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 December 31, 2005

__    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 February
3, 2006 was 16,963,425.


<PAGE>

                                  ANAREN, INC.

                                      INDEX

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

  Item 1. Financial Statements

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

          Consolidated Condensed Statement of Earnings                      4
          for the Three Months Ended December 31, 2005
          and 2004 (unaudited).

          Consolidated Condensed Statements of Earnings                     5
          for the Six Months Ended December 31,
          2005 and 2004 (unaudited)

          Consolidated Condensed Statements of Cash Flows                   6
          for the Six Months Ended December 31,
          2005 and 2004 (unaudited)

          Notes to Consolidated Condensed Financial                         7
          Statements (unaudited)

  Item 2. Management's Discussion and Analysis                             16

          of Financial Condition and Results of Operations

  Item 3. Quantitative and Qualitative Disclosures About Market Risk       28

  Item 4. Controls & Procedures                                            28

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

  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds      29

  Item 4. Submission of Matters to a Vote of Security Holders              29

  Item 6. Exhibits                                                         29

 Officer Certifications                                                  31 - 34


                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

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

<TABLE>
<CAPTION>
                   Assets                                                 December 31, 2005          June 30, 2005
                   ------                                                 -----------------          -------------
<S>                                                                        <C>                      <C>
 Current assets:
     Cash and cash equivalents                                             $   4,629,014            $   5,900,841
     Securities available for sale (note 3)                                   19,600,000               16,200,000
     Securities held to maturity (note 3)                                     40,499,172               36,307,880
     Receivables, less allowance of $210,807
       at December 31, 2005 and $213,099 at June 30, 2005                     13,907,521               14,780,146
     Inventories (note 4)                                                     22,380,517               19,403,348
     Other receivables                                                         1,142,200                1,144,680
     Deferred income taxes                                                       664,792                  686,411
     Prepaid expenses                                                            721,028                  662,247
     Other current assets                                                        632,333                  423,000
                                                                           -------------            -------------
                 Total current assets                                        104,176,577               95,508,553

 Securities available for sale (note 3)                                               --                3,500,000
 Securities held to maturity (note 3)                                         12,499,018               20,100,547
 Property, plant and equipment, net (note 5)                                  25,564,872               24,983,653
 Goodwill                                                                     30,715,861               30,715,861
 Other intangible assets, net of accumulated amortization
     of $2,518,160 at December 31, 2005
     and $2,351,725 at June 30, 2005 (note 1)                                    506,806                  673,241
                                                                           -------------            -------------
                 Total assets                                              $ 173,463,134            $ 175,481,855
                                                                           =============            =============
       Liabilities and Stockholders' Equity
       ------------------------------------
 Current liabilities:
     Accounts payable                                                      $   5,525,706            $   6,077,313
     Accrued expenses (note 6)                                                 2,473,539                2,331,885
     Income taxes payable                                                      1,438,430                1,501,088
     Customer deposits                                                           483,722                       --
     Other current liabilities (note 8)                                          981,807                1,044,759
                                                                           -------------            -------------
                 Total current liabilities                                    10,903,204               10,955,045
 Deferred income taxes                                                         1,762,090                1,627,304
 Pension and postretirement benefit obligation                                 3,594,613                3,253,188
 Other liabilities (note 8)                                                      657,004                  567,755
                                                                           -------------            -------------
                 Total liabilities                                            16,916,911               16,403,292
                                                                           -------------            -------------
 Stockholders' equity:
     Common stock of $.01 par value.  Authorized
        200,000,000 shares; issued 26,168,204 shares
        at December 31, 2005 and 26,070,804 at June 30, 2005                     261,682                  260,708
     Additional paid-in capital                                              174,062,105              171,333,975
     Unearned compensation                                                      (227,312)                (248,578)
     Retained earnings                                                        63,143,789               58,659,807
     Accumulated other comprehensive income                                     (721,756)                (747,539)
                                                                           -------------            -------------
                                                                             236,518,508              229,258,373
     Less cost of 9,248,943 and 8,553,058 treasury shares
       at December 31, 2005 and June 30, 2005, respectively                   79,972,285               70,179,810
                                                                           -------------            -------------
                 Total stockholders' equity                                  156,546,223              159,078,563
                                                                           -------------            -------------
                 Total liabilities and stockholders' equity                $ 173,463,134            $ 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
                           December 31, 2005 and 2004
                                   (Unaudited)

                                                   December 31,     December 31,
                                                       2005             2004
Net sales                                          $ 25,019,013    $ 23,650,022

Cost of sales                                        15,982,504      16,888,850
                                                   ------------    ------------
        Gross profit                                  9,036,509       6,761,172
                                                   ------------    ------------
Operating expenses:
        Marketing                                     1,715,660       1,860,973
        Research and development                      2,268,438       1,387,105
        General and administrative                    2,523,124       2,141,752
        Restructuring (note 7)                               --         458,335
                                                   ------------    ------------
              Total operating expenses                6,507,222       5,848,165
                                                   ------------    ------------
Operating income                                      2,529,287         913,007

Other income, primarily interest                        536,821         179,714
Interest expense                                         (6,143)         (9,837)
                                                   ------------    ------------
              Total other income                   $    530,678    $    169,877
                                                   ------------    ------------
Income before income taxes                            3,059,965       1,082,884

Income tax expense                                      830,000         102,000
                                                   ------------    ------------
Net income                                         $  2,229,965    $    980,884
                                                   ============    ============

     Basic earnings per share                             $0.13           $0.05
                                                          =====           =====
     Diluted earnings per share:                          $0.13           $0.05
                                                          =====           =====
Shares used in computing net earnings per share:
        Basic                                        17,020,360      19,580,182
                                                   ============    ============
        Diluted                                      17,595,314      20,167,087
                                                   ============    ============

See accompanying notes to consolidated condensed financial statements.


