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, 2009

|_|   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 checkmark  whether the registrant has submitted  electronically  and
posted on its corporate Web site, if any, every  Interactive  Data File required
to be  submitted  and posted  pursuant to Rule 405 of  regulation  S-T  (Section
232.405 of this  chapter)  during the  preceding  12 months (or for such shorter
period that the registrant  was required to submit and post such files.  Yes |X|
No |_|

Indicate by check mark whether the Registrant is a large  accelerated  filer, an
accelerated  filer, a  non-accelerated  filer, or smaller  reporting company (as
defined in Rule 12b-2 of the Exchange Act).
Check One:  Large accelerated filer |_|      Accelerated filer |X|

            Non-accelerated filer   |_|      Smaller reporting company |_|

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

      The  number  of  shares  of  Registrant's   Common  Stock  outstanding  on
January 25, 2010 was 14,886,460.

<PAGE>

                                  ANAREN, INC.
                                    FORM 10-Q
                                      INDEX

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

   Item 1.   Financial Statements

             Condensed Consolidated Balance Sheets as of                 3
             December 31, 2009 and June 30, 2009 (unaudited)

             Condensed Consolidated Statements of Income                 4
             for the Three Months Ended December 31,
             2009 and 2008 (unaudited)

             Condensed Consolidated Statements of Income                 5
             for the Six Months Ended December 31,
             2009 and 2008 (unaudited)

             Condensed Consolidated Statements of Cash Flows             6
             for the Six Months Ended December 31,
             2009 and 2008 (unaudited)

             Notes to Condensed Consolidated Financial                   7
             Statements (unaudited)

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

   Item 3.   Quantitative and Qualitative Disclosures About              24 - 25
             Market Risk

   Item 4.   Controls & Procedures                                       25

PART II - OTHER INFORMATION

   Item 1A.  Risk Factors                                                25

   Item 4.   Submission of Matters to a Vote of Security Holders         26

   Item 6.   Exhibits                                                    26 - 27

Officer Certifications                                                   28 - 31


                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                                  ANAREN, INC.
                      Condensed Consolidated Balance Sheets
                       December 31, 2009 and June 30, 2009
                    (in thousands, except per share amounts)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                               December 31, 2009      June 30, 2009
                                                                                               -----------------      -------------
<S>                                                                                                <C>                  <C>
Assets:
      Cash and cash equivalents                                                                    $  57,697            $  49,893
      Securities held to maturity                                                                      2,034               11,810

      Receivables, less an allowance of $0.4 million at
         December 31, 2009 and June 30, 2009                                                          25,841               24,466
      Inventories                                                                                     33,174               35,282
      Prepaid expenses and other current assets                                                        4,272                4,033
      Deferred income taxes                                                                            1,651                1,547
                                                                                                   ---------            ---------
         Total current assets                                                                        124,669              127,031
      Securities available-for-sale                                                                    1,050                1,050
      Securities held to maturity                                                                      1,030                2,079
      Property, plant, and equipment, net                                                             50,843               52,889
      Deferred income taxes                                                                               28                   27
      Goodwill                                                                                        42,635               42,635
      Other intangible assets, net                                                                    10,748               11,344
                                                                                                   ---------            ---------
      Total assets                                                                                 $ 231,003            $ 237,055
                                                                                                   =========            =========


Liabilities and Shareholders' Equity:
       Current installments of long-term obligation                                                $  10,000            $   9,800
       Accounts payable                                                                                5,900                6,991
       Accrued expenses                                                                                3,567                5,208
       Deferred income taxes                                                                              --                  177
       Customer advance payments                                                                         162                  118
       Other current liabilities                                                                       2,670                2,525
                                                                                                   ---------            ---------
         Total current liabilities                                                                    22,299               24,819
      Deferred income taxes                                                                            2,587                2,103
      Pension and postretirement benefit obligation                                                    6,872                6,496
      Long-term obligation                                                                            30,000               40,000
      Other liabilities                                                                                2,998                2,692
                                                                                                   ---------            ---------
      Total liabilities                                                                               64,756               76,110
                                                                                                   ---------            ---------
Stockholders' Equity:

       Common stock, $0.01 par value.  Authorized 200,000
       shares; issued 28,505 and 28,007 at December 31, 2009 and
       June 30, 2009, respectively                                                                       285                  280
       Additional paid-in capital                                                                    204,156              199,597
       Retained earnings                                                                             109,778              104,399
       Accumulated other comprehensive loss                                                           (2,381)              (2,397)
                                                                                                   ---------            ---------
                                                                                                     311,838              301,879
         Less 13,564 and 13,251 treasury shares at December 31, 2009
           and June 30, 2009, respectively, at cost                                                  145,591              140,934
                                                                                                   ---------            ---------
         Total stockholders' equity                                                                  166,247              160,945
                                                                                                   ---------            ---------
       Total liabilities and stockholders' equity                                                  $ 231,003            $ 237,055
                                                                                                   =========            =========
</TABLE>

      See accompanying notes to condensed consolidated financial statements


                                       3
<PAGE>

                                  ANAREN, INC.
                   Condensed Consolidated Statements of Income
                  Three Months Ended December 31, 2009 and 2008
                    (in thousands, except per share amounts)
                                   (unaudited)

                                                           2009           2008
                                                         -------        -------
Net sales                                                $41,019        $41,443
Cost of sales                                             26,713         29,144
                                                         -------        -------
         Gross profit                                     14,306         12,299
Operating Expenses:
   Marketing                                               2,237          2,052
   Research and development                                3,534          3,024
   General and administrative                              4,641          4,972
                                                         -------        -------
         Total operating expenses                         10,412         10,048
                                                         -------        -------
         Operating income                                  3,894          2,251
Other income (expense):
   Interest expense                                         (138)          (622)
   Other, primarily interest income                           86            307
                                                         -------        -------
         Total other income (expense), net                   (52)          (315)
                                                         -------        -------
         Income before income tax expense                  3,842          1,936
Income tax expense                                         1,320            352
                                                         -------        -------
         Net income                                      $ 2,522        $ 1,584
                                                         =======        =======

Earnings per share:
   Basic                                                 $  0.18        $  0.11
                                                         =======        =======
   Diluted                                               $  0.17        $  0.11
                                                         =======        =======

Weighted average common shares Outstanding:
       Basic                                              14,210         13,804
                                                         =======        =======
       Diluted                                            14,706         13,974
                                                         =======        =======

      See accompanying notes to condensed consolidated financial statements


                                       4
<PAGE>

                                  ANAREN, INC.
                   Condensed Consolidated Statements of Income
                   Six Months Ended December 31, 2009 and 2008
                    (in thousands, except per share amounts)
                                   (unaudited)

                                                           2009           2008
                                                         -------        -------
Net sales                                                $81,356        $79,567
Cost of sales                                             52,386         55,745
                                                         -------        -------
         Gross profit                                     28,970         23,822
Operating Expenses:
   Marketing                                               4,599          4,145
   Research and development                                7,142          6,108
   General and administrative                              9,122          9,392
                                                         -------        -------
         Total operating expenses                         20,863         19,645
                                                         -------        -------
         Operating income                                  8,107          4,177
Other income (expense):
   Interest expense                                         (321)          (888)
   Other, primarily interest income                          213            710
                                                         -------        -------
         Total other income (expense), net                  (108)          (178)
                                                         -------        -------
         Income before income tax expense                  7,999          3,999
Income tax expense                                         2,620          1,074
                                                         -------        -------
         Net income                                      $ 5,379        $ 2,925
                                                         =======        =======

Earnings per share:
   Basic                                                 $  0.38        $  0.21
                                                         =======        =======
   Diluted                                               $  0.37        $  0.21
                                                         =======        =======

Weighted average common shares Outstanding:
       Basic                                              14,163         13,967
                                                         =======        =======
       Diluted                                            14,727         14,121
                                                         =======        =======

      See accompanying notes to condensed consolidated financial statements


                                       5
<PAGE>

                                  ANAREN, INC.
                 Condensed Consolidated Statements of Cash Flows
                   Six Months Ended December 31, 2009 and 2008
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                                         2009                2008
                                                                                                       --------            --------
<S>                                                                                                    <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
       Net income                                                                                      $  5,379            $  2,925
       Adjustments to reconcile net income to net cash
       provided by operating activities:
       Depreciation                                                                                       4,140               3,924
       Loss on disposal of fixed assets                                                                      67                  (4)
       Amortization                                                                                         671                 916
       Deferred income taxes                                                                               (158)               (528)
       Equity based compensation                                                                          1,622               2,051

       Changes in operating assets and liabilities:
           Receivables                                                                                   (1,376)              2,885
           Inventories                                                                                    2,122                (488)
           Prepaid expenses and other current assets                                                       (675)                (94)
           Accounts payable                                                                              (1,092)             (1,998)
           Accrued expenses                                                                              (1,640)               (473)
           Customer advance payments                                                                         45                (637)
           Other liabilities                                                                                811              (1,206)
           Pension and postretirement benefit obligation                                                    376                 232
                                                                                                       --------            --------
             Net cash provided by operating activities                                                   10,292               7,505
                                                                                                       --------            --------

