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
  January 31, 2003

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.



|ü   |  |   
|--- |  | --
|Yes |  | No



Indicate by check mark
  whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
  the Exchange Act).



|ü   |  |   
|--- |  | --
|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,
  10,293,900 shares outstanding as of January 31, 2003.

---



Index	
Applied Signal Technology, Inc.

Part I. Financial Information

Item 1: Financial
      Statements (Unaudited)

Consolidated
      Balance Sheets  January 31, 2003 and October 31, 2002

Consolidated
      Statements of Operations  Three months ended January 31, 2003 and
      February 1, 2002

Consolidated
      Statements of Cash Flows  Three months ended January 31, 2003 and
      February 1, 2002

Notes to Consolidated
      Financial Statements  January 31, 2003

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

Item 3: Quantitative
      and Qualitative Disclosures About Market Risk

Item 4: Controls
      and Procedures

Part II. Other Information

Item 1: Legal Proceedings

Item 2: Changes
      in Securities and Use of Proceeds

Item 3: Defaults
      Upon Senior Securities

Item 4: Submission
      of Matter to a Vote of Security Holders

Item 5: Other Information

Item 6: Exhibits
      and Reports on Form 8-K

Signatures

Certifications

Index to Exhibits

---



Part I.	Financial Information

Item 1:	Financial Statements

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



|Assets                                              | January 31, 2003
          (Unaudited) |  | October 31, 2002
          (Note)
|--------------------------------------------------- | -------------------------------------- |  | ---------------------------------
|Current assets:                                     |                                        |  |                                  
|Cash
          and cash equivalents                 | $10,174                                |  | $12,217                          
|Short
          term investments                    | 20,557                                 |  | 12,710                           
|Accounts
          receivable:                      |                                        |  |                                  
|Billed                                              | 9,113                                  |  | 14,821                           
|Unbilled                                            | 9,653 
          __________            |  | 9,806 
          __________      
|Total
          accounts receivable                 | 18,766                                 |  | 24,627                           
|Inventory                                           | 9,497                                  |  | 7,259                            
|Prepaid and other
          current assets          | 1,928__________                        |  | 2,083__________                  
|Total
          current assets                      | 60,922                                 |  | 58,896                           
|                                                    |                                        |  |                                  
|Property and equipment,
          at cost:          |                                        |  |                                  
|Machinery
          and equipment                   | 42,870                                 |  | 41,921                           
|Furniture
          and fixtures                    | 4,956                                  |  | 4,956                            
|Leasehold
          improvements                    | 10,192                                 |  | 10,157                           
|Construction
          in process                   | 387__________                          |  | 412__________                    
|                                                    | 58,405                                 |  | 57,446                           
|Accumulated depreciation
          and amortization | (44,065)__________                     |  | (42,932)__________               
|Net
          property and equipment                | 14,340                                 |  | 14,514                           
|                                                    |                                        |  |                                  
|Other assets                                        | 414__________                          |  | 414__________                    
|                                                    |                                        |  |                                  
|Total assets                                        | $75,676 
          ========            |  | $73,824 
          ========      



---



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



|Liabilities and Shareholders Equity                                                                                                                                    | January 31, 2003
          (Unaudited) |  | October 31, 2002
          (Note)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- |  | ---------------------------------
|Current liabilities:                                                                                                                                                    |                                        |  |                                  
|Accounts
          payable                                                                                                                                              | $1,508                                 |  | $1,496                           
|Accrued
          payroll and related benefits                                                                                                                          | 4,365                                  |  | 5,205                            
|Other
          accrued liabilities                                                                                                                                     | 1,927                                  |  | 2,004                            
|Income
          taxes payable                                                                                                                                          | 52 
          _________                |  |  
          _________           
|Total
          current liabilities                                                                                                                                     | 7,852                                  |  | 8,705                            
|                                                                                                                                                                        |                                        |  |                                  
|Other liabilities                                                                                                                                                       | 146                                    |  | 146                              
|                                                                                                                                                                        |                                        |  |                                  
|Shareholders
          equity:                                                                                                                                         |                                        |  |                                  
|Common
          stock, no par value: 20,000,000 shares authorized; issued and outstanding:
          10,293,900 at January 31, 2003 and 10,054,744 at October 31, 2002 | 27,455                                 |  | 26,565                           
|Retained
          earnings                                                                                                                                             | 40,128                                 |  | 38,343                           
|Accumulated
          comprehensive income                                                                                                                              | 95 
          _________                |  | 65 
          _________          
|Total shareholders
          equity                                                                                                                                    | 67,678 
          _________            |  | 64,973 
          _________      
|                                                                                                                                                                        |                                        |  |                                  
|Total
          liabilities and shareholders equity                                                                                                                    | $75,676 
          =========           |  | $73,824 
          =========     





Note: The balance sheet at October
  31, 2002 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        
|------------------------------------------------------------------------------------- | ------------------------------------
|                                                                                      | January 31, 2003                    
|Revenues from contracts                                                               | $18,178                             
|                                                                                      |                                     
|Operating expenses:                                                                   |                                     
|Contract
          costs                                                              | 11,556                              
|Research
          and development                                                    | 1,701                               
|General
          and administrative                                                  | 2,921
          
          ________ 
|                                                                                      |                                     
|Total
          operating expenses                                                    | 16,178
          
          ________
|                                                                                      |                                     
|Operating income                                                                      | 2,000                               
|Interest income,
          net                                                        | 100
          
          ________   
|Income before provision
          
          for income taxes                         | 2,100                               
|Provisionfor income taxes                                                             | 315
          
          ________   
|                                                                                      |                                     
|Net income                                                                            | $1,785
          
          ========
|                                                                                      |                                     
|Net income per
          common share:                                                |                                     
|Basic                                                                                 | $0.17                               
|Diluted                                                                               | $0.17                               
|                                                                                      |                                     
|Number of shares
          used in calculating net
          income per common share: |                                     
|Basic                                                                                 | 10,216                              
|Diluted                                                                               | 10,429                              





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
|-------------------------------------------------------------------------------------------------------------- | ----------------------------
|                                                                                                               | January 31, 2003            
|Operating Activities:                                                                                          |                             
|Net
          income                                                                                           | $1,785                      
|Adjustments
          to reconcile net income to net cash provided by (used in) operating
          activities |                             
|Depreciation
          and amortization                                                                        | 1,173                       
|Changes
          in:                                                                                          |                             
|Accounts
          receivable                                                                                  | 5,861                       
|Inventory,
          prepaids, and other assets                                                                | (2,083)                     
|Accounts
          payable, taxes payable, and accrued expenses                                                | (853) 
          _________  
|Net
          cash provided by (used in) operating activities                                                  | 5,883                       
|                                                                                                               |                             
|Investing Activities:                                                                                          |                             
|Purchases
          of available-for-sale securities                                                           | (7,817)                     
|Additions
          to property and equipment                                                                  | (999) 
          _________  
|Net
          cash used in investing activities                                                                | (8,816)                     
|                                                                                                               |                             
|Financing Activities:                                                                                          |                             
|Issuance
          of common stock                                                                             | 890 
          _________    
|Net
          cash provided by financing activities                                                            | 890                         
|Net
          decrease in cash and cash equivalents                                                            | (2,043)                     
|Cash
          and cash equivalents, beginning of period                                                       | 12,217 
          _________ 
|Cash
          and cash equivalents, end of period                                                             | 10,174 
          ========= 
|                                                                                                               |                             
|Supplemental disclosures
          of cash flow information:                                                   |                             
|Interest
          paid                                                                                        | $26                         



See Notes to Consolidated
  Financial Statements.