                                       4
<PAGE>

                                  ANAREN, INC.
                  Consolidated Condensed Statements of Earnings
                                Six Months Ended
                           December 31, 2005 and 2004
                                   (Unaudited)

                                                   December 31,     December 31,
                                                       2005             2004

Net sales                                          $ 49,633,371    $ 48,557,379
Cost of sales                                        31,942,416      33,905,389
                                                   ------------    ------------
        Gross profit                                 17,690,955      14,651,990
                                                   ------------    ------------
Operating expenses:
        Marketing                                     3,483,739       3,637,618
        Research and development                      4,303,079       3,032,182
        General and administrative                    5,015,434       4,243,936
        Restructuring (note 7)                               --         458,335
                                                   ------------    ------------
              Total operating expenses               12,802,252      11,372,071
                                                   ------------    ------------
Operating income                                      4,888,703       3,279,919

Other income, primarily interest                      1,124,565         532,771
Interest expense                                        (12,286)        (15,642)
                                                   ------------    ------------
              Total other income                      1,112,279         517,129
                                                   ------------    ------------
Income before income taxes                            6,000,982       3,797,048

Income tax expense                                    1,517,000         835,000
                                                   ------------    ------------

Net income                                         $  4,483,982    $  2,962,048
                                                   ============    ============

     Basic earnings per share                      $       0.26    $       0.15
                                                   ============    ============

     Diluted earnings per share:                          $0.25           $0.15
                                                          =====           =====

Shares used in computing net earnings per share:
        Basic                                        17,211,315      19,862,314
                                                   ============    ============
        Diluted                                      17,765,683      20,422,625
                                                   ============    ============

See accompanying notes to consolidated condensed financial statements.


                                       5
<PAGE>

                                  ANAREN, INC.
                 Consolidated Condensed Statements of Cash Flows
                                Six Months Ended
                           December 31, 2005 and 2004
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                             December 31, 2005       December 31, 2004
                                                                             -----------------       -----------------
<S>                                                                             <C>                     <C>
Cash flows from operating activities:
     Net income                                                                 $  4,483,982            $  2,962,048
     Adjustments to reconcile net income
       to net cash provided by operating activities:
         Depreciation                                                              2,391,077               2,502,172
         Amortization of intangibles                                                 166,435                 404,210
         Loss on sale of equipment                                                    15,875                  67,397
         Loss on sale of securities available for sale                                    --                 342,711
         Deferred income taxes                                                       156,405                 139,117
         Equity based compensation                                                 1,725,844                 113,143
         Provision for doubtful accounts                                              (2,292)                 25,508
         Tax benefit from exercise of stock options                                  378,318                  13,536
         Changes in operating assets and liabilities:
           Receivables                                                               874,917                 820,296
           Inventories                                                            (2,977,169)             (2,350,455)
           Other receivables                                                           2,480                 155,757
           Other current assets                                                     (268,114)                 95,042
           Accounts payable                                                         (551,607)             (2,216,230)
           Accrued expenses                                                          141,654                (853,914)
           Income taxes payable                                                      (62,658)                228,221
           Customer advance payments                                                 483,722                (137,416)
           Other liabilities                                                          26,296                 108,485
           Postretirement benefit obligation                                         341,425                 (49,472)
                                                                                ------------            ------------
             Net cash provided by operating activities                             7,326,590               2,370,156
                                                                                ------------            ------------
Cash flows from investing activities:
     Capital expenditures                                                         (2,989,171)             (7,329,399)
     Proceeds from sale of equity securities                                              --               2,746,130
     Proceeds from sale of equipment                                                   1,000                 160,000
     Maturities of marketable debt and auction rate securities                    39,120,237              49,099,454
     Purchase of marketable debt and auction rate securities                     (35,610,000)            (47,204,097)
                                                                                ------------            ------------
             Net cash provided by (used in) investing activities                     522,066              (2,527,912)
                                                                                ------------            ------------
Cash flows from financing activities:
     Stock options exercised                                                         646,209                  49,584
     Purchase of treasury stock                                                   (9,792,475)            (11,623,399)
                                                                                ------------            ------------
             Net cash used in financing activities                                (9,146,266)            (11,573,815)
                                                                                ------------            ------------

     Effect of exchange rates                                                         25,783                    (658)
                                                                                ------------            ------------
             Net decrease in cash and cash equivalents                            (1,271,827)            (11,732,229)
Cash and cash equivalents at beginning of period                                   5,900,841              23,303,263
                                                                                ------------            ------------
Cash and cash equivalents at end of period                                      $  4,629,014            $ 11,571,034
                                                                                ============            ============
Supplemental Disclosures of Cash Flow Information:
     Cash Paid During the Period For:

       Interest                                                                 $     12,286            $     15,642
                                                                                ============            ============
       Income taxes, net of refunds                                             $  1,021,935            $    472,389
                                                                                ============            ============
</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 six months ended December 31,
2005 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
six months ended December 31, 2005 and 2004 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 December 31, 2005 and June 30, 2005 are as follows:

<TABLE>
<CAPTION>
                                               December 31                         June 30
                                    -------------------------------     -----------------------------
                                    Gross Carrying     Accumulated      Gross Carrying   Accumulated
                                        Amount         Amortization         Amount       Amortization
                                    -----------        ------------     --------------   ------------
<S>                                 <C>                 <C>              <C>              <C>
Patent                              $   574,966         $  467,160       $   574,966      $  431,225
Customer Base                         1,350,000            975,000         1,350,000         862,500
Trade Name                              320,000            320,000           320,000         320,000
Non-Competition Agreements              180,000            156,000           180,000         138,000
Favorable Lease                         600,000            600,000           600,000         600,000
                                     ----------         ----------        ----------      ----------
  Total                              $3,024,966         $2,518,160        $3,024,966      $2,351,725
                                     ==========         ==========        ==========      ==========
</TABLE>

Intangible asset amortization expense for six month period ended December 31,
2005 and 2004 aggregated $166,435 and $404,210, 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 six months ended December 31, 2005 is $863,923 and $1,725,844,
respectively. These


                                       7
<PAGE>

amounts include $29,634 and $57,267, respectively related to the Company's
restricted stock program and $834,289 and $1,668,577, respectively related to
the Company's stock option program, for the three and six month periods.

