UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-Q

(Mark One)

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2006

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from _____________________ to ________________________

                          Commission file number 0-6620

                                  ANAREN, INC.
             (Exact name of registrant as specified in its Charter)

         New York                                        16-0928561
         --------                                        ----------
(State of incorporation)                     (I.R.S Employer Identification No.)

  6635 Kirkville Road                                       13057
East Syracuse, New York                                     -----
-----------------------                                   (Zip Code)
 (Address of principal
   executive offices)

Registrant's telephone number, including area code: 315-432-8909

________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)

      Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

      Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act.

Check One:

 Large accelerated filer |_|  Accelerated filer |X|  Non-accelerated filer  |_|

      Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|

      The number of shares of Registrant's Common Stock outstanding on May 5,
2006 was 17,189,657.


                                       1
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                                      INDEX

PART I - FINANCIAL INFORMATION                                          Page No.
------------------------------                                          --------

  Item 1.  Financial Statements

           Consolidated Condensed Balance Sheets as of                     3
           March 31, 2006 and June 30, 2005 (unaudited)

           Consolidated Condensed Statement of Earnings                    4
           for the Three Months Ended March 31, 2006
           and 2005 (unaudited)

           Consolidated Condensed Statements of Earnings                   5
           for the Nine Months Ended March 31,
           2006 and 2005 (unaudited)

           Consolidated Condensed Statements of Cash Flows                 6
           for the Nine Months Ended March 31,
           2006 and 2005 (unaudited)

           Notes to Consolidated Condensed Financial                       7
           Statements (unaudited)

  Item 2.  Management's Discussion and Analysis                            17
           of Financial Condition and Results of Operations

  Item 3.  Quantitative and Qualitative Disclosures About Market Risk      29

  Item 4.  Controls & Procedures                                           30

PART II - OTHER INFORMATION
---------------------------

  Item 1A. Risk Factors                                                    30

  Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds     30

  Item 4.  Submission of Matters to a Vote of Security Holders             31

  Item 6.  Exhibits                                                        31

  Officer Certifications                                                 33 - 36


                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                          ANAREN, INC. AND SUBSIDIARIES
                      Consolidated Condensed Balance Sheets
                        March 31, 2006 and June 30, 2005
                                   (Unaudited)

<TABLE>
<CAPTION>
                   Assets                                                                   March 31, 2006            June 30, 2005
                   ------                                                                   --------------            -------------
<S>                                                                                         <C>                       <C>
Current assets:
    Cash and cash equivalents                                                               $   7,762,295             $   5,900,841
    Securities available for sale (note 3)                                                     35,094,112                16,200,000
    Securities held to maturity (note 3)                                                       32,608,063                36,307,880
    Receivables, less allowance of $113,189
      at March 31, 2006 and $213,099 at June 30, 2005                                          15,611,714                14,780,146
    Inventories (note 4)                                                                       22,127,577                19,403,348
    Other receivables                                                                             958,174                 1,144,680
    Deferred income taxes                                                                         664,792                   686,411
    Prepaid expenses                                                                              554,329                   662,247
    Other current assets                                                                          675,292                   423,000
                                                                                            -------------             -------------
                Total current assets                                                          116,056,348                95,508,553

Securities available for sale (note 3)                                                                 --                 3,500,000
Securities held to maturity (note 3)                                                            5,502,468                20,100,547
Property, plant and equipment, net (note 5)                                                    25,689,775                24,983,653
Goodwill                                                                                       30,715,861                30,715,861
Other intangible assets, net of accumulated amortization
    of $2,601,378 at March 31, 2006
    and $2,351,725 at June 30, 2005 (note 1)                                                      423,588                   673,241
                                                                                            -------------             -------------
                Total assets                                                                $ 178,388,040             $ 175,481,855
                                                                                            =============             =============

      Liabilities and Stockholders' Equity
      ------------------------------------
Current liabilities:
    Accounts payable                                                                        $   5,167,651             $   6,077,313
    Accrued expenses (note 6)                                                                   2,475,492                 2,331,885
    Income taxes payable                                                                        1,458,796                 1,501,088
    Customer deposits                                                                             483,722                        --
    Other current liabilities (note 8)                                                            447,847                 1,044,759
                                                                                            -------------             -------------
                Total current liabilities                                                      10,033,508                10,955,045
Deferred income taxes                                                                           1,853,090                 1,627,304
Pension and postretirement benefit obligation                                                   3,954,179                 3,253,188
Other liabilities (note 8)                                                                        692,973                   567,755
                                                                                            -------------             -------------
                Total liabilities                                                              16,533,750                16,403,292
                                                                                            -------------             -------------

Stockholders' equity:
    Common stock of $.01 par value.  Authorized
       200,000,000 shares; issued 26,275,968 shares
       at March 31, 2006 and 26,070,764 at June 30, 2005                                          262,760                   260,708
    Additional paid-in capital                                                                173,529,734               171,333,975
    Unearned compensation                                                                        (197,679)                 (248,578)
    Retained earnings                                                                          67,175,144                58,659,807
    Accumulated other comprehensive income (loss)                                               1,067,622                  (747,539)
                                                                                            -------------             -------------
                                                                                              241,837,581               229,258,373
    Less cost of 9,249,643 and 8,553,058 treasury shares
      at March 31, 2006 and June 30, 2005, respectively                                        79,983,291                70,179,810
                                                                                            -------------             -------------
                Total stockholders' equity                                                    161,854,290               159,078,563
                                                                                            -------------             -------------
Total liabilities and stockholders' equity                                                  $ 178,388,040             $ 175,481,855
                                                                                            =============             =============
</TABLE>

See accompanying notes to consolidated condensed financial statements.


                                       3
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES
                  Consolidated Condensed Statements of Earnings
                               Three Months Ended
                             March 31, 2006 and 2005
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                           March 31, 2006             March 31, 2005
                                                                                           --------------             --------------
<S>                                                                                         <C>                        <C>
Net sales                                                                                   $ 26,701,083               $ 21,783,418

Cost of sales                                                                                 16,458,102                 14,630,770
                                                                                            ------------               ------------
        Gross profit                                                                          10,242,981                  7,152,648
                                                                                            ------------               ------------

Operating expenses:
        Marketing                                                                              1,806,587                  1,513,274
        Research and development                                                               2,187,966                  1,635,048
        General and administrative                                                             2,756,279                  2,256,819
                                                                                            ------------               ------------
              Total operating expenses                                                         6,750,832                  5,405,141
                                                                                            ------------               ------------

Operating income                                                                               3,492,149                  1,747,507

Other income, primarily interest                                                                 620,172                    558,166
Interest expense                                                                                  (6,143)                    (6,143)
                                                                                            ------------               ------------
              Total other income                                                            $    614,029               $    552,023
                                                                                            ------------               ------------

Income before income taxes                                                                     4,106,178                  2,299,530

Income tax expense                                                                               892,000                    439,000
                                                                                            ------------               ------------

Net income from continuing operations                                                       $  3,214,178               $  1,860,530
                                                                                            ------------               ------------

Discontinued operations:
  Income from discontinued operations
    of Anaren Europe (note 12)                                                                   817,177                         --
                                                                                            ------------               ------------
Net income                                                                                  $  4,031,355               $  1,860,530
                                                                                            ============               ============

Basic earnings per share:
  Income from continuing operations                                                                $0.19                      $0.10
  Income from discontinued operations                                                               0.05                         --
                                                                                                   -----                      -----
    Net income                                                                                     $0.24                      $0.10
                                                                                                   =====                      =====

Diluted earnings per share:
  Income from continuing operations                                                                $0.18                      $0.09
  Income from discontinued operations                                                               0.05                         --
                                                                                                   -----                      -----
    Net income                                                                                     $0.23                      $0.09
                                                                                                   =====                      =====

Shares used in computing net earnings per share:
        Basic                                                                                 16,946,993                 19,336,007
                                                                                            ============               ============
        Diluted                                                                               17,547,333                 19,801,542
                                                                                            ============               ============
</TABLE>

See accompanying notes to consolidated condensed financial statements.


                                       4
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES
                  Consolidated Condensed Statements of Earnings
                                Nine Months Ended
                             March 31, 2006 and 2005
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                           March 31, 2006             March 31, 2005
                                                                                           --------------             --------------
<S>                                                                                         <C>                        <C>
Net sales                                                                                   $ 76,334,454               $ 70,340,797

Cost of sales                                                                                 48,400,518                 48,536,159
                                                                                            ------------               ------------
        Gross profit                                                                          27,933,936                 21,804,638
                                                                                            ------------               ------------

Operating expenses:
        Marketing                                                                              5,290,326                  5,150,892
        Research and development                                                               6,491,045                  4,667,230
        General and administrative                                                             7,771,713                  6,500,755
        Restructuring (note 7)                                                                        --                    458,335
                                                                                            ------------               ------------
              Total operating expenses                                                        19,553,084                 16,777,212
                                                                                            ------------               ------------

Operating income                                                                               8,380,852                  5,027,426

Other income, primarily interest                                                               1,744,738                  1,090,937
Interest expense                                                                                 (18,429)                   (21,785)
                                                                                            ------------               ------------
              Total other income                                                               1,726,309                  1,069,152
                                                                                            ------------               ------------

Income before income taxes                                                                    10,107,161                  6,096,578

Income tax expense                                                                             2,409,000                  1,274,000
                                                                                            ------------               ------------

Net income from continuing operations                                                       $  7,698,161               $  4,822,578
                                                                                            ============               ============

Discontinued operations:
  Income from discontinued operations
    of Anaren Europe (note 12)                                                                   817,177                         --
                                                                                            ------------               ------------
Net income                                                                                  $  8,515,338               $  4,822,578
                                                                                            ============               ============

Basic earnings per share:
  Income from continuing operations                                                                $0.45                      $0.24
  Income from discontinued operations                                                               0.05                         --
                                                                                            ------------               ------------
    Net income                                                                                     $0.50                      $0.24
                                                                                            ============               ============
Diluted earnings per share:
  Income from continuing operations                                                                $0.43                      $0.24
  Income from discontinued operations                                                               0.05                         --
                                                                                            ------------               ------------
    Net income                                                                                     $0.48                      $0.24
                                                                                            ============               ============
Shares used in computing net earnings per share:
        Basic                                                                                 17,124,494                 19,689,024
                                                                                            ============               ============
        Diluted                                                                               17,623,362                 20,217,742
                                                                                            ============               ============
</TABLE>

See accompanying notes to consolidated condensed financial statements.