---



Applied Signal Technology, Inc.
Notes to Consolidated Financial Statements
(unaudited)January 31, 2003

Note 1:	Summary of Significant Accounting Policies

Description of Business and Basis of Presentation

Applied Signal Technology, Inc.
  was incorporated in California on January 12, 1984. We provide advanced digital
  signal processing products, systems, and services used in reconnaissance of
  foreign telecommunications signals. Our primary customers are the United States
  Government and its foreign allies.

The accompanying unaudited consolidated
  financial statements have been prepared in accordance with accounting principles
  generally accepted in the United States 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 accounting
  principles generally accepted in the United States 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 January 31, 2003 are not
  necessarily indicative of the results that may be expected for the year ending
  October 31, 2003. For further information, refer to the consolidated financial
  statements and footnotes thereto included in our Annual Report on Form 10-K
  for the year ended October 31, 2002.

Estimates

In order for us to prepare
  financial statements in conformity with accounting principles generally accepted
  in the United States, management is required 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.

Revenues and Contract Accounting

Revenues
  and cost recognition.
  The majority of our contracts are accounted for in accordance with the American
  Institute of Certified Public Accountants Statement of Opinion 81-1, Accounting
  for Performance of Construction-Type and Production-Type Contracts.

We account 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. Cost-reimbursement contracts represent approximately
  73% of contract revenues in the first quarter of fiscal year 2003 (61% in the
  first quarter of fiscal year 2002).

Our engineering services contracts
  are typically performed on a level-of-effort basis. Revenue is calculated in
  accordance with our policy regarding cost-reimbursement contracts; specifically,
  revenue is based on a fee percentage applied to the costs incurred on these
  contracts.

We account for fixed-price contracts
  by 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. Unexpected increases in the cost to develop or manufacture
  a product under a fixed-price contract, whether due to inaccurate estimates
  in the bidding process, unanticipated increases in material costs, inefficiencies,
  or other factors are borne by us, and could have a material adverse effect on
  our results of operations. Fixed-price contracts represent approximately27% of contract revenues in the first quarter of fiscal year 2003 (39% in
  the first quarter of fiscal year 2002).

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 recorded in the period in which they become
  determinable.

Indirect rate variance.
  We record 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 our 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 we record reserves for any permanent variances in the period
  they become known. Please refer to "Notes to Consolidated Financial Statements,
  Note 2: Inventory" for the current year inventoried spending variance.

Our accounting policy 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, there are alternatives we can utilize to absorb the variance:
  we can adjust downward some of our planned indirect spending during the year,
  increase our billing rates to our customers, or record charges to expense based
  on reduced estimates of future contract activities.

Award fees. Our policy
  for recognizing interim fees on our award fee contracts is based on managements
  assessment, on a contract-by-contract basis, as to the likelihood that the award
  fee or an incremental portion of the award fee will be earned. Managements
  assessments are based on numerous factors including: contract terms, nature
  of the work to be performed, our relationship and history with the customer,
  our history with similar types of projects, and our current and anticipated
  performance on the specific contract. No award fee is recognized until management
  determines that it is probable that an award fee or portion thereof will be
  earned.

Accounts receivables.
  Accounts receivables are segregated between billed and unbilled accounts. For
  cost-reimbursement contracts, we bill incurred costs and a portion of our fees
  on a regular basis. Under fixed-price contracts, we either regularly progress
  bill 90% of incurred costs or bill contract costs on a milestone or unit of
  delivery basis. Unbilled amounts result from recognition of contract revenue
  in advance of contractual billing or progress billing terms.

Cash Equivalents and Investments

We consider all highly liquid debt
  instruments purchased with an original maturity date of three months or less
  to be cash equivalents.

Short-term investments include
  securities that are classified as available-for-sale and are carried at fair
  market value. At the time of purchase, management determines the appropriate
  classification of these securities and re-evaluates such designation as of each
  balance sheet date. Unrealized gains and losses, net of tax, are reported in
  shareholders equity as part of retained earnings. The cost of securities
  sold is based on the specific identification method. Realized gains and losses
  on sales of available-for-sale securities were not material in the first three
  months of fiscal years 2003 and 2002.

The following tables summarize our
  cash, cash equivalents, and short-term securities (in thousands):

|                                                   | January
        31, 2003         
|-------------------------------------------------- | ---------------------------------
|                                                   | Amortized Cost                   
|Cash and cash equivalents                          | $10,174                          
|Short-term, available-for-sale
        securities: |                                  
|Asset-backed
        securities                    | 2,525                            
|Corporate securities                               | 5,318                            
|Government
        securities                      | 10,139                           
|Money
        market securities                    | 2,480
        
        ________  
|                                                   | $30,636
        
        ========



|                                                   | October
        31, 2002         
|-------------------------------------------------- | ---------------------------------
|                                                   | Amortized Cost                   
|Cash and cash equivalents                          | $12,215                          
|Short-term, available-for-sale
        securities: |                                  
|Asset-backed
        securities                    | 1,523                            
|Corporate
        securities                       | 4,007                            
|Government
        securities                      | 7,117
        
        ________  
|                                                   | $24,862
        
        ========



The following table summarizes the
  maturities of our investments (in thousands):



|                          | January 31, 2003            |  | October 31, 2002           
|------------------------- | --------------------------- |  | ---------------------------
|Due in one year or less   | $6,036                      |  | $1,031                     
|Due in one to three years | 14,521 
          ________  |  | 11,679 
          ________ 
|                          | $20,557 
          ======== |  | $12,710 
          ========





Per Share Data

Basic net income per share is determined
  by dividing net income by the weighted average number of common shares outstanding
  during the period. Diluted net income per share is determined by dividing net
  income 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 under
  the treasury stock method.

The per share data is as follows
  (in thousands, except per share amounts):



|                                                                   | Three
        Months Ended
|------------------------------------------------------------------ | --------------------------
|                                                                   | January 31, 2003          
|Numerator:                                                         |                           
|Net
        income                                                 | $1,785 
        ========  
|Denominator:                                                       |                           
|Shares
        used to compute net income per common share-basic   | 10,216                    
|Effect
        of dilutive stock options                           | 213 
        ________     
|Shares
        used to compute net income per common share-diluted | 10,429 
        ========  
|                                                                   |                           
|Net
        income per common share  basic                        | $0.17                     
|Net
        income per common sharediluted                        | $0.17                     





Comprehensive Income

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



|                                        | Three
          Months Ended        
|--------------------------------------- | ------------------------------------
|                                        | January 31, 2003                    
|Net income                              | $1,785                              
|Unrealized gain
          on securities | 30
          
          ________    
|Comprehensive income                    | $1,815
          
          ========





As of January 31, 2003, net unrealized
  gain on securities was approximately $95,000. As of October 31, 2002, net unrealized
  gain on securities was approximately $65,000.

Note 2: Inventory

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



|                  | January 31, 2003                     |  | October 31, 2002                    
|----------------- | ------------------------------------ |  | ------------------------------------
|Raw materials     | $811                                 |  | $812                                
|Work in process   | 8,007                                |  | 5,747                               
|Finished goods    | 573
          
          ________    |  | 613
          
          ________   
|                  | 9,391                                |  | 7,172                               
|Precontract costs | 106
          
          ________    |  | 87
          
          ________    
|                  | $9,497
          
          ======== |  | $7,259
          
          ========





At January 31, 2003, the unfavorable
  inventoried indirect rate variance was approximately $1,004,000. At February
  1, 2002, the unfavorable inventoried indirect rate variance was approximately
  $3,508,000. At October 31, 2002 and October 31, 2001, costs were recorded at
  actual indirect rates, and therefore the rate variance balances were zero. Management
  believes that the rate variance at January 31, 2003 will be absorbed by expected
  contract activities during the remainder of fiscal year 2003. For further information
  on our accounting policy for this inventoried variance, see "Notes to Consolidated
  Financial Statements, Note 1: Summary of Significant Accounting Policies."