CASH FLOWS FROM INVESTING ACTIVITIES:
       Capital expenditures                                                                              (2,163)             (3,636)
       Payment for purchase of M. S. Kennedy and Unicircuit, net
             of cash acquired                                                                                --             (47,296)
       Proceeds from sale of property, plant, and equipment                                                   3                  --
       Maturities of held to maturity and available-for-sale securities                                  10,750              16,909
       Purchases of held to maturity and available-for-sale securities                                       --              (3,130)
                                                                                                       --------            --------
             Net cash provided by (used in) investing activities                                          8,590             (37,153)
                                                                                                       --------            --------

CASH FLOWS FROM FINANCING ACTIVITIES:
       Payments on mortgage payable                                                                          --              (1,210)
       Payment on note payable                                                                           (9,800)                 --
       Proceeds from note payable                                                                            --              49,800
       Stock options exercised                                                                            3,149                 205
       Excess tax benefit from exercise of stock options                                                    214                  28
       Purchase of treasury stock                                                                        (4,657)             (5,014)
                                                                                                       --------            --------

             Net cash used in financing activities                                                      (11,094)             43,809
                                                                                                       --------            --------
Effect of exchange rates on cash                                                                             16                  13
                                                                                                       --------            --------
             Net increase in cash and cash equivalents                                                    7,804              14,175
Cash and cash equivalents, beginning of year                                                             49,893              10,711
                                                                                                       --------            --------
Cash and cash equivalents, end of period                                                               $ 57,697            $ 24,885
                                                                                                       ========            ========

Supplemental disclosures of cash flow information:
       Cash paid during the period for:
        Interest                                                                                       $    454            $    288
                                                                                                       ========            ========
        Income taxes, net of refunds                                                                      2,810               2,076
                                                                                                       ========            ========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.


                                       6
<PAGE>

                                  ANAREN, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

The condensed  consolidated  financial  statements are unaudited and reflect all
adjustments  (consisting of normal recurring  adjustments)  and accruals,  which
are, in the opinion of  management,  necessary  for a fair  presentation  of the
financial position and operating results for the interim periods.  The condensed
consolidated  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,  2009.  The results of  operations  for the three and six months  ended
December 31, 2009 are not  necessarily  indicative of the results for the entire
fiscal year ending June 30, 2010, or any future interim period.

The income tax rates utilized for interim financial  statement  purposes for the
three and six months ended  December 31, 2009 and 2008 are based on estimates of
income and utilization of tax credits for the entire fiscal year ending June 30,
2010.

The Company  evaluated all events or  transactions  that occurred after December
31,  2009 up  through  January  29,  2010,  the date the  Company  issued  these
financial  statements.  During  this  period,  the  Company  did  not  have  any
recognizable subsequent events.

Certain reclassifications on the condensed consolidated statements of cash flows
for the six months  ended  December  31,  2008 have been made  ($0.8  million of
income tax liability decrease was consolidated with other liabilities).

(1) New Accounting Pronouncements

In October 2009,  new  accounting  guidance was issued related to the accounting
for revenue  recognition  from  arrangement  with  multiple  deliverables.  This
guidance  removes  the  objective-and-reliable-evidence-of-fair-value  criterion
from the separation criteria used to determine whether an arrangement  involving
multiple  deliverables  contains  more  than  one unit of  accounting,  replaces
references to "fair value" with  "selling  price" to  distinguish  from the fair
value measurements  required under the "Fair Value Measurements and Disclosures"
guidance,  provides a hierarchy  that  entities must use to estimate the selling
price, eliminates the use of the residual method for allocation, and expands the
ongoing  disclosure  requirements.  This  update is  effective  for the  company
beginning  July 1, 2011 and can be  applied  prospectively  or  retrospectively.
Management is currently  evaluating the effect that adoption of this update will
have, if any, on the Company's condensed  consolidated financial statements when
it becomes effective in 2012.

In September 2009, new accounting guidance was issued, which permits entities to
measure the fair value of certain investments,  including those with fair values
that are not readily determinable, on the basis of the net asset value per share
of the investment (or its equivalent) if such net asset value is calculated in a
manner    consistent   with   the    measurement    principles   in   "Financial
Services-Investment  Companies" as of the reporting  entity's  measurement  date
(measurement of all or  substantially  all of the underlying  investments of the
investee  in  accordance  with the "Fair  Value  Measurements  and  Disclosures"
guidance).  The update also requires  enhanced  disclosures about the nature and
risks of  investments  within  its scope  that are  measured  at fair value on a
recurring or nonrecurring  basis.  The Company does not believe that this update
will have a material effect on the Company's  condensed  consolidated  financial
position and results of operations.

In  January  2009,  new   accounting   guidance  which  requires  more  detailed
disclosures  about  employers'  plan  assets,  including  employers'  investment
strategies, major categories of plan assets,  concentrations of risk within plan
assets, and valuation  techniques used to measure the fair value of plan assets.
Other than for some  additional  disclosures  in the Annual Report on Form 10-K,
adoption of this  guidance  will not have an effect on the  Company's  condensed
consolidated financial statements.


                                       7
<PAGE>

                                  ANAREN, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

In November  2008,  new  accounting  guidance was  proposed  that relates to the
milestone method of revenue recognition.  This guidance would define a milestone
and to determine whether an entity may recognize  consideration  earned from the
achievement  of a milestone  in the period in which the  milestone  is achieved.
This Issue applies to revenue  arrangements  under which a vendor  satisfies its
performance  obligations  to  a  customer  over  a  period  of  time,  when  the
deliverable or unit of accounting is not within the scope of other authoritative
literature,  and when  the  arrangement  consideration  is  contingent  upon the
achievement  of a milestone.  The Company is currently  evaluating the impact of
this guidance on the condensed consolidated financial statements.

(2) Equity Based Compensation

The  components  of  equity-based  compensation  expense  in the  statements  of
earnings are as follows:

<TABLE>
<CAPTION>
                                                    Three Months Ended               Six Months Ended
                                                        December 31                     December 31
                                                   ---------------------         -------------------------
(amounts in thousands)                             2009             2008          2009               2008
                                                   ----             ----         ------             ------
<S>                                                <C>              <C>          <C>                <C>
Stock option                                       $204             $408         $  422             $  957
Restricted stock                                    716              578          1,200              1,094
                                                   ----             ----         ------             ------

       Stock-based compensation                    $920             $986         $1,622             $2,051
                                                   ====             ====         ======             ======
</TABLE>

In the three and six months ending December 31, 2009, 280,000 and 282,000 shares
of restricted  stock with  aggregate  grant date fair value of $4.0 million were
issued, respectively, with a vesting period of 1 to 4 years.

(3) Securities

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

<TABLE>
<CAPTION>
                                                                                        December 31, 2009
                                                                    --------------------------------------------------------------
                                                                                         Gross          Gross
                                                                    Amortized         unrealized      unrealized            Fair
(amounts in thousands)                                                Cost               gains          losses              value
                                                                    ---------         ----------      ----------           -------
<S>                                                                  <C>                <C>             <C>                <C>
Securities available-for-sale:
   Auction rate securities                                           $ 1,440            $    --         $  (390)           $ 1,050

Securities held to maturity:
    Municipal bonds                                                  $ 3,064            $    88         $    --            $ 3,152
</TABLE>

<TABLE>
<CAPTION>
                                                                                            June 30, 2009
                                                                    --------------------------------------------------------------
                                                                                         Gross          Gross
                                                                    Amortized         unrealized      unrealized            Fair
(amounts in thousands)                                                Cost               gains          losses              value
                                                                    ---------         ----------      ----------           -------
<S>                                                                  <C>                <C>             <C>                <C>
Securities available-for-sale:
   Auction rate securities                                           $ 1,440            $    --         $  (390)           $ 1,050

Securities held to maturity:
    Municipal bonds                                                  $13,889            $   310         $    --            $14,199
</TABLE>


                                       8
<PAGE>

                                  ANAREN, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

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

<TABLE>
<CAPTION>
                                                                         December 31, 2009                    June 30, 2009
                                                                    ---------------------------        ---------------------------
                                                                                         Fair                               Fair
                                                                    Amortized           market         Amortized           market
(amounts in thousands)                                                cost               value           cost               value
                                                                    ---------           -------        ---------           -------
<S>                                                                  <C>                <C>             <C>                <C>
Within one year                                                      $ 2,034            $ 2,087         $11,810            $12,075
One year to five years                                                 1,030              1,065           2,079              2,124
                                                                     -------            -------         -------            -------
    Total                                                            $ 3,064            $ 3,152         $13,889            $14,199
                                                                     =======            =======         =======            =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                         December 31, 2009                    June 30, 2009
                                                                    ---------------------------        ---------------------------
                                                                                          Fair                               Fair
                                                                                         market                             market
(amounts in thousands)                                                Cost               value           Cost               value
                                                                    ---------           -------        ---------           -------
<S>                                                                  <C>                <C>             <C>                <C>
One year to five years                                               $ 1,440            $ 1,050         $ 1,440            $ 1,050
</TABLE>

The Company  owns one auction  rate  security.  The security has gone to auction
once  every 365 days,  and  since  September  2008,  the  security  has not been
purchased.  Therefore,  based on the outlook of the auction process, the Company
has recorded the security as long term. The available-for-sale  security that is
in an unrealized  loss position is  considered a temporary  impairment,  and the
unrealized  loss  has  been  recorded  as  a  component  of  accumulated   other
comprehensive  income. This temporary  impairment is generally due to changes in
the overall level of interest rates since the security was acquired. The Company
has a policy which  considers  historic  interest rate volatility and the target
actual  duration of its  investments  in debt  securities to initially  identify
potential other than-temporary  impairments. If a debt security is identified as
a potential other-than-temporarily impaired security, the Company has the option
to assert its ability and intent to hold it to  maturity  and thereby  avoid any
loss,  if necessary.  The Company has not  recognized  impairment  losses in the
three and six months ending  December 31, 2009 and 2008. The Company also has an
escrow  agreement in place which  institutes a deemed sale of the  investment at
the second anniversary of the purchase date of M. S. Kennedy Corp (August 2010).
The Company  believes there is no other than temporary  impairment of this asset
as of December 31, 2009.