As a result of the adoption of SFAS 123R, both operating income and income
before taxes for the three months and six months ended December 31, 2005 were
reduced by $834,289 and $1,668,577, respectively, while net income was reduced
by $777,289, or $0.05 per basic and $0.04 per diluted share, for the same three
month period and $1,554,577, or $0.09 per basic and diluted share, for the same
six month period.

As of December 31, 2005, there were 3,015,151 stock options outstanding. At
December 31, 2005, the aggregate value of unvested options, as determined using
a capital Black- Scholes option valuation model was $7,496,474 (net of estimated
forfeitures). During the six months ended December 31, 2005, the Company granted
374,000 non-statutory stock options, with a fair value of $3,202,270 (net of
estimated forfeitures), and 46,770 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 six months ended December 31,
2004, 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 six months ended December 31, 2004.

<TABLE>
<CAPTION>
                                                              Three months ended        Six Months Ended
                                                              December 31, 2004         December 31, 2004
<S>                                                              <C>                       <C>
Net income, as reported                                          $   980,884               $2,962,048

Deduct total equity based employee
  compensation expense determined under
  fair value based method for all awards, net
  of related tax effects                                           1,858,491                3,562,741
                                                                 -----------                ---------

Pro forma net loss                                               $  (877,607)               $(600,693)
                                                                 ===========                =========

Earnings (loss) per share:
     Basic - as reported                                             $0.05                    $0.15
     Basic - pro forma                                              $(0.05)                  $(0.03)

     Diluted - as reported                                           $0.05                    $0.15
     Diluted - pro forma                                            $(0.04)                  $(0.03)
</TABLE>


                                       8
<PAGE>

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 December 31, 2005, the Company had
1,325,088 shares available for grant under the restated plan.

Information with respect to these plans are as follows:

<TABLE>
<CAPTION>
                                                                                                         Weighted
                                                            Total                                         average
                                                            Shares               Option Price          exercise price
                                                            ------               ------------          --------------
<S>                                                       <C>                    <C>                       <C>
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                                                      374,000             $11.97 to 14.35            $14.01
Exercised                                                   (94,859)             $2.27 to 15.00             $7.04
Expired                                                     (30,530)             $9.51 to 53.00            $52.32
Canceled                                                    (16,240)            $15.00 to 53.00            $16.22
                                                          ---------

Outstanding at December 31, 2005                          3,015,151             $2.27 to $57.59            $12.94
                                                          =========

Shares exercisable at December 31, 2005                   1,897,999             $2.27 to $54.00            $14.97
                                                          =========
</TABLE>

The following table summarizes significant ranges of outstanding and exercisable
options at December 31, 2005:

<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                146,200             0.88              $2.28             146,200              2.28
---------------------------------------------------------------------------------------------------------------------
$5.01 - $15.00             2,480,891             5.83             $11.04           1,408,611             11.04
---------------------------------------------------------------------------------------------------------------------
$15.01 - $40.00              213,460             4.88             $20.37             168,588             20.37
---------------------------------------------------------------------------------------------------------------------
$40.01 - $65.00              174,600             4.82             $53.12             174,600             53.12
---------------------------------------------------------------------------------------------------------------------
                           3,015,151                                               1,897,999
---------------------------------------------------------------------------------------------------------------------
</TABLE>

During the six months ended December 31, 2005, the per share weighted average
fair value of the non-statutory stock options granted was $8.13. 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 December 31:

                                                     2005             2004
                                                     ----             ----
Expected option life - key employee plan             6.5              5
Expected option life - company-wide plan             6.5              3
Weighted average risk-free interest rate             4.34%            3.22%
Weighted average expected volatility                 62.00%           87.57%


                                       9
<PAGE>

Restricted Stock Program

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 December 31, 2005 and 2004, the Company has issued shares aggregating
26,105 and 21,600, respectively, under its Restricted Stock Program. 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 $1,725,844 and $113,143, of total equity based compensation
expense, for the six months ended December 31, 2005 and 2004, the Company
recognized compensation expense associated with the lapse of restrictions
aggregating $57,267 and $113,143, respectively.

NOTE 3: Securities

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

<TABLE>
<CAPTION>
                                                                      December 31, 2005
                                                                      -----------------
                                                                      Gross          Gross
                                                  Amortized         Unrealized     Unrealized
                                                     Cost             Gains          Losses           Fair Value
                                                     ----             -----          ------           ----------
<S>                                               <C>                <C>            <C>               <C>
Securities available for sale:
     Auction rate securities                      $19,600,000        $    --        $      --         $19,600,000
                                                  -----------        -------        ---------         -----------
         Total securities
         available-for-sale                       $19,600,000        $    --        $      --         $19,600,000
                                                  ===========        =======        =========         ===========
Securities held to maturity:
     Municipal bonds                              $37,884,044        $    --        $(234,029)        $37,650,015
     Commercial paper                               2,237,281             --               --           2,237,281
     Corporate bonds                                7,381,608             --          (21,872)          7,359,736
     Zero coupon bonds                              1,995,557             --           (3,797)          1,991,760
     Federal agency bonds                           3,499,700             --          (42,400)          3,457,300
                                                  -----------        -------        ---------         -----------
         Total securities held to maturity        $52,998,190        $    --        $(302,098)        $52,696,092
                                                  ===========        =======        =========         ===========

