate characteristics of
  the collected signals and selects those most likely to contain relevant information.
  At its inception in 1984, the Company focused its efforts primarily on processing
  equipment. Over time, the Company has broadened its scope to add specialized
  collection equipment and complete signal processing systems. The Companys
  subsidiary corporations were reintegrated into Applied Signal Technology during
  fiscal year 2001.

Signal Reconnaissance

In recent years, accurate and comprehensive
  information regarding foreign affairs and developments has become increasingly
  important to the United States Government. The reduction of United States military
  tactical forces overseas, coupled with political instability in certain regions
  such as the Middle East, Eastern Europe, Africa, and Central and South America,
  has heightened the United States Governments need to be able to monitor
  overseas activities. In order to obtain information about activities within
  foreign countries, the United States Government gathers and analyzes telecommunication
  signals emanating from those countries.

Additionally, the use of established
  telecommunication technologies has increased throughout the world, and new telecommunication
  technologies, supplementing rather than replacing prior technologies, have been
  developed and commercialized. These trends have led to a significant increase
  in the overall volume of information communicated and an increase in the density
  of signals transmitted throughout the RF spectrum. This increase can be seen
  in the proliferation of facsimile, cellular, and digital signal telecommunications
  equipment and in the global information network (for example, the Internet)
  in the last decade, resulting in a significant increase in the amount of information
  being communicated. These trends have required the development of signal reconnaissance
  equipment capable of collecting and processing an increased volume of signals
  as well as new types of signals.

The Company devotes significant
  resources toward understanding the United States Governments signal reconnaissance
  goals, capabilities, and perceived future needs. The Company obtains information
  about these signal reconnaissance needs through frequent marketing contact between
  its employees and technical and contracting officials of the United States Government.
  The Company believes that it has much more marketing contact with customers
  and potential customers than is customary among its competitors. In addition,
  the Company invests in research and development (R&D), which it anticipates
  will enable the Company to develop signal reconnaissance equipment that meets
  these needs. The Company believes that it invests a greater percentage of its
  revenues in R&D than is typical among its competitors.

The Companys signal reconnaissance
  products can be used, with or without further modification, to satisfy requirements
  of a variety of customers. The Company believes its products can be readily
  deployed in a wide variety of circumstances to meet current United States Government
  signal reconnaissance requirements.

As a result of the tragic events
  of September 11, 2001, the Company believes that the United States Government
  will provide increased funding for counter-terrorism. Counter-terrorism is focused
  on individuals and groups of individuals, and relies heavily on human intelligence
  (HUMINT) gathering. Signal intelligence (SIGINT) is a key component of HUMINT.
  Applied Signal Technology believes it is a pre-eminent resource for SIGINT capabilities
  providing products, systems, and services that offer state-of-the-art SIGINT.

Strategy

Applied Signal Technologys
  objective is to anticipate the needs of the signal reconnaissance marketplace
  and to invest in research and development in an effort to provide solutions
  before the Companys competitors. In some cases, this involves the development
  of equipment or services to address new telecommunications technologies. In
  other cases, it involves the development of equipment that offers smaller size,
  lower power consumption, and lower cost than potentially competitive products.
  The Companys strategy to accomplish its objectives includes the following
  elements.

Anticipate marketplace needs.
  The Company devotes significant resources in order to understand perceived future
  telecommunications processing needs. The Company monitors technological and
  commercial advances in telecommunications to identify advances it believes will
  create new opportunities. The Company obtains information about marketplace
  needs through frequent contact with technical and contracting officials of pertinent
  intelligence community government agencies.

Many times, sole-source contracts
  are granted by the United States Government when a single contractor is deemed
  to have expertise or technology that is superior to that of competing contractors.
  Since the Companys inception, a significant portion of its revenues has
  been from sole-source contracts. The Company believes that the large number
  of sole-source contracts it obtains demonstrates that it often correctly anticipates
  marketplace needs. There can be no assurance, however, that the Company will
  correctly anticipate the marketplace needs in the future.

