Transcendent Technologies, Inc. to be Reintegrated Into
Applied Signal Technology, Inc.

Sunnyvale, CA. September 5, 2001 – Applied Signal Technology, Inc. (NASDAQ - APSG) announced today that its wholly owned subsidiary, Transcendent Technologies, Inc. would be reintegrated into the parent corporation. The reintegration will achieve cost savings with respect to the pursuit of the commercial satellite marketplace. Transcendent Technologies builds products for bandwidth management and efficient bandwidth utilization.

Applied Signal Technology, Inc. continues to support efforts to further penetrate this marketplace and plans to continue to pursue the opportunities generated by Transcendent. The immediate focus will be to market and manufacture the Model 2010 Satellite Carrier Monitoring System and to complete the prototype development of the Doubletalk™ bandwidth enhancement product. The reintegration will reduce duplicative general and administrative costs incurred by Transcendent. In addition, this reintegration provides greater operational flexibility in the development and manufacture of Transcendent’s products through the use of existing Applied Signal Technology, Inc. resources.

Regarding the reintegration, Mr. Gary Yancey, President and Chief Executive Officer of Applied Signal Technology, Inc., commented, “We incorporated Transcendent as a subsidiary in April 2000 for two primary reasons.

First, we felt that the wireless data market was emerging and that we had some core technologies that would allow us to penetrate the marketplace. I felt that the subsidiary would focus the efforts and investments much more effectively than if we were to pursue it within Applied Signal Technology.

Secondly, this was a time when technical talent was at a premium and pre-IPO companies were creating major staff retention and attraction problems for established corporations such as Applied Signal Technology. I felt the concept of a pre-IPO subsidiary had a much better chance of key staff retention and attraction.”

Mr. Yancey went on to say, “I believe we accomplished the two goals of focused efforts and maintaining a core of key staff.

The subsidiary has matured the Model 2010 Satellite Carrier Monitoring System and attendant network management subsystem. They have successfully completed the first contract with PanAmSat to develop and install an 11-node Carrier Monitoring System based upon the Model 2010. They are currently ahead of schedule on the second PanAm Sat contract to expand the system to 30 nodes. There are opportunities for contracts with other satellite service providers to develop carrier monitoring systems and some proposals have been submitted for evaluation.

Transcendent also developed a lower cost carrier monitoring product called Monarch™. This product expands the carrier monitoring marketplace to include the customers of satellite service providers. We feel that at a lower price than the Model 2010, the Monarch product will be attractive to teleport operators and the larger telecom firms to monitor their own signals

Lastly, and most significantly, Transcendent developed the Doubletalk™ bandwidth enhancement product. The Doubletalk™ product utilizes technology previously developed by Applied Signal Technology to allow a full duplex communications link to share the same bandwidth over the satellite. Since bandwidth is at a premium we feel the Doubletalk™ product will be widely accepted by wireless data service providers. The prototype of this product will undergo live testing and demonstration in latter September at the facilities of a major satellite service provider.”

Mr. Yancey also stated, “We feel at this time, there is momentum in market penetration and we have a motivated staff of key contributors. To reduce the overall infrastructure costs to Applied Signal Technology, we decided to reintegrate Transcendent into the parent company. Transcendent Technologies will retain the name and will report as a business unit to our Executive Vice-President and General Manger of our Technical Operations Group.

Senior management is committed to growing this marketplace in a sufficiently aggressive manner that it will become a notable part of our revenues. We will continue to invest a portion of our R&D in Doubletalk™ and derivative products to grow this business area.”

Applied Signal Technology designs, develops, manufactures, and markets advanced digital signal processing equipment to process a wide range of telecommunications signals for commercial and government applications. For additional Company-related information, visit the Company’s web site located at www.appsig.com.

Except for historical information contained herein, matters discussed in this news release may contain forward-looking statements that involve risks and uncertainties. Statements as to beliefs concerning potential contract options, the Company’s ability to successfully complete the initial contract to position it to win future phases, whether or not the U.S. Government decides to procure subsequent phases, potential synergistic effects from working with other companies, and beliefs concerning contractual opportunities for further orders are forward-looking statements. These risks and uncertainties include whether these potential orders will be issued by the U. S. Government; whether the Company will be successful in obtaining contracts for these orders if they are forthcoming and when such orders may be forthcoming and awarded; whether the Company can successfully complete the initial contract and any options, if awarded; and other risks detailed from time to time in the Company¹s SEC reports including its latest Form 10-K filed for the fiscal year ended October 31, 2000.