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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-K

(Mark One)

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 For the fiscal year ended June 30, 2007

|_|   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, East Syracuse, New York                13057
  (Address of principal executive offices)               (Zip Code)

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

        Securities Registered Pursuant to Section 12(b) of the Act: None

     Securities Registered Pursuant to Section 12(g) of the Securities Act:

                          Common Stock, $.01 Par Value
                                (Title of Class)

      Indicate by check mark if the Registrant is a well-known  seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes |_| No |X|

      Indicate by check mark if the  Registrant  is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes |_| No |X|

      Indicate by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13

or

      15(d) of the  Securities  Exchange  Act of 1934  during the  preceding  12
months (or for such shorter period that the Registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days. Yes |X| No |_|

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

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

Check One: Large  accelerated  filer |_| Accelerated  filer |X|
           Non-accelerated filer |_|

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

      The  aggregate  market  value of the  Registrant's  Common  Stock  held by
non-affiliates of the Registrant,  based on the closing sale price of the Common
Stock on December 29, 2006, as reported on the Nasdaq  Global Market  (formerly,
the Nasdaq National Market), was approximately $304,163,745.

      The  number of shares of the  Registrant's  Common  Stock  outstanding  on
September 24, 2007 was 15,952,545.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for use in connection with its 2007
Annual Meeting of  Shareholders  are  incorporated  into Part III of this Annual
Report on Form 10-K.

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                                     PART I

                                EXPLANATORY NOTE

      In August,  2007, the Company  announced that pre-tax income for the three
months ended  December 31, 2006 and March 31, 2007 were  overstated  by $238,000
and  $676,000,  respectively,  due  to  certain  accounting  errors  related  to
reconciliation  of  inventory  and  recording  of vendor  payables  at its China
subsidiary,  and errors related to stock based  compensation and pension expense
as well as errors involving warranty expense and allowance for sale returns. The
Company is  reporting a material  weakness in this Annual  Report Form 10-K that
its company-level  risk assessment and oversight controls were not effective for
the fiscal year 2007 (located in Item 9A in this Form 10-K).  The restatement is
reported in this Annual Report on Form 10-K for the year ended June 30, 2007 and
will be reported in  amendments  to the  Quarterly  Reports on Form 10-Q for the
second and third  quarters of fiscal year 2007 ended December 31, 2006 and March
31, 2007. Refer to note 22 in the Company's  consolidated  financial  statements
(located in Item 14 in this Form 10-K) for a  reconciliation  of the  previously
reported  quarterly  amounts  to the  restated  amounts  for  each of the  above
quarters.

Item 1. Business

General Overview

      The Company was incorporated in New York in 1967. The Company's  executive
offices are located at 6635 Kirkville Road, East Syracuse,  New York 13057.  The
telephone  number  of the  Company  at that  location  is  (315)  432-8909.  The
Company's website is located at  www.anaren.com.  The Company makes its periodic
and  current  reports  available,  free of  charge,  on its  website  as soon as
reasonably  practicable  after such  material is  electronically  filed with, or
furnished to, the Securities and Exchange Commission. The Company's common stock
is listed on the Nasdaq Global Market  (formerly,  the Nasdaq  National  Market)
under the symbol "ANEN." Unless the context otherwise provides, the "Company" or
"Anaren" refers to Anaren, Inc. and its subsidiaries.

      The Company is a leading  provider of microwave  components and assemblies
for the  wireless  and  space  and  defense  industry  segments.  The  Company's
distinctive  engineering,  manufacturing  and packaging  techniques enable it to
cost-effectively  produce  compact,  lightweight  microwave  products for use in
wireless communication and space and defense systems.

      Through its focused research and development efforts,  Anaren continues to
design  components and subsystems for wireless  communication  systems including
wireless infrastructure,  wireless consumer and medical applications, as well as
advanced radar,  beamforming,  jamming, and receiver  applications for the space
and defense markets.

Recent Developments

      In July 2007,  the  Company was  selected to receive a contract  valued in
excess of $11.0 million from Northrop Grumman Corporation, located in Baltimore,
Maryland.  The contract is for Integrated  Ferrite Assemblies used in the S-Band
radar  which is part of the  Mission  Equipment  for the Cobra Judy  Replacement
Program.  The contract calls for the first  full-rate  production and deliveries
starting in November of 2007 and continuing for a 15 month period.

      In July 2007, the Company  completed a 54,000 square foot expansion of its
current  105,000 square foot facility in Syracuse,  New York. The expansion will
allow   continued   growth  in  the  Company's  Space  and  Defense  design  and
manufacturing  operations as well as its Wireless design group. Anaren requested
and received a $500,000  grant from New York's Empire State  Development to help
fund the  expansion.  The project was completed in the third quarter of calendar
year 2007.

      In February 2007, the Company was selected to receive a contract valued in
excess of $8.0  million  from  Alcatel-Alenia  Space (now Thales  Alenia  Space)
(France) for  development  and production of integrated  beamforming  assemblies
that will be deployed on the Globalstar-2 satellite payload. The contract award,
which was finalized in September 2007, covers design services and manufacture of
up to 48 beamforming  networks.  Work has been authorized to begin  immediately,
with production deliveries starting in May 2008.


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      In January 2007, the Company  announced  that the Company's  inventory and
pre-tax  income at  September  30, 2006 was  overstated  by  $782,500  due to an
inventory valuation error. The Company also announced in January,  2007 that the
currency translation portion of the gain on the final closure and liquidation of
the Company's  discontinued  Netherlands operations should have been recorded in
the fiscal year 2004 results  rather than in the third  quarter  ended March 31,
2006  results of  operations.  As a result,  a $735,464  gain from  discontinued
operations was moved from the June 30, 2006 Consolidated Statement of Operations
to the June 30, 2004  Consolidated  Statement of  Operations.  In  addition,  on
December 1, 2006 the Company  reported an immaterial  tax error  originating  in
fiscal year 2006,  which was initially  corrected in the first quarter of fiscal
2007, but was subsequently  corrected in the fiscal year 2006 restated financial
statements.  The full  year  overstated  tax  benefit  in  fiscal  year 2006 was
$159,000.  The Company  also  reported  in  December,  2006 that its  disclosure
controls and procedures  were not effective for the periods ending  December 31,
2005,  March 31, 2006 and June 30, 2006. On January 31, 2007,  the Company filed
all required  amendments to the quarterly and annual  periods  impacted by these
errors with the Securities and Exchange Commission.  Management further believes
that the applicable  disclosure  controls and procedures that were not effective
have been corrected.

      In November  2006,  the Company took occupancy of a new 76,000 square foot
facility in Suzhou to accommodate its growing wireless infrastructure  business.
The move was  completed  in the  fourth  quarter of  calendar  year 2006 with no
interruption to production.

      Effective  July 1,  2005,  the  Company  adopted  Statement  of  Financial
Accounting  Standards No. 123R Share Based  Payment  (SFAS 123R).  This standard
requires  the  Company to measure  the cost of  employee  services  received  in
exchange  for equity  awards  based on the grant date fair value of the  awards.
These costs are to be recognized as compensation expense over the vesting period
of the awards.  SFAS 123R  provides for a prospective  application  for adoption
which the  Company  chose.  Under this  method,  the Company  began  recognizing
compensation  costs for stock option  equity-based  compensation  for all new or
modified  grants after June 30, 2005 and for the  unvested  portion of the grant
date fair  value of awards  issued  prior to  adoption,  based on the fair value
previously calculated for footnote disclosure purposes.

      The final liquidation and dissolution of the Company's  European corporate
structure was concluded during the quarter ended March 31, 2006. As part of this
liquidation and dissolution,  the Company  recognized  income from  discontinued
operations of $81,713 resulting from final asset and liability  liquidation.  As
described  in  note 1,  the  foreign  currency  translation  adjustment  gain of
$735,464 previously recognized in the third quarter ended March 31, 2006 results
of  operations in this  restatement  has been moved to the results of operations
for fiscal 2004.

Wireless Segment

   Industry Overview

      The  Company's  Wireless  products  are used  primarily  in  communication
systems,  either in user equipment,  such as Wireless Local Area Network (WLAN),
Bluetooth,  or Satellite  Television Reception  applications,  or on the network
infrastructure  side such as  cellular  telephone  base  station  or  Television
Broadcast equipment applications.

      A typical  wireless  communications  network is  comprised of a geographic
region  containing  a number of cells,  each of which  contains one or more base
stations,  which are linked in a network to form a service  provider's  coverage
area.  Each base station houses the equipment that receives  incoming  telephone
calls and broadcasts calls to the wireless users within the cell. A base station
can  process  a fixed  number  of radio  channels  through  the use of  multiple
transceivers,  power amplifiers,  filters, and combiners - along with an antenna
to transmit and receive signals to and from the wireless user.

      Global  System for Mobile  communications  (GSM) and the higher  data rate
overlay  Enhanced  Data Rates for GSM Evolution  (EDGE) is the industry  leading
technology in terms of equipment  shipped,  users served, and countries covered.
In support of major equipment roll-outs primarily in India and China, demand for
GSM/EDGE  equipment was at all time highs during  fiscal 2007.  This resulted in
increased demand for both the Company's  components and higher level assemblies.
The Company believes that the industry trend for GSM/EDGE  equipment is going to
remain relatively strong for the next several years.


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<PAGE>

      GSM is referred  to as a second  generation  (2G)  wireless  network.  For
higher data rates, third generation networks (3G) are utilized.  In the years to
come, the number of persons  requiring high data rates to support using internet
and email from mobile terminals is also expected to continue to grow.  Fueled by
this demand,  deployment of new high data rate networks should continue.  Demand
for 3G related  products is  estimated to be similar to 2G equipment in the near
future. The Company's products are utilized in both 2G and 3G GSM equipment.

      Worldwide  Interoperability  for Microwave  Access (WiMAX) is a technology
aimed at providing  wireless data over long distances in a variety of ways, from
point-to-  point links to full mobile  cellular type access.  There is currently
increasing  amounts  of  development  activity  in the  industry  aimed  at this
emerging technology.  The Company has and continues to develop products for this
application.

   Strategy

      The Company's  strategy for the Wireless segment is to continue to use its
microwave  expertise,  proprietary  technologies,   extensive  microwave  design
libraries  and  low  cost  manufacturing  capabilities  to  further  expand  its
penetration in the wireless  industry.  Key components of the Company's strategy
include the following:

      Pursue Large Addressable Markets. The Company has successfully  penetrated
the mobile wireless infrastructure market and intends to use its market position
to pursue other  wireless  markets  such as WLAN,  Mobile  Handsets,  Bluetooth,
Satellite  Television,  medical and other consumer electronics markets.  This is
enabled  by  advances  made in the  Company's  design and  manufacturing  of sub
miniature Multi-Layer Stripline components.

      Focus on value added products. The Company intends to expand its component
offerings  to enable the Company to increase  the number of products  addressing
each wireless application. In addition, with its Multi-Layer Stripline,  ferrite
devices, and Thick Film Ceramic manufacturing technologies,  the Company intends
to continue to increase the functionality of its products,  thereby enabling its
wireless  customers to continue to reduce the size and cost of their  platforms,
while the Company increases its content value.

      Strengthen and Expand Customer  Relationships.  Today, a limited number of
large OEMs drive the wireless  market.  The Company has developed,  and plans to
continue  to expand,  customer  relationships  with many of these  manufacturers
including Andrew, Ericsson,  Huawei, Motorola, Nokia Siemens Networks and Nortel
Networks.  The Company intends to further strengthen its customer  relationships
by offering  complete  outsourcing  solutions,  from research and development to
product design and production, thereby increasing the customers' reliance on the
Company.

