Sunnyvale, CA. May 22, 2006 — Applied Signal Technology, Inc. (NASDAQ – APSG) announced its operating results for the second quarter of fiscal year 2006 ended April 28, 2006.

New orders received during the second quarter of fiscal year 2006 were $24,332,000 compared to new orders received during the second quarter of fiscal year 2005 of $21,284,000. New orders for the first six months of fiscal year 2006 were $57,238,000, representing a 77% increase when compared to new orders of $32,410,000 for the same period of fiscal year 2005. The significant increase is due to new orders received during the first quarter of fiscal year 2006 for certain airborne signal intelligence requirements.

Revenues for the second quarter of fiscal year 2006 were $43,525,000 representing a 36% increase when compared with revenues of $32,053,000 for the second quarter of fiscal year 2005. Revenues for the first six months of fiscal year 2006 were $77,078,000 representing a 24% increase when compared to revenues of $62,163,000 for the first six months of fiscal year 2005.

Operating income for the second quarter and first six months of fiscal year 2006 was $2,740,000 and $5,266,000, respectively, compared with operating income of $3,727,000 and $6,999,000 for the second quarter and first six months of fiscal year 2005, respectively. Net income for the second quarter and first six months of fiscal year 2006 was $1,523,000 or $0.13 per diluted share and $2,835,000 or $0.24 per diluted share, respectively, compared to net income for the second quarter and first six months of fiscal year 2005 of $2,327,000 or $0.20 per diluted share and $4,354,000 or $0.37 per diluted share, respectively. The decrease in both operating and net income is due to the impact of Statement of Financial Accounting Standard (SFAS) No. 123R, “Share-Based Payment.” The stock based compensation expense and reduction to operating income for the second quarter and first six months of fiscal year 2006 due to the adoption of SFAS 123R was approximately $1,125,000 and $2,266,000, respectively. Our effective tax rate for fiscal year 2006 is estimated to be 47.0% compared to our fiscal year 2005 effective tax rate of 40.3%. This increase in the estimated effective tax rate is due to the effect of SFAS 123R.

Regarding the operating results, Mr. Gary Yancey, President and Chief Executive Officer commented, “This is the time in our fiscal year that we start getting more visibility into order flow for the remainder of the year. The budget allocations are just now being made at the levels in the government where orders are executed. New orders were up year-over-year and yet, a large part of this increase was due to slippage of anticipated fiscal 2005 fourth quarter orders into the first quarter of fiscal 2006. However, we are seeing a lot of indication that our order projections for the entire fiscal year 2006 will probably be met. Depending on how some budget supplementals happen, there could be some upside to our new order projections.”

Mr. Yancey concluded his remarks, “As I have been saying for the past two fiscal years, we are observing a continued demand for solutions to provide better intelligence, surveillance and reconnaissance. As long as demand by the U.S. Government continues, I feel confident we can have a healthy, growing company.”

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

The Company will host a conference call on May 22, 2006 to discuss second 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 May 22, 2006 at 5:00 p.m. eastern time/2:00 p.m. pacific time. There is no pass code required. This call may be listened to simultaneously over the Internet through World Investor Links’ Vcall Website, located 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. Statements as to the Company’s future orders and the U.S. Government’s demand for our equipment are forward-looking statements. The risks and uncertainties associated with these statements include whether orders will be issued by procurers, including the U. S. Government; the timing of any orders placed by procurers; whether we will be successful in obtaining contracts for these orders if they are forthcoming; whether any contracts obtained by us will be profitable and whether any such contracts might be terminated prior to completion; whether we will be able to hire qualified staff as needed; and other risks detailed from time to time in our SEC reports including our latest Form 10-K filed for the fiscal year ended October 31, 2005. The Company assumes no obligation to update the information provided in this news release.

Applied Signal Technology, Inc.
Condensed Statements of Income
for the Periods Ending April 28, 2006 and April 29, 2005
(in thousands except per share data)

Applied Signal Technology, Inc.
Condensed Balance Sheets
(in thousands)