Invest in research and development.
  The Company invests in research and development it believes will enable it to
  develop equipment and services that will satisfy the signal reconnaissance needs
  of the future. The Company believes that it invests a greater percentage of
  its revenues in R&D than is typical among its competitors. The Company believes
  its R&D investments often enable it to offer superior products before its
  competitors.

Develop flexible products.
  The Company develops products that can be used, with or without further modification,
  to satisfy the needs of a variety of customers. The Company uses its prior product
  development efforts to offer customers cost-effective solutions and to offer
  these solutions promptly. The Company believes that custom equipment developed
  by many of its competitors generally cannot be as readily deployed in as wide
  a variety of circumstances as Applied Signal Technologys products.

Develop highly integrated
  products. The Company designs its products to use advanced circuitry
  and highly integrated components. This enables the Company to offer products
  that are smaller, consume less power, and cost customers less when multiple
  units are built than equipment of similar functionality that uses fewer advanced
  designs and materials. The lower cost of many of the Companys products
  appeals to customers with budget constraints, and the smaller size and low power
  consumption of many of the Companys products appeal to customers with
  physical installation constraints.

Focus on signal processing.
  Since inception, the Company has focused much of its attention on developing
  signal processing equipment and services. The Company believes that there have
  been and will continue to be opportunities to develop specialized signal processing
  equipment and services to satisfy emerging technological requirements.

Increase penetration and broaden
  customer base. The Company believes that its current customers offer
  opportunities for sales growth, both in terms of additional units of developed
  products and the development of new products and, accordingly, directs much
  of its marketing efforts toward these customers in order to increase the Companys
  penetration of these markets. The Company continues to try to broaden its customer
  base by increasing marketing efforts toward military signal reconnaissance and
  evaluating local law enforcement opportunities.

Critical Accounting Policies and Estimates

General.
  Applied Signal Technologys
  discussion and analysis of its results and operations are based upon Applied
  Signal Technologys consolidated financial statements. These financial
  statements are prepared in accordance with accounting principles generally accepted
  in the United States, which require management to make estimates and assumptions
  that affect the amounts reported in the financial statements and accompanying
  notes. Actual results could differ significantly from those estimates.

Revenue and cost recognition.
  Applied Signal Technology accounts for fixed price contracts using the percentage-of-completion
  method of accounting. Under this method, contract costs are charged to operations
  as incurred. A portion of the contract revenue, based on estimated profits and
  the degree of completion of the contract as measured by a comparison of the
  actual and estimated costs, is recognized as revenue each period. The Company
  accounts for cost-reimbursement contracts by charging contract costs to operations
  as incurred and recognizing contract revenues and profits by applying an estimated
  fee rate to actual costs on an individual contract basis. Management reviews
  contract performance, costs incurred and estimated completion costs regularly
  and adjusts revenues and profits on contracts in the period in which changes
  become determinable. Anticipated losses on cost-reimbursement and fixed contracts
  are also recorded in the period in which they become determinable. Under fixed-price
  contracts, unexpected increases in the cost to develop or manufacture a product,
  whether due to inaccurate estimates in the bidding process, unanticipated increases
  in material costs, inefficiencies, or other factors, are borne by the Company,
  and could have a material adverse effect on the Companys results of operations
  and financial condition.

Indirect rate variance.
  The Company records contract revenues and costs for interim reporting purposes
  based on annual targeted indirect rates. At year-end, the revenues and costs
  are adjusted for actual indirect rates. During the interim reporting periods,
  variances may accumulate between the actual indirect rates and the annual targeted
  rates. All timing-related indirect spending variances are inventoried as part
  of work in process during these interim reporting periods. These rates are reviewed
  regularly, and the Company records reserves for any permanent variances in the
  statement of operations in the period they become known. At February 1, 2002
  the inventoried variance was approximately $3,508,000 (unfavorable). At February
  2, 2001, the inventoried variance was approximately $986,000 (unfavorable).

The Company has typically experienced
  a negative rate variance during the first quarter of each fiscal year primarily
  because of the cyclical nature of government spending and the timing of certain
  expenses incurred by the Company at the beginning of the fiscal year.