<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>


                                       10
<PAGE>

Contractual maturities of marketable debt securities held to maturity at
December 31, 2005 are summarized as follows:

<TABLE>
<CAPTION>
                                       December 31, 2005                June 30, 2005
                                       -----------------                -------------
                                                    Fair                                   Fair
                                                   Market                          Market
                                    Cost            Value            Cost           Value
                                    ----            -----            ----           -----
<S>                              <C>             <C>              <C>            <C>
Within one year                  $40,499,172     $40,357,486      $36,307,880    $36,176,998
One year to five years            12,499,018      12,338,606       20,100,547     19,951,761
                                 -----------     -----------      -----------    -----------
     Total                       $52,998,190     $52,696,092      $56,408,427    $56,128,759
                                 ===========     ===========      ===========    ===========
</TABLE>

Contractual maturities of auction rate securities available for sale at December
31, 2005 are summarized as follows:

<TABLE>
<CAPTION>
                                       December 31, 2005                June 30, 2005
                                       -----------------                -------------
                                                    Fair                                   Fair
                                                   Market                          Market
                                    Cost            Value            Cost           Value
                                    ----            -----            ----           -----
<S>                              <C>             <C>              <C>            <C>
Within one year                  $19,600,000     $19,600,000      $16,200,000    $16,200,000
One year to five years                    --              --        3,500,000      3,500,000
                                 -----------     -----------      -----------    -----------
     Total                       $19,600,000     $19,600,000      $19,700,000    $19,700,000
                                 ===========     ===========      ===========    ===========
</TABLE>

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 six months ended December 31, 2004, 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 Operations for that period.

NOTE 4: Inventories

Inventories are summarized as follows:

                                       December 31, 2005      June 30, 2005
                                       -----------------      -------------

         Component parts                 $ 10,587,283         $ 10,369,049
         Work in process                    9,358,880            7,709,465
         Finished goods                     3,715,750            2,766,157
                                         ------------         ------------
                                         $ 23,661,913         $ 20,844,671
         Reserve for obsolescence          (1,281,396)          (1,441,323)
                                         ------------         ------------
         Net inventory                   $ 22,380,517         $ 19,403,348
                                         ============         ============


                                       11
<PAGE>

NOTE 5: Property, Plant and Equipment

Property, plant and equipment are summarized as follows:

                                           December 31, 2005    June 30, 2005
                                           -----------------    -------------

         Land and land improvements          $  2,207,823       $  2,207,823
         Buildings, furniture and fixtures     16,973,890         16,654,351
         Machinery and equipment               54,314,515         51,680,883
                                             ------------       ------------
                                             $ 73,496,228       $ 70,543,057
         Less accumulated depreciation
          and amortization                    (47,931,356)       (45,559,404)
                                             ------------       ------------
                                             $ 25,564,872       $ 24,983,653
                                             ============       ============

NOTE 6: Accrued Expenses

Accrued expenses consist of the following:

                                          December 31, 2005     June 30, 2005
                                          -----------------     -------------
         Compensation                        $1,066,199           $1,222,891
         Commissions                            692,685              620,990
         Health insurance                       432,401              271,561
         Restructuring (note 7)                      --               19,863
         Other                                  282,254              196,580
                                             ----------           ----------
                                             $2,473,539           $2,331,885
                                             ==========           ==========

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:

<TABLE>
<CAPTION>
                                Balance           Six months ended December 31, 2005            Balance
                                June 30,           Costs                   Cash               December 31,
                                 2005             Incurred              Expenditures              2005
                                 ----             --------              ------------              ----

<S>                             <C>               <C>                      <C>                   <C>
Severance payments              $19,863           $    --                  $19,863               $    --
                                -------           -------                  -------               -------
                                $19,863           $    --                  $19,863               $    --
                                =======           =======                  =======               =======
</TABLE>


                                       12
<PAGE>

NOTE 8: Other Liabilities

      Other liabilities consist of the following:

                                        December 31, 2005      June 30, 2005
                                        -----------------      -------------
      Deferred compensation                $  722,004           $  650,064
      Pension liability                       559,988              675,000
      Other                                   356,819              287,450
                                           ----------           ----------
                                            1,638,811            1,612,514
      Less current portion                    981,807            1,044,759
                                           ----------           ----------
                                           $  657,004           $  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 1,065,952 and 1,301,562 at December 31,
2005 and 2004, 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.

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

<TABLE>
<CAPTION>
                                                             Three Months Ended                 Six Months Ended
                                                             ------------------                 ----------------
                                                                 December 31                        December 31
Numerator:                                                 2005              2004              2005              2004
----------                                                 ----              ----              ----              ----
<S>                                                    <C>               <C>               <C>               <C>
Net income from continuing operations                  $ 2,229,965       $   980,884       $ 4,483,982       $ 2,962,048
                                                       ===========       ===========       ===========       ===========
Denominator:

Denominator for basic earnings per share:
           Weighted average shares outstanding          17,020,360        19,580,182        17,211,315        19,862,314
                                                       ===========       ===========       ===========       ===========
Denominator for diluted earnings
         per share:
         Weighted average shares outstanding            17,020,360        19,580,182        17,211,315        19,862,314
         Common stock options
           and restricted stock                            574,954           586,905           554,368           560,311
                                                       -----------       -----------       -----------       -----------
Weighted average shares and conversions                 17,595,314        20,167,087        17,765,683        20,422,625
                                                       ===========       ===========       ===========       ===========
</TABLE>

NOTE 10: Components of Net Periodic Pension Benefit Costs

<TABLE>
<CAPTION>
                                                        Three Months Ended                  Six Months Ended
                                                        ------------------                  ----------------
                                                            December 31                        December 31
                                                        2005           2004                2005           2004
                                                        ----           ----                ----           ----
<S>                                                  <C>            <C>                 <C>            <C>
Service cost                                         $  85,587      $  65,712           $ 171,174      $ 131,424
Interest cost                                          151,795        135,206             303,590        270,412
Expected return on plan assets                        (173,365)      (134,113)           (346,730)      (268,226)
Amortization of prior service cost                        (808)         4,560              (1,616)         9,120
Amortization of the net (gain) loss                     47,436         27,066              94,872         54,132
                                                     ---------      ---------           ---------      ---------
Net periodic benefit cost                            $ 110,645      $  98,431           $ 221,290      $ 196,862
                                                     =========      =========           =========      =========
</TABLE>


                                       13
<PAGE>

Expected Pension Contributions

Expected contributions for fiscal 2006 are $675,000.