      Pursue  Price  Leadership  Position.   The  Company  aspires  to  use  its
technological leadership,  low cost manufacturing,  and sourcing capabilities to
be one of, if not the lowest  cost  provider  of  components  and  higher  level
assemblies for the wireless markets.

      Pursue Strategic  Acquisitions.  The Company intends to continue to pursue
opportunistic  acquisitions of companies,  product lines and  technologies.  The
Company will focus on acquisitions  that compliment its technical  expertise and
business  development  resources  and provide a  competitive  advantage  for its
targeted markets.

   Products and Technologies

      The Company  provides  components,  assemblies  and  subsystems to leading
wireless   industry   equipment   manufacturers.   These   products  range  from
subminiature  components for consumer  electronics to large back planes for high
power wireless infrastructure applications.

      The Company has  developed  its product  offerings to enable  customers to
reduce the size and cost,  while enhancing the  performance of their  equipment.
The Company  continually invests capital and human resources to enhance existing
products  and develop new  products to address the latest  market  demands.  The
Company has developed and continues to market a full line of standard  products,
as well as custom products,  to wireless  original  equipment  manufacturers.  A
brief description of the Company's major product categories is as follows:

      Passive Surface Mount Components. The Company's Xinger(R) line of products
consists of  off-the-shelf  surface  mount  microwave  components  which provide
passive microwave signal distribution  functions.  These products were developed
to provide a low-cost high  performance  signal  distribution  component,  which
could be placed on standard  printed  circuit boards with  automated  production
equipment.  The primary  applications  of these  products are in  equipment  for
cellular base stations and in WLAN, Bluetooth, and Satellite Television.


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<PAGE>

      In cellular  base  stations,  the  Company's  surface  mount  products are
utilized in radio  frequency power  amplifiers,  and are also found in low-noise
amplifiers and radios. The Company believes it is currently the market leader in
this product area,  supplying industry leading original equipment  manufacturers
and leading power amplifier  manufacturers.  The Company  continues to invest in
the  expansion  of this  product  line as well as its  addressable  market.  The
Company's   surface  mount  product  line  offers   significantly   improved  RF
performance  and power  handling in a package that  supports  the latest  global
environmentally friendly initiatives.

      The Company has also recently  introduced  several  products  specifically
designed to address WLAN, cellular telephone and Bluetooth  applications.  These
innovative  products  are  1/100th  the size of our  typical  Xinger(R)  type of
product and offer  performance  and cost advantages  over  traditional  consumer
electronic components.

      Ferrite  Products.  The Company's  ferrite  components are used in various
wireless  base station  applications.  They are a key  component in base station
amplifiers,  and their primary  function is to protect the  sensitive  amplifier
electronics  from  damage by  isolating  them  electronically  from  potentially
harmful  high power  signals.  In fiscal  year 2007,  the Company  expanded  its
Ferrite product  offering and also expanded its production  capacity for Ferrite
products.

      Resistive   Products.   The  Company's  resistive  product  line  includes
resistors,  power terminations,  and attenuators for use in high power wireless,
industrial,  and  medical  applications.  These  products  range from very small
components for implantable  medical devices to high power products used in power
amplifiers.  These  products are  frequently  used in  conjunction  with ferrite
products as well as Xinger(R) surface mount components.

      Custom  Splitting  and  Combining  Products.  In addition to its  standard
products,  the  Company  offers a wide  range of  custom  signal  splitting  and
combining  solutions.  These custom  solutions are typically  used to distribute
signals  to and from  antennas,  radio  transceivers  and  power  amplifiers  in
wireless base station  applications.  The Company's custom assemblies  typically
integrate several of the Company's  components such as Xinger(R),  ferrite,  and
resistive  products.  Given this  vertical  integration,  the  Company's  Custom
Splitting and combining products offer very high performance and can be designed
in unique  configurations,  allowing base station  designers an  opportunity  to
greatly reduce space, complexity and cost while enhancing performance.

      Custom Radio Frequency Backplane Assemblies. The Company's radio frequency
backplanes provide efficient connections of microwave signals between subsystems
in wireless base stations.  Radio frequency  backplanes are conceptually similar
to the motherboard in a personal  computer,  which efficiently  connects signals
between multiple subsystems. These assemblies range from radio frequency-only to
fully  integrated  radio  frequency,  direct current  power,  and digital signal
routing   solutions.   They  are  typically  used  in  conjunction   with  radio
transceivers  and radio  frequency  power  amplifiers.  The Company  also offers
backplane  assemblies with fully  integrated  radio-frequency  signal  switching
capability.

      Hybrid Matrix  Assemblies.  The Company's  hybrid matrix  assemblies allow
customers to effectively reduce the number of amplifiers in a base station. Base
station  amplifier  systems are designed to handle peak usage when maximum calls
are being  made over a  network.  Due to the sector  coverage  of  typical  base
stations,  some  amplifiers are heavily used while others are not. The Company's
matrices  allow  the  spreading  of high  usage  volume  over all  base  station
amplifiers,  permitting a reduction in the total  number of  amplifiers  needed.
These  products are offered in a number of packaging  configurations,  including
backplanes.

   Customers

      The Company  believes that the strength of its customer  support and depth
of its customer  relationships provide the Company a competitive  advantage.  To
this end, the Company endeavors to become an integral part of its key customers'
operations  by working  closely  with them  through the entire  development  and
production  process.  The  Company  assigns a dedicated  multi-disciplined  team
including project  engineering,  design engineering and customer service to each
customer to ensure a high level of  responsiveness  and customer  service.  This
team  assists  the  customer  from the  conceptual  design  stages  through  the
development and  manufacturing  process.  By maintaining  close contact with the
customers' design engineering,  manufacturing, purchasing and project management
personnel,  the Company  can better  understand  their  needs,  rapidly  develop
customer-specific solutions, and more effectively design the Company's solutions
into the customers' systems and networks.

      The  Company  sells its  standard  line of  Xinger(R)  components,  custom
products,  resistive  components,  and ferrite  components  to leading  original
equipment  manufacturers and a broad range of other wireless  equipment


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contract  manufacturers.  In general,  customers  have  purchased  the Company's
products   directly   from  the  Company  or  through   distributors   or  sales
representatives.  During the fiscal  year  ending June 30,  2007,  the  Wireless
business accounted for approximately 60% of the Company's total revenues.  Nokia
Siemens Networks (Nokia)  accounted for over 16% of net sales. No other Wireless
customer accounted for more than 10% of the Company's fiscal 2007 net sales. The
following  is a list  of the  customers  who  generated  $1,000,000  or  more in
revenues for the Company in the fiscal year ending June 30, 2007:

      o     Avnet Electronics

      o     CalAmp Corporation

      o     Celestica Corp.

      o     EG Components

      o     Flextronics International, Ltd.

      o     Huawei Technologies Co., Ltd.

      o     MKS Instruments, Inc.

      o     Motorola, Inc.

      o     Nokia Siemens Networks

      o     Richardson Electronics, Ltd.

      o     Solectron Corporation

      o     St. Jude Medical

      o     Telecom International, Inc.

   Competition

      The  microwave  component  and  assembly  industry  continues to be highly
competitive.  Direct  competitors of the Company in the wireless  market include
Aeroflex,  Merrimac Industries,  Smith Industries,  and Soshin Electric Co. As a
direct  supplier to original  equipment  manufacturers,  the Company  also faces
significant  competition  from  the  in-house  capabilities  of  its  customers.
However, the current trend in the wireless marketplace has been for the original
equipment manufacturers to outsource more design and production work.

      The principal competitive factors in both the foreign and domestic markets
are technical  performance,  reliability,  ability to produce in volume, on-time
delivery  and most  critically,  price.  It is  anticipated  that  this  pricing
pressure will continue indefinitely.

      Based on these factors, the Company believes that it competes favorably in
its markets.  The Company believes that it is particularly strong in the area of
technical  performance in the wireless  marketplace.  With the  introduction  of
manufacturing capability in Suzhou, China, and new innovative design techniques,
the Company believes that it now competes favorably on price as well.

   Backlog

      The Company's backlog of orders for the Wireless segment was $15.3 million
as of June 30, 2007,  versus $19.2 million as of June 30, 2006.  Backlog for the
Wireless  segment  primarily  represents firm orders for component  products and
signed purchase orders (i.e.,  orders for specific  custom  sub-assemblies)  for
custom components due to ship within eight to twelve weeks. The Company does not
believe that its Wireless backlog as of any particular date is representative of
actual sales for any succeeding  period.  Typically,  large  original  equipment
manufacturers  including  Ericsson,  Motorola,  Nokia  and  Nortel,  who use the
Company's  component  and custom  products,  negotiate  set prices for estimated
annual volumes.  The Company then receives a firm delivery  commitment  prior to
shipment.  The Company does not  recognize  backlog until it has received a firm
order.

      As part of the Company's close working  relationships  with major wireless
communications customers, the customers expect the Company to respond quickly to
changes in the volume and delivery  schedule of their orders and, if  necessary,
to inventory  products at its facilities for just-in-time  delivery.  Therefore,
although  contracts with


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these customers  typically  specify  aggregate  dollar volumes of products to be
purchased  over an  extended  time  period,  these  contracts  also  provide for
delivery flexibility,  on short notice. In addition,  these customers may cancel
orders with some financial penalty or defer orders without significant penalty.

Space and Defense Segment

   Industry Overview

      The U.S. Department of Defense (DOD) and major U.S. Defense OEM's continue
to be  committed to ensure a high state of military  readiness.  The DOD funding
priorities focus on the safety and effectiveness of our troops, national defense
programs,  homeland security, and battlefield command and communication systems.
Funding for advanced radar systems,  advanced jamming systems,  smart munitions,
electronic  surveillance  systems and satellite  and ground based  communication
systems has remained strong.  Therefore,  we see a favorable outlook for defense
industry spending and demand for our products and technologies.

   Strategy

      The Company's strategy for the Space and Defense segment is to continue to
use its microwave  expertise,  proprietary design libraries,  technologies,  and
manufacturing  capabilities  to further  expand its  customer  penetration.  Key
components of the Company's strategy include the following:

      Strengthen and Expand Strategic Customer  Relationships.  Today, a limited
number of large OEMs  drive the Space and  Defense  business.  The  Company  has
developed,  and plans to continue to expand, customer relationships with many of
these OEM's including,  Raytheon, Lockheed Martin, Northrop Grumman, ITT, Harris
and Boeing. The Company intends to further strengthen its customer relationships
by offering complete solutions,  from research and development to product design
and manufacturing.

      Focus on value added  products.  The Company intends to expand its product
and technology  offerings to increase the added value for next generation  Space
and Defense systems.  The Company intends on leveraging  investments in advanced
microwave  packaging  technologies  to meet the  demands  of our  customers  for
increased levels of integration and functionality.

      Pursue Strategic  Acquisitions.  The Company intends to continue to pursue
opportunistic  acquisitions of companies,  product lines and  technologies  that
provide synergistic opportunities for its Space and Defense segment. The Company
will also focus on  acquisitions  that  compliment  its technical  expertise and
business  development  resources  and provide a  competitive  advantage  for its
targeted markets.