Precontract costs represent costs
  incurred in connection with ongoing 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 (FASB) issued Statement of Financial Accounting Standards (SFAS)
  No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
  which addresses financial accounting and reporting for the impairment or disposal
  of long-lived assets and supersedes SFAS No. 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. We adopted SFAS 144 on October 1, 2002 and the adoption
  did not have a material effect on our financial position or results of operations.

In July 2002, the FASB issued SFAS
  No. 146, Accounting for Costs Associated with Exit or Disposal Activities.
  SFAS 146 addresses the financial accounting and reporting for obligations associated
  with an exit activity, including restructuring, or with a disposal of long-lived
  assets. Exit activities include, but are not limited to, eliminating or reducing
  product lines, terminating employees and contracts and relocating plant facilities
  or personnel. SFAS 146 specifies that a company will record a liability for
  a cost associated with an exit or disposal activity only when that liability
  is incurred and can be measured at fair value. Therefore, commitment to an exit
  plan or a plan of disposal expresses only managements intended future
  actions and does not meet the requirement for recognizing a liability and the
  related expense. SFAS 146 is effective prospectively for exit or disposal activities
  initiated after December 31, 2002, with earlier adoption encouraged. The adoption
  of SFAS 146 did not have an effect on our financial position or results of operations.

In December 2002, the FASB issued
  SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
  Disclosure. SFAS 148 amends SFAS 123, Accounting for Stock-Based
  Compensation, to provide alternative methods of transition to SFAS 123s
  fair value method of accounting for stock-based employee compensation. SFAS
  148 also amends the disclosure provisions of SFAS 123 and APB Opinion No. 28,
  Interim Financial Reporting, to require disclosure in the summary of
  significant accounting policies of the effects of an entitys accounting
  policy with respect to stock-based employee compensation on reported net income
  and earnings per share in annual and interim financial statements. SFAS 148s
  amendment of the transition and annual disclosure requirements of SFAS 123 are
  effective for our fiscal year 2003. SFAS 148s amendment of the disclosure
  requirements of Opinion 28 is effective for our second quarter of fiscal year
  2003.

In November 2002, the FASB issued
  FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements
  for Guarantees, Including Indirect Guarantees of Indebtedness of Others,
  an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB
  Interpretation No. 34. The Interpretation elaborates on the disclosures to be
  made by a guarantor in its interim and annual financial statements about its
  obligations under certain guarantees that it has issued. It also requires a
  guarantor to recognize, at the inception of a guarantee, a liability for the
  fair value of the obligation undertaken in issuing the guarantee. The initial
  recognition and measurement provisions of the Interpretation apply to guarantees
  issued or modified after December 31, 2002. Applied Signal Technology does not
  expect the adoption of this accounting pronouncement to have a material effect
  on its consolidated financial position or results of operations.

Note 4: Line of Credit

At January 31, 2003, we had a $3,000,000
  secured, revolving bank line of credit available for short-term cash requirements,
  which is secured by all of our assets and expires on March 15, 2003. Borrowings
  under the line of credit bear interest at the banks reference rate (4.25%
  at January 31, 2003) and are payable monthly.At both January
  31, 2003 and October 31, 2002, this facility was unused. Under this credit facility,
  we are subject to certain commitment and utilization fees on the unused portion
  of the committed amount. Fees incurred were not material during the first quarter
  of fiscal year 2003 and fiscal year 2002. The line of credit agreement requires
  us to comply with certain financial covenants. At both January 31, 2003 and
  October 31, 2002, we were in compliance with all restrictions and covenants,
  and this facility had not been utilized. We do not plan to renew this line of
  credit and have canceled the outstanding letters of credit associated with this
  facility. In February 2003 we entered into a new cash-secured line of credit
  in the amount $1,500,000, which will expire on March 1, 2004. Any borrowings
  bear interest at the banks reference rate and accrued interest is payable
  monthly. There are no fees associated with the unused portion of the committed
  amount. Under this new line of credit agreement, we have one standby letter
  of credit outstanding in the amount of approximately $1,218,000, related to
  our facilities lease.

Note 5: 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. In addition, divisional
  financial information is not available belowthegross margin
  level. Thus, there is only one reportable segment during the first three months
  of fiscal years 2003 and 2002.

Note 6: Provision for Income Taxes

Our estimated annual effective tax
  rate for the quarter ended January 31, 2003 was 15% compared to a 10% effective
  rate for the comparable period in 2002. Our projected annual effective tax rate
  for fiscal year 2003 is calculated based on the projected income for the year
  and differs from the statutory rate primarily due to a benefit of deferred tax
  assets for which a valuation allowance has been recorded at the end of fiscal
  year 2002.

Note 7: Contingencies

Product Warranties

Our products, including associated
  firmware and software, are warranted against defective workmanship and materials
  for a period of one year from the date of acceptance by the original purchaser.
  In addition, we offer extended warranties as a percentage of the purchase price.
  An additional six-month warranty may be purchased for 3% of the unit or system
  purchase price. Additional one-year warranty coverage is 5% of the unit or system
  purchase price. Warranty costs were approximately $43,000 and $83,000 for the
  first quarters of fiscal years 2003 and 2002, respectively.

---



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.

This quarterly report on Form 10-Q
  contains forward-looking statements made pursuant to the provisions of Section
  21E of the Securities Exchange Act of 1934. These forward-looking statements
  are based on managements current expectations and beliefs, including estimates
  and projections about our industry. Forward-looking statements may be identified
  by the use of terms such as "anticipates," "expects," "intends,"
  "plans," "seeks," "estimates," "believes,"
  and similar expressions, although some forward-looking statements are expressed
  differently. Statements concerning financial position, business strategy, and
  plans or objectives for future operations are forward-looking statements. These
  statements are not guarantees of future performance and are subject to certain
  risks, uncertainties, and assumptions that are difficult to predict and may
  cause actual results to differ materially from managements current expectations.
  Such risks and uncertainties include those set forth herein under "Summary
  of Business Considerations and Certain Factors that May Affect Future Operating
  Results and/or Stock Price." The forward-looking statements in this report
  speak only as of the time they are made and do not necessarily reflect managements
  outlook at any other point in time. We undertake no obligation to update publicly
  any forward-looking statements, whether as a result of new information, future
  events, or for any other reason. However, readers should carefully review the
  risk factors set forth in other reports or documents we file from time to time
  with the Securities and Exchange Commission (SEC). Our SEC filings, as well
  as our latest annual report, can be obtained through our web site. In addition,
  hard copies can be obtained free of charge through our investor relations department.

Description of the Business

Applied Signal Technology, Inc.
  provides advanced digital signal processing products, systems, and services
  used in reconnaissance of foreign telecommunications signals. Our primary customers
  are the United States Government and its foreign allies. We develop and manufacture
  equipment for both the collection and processing of signals. Our 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. Our 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 inception, our efforts were primarily
  focused on processing equipment. Over time, we have broadened our scope to add
  specialized collection equipment and complete signal processing systems.