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

NOTE 11: Components of Net Periodic Postretirement Health Benefit Costs

<TABLE>
<CAPTION>
                                                             Three Months Ended               Six Months Ended
                                                             ------------------               ----------------
                                                                 December 31                    December 31
                                                              2005        2004               2005          2004
                                                              ----        ----               ----          ----
<S>                                                         <C>          <C>               <C>           <C>
Service cost                                                $14,285      $15,286           $ 28,570      $30,572
Interest cost                                                46,327       27,802             92,654       55,604
Amortization of the net (gain) loss                          18,788        4,617             37,576        9,234
                                                            -------      -------           --------      -------
Postretirement Health                                       $79,400      $47,705           $158,800      $95,410
                                                            =======      =======           ========      =======
</TABLE>

Expected Postretirement Health Contributions

Expected contributions for fiscal 2006 are $175,835, net of $17,501 expected
subsidy receipts.

NOTE 12: 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 the wireless communications market. The space and defense segment of
the business designs, manufactures and markets specialized products for the
defense electronics and satellite communications markets. The revenue
disclosures for the Company's reportable segments depict products that are
similar in nature.


                                       14
<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>
Net sales:
Three months ended:
       December 31, 2005                        $ 15,494,100           9,524,913                  --         $ 25,019,013
       December 31, 2004                        $ 16,006,066           7,643,956                  --         $ 23,650,022
Six months ended:
       December 31, 2005                        $ 31,904,835          17,728,536                  --         $ 49,633,371
       December 31, 2004                        $ 33,774,359          14,783,020                  --         $ 48,557,379

Operating income (loss):
     Three months ended:
       December 31, 2005                           1,421,125           1,108,162                  --            2,529,287
       December 31, 2004                            (741,875)          1,654,882                  --              913,007
     Six months ended:
       December 31, 2005                           3,466,316           1,422,387                  --            4,888,703
       December 31, 2004                             (87,950)          3,367,869                  --            3,279,919

Goodwill and intangible assets:
     December 31, 2005                            31,222,667                  --                  --           31,222,667
     June 30, 2005                                31,389,102                  --                  --           31,389,102

Identifiable assets:*
       December 31, 2005                          19,358,161          16,694,866         106,187,440          142,240,467
       June 30, 2005                              21,497,591          12,685,903         109,909,259          144,092,753

Depreciation:**
     Three months ended:
       December 31, 2005                             606,710             582,448                  --            1,189,158
       December 31, 2004                             605,786             643,719                  --            1,249,505
     Six months ended:
       December 31, 2005                           1,245,623           1,145,454                  --            2,391,077
       December 31, 2004                           1,450,027           1,052,145                  --            2,502,172

Intangibles amortization: ***
     Three months ended:
       December 31, 2005                              83,217                  --                  --               83,217
       December 31, 2004                              83,219                  --                  --               83,219
     Six months ended:
       December 31, 2005                             166,435                  --                  --              166,435
       December 31, 2004                             404,210                  --                  --              404,210
</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.


                                       15
<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 December 31, 2005 and June 30, 2005, and the consolidated results
of operations and cash flows of the Company for the three and six months ended
December 31, 2005 and 2004.

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


                                       16
<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 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 second quarter and six months ended December 31, 2005 was $834,289 and
$1,668,577, respectively.

Third 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 $23.0 - $25.0 million
for the third quarter of fiscal 2006. With an anticipated tax rate of
approximately 25.3% 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 $0.09 - $0.12 for the third quarter.


                                       17
<PAGE>

Results of Operations

Net sales from operations for the three months ended December 31, 2005 were
$25.0 million, up $1.4 million from $23.6 million for the second quarter of
fiscal 2005. Net income for the second quarter of fiscal 2006 was $2.2 million,
or 8.9% of net sales, up $1.2 million, or 127% from net income of $981,000 in
the second 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                    Six Months Ended
                                          Dec. 31, 2005        Dec. 31, 2004      Dec. 31, 2005     Dec. 31, 2004
                                          -------------        -------------      -------------     -------------
<S>                                           <C>                 <C>                 <C>                 <C>
Net Sales                                     100.0%              100.0%              100.0%              100.0%

Cost of sales                                  63.9%               71.4%               64.4%               69.8%
                                              -----               -----               -----               -----
Gross profit                                   36.1%               28.6%               35.6%               30.2%
                                              -----               -----               -----               -----
Operating expenses:
   Marketing                                    6.8%                7.9%                7.0%                7.5%
   Research and development                     9.1%                5.9%                8.7%                6.3%
   General and administrative                  10.1%                9.0%               10.1%                8.7%
   Restructuring                                0.0%                1.9%                0.0%                0.9%
                                              -----               -----               -----               -----
     Total operating expenses                  26.0%               24.7%               25.8%               23.4%
                                              -----               -----               -----               -----
Operating income                               10.1%                3.9%                9.8%                6.8%
                                              -----               -----               -----               -----
Other income (expense):