                                       5
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES
                 Consolidated Condensed Statements of Cash Flows
                                Nine Months Ended
                             March 31, 2006 and 2005
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                               March 31, 2006         March 31, 2005
                                                                                               --------------         --------------
<S>                                                                                             <C>                    <C>
Cash flows from operating activities:
     Net income                                                                                 $  8,515,338           $  4,822,578
     Net income from discontinued operations                                                         817,177                     --
                                                                                                ------------           ------------
     Net income from continuing operations                                                         7,698,161              4,822,578
     Adjustments to reconcile net income
       to net cash provided by operating activities:
         Depreciation                                                                              3,593,626              3,676,678
         Impairment loss                                                                                  --                272,118
         Amortization of intangibles                                                                 249,653                487,427
         Loss on sale of equipment                                                                    15,875                 67,397
         Loss on sale of securities available for sale                                                    --                342,711
         Deferred income taxes                                                                       247,405                218,337
         Equity based compensation                                                                 2,590,491                 39,077
         Provision for doubtful accounts                                                             (12,613)                84,124
         Tax benefit from exercise of stock options                                                       --                 13,536
         Changes in operating assets and liabilities:
           Receivables                                                                              (818,955)               783,753
           Inventories                                                                            (2,724,229)            (3,111,932)
           Other receivables                                                                         186,506                106,278
           Other current assets                                                                     (186,108)               198,372
           Accounts payable                                                                         (876,135)            (2,308,380)
           Accrued expenses                                                                          143,607               (877,045)
           Income taxes payable                                                                      (42,292)               318,353
           Customer advance payments                                                                 483,722               (407,536)
           Other liabilities                                                                         700,990                163,169
           Postretirement benefit obligation                                                        (284,533)              (264,603)
                                                                                                ------------           ------------
             Net cash provided by operating activities
               from continuing operations                                                         10,965,171              4,624,412
     Net cash used in operating activities
       from discontinued operations                                                                  (97,241)                    --
                                                                                                ------------           ------------
     Net cash provided by operating activities                                                    10,867,930              4,624,412

Cash flows from investing activities:
     Capital expenditures                                                                         (4,316,623)            (8,258,546)
     Proceeds from sale of equity securities                                                           1,000              2,746,130
     Proceeds from sale of equipment                                                                      --                160,000
     Maturities of marketable debt and auction rate securities                                    77,172,784             89,422,942
     Purchase of marketable debt and auction rate securities                                     (74,269,000)           (80,225,097)
                                                                                                ------------           ------------
             Net cash provided by (used in) investing activities                                  (1,411,839)             3,845,429
                                                                                                ------------           ------------
Cash flows from financing activities:
     Stock options exercised                                                                       1,783,491                180,771
     Tax benefit from exercise of stock options                                                      378,318                     --
     Purchase of treasury stock                                                                   (9,803,481)           (20,900,147)
                                                                                                ------------           ------------
             Net cash used in financing activities                                                (7,641,672)           (20,719,376)
                                                                                                ------------           ------------

     Effect of exchange rates                                                                         47,035                 (2,151)
                                                                                                ------------           ------------
             Net increase (decrease) in cash and cash equivalents                                  1,861,454            (12,251,686)
Cash and cash equivalents at beginning of period                                                   5,900,841             23,303,263
                                                                                                ------------           ------------
Cash and cash equivalents at end of period                                                      $  7,762,295           $ 11,051,577
                                                                                                ============           ============
Supplemental Disclosures of Cash Flow Information:
     Cash Paid During the Period For:
       Interest                                                                                 $     12,286           $     21,785
                                                                                                ============           ============
       Income taxes, net of refunds                                                             $  1,802,569           $    742,036
                                                                                                ============           ============
</TABLE>

See accompanying notes to consolidated condensed financial statements.


                                       6
<PAGE>

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

The consolidated condensed financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The consolidated
condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with management's
discussion and analysis of financial condition and results of operations,
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 2005. The results of operations for the nine months ended March 31,
2006 are not necessarily indicative of the results for the entire fiscal year
ending June 30, 2006, or any future interim period.

The income tax rates utilized for interim financial statement purposes for the
nine months ended March 31, 2006 and 2005 are based on estimates of income and
utilization of tax credits for the entire year.

NOTE 1: Intangible Assets

INTANGIBLE ASSETS:

Intangible assets as of March 31, 2006 and June 30, 2005 are as follows:

<TABLE>
<CAPTION>
                                                                   March 31                                  June 30
                                                      ----------------------------------        ----------------------------------
                                                      Gross Carrying        Accumulated         Gross Carrying         Accumulated
                                                          Amount            Amortization            Amount            Amortization
                                                      --------------        ------------        --------------        ------------
<S>                                                     <C>                  <C>                  <C>                  <C>
Patent                                                  $  574,966           $  485,128           $  574,966           $  431,225
Customer Base                                            1,350,000            1,031,250            1,350,000              862,500
Trade Name                                                 320,000              320,000              320,000              320,000
Non-Competition Agreements                                 180,000              165,000              180,000              138,000
Favorable Lease                                            600,000              600,000              600,000              600,000
                                                        ----------           ----------           ----------           ----------
  Total                                                 $3,024,966           $2,601,378           $3,024,966           $2,351,725
                                                        ==========           ==========           ==========           ==========
</TABLE>

Intangible asset amortization expense for nine month period ended March 31, 2006
and 2005 aggregated $249,653 and $487,427, respectively. Amortization expense
related to intangible assets for the next five years is as follows:

Year Ending June 30,
       2006                                                          $332,869
       2007                                                          $302,874
       2008                                                          $ 37,498
       2009                                                          $     --
       2010                                                          $     --

NOTE 2: Equity-Based Compensation

Effective July 1, 2005, the Company adopted the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123R (SFAS 123R)
on a prospective basis. This standard requires the Company to measure the cost
of employee services received in exchange for equity awards based on the grant
date fair value of the awards. The cost is recognized as compensation expense
over the vesting period of the awards.

Total equity based compensation expense included in operating expenses for the
three months and nine months ended March 31, 2006 is $864,647 and $2,590,491,
respectively. These


                                       7
<PAGE>

amounts include $29,634 and $86,901, respectively, related to the Company's
restricted stock program and $835,013 and $2,503,590, respectively related to
the Company's stock option program, for the three and nine month periods.

As a result of the adoption of SFAS 123R, both operating income and income
before taxes for the three months and nine months ended March 31, 2006 were
reduced by $835,013 and $2,503,590, respectively, while net income was reduced
by $777,986, or $0.05 per basic and $0.04 per diluted share, for the same three
month period and $2,332,510, or $0.14 per basic and $0.13 per diluted share,
respectively, for the same nine month period.

Equity based compensation expense included in operating expenses are classified
as follows on March 31, 2006:

                                                Three Months        Nine Months
                                                   Ended              Ended
                                                -----------         -----------
Cost of goods sold                               $  216,115         $  737,631
Marketing                                            67,891            205,357
Research and development                            109,679            237,381
General and administrative                          441,328          1,323,221
                                                 ----------         ----------
                                                 $  835,013         $2,503,590
                                                 ==========         ==========

As of March 31, 2006, there were 2,902,371 stock options outstanding. At March
31, 2006, the aggregate value of unvested options, as determined using a capital
Black- Scholes option valuation model was $6,891,744 (net of estimated
forfeitures). During the nine months ended March 31, 2006, the Company granted
376,000 non-statutory stock options, with a fair value of $3,220,546 (net of
estimated forfeitures), and 53,810 options were forfeited and/or expired. New
option grants made after July 1, 2005, as well as option grants issued prior to
that date have been valued using a Black-Scholes option valuation model.

Prior to adopting SFAS 123R on July 1, 2005, the Company's equity based employee
compensation expense was accounted for under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. For the three months and nine months ended March 31,
2005, no equity option based employee compensation cost is reflected in net
income, as all options granted under the Company's stock option plans had an
exercise price equal to the underlying common stock price on the date of grant.
The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS 123R,
Accounting for Equity-Based Compensation, to equity based employee compensation
for the three months and nine months ended March 31, 2005.


                                       8
<PAGE>

                                          Three months ended   Nine Months Ended
                                            March 31, 2005       March 31, 2005
                                            --------------       --------------

Net income, as reported                        $1,860,530          $4,822,578

Deduct total equity based employee
  compensation expense determined
  under fair value based method
  for all awards, net of related
  tax effects                                   1,862,920           5,588,760
                                               ----------          ----------

Pro forma net loss                             $   (2,390)         $ (766,182)
                                               ==========          ==========

Earnings (loss) per share:
     Basic - as reported                            $0.10              $ 0.24
     Basic - pro forma                              $0.00              $(0.04)

     Diluted - as reported                          $0.09              $ 0.24
     Diluted - pro forma                            $0.00              $(0.04)

Stock Option Plans

In November 2004, the shareholders approved the amendment and restatement of the
Company's three existing stock option plans, which combined these plans under
one single consolidated equity compensation plan, the Anaren, Inc. Comprehensive
Long-Term Incentive Plan. The effect of the amendment and restatement was to
combine the separate share pools available for grant under the three existing
plans into a single grant pool, expand the type of equity-based awards the
Company may grant and extend the term of the combined plan to October 31, 2014.
Under the restated plan, the Company may issue incentive stock options,
non-statutory stock options, stock appreciation rights, restricted stock,
performance shares, and performance units. On March 31, 2006, the Company had
1,325,088 shares available for grant under the restated plan.