The Companys accounting policy
  of capitalizing the rate variance is based on managements belief that
  such a variance will be absorbed by expected contract activities during the
  remainder of the year. If contract activities do not reach planned levels, the
  Company has alternatives it can utilize to absorb the variance. The Company
  can adjust downward some of its planned indirect spending during the year; it
  can increase its billing rates to its customers; or it can record charges to
  expense based on reduced estimates of future contract activities.

During the past fiscal year, the
  decline in revenues required the Company to record a charge to profit to absorb
  the unfavorable indirect rate variance. Management currently believes the indirect
  rate variance at February 1, 2002 will be absorbed by expected contract activities
  during the remainder of fiscal year 2002. The Company anticipates revenue growth
  during fiscal year 2002; however, this planned revenue growth is dependent on
  the timing of contract awards.

Three Months Ended February 1, 2002 Compared to Three Months Ended February 2, 2001

Results of Operations

By the end of fiscal year 2001,
  the Company reintegrated its two wholly owned subsidiaries, eNetSecure and Transcendent
  Technologies, and restructured Applied Signal Technology in order to better
  align infrastructure costs withanticipated revenues.The
  Company believes that the restructuring activities resulted in a cost structure
  that will permit it to be profitable during fiscal year 2002, and there will
  be an attendant need to hire staff.

Revenues and backlog.
  Revenues for the first quarter of fiscal year 2002 were approximately $16,231,000,
  down 25% compared with the first quarter of fiscal year 2001 revenues of approximately
  $21,697,000. The reduction in revenues recorded during the first quarter of
  fiscal year 2002 when compared to the first quarter of fiscal year 2001 is due,
  in part, to a reduction in labor required to satisfy the Companys contractual
  commitments under its engineering development contracts and, in part, to approximately
  $2.5 million of additional revenues, generated during the first quarter of fiscal
  year 2001, from contract modifications.

New orders levels for the first
  quarter of fiscal year 2002 were approximately $13,162,000, up 7% from approximately
  $12,318,000 in the first quarter of fiscal year 2001.

The Companys backlog, which
  consists of anticipated revenues from new contracts and from the uncompleted
  portions of existing contracts (excluding unexercised options), was approximately
  $29,016,000 at February 1, 2002, an increase of 26% when compared to approximately
  $23,083,000 at February 2, 2001. Backlog increased during the first quarter
  of fiscal year 2002 when compared to the same period of fiscal year 2001 primarily
  because of the terms of the Companys contractual commitments.

The award and timing of contracts
  is critical to revenue generation. The Company has and will continue to experience
  fluctuations in the flow of contract awards primarily because of the conditions
  inherent in government contracting. The Company has experienced delays in the
  awarding of certain engineering development contracts during the past two years.
  It is the Companys belief that some of these delayed orders may be awarded
  during the second or third quarter of fiscal year 2002. Continued delays in
  the awarding of these potential orders could have an adverse impact on the Companys
  ability to generate revenue.

The Company believes that as a result
  of the tragic events of September 11, 2001, the United States Government will
  provide increased funding for counter-terrorism. Counter-terrorism is focused
  on individuals and groups of individuals, and relies heavily on human intelligence
  (HUMINT) gathering. Signal intelligence (SIGINT) is a key component of HUMINT.
  Applied Signal Technology believes it is a pre-eminent resource for SIGINT capabilities
  providing products, systems, and services that offer state-of-the-art SIGINT.
  The Company believes it will benefit from the potential increased spending on
  counter-terrorism. However, the Company does not yet know the extent to which
  it might benefit from any such spending nor does the Company currently know
  the timing of the award of such orders.

The Company has experienced a shift
  in favor of revenue generated from its cost-reimbursement contracts. During
  fiscal years 2001 and 2000, the Company generated revenues from its cost-reimbursement
  contracts of 68% and 59%, respectively and 32% and 41%, respectively, from its
  fixed price contracts. Cost-reimbursement contracts typically do not return
  as high a profit margin as the revenues generated from fixed price contracts.
  The Company currently anticipates that the revenue generated during fiscal year
  2002 will have a mix of contract types similar to that experienced in fiscal
  years 2001 and 2000.

