Applied Signal Technology, Inc. Announces Third Quarter Operating Results

Sunnyvale, CA. August 28, 2007 – Applied Signal Technology, Inc. (NASDAQ - APSG) announced its operating results for the third quarter of fiscal year 2007 ended August 3, 2007.

New orders received during the third quarter of fiscal year 2007 were $74,081,000 representing a 145% increase when compared to new orders received during the third quarter of fiscal year 2006 of $30,204,000. New orders for the first nine months of fiscal year 2007 were $150,861,000 representing a 73% increase when compared to new orders of $87,442,000 for the same period of fiscal year 2006.

Revenues for the third quarter of fiscal year 2007 were $39,542,000 compared with revenues of $39,450,000 for the third quarter of fiscal year 2006. Revenues for the first nine months of fiscal year 2007 were $124,140,000 representing a 7% increase when compared to revenues of $116,528,000 for the first nine months of fiscal year 2006.

Operating income for the third quarter and first nine months of fiscal year 2007 was $1,623,000 and $7,239,000, respectively, compared with operating income of $1,777,000 and $7,043,000 for the third quarter and first nine months of fiscal year 2006, respectively. Third quarter fiscal 2007 operating income was reduced by $1 million to reserve for the estimated amount of indirect costs that will not be recovered through contract activities during the remainder of fiscal year 2007. A $1 million reduction to operating income was also taken for the same reason during the third quarter of fiscal 2006. Net income for the third quarter and first nine months of fiscal year 2007 was $977,000 or $0.08 per diluted share and $4,420,000 or $0.36 per diluted share, respectively, compared to net income for the third quarter and first nine months of fiscal year 2006 of $924,000 or $0.08 per diluted share and $3,759,000 or $0.31 per diluted share, respectively. Our effective tax rate for fiscal year 2007 is estimated to be 44.9%, compared to an effective tax rate at the end of fiscal 2006 of 52.9%. 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; as well as to projected increases in our tax-exempt interest related to certain short-term and long-term investments.

Mr. Gary Yancey, President and Chief Executive Officer commented, “We are obviously pleased with the order activity in the third quarter. We anticipated the majority of these orders as sole source contracts although some occurred later than we had originally planned. This resulted in our reserving $1 million for indirect costs that will not be recovered. We also had some competitive contract awards with some U.S. Government organizations that are new customers for us.”

Mr. Yancey concluded his remarks, “The book-to-bill ratio of greater than one positions us well for continued growth. We are still observing strong demand for intelligence, surveillance and reconnaissance solutions in support of global security and we are recognized as a major supplier of these solutions to the U.S. Government.”

Attached to this news release are unaudited condensed statements of operations and balance sheets for the third quarter and nine months ended August 3, 2007.

The Company will host a conference call on August 28, 2007 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 28, 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.InvestorCalendar.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 anticipated tax rate, recoverability of indirect costs, our continued growth and positions as a major supplier to the U.S. Government as well as the anticipated strong demand for intelligence, surveillance and reconnaissance solutions in support of global security 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, 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 Ended August 3, 2007, and July 28, 2006
(in thousands except per share data)