     Other, primarily interest income           2.1%                0.7%                2.3%                1.0%
     Interest expense                           0.0%                0.0%                0.0%                0.0%
                                              -----               -----               -----               -----
     Total other income (expense), net          2.1%                0.7%                2.3%                1.0%
                                              -----               -----               -----               -----
Income before income taxes                     12.2%                4.6%               12.1%                7.8%
Income taxes                                    3.3%                0.4%                3.1%                1.7%
                                              -----               -----               -----               -----
   Net income                                   8.9%                4.2%                9.0%                6.1%
                                              =====               =====               =====               =====
</TABLE>


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

                                   Three Months Ended         Six Months Ended
                                       December 31               December 31
                                   ------------------         ----------------
                                    2005         2004         2005         2004
                                    ----         ----         ----         ----
Wireless                          $15,495      $16,006      $31,905      $33,774
Space and Defense                   9,524        7,644       17,728       14,783
                                  -------      -------      -------      -------
     Total                        $25,019      $23,650      $49,633      $48,557
                                  =======      =======      =======      =======

Three Months Ended December 31, 2005 Compared to Three Months Ended December 31,
2004

Net sales. Net sales rose $1.4 million, or 5.5% to $25.0 million for the second
quarter ended December 31, 2005, compared to $23.6 million for the second
quarter of fiscal 2005. This increase resulted from a $1.9 million rise in
shipments of Space and Defense products in the


                                       18
<PAGE>

current second quarter which was partially off-set by a $511,000 decline in
sales of wireless products

The decrease in sales of Wireless products, which consist of standard
components, ferrite components and custom subassemblies for use in building
Wireless basestation and consumer equipment, was a result of a decline in
customer demand during the second quarter for custom Wireless components
compared to the second quarter of last year.

Wireless product sales fell $511,000 or 3.2% in the second quarter of fiscal
2006 compared to the second quarter of fiscal 2005, due to a $1.2 million
decline in shipments of wireless custom subassemblies in the current second
quarter compared to the second quarter of fiscal 2005 due to a temporary decline
in demand for Nokia custom products. This drop was partially off-set by a
$714,000, or 200% increase in shipments of new consumer products in the current
second quarter compared to the same period last year.

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 $1.9 million, or 24.6%, to
$9.5 million in the second quarter of fiscal 2006 compared to the second quarter
of the previous fiscal year. This increase is attributed to a $1.9 million rise
in Defense product shipments during the current second quarter compared to the
same quarter in fiscal 2005. 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 $19.0
million in the first half of fiscal 2006. Sales of Space and Defense products in
the remainder of fiscal 2006 are expected to range between $9.0 and $10.0
million, quarterly, 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 second quarter of fiscal 2006 was
$9.0 million, (36.1% of net sales), up $2.3 million from $6.8 million (28.6% of
net sales) for the same quarter of the prior year. Gross profit on sales
increased in the second quarter of fiscal 2006 over the second quarter of last
year due to the higher sales volume and favorable manufacturing efficiencies in
the current second quarter. 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. Additionally,
cost of sales included the recognition of $197,000 of equity based compensation
expense, while cost of sales in the second quarter of last year included
$300,000 of cost associated with the write-down of RF Power inventory due to the
consolidation.

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 $1.7 million (6.8%
of net sales) for the second quarter of fiscal 2006, down $145,000 from $1.9
million (7.9% of net sales) for the second quarter of fiscal 2005. Included in
marketing expense for the second quarter of fiscal 2006 is $69,000 of equity
based compensation expense. Marketing expense for the second quarter of fiscal
2005 does not include expense for equity based compensation as the Company
adopted SFAS 123R on a prospective basis. Absent the inclusion of equity based
compensation expense, marketing costs in the second quarter of fiscal 2006
declined approximately 11% year over year due to cost savings realized through
the consolidation of the RF Power and Amitron operations during fiscal 2005.


                                       19
<PAGE>

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 $2.3 million
(9.1% of net sales) in the second quarter of fiscal 2006, up 63.5% from $1.4
million (5.9% of net sales) for the second 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 second quarter of fiscal 2006 over second
quarter fiscal 2005 levels due to the higher level of Wireless opportunities in
the marketplace and due to the inclusion of $128,000 for 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 six 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 17.8% to $2.5 million (10.1% of net sales) for the second
quarter of fiscal 2006 from $2.1 million (9.0% of net sales) for the second
quarter of fiscal 2005. The increase resulted primarily from the inclusion in
general and administrative expense of $441,000 of equity based compensation
expense in the second quarter of fiscal 2006. General and Administrative expense
for the second quarter of fiscal 2005 does not include expense for equity based
compensation. Absent the inclusion of equity based compensation expense, general
and administrative costs for the second quarter of fiscal 2006 declined $60,000
due to cost reductions achieved through the consolidation of the RF Power and
Amitron operations during fiscal 2005.

Restructuring. Restructuring cost which consisted of wages, health insurance,
payroll taxes and outplacement costs were $458,000 in the second quarter of
fiscal 2005. These costs were related to the termination of 79 people in
conjunction with the closure of the RF Power Bohemia, NY facility and the move
of that operation to Salem, NH in the second quarter of fiscal 2005. There were
no restructuring expenses in the second quarter of fiscal 2006.

Operating Income. Operating income increased $1.6 million, or 177% in the second
quarter of fiscal 2006 to $2.5 million (10.1% of net sales) compared to $913,000
(3.9% of net sales) for the second quarter of last fiscal year. In the second
quarter of fiscal 2006, operating income was reduced by $834,000 for equity
based compensation expense. As the Company adopted SFAS 123R on a prospective
basis, operating income for the second quarter of fiscal 2005 (the prior year)
does not include any expense for equity based compensation.