Contract costs. Contract
  costs consist of direct costs on contract, including materials, labor, and manufacturing
  overhead costs. Contract costs were approximately $9,759,000 or 60.1% of revenues
  for the first quarter of fiscal year 2002 compared to approximately $15,048,000
  or 69.4% of revenues for the same period of fiscal year 2001. Contract costs
  decreased, in aggregate and as a percentage of revenues, for the first quarter
  of fiscal year 2002 compared to the same period of fiscal 2001 primarily because
  of a lower operating cost structure that resulted from the fiscal year 2001
  restructuring activities.

Research and development (R&D).
  Company-directed investment in research and development consists of expenditures
  recoverable from customers through the Companys billing rates and expenditures
  funded by the Company from earnings. It is the Companys accounting practice
  to record R&D expenses based on annual targeted indirect rates. (See "Notes
  to Consolidated Financial Statements; Note 2  Inventory.") Research
  and development expenses were approximately $1,917,000 or 11.8% of revenues
  for the first quarter of fiscal year 2002 compared to approximately $4,653,000
  or 21.4% of revenues for the same period of fiscal year 2001. The decrease in
  R&D expenses for the first quarter of fiscal year 2002 when compared to
  the first quarter of fiscal year 2001 is due, in part, to managements
  decision to return research and development spending to the Companys historical
  levels (of approximately 11% of projected fiscal year 2002 revenues), and in
  part, to the absence of research and development spending incurred by the Companys
  reintegrated subsidiary corporations during the first quarter of fiscal year
  2001.

General and administrative.
  General and administrative expenses include administrative salaries, costs related
  to the Companys marketing and proposal activities, and other administrative
  costs. It is the Companys accounting practice to record general and administrative
  expenses based on annual targeted indirect rates. (See "Notes to Consolidated
  Financial Statements; Note 2  Inventory.") General and administrative
  expenses were approximately $2,700,000 or 16.6% of revenues for the first quarter
  of fiscal year 2002 compared to approximately $6,089,000 or 28.1% of revenues
  for the same period of fiscal year 2001. General and administrative expenses
  were lower during the first quarter of fiscal year 2002 compared to the same
  period of fiscal year 2001 due, in part, to a lower operating cost structure
  and, in part, to the absence of general and administrative expenses incurred
  by the Companys reintegrated subsidiary corporations during the first
  quarter of fiscal year 2001.

Interest income (expense),
  net. Net interest income for the first quarter of fiscal year 2002 was
  approximately $24,000, down 82.1% from net interest income of approximately
  $134,000 for the first quarter of fiscal year 2001. The decrease in net interest
  income for the first quarter of fiscal year 2002 is due in part, to lower average
  cash balances in the first quarter of fiscal year 2002 when compared to the
  same period in fiscal year 2001 and, in part, to lower average interest rates
  in the current year period when compared to the same period of fiscal year 2001.

Provision for income taxes.
  The Companys estimated annual effective tax rate for the quarter ended
  February 1, 2002 was a provisional rate of 10% compared to a benefit rate of
  29% for the comparable period in fiscal year 2001. The Companys projected
  annual effective tax rate for fiscal year 2002 is calculated based on the projected
  income for the year and reflects the benefit of potential deferred tax assets
  for which a valuation allowance has been recorded at the end of fiscal year
  2001.

Analysis of Liquidity and Capital Resources

The Companys primary sources
  of liquidity during the first quarter of fiscal year 2002 were the cash flows
  generated from net income and the issuance of common stock through the Companys
  employee stock purchase plans.

The Company has a $3,000,000 secured,
  revolving bank line of credit for short-term cash requirements bearing interest
  at the banks reference rate (4.75% as of February 1, 2002). At both February
  1, 2002 and October 31, 2001 the Company was in compliance with all restrictions
  and covenants, and this facility had not been utilized. The line of credit expires
  on March 15, 2002. The Company is currently negotiating terms for a new line
  of credit. If it does not obtain a new line of credit, the Company believes
  it will have sufficient resources to fund operations for the next twelve months.

