Applied Signal Technology, Inc.
Awarded Contract Option to Develop Enhanced Neutron Interrogation System
for Vehicle-borne Explosives

SUNNYVALE, California, September 16, 2008 – Applied Signal Technology, Inc. (NASDAQ: APSG) (AST), a provider of explosives detection products and systems, announced today it has been awarded a contract option by the U.S. Government to provide an enhanced system for the detection and identification of vehicle-borne improvised explosive devices (VBIEDs) based on its neu-VISION™ neutron interrogation technology. This contract brings the customer's total investment in this technology to nearly $3 million over the past three years.

The contract option is part of a continued effort to improve the screening sensitivity and efficiency for vehicle-borne explosives and follows a successful field demonstration performed in August 2007. In this next phase, AST will use lessons learned from the field demonstration to improve the detection accuracy and throughput capability, even in high-clutter environments.

"This contract option demonstrates the capabilities and potential of our advanced neutron interrogation technology," said William Van Vleet, President and CEO. "We have made tremendous progress in validating the value and versatility of our neu-VISION™ product line for counterterrorism applications such as vehicle and cargo inspection. neu-VISION™ will provide the U.S. Government with an effective explosives screening capability that will enhance current security protocols. We are pleased that the government recognizes the unique capabilities of our neu-VISION™ technology. It also provides a strategic growth opportunity for AST in the U.S. and abroad, and is also directly applicable to airport security."

Unlike conventional X-ray systems, neu-VISION™ can "see through" heavy materials to accurately locate and identify the presence of hidden contraband, including explosives, by their unique material-specific signatures. The system also includes powerful software algorithms which issue alerts to the operator when threats are detected. This minimizes the need for operator interpretation, thus reducing the percentage of human error.

AST has invested five years of research and development in the neu-VISION™ technology to offer a complete explosives detection product line serving the military and civilian security markets. The neu-VISION™ family includes products optimized for the requirements of vehicle-borne improvised explosive devices and aviation security. For more information on our neu-VISION™ product line, visit www.appsig.com/products/neuvision.htm.

About Applied Signal Technology, Inc.

Applied Signal Technology, Inc. provides advanced intelligence, surveillance, and reconnaissance (ISR) products, systems, and services to enhance global security. For further information about Applied Signal Technology, visit our website at www.appsig.com.