   Products and Technology

      Our Space and Defense group principally designs and manufactures  advanced
microwave-based  hardware for use in advanced  radar systems,  advanced  jamming
systems,  smart  munitions,  electronic  surveillance  systems and satellite and
ground based communication systems.

      Radar Countermeasure  Subsystems.  Defense radar countermeasure subsystems
digitally  measure,  locate and counter enemy radar  systems.  Our Digital Radio
Frequency Measurement (DRFM's) devices are used for storing and retrieving radio
frequency  signals as part of military  aircraft self  protection  systems.  Our
Digital Frequency  Discriminators  (DFD) are employed in electronic warfare (EW)
systems to detect and measure the radio  frequency (RF) signals emitted by enemy
radar systems. Our Company also manufactures a suite of electronic subassemblies
designed to process radar signals  detected by a receiver.  This technology is a
major component of a Electronic Support Measure (ESM) system used on helicopters
and fixed  winged  aircraft to detect,  locate and identify  enemy  radar.  This
technology is called a Passive Ranging Subsystem.

      Beamformers.  Beamformers  determine the number, size and quality of beams
that are produced from an antenna array. The Company supplies passive and active
beamformers  and has  unique  expertise  in  designing  and  manufacturing  high
performance  beamformers  in  industry  leading  small  size  packages.  Passive
beamformers  produce fixed beam  locations  while active  beamformers  allow for
real-time  reconfiguration  of  the  beam  pattern.  Beamforming  technology  is
implemented on military and commercial phased array satellites and radars.

      Switch  Matrices.  Switch  matrices route radio  frequency  signals from a
single  location to one or multiple end user  locations.  These  products  allow
system  operators  to  allocate   capacity  as  required,   thereby   increasing
utilization and revenue generation.


                                       7
<PAGE>

      Radar Feed Networks. Radar feed networks distribute radio frequency energy
to the antenna  elements of the radar.  Radar Feed Networks are integrated  into
radar platforms for airborne, shipborne, ground base radars and missile guidance
applications.

   Customers

      The Company currently sells passive  components and electronic  subsystems
to prime contractors serving the United States and foreign  governments.  During
the fiscal year ending June 30, 2007,  the Space and Defense  segment  accounted
for approximately 40% of the Company's revenues.  Raytheon Company accounted for
more than 13% of the  Company's net sales.  No other Space and Defense  customer
accounted  for more  than  10% of the  Company's  fiscal  2007  net  sales.  The
following is a list of Space and Defense  customers who generated  $1,000,000 or
more in revenues in the fiscal year ending June 30, 2007:

      o     ITT Corporation

      o     Lockheed Martin Corporation

      o     Northrup Grumman Corporation

      o     Raytheon Company

      o     SRCTec, Inc.

   Competition

      As a direct supplier to the large defense  contracting  corporations,  the
Company faces  significant  competition  from the in-house  capabilities  of its
customers.  In some cases,  we are  approached  after a customer has had limited
success with an internal  design effort or to supply a solution in parallel with
an internal effort as a form of risk mitigation.

      Direct  competitors of the Company in the Space and Defense market include
Akon, EMS  Technologies,  Filtronic Signal  Solutions,  KOR  Electronics,  Smith
Industries, Tyco Inc., and Merrimac Industries.

   Backlog

      Backlog of orders for the Space and Defense  segment was $56.0  million as
of June 30, 2007 versus  $47.8  million as of June 30,  2006.  All of the orders
included  in the  Space  and  Defense  segment  backlog  are  covered  by signed
contracts or purchase orders. However,  backlog is not necessarily indicative of
future sales.  Accordingly,  the Company does not believe that its backlog as of
any particular date is representative of actual sales for any succeeding period.

   Sales and Marketing

      The  Company  markets  its  products   worldwide  to  original   equipment
manufacturers in the wireless and space and defense markets  primarily through a
sales and  marketing  force of 30 people as of June 30,  2007.  The  Company has
regional  sales  offices  located  in  Sacramento,  California;   Waterlooville,
England;  and Suzhou and Shenzen,  China. In addition,  as of June 30, 2007, the
Company had contracts with three major distributors, with sixteen manufacturers'
representatives  in the United  States and Canada,  and with nine  international
representatives  located in Western Europe, the Middle East and Asia. As part of
its marketing  efforts,  the Company  advertises in major trade publications and
attends major industry shows. The Company has also invested significantly in its
Internet website which contains an electronic version of its entire catalog.  In
addition,  the website  enables  users to download  important  device  parameter
files. These files contain the performance  information for the catalog parts in
a format which is compatible  with commonly used computer aided  design/computer
aided  modeling,  or CAD/CAM  equipment.  The Company also  provides  mechanical
drawings and applications notes for proper use of the parts. This service allows
designers  to get the  information  they require and to easily  incorporate  the
Company's parts into their designs.

      After identifying key potential  customers,  the Company makes sales calls
with its own sales, management and engineering personnel and with manufacturers'
representatives.  To promote widespread acceptance of the Company's products and
provide  customers with support for their  technical and commercial  needs,  the
sales and engineering teams work closely with the customers to develop solutions
tailored  for their  particular  requirements.  The  Company  believes  that its
engineering  team,  comprised of 174 design and engineering  professionals as of
June 30, 2007, is a key competitive advantage.


                                       8
<PAGE>

      The Company uses distributors for its standard products,  most notably the
Xinger(R)  line  of  surface  mount  components.  Richardson  Electronics  is  a
worldwide distributor of Anaren products.  Avnet distributes components in North
America and Asia, meanwhile, BFI Optilus distributes Company products in Europe.
The Scandinavian  countries are serviced by E.G. Components,  Inc., a subsidiary
of Elektronikgruppen. Distribution has become an important part of the Company's
sales  efforts by providing the Company with a larger sales force to promote its
product catalog offerings.

   Employees

      As of June 30, 2007, the Company employed 871 full-time people,  including
200 temporary employees. Of these employees, 174 were members of the engineering
staff,  617 were in  manufacturing  positions,  30 were in sales  and  marketing
positions,  and 50 were in  management  and  support  functions.  None of  these
employees are represented by a labor union,  and the Company has not experienced
any  work  stoppages.  The  Company  considers  its  employee  relations  to  be
excellent.

   Manufacturing

      The Company currently maintains  manufacturing  locations in Syracuse, New
York; Salem, New Hampshire;  and Suzhou,  China. During fiscal 2007, the Company
moved its Suzhou operation from a leased 25,000 square foot facility to a leased
76,000  square foot  facility,  and built a 54,000  square foot  addition to its
105,000 square foot Syracuse, NY facility.  The facility move in Suzhou provides
the Company  with ample  manufacturing  space and ability to readily  respond to
future  wireless  infrastructure  business  expansion  needs.  The  addition  in
Syracuse will facilitate  expansion of its Space and Defense  manufacturing  and
engineering areas to support current and future growth.  During fiscal 2005, the
Company   consolidated   its  Amitron   operation   located  in  North  Andover,
Massachusetts and its RF Power operation  located in Bohemia,  New York into one
facility  located  in  Salem,  New  Hampshire,  operating  under a wholly  owned
subsidiary,  Anaren Ceramics,  Inc. This facility  includes  significantly  more
space for future  expansion and a  State-of-the-Art  Class 10,000 clean room for
manufacturing.

      The Company continues to develop  capability to produce highly engineered,
complex microwave  subassemblies to support its Space and Defense  business.  In
fiscal 2007, the Company invested in state-of-the-art  Low Temperature  Co-fired
Ceramic (LTCC) equipment for its Salem, New Hampshire facility.  This technology
supports the manufacture of multi-layer  ceramic  circuits which perform well at
RF and Microwave frequencies and provides the high level of integration required
in today's advanced military electronic systems.

      The  Company is  committed  to  providing  the lowest  cost  manufacturing
solutions.  Part of this  strategy has evolved with the opening of a facility in
Suzhou, China. Most high volume, labor intensive wireless product lines from the
Syracuse and the Salem operations have been successfully  transitioned to Suzhou
over the past three years,  with plans to transfer the remainder in fiscal 2008.
The Company has also  successfully  implemented a material  sourcing function in
Suzhou, facilitating the identification, qualification, and procurement of lower
cost raw  materials  to  support  the  wireless  infrastructure  products  being
manufactured in Suzhou.

      All of the Company's facilities (Syracuse, New York; Salem, New Hampshire;
and Suzhou, China) are ISO 9001 certified.

      The Company manufactures its products from standard components, as well as
from items  which are  manufactured  by vendors to its  specifications.  The raw
materials  utilized in the various  product areas are generally  accessible  and
common to both of the Company's business segments. The Company purchases most of
its raw materials  from a variety of vendors and most of these raw materials are
available from a number of sources.  During fiscal year 2007, the Company had no
single vendor from which it purchased  more than 10% of its total raw materials,
and the  Company  believes  that  alternate  sources  of  supply  are  generally
available for all raw materials supplied by this and all other Company vendors.

   Research and Development

      The Company's research and development  efforts are focused on the design,
development and engineering of both products and  manufacturing  processes.  The
current development efforts of the Company include:

      o     products for use in mobile and fixed wireless applications;


                                       9
<PAGE>

      o     advanced  manufacturing  technology to produce  microwave  stripline
            structures  for  broadband   Millimeter   wave,  or  extremely  high
            frequency, communications satellite applications;

      o     advanced low temperature co-fired ceramic to produce,  light weight,
            highly  integrated  microwave  integrated  substrates  for  advanced
            military applications; and

      o     miniature  components  for wireless  networking  and  subscriber and
            broadcast applications.

      These activities include  customer-funded design and development,  as well
as efforts funded  directly by the Company.  Research and  development  expenses
funded by the Company were $9.1  million in fiscal 2007,  $8.7 million in fiscal
2006 and $6.3 million in fiscal 2005. Research and development costs are charged
to expense as incurred.

   Intellectual Property

      The  Company's   success   depends  to  a  significant   degree  upon  the
preservation and protection of its product and manufacturing process designs and
other proprietary technology. To protect its proprietary technology, the Company
generally limits access to its technology, treats portions of such technology as
trade secrets,  and obtains  confidentiality  or non-disclosure  agreements from
persons  with  access  to the  technology.  The  Company's  agreements  with its
employees prohibit them from disclosing any confidential information, technology
developments  and  business  practices,  and from  disclosing  any  confidential
information  entrusted to the Company by other parties.  Consultants  engaged by
the  Company  who have  access to  confidential  information  generally  sign an
agreement  requiring them to keep  confidential  and not disclose any non-public
confidential information.

      The Company  currently has 13 active  patents and has filed 5 other patent
applications  that are  currently  pending  before the United  States Patent and
Trademark  Office to protect both the  construction  and design of its products.
The  Company  plans  to  pursue  intellectual  property  protection  in  foreign
countries,  primarily in the form of international  patents,  in instances where
the  technology  covered is  considered  important  enough to justify  the added
expense.  By  agreement,  Company  employees  who  initiate or  contribute  to a
patentable  design or process  are  obligated  to assign  their  interest in any
patent or potential patent to the Company.