(4) Fair Value Measurements

The  carrying  amount  of  financial   instruments,   including  cash  and  cash
equivalents,  trade  receivables and accounts payable,  approximated  their fair
value  as  of  December  31,  2009  because  of  the  short  maturity  of  these
instruments.  Also,  the Company's  carrying cost for its revolving  credit note
approximates fair value.

Valuations on certain  instruments  are  prioritized  into three broad levels as
follows.  Level 1 inputs are quoted prices  (unadjusted)  in active  markets for
identical  assets or  liabilities.  Level 2 inputs are quoted prices for similar
assets and liabilities in active markets, quoted prices for identical or similar
assets in markets that are not active,  inputs other than quoted prices that are
observable for the asset or liability,  including  interest rates,  yield curves
and credit risks, or inputs that are derived principally from or corroborated by
observable  market data  through  correlation.  Level 3 inputs are  unobservable
inputs based on our own  assumptions  used to measure assets and  liabilities at
fair value. A financial asset or liability's  classification is determined based
on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value as
measured on a recurring basis as of December 31, 2009:

(amounts in thousands)

<TABLE>
<CAPTION>
                                                                           Significant other    Significant
                                    Total Carrying     Quoted prices in       observable       unobservable
                                       Value at         active markets          inputs            inputs
                                  December 31, 2009       (Level 1)            (Level 2)         (Level 3)
                                  -----------------    ----------------    -----------------   ------------
<S>                                    <C>                 <C>                  <C>               <C>
Available for sale
    securities                         $ 1,050             $   --               $   --            $ 1,050
</TABLE>

Valuation Techniques.

In the first quarter ended September 30, 2008, the Company acquired this Level 3
security,  noted  in the  table  above,  with an  estimated  fair  value of $1.4
million.  As of December 31, 2009 and June 30, 2009, this security was valued at
$1.1 million. The Company's  available-for-sale security is a debt security that
is traded in an inactive


                                       9
<PAGE>

                                  ANAREN, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

market.  After analyzing the underlying assets and structure of the student loan
auction rate  security,  the Company has  determined  that the most  appropriate
method of deriving a value  indication was a discounted cash flow analysis.  The
Company found that collateral  characteristics,  redemption probability,  credit
rating,  and discount rates are the most important value drivers to determine an
estimated fair value of the underlying security,  and is classified within Level
3 of the valuation hierarchy.


                                       10
<PAGE>

                                  ANAREN, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

(5) Intangible Assets

The major components of intangible assets are as follows:



<TABLE>
<CAPTION>
                                                                         December 31, 2009                   June 30, 2009
(amounts in thousands)                                                Gross               Net            Gross               Net
                                                                    Carrying           Carrying        Carrying           Carrying
                                                                     Amount              Amount         Amount             Amount
                                                                    --------           --------        --------           --------
<S>                                                                  <C>                <C>             <C>                <C>
Amortizable intangible assets:
    Customer relationships                                           $ 7,530            $ 6,476         $ 7,530            $ 6,852
    Developed technology                                                 780                559             780                637
    Non-competition agreements                                         1,130                733           1,130                875
                                                                     -------            -------         -------            -------

       Total                                                         $ 9,440            $ 7,768         $ 9,440            $ 8,364
                                                                     =======            =======         =======            =======


Non-amortizable intangible assets:
    Trade names                                                                           2,980                              2,980
                                                                                        -------                            -------
Total intangible assets                                                                 $10,748                            $11,344
                                                                                        =======                            =======
</TABLE>

Intangible  asset  amortization  expense for the three months ended December 31,
2009 and 2008  aggregated $0.3 million and $0.4 million,  respectively,  and for
the six months ended December 31, 2009 and 2008 aggregated $0.6 million and $0.7
million,  respectively.  Amortization expense related to developed technology is
recorded in cost of sales, and amortization  expense for non-compete  agreements
and customer relationships is recorded in general and administrative expense.

There have been no changes in the carrying amount of goodwill for the six months
ended December 31, 2009.

(6) Inventories

Inventories are summarized as follows:

(amounts in thousands)                       December 31, 2009     June 30, 2009
                                             -----------------     -------------
Raw Materials                                     $ 18,639            $ 18,533
Work in process                                     10,517              12,664
Finished goods                                       4,018               4,085
                                                  --------            --------
                                                  $ 33,174            $ 35,282
                                                  ========            ========

(7) Property, Plant, and Equipment

Components of property, plant, and equipment consists of the following:

(amounts in thousands)                       December 31, 2009     June 30, 2009
                                             -----------------     -------------
Land and land improvements                        $  5,168            $  5,260
Construction in process                              1,404                 964
Buildings, furniture, and fixtures                  33,873              33,872
Machinery and equipment                             60,452              58,865
                                                  --------            --------
                                                   100,897              98,961
Less accumulated depreciation                      (50,054)            (46,072)
                                                  --------            --------
                                                  $ 50,843            $ 52,889
                                                  ========            ========


                                       11
<PAGE>

                                  ANAREN, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

(8) Accrued Expenses

Accrued expenses consists of the following:

(amounts in thousands)                       December 31, 2009     June 30, 2009
                                             -----------------     -------------
Compensation                                      $  2,286            $  3,638
Commissions                                            570                 760
Health insurance                                       587                 685
Other                                                  124                 125
                                                  --------            --------
                                                  $  3,567            $  5,208
                                                  ========            ========

The Company maintains an accrual for incurred, but not reported,  claims arising
from  self-insured  health benefits  provided to the Company's  employees in the
United States, which is included in accrued expenses in the consolidated balance
sheets.  The Company  determines  the adequacy of this accrual by evaluating its
historical  experience  and trends related to both health  insurance  claims and
payments,  information  provided  by its third party  administrator,  as well as
industry experience and trends.

(9) Other Liabilities

Other liabilities consists of the following:

(amounts in thousands)                       December 31, 2009     June 30, 2009
                                             -----------------     -------------
Deferred compensation                             $    445            $    243
Supplemental retirement plan                           627                 584
Accrued lease                                          995               1,184
Warranty accrual                                       394                 434
Income tax liability                                 2,312               1,747
Deferred income                                        375                 375
Interest                                               132                 350
Other                                                  388                 300
                                                  --------            --------
                                                     5,668               5,217
Less current portion                                (2,670)             (2,525)
                                                  --------            --------
                                                  $  2,998            $  2,692
                                                  ========            ========

The Company provides warranty policies on its products. In addition, the Company
incurs  costs to service  our  products  in  connection  with  specific  product
performance  issues.  Liability for product  warranties  are based upon expected
future product  performance and durability,  and is estimated largely based upon
historical  experience.  Adjustments  are made to  accruals  as  claim  data and
historical  experience  warrant.  The changes in the carrying  amount of product
warranty reserves for the six months ended December 31, 2009, is as follows:

               (amounts in thousands)
               Balance as of June 30, 2009                    $   434
               Additions                                          189
               Costs incurred                                    (183)
               Adjustments                                        (46)
                                                              -------
               Balance as of December 31, 2009                $   394
                                                              =======

(10) Debt

Borrowings   under  a  revolving   credit  note  (Note)  with  KeyBank  National
Association,  at the Company's  choice,  bear interest at LIBOR, plus 100 to 425
basis  points,  or at the  Lender's  prime  rate,  minus (100) to plus 225 basis
points,  depending  upon the  Company's  EBITDA  performance  at the end of each
quarter as measured by the  formula:  EBITDA  divided by the Current  Portion of
Long-term  Debt plus  interest  expense.  For the six months ended  December 31,
2009,  the weighted  average  interest rate on the  outstanding  borrowings  was
approximately 1.6%.


                                       12
<PAGE>

                                  ANAREN, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

In the six months ending December 31, 2009, the Company paid $9.8 million on the
Note.