We were incorporated in
  California in 1984. Our principal executive offices are located at 400 West
  California Ave., Sunnyvale, CA, 94086, and our telephone number is (408) 749-1888.
  Our web site address is www.appsig.com. Our SEC filings, as well as our latest
  annual report, can be obtained through our web site. In addition, hard copies
  can be obtained free of charge through our investor relations department.

Signal Intelligence

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; the political instability in certain regions such as the Middle
  East, Eastern Europe, Africa, and Central and South America; and the continued
  efforts against terrorism have significantly heightened the United States Governments
  need to be able to monitor activities in foreign countries. In order to obtain
  information about activities within foreign countries, the United States Government
  gathers and analyzes telecommunications signals emanating from those countries.

The use of established telecommunications
  technologies has been supplemented, rather than replaced, by new telecommunications
  technologies that have been developed and commercialized. This trend has 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 recent years, resulting in a significant increase
  in the amount of information being communicated. Consequently, the requirement
  to develop signal reconnaissance equipment capable of collecting and processing
  an increased volume of signals, as well as new types of signals, has increased
  significantly.

We devote significant resources
  toward understanding the United States Governments signal reconnaissance
  goals, capabilities, and perceived future needs. We obtain information about
  these signal reconnaissance needs through frequent marketing contact between
  our employees and technical and contracting officials of the United States Government.
  In addition, we invest in research and development (R&D) activities that
  we anticipate will enable us to develop signal reconnaissance equipment that
  meets future needs of the United States Government. We believe that we invest
  a greater percentage of our revenues in R&D than is typical among our competitors.
  (See "Research and Development.")

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

The United States Government is
  beginning to provide increased funding for counterterrorism. Counterterrorism
  focuses on individuals and groups of individuals, and relies heavily on human
  intelligence (HUMINT) gathering. HUMINT refers to all National Security information
  obtained directly from human resources. It includes a wide range of activities
  from direct reconnaissance and observation to the use of informants and spies.
  Signal intelligence (SIGINT) is an adjunct of HUMINT. SIGINT refers to all National
  Security information derived from intercepting and analyzing foreign instrumentation,
  communications, or electronic signals, many of which are protected by codes
  and other complex countermeasures. We believe we are a pre-eminent resource
  for SIGINT capabilities, providing products, systems, and services.

Strategy

Our 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 our 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. Our strategy to accomplish these objectives
  focuses on the following elements.

Anticipate marketplace needs.
  We devote significant resources in order to anticipate future telecommunications
  processing needs. We monitor technological and commercial advances in telecommunications
  to identify what we believe are new opportunities for the development of our
  products. We obtain information about marketplace needs through frequent contact
  with technical and contracting officials of pertinent government agencies within
  the intelligence community.

Many times, the United States Government
  grants sole-source contracts when a single contractor is deemed to have expertise
  or technology that is superior to that of competing contractors. Since our inception,
  a significant portion of our revenues has been from sole-source contracts. Although
  we believe that the large number of sole-source contracts we obtain demonstrates
  that we often correctly anticipate marketplace needs, we cannot be sure that
  we will continue to correctly anticipate the marketplace needs in the future.

Invest in research and development.
  We invest in research and development that we believe will enable us to develop
  equipment and services that will satisfy the future signal reconnaissance needs
  of our customers. We believe that we invest a greater percentage of our revenues
  in R&D than is typical among our competitors, which, in turn, often enables
  us to introduce products that meet marketplace demands before our competitors.

Develop flexible products.
  We develop products that can be used as originally designed, or with further
  customization, to satisfy the needs of a variety of customers. We use prior
  product development efforts to offer customers cost-effective solutions and
  to offer these solutions promptly. We believe that custom equipment developed
  by many of our competitors generally cannot be deployed as readily in as wide
  a variety of circumstances as our products.

Develop highly integrated
  products. We design our products to use advanced circuitry and highly
  integrated components. This enables us 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 our products appeals to customers with budget constraints,
  and the small size and low power consumption of many of our products appeal
  to customers with physical installation constraints.

Focus on signal processing.
  Since inception, we have focused much of our attention on developing signal
  processing equipment and services. We believe 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. We believe that our current customers offer opportunities
  for sales growth, both in terms of additional units of developed products and
  the development of new products and, accordingly, direct much of our marketing
  efforts toward these customers in order to increase our penetration of these
  markets. Additionally, we continue to try to broaden our customer base by increasing
  marketing efforts toward military signal reconnaissance and by evaluating law
  enforcement opportunities.

Critical Accounting Policies and Estimates

General.
  Our discussion and analysis
  of our financial condition and results of operations are based upon our 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. We believe that the estimates, assumptions,
  and judgments involved in the accounting policies described below have the greatest
  potential impact on our financial statements and, therefore, consider these
  to be critical accounting policies. See Note 1 to consolidated financial
  statements included elsewhere in this report for more information about these
  critical accounting policies, as well as descriptions of other significant accounting
  policies.

Revenue and cost recognition.
  The majority of our contracts are accounted for in accordance with the American
  Institute of Certified Public Accountants Statement of Opinion 81-1, Accounting
  for Performance of Construction-Type and Production-Type Contracts.We account
  for fixed-price contracts by 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. We account 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.

Our engineering services contracts
  are typically performed on a level-of-effort basis. Revenue is calculated in
  accordance with our policy regarding cost-reimbursement contracts; specifically,
  revenue is based on a fee percentage applied to the costs incurred on these
  contracts.

Anticipated losses on cost-reimbursement
  and fixed-price contracts are also recorded in the period in which they become
  determinable. 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 us on fixed-price
  contracts, and could have a material adverse effect on results of operations
  and financial condition.Unexpected cost increases in cost-reimbursement
  contracts may be borne by us for purposes of maintaining customer relationships.Historically, the effect on operating results and financial condition from
  cost-reimbursement losses has been minimal.

Award fee recognition.Our
  policy for recognizing interim fees on our award fee contracts is based on managements
  assessment, on a contract-by-contract basis, as to the likelihood that the award
  fee or an incremental portion of the award fee will be earned. Managements
  assessments are based on numerous factors including: contract terms, nature
  of the work to be performed, our relationship and history with the customer,
  our history with similar types of projects, and our current and anticipated
  performance on the specific contract. No award fee is recognized until management
  determines that it is probable that an award fee or a portion thereof will be
  earned.

Indirect rate variance.
  We record 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 our 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 we record reserves for any permanent variances in the period
  they become known.

Our accounting policy is based on
  managements belief that such interim variances, if deemed recoverable,
  will be absorbed by expected contract activities during the remainder of the
  year. If contract activities do not reach planned levels, there are alternatives
  we can utilize to absorb the variance: we can adjust downward some of our planned
  indirect spending during the year, increase our billing rates to our customers,
  or record charges to expense based on reduced estimates of future contract activities.

At January 31, 2003, the unfavorable
  inventoried indirect rate variance was approximately, $1,004,000. At February
  1, 2002, the inventoried rate variance was approximately $3,508,000. Management
  currently anticipates that the rate variance recorded at the end of the first
  quarter of fiscal year 2003 will be absorbed by expected contract activities.

Three Months Ended January 31, 2003 Compared to Three Months Ended February 1, 2002

Revenues
  and backlog. Revenues
  for the first quarter of fiscal year 2003 were approximately $18,178,000, a
  12% increase from revenues of approximately $16,231,000, recorded in the first
  quarter of fiscal year 2002. The increase in revenues in the first quarter of
  fiscal year 2003 when compared to the first quarter of fiscal year 2002 was
  due to increased revenues generated by our engineering development programs.
  The revenues generated by these programs were primarily a result of orders received
  during the third and fourth quarters of fiscal year 2002.