   Government Regulation

      The  Company's  products are  incorporated  into  wireless  communications
systems   that  are   subject  to   regulation   domestically   by  the  Federal
Communications  Commission and internationally by other government agencies.  In
addition,  because of its participation in the defense industry,  the Company is
subject to audit from time to time for compliance with government regulations by
various  governmental  agencies.  The  Company  is also  subject to a variety of
local, state and federal government  regulations relating to environmental laws,
as they relate to toxic or other  hazardous  substances  used to manufacture the
Company's  products.  The  Company  believes  that it operates  its  business in
material compliance with applicable laws and regulations.  However,  any failure
to comply  with  existing or future  laws or  regulations  could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

Item 1A. Risk Factors

      In an effort to provide investors a balanced view of our current condition
and  future  growth  opportunities,  this  Annual  Report on Form 10-K  includes
comments by our management about future performance.  These statements which are
not historical information are "forward-looking statements" pursuant to the safe
harbor  provisions  of the  Private  Securities  Litigation  Reform Act of 1995.
These,  and other  forward-looking  statements,  are  subject  to  business  and
economic  risks and  uncertainties  that could  cause  actual  results to differ
materially from those discussed. The risks and uncertainties described below are
not the  only  risks  and  uncertainties  that we  face.  Additional  risks  and
uncertainties  not presently known to us or that are currently deemed immaterial
may also impair our business operations.  If any of the following risks actually
occur,  our business could be adversely  affected,  and the trading price of our
common stock could decline, and you may lose all or part of your investment. You
are encouraged to review our 2006 Annual  Report,  this Form 10-K for the fiscal
year ended June 30, 2007,  and exhibits to that Report filed with the Securities
and Exchange Commission, to learn more about the various risks and uncertainties
facing our business  and their  potential  impact on our  revenue,  earnings and
stock price.  Unless  required by law, we disclaim any  obligation  to update or
revise any forward-looking statement.


                                       10
<PAGE>

      The  Company  expects to file  Amended  Quarterly  Reports on Form  10-Q/A
restating the Company's  consolidated  condensed  financial  statements  for the
periods  ending  December  31,  2006  and  March  31,  2007,  modifying  related
disclosures,  and disclosing material weaknesses in the Company's  company-level
risk assessment and oversight  controls,  contract review, and the monitoring of
accounting  policies not in  compliance  with  accounting  principles  generally
accepted in the United  States.  The Company  cannot predict the reaction to the
filing  of  these  Amended  Reports  and if  adverse,  the  market  price of the
Company's stock could decline, potentially rapidly and sharply.

      Our Wireless segment has a significant  concentration of business with one
OEM customer, Nokia Siemens Networks, who accounts for over 16% of net sales.

      Our Wireless  segment  currently  derives a significant  amount of revenue
from production of one combiner subassembly that is used in a single basestation
platform.  Because of this  relatively high  concentration  of business with one
customer and for only one  platform,  the  Company's  revenue and  profitability
could be materially and adversely impacted by cancellation, postponement, or end
of life of this contract.

      We depend on a small number of suppliers for many of our  component  parts
and services.

      In some cases we rely on a limited  group of  suppliers to provide us with
services and materials  necessary for the manufacture of our products.  While we
believe  that  substitute  sources  of supply at  reasonably  similar  costs are
available  for these and other  products  purchased,  our  reliance on a limited
group of suppliers  involves  several risks,  including  potential  inability to
timely  obtain  critical  materials  or  services;  potential  increase  in  raw
materials  costs or  production  costs;  potential  delays  in  delivery  of raw
materials or finished products; and reduced control over reliability and quality
of components or assemblies,  as outsourcing  continues.  We do not have binding
contractual  commitments  or other  controls over our  suppliers,  and therefore
cannot always rely upon the guaranteed  availability of the materials  necessary
for the  manufacture  of our  products.  If we are required to seek  alternative
contract  manufacturers  or  suppliers  because we are  unable to obtain  timely
deliveries of acceptable  quality from existing  manufacturers or suppliers,  we
could be forced to delay delivery of our products to our customers. In addition,
if our  suppliers and contract  manufacturers  increase  their prices,  we could
suffer  losses  because we may be unable to recover these cost  increases  under
fixed price production commitments to our customers.

      Capital  expenditures  by wireless  service  providers for  infrastructure
equipment are volatile.

      The late 1990s  through 2000 saw dramatic  growth in the demand for mobile
communications.  Despite this rapid growth in customer demand,  expenditures for
capital  infrastructure  equipment by service providers began to decline rapidly
during the first  quarter of calendar year 2001.  This had a negative  impact on
all of our  Wireless  product  lines,  particularly  the  printed-circuit  board
business.  During  fiscal 2004,  infrastructure  spending  rebounded  due to the
deployment of new technology to expand existing  network  capacity  resulting in
rising sales and orders across all of our Wireless  product lines, and sales and
orders have  remained  strong  through  fiscal year 2007.  Capital  spending for
wireless infrastructure equipment remains volatile and relatively unpredictable.
Future decreases in capital expenditures for wireless  infrastructure  equipment
may adversely impact the success of these product lines.

      Changes in funding for defense procurement programs could adversely affect
our ability to grow or maintain our revenues and profitability.

      The demand for many of our Space and Defense  products has been  favorably
impacted by an upward trend in defense spending in the last few years for, among
other things, advanced radar systems, advanced jamming systems, smart munitions,
electronic  surveillance  systems and satellite  and ground based  communication
systems. Although the ultimate size of future defense budgets remains uncertain,
current  indications are that the total defense budget will continue to increase
over the next few years. However, the specific programs in which we participate,
or in which we may seek to  participate  in the future,  must compete with other
programs  for  consideration  during the budget  formulation  and  appropriation
processes.  While we believe that our products are a high  priority for national
defense, there remains the possibility that one or more of the programs we serve
will be reduced, extended or terminated.  Reductions in these existing programs,
unless offset by other programs and  opportunities,  could adversely  affect our
ability to grow our revenues and profitability.

      We face  continuing  pressure to reduce the average  selling  price of our
wireless products.


                                       11
<PAGE>

      Many of our wireless  customers  are under  continuous  pressure to reduce
costs and,  therefore,  we expect to continue to experience  pressure from these
customers  to  reduce  the  prices  of the  products  that we sell to them.  Our
customers  frequently  negotiate volume supply  arrangements  well in advance of
delivery  dates,  requiring  us to  commit  to price  reductions  before  we can
determine  whether the assumed cost reductions or the negotiated  supply volumes
can be achieved.  To offset declining  average sales prices,  we believe that we
must achieve manufacturing cost reductions and increase our sales volumes. If we
are unable to offset  declining  average selling prices,  our gross margins will
decline,  and  this  decline  could  materially  harm  our  business,  financial
condition and operating results.

      We  depend  on the  future  development  of  the  wireless  and  satellite
communications markets, which is difficult to predict.

      We believe  that our future  growth  depends in part on the success of the
wireless and satellite  communications  markets. A number of the markets for our
products in the wireless and  satellite  communications  area have only recently
begun to develop.  It is  difficult  to predict the rate at which these  markets
will  grow,   if  at  all.   Existing  or  potential   wireless  and   satellite
communications  applications  for our products may fail to develop or may erode.
If the markets for our products in wireless and satellite communications fail to
grow, or grow more slowly than anticipated,  our business,  financial  condition
and operating results could be harmed.

      The markets which we serve are very competitive,  and if we do not compete
effectively in our markets, we will lose sales and have lower margins.

      The  markets  for  our  products  are   extremely   competitive   and  are
characterized  by  rapid  technological  change,  new  product  development  and
evolving  industry  standards.  In addition,  price  competition  is intense and
significant price erosion  generally occurs over the life of a product.  We face
competition from component manufacturers which have integration capabilities, as
well  as  from  the  internal  capabilities  of  large  communications  original
equipment  manufacturers and defense prime contractors.  Our future success will
depend in part upon the extent to which these  parties  elect to  purchase  from
outside sources rather than manufacture their own microwave components.  Many of
our current and potential  competitors  have  substantially  greater  financial,
technical, marketing, distribution and other resources than us, and have greater
name recognition and market acceptance of their products and  technologies.  Our
competitors  may develop new  technologies  or products that may offer  superior
price or performance  features,  and new products or technologies may render our
customers' products obsolete.

      If we are unable to meet the rapid  technological  changes in the wireless
and  satellite  communications  markets,  our  existing  products  could  become
obsolete.

      The  markets in which we compete  are  characterized  by rapidly  changing
technologies,  evolving industry standards and frequent improvements in products
and services. If technologies  supported by our products become obsolete or fail
to gain widespread acceptance, as a result of a change in the industry standards
or otherwise,  our business  could be harmed.  Our future success will depend in
part on  factors  including  our  ability to enhance  the  functionality  of our
existing  products  in a  timely  and  cost-effective  manner;  our  ability  to
establish  close working  relationships  with major  customers for the design of
their new wireless  transmission  systems that  incorporate  our  products;  our
ability to identify,  develop and achieve market acceptance of new products that
address new  technologies  and meet  customer  needs in wireless  communications
markets;  our ability to continue to apply our  expertise  and  technologies  to
existing and emerging  wireless and satellite  communications  markets;  and our
ability to achieve acceptable product costs on new products.

      We must also  continue to make  significant  investments  in research  and
development  efforts in order to develop  necessary  product  enhancements,  new
designs and  technologies.  We may not be able to obtain a sufficient  number of
engineers,  or other technical  support staff, or the funds necessary to support
our research and development efforts when needed. In addition,  our research and
development efforts may not be successful,  and our new products may not achieve
market  acceptance.  Wireless  and  satellite  technologies  are complex and new
products and  enhancements  developed by our  customers can in turn require long
development periods for our new products or for enhancement or adaptation of our
existing  products.  If we are unable to develop and  introduce  new products or
enhancements  in a timely  manner in response to changing  market  conditions or
customer requirements,  or if our new products do not achieve market acceptance,
our business, financial condition and operating results could suffer.

      We rely  on a  limited  number  of  original  equipment  manufacturers  as
customers and the loss of one or more of them could harm our business.


                                       12
<PAGE>

      We depend upon a small number of customers for a majority of our revenues.
During fiscal 2007, we had two customers  that each  accounted for more than 10%
of our net sales  (Nokia,  who  represented  approximately  16.7%,  and Raytheon
Company,  who  represented  13.3%).  We anticipate that we will continue to sell
products to a relatively  small group of customers.  Delays in  manufacturing or
supply  procurement  or other  factors  could  potentially  cause  cancellation,
reduction  or delay in orders by a  significant  customer or in  shipments  to a
significant  customer.  Our future success depends significantly on the decision
of our current  customers to continue to purchase  products  from us, as well as
the  decision of  prospective  customers to develop and market space and defense
and wireless communications systems that incorporate our products.

      We must continue to attract and retain  qualified  engineers and other key
employees to grow our business.

      Our  continued  success  depends on our ability to continue to attract and
retain qualified engineers,  particularly  microwave  engineers,  and management
personnel.  Attracting and retaining  qualified  engineers,  including microwave
engineers,  particularly  in upstate New York,  is very  challenging.  If we are
unable  to  successfully   hire,  train  and  retain  qualified   engineers  and
experienced management personnel, it could jeopardize our ability to develop new
products  for the  wireless  and  space and  defense  markets,  and  could  also
negatively impact our ability to grow our business.

      Failure to meet market expectations could impact our stock price.

      The  market  price  for our  common  stock is  based,  in part,  on market
expectations for our sales growth,  earnings per share and cash flow. Failure to
meet these  expectations  could cause the market  price of our stock to decline,
potentially rapidly and sharply.