                                       13
<PAGE>

                                  ANAREN, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

(11) Earning Per Share

Basic  earnings  per  share is based on the  weighted  average  number of common
shares outstanding.  Diluted earnings 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
Comprehensive  Long-Term  Incentive Plan. The weighted  average number of common
shares  utilized in the  calculation of the diluted  earnings per share does not
include antidilutive shares aggregating 611,000 and 2,129,000 for the six months
ended  December 31, 2009 and 2008,  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
                                                                     --------------------------         --------------------------
(amounts in thousands)                                                 2009              2008            2009               2008
                                                                     -------            -------         -------            -------
<S>                                                                  <C>                <C>             <C>                <C>
Numerator:
Net income                                                           $ 2,522            $ 1,584         $ 5,379            $ 2,925
                                                                     =======            =======         =======            =======

Denominator:
Denominator for basic earnings per share
outstanding                                                           14,210             13,804          14,163             13,967
                                                                     =======            =======         =======            =======

Denominator for diluted earnings per share:
   Weighted average shares outstanding                                14,210             13,804          14,163             13,967
Common stock options and restricted stock                                496                170             564                154
                                                                     -------            -------         -------            -------

Weighted average shares                                               14,706             13,974          14,727             14,121
                                                                     =======            =======         =======            =======
</TABLE>

(12) Employee Benefit Plans

Defined Benefit Plan

Components  of net  periodic  pension  cost for the three and six  months  ended
December 31 are as follows:

<TABLE>
<CAPTION>
                                                                         Three Months Ended                 Six Months Ended
                                                                            December 31                        December 31
                                                                     --------------------------         --------------------------
                                                                       2009              2008            2009               2008
                                                                     -------            -------         -------            -------
<S>                                                                  <C>                     <C>        <C>                    <C>
(amounts in thousands)
Service cost                                                         $    78                 66         $   156                132
Interest cost                                                            200                187             400                374
Expected return on plan assets                                          (187)              (212)           (374)              (424)
Amortization of the unrecognized loss                                     83                 21             166                 42
                                                                     -------            -------         -------            -------
Net periodic benefit cost                                            $   174                 62         $   348                124
                                                                     =======            =======         =======            =======
</TABLE>

Required contributions for fiscal 2010 are approximately $0.9 million.


                                       14
<PAGE>

                                  ANAREN, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

Postretirement Health Benefit Plan

Components  of net  periodic  postretirement  benefit cost for the three and six
months ended December 31 are as follows:

<TABLE>
<CAPTION>
                                                                         Three Months Ended                 Six Months Ended
                                                                            December 31                        December 31
                                                                     --------------------------         --------------------------
                                                                       2009              2008            2009               2008
                                                                     -------            -------         -------            -------
<S>                                                                  <C>                     <C>        <C>                    <C>
(amounts in thousands)
Service cost                                                         $    20                 17         $    40                 35
Interest cost                                                             40                 39              80                 79
Amortization of the unrecognized loss                                      1                  1               2                  2
Amortization of the prior service cost                                    (5)                (5)            (10)                (8)
                                                                     -------            -------         -------            -------
Net periodic benefit cost                                            $    56                 53         $   112                106
                                                                     =======            =======         =======            =======
</TABLE>

Expected  contributions  for fiscal 2010 are estimated to be approximately  $0.1
million.

(13) Other Comprehensive Income

Other Comprehensive Income

Comprehensive income consists of the following:

<TABLE>
<CAPTION>
                                                                         Three Months Ended                 Six Months Ended
                                                                            December 31                        December 31
                                                                     --------------------------         --------------------------
                                                                       2009              2008            2009               2008
                                                                     -------            -------         -------            -------
<S>                                                                  <C>                     <C>        <C>                    <C>
Net income                                                           $ 2,522            $ 1,584         $ 5,379            $ 2,925

Other comprehensive income:
   Foreign currency translation gain                                       2                 43              16                 62
   Mark to market adjustment                                              --               (169)             --                111
                                                                     -------            -------         -------            -------

Comprehensive income                                                 $ 2,524            $ 1,458         $ 5,395            $ 3,098
                                                                     =======            =======         =======            =======
</TABLE>

Accumulated Other Comprehensive Income (Loss)

The  cumulative  balance of each component of  accumulated  other  comprehensive
income (loss) is as follows:

<TABLE>
<CAPTION>
                                                                     Foreign         Minimum          Mark to           Accumulated
                                                                    currency         pension           market              other
                                                                   translation      liability    available-for-sale    comprehensive
                                                                   adjustment       adjustment       securities        income (loss)
                                                                   -----------      ----------   ------------------    -------------
<S>                                                                  <C>                  <C>         <C>                     <C>
(amounts in thousands)
Balances at June 30, 2008                                            $ 1,370         $(1,529)         $  (185)            $  (344)
Current period change                                                     35          (1,883)            (205)             (2,053)
                                                                     -------         -------          -------             -------
Balances at June 30, 2009                                            $ 1,405         $(3,412)         $  (390)            $(2,397)
Current period change                                                     16              --               --                  16
                                                                     -------         -------          -------             -------
Balances at December 31, 2009                                        $ 1,421         $(3,412)         $  (390)            $(2,381)
                                                                     =======         =======          =======             =======
</TABLE>


                                       15
<PAGE>

                                  ANAREN, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

(14) Segment and Related Information

The Company  operates  predominately in the wireless  communications,  satellite
communications,  and space and defense  electronics  markets.  The Company's two
reportable  segments are the Wireless Group and the Space & 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 Group designs,  manufactures,  and markets commercial products used
mainly by the wireless  communications  market. The Space & Defense Group of the
business designs,  manufactures,  and markets specialized products for the space
and defense electronics  markets. The Company's Space & Defense Group aggregates
certain  operating  segments  into  one  reportable  segment,  as the  operating
segments have similar products, customers, and margins on products.

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 &
(amounts in thousands)                                               Wireless           Defense       Unallocated       Consolidated
                                                                     --------           -------       -----------       ------------
<S>                                                                  <C>                <C>             <C>                <C>
Net sales (Three Months Ended):
     December 31, 2009                                               $12,383            $28,636         $    --            $41,019
     December 31, 2008                                                16,687             24,756              --             41,443
Net sales (Six Months Ended):
     December 31, 2009                                                26,794             54,562              --             81,356
     December 31, 2008                                                36,179             43,388              --             79,567
Operating income (Three Months Ended) (1)
     December 31, 2009                                                   537              3,683            (326)             3,894
     December 31, 2008                                                 1,751                650            (150)             2,251
Operating income (Six Months Ended) (1)
     December 31, 2009                                                 1,768              6,733            (394)             8,107
     December 31, 2008                                                 3,009              1,493            (325)             4,177
Goodwill and intangible assets:
     December 31, 2009                                                30,716             22,667              --             53,383
     June 30, 2009                                                    30,716             23,263              --             53,979
</TABLE>

(1)   Unallocated  amounts  relates  to an  extension  of an  existing  deferred
      compensation arrangement ($0.2 million for the three and six months ending
      December 31, 2009) and the  remainder of the expense  relates to the lease
      expense incurred on the London lease.


                                       16
<PAGE>

                                  ANAREN, INC.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

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

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 and factors described
in the  Company's  Annual Report on Form 10-K for the fiscal year ended June 30,
2009.

Overview

The consolidated  financial  statements  present the financial  condition of the
Company as of December 31, 2009 and June 30, 2009, and the consolidated  results
of operations  and cash flows of the Company for the three months and six months
ended December 31, 2009 and 2008.

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  and  subscriber  equipment  for  wireless
communications as well as, in satellites and in defense electronics systems. The
Company  sells  its  products  to  leading  wireless  communications   equipment
manufacturers such as Ericsson,  Motorola,  Nokia Siemens Networks,  and Huawei,
and to satellite communications and defense electronics companies such as Boeing
Satellite,  ITT, Lockheed Martin,  Northrop Grumman and Raytheon.  Net sales are
recognized when units are shipped.

Net sales under certain  long-term  contracts of the Space & Defense Group, many
of  which   provide   for   periodic   payments,   are   recognized   under  the
percentage-of-completion  method using the units of delivery  method.  Estimated
manufacturing  cost-at-completion  for these contracts are reviewed on a routine
periodic  basis,  and  adjustments  are  made   periodically  to  the  estimated
cost-at-completion based on actual costs incurred,  progress made, and estimates
of the  costs  required  to  complete  the  contractual  requirements.  When the
estimated  manufacturing  cost-at-completion  exceeds the  contract  value,  the
contract is written down to its net  realizable  value,  and the loss  resulting
from cost overruns is immediately  recognized.  To properly match net sales with
costs,  certain  contracts  may have  revenue  recognized  in excess of billings
(unbilled  revenues),  and other  contracts  may have  billings in excess of net
sales  recognized  (billings  in  excess of  contract  costs).  Under  long-term
contracts,  the  prerequisites  for billing the customer  for periodic  payments
generally involve the Company's achievement of contractually specific, objective
milestones (e.g.,  completion of design,  testing,  or other engineering  phase,
delivery of test data or other  documentation,  or  delivery  of an  engineering
model or flight hardware).

The Company operates in the wireless  communications,  satellite  communications
and defense  electronics  markets all of which have been affected by the current
economic  climate and  recession.  The defense budget has a direct impact on the
level funding available for programs that the Company currently  participates in
or has  targeted for future  participation.  We continue to assess the effect of
the 2010 defense budget proposal on these programs and, to date have seen little
negative  impact on our  anticipated  Space & Defense Group order rate in fiscal
2010.  The current  economic  down turn has  negatively  impacted the  worldwide
Wireless  infrastructure  market as the market has delayed or  downsized  system
expansions  and  upgrades.  The Company has seen this decline in demand over the
past twelve months  resulting in lower order volume for both custom and standard
component wireless  infrastructure products resulting in significant and ongoing
negative  impact on  Wireless  Group sales  levels in the current  fiscal  year.
While the Company has limited  short-term  visibility for customer demand, it is
felt that demand has stabilized at current levels and should improve in calendar
2010 as the economy begins to recover.