Information with respect to these plans are as follows:

                                                                    Weighted
                                      Total                          average
                                      Shares      Option Price    exercise price
                                      ------      ------------    --------------
Outstanding at June 30, 2004        2,796,662    $1.38 to 62.44      $15.53

Issued                                389,600   $12.05 to 13.43      $12.06
Exercised                             (98,460)    $1.38 to 9.51      $ 1.26
Expired                              (220,692)   $8.57 to 62.44      $26.90
Canceled                              (84,330)   $9.51 to 62.44      $11.28
                                    ---------
Outstanding at June 30, 2005        2,782,780   $2.27 to $57.59      $14.73

Issued                                376,000   $11.97 to 15.63      $13.97
Exercised                            (202,599)   $2.27 to 16.35      $ 8.03
Expired                               (30,830)   $9.51 to 53.00      $47.35
Canceled                              (22,980)  $14.73 to 53.00      $14.39
                                    ---------
Outstanding at March 31, 2006       2,902,371   $2.27 to $57.59      $13.14
                                    =========
Shares exercisable at
  March 31, 2006                    1,863,527   $2.27 to $57.59      $15.25
                                    =========


                                       9
<PAGE>

The following table summarizes significant ranges of outstanding and exercisable
options at March 31, 2006:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                      Options outstanding                                      Options exercisable
--------------------------------------------------------------------------------------------------------------------------
Range of exercise               Shares           Weighted average   Weighted average      Shares          Weighted average
     prices                                     remaining life in   exercise price                         exercise price
                                                      years
--------------------------------------------------------------------------------------------------------------------------
<S>                             <C>                    <C>               <C>               <C>                   <C>
$1.00 - $5.00                   138,800                0.64              $2.28             138,800               2.28
--------------------------------------------------------------------------------------------------------------------------
$5.01 - $15.00                2,371,851                5.69             $11.62           1,367,931              11.13
--------------------------------------------------------------------------------------------------------------------------
$15.01 - $40.00                 217,120                4.56             $20.07             182,196              20.30
--------------------------------------------------------------------------------------------------------------------------
$40.01 - $65.00                 174,600                4.57             $54.64             174,600              53.12
--------------------------------------------------------------------------------------------------------------------------
                              2,902,371                                                  1,863,527
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

During the nine months ended March 31, 2006, the per share weighted average fair
value of the non-statutory stock options granted was $8.77. The fair value of
options at the date of the grant was estimated using the Black-Scholes model
with the following assumptions for the respective period ending March 31:

<TABLE>
<CAPTION>
                                                              2006                      2005
                                                              ----                      ----
<S>                                                           <C>                       <C>
Expected option life - key employee plan                      6.5                       5
Expected option life - company-wide plan                      6.5                       3
Weighted average risk-free interest rate                      3.92% - 4.47%             3.22%
Weighted average expected volatility                          54.12% - 69.00%           59.75% - 87.57%
</TABLE>

Restricted Stock Grants

On November 17, 2004, the Company issued a new grant of 23,500 shares of
restricted stock. The per-share price of the grant was $13.60. The shares of
restricted stock vest after a 36-month period.

On September 1, 2005, the Company issued a new grant of 2,605 shares of
restricted stock. The per-share price of the grant was $13.82. The shares of
stock vest after a 36 month period.

As of March 31, 2006 and 2005, the Company has issued restricted shares
aggregating 26,105 and 21,600, respectively, under its 2004 Comprehensive
Long-Term Incentive Plan. During fiscal year 2005, there were 1,900 shares
forfeited and 19,700 shares that matured. The shares of restricted stock vest
after a period of 36 and 48 months. Included in the $2,590,491 and $39,077, of
total equity based compensation expense, for the nine months ended March 31,
2006 and 2005, the Company recognized compensation expense associated with the
lapse of restrictions aggregating $86,901 and $39,077, respectively.


                                       10
<PAGE>

NOTE 3: Securities

The amortized cost and fair value of securities are as follows:

<TABLE>
<CAPTION>
                                                                                         March 31, 2006
                                                                                         --------------
                                                                                       Gross             Gross
                                                                  Amortized         Unrealized         Unrealized
                                                                     Cost              Gains             Losses          Fair Value
                                                                  -----------       -----------       -----------        -----------
<S>                                                               <C>               <C>               <C>                <C>
Securities available for sale:
     Auction rate securities                                      $35,094,112       $        --       $        --        $35,094,112
                                                                  -----------       -----------       -----------        -----------
         Total securities
         available-for-sale                                       $35,094,112       $        --       $        --        $35,094,112
                                                                  ===========       ===========       ===========        ===========
Securities held to maturity:
     Municipal bonds                                              $27,995,320       $        --       $  (171,320)       $27,824,000
     Commercial paper                                               2,728,628                --                --          2,728,628
     Corporate bonds                                                3,637,131                --            (5,565)         3,631,566
     Zero coupon bonds                                                     --                --                --                 --
     Federal agency bonds                                           3,749,452               154           (43,295)         3,706,311
                                                                  -----------       -----------       -----------        -----------
         Total securities held to maturity                        $38,110,531       $       154       $  (220,180)       $37,890,505
                                                                  ===========       ===========       ===========        ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                                           June 30, 2005
                                                                                           -------------
                                                                                       Gross             Gross
                                                                  Amortized         Unrealized         Unrealized
                                                                     Cost              Gains             Losses          Fair Value
                                                                  -----------       -----------       -----------        -----------
<S>                                                               <C>               <C>               <C>                <C>
Securities available for sale:
     Auction rate securities                                      $19,700,000       $        --       $        --        $19,700,000
                                                                  -----------       ---------         ---------          -----------
         Total securities
           Available-for-sale                                     $19,700,000       $        --       $        --        $19,700,000
                                                                  ===========       =========         =========          ===========
Securities held to maturity:
     Municipal bonds                                              $37,746,195       $     1,702       $  (198,447)       $37,549,450
     Commercial paper                                               2,141,851                --                --          2,141,851
     Corporate bonds                                               10,792,879               185           (50,276)        10,742,788
     Zero coupon bonds                                              1,977,785                --           (11,205)         1,966,580
     Federal agency bonds                                           3,749,717                --           (21,627)         3,728,090
                                                                  -----------       ---------         ---------          -----------
         Total securities held to maturity                        $56,408,427       $     1,887       $  (281,555)       $56,128,759
                                                                  ===========       =========         =========          ===========
</TABLE>

Contractual maturities of marketable debt securities held to maturity are
summarized as follows:

<TABLE>
<CAPTION>
                                                                March 31, 2006                               June 30, 2005
                                                                --------------                               -------------
                                                                                Fair                                        Fair
                                                                               Market                                      Market
                                                          Cost                  Value                  Cost                 Value
                                                       -----------           -----------           -----------           -----------
<S>                                                    <C>                   <C>                   <C>                   <C>
Within one year                                        $32,608,063           $32,440,292           $36,307,880           $36,176,998
One year to five years                                   5,502,468             5,450,213            20,100,547            19,951,761
                                                       -----------           -----------           -----------           -----------
     Total                                             $38,110,531           $37,890,505           $56,408,427           $56,128,759
                                                       ===========           ===========           ===========           ===========
</TABLE>

Contractual maturities of auction rate securities available for sale are
summarized as follows:

<TABLE>
<CAPTION>
                                                                March 31, 2006                               June 30, 2005
                                                                --------------                               -------------
                                                                                Fair                                        Fair
                                                                               Market                                      Market
                                                          Cost                  Value                  Cost                 Value
                                                       -----------           -----------           -----------           -----------
<S>                                                    <C>                   <C>                   <C>                   <C>
Within one year                                        $35,094,112           $35,094,112           $16,200,000           $16,200,000
One year to five years                                          --                    --             3,500,000             3,500,000
                                                       -----------           -----------           -----------           -----------
     Total                                             $35,094,112           $35,094,112           $19,700,000           $19,700,000
                                                       ===========           ===========           ===========           ===========
</TABLE>


                                       11
<PAGE>

The Company invests in auction rate securities. Auction rate securities have
long-term underlying maturities; however, the market is highly liquid and the
interest rates reset every 7, 28 or 35 days. In prior years, the Company
classified a portion of its auction rate securities as cash equivalents;
however, such amounts have been reclassified as available-for-sale securities
for all periods presented in this report.

During the nine months ended March 31, 2005, the Company sold securities
available for sale and recognized a loss of $342,711 that is included in other
income in the Company's Statement of Earnings for that period.

NOTE 4: Inventories

Inventories are summarized as follows:

                                             March 31, 2006        June 30, 2005
                                             --------------        -------------

Component parts                               $ 10,086,883         $ 10,369,049
Work in process                                  9,414,449            7,709,465
Finished goods                                   3,957,605            2,766,157
                                              ------------         ------------
                                              $ 23,458,937         $ 20,844,671
Reserve for obsolescence                        (1,331,360)          (1,441,323)
                                              ------------         ------------
Net inventory                                 $ 22,127,577         $ 19,403,348
                                              ============         ============

NOTE 5: Property, Plant and Equipment

Property, plant and equipment are summarized as follows:

                                               March 31, 2006      June 30, 2005
                                               --------------      -------------
Land and land improvements                      $  2,207,823       $  2,207,823
Buildings, furniture and fixtures                 17,061,510         16,654,351
Machinery and equipment                           55,554,347         51,680,883
                                                ------------       ------------
                                                $ 74,823,680       $ 70,543,057
Less accumulated depreciation
 and amortization                                (49,133,905)       (45,559,404)
                                                ------------       ------------
                                                $ 25,689,775       $ 24,983,653
                                                ============       ============

NOTE 6: Accrued Expenses

Accrued expenses consist of the following:

                                               March 31, 2006      June 30, 2005
                                               --------------      -------------
Compensation                                     $1,235,265          $1,222,891
Commissions                                         663,315             620,990
Health insurance                                    506,162             271,561
Restructuring (note 7)                                   --              19,863
Other                                                70,750             196,580
                                                 ----------          ----------
                                                 $2,475,492          $2,331,885
                                                 ==========          ==========


                                       12
<PAGE>

NOTE 7: Restructuring

RF Power Components, Inc.

On October 26, 2004 the Company announced its decision to merge its RF Power
Components, Inc. operations into Anaren Ceramics. In doing so, the Company
closed RF Power's Long Island facility and relocated the operation to the Anaren
Ceramics New Hampshire location. All of RF Power's employees were either
terminated or transferred to the New Hampshire facility. Remaining costs
associated with terminating 79 employees included in the restructuring liability
were paid-in-full in the six months ended December 31, 2005:

                          Balance   Nine months ended March 31, 2006    Balance
                          June 30,      Costs              Cash        March 31,
                            2005      Incurred         Expenditures      2006
                          --------    --------         ------------    ---------
Severance payments        $19,863       $ --              $19,863        $ --
                          -------       ----              -------        ----
                          $19,863       $ --              $19,863        $ --
                          =======       ====              =======        ====

NOTE 8: Other Liabilities

      Other liabilities consist of the following:

                                              March 31, 2006       June 30, 2005
                                              --------------       -------------
Deferred compensation                           $  757,973          $  650,064
Pension liability                                       --             675,000
Other                                              382,847             287,450
                                                ----------          ----------
                                                 1,140,820           1,612,514
Less current portion                               447,847           1,044,759
                                                ----------          ----------
                                                $  692,973          $  567,755
                                                ==========          ==========

NOTE 9: Net Income (Loss) Per Share

Basic income per share is based on the weighted average number of common shares
outstanding. Diluted income per share is based on the weighted average number of
common shares outstanding, as well as dilutive potential common shares which, in
the Company's case, comprise shares issuable under the Company's 2004
comprehensive long-term incentive plan. The weighted average number of common
shares utilized in the calculation of the diluted income per share does not
include antidilutive shares aggregating 382,020 and 2,579,938 at March 31, 2006
and 2005, respectively. The treasury stock method is used to calculate dilutive
shares, which reduces the gross number of dilutive shares by the number of
shares purchasable from the proceeds of the options assumed to be exercised.


