Applied Signal Technology, Inc. Acquires Pyxis Engineering

SUNNYVALE, California, September 1, 2009 – Applied Signal Technology, Inc. (AST) (NASDAQ: APSG), a market leader in advanced intelligence, surveillance, and reconnaissance (ISR) solutions, today announced that it has completed the acquisition of Pyxis Engineering, a privately-held company that specializes in systems engineering, software engineering, application architecture, cloud computing, advanced data operations, enterprise IT infrastructure services, and project management services for the U.S. Department of Defense and Intelligence Community. Pyxis is headquartered in Eldersburg, Maryland.

Applied Signal has agreed to acquire Pyxis Engineering for $16,250,000 in cash, funded from current investments, with a stock-based earn-out potential of $3,750,000. For the fiscal year ended December 31, 2008, Pyxis recognized revenues of approximately $11.7 million. For the period January 1, 2009 through May 31, 2009, Pyxis recognized revenues of approximately $6.3 million. The unaudited trailing twelve months revenues ended July 31, 2009 are estimated at approximately $14 million. The acquisition is anticipated to be accretive in its first twelve months of operation.

The Pyxis acquisition complements and reinforces AST’s existing software and network services business, its deep understanding of the global telecommunications network, and its exceptional customer relationships in the defense and intelligence communities. The acquisition allows AST to quickly expand its software and network services business and create an effective, new integrated delivery structure in the Company’s new Network Intelligence business.

Importantly, this acquisition creates a combined workforce of approximately 800 employees and gives AST an immediate and significant presence in the fast-growing cyber intelligence market. Pyxis offers an array of specialized engineering solutions that address this value-added niche. Their core cyber competencies include analytic modernization, human language technology applications, complex event processing, and enterprise high-volume middleware support.

William B. Van Vleet, Chief Executive Officer of AST commented, “We are very pleased to welcome Pyxis Engineering to the Applied Signal Technology family. Since their inception in 2006, they have quickly developed an excellent reputation and a sizable business. Pyxis’ deep understanding of the DoD and Intelligence services markets, software engineering domain expertise, analytical tools, and talented employees add significant momentum to our current initiatives in the cyber intelligence market. We believe that both the short-term and long-term opportunities in this space are excellent. This transaction complements our existing signals intelligence capabilities and is consistent with our goal of investing in businesses that demonstrate the potential for strong and sustained growth.”

Eric Bennett, Founder and Chief Executive Officer of Pyxis said, “We are extremely pleased to join Applied Signal Technology. Our collective capabilities will allow us to provide the full spectrum of engineering solutions to our customers and gives us the increased scale needed to obtain a greater share of the expanding cyber market.”

About Pyxis Engineering LLC

Pyxis Engineering provides specialized software engineering, application architecture, systems engineering, advanced data operations, enterprise IT infrastructure services, and project management services for the U.S. Department of Defense and Intelligence Community. For further information about Pyxis, visit our website at www.pyxisengineering.com.

About Applied Signal Technology, Inc.

Applied Signal Technology, Inc. is a leading provider of advanced intelligence, surveillance and reconnaissance (ISR) products, systems, and services that enhance 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 accretive nature of the acquisition, the future expansion of the Company’s software and network services business, future opportunities in the fast growing cyber intelligence market, the excellent short and long-term opportunities in the cyber intelligence market and the ability to obtain a greater share in the expanding cyber market, as well as the ability of Pyxis to demonstrate strong and sustained growth, are all forward-looking statements. The risks and uncertainties associated with these statements include our ability to capture organic growth opportunities, our ability to execute the acquisition of Pyxis and realize the expected benefits of the acquisition, our ability to obtain future orders from procurers, including the U.S. Government and the timing of any such orders placed by procurers; our ability to perform orders well and profitably; and our ability 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, 2008. The Company assumes no obligation to update the information provided in this news release.