Third Quarter of Fiscal 2010 Outlook

For the third  quarter of fiscal 2010,  the Company  anticipates  an increase in
sales for both the  Wireless  Group and the Space & Defense  Group from the just
completed  second quarter.  As a result,  the Company expects net sales to be in
the range of $41 million to $45 million. GAAP net earnings per diluted share are
expected to be in the range of $0.18 - $0.22, using


                                       17
<PAGE>

an anticipated tax rate of  approximately  32.0% and inclusive of  approximately
$0.05 - $0.06 per share related to expected  equity based  compensation  expense
and acquisition related amortization of acquired intangibles.

Results of Operations

Net sales for the three months ended December 31, 2009 were $41.0 million,  down
1.0% from sales of $41.4  million  for the second  quarter of fiscal  2009.  Net
income for the second  quarter of fiscal 2010 was $2.5  million,  or 6.1% of net
sales,  up $0.9 million from net income of $1.6 million in the second quarter of
fiscal  2009.  Net income in the second  quarter of fiscal  2010  included  $0.3
million of  acquisition  related  expense  for  intangible  amortization  and no
expense for  amortization  of  inventory  step-up  compared  to $1.5  million of
combined  acquisition  related intangible  amortization and inventory step-up in
the second  quarter of fiscal 2009.  Additionally,  second  quarter  fiscal 2009
results benefited from a $0.3 million  reduction in commission  expense from the
correction  of an over  accrual  that was  accumulated  over a  number  of prior
periods. There was no comparable adjustment in the current second quarter.

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

<TABLE>
<CAPTION>
                                                                       Three Months Ended                  Six Months Ended
                                                                 Dec. 31, 2009    Dec. 31, 2008     Dec. 31, 2009     Dec. 31, 2008
                                                                 -------------    -------------     -------------     -------------
<S>                                                                  <C>              <C>               <C>               <C>
Net Sales                                                            100.0%           100.0%            100.0%            100.0%

Cost of sales                                                         65.1%            70.3%             64.4%             70.1%
                                                                     -----            -----             -----             -----
Gross profit                                                          34.9%            29.7%             35.6%             29.9%
                                                                     -----            -----             -----             -----

Operating expenses:
   Marketing                                                           5.5%             5.0%              5.6%              5.2%
   Research and development                                            8.6%             7.3%              8.8%              7.7%
   General and administrative                                         11.3%            12.0%             11.2%             11.8%
                                                                     -----            -----             -----             -----
      Total operating expenses                                        25.4%            24.3%             25.6%             24.7%
                                                                     -----            -----             -----             -----

Operating income                                                       9.5%             5.4%             10.0%              5.2%
                                                                     -----            -----             -----             -----

Other income (expense):

      Interest expense                                                (0.3)%           (1.4)%            (0.4)%            (1.1)%
      Other, primarily interest income                                 0.2%             0.7%              0.2%              0.9%
                                                                     -----            -----             -----             -----
      Total other income (expense), net                               (0.1)%           (0.7)%            (0.2)%            (0.2)%
                                                                     -----            -----             -----             -----

Income before income taxes                                             9.4%             4.7%              9.8%              5.0%
Income taxes                                                           3.3%             0.9%              3.2%              1.3%
                                                                     -----            -----             -----             -----
   Net income                                                          6.1%             3.8%              6.6%              3.7%
                                                                     =====            =====             =====             =====
</TABLE>

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

<TABLE>
<CAPTION>
                                                                     Three Months Ended                   Six months Ended
                                                             Dec. 31, 2009       Dec. 31, 2008     Dec. 31, 2009     Dec. 31, 2008
                                                             -------------       -------------     -------------     -------------
<S>                                                              <C>                <C>               <C>                <C>
Wireless                                                         $12,383            $16,687           $26,794            $36,179
Space and Defense                                                 28,636             24,756            54,562             43,388
                                                                 -------            -------           -------            -------
     Total                                                       $41,019            $41,443           $81,356            $79,567
                                                                 =======            =======           =======            =======
</TABLE>

Three Months Ended December 31, 2009 Compared to Three Months Ended December 31,
2008

Net sales.  Net sales were $41.0 million for the second  quarter ended  December
31, 2009,  down 1.0% compared to $41.4 million for the second  quarter of fiscal
2009. Sales of Wireless Group products fell $4.3 million, or 25.8%, and sales of
Space & Defense  Group  products  rose $3.9  million,  or 15.7%,  in the current
second quarter compared to the second quarter of fiscal 2009.


                                       18
<PAGE>

The  decline in sales of  Wireless  Group  products,  which  consist of standard
components,  ferrite  components  and custom  subassemblies  for use in building
wireless  base  station and consumer  equipment,  was the result of a decline in
demand for both custom assemblies and standard component Wireless Group products
during the first half of fiscal  2010  compared  to the first half of last year.
Sales of custom  products  fell  $2.5  million  in the  current  second  quarter
compared to the second quarter last fiscal year,  led by a $2.0 million  decline
in sales to a major OEM  resulting  from a general  decline  in global  wireless
infrastructure  spending,  partial loss of customer  product  allocations to low
cost Asian  vendor  sources  and  decreased  demand for  second  generation  GSM
equipment.  Wireless  Group standard  component  demand in the second quarter of
fiscal 2010 fell $1.8  million  from the second  quarter of fiscal 2009 due to a
general  decline in shipments to both OEMs and  distributors  resulting from the
general decline in the worldwide economy and infrastructure  capital expenditure
levels.  The  continuing  challenging  pricing  environment  for  both  standard
component and custom assembly  products also  negatively  impacted net sales for
the current  second  quarter  compared to last year.  Demand for Wireless  Group
products,  in the third quarter of fiscal 2010, is expected to increase compared
to second quarter levels.

Space & Defense Group products  consist of custom  components and assemblies for
commercial  and  military   satellites,   as  well  as  radar,   receiver,   and
countermeasure  subsystems  for the  military.  Sales of Space &  Defense  Group
products  rose $3.9  million,  or 15.7% in the  second  quarter  of fiscal  2010
compared to the second  quarter of the  previous  fiscal  year.  The increase in
current  second  quarter  sales was  driven  by $1.6  million  and $1.2  million
increases in sales of Hybrid  modules and RF printed wire boards,  respectively,
compared to the second  quarter of fiscal 2009 due to the higher  level of order
intake for these  products  over the last year.  Space & Defense  Group  product
sales  continue to benefit  from the higher level of business won by the Company
over the past few fiscal  years which has  resulted  in the  Group's  backlog of
$85.1 million.

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 2010 was
$14.3 million,  (34.9% of net sales), up from $12.3 million (29.7% of net sales)
for the same  quarter of the prior year.  Gross  profit,  as a percent of sales,
increased in the second  quarter of fiscal 2010 from the second  quarter of last
year due to the absence in the current  second  quarter of $1.1 million (2.7% of
net sales) of amortization of inventory step-up costs related to the acquisition
of M. S.  Kennedy and  Unicircuit,  which were  included  in the second  quarter
fiscal 2009 cost of sales.  Additionally,  gross  margins  were  enhanced by the
decline in sales of lower margin,  high material  content custom  Wireless Group
products and by reduced production overhead costs, including personnel, freight,
and production supplies, in excess of $1.0 million in the current second quarter
compared to the same period last year  resulting  from  ongoing  cost  reduction
efforts throughout the Company.

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 $2.2 million (5.5%
of net sales) for the second  quarter of fiscal 2010,  up $0.2 million from $2.0
million  (5.0% of net sales) for the second  quarter of fiscal  2009.  Marketing
expenses in the current second quarter rose $0.2 million from the second quarter
of last  fiscal  year,  as the second  quarter of fiscal  2009  expense had been
adjusted  down for a $0.3  million  reduction  in  commission  expense  from the
correction  of an over  accrual  that was  accumulated  over a  number  of prior
periods. There was no comparable adjustment in the current second quarter.

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 $3.5 million
(8.6% of net  sales) in the  second  quarter  of fiscal  2010,  up 17% from $3.0
million (7.3% of net sales) for the second quarter of fiscal 2009.  Research and
development  expenditures are supporting  further  development of Wireless Group
custom  products  for  new  domestic  marketplace   opportunities  and  consumer
component  products  for  additional  commercial  applications,  as  well as new
technology  development in the Space & Defense Group.  Research and  Development
expenditures  have  increased  in the second  quarter of fiscal  2010 versus the
second  quarter of last year due to the  higher  level of  opportunities  in the
Space & Defense Group  marketplaces which resulted in approximately $0.6 million
in  additional  spending  at our Anaren  Ceramics,  Anaren  Microwave  and M. S.
Kennedy subsidiaries  compared to the second quarter of fiscal 2009. The Company
expects to continue its current  research and  development  efforts and spending
levels  through the  remainder of the fiscal year and is presently  working on a
number of new  standard  and  custom  Wireless  Group and Space & Defense  Group
opportunities.