      Other Risks.  In addition to the risks  identified  above,  other risks we
face include, but are not limited to, the following:

      o     potential inability to timely ramp up to meet some of our customers'
            increased demands;

      o     order cancellations or extended postponements;

      o     unanticipated delays and/or difficulties  increasing  procurement of
            raw materials in Asia through our Suzhou, China facility;

      o     technological   shifts   away   from  our   technologies   and  core
            competencies;

      o     unanticipated  impairments of assets including investment values and
            goodwill; and

      o     litigation    involving    antitrust,     intellectual     property,
            environmental,   product  warranty,  product  liability,  and  other
            issues.

Item 1B. Unresolved Staff Comments

      None.

Item 2. Properties

      The  principal  real  estate  of the  Company  is a  159,000  square  foot
building,  which the Company owns, located on a 30-acre parcel in East Syracuse,
New York. The Company's principal subsidiary,  Anaren Microwave,  Inc., utilizes
this  facility  which houses a substantial  portion of the Company's  marketing,
manufacturing,  administrative,  research and  development,  systems  design and
engineering  activities.  During fiscal 2007,  the Company  constructed a 54,000
square foot addition to this  existing  building  bringing it to 159,000  square
feet to accommodate,  primarily,  the growth of its Space and Defense  business.
The  building was  completed  at a cost of $6.1 million in the first  quarter of
fiscal 2008.

      Anaren Ceramics, Inc., a wholly owned subsidiary of the Company,  operates
in  a  65,000  square  foot  building,  which  the  Company  owns,  situated  on
approximately  12 acres in Salem,  New Hampshire.  The Company moved its Amitron
and RF Power  operations  to this facility  during the second  quarter of fiscal
2005.

      The Company  leases a 76,000 square foot  facility in Suzhou,  China which
houses light  manufacturing  and assembly  activities  of the  Company's  Anaren
Communications  Suzhou Co. Ltd. subsidiary.  This facility has an annual rent of
approximately  $178,000.  The  initial  lease  period on the new  building  runs
through April 2013 and is renewable through April 2023.


                                       13
<PAGE>

      The  Company  leases a 20,000  square foot  building in Frimley,  England.
Annual rental cost of this facility is approximately  $523,000,  and the Company
is  currently  subletting  the  building.  During the fiscal year ended June 30,
2007,  payments to the Company  under this  sublease were more than 95.0% of the
full lease value.  The existing  lease term on this building  runs to 2014.  The
current  sub-lease  expires in October 2007 and there is no  assurance  that the
Company will be able to  continuously  sublet the building  during the remaining
lease term.

      Management  considers  the  foregoing   facilities,   with  the  expansion
activity,  adequate for the current and anticipated mid-term future requirements
of the Company,  and expects that suitable additional space will be available to
the Company, as needed, at reasonable commercial terms.

Item 3. Legal Proceedings

      There are no material legal proceedings pending against the Company.

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

      During the fourth  quarter of the fiscal year ended June 30,  2007,  there
were no matters submitted to a vote of security holders.

Item 4A. Executive Officers of the Registrant

      Executive  officers of Anaren,  Inc., their respective ages as of June 30,
2007, and their positions held with the Company are as follows:

<TABLE>
<CAPTION>
Name                                               Age                           Position
----                                               ---                           --------
<S>                                                <C>    <C>
Lawrence A. Sala.............................      44     President, Chief Executive Officer, Chairman and Director
Carl W. Gerst, Jr............................      70     Chief Technical Officer, Vice Chairman and Director
Gert R. Thygesen.............................      52     Senior Vice President, Technology
Joseph E. Porcello...........................      55     Senior Vice President, Finance, Treasurer
Mark P. Burdick..............................      49     Senior Vice President and General Manager
Timothy P. Ross..............................      47     Senior Vice President, Business Development
Amy B. Tewksbury.............................      43     Senior Vice President, Human Resources
</TABLE>

      Lawrence A. Sala joined the Company in 1984. He has been  President  since
May 1995, has served as Chief  Executive  Officer since  September 1997, and has
been Chairman of the Board of Directors  since  November 2001. Mr. Sala became a
member of the Board of Directors  of the Company in 1995.  He holds a Bachelor's
Degree in Computer Engineering,  a Master's Degree in Electrical Engineering and
a Master's Degree in Business Administration, all from Syracuse University.

      Carl W.  Gerst,  Jr.  has been a member of the Board of  Directors  of the
Company since its founding.  Mr. Gerst has served as Chief Technical Officer and
Vice Chairman of the Board since May 1995 and served as Treasurer  from May 1992
to November 2001. Mr. Gerst previously served as Executive Vice President of the
Company from its  founding  until May 1995.  He holds a  Bachelor's  Degree from
Youngstown  University  and a Master's  Degree in Business  Administration  from
Syracuse University.

      Gert R.  Thygesen  joined the  Company in 1981 and has served as Sr.  Vice
President of Technology  since  November  2005 and Vice  President of Technology
from September 2000 until November 2005. He previously served as Vice President,
Operations  from April 1995 to September  2000,  and as Operations  Manager from
1992 until 1995. Mr.  Thygesen holds a Bachelor of Science Degree and a Master's
Degree in Electrical Engineering from Aalborg University Center, Denmark.

      Joseph E.  Porcello  joined the Company in 1977 and has served as Sr. Vice
President, Finance since November 2005 and Vice President, Finance from May 1995
until November 2005 and Treasurer  since November 2001. He previously  served as
the Company's  Controller  from 1981 to 1999.  Mr.  Porcello  holds a Bachelor's
Degree  from the State  University  of New York at  Buffalo  and is a  Certified
Public Accountant.


                                       14
<PAGE>

      Mark P. Burdick has been with the Company since 1978 and has served as Sr.
Vice  President and General  Manager  since 2005 and Vice  President and General
Manager from September 2000 until November 2005. He served as Vice President and
General  Manager,  Wireless  segment from November 1999 until September 2000, as
Business  Unit Manager -- Commercial  Products  from 1994 to 1999,  and as Group
Manager for  Defense  Radar  Countermeasure  Subsystems  from 1991 to 1994.  Mr.
Burdick holds a Bachelor of Science  Degree in Electrical  Engineering  from the
Rochester  Institute of  Technology,  and a Master's of Business  Administration
from the University of Rochester.

      Timothy P. Ross has been with the Company since 1982 and has served as Sr.
Vice President -- Business Development since November 2005 and Vice President --
Business  Development from September 2000 until November 2005. He served as Vice
President and General  Manager,  Space and Defense  segment,  from November 1999
until  September  2000.  Mr. Ross served as Business  Unit  Manager -- Satellite
Communications from 1995 to 1999 and as a Program Manager from 1988 to 1995. Mr.
Ross holds an  Associate's  Degree in  Engineering  Science  and a  Bachelor  of
Science in Electrical  Engineering from Clarkson  University,  and a Master's in
Business Administration from the University of Rochester.

      Amy Tewksbury has served as Sr. Vice  President of Human  Resources  since
November 2005 and joined the Company in October 2002 as Vice  President of Human
Resources.  Prior to joining Anaren,  Ms. Tewksbury was employed by Wegmans Food
Markets,  Inc. for 16 years. She held various  positions with Wegmans  including
Syracuse  Division Human Resources  Manager,  Corporate Human Resources  Project
Manager, and Store Operations.  Ms. Tewksbury holds a Bachelor of Science Degree
in Management from Syracuse University.


                                       15
<PAGE>

                                    PART II

Item 5. Market For the Registrant's  Common Equity,  Related Stockholder Matters
and Issuer Purchases of Equity Securities

      The common  stock of the  Company is quoted on the  Nasdaq  Global  Market
(formerly,  the Nasdaq  National  Market) under the symbol "ANEN." The following
table sets forth the range of quarterly  high and low sales  prices  reported on
the  Nasdaq  Global  Market  for the  Company's  common  stock for the  quarters
indicated. Quotations represent prices between dealers and do not include retail
mark-ups, mark-downs or commissions.

<TABLE>
<CAPTION>
                                       Fiscal 2007                                            Fiscal 2006
                                         Quarter                                                Quarter
                      ----------------------------------------------         ----------------------------------------------
                       1st           2nd          3rd           4th           1st          2nd           3rd           4th
                      ------        -----        -----         -----         ------        -----        -----         -----
<S>                   <C>           <C>          <C>           <C>           <C>           <C>          <C>           <C>
High..............    $25.00        22.94        18.23         20.13         $14.83        16.21        19.60         24.35
Low...............    $15.60        17.14        15.42         16.31         $12.86        12.87        15.31         17.69
</TABLE>

      The Company had approximately 431 holders of record of its common stock at
September 10, 2007.

      The Company has never  declared or paid any cash  dividends on its capital
stock. The Company currently intends to retain earnings,  if any, to support the
development  of its business and does not  anticipate  paying cash dividends for
the  foreseeable  future.  Payment of future  dividends,  if any, will be at the
discretion of the Board of Directors after taking into account various  factors,
including the Company's financial  condition,  operating results and current and
anticipated cash needs.

Issuer Purchases of Equity Securities

      On May 16, 2007, the Board of Directors  increased by 2,000,000 the number
of shares  that the  Company  was  authorized  to  repurchase  in open market or
privately  negotiated   transactions  through  its  previously  announced  stock
repurchase  program.  The  program,  which may be  suspended at any time without
notice,  has no  expiration  date.  The following  table sets forth  information
regarding shares  repurchased and purchasable under the program during and as of
the end of the periods  indicated.  On June 30, 2007,  1,575,016 shares remained
authorized for purchase.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                                        Maximum Number (or
                                                                                  Total Number of       Approximate Dollar
                                                                                 Shares (or Units)     Value) of Shares (or
                                      Total Number of                          Purchased as Part of     Units) that May Yet
                                     Shares (or Units)   Average Price Paid     Publicly Announced      Be Purchased Under
Period                                   Purchased       per Share (or Unit)     Plans or Programs     the Plans or Programs
----------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                <C>                     <C>                <C>
April 2007......................                0                  --                      0                  361,105
----------------------------------------------------------------------------------------------------------------------------
May 2007........................          262,947              17.362                 62,947                2,098,158
----------------------------------------------------------------------------------------------------------------------------
June 2007.......................          523,142              17.195                 23,142                1,575,016
----------------------------------------------------------------------------------------------------------------------------
Total...........................          786,089              17.247                 86,089                       --
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       16
<PAGE>

                 COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
                 Among Anaren, Inc., The NASDAQ Composite Index
                   And The NASDAQ Electronic Components Index

 [The following table was represented as a line chart in the printed material.]

<TABLE>
<CAPTION>
                                6/30/2002       6/30/2003       6/30/2004       6/30/2005       6/30/2006       6/30/2007
                                ---------       ---------       ---------       ---------       ---------       ---------
<S>                               <C>             <C>             <C>             <C>             <C>             <C>
Anaren, Inc. ...............      $100            $110            $189            $152            $237            $204

NASDAQ Composite ...........      $100            $110            $139            $142            $156            $133

NASDAQ Electronic Components      $100            $107            $139            $123            $116            $133
</TABLE>

*     $100  invested  on 6/30/02  in stock or  index-including  reinvestment  of
      dividends. Fiscal year ending June 30.

Item 6. Selected Consolidated Financial Data

      The selected  consolidated  financial data set forth below with respect to
the Company's  statements of operations  for each of the years in the three year
period ended June 30, 2007,  and with respect to the balance  sheets at June 30,
2007 and 2006 are derived from the consolidated  financial  statements that have
been audited by KPMG LLP,  independent  registered public accounting firm, which
are included  elsewhere in this Annual Report on Form 10-K, and are qualified by
reference  to  such  consolidated   financial  statements.   The  statements  of
operations  data for the years  ended June 30, 2003 and June 30,  2004,  and the
balance  sheet  data at June 30,  2003,  June 30,  2004 and June 30,  2005,  are
derived  from audited  consolidated  financial  statements  not included in this
Annual Report on Form 10-K. The following selected financial data should be read
in conjunction  with the consolidated  financial  statements for the Company and
notes thereto and  Management's  Discussion and Analysis of Financial  Condition
and Results of Operations included elsewhere herein.


