APPLIED SIGNAL TECHNOLOGY, INC.
ANNOUNCES THIRD QUARTER OPERATING RESULTS

Sunnyvale, CA. September 1, 2005 – Applied Signal Technology, Inc. (NASDAQ - APSG) announced its operating results for the third quarter of fiscal year 2005 ended July 29, 2005.

Operating Results
Revenues for the third quarter of fiscal year 2005 were $36,283,000 compared with revenues of $38,275,000 for the third quarter of fiscal year 2004. Revenues for the first nine months of fiscal year 2005 were $98,446,000 compared to revenues of $103,380,000 for the first nine months of fiscal year 2004. Revenues declined for the third quarter and the first nine months of fiscal year 2005 compared to the same periods in fiscal year 2004 due to fewer product sales.

Operating income for the third quarter of fiscal year 2005 was $2,752,000 compared with operating income of $5,602,000 for the third quarter of fiscal year 2004. Operating income for the first nine months of fiscal year 2005 was $9,751,000 compared with operating income of $13,490,000 for the first nine months of fiscal year 2004. The decrease in operating income is due primarily to a decline in program profitability during the third quarter and first nine months of fiscal 2005 compared to the same period of fiscal 2004.

Net income for the third quarter of fiscal year 2005 was $1,784,000 or $0.15 per diluted share compared to net income for the third quarter of fiscal year 2004 of $3,459,000 or $0.29 per diluted share. Net income for the first nine months of fiscal year 2005 was $6,138,000 or $0.52 per diluted share compared to net income of $9,552,000 or $0.83 per diluted share for the first nine months of fiscal year 2004. The decline in net income during the first nine months of fiscal 2005 when compared to the same period of fiscal 2004 is due, in part, to a decline in program profitability, and in part, to a significantly higher tax rate in fiscal year 2005. Our effective tax rate through the first nine months of fiscal year 2005 is 41% compared to 31% for the same period of fiscal year 2004.

New orders received during the third quarter of fiscal year 2005 were $22,672,000 compared to new orders received during the third quarter of fiscal year 2004 of $35,417,000. We believe the decline in new orders is due to the typical fluctuations experienced in the U.S. Government procurement process. Order levels for the first nine months of fiscal year 2005 were $55,082,000 compared to order levels of $128,602,000 for the same period of fiscal year 2004. The level of new orders for the first nine months of fiscal year 2004 were significantly higher than the same period in fiscal year 2005 primarily as a result of a major modification resulting in an increase to our largest contract of approximately $48,524,000 received during the first quarter of fiscal year 2004.

Mr. Gary Yancey, President and Chief Executive Officer of Applied Signal Technology, Inc. commented, "We have been concentrating on the highly successful integration of our new Sensor Signal Processing Group. This group was formed as a result of the acquisition of Dynamics Technology, Inc. on July 1, 2005 and has a core competency in signal processing of phenomenological sensors. This processing provides solutions for intelligence, surveillance and reconnaissance that augment our Signal Intelligence solutions such that we are now a more complete provider of solutions in support of global security. The new APSG is now a much more valued resource to the U.S. Government in the war against terrorism."

Mr. Yancey concluded his remarks, "I am very encouraged that we received a new contract award of approximately $5 million in our Sensor Signal Processing Group. This contract is with a U.S. Government organization that is new to APSG and is one that will likely invest to take the technology into fielded solutions. We are also increasing our research and development investments in some of the other areas of phenomenological processing that we believe have marketplace opportunities. I believe these investments will result in returns that can be very supportive of our growth in the future."

Attached to this news release are unaudited condensed statements of operations and balance sheets.

The Company will host a conference call on Thursday, September 1, 2005 to discuss third quarter results. If you wish to participate in the conference call, please dial 1-877-407-8035 for domestic callers or 1-201-689-8035 for international callers on September 1, 2005 at 5:00 p.m. Eastern (2:00 p.m. Pacific). There is no pass code required. This call is being web cast by Vcall and can be accessed at Applied Signal Technology, Inc.'s website at www.appsig.com. Investors can also access the web cast at www.vcall.com. A rebroadcast of the call will be available upon its completion and will remain available for a limited time.

Applied Signal Technology, Inc. provides advanced digital signal processing products, systems and services in support of intelligence, surveillance, and reconnaissance for global security. For further information about Applied Signal Technology's products and services visit our website 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 that could cause actual results to differ materially. Forward-looking statements discussed in this release include statements as to our expected benefits of the acquisition, including the expansion of products and services offered by the combined company; the ability to cause solutions to become fielded solutions; benefits that may be obtained from a strategy of diversification of our core business and generate expected revenues from new defense electronics business areas; continued strong demand from our U.S. Government customers and the future spending by the U.S. Government on intelligence gathering; and the Company's ability to hire qualified personnel and such personnel's ability to obtain security clearances. The risks and uncertainties associated with these statements include the risks that the acquisition will be successful and achieve the expected benefits; the success of our strategic plan, including our plans to diversify; whether orders will be issued by procurers, including the U. S. Government; the timing of any orders placed by procurers; whether the Company will be successful in obtaining contracts for these orders if they are forthcoming; whether any contracts obtained by the Company will be profitable and whether any such contracts might be terminated prior to completion; the possibility that product sales could be declining; whether the Company will be able to hire additional qualified staff as needed; the ability to successfully enter new marketplaces; and other risks detailed from time to time in the Company's SEC reports including its latest Form 10-K filed for the fiscal year ended October 31, 2004. The Company assumes no obligation to update the information provided in this news release