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  decreased to $4.6 million  (11.3% of net sales) for the second quarter
of fiscal 2010, from


                                       19
<PAGE>

$5.0 million  (12.0% of net sales) for the second  quarter of fiscal  2009.  The
decrease resulted from a decline of $0.2 million in intangible amortization from
the  acquisitions  of M. S.  Kennedy and  Unicircuit  during the current  second
quarter,  compared  to the second  quarter of fiscal 2009 due to a change in the
intangible  valuation  in the third  quarter of last year and a net $0.2 million
decline  in  compensation  and  other  administrative  expenses  due to  reduced
professional   service  costs  and   consolidation   of  functions   across  all
subsidiaries.

Operating Income. Operating income increased 73% in the second quarter of fiscal
2010 to $3.9 million, (9.5% of net sales), compared to $2.3 million (5.4% of net
sales)  for the second  quarter  of fiscal  2009.  This  increase  in the second
quarter  of fiscal  2010  from the  second  quarter  of last year was due to the
absence in the  current  second  quarter  of $1.1  million  of  amortization  of
inventory  step-up  costs  related  to the  acquisition  of M.  S.  Kennedy  and
Unicircuit, which were included in the second quarter fiscal 2009 cost of sales.
Operating  income  results were  further  enhanced by the effect of ongoing cost
containment  and  reduction  initiatives  throughout  the Company  over the last
twelve months which have had a significant  positive  effect on overall  Company
expense levels.

On an operating segment basis,  Wireless Group operating income was $0.5 million
(4.3% of group sales) for the second quarter of fiscal 2010,  down $1.2 million,
from the Group's  operating income of $1.7 million (10.5% of group sales) in the
second quarter of fiscal 2009. The decrease in Wireless Group  operating  income
was a result of the $4.3 million  decline in Wireless group sales year over year
which  resulted in a $1.6  million  decline in gross  margins for this  business
segment.  This decline in gross margin was  partially  off-set by  reductions in
operating  costs due to the lower sales  volume and the  Company's  overall cost
reduction  efforts  which  resulted  in a $0.4  million  (13%)  decline  in R&D,
marketing and  Administrative  expenses  within the group in the current  second
quarter compared to the second quarter last year.

Space & Defense Group  operating  income was $3.7 million (12.9% of Group sales)
in the second  quarter of fiscal 2010,  up $3.0 from $0.7  million  (2.6% of net
group sales) for the first  quarter of fiscal 2009.  Operating  margins for this
Group  improved ten  percentage  points in the current second quarter due to the
$3.8  million  increase  in sales  and the  inclusion  of only $0.3  million  of
acquisition related intangible amortization costs and no inventory step-up costs
in the first  quarter of fiscal  2010,  compared  to $1.3  million  of  combined
acquisition  related inventory step-up and intangible  amortization costs caused
by the  acquisition of M. S. Kennedy and Unicircuit  during the first quarter of
fiscal 2009 resulting in a combined approximate 8.0 percentage point improvement
in group gross and operating margins. Group operating margins rose an additional
4.2  percentage  points as a result of the cost  savings  achieved  through  the
Company's cost reduction efforts.

Other Income.  Other income  primarily  consists of interest  income received on
invested cash balances and rental income. Other income decreased to $0.1 million
in the second  quarter of fiscal 2010  compared  to $0.3  million for the second
quarter of last year.  This  decrease was caused by the  substantial  decline in
short-term  interest  rates year over year and a  deliberate  shortening  of the
maturities  of the  Company's  investment  portfolio  due to the  turmoil in the
credit market.  Other income will fluctuate  based on short term market interest
rates and the level of investable cash balances.

Interest  Expense.  Interest  expense  consists  mainly of  interest  on Company
borrowings and deferred items.  Interest expense in the second quarter of fiscal
2010 was $0.1 million  compared to $0.6 million for the second quarter of fiscal
2009.  This  decrease  was due to the  substantial  decline  in the 90 day LIBOR
interest rate for the second  quarter of fiscal 2010 (approx.  0.3%) compared to
the rate  (approx.  5.00%) for the second  quarter of fiscal  2009.  The Company
borrowed  a total of $49.8  million  under its $50.0  million  revolving  credit
facility in the first  quarter 2009 and repaid $9.8 million in the first quarter
of fiscal 2010.  These  borrowings  bear interest at the 90 day LIBOR rate, plus
100 to 425 basis  points,  depending  upon the  Company's  rolling  twelve month
EBITDA  performance.  The rate is reset  quarterly  and for the third quarter of
fiscal 2010 is expected to be approximately 1.25%.

Income  Taxes.  Income  taxes for the second  quarter  of fiscal  2010 were $1.3
million (3.3% of net sales),  representing an effective tax rate of 34.4%.  This
compares  to income  tax  expense  of $0.4  million  (0.9% of net sales) for the
second quarter of fiscal 2009,  representing an effective tax rate of 18.2%. The
effective  tax rate for the second  quarter  of fiscal  2009 was a result of the
retroactive  reinstatement  of the Federal Research and  Experimentation  Credit
subsequent  to September 30, 2008.  The projected  effective tax rate for fiscal
2010 absent one-time events, is expected to be approximately 32.0%.


                                       20
<PAGE>

Six Months  Ended  December 31, 2009  Compared to Six Months Ended  December 31,
2008

Net sales.  Net sales were $81.4  million for the six months ended  December 31,
2009, up 2.2% compared to $79.6 million for the first six of fiscal 2009.  Sales
of Wireless Group products fell $9.4 million,  or 25.6%,  while sales of Space &
Defense Group  products rose $11.2 million,  or 25.8%,  in the current first six
months compared to the first six months of fiscal 2009.

The decline in sales of Wireless Group products,  was the result of a decline in
demand for both custom  Wireless Group  assemblies  during the current first six
months  compared to the first six months of last year.  Sales of custom products
fell $4.7  million in the current six months  compared to the first half of last
fiscal  year,  led by a $3.3 million  decline in sales to a major OEM  resulting
from a general decline in global wireless infrastructure spending,  partial loss
of customer  product  allocations to low cost Asian vendor sources and decreased
demand  for second  generation  GSM  equipment.  Wireless  Group  infrastructure
component  demand in the first half of fiscal  2010 fell $4.7  million  from the
first half of fiscal 2009 due to a general decline in shipments to both OEMs and
distributors  resulting  from the general  decline in the worldwide  economy and
infrastructure  capital expenditure  levels. The continuing  challenging pricing
environment  for both  standard  component  and custom  assembly  products  also
negatively  impacted net sales for the first six months of fiscal 2010  compared
to last year.  Demand for Wireless Group products,  in the second half of fiscal
2010, is expected to increase compared to second quarter levels.

Sales of Space & Defense  Group  products  rose $11.2  million,  or 25.8% in the
first half of fiscal  2010  compared  to the first half of the  previous  fiscal
year.  Sales of Space & Defense  Group  products  in the first six months of the
current  fiscal year included six months of sales from M. S. Kennedy  Corp.  and
Unicircuit, Inc., totaling $25.5 million, while sales in the first six months of
fiscal 2009  included five months and four month of sales from M. S. Kennedy and
Unicircuit,   respectively,   amounting  to  $14.7  million.  This  increase  is
attributed to approximately  $5.5 million from the additional three months sales
not  included  in the first  half of fiscal  2009 and $4.7  million  in sales of
Hybrid modules and RF printed wire boards at M.S. Kennedy and Unicircuit,  Inc.,
respectively,  above  fiscal 2009 levels due to the higher level of order intake
for both  subsidiaries  over the last year.  Space & Defense Group product sales
continue to benefit  from the higher  level of business  won by the Company over
the past few fiscal  years which has  resulted  in the Group's  backlog of $85.1
million.

Gross Profit.  Gross profit for the first half of fiscal 2010 was $29.0 million,
(35.6% of net sales),  up from $23.8  million  (29.9% of net sales) for the same
period of the prior year.  Gross  profit as a percent of sales  increased in the
first half of fiscal  2010 from the first half of last year due to the  increase
in sales  volume and due to the absence in the current  first six months of $2.2
million (2.7% of net sales) of amortization  of inventory  step-up costs related
to the acquisition of M. S. Kennedy and  Unicircuit,  which were included in the
first  half of fiscal  2009  cost of sales.  Additionally,  gross  margins  were
enhanced by the $4.7 million  reduction in sales of lower margin,  high material
content custom Wireless Group products and by reduced production overhead costs,
including personnel,  freight,  production supplies, and scrap in excess of $2.1
million in the current first six months compared to the same period last year as
a result of ongoing cost reduction efforts throughout the Company.

Marketing.  Marketing  expenses  were $4.6  million  (5.6% of net sales) for the
first half of fiscal 2010, up $0.5 million from $4.1 million (5.2% of net sales)
for the first half of fiscal 2009.  Marketing  expenses in the current first six
months  rose $0.5  million  from the first six months of last fiscal year due to
the inclusion of $1.3 million of marketing  expenses from  Unicircuit  and M. S.
Kennedy in the current first six months,  compared to $0.8 million for these two
subsidiaries  in the first six months of last fiscal year,  which  included only
two  months  and  one  month  of  expense  for M.  S.  Kennedy  and  Unicircuit,
respectively. The first half of fiscal 2009 expense had been adjusted down for a
$0.3 million  reduction in  commission  expense from the  correction  of an over
accrual  that was  accumulated  over a number  of prior  periods.  There  was no
comparable adjustment in the first half of fiscal 2010. This increase in expense
was offset by a lower  commission  expense for the first half of fiscal 2010 due
to lower sales volumes of the standard components.

