Applied Signal Technology, Inc.
Announces First Quarter Operating Results

Sunnyvale, CA. February 26, 2007 - Applied Signal Technology, Inc. (NASDAQ - APSG) announced its operating results for the first quarter of fiscal year 2007 ended February 2, 2007.

New orders received during the first quarter of fiscal year 2007 were $39,149,000, up 19% when compared to fiscal year 2006 first quarter new orders of $33,006,000.

Revenues for the first quarter of fiscal year 2007 were $43,544,000, compared with revenues of $33,553,000 recorded during the first quarter of fiscal year 2006 representing a 30% increase. The increase in revenues is due to our ability to recognize approximately $4.5 million of pre-contract costs incurred during the fourth quarter of fiscal 2006 and to increased revenue generation of approximately $4 million from our engineering development programs and approximately $1.5 million from the sale of our products. Pre-contract costs represent costs incurred in anticipation of specific expected future contract awards and costs incurred in connection with ongoing contracts for which contract modifications have not been defined. Pre-contract costs are recorded on the balance sheet as a component of prepaid and other current assets until the contract award or modification is received.

Operating income for the first quarter of fiscal year 2007 was $3,140,000, compared with operating income of $2,526,000 recorded during the first quarter of fiscal year 2006. The increase in operating income is primarily due to increased revenue generation.

Net income for the first quarter of fiscal year 2007 was $1,863,000, or $0.15 per diluted share, compared with net income of $1,312,000, or $0.11 per diluted share, recorded during the first quarter of fiscal year 2006. The increase in net income is due to increased revenue generation and to a reduction in our estimated effective tax rate. Our effective tax rate for fiscal year 2007 is estimated to be 44.0%, compared to an effective tax rate of 52.9% at the end of fiscal 2006. The anticipated decline in our fiscal 2007 effective tax rate is due to a projected decrease in our fiscal 2007 non-deductible stock-based compensation expense as a percentage of our taxable income; and due to projected increases in our tax-exempt interest related to certain short-term and long-term investments.

Regarding the first quarter operating results, Mr. Gary Yancey, President and Chief Executive Officer of the Company, commented, “I am pleased with our order flow in the first quarter. For the past few years, our first quarter bookings have been a bit more erratic with respect to total year’s bookings than had been our historical experience. I believe part of this is because we have more opportunities on larger and longer-term projects which are not so tightly coupled to the U.S. Government fiscal year.”

“Along with the good first quarter rate of orders, we also have high proposal activity going into the second quarter. Many of these proposals are for competitive procurements so there is a probability associated with an award; however it is healthy for the Company that we are getting these opportunities.”

Mr. Yancey concluded with, “As we have continually said since fiscal 2002, the U.S. Government’s demand for Intelligence, Surveillance and Reconnaissance (ISR) continues to be strong. Our experience has shown that we can grow the Company during an era of strong demand for ISR solutions.”

The Company will host a conference call on February 26, 2007 to discuss first 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 February 26, 2007 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 from those expected. Statements as to the Company’s future orders for additional equipment; high proposal activity leading to potential order opportunities; and the U.S. Government’s demand for Intelligence, Surveillance and Reconnaissance (ISR) 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, 2006. 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 February 2, 2007 and January 27, 2006
(in thousands, except per share data)

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