                                       13
<PAGE>

The following table sets forth the computation of basic and fully diluted
earnings per share:

<TABLE>
<CAPTION>
                                                                    Three Months Ended                     Nine Months Ended
                                                                    ------------------                     -----------------
                                                                         March 31                               March 31
Numerator:                                                       2006               2005               2006               2005
                                                              -----------        -----------        -----------        -----------
<S>                                                           <C>                <C>                <C>                <C>
Net income from continuing operations                         $ 3,214,178        $ 1,860,530        $ 7,698,161        $ 4,822,578
                                                              ===========        ===========        ===========        ===========
Denominator:

Denominator for basic earnings per share:
    Weighted average shares outstanding                        16,946,993         19,336,007         17,124,494         19,689,024
                                                              ===========        ===========        ===========        ===========
Denominator for diluted earnings
    per share:
    Weighted average shares outstanding                        16,946,993         19,336,007         17,124,494         19,689,024
    Common stock options
       and restricted stock                                       600,340            465,535            498,869            528,718
                                                              -----------        -----------        -----------        -----------
Weighted average shares and conversions                        17,547,333         19,801,542         17,623,362         20,217,742
                                                              ===========        ===========        ===========        ===========
</TABLE>

NOTE 10: Components of Net Periodic Pension Benefit Costs

<TABLE>
<CAPTION>
                                                                    Three Months Ended                     Nine Months Ended
                                                                    ------------------                     -----------------
                                                                         March 31                               March 31
                                                                  2006                2005              2006               2005
                                                                ---------          ---------          ---------          ---------
<S>                                                             <C>                <C>                <C>                <C>
Service cost                                                    $  85,587          $  61,825          $ 256,761          $ 185,475
Interest cost                                                     151,795            141,090            455,385            423,270
Expected return on plan assets                                   (173,365)          (156,687)          (520,095)          (470,060)
Amortization of prior service cost                                   (808)             2,623             (2,424)             7,868
Amortization of the net (gain) loss                                47,436             12,414            142,308             37,242
                                                                ---------          ---------          ---------          ---------
Net periodic benefit cost                                       $ 110,645          $  61,265          $ 331,935          $ 183,795
                                                                =========          =========          =========          =========
</TABLE>

Expected Pension Contributions

Contributions for fiscal 2006 were $486,012.

Estimated Future Pension Benefit Payments

The following estimated benefit payments, which reflect future service, as
appropriate, are expected to be paid:

July 1, 2005 - June 30, 2006 .......................................  $  402,899
July 1, 2006 - June 30, 2007 .......................................     405,260
July 1, 2007 - June 30, 2008 .......................................     472,452
July 1, 2008 - June 30, 2009 .......................................     483,474
July 1, 2009 - June 30, 2010 .......................................     521,588
Years 2010 - 2014 ..................................................   2,981,761


                                       14
<PAGE>

NOTE 11: Components of Net Periodic Postretirement Health Benefit Costs

<TABLE>
<CAPTION>
                                                                      Three Months Ended                      Nine Months Ended
                                                                      ------------------                      -----------------
                                                                            March 31                               March 31
                                                                     2006               2005               2006               2005
                                                                   --------           --------           --------           --------
<S>                                                                <C>                <C>                <C>                <C>
Service cost                                                       $ 14,285           $ 15,286           $ 42,855           $ 45,858
Interest cost                                                        46,327             27,802            138,981             83,406
Amortization of the net (gain) loss                                  18,788              4,617             56,364             13,851
                                                                   --------           --------           --------           --------
Postretirement health benefit costs                                $ 79,400           $ 47,705           $238,200           $143,115
                                                                   ========           ========           ========           ========
</TABLE>

Expected Postretirement Health Contributions

Expected contributions for fiscal 2006 are $175,839, net of $17,501 expected
subsidy receipts.

NOTE 12: Discontinued Operations

During the quarter ended March 31, 2006, final liquidation of the Company's
Anaren Europe operation took place. The results of operations for Anaren Europe
for the prior fiscal years have been classified as discontinued operations in
the Statement of Earnings. Components of the income from discontinued operations
of Anaren Europe for the three months and nine months ended March 31 are as
follows:

<TABLE>
<CAPTION>
                                                                      Three Months Ended                      Nine Months Ended
                                                                      ------------------                      -----------------
                                                                            March 31                               March 31
                                                                     2006               2005               2006               2005
                                                                   --------           --------           --------           --------
<S>                                                                <C>                <C>                <C>                <C>
Income from liquidation of net assets                              $ 81,713           $     --           $ 87,713           $     --
Realization of Currency Translation Gain                            735,464                 --            735,464                 --
                                                                   --------           --------           --------           --------
                                                                   $817,177           $     --           $817,177           $     --
                                                                   ========           ========           ========           ========
</TABLE>

The above realization of currency translation gain was previously included in
comprehensive income. Any tax related effects of such discontinued operations
have been recognized in prior fiscal years.

NOTE 13: Segment Information

The Company operates predominately in the wireless communications, satellite
communications and defense electronics markets. The Company's two reportable
segments are the wireless group and the space and defense group. These segments
have been determined based upon the nature of the products and services offered,
customer base, technology, availability of discrete internal financial
information, homogeneity of products and delivery channel, and are consistent
with the way the Company organizes and evaluates financial information
internally for purposes of making operating decisions and assessing performance.

The wireless segment designs, manufactures and markets commercial products used
mainly by infrastructure original equipment manufacturers in the wireless
communications market. The space and defense segment of the business designs,
manufactures and markets specialized products for original equipment
manufacturers in the defense electronics and satellite communications markets.
The revenue disclosures for the Company's reportable segments depict products
that are similar in nature.


                                       15
<PAGE>

The following table reflects the operating results of the segments consistent
with the Company's internal financial reporting process. The following results
are used in part, by management, both in evaluating the performance of, and in
allocating resources to, each of the segments:

<TABLE>
<CAPTION>
                                                                               Space &           Corporate and
                                                          Wireless             Defense            Unallocated          Consolidated
                                                          --------             -------            -----------          ------------
<S>                                                      <C>                  <C>                          <C>          <C>
Net sales:
Three months ended:
       March 31, 2006                                    16,014,209           10,686,874                   --           26,701,083
       March 31, 2005                                    14,155,895            7,627,523                   --           21,783,418
Nine months ended:
       March 31, 2006                                    47,919,045           28,415,409                   --           76,334,454
       March 31, 2005                                    47,930,254           22,410,543                   --           70,340,797

Operating income:
     Three months ended:
       March 31, 2006                                     1,515,645            1,976,504                   --            3,492,149
       March 31, 2005                                       482,772            1,264,735                   --            1,747,507
     Nine months ended:
       March 31, 2006                                     4,981,962            3,398,890                   --            8,380,852
       March 31, 2005                                       394,803            4,632,623                   --            5,027,426

Goodwill and intangible assets:
     March 31, 2006                                      31,139,449                   --                   --           31,139,449
     June 30, 2005                                       31,389,102                   --                   --           31,389,102

Identifiable assets:*
       March 31, 2006                                    19,933,563           17,443,896          109,871,132          147,248,591
       June 30, 2005                                     21,497,591           12,685,903          109,909,259          144,092,753

Depreciation:**
     Three months ended:
       March 31, 2006                                       644,650              557,899                   --            1,202,549
       March 31, 2005                                       673,888              500,618                   --            1,174,506
     Nine months ended:
       March 31, 2006                                     1,890,272            1,703,354                   --            3,593,626
       March 31, 2005                                     2,223,986            1,452,692                   --            3,676,678

Intangibles amortization: ***
     Three months ended:
       March 31, 2006                                        83,218                   --                   --               83,218
       March 31, 2005                                        83,217                   --                   --               83,217
     Nine months ended:
       March 31, 2006                                       249,653                   --                   --              249,653
       March 31, 2005                                       487,427                   --                   --              487,427
</TABLE>

      *     Segment assets primarily include receivables and inventories. The
            Company does not segregate other assets on a products and services
            basis for internal management reporting and, therefore, such
            information is not presented. Assets included in corporate and
            unallocated principally are cash and cash equivalents, marketable
            securities, other receivables, prepaid expenses, deferred income
            taxes, and property, plant and equipment not specific to business
            acquisitions.


                                       16
<PAGE>

      **    Depreciation expense related to acquisition - specific property,
            plant and equipment is included in the segment classification of the
            acquired business. Depreciation expense related to non- business
            combination assets is allocated departmentally based on an estimate
            of capital equipment employed by each department. Depreciation
            expense is then further allocated within the department as it
            relates to the specific business segment impacted by the consumption
            of the capital resources utilized. Due to the similarity of the
            property, plant and equipment utilized, the Company does not
            specifically identify these assets by individual business segment
            for internal reporting purposes.

      ***   Amortization of identifiable intangible assets arising from business
            combinations and patent amortization is allocated to the segments
            based on the segment classification of the acquired or applicable
            operation.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the consolidated
financial statements and the notes thereto appearing elsewhere in this Form
10-Q. The following discussion, other than historical facts, contains
forward-looking statements that involve a number of risks and uncertainties. The
Company's results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including factors
described elsewhere in this Quarterly Report on Form 10-Q.

Overview

The consolidated financial statements present the financial condition of the
Company as of March 31, 2006 and June 30, 2005, and the consolidated results of
operations and cash flows of the Company for the three and nine months ended
March 31, 2006 and 2005.