Net cash used in operating
  activities. Net cash used in operating activities has varied significantly
  from quarter to quarter. These quarter-to-quarter variances are primarily the
  result of changes in net income, changes in the rate of investment in accounts
  receivable, and the change in inventories held by the Company. During the first
  quarter of fiscal year 2002, approximately $2,189,000 was used by operating
  activities compared to approximately $7,771,000 used during the comparable period
  of fiscal year 2001. Net income for the first quarter of fiscal year 2002 provided
  cash of approximately $1,691,000 compared to cash used from a net loss of approximately
  $2,819,000 for the comparable period of fiscal year 2001. The net income for
  the first quarter of fiscal year 2002 when compared to the net loss incurred
  during the first quarter of fiscal year 2001 is due, in part, to the lower operating
  cost structure that resulted from the fiscal year 2001 restructuring activities
  and, in part, to the absence of losses incurred by the Companys reintegrated
  subsidiary corporations. Cash used by accounts receivable during the first quarter
  of fiscal year 2002 was approximately $2,248,000 compared to cash used of approximately
  $2,535,000 during the comparable period of fiscal year 2001. Cash used by inventory,
  prepaids and other assets during the first quarter of fiscal year 2002 was approximately
  $3,737,000 compared to cash used of approximately $1,334,000 during the comparable
  period of fiscal year 2001. The primary reason for the increase in cash used
  by inventory, prepaids and other assets during the first quarter of fiscal year
  2002 when compared to the same period of fiscal year 2001 was due to a higher
  inventoried indirect rate variance. The inventoried indirect rate variance at
  February 1, 2002 was approximately $3,508,000 compared to approximately $986,000
  at February 2, 2001.

Net cash used in investing
  activities. Cash used in investing activities during the first quarter
  of fiscal year 2002 was approximately $108,000 compared to approximately $1,223,000
  used in investing activities during the same period of fiscal year 2001. Historically,
  the Company has engaged in investing in certain available-for-sale securities,
  either money market accounts or U.S. treasuries. During the first quarter of
  fiscal year 2002, the Company did not purchase any available-for-sale securities
  or U.S. treasuries, and did not own any such securities or U.S. treasuries during
  the first quarter of fiscal year 2002. However, during the comparable period
  of fiscal year 2001, the maturity of available-for-sale securities did provide
  cash of approximately $2,029,000. Additions to property and equipment were approximately
  $108,000 during the first three months of fiscal year 2002 compared with approximately
  $3,252,000 for the same period of fiscal year 2001. During the first quarter
  of fiscal year 2001, the Company added a new facility, in accordance with the
  terms of the original lease agreement.

Net cash from financing activities.
  Cash provided by financing activities during the first three months of fiscal
  year 2002 was approximately $680,000 compared to cash provided by financing
  activities of approximately $615,000 during the same period of fiscal year 2001.
  The source of cash provided by financing activities in both periods was the
  issuance of common stock under the Companys employee stock purchase plan,
  which was partially offset by a dividend payment of $566,000 during the first
  quarter of fiscal year 2001. In an effort to reduce future cash expenditures,
  the Board of Directors voted on May 17, 2001 to suspend the dividend payment.

Cash is generated primarily from
  operating activities, employee stock purchase activities, and investing activities.
  The Companys investing activities are limited to money market accounts
  and U.S. treasuries. The Company believes the primary risk to liquidity is the
  potential decrease in demand for the Companys products and services. Historically,
  the Companys demand has been influenced by the needs of the U.S. intelligence
  community.

The Company believes that the funds
  generated from operations and existing working capital (including the expected
  receipt of approximately $5,053,000 in refundable income taxes in fiscal year
  2002) will be sufficient to meet its cash needs for the next twelve months.

Summary of Business Considerations and Certain Factors That May Affect Future Results of Operations and/or Stock Price

Applied Signal Technologys
  future operating results and stock price may be subject to volatility, particularly
  on a quarterly basis, due to the following.