New orders received for the first
  quarter of fiscal year 2003 were approximately$12,044,000, down 9% from
  approximately $13,162,000 received in the first quarter of fiscal year 2002.
  The decline in new order levels is due to what management believes to be the
  typical fluctuations experienced in the U.S. Government procurement process.

Our backlog consists of anticipated
  revenues from new contracts and from the uncompleted portions of existing contracts
  (excluding unexercised options). At January 31, 2003, ending backlog was approximately
  $36,151,000, representing a 25% increase from ending backlog of approximately
  $29,016,000 at February 1, 2002. The increase in backlog at the end of the first
  quarter of fiscal year 2003, when compared to the same period in fiscal year
  2002, is primarily due to the new orders received during the third and fourth
  quarters of fiscal year 2002. Our backlog balance at October 31, 2002 was approximately
  $42,298,000. New order levels were lower than the revenues generated in the
  first quarter of fiscal year 2003, which decreased backlog by approximately
  $6,147,000, or 15%. New order levels were lower than revenues due, primarily,
  to the delay in the awarding of certain contracts, which we expect to be awarded
  in the second quarter of fiscal year 2003. Additionally, our contract bookings
  during the first quarter are typically lower than the order levels during the
  fourth quarter due to the U.S. Governments annual procurement cycle.

Cost-reimbursement contracts
  typically do not return as high a profit margin asfixed price contracts.
  The following table represents the revenue concentration by contract type:



|                             | Q1 FY03 |  | FY02 |  | FY01 |  | FY00
|---------------------------- | ------- |  | ---- |  | ---- |  | ----
|Cost-reimbursement contracts | 73%     |  | 59%  |  | 68%  |  | 59% 
|Fixed price contracts        | 27%     |  | 41%  |  | 32%  |  | 41% 





We currently anticipate that the
  mix of contract types for fiscal year 2003 will be similar to that experienced
  in fiscal year 2001.

Contract costs. Contract
  costs consist of direct costs on contract, including materials, labor, and manufacturing
  overhead costs. Contract costs were approximately $11,556,000, or 63.6%, of
  revenues for the first quarter of fiscal year 2003 compared to approximately
  $9,759,000, or 60.1%, of revenues for the same period of fiscal year 2002. The
  increase in contracts costs in the first quarter in fiscal year 2003 is primarily
  due to an increase in direct labor. The direct labor growth is the result of
  increased activity in our engineering development contracts, which are typically
  more labor-intensive than our standard product orders.

Research and development (R&D).
  Company-directed investment in research and development consists of expenditures
  recoverable from customers through our billing rates and expenditures funded
  from earnings. We record R&D expenses based on annual targeted indirect
  rates, for interim reporting periods. (See "Notes to Consolidated Financial
  Statements, Note 1: Summary of Significant Accounting Policies.") Research
  and development expenses were approximately $1,701,0000, or 9.4%, of revenues
  for the first quarter of fiscal year 2003 compared to approximately $1,917,000,
  or 11.8%, of revenues for the same period of fiscal year 2002. R&D expenses
  in the first quarter of fiscal year 2003 were lower than the first quarter of
  fiscal year 2002 as a result of managements decision to decrease R&D
  spending for fiscal year 2003.

General and administrative.
  General and administrative expenses include administrative salaries, costs related
  to marketing and proposal activities, costs associated with product warranties,
  and other administrative costs. We record general and administrative expenses
  based on annual targeted indirect rates, for interim reporting periods. (See
  "Notes to Consolidated Financial Statements, Note 1: Summary of Significant
  Accounting Policies.") General and administrative expenses were approximately
  $2,921,000, or 16.1%, of revenues for the first quarter of fiscal year 2003
  compared to approximately $2,700,000, or 16.6%, of revenues for the same period
  of fiscal year 2002. General and administrative expenses were higher during
  the first quarter fiscal year of 2003 primarily because our targeted indirect
  rates were applied to a larger cost base. The increase in our cost base is the
  result of more contract revenues generated in the first quarter of fiscal year
  2003 when compared to the first quarter of fiscal year 2002.

Interest income (expense),
  net. Net interest income for the first quarter of fiscal year 2003 was
  approximately $100,000 compared to net interest income of approximately $24,000
  for the first quarter of fiscal year 2002. Interest income increased during
  the first quarter of fiscal year 2003 as a result of higher cash and investment
  balances at the beginning of fiscal year 2003 when compared to the beginning
  of fiscal year 2002.

Provision for income
  taxes. Our estimated annual effective tax rate for the quarter ended
  January 31, 2003 was 15% compared to a 10% effective rate for the comparable
  period in 2002. Our projected annual effective tax rate for fiscal year 2003
  is calculated based on the projected income for the year and differs from the
  statutory rate primarily due to a benefit of deferred tax assets for which a
  valuation allowance has been recorded at the end of fiscal year 2002.

Product warranties.
  Our products, including associated firmware and software, are warranted against
  defective workmanship and materials for a period of one year from the date of
  acceptance by the original purchaser. In addition, we offer extended warranties
  as a percentage of the purchase price. An additional six-month warranty may
  be purchased for 3% of the unit or system purchase price. Additional one-year
  warranty coverage is 5% of the unit or system purchase price. Warranty costs
  were approximately $43,000 and $83,000 for the first quarters of fiscal years
  2003 and 2002, respectively.

Analysis of Liquidity and Capital Resources

Our primary sources of liquidity
  during the first three months of fiscal year 2003 were the cash flows generated
  from net income, accounts receivable, and the issuance of common stock through
  our employee stock purchase plans.

We have a $3,000,000 secured, revolving
  bank line of credit available for short-term cash requirements, which is secured
  by all of our assets and expires on March 15, 2003. Borrowings under the line
  of credit bear interest at the banks reference rate (4.25% at January
  31, 2003) and are payable monthly. At both January 31, 2003 and October 31,
  2002, this facility was unused. Under this credit facility, we are subject to
  certain commitment and utilization fees on the unused portion of the committed
  amount. Fees incurred were not material during the first quarter of fiscal year
  2003 and fiscal year 2002. The line of credit agreement requires us to comply
  with certain financial covenants. At both January 31, 2003 and October 31, 2002,
  we were in compliance with all restrictions and covenants, and this facility
  had not been utilized. We do not plan to renew this line of credit and have
  canceled the outstanding letters of credit associated with this facility. In
  February 2003 we entered into a new cash-secured line of credit in the amount
  $1,500,000, which will expire on March 1, 2004. Any borrowings bear interest
  at the banks reference rate and accrued interest is payable monthly. There
  are no fees associated with the unused portion of the committed amount. Under
  this credit facility, we have one standby letter of credit outstanding in the
  amount of approximately $1,218,000, related to our facilities lease.

Net cash from operating activities.
  Net cash provided by (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 and operating assets and liabilities. During
  the first three months of fiscal year 2003, approximately $5,883,000 was provided
  by operating activities compared to approximately $2,189,000 used in operating
  activities during the comparable period of fiscal year 2002. Net income for
  the first quarter of fiscal year 2003 was approximately $1,785,000 compared
  to a net income of approximately $1,691,000 for the comparable period of fiscal
  year 2002. This increase in net income is primarily due to the growth in revenues
  during the first quarter of fiscal year 2003 when compared to the first quarter
  of fiscal year 2002.