The Company designs, develops and markets microwave components and assemblies
for the wireless communications, satellite communications and defense
electronics markets. The Company's distinctive manufacturing and packaging
techniques enable it to cost-effectively produce compact, lightweight microwave
products for use in base stations for wireless communications systems, in
satellites and in defense electronics systems. Beginning in 2004, the Company
has introduced new components addressing consumer wireless applications such as
wireless local area networks, Bluetooth, cellular handsets and satellite
telecommunications. The Company sells its products to leading wireless
communications equipment manufacturers such as Ericsson, Motorola, Nokia, Nortel
Networks, and Andrew, and to satellite communications and defense electronics
companies such as Boeing Satellite, ITT, Lockheed Martin, Northrup Grumman and
Raytheon.

The Company generally recognizes sales at the time products are shipped to
customers, provided that persuasive evidence of an arrangement exists, the sales
price is fixed or easily determinable, collectibility is reasonably assured and
title and risk of loss has passed to the customer. Title and the risks and
rewards of ownership of products are generally transferred at the time of
shipment. Payments received from customers in advance of products delivered are
recorded as customer advance payments until earned. Annually, a small percentage
of sales are derived from fixed-price contracts for the sale of engineering
design and development efforts for space and defense


                                       17
<PAGE>

electronics products. Sales and estimated profits under long-term contracts are
recognized according to customer contractual milestones on a units-of-delivery
basis. Profit estimates are revised periodically based upon changes in sales
value and costs at completion. Any losses on these contracts are recognized in
the period in which such losses are determined.

On August 3, 2004, the Company acquired a 65,000 square foot building situated
on approximately 12 acres in Salem, New Hampshire for a purchase price of $4.8
million. The Company commenced the move of its Amitron, Inc. subsidiary to the
new facility in September 2004 and is operating the business under the name of
Anaren Ceramics, Inc., a wholly owned subsidiary of the Company. The New
Hampshire facility will provide adequate space for anticipated future growth of
that business. In conjunction with the decision to move to this new facility,
the Company negotiated a buy out of the remaining lease of the Amitron facility
for a one-time charge in fiscal 2004 of $350,000 and the Company also
accelerated amortization of the Amitron, Inc. leasehold improvement and lease
related intangibles amounting to $250,000 recognized in the fourth quarter of
fiscal 2004, and $250,000 recognized in the first quarter of fiscal 2005.

In October, 2004 the Company announced that in order to accelerate ceramic
product growth initiatives and improve operating efficiency, it had decided to
consolidate its RF Power, Inc. subsidiary with the Company's Amitron subsidiary
and close RF Power's facility in Bohemia, New York. The consolidated company,
Anaren Ceramics, Inc., operates at the Company's Salem, New Hampshire facility,
which will fully accommodate the current capacity needs of the combined entity
as well as significant future growth. The relocation of RF Power's operation to
the Salem, New Hampshire facility was completed during the second quarter of
fiscal 2005. As a result of this consolidation, the Company recognized costs of
$458,335 for severance and outplacement expenses, $91,000 for lease cancellation
and $300,000 for additional inventory write-downs during the second quarter of
fiscal 2005. Additionally, the Company incurred further consolidation costs
totaling approximately $397,000, including equipment write-downs of $272,000, in
the third quarter of fiscal 2005, related to integrating RF Power's operation
into Anaren Ceramics.

Effective July 1, 2005, the Company adopted Statement of Financial Accounting
Standards No. 123R (SFAS 123R). This standard requires the company to measure
the cost of employee services received in exchange for equity awards based on
the grant date fair value of the awards. These costs are to be recognized as
compensation expense over the vesting period of the awards. SFAS 123R provides
for a prospective application for adoption which the Company chose. Under this
method, the Company began recognizing compensation costs for stock option equity
based compensation for all new or modified grants after June 30, 2005 and for
the unvested portion of the grant date fair value of awards issued prior to
adoption, based on the fair value previously calculated for footnote disclosure
purposes. Equity based compensation cost for employee stock options recognized
in the third quarter and nine months ended March 31, 2006 was $835,000 and
$2,504,000, respectively.

The final liquidation and dissolution of the Company's European corporate
structure was concluded during the quarter ended March 31, 2006. As part of this
liquidation and dissolution, the Company recognized income from discontinued
operations of $817,000 resulting from final asset and liability liquidation and
previously unrecognized currency translation gains.


                                       18
<PAGE>

Fourth Quarter of Fiscal 2006 Outlook

Given the current volatile wireless market demand and our Space and Defense
order backlog, we expect net sales to be in the range of $26.0 - $28.0 million
for the fourth quarter of fiscal 2006. With an anticipated tax rate of
approximately 24% and an expected equity based compensation expense of
approximately $0.04 per diluted share, we expect net earnings per diluted share
to be in the range of $0.14 - $0.17 for the fourth quarter.

Results of Operations

Net sales for the three months ended March 31, 2006 were $26.7 million, up $4.9
million from $21.8 million for the third quarter of fiscal 2005. Net income for
the third quarter of fiscal 2006 was $4.0 million, or 15.1% of net sales, up
$2.1 million, or 117% from net income of $1.9 million in the third quarter of
fiscal 2005.

The following table sets forth the percentage relationships of certain items
from the Company's consolidated condensed statements of earnings as a percentage
of net sales.

<TABLE>
<CAPTION>
                                                   Three Months Ended                 Nine Months Ended
                                            Mar. 31, 2006     Mar. 31, 2005    Mar. 31, 2006     Mar. 31, 2005
                                            -------------     -------------    -------------     -------------
<S>                                             <C>               <C>               <C>              <C>
Net Sales                                       100.0%            100.0%            100.0%           100.0%

Cost of sales                                    61.6%             67.2%             63.4%            69.0%
                                                -----             -----             -----            -----
Gross profit                                     38.4%             32.8%             36.6%            31.0%
                                                -----             -----             -----            -----

Operating expenses:
   Marketing                                      6.8%              6.9%              6.9%             7.3%
   Research and development                       8.2%              7.5%              8.5%             6.6%
   General and administrative                    10.3%             10.4%             10.2%             9.3%
   Restructuring                                  0.0%              0.0%              0.0%             0.7%
                                                -----             -----             -----            -----
     Total operating expenses                    25.3%             24.8%             25.6%            23.9%
                                                -----             -----             -----            -----

Operating income                                 13.1%              8.0%             11.0%             7.1%
                                                -----             -----             -----            -----

Other income (expense):

     Other, primarily interest income             2.3%              2.5%              2.2%             1.6%
     Interest expense                             0.0%              0.0%              0.0%             0.0%
                                                -----             -----             -----            -----
     Total other income (expense), net            2.3%              2.5%              2.2%             1.6%
                                                -----             -----             -----            -----

Income from continuing operations
  before income tax                              15.4%             10.5%             13.2%             8.7%
Income taxes                                      3.4%              2.0%              3.1%             1.8%
                                                -----             -----             -----            -----
Income from continuing operations                12.0%              8.5%             10.1%             6.9%
                                                =====             =====             =====            =====

Discontinued operations:
Income (loss) from discontinued
  operations of Anaren Europe                     3.1%              0.0%              1.1%             0.0%
Income tax benefit                                0.0%              0.0%              0.0%             0.0%
                                                -----             -----             -----            -----
Net income (loss) from discontinued
  operations                                      3.1%              0.0%              1.1%             0.0%
                                                -----             -----             -----            -----

Net income                                       15.1%              8.5%             11.2%             6.9%
                                                =====             =====             =====            =====
</TABLE>


                                       19
<PAGE>

The following table summarizes the Company's net sales by operating segments for
the periods indicated. Amounts are in thousands.

                                 Three Months Ended       Nine Months Ended
                                 ------------------       -----------------
                                      March 31                 March 31
                                      --------                 --------
                                  2006       2005         2006        2005
                                 -------    -------      -------     -------
Wireless                         $16,014    $14,156      $47,919     $47,930
Space and Defense                 10,687      7,628       28,415      22,411
                                 -------    -------      -------     -------
     Total                       $26,701    $21,784      $76,334     $70,341
                                 =======    =======      =======     =======

Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005

Net sales. Net sales rose $4.9 million, or 22.6% to $26.7 million for the third
quarter ended March 31, 2006, compared to $21.8 million for the third quarter of
fiscal 2005. This increase resulted from a $3.1 rise in shipments of Space and
Defense products and a $1.8 million increase in sales of Wireless products in
the current third quarter of fiscal 2006.

The increase in sales of Wireless products, which consist of standard
components, ferrite components and custom assemblies for use in building
Wireless basestation and consumer equipment was a result of increased customer
demand for both custom subassemblies and standard components for basestation
construction during the third quarter of fiscal 2006 compared to same quarter
last year.

Wireless product sales rose $1.8 million or 13.1% in the third quarter of fiscal
2006 compared to the third quarter of fiscal 2005. This increase was due to a
$1.1 million increase in shipments of Wireless custom subassemblies in the
current third quarter driven by a rise in Nokia demand. Wireless sales in the
third quarter of fiscal 2006 were further augmented by a $700,000 improvement in
sales of Wireless standard products as a result of the current high level of
demand for basestation components.

Space and Defense products consist of custom components and assemblies for
communication satellites and defense radar and countermeasure subsystems for the
military. Sales of Space and Defense products rose $3.1 million, or 40%, to
$10.7 million in the third quarter of fiscal 2006 compared to the third quarter
of the previous fiscal year. Defense product sales are increasing due to the
higher level of new business booked by the Company in fiscal 2004 and 2005,
which is now in production. Space and Defense product bookings were $37.7
million in fiscal 2004, $40.9 million in fiscal 2005 and have exceeded $27.0
million in the first nine months of fiscal 2006. Sales of Space and Defense
products in the fourth quarter of fiscal 2006 are expected to range between
$10.0 and $11.0 million, as a result of the rise in new order levels over the
last two fiscal years.

Gross Profit. Cost of sales consists primarily of engineering design costs,
materials, material fabrication costs, assembly costs, direct and indirect
overhead, and test costs. Gross profit for the third quarter of fiscal 2006 was
$10.2 million, (38.4% of net sales), up $3.0 million from $7.2 million (32.8% of
net sales) for the same quarter of the prior year. Gross profit on sales
increased in the third quarter of fiscal 2006 over the third quarter of last
year due to the higher sales volume and favorable manufacturing efficiencies.
These efficiencies resulted from higher production volumes at our lower cost
China facility and from yield improvements and manufacturing overhead cost
savings realized by combining the RF Power and Amitron production facilities in
one building as Anaren Ceramics. Cost of sales included the recognition


                                       20
<PAGE>

of $215,000 of stock option equity based compensation expense, while cost of
sales in the third quarter of last year did not include costs associated with
equity based compensation expense.