Customer concentration.
  Historically, defense and intelligence agencies of the United States Government
  have accounted for almost all of Applied Signal Technologys revenues.
  Future reductions in United States Government spending on signal reconnaissance
  or future changes in the kind of signal reconnaissance products or services
  required by the United States Government agencies could limit demand for the
  Companys products and services, which would have a material adverse effect
  on the Companys operating results and financial condition.

Also, potential shifts in responsibilities
  and functions within the defense and intelligence communities could result in
  a reduction of spending on signal reconnaissance by the defense and intelligence
  agencies that have historically been the Companys major customers. The
  Company believes that the United States Government may compensate for reductions
  in spending by these agencies with increases in spending for signal reconnaissance
  by other Government agencies. However, the Companys relationships with
  other Government agencies are not as strong as they are with the agencies with
  which it has historically dealt. There is no assurance that any reduction in
  spending by the agencies with which the Company has historically dealt will
  be offset by other United States Government agencies, and even if other agencies
  increase spending for signal reconnaissance, there is no assurance that the
  Company will secure the same amount of work from such other agencies. As a result,
  demand for the Companys products and services could decline, which would
  have a material adverse effect on the Companys operating results and financial
  condition.

Government security and contracting
  regulations. As a supplier of United States Government defense and intelligence
  agencies, the Company must comply with numerous regulations, including regulations
  governing security and contracting practices. Failure to comply with these regulations
  could disqualify the Company as a supplier of these agencies, which would have
  a material adverse effect on the Companys operating results and financial
  condition.

Revenue concentration.
  Due to the award of certain larger contracts, Applied Signal Technology has
  experienced a significant concentration of revenues from a single contract in
  recent periods. It is anticipated that this contract will complete by the middle
  of fiscal year 2002 and should decline as a percentage of fiscal year 2002 revenues.
  This contract comprised 6% and 12% of first quarter fiscal years 2002 and 2001
  revenues, respectively. This contract may be terminated at the sole discretion
  of the United States Government. If this contract or other large contracts of
  the Company were terminated, this could have a material adverse effect on the
  Companys future operating results and financial condition.

Competition. The signal
  reconnaissance market is highly competitive and Applied Signal Technology expects
  that competition will increase in the future. Some of the Companys current
  and potential competitors have significantly greater technical, manufacturing,
  financial, and marketing resources than the Company. Substantial competition
  could have a material adverse effect on the Companys future operating
  results and financial condition.

Dependence upon personnel.
  Applied Signal Technologys ability to execute its business plan is contingent
  upon successfully attracting and retaining qualified employees. Management believes
  that there has been a change in the local California economy where the Company
  must compete for talent in the telecommunications sector. It should not be as
  difficult recruiting new staff capable of obtaining the necessary security clearance
  in fiscal year 2002 as in prior years. The Company maintains offices in Annapolis
  Junction, Maryland; Herndon, Virginia; Hillsboro, Oregon; and Salt Lake City,
  Utah, providing it the ability to attract and retain qualified personnel in
  areas outside of California. The Company believes these offices should allow
  it to successfully attract and retain qualified employees. Failure to do so
  could have a material adverse effect on the Companys operating results
  and financial condition.

Risk of fixed price and contract
  terminations. A significant portion of Applied Signal Technologys
  revenue is derived from fixed-price contracts. Under fixed-price contracts,
  unexpected increases in the cost to develop or manufacture a product, whether
  due to inaccurate estimates in the bidding process, unanticipated increases
  in materials costs, inefficiencies, or other factors, are borne by the Company.
  The Company has experienced cost overruns in the past that have resulted in
  losses on certain contracts. There can be no assurance that the Company will
  not experience cost overruns in the future or that such overruns will not have
  a material adverse effect on the Companys future results of operations
  and financial condition.

In addition, almost all of the Companys
  contracts contain termination clauses, which permit contract termination upon
  the Companys default or for the convenience of the other contracting party.
  In either case, termination could adversely affect the Companys operating
  results. During fiscal year 2001, the Company received unanticipated contract
  closeout notifications on three significant engineering contracts for the convenience
  of the other contracting party. These closeouts contributed, in part, to the
  need for the Company to reduce its cost structure during fiscal year 2001. There
  can be no assurance that such terminations will not occur in the future.