Cash provided by accounts receivable
  during the first three months of fiscal year 2003 was approximately $5,861,000,
  whereas during the comparable period of fiscal year 2002 accounts receivable
  activities used cash of approximately $2,248,000. The primary factor in the
  comparison of accounts receivable activities is that increased revenues during
  the fourth quarter of fiscal year 2002 when compared to fiscal year 2001 led
  to a significant increase in cash received during the first quarter of fiscal
  year 2003 when compared to the same period in fiscal year 2002.

Although we have experienced an
  increase in the efficiency of collecting our billed receivables, we are currently
  pursuing a problematic receivable item. We expect to collect this item in fiscal
  year 2003 and have not recorded any reserve for doubtful accounts at this time.
  However, in the event we do not collect this receivable, our fiscal year 2003
  revenue and operating income could be reduced by approximately $800,000.

Cash used to support inventory,
  prepaid expenses, and other assets was approximately $2,083,000 and $3,737,000
  during the first quarters of fiscal years 2003 and 2002, respectively. The decrease
  in cash used during the first quarter of fiscal year 2003 is predominantly due
  to a lower inventoried rate variance than in the first quarter of fiscal year
  2002.

Accounts payable, taxes payable,
  and accrued liabilities activities used cash of approximately $853,000 during
  the first three months of fiscal year 2003 and provided cash of approximately
  $819,000 during the same period in fiscal year 2002. The increased use of cash
  related to these activities during the first quarter of fiscal year 2003 when
  compared to the first quarter of fiscal year 2002 is driven primarily by two
  factors. First, accounts payable disbursements in the first quarter of fiscal
  year 2003 were larger than in the same period of fiscal year 2002 due to increased
  contract activities. Second, the first quarter of fiscal year 2002 included
  an increase to our accrued employee bonus liability, which is a non-cash transaction
  during the period. The first quarter of fiscal year 2003 did not include any
  accrued employee bonus amounts.

Net cash from investing activities.
  Cash used in investing activities during the first three months of fiscal years
  2003 and 2002 were approximately $8,816,000 and $108,000, respectively. The
  difference in cash used between the first quarters of fiscal years 2003 and
  2002 is essentially driven by our purchases of available-for-sale securities
  of approximately $7,817,000 in the first three months of fiscal year 2003. There
  were no such purchases during the first three months of fiscal year 2002. Additions
  to property and equipment were approximately $999,000 and $108,000 during the
  first three months of fiscal years 2003 and 2002, respectively. Fiscal year
  2003 activities included computer equipment purchases of approximately $855,000.

Net cash from financing activities.
  Financing activities provided cash of approximately $890,000 during the first
  quarter of fiscal year 2003 and approximately $680,000 during the same period
  in fiscal year 2002. The source of cash provided by financing activities in
  both periods was the issuance of common stock under our employee stock purchase
  plan and stock option plans.

Cash is generated primarily from
  operating activities, employee stock activities, and investing activities. Our
  investment portfolio includes a variety of low-risk investments. We believe
  the primary risk to liquidity is the potential decrease in demand for our products
  and services. Historically, this demand has been influenced by the needs of
  the United States intelligence community.

We believe that the funds generated
  from operations, existing working capital, and the amount available under our
  existing line of credit will be sufficient to meet our 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

Our future performance is subject
  to a variety of risks. If any of the following risks actually occurs, our business
  could be harmed and the trading price of our common stock could decline. In
  addition to the following disclosures, please refer to the other information
  contained in this report, including consolidated financial statements and the
  related notes.

Any reduction in government
  spending on signal reconnaissance could materially adversely impact our revenues,
  results of operations, and financial condition.Historically, defense
  and intelligence agencies of the United States Government have accounted for
  almost all of our revenues. There are risks associated with programs that are
  subject to appropriation by Congress, which could be potential targets for reductions
  of their funding to pay for other programs. 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 our products and services, which would have
  a material adverse effect on our 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 our major customers. We believe 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, our relationships with other Government agencies are not
  as strong as they are with the agencies with which we have historically dealt.
  A reduction in spending by the agencies with which we have historically dealt
  may not be offset by spending by other United States Government agencies. Even
  if other agencies increase spending for signal reconnaissance, we may not secure
  the same amount of work from such other agencies. As a result, demand for our
  products and services could decline, resulting in a decrease in revenues, and
  could materially adversely affect our operating results and financial condition.

If we are unable to comply
  with complex government regulations governing security and contracting practices,
  we could be disqualified as a supplier to the United States Government.As
  a supplier to United States Government defense and intelligence agencies, we
  must comply with numerous regulations, including regulations governing security
  and contracting practices. Failure to comply with these procurement regulations
  and practices could result in fines being imposed against us, or our suspension
  for a period of time from eligibility for bidding on, or for award of, new government
  contracts. If we are disqualified as a supplier to government agencies, we will
  lose most, if not all, of our customers, revenues from sales of our products
  would decline significantly, and our ability to continue operations would be
  seriously jeopardized. The government may investigate and make inquiries of
  our business practices and conduct audits of contract performance and cost accounting.
  Depending on the results of these audits and investigations, the government
  may make claims against us.

We depend on
  revenues from a few significant contracts, and any loss, cancellation, reduction,
  or delay in these contracts could harm our business.
  From time to time, including recent periods, we have derived a
  material portion of our revenue from one or more individual contracts that could
  be terminated by the customer at the customers discretion. For example,
  a single contract and its follow-on effort accounted for 19% and 6% of revenues
  for the first three months of fiscal years 2003 and 2002, respectively. We expect
  that in future periods we may again enter into individual contracts with significant
  revenue concentrations. If such contracts were terminated, revenues and net
  income would significantly decline. Our success will depend on our continued
  ability to develop and manage relationships with significant customers. Although
  we are attempting to expand our customer base, we expect that our customer concentration
  will not change significantly in the near future. The markets in which we sell
  our products are dominated by a relatively small number of governmental agencies
  and allies of the United States Government, thereby limiting the number of potential
  customers. Our dependence on large orders from a relatively small number of
  customers makes our relationship with each customer critical to our business.
  We cannot be sure that we will be able to retain our largest customers, that
  we will be able to attract additional customers, or that our customers will
  continue to buy our products in the same amounts as in prior years. The loss
  of one or more of our largest customers, any reduction or delay in sales to
  these customers, our inability to successfully develop relationships with additional
  customers, or future price concessions that we may have to make could significantly
  harm our business.

Continued competition
  in our markets may lead to a reduction in our revenues and market share.
  The signal reconnaissance
  market is highly competitive and we expect that competition will increase in
  the future. Our current competitors include L-3 Communications Corporation,
  Boeing-North America, Raytheon Corporation, General Dynamics Corporation, Harris
  Corporation, Lockheed Martin Corporation, and Northrop Grumman, Inc., and have
  significantly greater technical, manufacturing, financial, and marketing resources
  than we do. We expect that more companies will enter the market for SIGINT.
  We may not be able to compete successfully against either current or future
  competitors. Increased competition could result in reduced revenue, lower margins,
  or loss of market share, any of which could significantly harm our business.
  Our competitors may introduce improved products with lower prices, and we will
  have to do the same to remain competitive.