On a reporting segment basis, Wireless operating income was $1.4 million for the
second quarter of fiscal 2006 (including $419,000 of equity based compensation
expense) up $2.1 million from a Wireless operating loss of $742,000 for the
second quarter of last year. Wireless operating income improved significantly in
the current second quarter due to cost savings achieved through the
consolidation of the RF Power and Amitron operations in fiscal 2005, the absence
of consolidation and restructuring charges ($850,000 in the second quarter of
fiscal 2005), cost efficiencies resulting from higher manufacturing volumes in
the Company's China operation and a more favorable wireless custom product mix
in the current second quarter, compared to the second quarter of last fiscal
year.


                                       20
<PAGE>

Space and Defense operating income fell $600,000 in the second quarter of fiscal
2006 to $1.1 million (including $415,000 of equity based compensation expense)
compared to $1.7 million (with no equity based compensation expense) in the
second quarter 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 first half of fiscal
2006. These programs in their 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 are
expected to improve as the newer programs mature.

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 198% to $537,000 (2.1% of net sales) for the second quarter of
fiscal 2006, from $180,000 (0.7% 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 and the absence of losses on equipment and investment sales
in the current second quarter compared to $388,000 of losses recorded in the
second quarter 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 second quarter of fiscal 2006 was $6,000
compared to $10,000 for the second quarter of fiscal 2005.

Income Taxes. Income taxes for the second quarter of fiscal 2006 were $830,000
(3.3% of net sales), representing an effective tax rate of 27.1%. This compares
to income tax expense of $102,000 (0.4% of net sales) for the second quarter of
fiscal 2005, representing an effective tax rate of 9.4%. 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 approximately 25% 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
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.

Six Months Ended December 31, 2005 Compared to Six Months Ended December 31,
2004

Net Sales. Net sales increased $1.1 million, or 2.2%, to $49.6 million for the
first six months of fiscal 2006 compared to $48.6 million for the first six
months of fiscal 2004. This rise in sales resulted from a $2.9 million increase
in sales of Space and Defense products in the first half of fiscal 2006, which
was partially off-set by a $1.9 million decline in shipments of wireless
products.

The decrease in sales of Wireless products in the first half of fiscal 2006 was
a result of a decline in customer demand for older standard resistive components
and circulator products. These products combined for a $3.4 million decline in
revenue. This decrease was partially off-set by a


                                       21
<PAGE>

$1.4 million increase in sales of new consumer components.

Space and Defense products shipments rose $2.9 million, or 20%, to $17.7 million
in the first half of fiscal 2006 compared to the first half of the previous
fiscal year. This increase consisted of a $2.9 million rise in sales of Defense
products during the current six months compared to the same period in fiscal
2005. 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 $19.0 million in the first
half of fiscal 2006. Sales of Space and Defense products in the remainder of
fiscal 2006 are expected to range between $9.0 million and $10.0 million,
quarterly, as a result of the rise in new order levels over the last two fiscal
years.

Gross Profit. Gross profit for the first half of fiscal 2006 was $17.7 million,
(35.6% of net sales), up $3.0 million from $14.7 million (30.2% of net sales)
for the same period of the prior year. Gross profit on sales increased in the
first half of fiscal 2006 over the first half of last year due to favorable
manufacturing efficiencies in the current year. These efficiencies resulted from
higher production volumes at our lower cost China facility and manufacturing
overhead cost savings realized by combining the RF Power and Amitron production
facilities into one building at Anaren Ceramics. Additionally, gross profit was
lowered by the recognition of $522,000 of equity based compensation expense in
the first quarter of fiscal 2006.

Marketing. Marketing expenses were $3.5 million (7.0% of net sales) for the
first six months of fiscal 2006, down $154,000 from $3.6 million (7.5% of net
sales) for the first six months of fiscal 2005. Included in marketing expense
for the first six months of fiscal 2006 is $138,000 of equity based compensation
expense. Marketing expenses for the first half of fiscal 2005 do not include
expense for equity based compensation as the Company adopted SFAS 123R on a
prospective basis. Absent the inclusion of equity based compensation expense,
marketing costs in the first half of fiscal 2006 declined approximately 8% year
over year due to cost savings realized through the consolidation of the RF Power
and Amitron production facilities during fiscal 2005, and the transfer of some
marketing personnel to other functions.

Research and Development. Research and development expenses were $4.3 million
(8.7% of net sales) in the first half of fiscal 2006, up 41.9% from $3.0 million
(6.3% of net sales) for the first half 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 half of fiscal 2006 over first half of fiscal 2005 levels
due to the higher level of Wireless opportunities in the marketplace and due to
the inclusion of $128,000 for equity based compensation expense.

General and Administrative. General and administrative expenses increased 18.1%
to $5.0 million (10.1% of net sales) for the first six months of fiscal 2006
from $4.2 million (8.5% of net sales) for the first six months of fiscal 2005.
The increase resulted primarily from the inclusion in general and administrative
expense of $882,000 of equity based compensation expense in the first six months
of fiscal 2006. General and administrative expense for the first six months of
fiscal 2005 does not include expense for equity based compensation. Absent the
inclusion of equity based compensation expense, general and administrative costs
for the first six months of fiscal 2006 declined $111,000 due to cost reductions
achieved through the consolidation of the RF Power and Amitron operations during
fiscal 2005.

Restructuring. Restructuring cost which consisted of wages, health insurance,
payroll taxes and outplacement costs were $458,000 in the first half of fiscal
2005. These costs were related to the


                                       22
<PAGE>

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 half of fiscal
2006.