Potential fluctuations in
  quarterly results and market volatility. Applied Signal Technology has
  experienced significant fluctuations in operating results from quarter to quarter
  and expects that it will continue to experience such fluctuations in the future.
  These fluctuations are caused by, among other factors, conditions inherent in
  government contracting and the Companys business, such as the timing of
  cost and expense recognition for contracts, the United States Government contracting
  and budget cycles and contract closeouts. Fluctuations in quarterly results,
  shortfalls in revenues or earnings from levels forecast by securities analysts,
  changes in estimates by analysts, competition, or announcements of extraordinary
  events such as acquisitions or litigation may cause the price of the Companys
  common stock to fluctuate substantially. In addition, there can be no assurance
  that an active trading market will be sustained for the Companys common
  stock. The stock market in recent years has experienced extreme price and volume
  fluctuations that have particularly affected the market prices of many technology
  companies and that have been unrelated or disproportionately related to the
  operating performance of such companies. These fluctuations as well as general
  economic and market conditions may adversely affect the future market price
  of the Companys common stock.

Rapid technological change.
  The market for Applied Signal Technology products is characterized by rapidly
  changing technology. The Company believes that it has been successful to date
  in identifying certain signal reconnaissance needs early, investing in research
  and development to meet these needs, and delivering products before the Companys
  competitors. The Company believes that its future success will depend upon continuing
  to develop and introduce, in a timely manner, products capable of collecting
  or processing new types of telecommunications signals. There can be no assurance
  that the Company will be able to develop and market new products successfully
  in the future or respond effectively to technological changes, such as data
  encryption technology and others, or that new products introduced by others
  will not render the Companys products or technologies noncompetitive or
  obsolete.

Dependence upon certain suppliers.
  Although Applied Signal Technology procures most of its parts and components
  from multiple sources or believes that these components are readily available
  from numerous other sources, certain components are available only from sole
  sources or from a limited number of sources. While the Company believes that
  substitute components or assemblies could be obtained, use of substitutes would
  require development of new suppliers or would require the Company to re-engineer
  its products, or both, which could delay the Companys shipment of its
  products and could have a material adverse effect on the Companys operating
  results and financial condition.

Business disruption.
  Applied Signal Technologys corporate headquarters, including most of its
  research and development operations and production facilities, are located in
  the Silicon Valley area of Northern California, a region known for seismic activity.
  A significant earthquake could materially affect operating results. The Company
  is not insured for most losses and business interruptions of this kind.

Delays in the receipt of engineering
  contracts. The Company believes it has experienced continued delays
  in the receipt of certain engineering development contracts. However, it believes
  that some of the delayed orders may be awarded during the second or third quarter
  of fiscal year 2002. While the Company is working closely with its customers
  to try to capture what it believes to be sole-source orders, continued delays
  in the receipt of such orders could have a material adverse impact on the Companys
  financial condition and operating results.

Restructuring. The
  Company believes that the restructuring activities in fiscal year 2001 were
  sufficient to return the Company to revenue growth and profitability in fiscal
  year 2002. However, the delay in government procurements could cause a material,
  adverse effect on the Companys financial condition and operating results.

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Part II.	Other Information

Item 1:	Legal Proceedings

The Company, from time to time,
  is engaged in various legal actions including, but not limited to, wrongful
  termination allegations, governmental agency investigations, and employee discrimination
  allegations. The Company believes that these legal actions will not, either
  individually or in aggregate, have a material adverse affect on the operating
  results or financial condition of the Company.

Item 6:	Exhibits and Reports on Form 8-K

Reports on Form 8-K

The Company did not file any reports
  on Form 8-K during the three months ended February 1, 2002.



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Signatures

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 therewith duly authorized.

Applied Signal Technology, Inc.

|/James
      E. Doyle/ | March
      15, 2002
|---------------------- | --------------------

James E. Doyle
  Vice President and Chief Financial Officer
  (Principal Financial and Accounting Officer)