Marketing. Marketing expenses consist mainly of employee related expenses,
commissions paid to sales representatives, trade show expenses, advertising
expenses and related travel expenses. Marketing expenses were $1.8 million (6.8%
of net sales) for the third quarter of fiscal 2006, up $293,000 from $1.5
million (6.9% of net sales) for the third quarter of fiscal 2005. Included in
marketing expense for the third quarter of fiscal 2006 is $69,000 of stock
option equity based compensation expense, while marketing expense for the third
quarter of fiscal 2005 does not include such expense. Absent the inclusion of
stock option equity based compensation expense, marketing costs in the third
quarter of fiscal 2006 rose approximately 15% year over year due to increased
commission expenses related to the higher sales volume and additional personnel
costs associated with the current higher levels of marketing activities.

Research and Development. Research and development expenses consist of material
and salaries and related overhead costs of employees engaged in ongoing
research, design and development activities associated with new products and
technology development. Research and development expenses were $2.2 million
(8.2% of net sales) in the third quarter of fiscal 2006, up 33.8% from $1.6
million (7.5% of net sales) for the third quarter of fiscal 2005. Research and
development expenditures are supporting further development of Wireless
infrastructure and consumer component opportunities. Research and Development
expenditures have increased in the third quarter of fiscal 2006 over third
quarter of fiscal 2005 levels due to the higher level of Wireless opportunities
in the marketplace and due to the inclusion of $110,000 for stock option equity
based compensation expense. These opportunities resulted in the hiring of
additional product development personnel in fiscal 2005 and 2006, and additional
outside spending by the Company in the current first nine months to expedite the
new product development process. The Company does not expect to reduce its
current research and development efforts and is presently working on a number of
new standard and custom Wireless products.

General and Administrative. General and administrative expenses consist of
employee related expenses, professional services, intangible amortization,
travel related expenses and other corporate costs. General and administrative
expenses increased 22.1% to $2.8 million (10.3% of net sales) for the third
quarter of fiscal 2006 from $2.3 million (10.4% of net sales) for the third
quarter of fiscal 2005. The increase resulted primarily from the inclusion in
general and administrative expense of $441,000 of stock option equity based
compensation expense in the third quarter of fiscal 2006. General and
Administrative expense for the third quarter of fiscal 2005 does not include
expense for equity based compensation. Absent the inclusion of stock option
equity based compensation expense, general and administrative costs for the
third quarter of fiscal 2006 rose $58,000, or 2.5% over the third quarter of
fiscal 2005 due to the increase in business volume.

Operating Income. Operating income increased $1.7 million, or 100% in the third
quarter of fiscal 2006 to $3.5 million (13.1% of net sales) compared to $1.7
million (8.0% of net sales) for the third quarter of last fiscal year. In the
third quarter of fiscal 2006, operating income was reduced by $835,000 for stock
option equity based compensation expense. Operating income for the third quarter
of fiscal 2005 (the prior year) does not include any expense for stock option
equity based compensation.

On a reporting segment basis, Wireless operating income was $1.5 million for the
third quarter of fiscal 2006 (including $404,000 of stock option equity based
compensation expense) up $1.0 million from Wireless operating income of $483,000
for the third quarter of last year. Wireless


                                       21
<PAGE>

operating income improved significantly in the current third quarter due to
continuing cost savings achieved through the consolidation of the RF Power and
Amitron operations in fiscal 2005, the absence of consolidation and charges
($397,000 in the third quarter of fiscal 2005), cost efficiencies resulting from
higher manufacturing volumes in the Company's China operation and a more
favorable wireless product mix in the current third quarter, compared to the
third quarter of last fiscal year.

Space and Defense operating income rose $700,000 in the third quarter of fiscal
2006 to $2.0 million (including $431,000 of stock option equity based
compensation expense) compared to $1.3 million (with no stock option equity
based compensation expense) in the third quarter of fiscal 2005. This increase
resulted from the large number of new Space and Defense programs entering
production over the second half of last fiscal year and the first half of fiscal
2006, which drove revenues to record levels in the current third quarter. The
higher shipment levels coupled with the passage of these newer programs from
initial to full production has resulted in better manufacturing efficiencies in
the current third quarter. Operating margin in this group are expected to
fluctuate based on sales volume and mature production volumes.

Other Income. Other income is primarily interest income received on invested
cash balances and losses on the sale of stock and capital equipment. Other
income increased 11% to $620,000 (2.3% of net sales) for the third quarter of
fiscal 2006, from $558,000 (2.5% of net sales) for the same quarter last year.
This increase was caused mainly by the rise in market interest rates over the
past twelve months. Other income will fluctuate based on short-term market
interest rates and the level of investable cash balances.

Interest Expense. Interest expense represents interest paid on a deferred
obligation. Interest expense for the third quarter of fiscal 2006 was $6,000
compared to $6,000 for third quarter of fiscal 2005.

Income Taxes. Income taxes for the third quarter of fiscal 2006 were $892,000
(3.4% of net sales), representing an effective tax rate of 21.7%. This compares
to income tax expense of $439,000 (2.0% of net sales) for the third quarter of
fiscal 2005, representing an effective tax rate of 19.1%. The Company's
effective tax rate is a direct result of the proportion of federally exempt
state municipal bond income, foreign tax benefits and federal tax credits and
benefits in relation to the levels of taxable income or loss. The projected
effective tax rate for fiscal 2006 is approximately 24.3% compared to an actual
effective tax rate of 19.0% for fiscal 2005. The increase in the projected
effective tax rate is a result of both the higher level of income and the amount
of nondeductible incentive stock option equity based compensation expense
expected in fiscal 2006 compared to the level of deductible non-statutory stock
option equity based compensation expenses resulting from the adoption of SFAS
123R. Stock options issued prior to the adoption of SFAS 123R, were mainly
incentive stock options and are presently generating the majority of the
company's equity based employee stock option compensation expense. Compensation
expense for these options, under SFAS 123R, does not generate a tax deduction
and related deferred tax benefit. New options granted after the adoption of SFAS
123R are expected to be mainly non-statutory stock options, which will generate
a tax deduction and related deferred tax benefit.

Discontinued Operations. Discontinued operation represents the result of
liquidation and dissolution of the Company's Anaren Europe corporate structure
which ceased operation December 2003. During the third quarter ended March 31,
2006 and in conjunction with the finalization of Anaren Europe bankruptcy
proceeding, the Company performed the final liquidation of its Anaren Europe
corporate structure. As a result of this liquidation, the Company


                                       22
<PAGE>

recognized a gain of $82,000 from the liquidation of the remaining assets and a
gain of $736,000 to recognize accumulated foreign currency translation gains.

Nine Months Ended March 31, 2006 Compared to Nine Months Ended March 31, 2005

Net Sales. Net sales increased $6.0 million, or 8.5%, to $76.3 million for the
first nine months of fiscal 2006 compared to $70.3 million for the first nine
months of fiscal 2005. This rise in sales resulted from a $6.0 million increase
in sales of Space and Defense products in the first nine months of fiscal 2006,
while shipments of Wireless products were flat year over year for same period.

Sales of Wireless products for the first nine months of fiscal 2006 were flat
compared to the same period in fiscal 2005. During the first three quarters of
fiscal 2006 sales of new consumer products rose $1.7 million, or 127%, and
shipments of custom components, which are produced mainly in our China facility,
increased $600,000 or 3.5% compared to the same period in fiscal 2005. These
increases were offset by a $2.3 million decline in combined circulator and
resistive products sales in the current first nine months compared to the same
period last year as a result of a decline in demand for these older products.

Space and Defense products shipments rose $6.0 million, or 27%, to $28.4 million
in the first nine months of fiscal 2006 compared to the first nine months of the
previous fiscal year. Defense product sales are increasing due to the higher
level of new business booked by the Company in fiscal 2004 and 2005, which is
now in production. Space and Defense product bookings were $37.7 million in
fiscal 2004, $40.9 million in fiscal 2005, and have exceeded $26.8 million in
the first nine months of fiscal 2006. Sales of Space and Defense products in
fiscal 2006 are expected to range between $38.0 million and $40.0 million, as a
result of the rise in new order levels over the last two fiscal years.

Gross Profit. Gross profit for the first nine months of fiscal 2006 was $27.9
million, (36.6% of net sales) up $6.1 million from $21.8 million (31.0% of net
sales) for the same period of the prior year. Gross profit on sales increased in
the first nine months of fiscal 2006 over the first nine months of last year due
to favorable manufacturing efficiencies and a more favorable product mix in the
current year. These efficiencies resulted from higher production volumes at our
lower cost China facility and in our Defense group, as well as manufacturing
overhead cost savings realized by combining the RF Power and Amitron production
facilities into one building at Anaren Ceramics. Current year growth in gross
profit was lowered by the recognition of $738,000 of stock option equity based
compensation expense in the first nine months of fiscal 2006.

Marketing. Marketing expenses were $5.3 million, (6.9% of net sales) for the
first nine months of fiscal 2006, up $139,000 from $5.2 million (7.3% of net
sales) for the first nine months of fiscal 2005. Included in marketing expense
for the first nine months of fiscal 2006 is $205,000 of stock option equity
based compensation expense. Marketing expense for the first nine months of
fiscal 2005 does not include expense for stock option equity based compensation.
Absent the inclusion of stock option equity based compensation expense,
marketing costs in the first nine months of fiscal 2006 declined approximately
1.3% year over year due to cost savings realized through the consolidation of
the RF Power and Amitron production facilities during fiscal 2005.

Research and Development. Research and development expenses were $6.5 million
(8.5% of net sales) in the first nine months of fiscal 2006, up 39.1% from $4.7
million (6.6% of net sales) for


                                       23
<PAGE>

the first nine months of fiscal 2005. Research and development expenditures are
supporting further development of Wireless infrastructure and consumer component
opportunities. Research and development expenditures have increased in the first
nine months of fiscal 2006 over the first nine months of fiscal 2005 levels due
to the higher level of Wireless opportunities in the marketplace and due to the
inclusion of $237,000 for stock option equity based compensation expense.