                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                                                           Years Ended
                                                              ---------------------------------------------------------------------
                                                               June 30,       June 30,       June 30,       June 30,       June 30,
                                                                2007           2006           2005           2004           2003
                                                              ---------      ---------      ---------      ---------      ---------
                                                                               (In thousands, except per share data)
<S>                                                           <C>            <C>            <C>            <C>            <C>
Statement of Income Data:
Net sales ...............................................     $ 128,987      $ 105,464      $  94,461      $  85,079      $  75,520
Cost of sales ...........................................        83,125         67,494         64,591         55,070         51,821
                                                              ---------      ---------      ---------      ---------      ---------
Gross profit ............................................        45,862         37,970         29,870         30,009         23,699
                                                              ---------      ---------      ---------      ---------      ---------
Operating expenses:
   Marketing ............................................         7,416          7,036          6,858          6,723          6,160
   Research and development .............................         9,134          8,748          6,288          5,861          6,140
   General and administrative ...........................        12,298         10,345          8,685          8,731          8,392
   Restructuring ........................................            --             --            458             --            795
                                                              ---------      ---------      ---------      ---------      ---------
   Total operating expenses .............................        28,848         26,129         22,289         21,315         21,487
                                                              ---------      ---------      ---------      ---------      ---------
Operating income ........................................        17,014         11,841          7,581          8,694          2,212
                                                              ---------      ---------      ---------      ---------      ---------
Other income (expense):
   Interest expense .....................................           (24)           (25)           (29)           (10)           (50)
   Other, primarily interest income .....................         3,571          2,453          1,599          1,678          2,211
                                                              ---------      ---------      ---------      ---------      ---------
   Total other income, net ..............................         3,547          2,428          1,570          1,668          2,161
                                                              ---------      ---------      ---------      ---------      ---------
Income before income taxes ..............................        20,561         14,269          9,151         10,362          4,373
Income taxes ............................................         5,211          3,252          1,738          2,695            798
                                                              ---------      ---------      ---------      ---------      ---------
Income from continuing operations .......................        15,350         11,017          7,413          7,667          3,575
Discontinued operations:
Income (loss) from discontinued
   operations of Anaren Europe ..........................            --             82             --           (774)        (8,029)
Income tax benefit ......................................            --             --             --         (1,800)          (662)
Net income (loss) from discontinued
   operations ...........................................            --             82             --          1,026         (7,367)
                                                              ---------      ---------      ---------      ---------      ---------
Net income (loss) .......................................     $  15,350      $  11,099      $   7,413      $   8,693      $  (3,792)
                                                              =========      =========      =========      =========      =========
Basic earnings (loss) per share:
   Income from continuing operations ....................     $     .89      $     .64      $     .38      $     .36      $     .16
   Income (loss) from discontinued
     operations .........................................            --            .01             --            .05           (.33)
                                                              ---------      ---------      ---------      ---------      ---------
Net income (loss) .......................................     $     .89      $     .65      $     .38      $     .41      $    (.17)
                                                              =========      =========      =========      =========      =========
Diluted earnings (loss) per share:
   Income from continuing operations ....................     $     .87      $     .62      $     .37      $     .35      $     .16
   Income (loss) from discontinued
     operations .........................................            --            .01             --            .05           (.33)
                                                              ---------      ---------      ---------      ---------      ---------
Net income (loss) .......................................     $     .87      $     .63      $     .37      $     .40      $    (.17)
                                                              =========      =========      =========      =========      =========
Shares used in computing net earnings per share:
   Basic ................................................        17,319         17,157         19,346         21,026         22,214
   Diluted ..............................................        17,721         17,682         19,832         21,808         22,701
Balance Sheet Data:
Cash and cash equivalents ...............................     $   7,912      $  15,733      $   5,901      $  23,303      $  11,063
Working capital .........................................        72,858        112,160         84,554        105,987        126,235
Total assets ............................................       191,204        189,026        175,482        207,482        213,088
Long-term debt, less current
   installments .........................................            --             --             --             --             --
Stockholders' equity ....................................       166,794        172,118        159,079        190,364        200,597
</TABLE>


                                       18
<PAGE>

Item 7. 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-K.  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 Annual Report.

Overview

      The consolidated  financial  statements present the financial condition of
the  Company  as of June 30,  2007 and 2006,  and the  consolidated  results  of
operations and cash flows of the Company for the years ended June 30, 2007, 2006
and 2005.

      The  Company  designs,  develops  and  markets  microwave  components  and
assemblies for the wireless communications, satellite communications and defense
electronics  markets.  The  Company's  distinctive  manufacturing  and packaging
techniques enable it to cost- effectively produce compact, lightweight microwave
products  for  use in  base  stations  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,  Nortel
Networks,  and Andrew, and to satellite  communications and defense  electronics
companies such as Boeing Satellite,  ITT, Lockheed Martin,  Northrup Grumman and
Raytheon.

      The  Company  recognizes  sales  at  the  time  products  are  shipped  to
customers, provided that persuasive evidence of an arrangement exists, the sales
price is fixed or easily determinable,  collectibility is reasonably assured and
title  and risk of loss has  passed  to the  customer.  Title  and the risks and
rewards of  ownership  of  products  are  generally  transferred  at the time of
shipment.  Payments received from customers in advance of products delivered are
recorded as customer advance payments until earned. Annually, a small percentage
of sales are derived  from  fixed-price  contracts  for the sale of  engineering
design and development efforts for space and defense electronics products. Sales
and estimated  profits under development  contracts are recognized  according to
customer contractual  milestones on a units-of-delivery  basis. Profit estimates
are  revised  periodically  based  upon  changes  in sales  value  and  costs at
completion.  Any losses on these contracts are recognized in the period in which
such losses are determined.

      Effective  July 1,  2005,  the  Company  adopted  Statement  of  Financial
Accounting Standards No. 123R (SFAS 123R). This standard requires the Company to
measure the cost of employee  services  received in exchange  for equity  awards
based  on the  grant  date  fair  value of the  awards.  These  costs  are to be
recognized as compensation  expense over the vesting period of the awards.  SFAS
123R  provides for a  prospective  application  for  adoption  which the Company
chose. Under this method,  the Company began recognizing  compensation costs for
equity based compensation for all new or modified grants after June 30, 2005 and
for the unvested  portion of the grant date fair value of awards issued prior to
adoption,  based on the fair value previously calculated for footnote disclosure
purposes.  Equity based  compensation cost for employee stock options recognized
in the year  ended  June  30,  2007 and  2006  was  $3,415,905  and  $3,383,811,
respectively.

      The final liquidation and dissolution of the Company's  European corporate
structure was concluded during the quarter ended March 31, 2006. As part of this
liquidation and  dissolution, the Company  recognized  income from  discontinued
operations of $81,713 resulting from final asset and liability liquidation.

      In April 2006,  the Company  entered into a lease for a new 76,000  square
foot facility in Suzhou,  China, at an annual rent of approximately  $178,000 to
replace its 25,000 square foot leased facility.  The initial lease period on the
new building  runs through  April 2013 and is renewable  through  April 2023. No
additional  cost was  incurred  for  termination  of the  lease on the  original
building.  The Company was fully  operational  in this new facility prior to the
end of calendar year 2006.

      In July 2006,  the  Company  began  construction  on a 54,000  square foot
addition to its facility in East  Syracuse,  New York.  This  addition is needed
primarily to accommodate the growth of the Company's Space and Defense business.
The  project is expected to be  completed  during the third  quarter of calendar
2007 at an estimated cost of $6.1 million for the building addition.


                                       19
<PAGE>

      In February 2007, the Company was selected to receive a contract valued in
excess of $8.0  million  from  Alcatel-Alenia  Space (now Thales  Alenia  Space)
(France) for  development  and production of integrated  beamforming  assemblies
that will be deployed on the Globalstar-2 satellite payload. The contract award,
which was finalized in September 2007, covers design services and manufacture of
up to 48 beamforming  networks.  Work has been authorized to begin  immediately,
with production deliveries starting in May 2008.

      In January,  2007, the Company announced that the Company's  inventory and
pre-tax  income at  September  30, 2006 was  overstated  by  $782,500  due to an
inventory valuation error. The Company also announced in January,  2007 that the
currency translation portion of the gain on the final closure and liquidation of
the Company's  discontinued  Netherlands operations should have been recorded in
the fiscal year 2004 results  rather than in the third  quarter  ended March 31,
2006  results of  operations.  As a result,  a $735,464  gain from  discontinued
operations was moved from the June 30, 2006 Consolidated Statement of Operations
to the June 30, 2004  Consolidated  Statement of  Operations.  In  addition,  on
December  1,  2006 the  Company  reported  a tax error in the  fiscal  year 2006
financial  statements  resulting in an overstatement  of tax benefits.  The full
year  overstated  tax benefit was $159,000 and was corrected in fiscal year 2006
financial  statements.  The Company  also  reported in  December,  2006 that its
disclosure  controls and  procedures  were not effective for the periods  ending
December 31, 2005,  March 31, 2006 and June 30, 2006.  On January 31, 2007,  the
Company  filed all  required  amendments  to the  quarterly  and annual  periods
impacted by these errors with the Securities and Exchange Commission. Management
further  believes that the applicable  disclosure  controls and procedures  that
were not effective have been corrected.

      In July,  2007,  the Company was selected to receive a contract  valued in
excess of $11.0 million from Northrop Grumman Corporation, located in Baltimore,
Maryland.  The contract is for Integrated  Ferrite Assemblies used in the S-Band
radar  which is part of the  Mission  Equipment  for the Cobra Judy  Replacement
Program.  The contract calls for the first  full-rate  production and deliveries
starting in November of 2007 and continuing for a 15 month period.

      August,  2007,  the Company  announced  that pre-tax  income for the three
months ended  December 31, 2006 and March 31, 2007 were  overstated  by $238,000
and  $676,000,  respectively,  due  to  certain  accounting  errors  related  to
reconciliation  of  inventory  and  recording  of vendor  payables  at its China
subsidiary,  and errors related to stock based  compensation and pension expense
as well as errors involving warranty expense and allowance for sale returns. The
Company is  reporting a material  weakness in this Annual  Report Form 10-K that
its company-level  risk assessment and oversight controls were not effective for
the fiscal year 2007. The  restatement is reported in this Annual Report on Form
10-K for the year ended June 30, 2007 and will be reported in  amendments to the
Quarterly  Reports on Form 10-Q for the second and third quarters of fiscal year
2007 ended December 31, 2006 and March 31, 2007 respectively.

Results of Operations

      Net sales from continuing operations for the year ended June 30, 2007 were
$129.0  million,  up 22.3% from  $105.5  million  for fiscal  2006.  Income from
continuing  operations for fiscal 2007 was $15.3 million, or 11.9% of net sales,
up $4.3  million,  or 39.3% from  income  from  continuing  operations  of $11.0
million in fiscal 2006.


