Sunnyvale, CA. July 25, 2001 – Applied Signal Technology, Inc. (NASDAQ - APSG) announced that it has been awarded a contract for the U.S. Army’s Division Tactical Unmanned Aerial Vehicle Signals Intelligence Program Component Advanced Development (DTSP-CAD) program. The DTSP-CAD program was a competitive procurement. Nine companies submitted proposals, 3 of which were selected by the Army for contract award. The initial contract, worth $3.5 million, provides for the development and ground demonstration of a Signals Intelligence (SIGINT) system capable of electronically mapping the battlefield signal environment which is eventually intended to be used on the Division Tactical UAV, the Shadow 200. The contract also contains a $2M option for flight testing the SIGINT system on a Hunter UAV, should the Army choose to do so after successful completion of the basic contract ground demonstration. Applied Signal Technology’s primary team member is TRW Electromagnetic Systems Laboratory of Sunnyvale CA, who is providing some important capabilities required for the program. The two other members of the team are L3 Communications—Communications Systems West of Salt Lake City UT, providing the data link communications equipment, and Motorola Integrated Information Systems Group of Scottsdale AZ, providing ground systems data interface and distribution consulting. Gary Yancey, President and CEO of Applied Signal Technology, said regarding this program, “This is an extremely important strategic win for us. We competed against 8 industry leaders and won this procurement. Our selection validates the viability of our open architecture commercial off the shelf (COTS) based low cost SIGINT architecture and our unique and advanced signal processing capabilities. This win places us in the prime contractor systems integrator role, which is one of our company’s expansion goals. Also, our outstanding team brings a wealth of SIGINT experience and is very synergistic. Finally, performance on this contract strongly positions us for the next phase of the program, System Development and Demonstration, where the Army will purchase 14 to 17 DTSP systems plus support.” 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.