General and Administrative. General and administrative expenses increased 19.6%
to $7.8 million (10.2% of net sales) for the first nine months of fiscal 2006,
from $6.5 million (9.3% of net sales) for the first nine months of fiscal 2005.
The increase resulted primarily from the inclusion in general and administrative
expense of $1.3 million of stock option equity based compensation expense in the
first nine months of fiscal 2006. General and administrative expense for the
first nine months of fiscal 2005 does not include expense for stock option
equity based compensation. Absent the inclusion of stock option equity based
compensation expense, general and administrative costs for the first nine months
of fiscal 2006 were flat compared with the same period in fiscal 2005.

Restructuring. Restructuring cost which consisted of wages, health insurance,
payroll taxes and outplacement costs were $458,000 in the first nine months of
fiscal 2005. These costs were related to the termination of 79 people in
conjunction with the closure of RF Power's facility and the move of that
operation to Salem, New Hampshire in the second quarter of fiscal 2005. There
were no restructuring charges in the first nine months of fiscal 2006.

Operating Income. Operating income increased $3.4 million, or 66.7% in the first
nine months of fiscal 2006 to $8.4 million (11.0% of net sales) compared to $5.0
million (7.1% of net sales) for the first nine months of last fiscal year. In
the first nine months of fiscal 2006, operating income was reduced by $2.5
million for stock option equity based compensation expense. Operating income for
the first nine months of fiscal 2005 (the prior year) does not include any
expense for stock option equity based compensation. Operating income has
improved significantly in fiscal 2006 due to manufacturing efficiencies achieved
through operation consolidations and sales volume increases, the relative flat
levels of marketing and general and administrative expense in fiscal 2006
compared to fiscal 2005 and the absence of one time consolidation and
restructuring charges in the current year compared to fiscal 2005 which included
$1.5 million of one-time charges in the first nine months.

On a reporting segment basis, Wireless operating income was $5.0 million for the
first nine months of fiscal 2006 (including $1.2 million of stock option equity
based compensation expense) up $4.6 million from Wireless operating income of
$395,000 for the first nine months of last year. Wireless operating income
improved significantly in the current first nine months due to cost savings
achieved through the consolidation of the RF Power and Amitron operations in
fiscal 2005, the absence of consolidation charges ($1.5 million in the first
nine months of fiscal 2005), cost efficiencies resulting from higher
manufacturing volumes in the Company's China operation and a more favorable
wireless product mix in the current first nine months, compared to the first
nine months of last fiscal year.

Space and Defense operating income fell $1.2 million in the first nine months of
fiscal 2006 to $3.4 million (including $1.3 million of stock option equity based
compensation expense) compared to $4.6 million in the first nine months of
fiscal 2005. This decrease, despite a rise in sales volume, resulted from the
large number of new Space and Defense programs entering production over the
second half of last fiscal year and the current first nine months of fiscal
2006, as well as the $1.3 million of stock option equity based compensation.
These programs in their


                                       24
<PAGE>

early production phase require a higher level of engineering support, have
higher scrap costs and lower manufacturing efficiencies than more mature
programs. Operating margins in this group improved in the third quarter and are
expected to improve further as the new programs mature.

Other Income. Other income increased 60% to $1.7 million (2.2% of net sales) for
the nine months ended March 31, 2006, from $1.1 million (1.6% of net sales) for
the same period last year. This increase was caused mainly by the rise in market
interest rates over the past eighteen months and the absence of losses on
equipment and investment sales in the current first nine months compared to
$410,000 of losses recorded in the first nine months of last year. Other income
will fluctuate based on short-term market interest rates and the level of
investable cash balances.

Interest Expense. Interest expense represents interest paid on a deferred
obligation. Interest expense for the first half of fiscal 2006 was $18,000
compared to $22,000 for the first half of fiscal 2005.

Income Taxes. Income taxes for the first nine months of fiscal 2006 were $2.4
million (3.2% of net sales) representing an effective tax rate of 23.8%. This
compares to income tax expense of $1.3 million (1.8% of net sales) for the first
nine months of fiscal 2005, representing an effective tax rate of 20.1%. The
company's effective tax rate is a direct result of the proportion of federally
exempt state municipal bond income and federal tax credits and benefits in
relation to the levels of taxable income or loss. The projected effective tax
rate for fiscal 2006 is between 24.3% compared to an actual effective tax rate
of 19% for fiscal 2005. The increase in the projected effective tax rate is a
result of both the higher level of income and the amount of nondeductible
incentive stock option equity based compensation expense expected in fiscal 2006
compared to the level of deductible non-statutory stock option equity based
compensation expense resulting from the adoption of SFAS 123R. Stock options
issued prior to the adoption of SFAS 123R, were mainly incentive stock options
and are presently generating the majority of the company's equity based employee
stock option compensation expense. Compensation expense for these options, under
SFAS 123R, does not generate a tax deduction and related deferred tax benefit.
New options granted after the adoption of SFAS 123R are expected to be mainly
non-statutory stock options, which will generate a tax deduction and related
deferred tax benefit.

Discontinued Operations. Discontinued operation represents the result of
liquidation and dissolution of the Company's Anaren Europe corporate structure
which ceased operation December 2003. During the third quarter ended March 31,
2006 and in conjunction with the finalization of Anaren Europe bankruptcy
proceeding, the Company performed the final liquidation of its Anaren Europe
corporate structure. As a result of this liquidation, the Company recognized a
gain of $82,000 from the liquidation of the remaining assets and a gain of
$736,000 to recognize accumulated foreign currency translation gains.

Critical Accounting Policies

The methods, estimates and judgments management uses in applying the Company's
most critical accounting policies have a significant impact on the results
reported in the Company's financial statements. The U.S. Securities and Exchange
Commission has defined the most critical accounting policies as the ones that
are most important to the portrayal of Anaren's financial condition and results,
and that require management to make the most difficult and subjective judgments,
often as a result of the need to make estimates of matters that are inherently
uncertain. Based on this definition, the Company's most critical policies
include: valuation of accounts


                                       25
<PAGE>

receivable, which impacts general and administrative expense; valuation of
inventory, which impacts cost of sales and gross margin; the assessment of
recoverability of goodwill and other intangible and long-lived assets, which
impacts write-offs of goodwill, intangibles and long-lived assets; and
accounting for income taxes, which impacts the valuation allowance and the
effective tax rate. Management reviews the estimates, including, but not limited
to, allowance for doubtful accounts, inventory reserves and income tax
valuations on a regular basis and makes adjustments based on historical
experiences, current conditions and future expectations. The reviews are
performed regularly and adjustments are made as required by current available
information. The Company believes these estimates are reasonable, but actual
results could and have differed at times from these estimates.

The Company's accounts receivable represent those amounts which have been billed
to its customers but not yet collected. The Company analyzes various factors
including historical experience, credit worthiness of customers and current
market and economic conditions in conjunction with evaluating customer credit
worthiness. The allowance for doubtful accounts balance is established based on
the portion of those accounts receivable which are deemed to be potentially
uncollectible. Changes in judgments on these factors could impact the timing of
costs recognized.

The Company states inventories at the lower of cost or market, using a standard
cost methodology to determine the cost basis for the inventory. This method
approximates actual cost on a first-in-first-out basis. The recoverability of
inventories is based on the types and levels of inventory held, forecasted
demand, pricing, competition and changes in technology.

The Company records valuation allowances to reduce deferred tax assets when it
is more likely than not that some portion of the amount may not be realized. The
Company evaluates the need for valuation allowances on a regular basis and
adjusts the allowance as needed. These adjustments, when made, would have an
impact on the Company's financial statements in the period that they were
recorded.

Intangible assets with estimable useful lives are amortized to their residual
values over those estimated useful lives in proportion to the economic benefit
consumed.

Long-lived assets with estimated useful lives are depreciated to their residual
values over those useful lives in proportion to the economic value consumed.
Long-lived assets are tested for impairment at the group level, which is usually
an economic unit such as a manufacturing facility or department, which has a
measurable economic output or product. Long-lived assets are tested for
impairment when events or changes in circumstances indicate that the carrying
amount of a long-lived asset may not be recoverable and exceeds its fair market
value. This circumstance exists if the carrying amount of the assets in question
exceeds the sum of the undiscounted cash flows expected to result from the use
of the asset. The impairment loss is measured as the amount by which the
carrying amount of a long-lived asset exceeds its fair value as determined by
the discounted cash flow or in the case of negative cash flow, an independent
market appraisal of the asset.

Goodwill is tested annually during the fourth fiscal quarter, or sooner if
indicators of impairment exist, for impairment by the Company at the reporting
unit level by comparing the fair value of the reporting unit with its carrying
value. Valuation methods for determining the fair value of the reporting unit
include reviewing quoted market prices and discounted cash flows. If the
goodwill is indicated as being impaired (the fair value of the reporting unit is
less than the carrying amount), the fair value of the reporting unit is then
allocated to its assets and liabilities in a


                                       26
<PAGE>

manner similar to a purchase price allocation in order to determine the implied
fair value of the reporting unit goodwill. This implied fair value of the
reporting unit goodwill is then compared with the carrying amount of the
reporting unit goodwill and, if it is less, the Company would then recognize an
impairment loss.

The projection of future cash flows for the goodwill impairment analysis
requires significant judgments and estimates with respect to future revenues
related to the assets and the future cash outlays related to those revenues.
Actual revenues and related cash flows or changes in anticipated revenues and
related cash flows could result in changes in this assessment and result in an
impairment charge. The use of different assumptions could increase or decrease
the related impairment charge.

Liquidity and Capital Resources

Net cash provided by operations for the nine months ended March 31, 2006 was
$10.9 million, while net cash provided by operations for the first nine months
of the prior year was $4.6 million. The positive cash flow from operations in
the current nine months was due to the high level of net income before
depreciation and non cash equity compensation, which more than off-set the $3.5
million used to fund the current inventory and accounts receivable increase. The
positive cash flow from operations in the first nine months of fiscal 2005 was
due primarily to income before depreciation and amortization for the period
coupled with a $1.1 million decline in trade and other receivables which off-set
a $3.1 million increase in inventory and a $3.1 million pay down of current
liabilities.

Net cash used in, or provided by, investing activities consists of funds used to
purchase capital equipment, proceeds from the sale of investments and funds used
or provided by the net purchase or maturity of marketable debt securities.