                                       20
<PAGE>

      The following  table sets forth the  percentage  relationships  of certain
items from the Company's  consolidated  statements of operations as a percentage
of net sales for the periods indicated:

<TABLE>
<CAPTION>
                                                                                                     Years Ended June 30,
                                                                                          -----------------------------------------
                                                                                           2007              2006              2005
                                                                                          -----             -----             -----
<S>                                                                                       <C>               <C>               <C>
Net sales ....................................................................            100.0%            100.0%            100.0%
                                                                                          =====             =====             =====
Cost of sales ................................................................             64.4              64.0              68.4
                                                                                          -----             -----             -----
Gross profit .................................................................             35.6              36.0              31.6
                                                                                          -----             -----             -----
Operating expenses:
   Marketing .................................................................              5.8               6.7               7.2
   Research and development ..................................................              7.1               8.3               6.7
   General and administrative ................................................              9.5               9.8               9.2
   Restructuring .............................................................               --                --               0.5
                                                                                          -----             -----             -----
   Total operating expenses ..................................................             22.4              24.8              23.6
                                                                                          -----             -----             -----
Operating income .............................................................             13.2              11.2               8.0
                                                                                          -----             -----             -----
Other income (expense):
   Interest expense ..........................................................               --                --                --
   Other, primarily interest income ..........................................              2.7               2.3               1.7
                                                                                          -----             -----             -----
   Total other income ........................................................              2.7               2.3               1.7
                                                                                          -----             -----             -----
Income from continuing operations before Income taxes ........................             15.9              13.5               9.7
Income taxes .................................................................              4.0               3.1               1.9
                                                                                          -----             -----             -----
Net income from continuing operations ........................................             11.9              10.4               7.8
Discontinued operations:
   Income from discontinued operations of Anaren Europe ......................               --               0.1                --
   Income tax benefit ........................................................               --                --                --
                                                                                          -----             -----             -----
   Net income from discontinued operations ...................................               --               0.1                --
   Net income ................................................................             11.9%             10.5%              7.8%
                                                                                          -----             -----             -----
</TABLE>

      The following table sets forth the Company's net sales by industry segment
for the periods indicated:

<TABLE>
<CAPTION>
                                                                            Years Ended June 30,
                                         ------------------------------------------------------------------------------------------
                                                   2007                             2006                             2005
                                         ------------------------         ------------------------         ------------------------
                                            (In                              (In                              (In
                                         thousands)           %           thousands)           %           thousands)           %
                                         ----------         -----         ----------         -----         ----------         -----
<S>                                       <C>                <C>           <C>                <C>           <C>                <C>
Wireless ........................         $ 77,800           60.3%         $ 66,731           63.3%         $ 64,169           67.9%
Space & Defense .................           51,187           39.7%           38,733           36.7%           30,292           32.1%
                                          --------          -----          --------          -----          --------          -----
                                          $128,987          100.0%         $105,464          100.0%         $ 94,461          100.0%
                                          ========          =====          ========          =====          ========          =====
</TABLE>

Year Ended June 30, 2007 Compared to Year Ended June 30, 2006

      Net sales.  Net sales increased $23.5 million,  or 22.3% to $129.0 million
for fiscal  2007  compared  to $105.5  million for fiscal  2006.  This  increase
resulted  from a $12.4  million rise in shipments of Space and Defense  products
and a $11.1 million increase in shipments of Wireless products in fiscal 2007.

      The  increase in sales of  Wireless  products,  which  consist of standard
components,  ferrite  components  and custom  subassemblies  for use in building
wireless  basestation  and  consumer  equipment,  was a result of the  continued
overall  strength  of the  wireless  infrastructure  market  and  the  Company's
capturing a new custom assembly  design win increasing the Company's  content on
one base station platform.

      Wireless  product  sales  rose  $11.1  million,  or 16.6% in  fiscal  2007
compared to fiscal 2006,  due to a $7.8 million  increase in shipments of custom
wireless components in fiscal 2007. The increase in custom product sales was due
to the  introduction of new products and the continuing high level of demand for
existing  infrastructure  products from Nokia. During this same period, sales of
standard  components  rose 5.8%, or $2.2 million  compared


                                       21
<PAGE>

to fiscal 2006 due to the strong  infrastructure market demand throughout fiscal
2007.  Additionally,  Wireless consumer product sales increased $1.1 million, or
25.6% in the  current  fiscal  year  compared  to fiscal  2006,  reflecting  the
improving customer acceptance of our new consumer related products.

      Space and Defense products consist of custom components and assemblies for
communication   satellites  and  defense  radar,  receiver,  and  countermeasure
subsystems  for the  military.  Sales of Space and Defense  products  rose $12.5
million, or 32.2% in fiscal 2007 compared to the previous fiscal year. Space and
Defense  product  sales are  increasing  due to the higher level of new business
booked by the  Company  over the last two fiscal  years and the  shipment of new
counter-Improvised  Explosive  Devices(IED)  related  products  under a contract
received  in the  first  quarter  of  fiscal  2007.  Shipments  relating  to the
counter-IED  contract  accounted  for $11.4  million in Space and Defense  sales
during the current  fiscal year.  Shipments  under this contract are expected to
fall to a rate of less than $0.5 million per quarter in fiscal 2008.

      Gross Profit.  Gross profit represents net sales minus cost of sales. 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 fiscal 2007 was $45.9  million  (35.6% of net sales),  up $7.9
million from $38.0 million (36.0% of net sales) for the prior year. Gross profit
as a percent of sales  declined  slightly in fiscal  2007  compared to last year
despite the $23.5  million  increase in sales due to a somewhat  less  favorable
Wireless product mix, higher material content and lower than expected production
yields in fiscal 2007.  Gross margins in fiscal 2008 are expected to decline due
to a less profitable product mix.

      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 $7.4 million (5.8%
of net sales) for fiscal  2007,  up 5.4%,  or $380,000  compared to $7.0 million
(6.7% of net sales) for fiscal 2006. Marketing expenses in the current year rose
only slightly compared to fiscal 2006, despite the increase in sales volume, due
to declining commission expense resulting from the maturing of a number of large
programs  to lower rate  structures.  This  decline  off- set higher  travel and
personnel expenses in the year compared to last year.

      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 product and
technology  development.  Research and  development  expenses  were $9.1 million
(7.1% of net  sales) in fiscal  2007,  up 4.4%  from $8.7  million  (8.3% of net
sales) for fiscal 2006.  Research and  development  expenditures  are supporting
further development of Wireless infrastructure and consumer products, as well as
new  technology  development  in the Space and  Defense  segment.  Research  and
Development  expenditures have fluctuated with the level of opportunities in the
marketplace  which have resulted in the hiring of additional  personnel over the
last twelve months to assist in  development  initiatives.  The Company does not
expect to reduce its current  research and development  efforts and is presently
working on a number of new  standard  and custom  Wireless and Space and Defense
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  increased  18.9% to $12.3 million (9.5% of net sales) for fiscal 2007,
from $10.3  million (9.8% of net sales) for fiscal 2006.  The increase  resulted
primarily  from  additional  professional  service  costs  incurred  due  to the
restatements  of the  Company's  financial  statements  that were required to be
filed with the  Securities  and Exchange  Commission in January 2007, as well as
additional  personnel costs due to the expanded level of the Company's business,
and additional outside consulting  services retained by the Company for specific
short term initiatives. Additionally, the Company incurred a lease charge in the
fourth quarter of fiscal 2007 amounting to $542,000  related to the future lease
cost in excess of expected  rental income  generated by the  Company's  Frimley,
U.K. facility. Because of the unstable real estate market conditions in Frimley,
additional lease cost charges may be incurred in future periods.

      Operating Income. Operating income rose 43.7% in fiscal year 2007 to $17.0
million  (13.2% of sales),  compared to $11.8  million  (11.2% of net sales) for
fiscal 2006. Operating income improved  significantly in fiscal 2007 compared to
fiscal 2006 due to the large  increase in sales volume  (22.3%) and a relatively
smaller (10.4%) increase in operating expenses which more than off-set the small
decline in gross  margin as a percent of sales.  On a reporting  segment  basis,
Wireless operating income was $8.0 million for fiscal 2007, up $600,000, or 8.1%
from


                                       22
<PAGE>

Wireless  operating  income of $7.4  million in fiscal  2006.  The  increase  in
Wireless  operating  income was  relatively  minor compared to the $11.1 million
increase in sales in the current fiscal year due to inefficiencies in the Salem,
New Hampshire  facility  resulting from a decline in new sales at that facility,
as well as less favorable Wireless product mix in fiscal 2007 compared to fiscal
2006.

      Space and Defense  operating  income was $9.6 million  (18.7% of Space and
Defense net sales),  for fiscal  2007,  up $5.1  million  from $4.5  million for
fiscal  2006.  Operating  margins  in this group  have  improved  as a result of
efficiencies  realized from the $12.5 million increase in shipments of Space and
Defense  segment  products in the current year,  which included $11.4 million of
counter-IED products, compared to fiscal 2006.

      Other  Income.  Other  income is  primarily  interest  income  received on
invested cash balances.  Other income  increased  45.6% to $3.6 million (2.7% of
net  sales) in fiscal  2007  compared  to $2.5  million  (2.3% of net sales) for
fiscal  2006.  This  increase was caused  mainly by the rise in market  interest
rates  over the last  twelve  months and was  partially  off-set by a decline in
investable  cash  balances  during  fiscal  2007 as funds were used to  purchase
treasury shares. Other income will fluctuate based on short term market interest
rates and the level of investable cash balances.

      Interest Expense.  Interest expense represents interest paid on a deferred
obligation. Interest expense for fiscal 2007 was unchanged from fiscal 2006.

      Income Taxes.  Income taxes for fiscal 2007 were $5.2 million (4.0% of net
sales), representing an effective tax rate of 25.3%. This compares to income tax
expense of $3.3  million  (3.1% of net sales) for fiscal 2006,  representing  an
effective tax rate of 22.8%. The Company's effective tax rate is a direct result
of the  proportion of federally  exempt state  municipal bond income and federal
tax credits and benefits in relation to the levels of taxable income or loss, as
well as, the phase out of the China tax holiday.  The  projected  effective  tax
rate for fiscal 2008 is  approximately  28 - 30% compared to an actual effective
tax rate of 25.3% for fiscal 2007.  The increase in the projected  effective tax
rate is due  mainly  to the  higher  level of  taxable  income  the  Company  is
currently generating, the expiration of the federal extraterritorial tax benefit
and the continuing phase-out of the tax holiday for our China subsidiary.

      Discontinued Operations. Discontinued operations in fiscal 2006 represents
the  result of  liquidation  and  dissolution  of the  Company's  Anaren  Europe
corporate  structure which ceased  operating in December 2003.  During the third
quarter ended March 31, 2006 and in conjunction  with the finalization of Anaren
Europe's bankruptcy  proceeding,  the Company performed the final liquidation of
its Anaren Europe  corporate  structure.  As a result of this  liquidation,  the
Company  recognized  a gain of $81,713  from the  liquidation  of the  remaining
assets.

Year Ended June 30, 2006 Compared to Year Ended June 30, 2005

      Net Sales. Net sales increased $11.0 million,  or 11.6%, to $105.5 million
for fiscal 2006  compared to $94.5  million for fiscal 2005.  This rise in sales
resulted from a $8.4 million  increase in sales of Space and Defense products in
fiscal 2006, while shipments of Wireless products rose $2.6 million for the same
period.