Research and  Development.  Research and development  expenses were $7.1 million
(8.8% of net sales) in the first half of fiscal  2010,  up 17% from $6.1 million
(7.7% of net sales) for the first half of fiscal 2009.  Research and development
expenditures are supporting further development of Wireless Group infrastructure
and consumer component  opportunities,  as well as new technology development in
the Space & Defense Group. Research and Development  expenditures have increased
in the first six months of fiscal  2010 versus the first six months of last year
due  to the  higher  level  of  opportunities  in  the  Space  &  Defense  Group
marketplaces which resulted in approximately $1.2 million in additional spending
at our Anaren Ceramics,  Anaren Microwave and M. S. Kennedy operations  compared
to the first six months of fiscal  2009.  The Company  expects to  continue  its
current  research


                                       21
<PAGE>

and development  efforts and spending levels through the remainder of the fiscal
year and is presently  working on a number of new  standard and custom  Wireless
Group and Space & Defense Group opportunities.

General and  Administrative.  General and  administrative  expenses decreased to
$9.1 million (11.2% of net sales) for the first six months of fiscal 2010,  from
$9.4 million  (11.8% of net sales) for the first six months of fiscal 2009.  The
decrease in general and administrative  expense in the first half of fiscal 2010
compared to the first half of last year resulted from a net $0.3 million decline
in compensation and other administrative  expenses due to a three month delay in
granting  restricted  stock,   reduced   professional   service  costs  and  the
consolidation of some administrative functions across all subsidiaries,  as well
as, a $0.1 million decrease in intangible amortization.

Operating  Income.  Operating  income increased 94.1% in the first six months of
fiscal  2010 to $8.1  million,  (10.0% of net sales),  compared to $4.2  million
(5.2% of net sales) for the first six months of fiscal  2009.  This  increase in
the first  half of fiscal  2010 from the first  half of last year was due to the
absence of $2.2 million of  amortization  of inventory  step-up costs related to
the  acquisition  of M. S. Kennedy and  Unicircuit,  which were  included in the
first half  fiscal  2009 cost of sales,  as well as, the effect of ongoing  cost
containment  and  reduction  initiatives  throughout  the Company  over the last
twelve months which have had a significant  positive  effect on overall  Company
expense levels.

On an operating segment basis,  Wireless Group operating income was $1.8 million
(6.6% of group sales) for the first half of fiscal 2010, down $1.2 million, from
the Group's  operating income of $3.0 million (5.8% of group sales) in the first
half of fiscal 2009.  The  decrease in Wireless  Group  operating  income in the
first half of fiscal 2010 compared to the first half of fiscal 2009 was a result
of the $9.4  million  decline  in  Wireless  group  sales  year over year  which
resulted in a $2.3 million  decline in gross margins for this business  segment.
This decline in gross margin was  partially  off-set by  reductions in operating
costs due to the lower sales volume and the  Company's  overall  cost  reduction
efforts which  resulted in a $1.1 million  (13%)  decline in R&D,  marketing and
Administrative  expenses  within the group in the  current  first half of fiscal
2010 compared to the same period last year.

Space & Defense Group  operating  income was $6.7 million (12.3% of Group sales)
in the first half of fiscal 2010,  up $5.2 from $1.5 million  (3.4% of net group
sales)  for the first  half of fiscal  2009.  Operating  margins  for this Group
improved  approximately  nine percentage points in the first six month of fiscal
2010 due to the $11.2  million  increase in sales and the inclusion of only $0.6
million of acquisition  related  intangible  amortization costs and no inventory
step-up  costs in the first half of fiscal  2010,  compared  to $2.9  million of
combined acquisition related inventory step-up and intangible amortization costs
caused by the acquisition of M. S. Kennedy and Unicircuit  during the first half
of fiscal 2009. Group operating margins were further enhanced as a result of the
cost  savings  achieved  through the  Company's  cost  reduction  efforts in the
current fiscal year.

Other Income. Other income decreased to $0.2 million in the first half of fiscal
2010 compared to $0.7 million for the first half of last year. This decrease was
caused by the  substantial  decline in short-term  interest rates year over year
and a  deliberate  shortening  of the  maturities  of the  Company's  investment
portfolio due to the turmoil in the credit  market.  Other income will fluctuate
based on short  term  market  interest  rates and the level of  investable  cash
balances.

Interest  Expense.  Interest  expense in the first half of fiscal  2010 was $0.3
million  compared  to $0.9  million  for the  first  half of fiscal  2009.  This
decrease was due to the substantial decline (approx.  0.45%) in the 90 day LIBOR
interest  rate for the first half of fiscal 2010  compared to the rate  (approx.
4.5%) for the first half of fiscal 2009.  The Company  borrowed a total of $49.8
million under its $50.0 million  revolving  credit facility in the first quarter
2009 and  repaid  $9.8  million  in the  first  quarter  of fiscal  2010.  These
borrowings bear interest at the 90 day LIBOR rate, plus 100 to 425 basis points,
depending upon the Company's rolling twelve month EBITDA  performance.  The rate
is reset  quarterly  and for the third  quarter of fiscal 2010 is expected to be
approximately 1.25%.

Income  Taxes.  Income taxes for the first half of fiscal 2010 were $2.6 million
(3.2% of net sales),  representing an effective tax rate of 32.8%. This compares
to income tax expense of $1.1 million  (1.3% of net sales) for the first half of
fiscal 2009, representing an effective tax rate of 26.9%. The effective rate for
the  first  half of  fiscal  2009  was a  result  of the  Federal  Research  and
Experimentation  Credit not being in effect  during the first  quarter of fiscal
year  2009,  as it had  expired  and  was not  reinstated  until  subsequent  to
September  30, 2008.  The projected  effective tax rate for fiscal 2010,  absent
one-time events is expected to be approximately 32.0%.


                                       22
<PAGE>

Critical Accounting Policies

There  have  been no  material  changes  to the  Company's  critical  accounting
policies,  estimates,  or judgments  from those  discussed in the Company's 2009
Annual Report Form 10-K.

Liquidity and Capital Resources

Net cash  provided  by  operations  for the first six months of fiscal  2010 was
$10.3 million and resulted from the high level of net income before depreciation
amortization and non-cash equity based compensation  expense plus a $2.1 million
decline in  inventory.  The positive  cash flow from earnings for the six months
was  partially  off-set  by  increases  in  receivables  and  the  pay  down  of
liabilities totaling $3.3 million.

Net cash provided by operations for the first six months of fiscal 2009 was $7.5
million and  resulted  from net income  before  depreciation,  amortization  and
non-cash equity based compensation expense. The positive cash flow from earnings
for the six months was further  enhanced by a $2.9 million  decrease in accounts
receivable due to improved collections, which more than off-set a small increase
in inventory and a $4.3 million reduction of current liabilities.

Net cash  provided by investing  activities in the first half of fiscal 2010 was
$8.6  million  and  consisted  of $10.8  million  provided  by the  maturity  of
marketable  debt  securities,  net of  $2.2  million  used  to pay  for  capital
additions.  Net cash used in  investing  activities  in the first six  months of
fiscal 2009 was $37.2  million and  consisted of $13.8  million  provided by the
maturity of  marketable  debt  securities,  $3.6 million used to pay for capital
additions and $47.3 million used to pay for the  acquisitions of M.S. Kenney and
Unicircuit.

Net cash used in financing activities in the first six months of fiscal 2010 was
$11.1 million and consisted of $9.8 million used to pay long-term  debt and $4.7
million used to purchase  approximately  284,000  treasury  shares,  net of $3.4
million  generated by cash  receipts and tax benefits from the exercise of stock
options.  Net cash  provided by financing  activities in the first six months of
fiscal 2009 was $43.8 million and consisted of borrowings of $49.8 million under
the Company's  revolving declining line of credit to finance the acquisitions of
M.S.  Kennedy and  Unicircuit,  net of $1.2  million used to pay off an acquired
mortgage and $5.0 million used to purchase 471,000 treasury shares.

During  the next  twelve  months,  the  Company  anticipates  that its main cash
requirement will be for capital  expenditures,  possible continued repurchase of
the Company's common stock and the $10.0 million  principal  payment on its line
of credit due in July 2010.  Capital  expenditures  for the  remainder of fiscal
2010 and the first half of fiscal 2011 are expected to be in the range of 4 to 5
percent of sales and will be funded from existing cash and investments.

The Company may  continue to  repurchase  shares of its common stock in the open
market and/or through privately negotiated  transactions under the current Board
authorization,  depending on market conditions. At December 31, 2009, there were
approximately  0.8 million shares  remaining under the current Board  repurchase
authorization.

At December 31, 2009, the Company had approximately  $61.8 million in cash, cash
equivalents,  and marketable securities.  The Company has had positive operating
cash flow for over ten years,  and believes that its cash  requirements  for the
foreseeable  future will be satisfied by currently  invested  cash  balances and
expected cash flows from operations.