If we are unable to recruit,
  train, and retain key personnel, our ability to develop, introduce, and sell
  our products may be adversely impacted. Our ability to execute our business
  plan is contingent upon successfully attracting and retaining qualified employees.
  In California, it has not been as difficult to recruit new staff capable of
  obtaining the necessary security clearances in fiscal years 2003 and 2002 as
  in prior years. If we fail to attract and retain qualified employees who can
  obtain the necessary security clearances, our business could be significantly
  harmed. We maintain offices in Herndon, Virginia; Annapolis Junction, Maryland;
  Salt Lake City, Utah; and Hillsboro, Oregon, providing us the ability to attract
  and retain qualified personnel in areas outside of California. Management believes
  that it continues to be difficult to attract and hire qualified candidates who
  hold the necessary security clearances in the Annapolis Junction, Maryland office
  due to current labor market conditions. The loss of the services of any of our
  qualified employees, the inability to attract or retain qualified personnel
  in the future, or delays in hiring required personnel could negatively impact
  our ability to develop, introduce, and sell our products. In addition, employees
  may leave us and subsequently compete against us.

Unexpected increases in the
  cost to develop or manufacture our products under fixed-price contracts may
  cause us to experience unreimbursed cost overruns. A significant portion
  of our 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 us. We have
  experienced cost overruns in the past that have resulted in losses on certain
  contracts, and may experience additional cost overruns in the future. Such cost
  overruns would increase our operating expenses, reduce our net income and earnings
  per share, and have a materially adverse effect on our future results of operations
  and financial condition.

Unexpected contract terminations
  could negatively impact our operating results and financial condition.Almost
  all of our contracts contain termination clauses that permit contract termination
  upon our default or for the convenience of the other contracting party. In either
  case, termination could adversely affect our operating results and financial
  condition. For example, in fiscal year 2001, we received unanticipated contract
  closeout notifications on three significant engineering contracts for the convenience
  of the other contracting party. These closeouts contributed, in part, to our
  need to reduce our cost structure during fiscal year 2001. There were no such
  notifications during the first quarter of fiscal year 2003 or fiscal year 2002.
  There can be no assurance that such terminations will not occur in the future.

Our future revenues
  are inherently unpredictable, our operating results are likely to fluctuate
  from period to period, and if we fail to meet the expectations of securities
  analysts or investors, our stock price could decline significantly.Our
  quarterly and annual operating results have fluctuated in the past and are likely
  to fluctuate significantly in the future due to a variety of factors, some of
  which are outside our control. Accordingly, we believe that period-to-period
  comparisons of our results of operations are not meaningful and should not be
  relied upon as indications of future performance. Some of the factors that could
  cause our quarterly or annual operating results to fluctuate include conditions
  inherent in government contracting and our business such as the timing of cost
  and expense recognition for contracts, the United States Government contracting
  and budget cycles, and contract closeouts. Because we base our operating expenses
  on anticipated revenue trends and a high percentage of our expenses are fixed
  in the short term, any delay in generating or recognizing forecasted revenues
  could significantly harm our business. 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 revenues to fall below the expectations
  of securities analysts and investors. In this event, the trading price of our
  common stock would significantly decline. In addition, there can be no assurance
  that an active trading market will be sustained for our 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 our common
  stock.

Our market is subject
  to rapid technological change, and to compete effectively, we must continually
  introduce new products or enhancements that achieve market acceptance.The
  market for our products is characterized by rapidly changing technology, frequent
  new product introductions, changes in customer requirements, and evolving industry
  standards. We believe that we have been successful to date in identifying certain
  signal reconnaissance needs early, investing in research and development to
  meet these needs, and delivering products before our competitors. We believe
  that our 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. However, we expect that new technologies will continue
  to emerge. Our future performance will depend on the successful development,
  introduction, and market acceptance of new and enhanced products that address
  these changes as well as current and potential customer requirements. The introduction
  of new and enhanced products may cause our customers to defer or cancel orders
  for existing products. There can be no assurance that we 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 our products or technologies
  noncompetitive or obsolete.

We also may not be able to develop
  the underlying core technologies necessary to create new products and enhancements
  or to license these technologies from third parties. Product development delays
  may result from numerous factors, including:

- Changing product specifications
    and customer requirements
- Difficulties in hiring and retaining
    necessary technical personnel
- Difficulties in reallocating
    engineering resources and overcoming resource limitations
- Difficulties with contract manufacturers
- Changing market or competitive
    product requirements
- Unanticipated engineering complexities

The development of new, technologically
      advanced products is a complex and uncertain process requiring high levels
      of innovation and highly skilled engineering and development personnel,
      as well as the accurate anticipation of technological and market trends.
      We cannot ensure that we will be able to identify, develop, manufacture,
      market, or support new or enhanced products successfully, if at all, or
      on a timely basis. Further, we cannot ensure that our new products will
      gain market acceptance or that we will be able to respond effectively to
      product announcements by competitors, technological changes, or emerging
      industry standards. Any failure to respond to technological change would
      significantly harm our business.

We may lose sales
  if our suppliers fail to meet our needs.Although we procure most of
  our parts and components from multiple sources or believe 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 we believe
  that substitute components or assemblies could be obtained, use of substitutes
  would require development of new suppliers or would require us to re-engineer
  our products, or both, which could delay shipment of our products and could
  have a material adverse effect on our operating results and financial condition.

Our headquarters and most
  of our manufacturing operations are located in California where natural disasters
  may occur, resulting in disruption to our business. Our corporate headquarters,
  including most of our research and development operations and production facilities,
  are located in the Silicon Valley area of Northern California, a region known
  for being vulnerable to natural disasters and other risks, such as earthquakes,
  fires, and floods, which at times have disrupted the local economy and posed
  physical risks to our property. A significant earthquake could materially affect
  operating results. We are not insured for most losses and business interruptions
  of this kind, and do not presently have redundant, multiple site capacity in
  the event of a natural disaster. In the event of such disaster, our business
  would suffer.

Delays in the receipt of engineering
  contracts could negatively impact our business. During our history,
  we have experienced delays in the receipt of certain engineering development
  contracts. While we work closely with our customers to try and capture what
  we believe to be sole-source orders, delays in the receipt of such orders could
  result in revenues falling short of estimates. In addition, gross margins and
  net income will decrease if we elect to hold our cost structure in place while
  awaiting the award of delayed contracts.

Our failure to
  protect our intellectual property may significantly harm our business.Our success and ability to compete is dependent
  in part on our proprietary technology. We rely on a combination of patent, copyright,
  trademark, and trade secret laws, as well as confidentiality agreements to establish
  and protect our proprietary rights. We license certain of our proprietary technology
  to customers, and we rely largely on provisions of our licensing agreements
  to protect our intellectual property rights in this technology. To date, we
  have relied primarily on proprietary processes and know-how to protect our intellectual
  property. Although we have filed applications for several patents, two of which
  we currently hold, we cannot ensure that any patents will be issued as a result
  of pending patent applications or that our issued patents will be upheld. Any
  infringement of our proprietary rights could result in significant litigation
  costs, and any failure to adequately protect our proprietary rights could result
  in our competitors offering similar products, potentially resulting in loss
  of a competitive advantage and decreased revenues. Despite our efforts to protect
  our proprietary rights, existing patent, copyright, trademark, and trade secret
  laws afford only limited protection. In addition, the laws of some foreign countries
  do not protect our proprietary rights to the same extent as do the laws of the
  United States. Attempts may be made to copy or reverse engineer aspects of our
  products or to obtain and use information that we regard as proprietary. Accordingly,
  we may not be able to prevent misappropriation of our technology or deter others
  from developing similar technology. Furthermore, policing the unauthorized use
  of our products is difficult. Litigation may be necessary in the future to enforce
  our intellectual property rights or to determine the validity and scope of the
  proprietary rights of others. This litigation could result in substantial costs
  and diversion of resources and could significantly harm our business.