Operating Income. Operating income increased $1.6 million, or 49.1% in the first
half of fiscal 2006 to $4.9 million (9.8% of net sales) compared to $3.3 million
(6.8% of net sales for the first half of last fiscal year. In the first six
months of fiscal 2006, operating income was reduced by $1.7 million for stock
option equity based compensation expense. As the Company adopted SFAS 123R on a
prospective basis, operating income for the first six months 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 $3.5 million for the
first half of fiscal 2006 (including $838,000 of equity based compensation
expense) up $3.6 million from a Wireless operating loss of $88,000 for the first
half of last year. Wireless operating income improved significantly in the
current first six months due to cost savings achieved through the consolidation
of the RF Power and Amitron operations in fiscal 2005, the absence of
consolidation charges ($1.1 million in the first six months of fiscal 2005),
cost efficiencies resulting from high manufacturing volumes in the Company's
China operation and a more favorable wireless product mix in the current first
six months, compared to the first half of last fiscal year.

Space and Defense operating income fell $2.0 million in the first six months of
fiscal 2006 to $1.4 million (including $831,000 of stock option equity based
compensation expense) compared to $3.4 million in the first six 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 half of fiscal 2006. These
programs in their 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 are expected to improve as the
newer programs mature.

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 111% to $1.1 million (2.4% of net sales) for the six months
ended December 31, 2005, from $533,000 (1.0% 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 and the absence of losses on equipment and
investment sales in the current first six months compared to $410,000 of losses
recorded in the first half 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 $12,000
compared to $16,000 for the first half of fiscal 2005.

Income Taxes. Income taxes for the first half of fiscal 2006 were $1,517,000
(3.1% of net sales), representing an effective tax rate of 25.3%. This compares
to income tax expense of $835,000 (1.7% of net sales) for the first half of
fiscal 2005, representing an effective tax rate of 22%. 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 approximately 25% 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


                                       23
<PAGE>

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.

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 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.


                                       24
<PAGE>

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 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 six months ended December 31, 2005 was
$7.3 million, while net cash provided by operations for the first half of the
prior year was $2.4 million. The positive cash flow from operations in the
current six months was due to the high level of net income before depreciation
and non cash equity compensation, which more than off-set the $3.0 million used
to fund the current inventory increase. The positive cash flow from operations
in the first half of fiscal 2005 was due primarily to income before depreciation
and amortization for the period coupled with a $1.0 million decline in trade and
other receivables which off-set a $2.4 million increase in inventory and a $2.8
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 provided by investing activities in the first half of fiscal 2006 was
$522,000 and consisted of $3.5 million provided by the maturity of marketable
debt securities, net of $3.0 million used to acquire capital equipment. Net cash
used in investing activities in the first half of fiscal 2005 was $2.5 million
and consisted of capital additions of $7.3 million, including approximately $5.0
million for the purchase and renovation of the Salem, New Hampshire


                                       25
<PAGE>

manufacturing facility, which were offset by funds provided by the maturity and
sale of marketable securities totaling $4.8 million.

Net cash used in financing activities was $9.1 million in the first half of
fiscal 2006 and $11.6 million in the first half of last fiscal year. Cash used
in the first half of fiscal 2006 consisted of $9.8 million used for the purchase
of 343,611 treasury shares, net of $646,000 received from the exercise of stock
options. Cash used in the first half of fiscal 2005 was $11.6 million for the
purchase of 968,198 treasury shares, net of $50,000 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. Capital expenditures are expected to total between
$4.0 and $5.0 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 on market conditions. At December 31, 2005 there
were 1,078,579 shares remaining under the current Board repurchase
authorization.

At December 31, 2005, the Company had approximately $77.2 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 December 31, 2005 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        $3,812,295       $496,676       $957,692         $898,258       $1,459,669
Deferred compensation                   359,537         65,000        130,000          130,000           34,537
</TABLE>


                                       26
<PAGE>

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).

Forward-Looking Cautionary Statement

In an effort to provide investors a balanced view of the Company's current
condition and future growth opportunities, this Quarterly Report on Form 10-Q
includes comments by the Company's management about future performance. These
statements which are not historical information are "forward-looking statements"
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. 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: the Company's
ability to timely ramp up to meet some of our customers' increased demands;
difficulties achieving acceptable operating performance at the Company's
recently consolidated Anaren Ceramics subsidiary in Salem, New Hampshire;
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 or have difficulties in
successfully executing its business strategies or achieving its operating
objectives, generate revenue growth or achieving profitability expectations;
difficulty in successfully securing new design wins from our original equipment
manufacturer 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; unanticipated delays and/or
difficulties increasing procurement of raw materials in Asia through the
Company's Suzhou, China facility; the risks associated with any technological
shifts away from the Company's technologies and core competencies; unanticipated
impairments of assets including investment values and


                                       27
<PAGE>

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, on Form 10-K for the fiscal year ended June 30, 2005, and the
corresponding exhibits, 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 December 31, 2005, the Company had cash, cash equivalents and marketable
securities of $77.2 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 December 31, 2005
rates, or 0.25%, would have reduced net income and cash flow by approximately
$50,000, or $0.002 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.

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.


                                       28
<PAGE>

PART II OTHER INFORMATION

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 September 30, 2005, 1,422,190 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 December 31, 2005, 1,078,579 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>
October 2005                   85,100              13.96                    85,100              1,337,090
----------------------------------------------------------------------------------------------------------------
November 2005                 192,963              14.01                   192,963              1,144,127
----------------------------------------------------------------------------------------------------------------
December 2005                  65,548              15.36                    65,548              1,078,579
----------------------------------------------------------------------------------------------------------------
Total                         343,611                 --                   343,611                     --
----------------------------------------------------------------------------------------------------------------
</TABLE>

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


                                       29
<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: February 3, 2006                  /s/Lawrence A. Sala
                                        ----------------------------------------
                                        Lawrence A. Sala
                                        President & Chief Executive Officer

Date: February 3, 2006                  /s/Joseph E. Porcello
                                        ----------------------------------------
                                        Joseph E. Porcello
                                        Sr. Vice President of Finance, Treasurer


                                       30