                                       23
<PAGE>

Recent Accounting Pronouncements

In October 2009,  new  accounting  guidance was issued related to the accounting
for revenue  recognition  from  arrangement  with  multiple  deliverables.  This
guidance removes the  "objective-and-reliable-evidence-of-fair-value"  criterion
from the separation criteria used to determine whether an arrangement  involving
multiple  deliverables  contains  more  than  one unit of  accounting,  replaces
references to "fair value" with  "selling  price" to  distinguish  from the fair
value measurements  required under the "Fair Value Measurements and Disclosures"
guidance,  provides a hierarchy  that  entities must use to estimate the selling
price, eliminates the use of the residual method for allocation, and expands the
ongoing  disclosure  requirements.  This  update is  effective  for the  Company
beginning  July 1, 2011 and can be  applied  prospectively  or  retrospectively.
Management is currently  evaluating the effect that adoption of this update will
have, if any, on the Company's condensed  consolidated financial statements when
it becomes effective in 2012.

In September 2009, new accounting guidance was issued, which permits entities to
measure the fair value of certain investments,  including those with fair values
that are not readily determinable, on the basis of the net asset value per share
of the investment (or its equivalent) if such net asset value is calculated in a
manner    consistent   with   the    measurement    principles   in   "Financial
Services-Investment  Companies" as of the reporting  entity's  measurement  date
(measurement of all or  substantially  all of the underlying  investments of the
investee  in  accordance  with the "Fair  Value  Measurements  and  Disclosures"
guidance).  The update also requires  enhanced  disclosures about the nature and
risks of  investments  within  its scope  that are  measured  at fair value on a
recurring or nonrecurring  basis.  The Company does not believe that this update
will have a material effect on the Company's  condensed  consolidated  financial
position and results of operations.

In  January  2009,  new   accounting   guidance  which  requires  more  detailed
disclosures  about  employers'  plan  assets,  including  employers'  investment
strategies, major categories of plan assets,  concentrations of risk within plan
assets, and valuation  techniques used to measure the fair value of plan assets.
Other than for some  additional  disclosures  in the Annual Report on Form 10-K,
adoption of this  guidance  will not have an effect on the  Company's  condensed
consolidated financial statements.

In November 2008, new proposed accounting guidance that relates to the milestone
method of revenue  recognition.  This  guidance  would  define a  milestone  and
determine  whether  an  entity  may  recognize  consideration  earned  from  the
achievement  of a milestone  in the period in which the  milestone  is achieved.
This Issue applies to revenue  arrangements  under which a vendor  satisfies its
performance  obligations  to  a  customer  over  a  period  of  time,  when  the
deliverable or unit of accounting is not within the scope of other authoritative
literature,  and when  the  arrangement  consideration  is  contingent  upon the
achievement  of a milestone.  The Company is currently  evaluating the impact of
this guidance on the condensed consolidated financial statements.

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.

As of December 31, 2009, the Company had cash,  cash  equivalents and marketable
securities  of $61.8  million,  all of which with the exception of the Company's
auction rate security  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  rate of 10.0% from December 31, 2009 rates,  or 0.045%,  would
have  reduced net income and cash flow by  approximately  $7,000,  or $.0005 per
diluted share for the quarter.  Due to the  relatively  short  maturities of the
securities and the Company's 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  rate will reduce the  Company's  interest
income.

As of December 31, 2009, the Company had $40.0 million in outstanding debt under
its  revolving  line of  credit  with  KeyBank  National  Association.  The line
consists of a $40,000,000  revolving credit note for which principal amounts are
due on August 1, 2010, and on each anniversary date thereafter  through July 31,
2013.  Borrowings  under this Note,  at the Company's  choice,  bear interest at
LIBOR,  plus 100 to 425 basis points or at the Lender's prime rate,  minus (100)
to plus


                                       24
<PAGE>

225 basis points,  depending upon the Company's EBITDA performance at the end of
each quarter as measured by the formula:  EBITDA divided by the Current  Portion
of Long-term Debt plus interest expense. For the three months ended December 31,
2009,  the weighted  average  interest rate on the  outstanding  borrowings  was
1.29%.  Interest  expense for these  borrowings is exposed to interest rate risk
and will  increase if market  interest  rates rise. A  hypothetical  increase in
market interest rate of 10.0% from December 31, 2009 rates, or 0.13%, would have
reduced net income and cash flow by approximately $13,000, or $.0006 per diluted
share for the  quarter.  Due to the  Company's  significant  cash  reserves  and
historical  positive  operating  cash flow, the Company does not believe that an
immediate  increase in interest  rates  would have a  significant  effect on its
financial condition or results of operations.  Over time, however,  increases in
market interest rates will increase the Company's interest expense.

Forward-Looking Cautionary Statement

The Private Securities  Litigation Reform Act of 1995 provides a safe harbor for
"forward-looking  statements"  made by or on behalf of the Company.  We may from
time  to time  make  written  or oral  statements  that  are  "forward-looking,"
including  statements  contained  in this  report  and  other  filings  with the
Securities  and  Exchange  Commission  and in reports to our  shareholders.  All
forward-looking  statements  are made on the  basis of  management's  views  and
assumptions  regarding future events and business performance as of the time the
statements  are made and the Company does not undertake any obligation to update
its disclosure  relating to forward looking  matters.  Actual results may differ
materially from those expressed or implied.  The  uncertainties and risk factors
that could affect our Company,  its  business and actual  results are  described
throughout this filing and in our 2009 Annual Report on Form 10-K under the Item
1A, "Risk Factors."

Item 4. Controls and Procedures

A. Disclosure Controls and Procedures

An evaluation of the  effectiveness of the design and operation 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 amended  ("Exchange  Act")) was
carried out under the  supervision and with the  participation  of the Company's
management,  including the President and Chief  Executive  Officer and the Chief
Financial Officer ("the Certifying  Officers") as of December 31, 2009. Based on
that evaluation, the Certifying Officers concluded that the Company's disclosure
controls and procedures were effective as of December 31, 2009.

B. Changes in Internal Control Over Financial Reporting

There  were no changes  in the  registrant's  internal  control  over  financial
reporting  during our fiscal quarter to which this Quarterly Report on Form 10-Q
relates that have materially  affected,  or are reasonably  likely to materially
affect, internal control over financial reporting.

PART II OTHER INFORMATION

Item 1A. Risk Factors

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

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

(c) Issuer Purchases of Equity Securities

On November 5, 2007, the Board of Directors increased by an additional 2,000,000
the number of shares that the  Company  was  authorized  to  repurchase  in open
market or by privately negotiated  transactions through its previously announced
stock repurchase program.  The program (originally  announced on March 5, 2001),
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, 2009, 764,000 shares remained authorized for purchase, depending
on market conditions.


                                       25
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
   Period                   Total Number of Shares      Average Price Paid per     Total Number of Shares       Maximum Number (or
                             (or Units) Purchased          Share (or Unit)         (or Units) Purchased as      Approximate Dollar
                                                                                      Part of Publicly         Value) of Shares (or
                                                                                     Announced Plans or       Units) that May Yet Be
                                                                                          Programs              Purchased Under the
                                                                                                                 Plans or Programs
------------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                       <C>                          <C>                 <C>
October 2009                              0                         --                           0                   1,047,413
------------------------------------------------------------------------------------------------------------------------------------
November 2009                       142,601                      14.96                     142,601                     904,812
------------------------------------------------------------------------------------------------------------------------------------
December 2009                       141,300                      14.54                     141,300                     763,512
------------------------------------------------------------------------------------------------------------------------------------
Total                               283,901                      14.75                     283,901                     763,512
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

The  Company's  Annual  shareholders'  meeting was held on November 5, 2009,  at
which  time the  election  of  Directors  was  conducted.  The  following  named
individuals were nominated and re-elected as Directors.

                                                    Votes            Votes
                                                     For            Withheld
                                                  ----------        --------
            Carl W. Gerst, Jr.                    13,213,282         132,742
            James G. Gould                        13,165,236         180,788
            Dale F. Eck                           13,211,143         134,881

Messr. Gerst, Gould and Eck were elected to terms expiring in 2012. The terms of
Directors Lawrence A. Sala, Robert U. Roberts, John Smucker,  Mathew S. Robison,
David Wilemon, and Pat Civil continued after the meeting.

Additionally,  a proposal to amend the Company's  2004  Comprehensive  Long Term
Incentive  Plan was approved by a vote of 9,918,613  for,  930,175  withheld and
680,617 abstained.

Additionally,   the  selection  of  Deloitte  &  Touche  LLP  as  the  Company's
Independent  Registered  Public  Accounting  Firm for fiscal  2010 was  approved
13,317,947 for, 20,475 withheld and 7,602 abstained.

Item  6.    Exhibits

            10.1  2004 Comprehensive Long Term Incentive Plan, as amended
                  November 5, 2009.

            31    Rule 13a-14(a) Certifications

            32    Section 1350 Certifications


                                       26
<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: January 29, 2010               /s/ Lawrence A. Sala
                                     -------------------------------------------
                                     Lawrence A.Sala
                                     President & Chief Executive Officer

Date: January 29, 2010               /s/ George A. Blanton
                                     -------------------------------------------
                                     George A. Blanton
                                     Sr. Vice President, Chief Financial Officer
                                     and Treasurer


                                       27