Net cash used in investing activities in the first nine months of fiscal 2006
was $1.4 million and consisted of $2.9 million provided by the maturity of
marketable debt securities, net of $4.3 million used to acquire capital
equipment. Net cash provided by investing activities in the first nine months of
fiscal 2005 was $3.8 million and consisted of funds provided by the sale and
maturity of marketable securities totaling $11.9 million, which were partially
off-set by capital additions of $8.3 million, including approximately $5.0
million for the purchase and renovation of the new Anaren Ceramics facility.

Net cash used in financing activities was $7.6 million in the first nine months
of fiscal 2006 and $20.7 million in the first nine months of last fiscal year.
Cash used in the first nine months of fiscal 2006 consisted of $9.8 million used
for the purchase of 344,311 treasury shares, net of $2.2 million in cash and tax
benefits received from the exercise of stock options. Cash used in the first
nine months of fiscal 2005 was $20.9 million for the purchase of 1,701,532
treasury shares, net of $181,000 received from the exercise of stock options.

During the remainder of fiscal 2006, the Company anticipates that its main cash
requirements will be for additions to capital equipment and the purchase of
additional treasury shares when market prices allow. Capital expenditures are
expected to total between $5.0 and $5.5 million for fiscal 2006 and will be
funded by existing cash balances.

The Company expects to continue to purchase shares of its common stock in the
open market and/or through private negotiated transactions under the current
Board authorization, depending


                                       27
<PAGE>

on market conditions. At March 31, 2006 there were 1,077,879 shares remaining
under the current Board repurchase authorization.

At March 31, 2006, the Company had approximately $81.0 million in cash, cash
equivalents, and marketable securities. The Company has no debt, and on a fiscal
year basis has had positive operating cash flow for over eight years. The
Company believes that its cash requirements for the foreseeable future will be
satisfied by currently invested cash balances and expected cash flows from
operations.

Disclosures About Contractual Obligations and Commercial Commitments

Accounting standards require disclosure concerning the Company's obligations and
commitments to make future payments under contracts, such as debt, lease
agreements, and under contingent commitments, such as debt guarantees. The
Company's obligations and commitments at March 31, 2006 are as follows:

<TABLE>
<CAPTION>
                                                                             Payment Due by Period
                                                                             ---------------------
                                                                     Less
                                                    Total          than 1 Yr.        2-3 Yrs        4-5 Yrs         Over 5 Yrs
                                                    -----          ----------        -------        -------         ----------
<S>                                               <C>               <C>             <C>             <C>             <C>
Contractual obligations
Operating leases - facilities                     $3,739,684        $501,635        $967,610        $908,176        $1,362,263
Deferred compensation                                354,120          65,000         130,000         130,000            29,120
</TABLE>

Recent Accounting Pronouncements

In November, 2004 the FASB published Statement of Financial Accounting Standards
No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. Statement 151
amends the guidance in Chapter 4, "Inventory Pricing" of ARB No. 43 and
clarifies the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). Statement 151 requires that
those items be recognized as current-period charges. Statement 151 also requires
that allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. Statement 151 is
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. Statement 151 was effective for the Company's 2006 fiscal year and
upon adoption did not have a material impact on the Company's financial
statements.

In May 2005, the FASB published Statement of Financial Accounting Standards No.
154, Accounting Changes and Error Corrections. Statement 154 replaces APB No.
20, Accounting Changes, and FASB Statement No. 3, Reporting Changes in Interim
Financial Statements. The Statement changes the accounting for, and reporting
of, a change in accounting principle. Statement 154 requires retrospective
application to prior periods' financial statements of voluntary changes in
accounting principle and changes required by new accounting standards when the
standard does not include specific transition provisions, unless it is
impracticable to do so. Statement 154 is effective for accounting changes and
corrections of errors in fiscal years beginning after December 15, 2005 (the
Company's fiscal 2007). Early application is permitted for accounting changes
and corrections of errors during fiscal years beginning after June 1, 2005 (the
Company's fiscal 2006).


                                       28
<PAGE>

Forward-Looking Cautionary Statement

The statements contained in this news release which are not historical
information are "forward-looking statements". These, and other forward-looking
statements, are subject to business and economic risks and uncertainties that
could cause actual results to differ materially from those discussed. The risks
and uncertainties described below are not the only risks and uncertainties
facing our Company. Additional risks and uncertainties not presently known to us
or that are currently deemed immaterial may also impair our business operations.
If any of the following risks actually occur, our business could be adversely
affected, and the trading price of our common stock could decline, and you may
lose all or part of your investment. Such known factors include, but are not
limited to unanticipated delays and/or difficulties associated with ramping up
the Company's Suzhou China facility to meet existing and anticipated demand for
certain Wireless products; unanticipated delays in successfully completing
customer orders within contractually required timeframes; increased pricing
pressure from our customers; decreased capital expenditures by wireless service
providers; the possibility that the Company may be unable to successfully
execute its business strategies or achieve its operating objectives, generate
revenue growth or achieve profitability expectations; successfully securing new
design wins from our OEM customers, reliance on a limited number of key
component suppliers, unpredictable difficulties or delays in the development of
new products; order cancellations or extended postponements; the risks
associated with any technological shifts away from the Company's technologies
and core competencies; unanticipated impairments of assets including investment
values and goodwill; diversion of defense spending away from the Company's
products and or technologies due to on-going military operations; and litigation
involving antitrust, intellectual property, environmental, product warranty,
product liability, and other issues. You are encouraged to review Anaren's 2005
Annual Report, Anaren's Form 10-K for the fiscal year ended June 30, 2005 and
Anaren's Form 10-Q for the three months ended March 31, 2006 and exhibits to
those Reports filed with the Securities and Exchange Commission to learn more
about the various risks and uncertainties facing Anaren's business and their
potential impact on Anaren's revenue, earnings and stock price. Unless required
by law, Anaren disclaims any obligation to update or revise any forward-looking
statement.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The following discusses the Company's possible exposure to market risk related
to changes in interest rates, equity prices and foreign currency exchange rates.
This discussion contains forward-looking statements that are subject to risks
and uncertainties. Results could differ materially from those anticipated in
these forward-looking statements as a result of various factors, including
factors described elsewhere in this Quarterly Report on Form 10-Q.

As of March 31, 2006, the Company had cash, cash equivalents and marketable
securities of $81.0 million, all of which consisted of highly liquid investments
in marketable debt securities. The marketable debt securities at date of
purchase normally have maturities between one and 18 months, are exposed to
interest rate risk and will decrease in value if market interest rates increase.
A hypothetical decrease in market interest rates of 10.0% from March 31, 2006
rates, or 0.30%, would have reduced net income and cash flow by approximately
$61,000, or $0.003 per share for the quarter. Due to the relatively short
maturities of the securities and its ability to hold those investments to
maturity, the Company does not believe that an immediate decrease in interest
rates would have a significant effect on its financial condition or results of
operations. Over time, however, declines in interest rates will reduce the
Company's interest income.


                                       29
<PAGE>

Item 4. Controls and Procedures

      1.    Evaluation of disclosure controls and procedures. Based on their
            evaluation of the Company's disclosure controls and procedures (as
            defined in Rules 13a-15(e) and 15d-15(e) under the Securities
            Exchange Act of 1934) as of the end of the period covered by this
            Quarterly Report on Form 10-Q, the Company's chief executive officer
            and chief financial officer have concluded that the Company's
            disclosure controls and procedures are designed to ensure that
            information required to be disclosed by the Company in the reports
            that it files or submits under the Exchange Act is recorded,
            processed, summarized and reported within the time periods specified
            in the SEC's rules and forms and are operating in an effective
            manner. These disclosure controls and procedures include, without
            limitation, controls and procedures designed to ensure that the
            information required to be disclosed by the Company in the reports
            that it files or submits under the Exchange Act is accumulated and
            communicated to management, including the Company's chief executive
            officer and chief financial officer, as appropriate to allow timely
            decisions regarding required disclosure.

      2.    Changes in internal controls. During the period covered by this
            Quarterly Report on Form 10-Q, there were no changes in the
            Company's internal control over financial reporting (as defined in
            Rule 13a-15(f)) that have materially affected, or are reasonably
            likely to materially affect, the Company's internal control over
            financial reporting.

PART II OTHER INFORMATION

Item 1A. Risk Factors

The Company is exposed to certain risk factors that may effect operations and/or
financial results. The significant factors known to the company are described in
the Company's most recently filed annual report on Form 10-K and below. There
have been no material changes from the risk factors as previously disclosed in
the Company's annual report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

On May 10, 2005, the Board of Directors increased by 2,000,000 the number of
shares that the Company was authorized to repurchase in open market or privately
negotiated transactions through its previously announced stock repurchase
program and as of December 31, 2005, 1,078,579 remained authorized for purchase.
The program, which may be suspended at any time without notice, has no
expiration date. The following table sets forth information regarding shares
repurchased and purchasable under the program during and as of the end of the
periods indicated. On March 31, 2006, 1,077,879 shares remained authorized for
purchase.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
         Period              Total Number of       Average Price Paid       Total Number of      Maximum Number (or
                            Shares (or Units)     per Share (or Unit)      Shares (or Units)     Approximate Dollar
                                Purchased                                Purchased as Part of   Value) of Shares (or
                                                                          Publicly Announced     Units) that May Yet
                                                                           Plans or Programs     Be Purchased Under
                                                                                                the Plans or Programs
---------------------------------------------------------------------------------------------------------------------
<S>                                <C>                               <C>          <C>                 <C>
January 2006                       --                                --           --                  1,078,579
---------------------------------------------------------------------------------------------------------------------
February 2006                      700                           $15.72           700                 1,077,879
---------------------------------------------------------------------------------------------------------------------
March 2006                         --                                --           --                  1,077,879
---------------------------------------------------------------------------------------------------------------------
Total                              700                                            700
---------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       30
<PAGE>

Item 4. Submission of Matters to a Vote of Security Holders

      None.

Item 6. Exhibits

      31    RULE 13a-14(a) CERTIFICATIONS

      32    SECTION 1350 CERTIFICATIONS


                                       31
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                        Anaren, Inc.
                                        ------------
                                        (Registrant)

Date: May 9, 2006                       /s/ Lawrence A. Sala
                                        ----------------------------------------
                                        Lawrence A. Sala
                                        President & Chief Executive Officer

Date: May 9, 2006                       /s/ Joseph E. Porcello
                                        ----------------------------------------
                                        Joseph E. Porcello
                                        Sr. Vice President of Finance, Treasurer


                                       32