Claims that we infringe third-party
  intellectual property rights could result in significant expenses or restrictions
  on our ability to sell our products.It is possible that from time to
  time, other parties may assert patent, copyright, trademark, and other intellectual
  property rights to technologies and in various jurisdictions that are important
  to our business. Any claims asserting that our products infringe or may infringe
  proprietary rights of third parties, if determined adverse to us, could significantly
  harm our business. Any claims, with or without merit, could result in costly
  litigation, divert the efforts of our technical and management personnel, cause
  product shipment delays, or require us to enter into royalty or licensing agreements,
  any of which could significantly harm our business. Royalty or licensing agreements,
  if required, may not be available on terms acceptable to us, if at all. In addition,
  our agreements with our customers typically require us to indemnify our customers
  from any expense or liability resulting from claimed infringement of third party
  intellectual property rights. In the event a claim against us was successful
  and we could not obtain a license to the relevant technology on acceptable terms,
  license a substitute technology, or redesign our products to avoid infringement,
  our business would be significantly harmed.

---



Item 3: Quantitative and Qualitative Disclosures About Market Risk

Interest
  rate risk.Our interest income is sensitive to changes in the general level of U.S. interest
  rates, particularly since the majority of our investments are in short-term
  instruments. The average days to maturity of our investment portfolio is 333
  days. Due to the short-term nature of these cash investments, we do not believe
  that there is a material interest rate risk. As of January 31, 2003, our total
  cash and investments balance that was sensitive to interest rate risk was approximately
  $30,731,000. The sensitivity of our portfolio is: if yields were to fluctuate
  by 100 basis points, the total effect to the investment portfolio balance would
  be approximately $262,000.

The following table summarizes our
  cash, cash equivalents, and short-term securities, at fair value, that are sensitive
  to interest rate risk (in thousands):



|                                                     | January 31, 2003                      |  | October 31, 2002                     
|---------------------------------------------------- | ------------------------------------- |  | -------------------------------------
|Cash and cash equivalents                            | $10,174                               |  | $12,217                              
|Short-term, available-for-sale
          securities: |                                       |  |                                      
|Asset-backed
          securities                    | 2,535                                 |  | 1,528                                
|Corporate
          securities                       | 5,341                                 |  | 4,020                                
|Government
          securities                      | 10,201                                |  | 7,162                                
|Money
          market securities                    | 2,480
          
          ________   |  | 
          
          ________      
|                                                     | $30,731
          
          ======== |  | $24,927
          
          ========





---



Item 4: Controls and Procedures

Evaluation
  of disclosure controls and procedures.Under the supervision and with the participation of our management, including
  our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation
  of our disclosure controls and procedures, as such term is defined under Rule
  13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended
  (the "Exchange Act"), within 90 days prior to the filing date of this
  report (the "Evaluation Date"). Based on this evaluation, our Chief
  Executive Officer and Chief Financial Officer concluded that, as of the Evaluation
  Date, to their knowledge and belief, our disclosure controls and procedures
  were effective.

Changes in internal controls.
  Since the Evaluation Date referred to above, there have not been any significant
  changes in internal controls or, to the Chief Executive Officer and Chief Financial
  Officers knowledge, in other factors that could significantly affect such
  controls.

---



Part II.	Other Information

Item 1:	Legal Proceedings

We are subject to litigation, from
  time to time, in the ordinary course of business including, but not limited
  to, allegations of wrongful termination or discrimination or governmental agency
  investigations. Although the amount of any liability with respect to such litigation
  cannot currently be determined, we are not party to any pending legal proceedings,
  which, in the opinion of management, are material to our business or financial
  condition. As a government contractor, we may also be subject to investigations
  by the United States Government for alleged violations of procurement or other
  federal laws. Under present government procurement regulations, if judged in
  violation of procurement or other federal civil laws, we could be suspended
  or barred from eligibility for awards of new government contracts.

Item 2: Changes in Securities and Use of Proceeds

None.

Item 3: Defaults Upon Senior Securities

None.

Item 4: Submission of Matter to a Vote of Security Holders

None.

Item 5: Other Information

None.

Item 6:	Exhibits and Reports on Form 8-K

Exhibits  See Index to Exhibits

Reports on Form 8-KWe did not file any
  reports on Form 8-K during the three months ended January 31, 2003.

---



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 thereunto duly authorized.

Applied Signal Technology, Inc.

|/James E. Doyle/                                                                                       |  | March 14, 2003
|------------------------------------------------------------------------------------------------------ |  | --------------
|James E. Doyle
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |  |               



---



Certifications

I, Gary Yancey, Chief Executive Officer of the registrant, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Applied Signal Technology, Inc.;

2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.	Based on my knowledge, the financial statements and other financial information included in this quarterly report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.	The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)	evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

(c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.	The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):

(a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and

(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and

6.	The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect the internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



|/s/ Gary L. Yancey                      |  |               
|--------------------------------------- |  | --------------
|Gary L. Yancey, Chief Executive Officer |  | March 14, 2003



---



I, James Doyle, Chief Financial Officer of the registrant, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Applied Signal Technology, Inc.;

2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.	Based on my knowledge, the financial statements and other financial information included in this quarterly report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.	The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)	evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

(c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.	The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):

(a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and

(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and

6.	The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect the internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



|/s/ James E. Doyle                      |  |               
|--------------------------------------- |  | --------------
|James E. Doyle, Chief Financial Officer |  | March 14, 2003



---





Applied Signal Technology, Inc.
Index to Exhibits



|3.1                                                                                                                                                                                | Second Amended and
        Restated Articles of Incorporation                                                                                                    
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2                                                                                                                                                                                | Amended and Restated
        Bylaws                                                                                                                              
|4.1                                                                                                                                                                                | Specimen Common Stock
        Certificate                                                                                                                        
|10.20                                                                                                                                                                               | Amendment to the
        2001 Stock Option Plan                                                                                                                  
|10.21                                                                                                                                                                               | Line of Credit Agreement
        dated January 27, 2003 with Wells Fargo Bank                                                                                    
|10.22                                                                                                                                                                               | Security Agreement
        dated January 27, 2003 with Wells Fargo Bank                                                                                          
|99.1                                                                                                                                                                                | Certification of
        Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted
        Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|99.2                                                                                                                                                                                | Certification of
        Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted
        Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|Incorporated
      by reference to corresponding Exhibit filed as an Exhibit to Registrant's
      Registration Statement on Form S-1 filed January 28, 1993 (File No. 33-581168).



---



Applied Signal Technology, Inc.
Exhibit 99.1

Certification of Chief Executive Officer Pursuant to18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

I, Gary L. Yancey, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Applied Signal Technology, Inc.;

2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and

3.	Based on my knowledge, the financial statements and other financial information included in this quarterly report fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this quarterly report.



|Date: March 14, 2003 |  | /s/ Gary L. Yancey                                 
|-------------------- |  | ---------------------------------------------------
|                     |  | Gary L. YanceyPresident and Chief Executive Officer



***********************************************

Applied Signal Technology, Inc.
Exhibit 99.2

Certification of Chief Executive Officer Pursuant to18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

I, James E. Doyle, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Applied Signal Technology, Inc.;

2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and

3.	Based on my knowledge, the financial statements and other financial information included in this quarterly report fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this quarterly report.



|Date: March 14, 2003 |  | /s/ James E. Doyle                                      
|-------------------- |  | --------------------------------------------------------
|                     |  | James E. DoyleVice President and Chief Financial Officer