Sunnyvale, CA. August 22, 2006 – Applied Signal Technology, Inc. (NASDAQ – APSG) announced its operating results for the third quarter of fiscal year 2006 ended July 28, 2006.

New orders received during the third quarter of fiscal year 2006 were $30,204,000 representing a 33% increase when compared to new orders received during the third quarter of fiscal year 2005 of $22,672,000. New orders for the first nine months of fiscal year 2006 were $87,442,000 representing a 59% increase when compared to new orders of $55,082,000 for the same period of fiscal year 2005.

Revenues for the third quarter of fiscal year 2006 were $39,450,000 compared with revenues of $36,283,000 for the third quarter of fiscal year 2005. Revenues for the first nine months of fiscal year 2006 were $116,528,000 representing an 18% increase when compared to revenues of $98,446,000 for the first nine months of fiscal year 2005.

Operating income for the third quarter and first nine months of fiscal year 2006 was $1,777,000 and $7,043,000, respectively, compared with operating income of $2,752,000 and $9,751,000 for the third quarter and first nine months of fiscal year 2005, respectively. Third quarter fiscal 2006 operating income was reduced by $1 million compared to $750,000 recorded during the third quarter of fiscal 2005 to reserve for the estimated amount of indirect costs that will not be recovered through contract activities during the remainder of fiscal year 2006. Net income for the third quarter and first nine months of fiscal year 2006 was $924,000 or $0.08 per diluted share and $3,759,000 or $0.31 per diluted share, respectively, compared to net income for the third quarter and first nine months of fiscal year 2005 of $1,784,000 or $0.15 per diluted share and $6,138,000 or $0.52 per diluted share, respectively. Both operating and net income decreased due to stock-based compensation expense incurred as a result of our adoption of Statement of Financial Accounting Standard (SFAS) No. 123R, “Share-Based Payment”. The stock based compensation expense and reduction to operating income for the third quarter and first nine months of fiscal year 2006 due to the adoption of SFAS 123R was approximately $947,000 and $3,213,000, respectively. Our effective tax rate for fiscal year 2006 is estimated to be 48.0% compared to our fiscal year 2005 effective tax rate of 40.3%. Our estimated effective tax rate increased as a result of non-deductible stock-based compensation charges incurred due to the adoption of SFAS 123R.

Mr. Gary Yancey, President and Chief Executive Officer commented, “We are performing quite well on all of our programs and this is reflected in our business fundamentals. Our marketplace comprises a relatively small community and program performance is known throughout this community. Therefore it is important that we have good performance. I believe the continued growth we are experiencing is largely a result of good program performance.”

“An illustration of the positive view of the Company by our customers is the presentation to us of an award by a major government office recognizing our contributions to the United States Intelligence Community. I believe that the current state of world affairs will create continued demand for more and better solutions for intelligence, surveillance and reconnaissance. I believe that as long as we continue to have good performance while developing these solutions we can continue to grow and remain healthy. Management’s main focus is on program performance.”

Mr. Yancey concluded his remarks, “In addition, we have undertaken a strategic initiative to provide more opportunity to capture larger and longer term programs. This includes an organizational re-alignment to better position ourselves as a prominent second tier supplier for such larger programs.”

Attached to this news release are unaudited condensed statements of operations and balance sheets for the third quarter and nine months ended July 28, 2006.

The Company will host a conference call on August 22, 2006 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 August 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 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 continued growth and the U.S. Government’s demand for our equipment as well as performance on current and future programs 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 performed well and 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 July 28, 2006 and July 29, 2005
(in thousands except per share data)

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