      Sales of  Wireless  products  for fiscal 2006 rose $2.6  million,  or 4.0%
compared to fiscal 2005.  During fiscal 2006 sales of new consumer products rose
$2.3 million, or 123%, while sales of custom products, which are produced mainly
in our China facility,  increased $2.5 million,  or 11.2%, and sales of standard
surface mount  components  rose $2.7 million,  or 14.6% compared to fiscal 2005.
These  increases  were  partially  offset by a $4.9 million  decline in combined
circulator  and resistive  products sales in fiscal 2006 compared to fiscal 2005
as a result of a decline in demand for these products.

      Higher shipment levels of surface mount components,  custom infrastructure
products and new consumer products reflected the increasing worldwide demand for
Wireless components experienced in fiscal 2006 compared to 2005.

      Space and Defense  products  sales rose $8.4 million,  or 27.9%,  to $38.7
million in fiscal  2006  compared  to $30.3  million in fiscal  2005.  Space and
Defense  product sales  increased due to the higher level of new business booked
by the Company in fiscal 2004 and 2005,  which moved into  production  in fiscal
2006.  Space and Defense  product  bookings  were $37.7  million in fiscal 2004,
$40.9 million in fiscal 2005, and $39.2 million in fiscal 2006.


                                       23
<PAGE>

      Gross Profit. Gross profit represents net sales minus cost of sales. Gross
profit for fiscal 2006 was $38.0  million  (36.0% of net sales) up $8.1  million
from $29.9  million  (31.6% of net sales)  for the same  period of fiscal  2005.
Gross  profit  increased  in  fiscal  2006  over  last  year  due  to  favorable
manufacturing  efficiencies and a more favorable  wireless product mix in fiscal
2006. These  efficiencies  resulted from higher production  volumes at our lower
cost  China  facility  and  in  our  Space  and  Defense  segment,  as  well  as
manufacturing  overhead  cost  savings  realized by  combining  the RF Power and
Amitron  production  facilities into one operation at Anaren  Ceramics.  Current
year growth in gross profit was lowered by the recognition of $875,000 of equity
based compensation expense in cost of sales for the first time in fiscal 2006.

      Marketing.  Marketing expenses were $7.0 million,  (6.7% of net sales) for
fiscal  2006,  up 2.6% from $6.9  million  (7.2% of net sales) for fiscal  2005.
Included in  marketing  expense  for fiscal  2006 is  $275,000  of equity  based
compensation expense. Absent the inclusion of equity based compensation expense,
marketing costs in fiscal 2006 declined approximately 1.4% year over year due to
cost  savings  realized  through the  consolidation  of the RF Power and Amitron
operations during fiscal 2005.

      Research and  Development.  Research and  development  expenses  were $8.7
million  (8.3% of net sales) in fiscal 2006, up 39.1% from $6.3 million (6.7% of
net  sales) for fiscal  2005.  Research  and  development  expenditures  support
further   development  of  Wireless   infrastructure   and  consumer   component
opportunities  as well as new  technology  development  in the Space and Defense
segment.  Research and  development  expenditures  increased in fiscal 2006 over
fiscal 2005  levels due to the higher  level of  Wireless  opportunities  in the
marketplace  and due to the inclusion of $346,000 for equity based  compensation
expense.  These  opportunities  resulted  in the  hiring of  additional  product
development  personnel in fiscal 2005 and 2006,  as well as  additional  outside
vendor  spending  by the  Company in fiscal  2006 to  expedite  the new  product
development process.

      General and Administrative.  General and administrative expenses increased
19.1% to $10.3  million  (9.8% of net sales) for fiscal 2006,  from $8.7 million
(9.2% of net sales) for fiscal 2005. This increase  resulted  primarily from the
inclusion of  $1,771,000  of equity based  compensation  expense in fiscal 2006.
Absent  the  inclusion  of  equity  based  compensation  expense,   general  and
administrative  costs for fiscal 2006 were down 1.3% compared to fiscal 2005 due
to  consolidation  savings and lower Sarbanes Oxley  compliance  costs in fiscal
2006.

      Restructuring.  There  were  no  restructuring  charges  in  fiscal  2006.
Restructuring  costs were  $458,000 in fiscal 2005.  These costs were related to
the  termination  of 79 people in  conjunction  with the  closure  of RF Power's
facility and the move of that  operation to Salem,  New  Hampshire in the second
quarter of fiscal 2005.

      Operating  Income.  Operating  income  increased  $4.2 million or 56.2% in
fiscal 2006 to $11.8 million (11.2% of net sales) compared to $7.6 million (8.0%
of net sales) for fiscal year 2005. In fiscal 2006, operating income was reduced
by $3.3  million for equity based  compensation  expense.  Operating  income for
fiscal  2005  does not  include  any  expense  for  equity  based  compensation.
Operating  income  improved  significantly  in fiscal 2006 due to  manufacturing
efficiencies   achieved  through  operation   consolidations  and  sales  volume
increases,  the relative  flat levels of  marketing  in fiscal 2006  compared to
fiscal 2005, and the absence of one time consolidation and restructuring charges
in the current year  compared to fiscal  2005,  which  included  $1.5 million of
one-time charges.

      On a reporting segment basis,  Wireless  operating income was $7.4 million
for fiscal 2006 (including $1.7 million of equity based  compensation  expense),
up $5.2 million from Wireless  operating income of $2.2 million for fiscal 2005.
Wireless operating income improved significantly in the current year due to cost
savings  achieved  through  the  consolidation  of  the  RF  Power  and  Amitron
operations in fiscal 2005, the absence of consolidation charges ($1.5 million in
fiscal 2005), cost efficiencies  resulting from higher manufacturing  volumes in
the Company's  China  operation,  and a more favorable  wireless  product mix in
fiscal 2006 compared to fiscal 2005.

      Space and Defense  operating  income fell  $875,000 in fiscal 2006 to $4.5
million (including $1.7 million of equity based  compensation  expense) compared
to $5.3 million in fiscal 2005.  This decrease,  despite a rise in sales volume,
resulted  from the  large  number of new Space  and  Defense  programs  entering
production  over the second half of fiscal 2005 and all of fiscal 2006,  as well
as the $1.7 million of equity based compensation.  These programs in their early
production  phase required a higher level of  engineering  support and had lower
manufacturing  yields and  efficiencies  than more  mature  programs.  Operating
margins  in this  segment  improved  in the second  half of fiscal  2006 and are
expected to improve further as the new programs mature.


                                       24
<PAGE>

      Other Income.  Other income  increased  53.4% to $2.5 million (2.3% of net
sales) for year ended June 30, 2006,  from $1.6 million  (1.7% of net sales) for
fiscal year 2005. This increase was caused mainly by the rise in market interest
rates over the eighteen  months prior to June 30, 2006 and the absence of losses
on equipment and investment  sales in fiscal 2006 compared to $410,000 of losses
recorded in fiscal 2005.

      Interest Expense.  Interest expense represents interest paid on a deferred
obligation. Interest expense for fiscal 2006 was $25,000 compared to $29,000 for
fiscal 2005.

      Income Taxes.  Income taxes for fiscal 2006 were $3.3 million (3.1% of net
sales)  representing an effective tax rate of 22.8%. This compares to income tax
expense of $1.7  million  (1.9% of net sales) for fiscal 2005,  representing  an
effective tax rate of 19.0%. The Company's  effective tax rate in fiscal 2006 is
a direct  result of the  proportion  of federally  exempt state  municipal  bond
income, the amount of non-taxable income of the Company's China subsidiary,  and
federal tax credits and benefits in relation to the levels of taxable  income or
loss.  The increase in the  effective tax rate in fiscal 2006 resulted from both
the  higher  level of  income  and the  amount  of  nondeductible  equity  based
compensation  expense  in  fiscal  2006  compared  to the  level  of  deductible
non-statutory stock option equity based compensation  expense resulting from the
adoption of SFAS 123R.  Stock options  issued prior to the adoption of SFAS 123R
on July 1, 2005 were mainly  incentive stock options.  Compensation  expense for
these  options,  under SFAS 123R,  did not generate a tax  deduction and related
deferred tax benefit.  New options  granted after the adoption of SFAS 123R were
non-statutory stock options, which generate a tax deduction and related deferred
tax benefit.  The Company in fiscal 2006 was in a "tax free  holiday" for income
earned at its China subsidiary through December 2006.

      Discontinued  Operations.  Discontinued operations represent the result of
liquidation and dissolution of the Company's Anaren Europe  corporate  structure
which ceased operating in December 2003. During the third quarter of fiscal 2006
and in  conjunction  with  the  finalization  of the  Anaren  Europe  bankruptcy
proceeding,  the Company  performed the final  liquidation  of its Anaren Europe
corporate structure.  As a result, the Company recognized a gain of $81,713 from
the liquidation of the remaining assets.

Critical Accounting Policies

      The  methods,  estimates  and  judgments  management  uses in applying the
Company's  most critical  accounting  policies have a significant  impact on the
results reported in the Company's financial statements.  The U.S. Securities and
Exchange  Commission  has defined the most critical  accounting  policies as the
ones  that  are most  important  to the  portrayal  of the  Company's  financial
condition and results,  and that require  management to make the most  difficult
and  subjective  judgments,  often as a result of the need to make  estimates of
matters that are inherently uncertain.  Based on this definition,  the Company's
most  critical  policies  include:  1) valuation of accounts  receivable,  which
impacts general and  administrative  expense;  2) valuation of inventory,  which
impacts cost of sales and gross margin;  3) the assessment of  recoverability of
goodwill and other intangible and long-lived assets, which impacts write-offs of
goodwill,  intangibles  and  long-lived  assets;  4) accounting  for stock based
compensation,   which  impacts  multiple  expense   components   throughout  the
statements  of income;  and 5) accounting  for income  taxes,  which impacts the
valuation  allowance  and  the  effective  tax  rate.   Management  reviews  the
estimates,  including,  but not limited to,  allowance  for  doubtful  accounts,
inventory  reserves  and  income  tax  valuations  on a regular  basis and makes
adjustments  based on  historical  experiences,  current  conditions  and future
expectations.  The reviews are performed  regularly and  adjustments are made as
required by current available information.  The Company believes these estimates
are  reasonable,  but actual results could and have differed at times from these
estimates.

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

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


                                       25
<PAGE>

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

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

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

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

      The Company accounts for stock based  compensation by recognizing  expense
over the vesting  period for any nonvested  stock option awards  granted.  Stock
option  grants  are  valued by using a  Black-Scholes  method at the date of the
grant.  There are assumptions and estimates made by management which go into the
valuation of the options granted, such as volatility,  expected option term, and
forfeiture  rate.  The Company  recognizes  expense on options  granted  using a
straight-line  method  over the  vesting  period.  Restricted  stock  grants are
expensed over the vesting period, which is determined at the date of the grant.

Liquidity and Capital Resources

      Net cash  provided by operations  for the years ended June 30, 2007,  2006
and 2005 was $21.8 million,  $16.6 million and $8.4 million,  respectively.  The
positive  cash  flow  from   operations  was  due  primarily  to  profit  before
depreciation  in fiscal 2005 and profit  before  depreciation  and equity  based
compensation  expense in fiscal 2006 and 2007.  In all three years the  positive
cash  flow from  earnings  was  partially  off-set  by a  combined  increase  in
inventory and accounts receivable amounting to $6.3 million in fiscal 2007, $4.0
million in fiscal 2006 and $3.8 million in fiscal 2005. Additionally,  in fiscal
2007 and 2006,  cash flow from  operations  rose due to $3.5  million  in equity
based  compensation  expense  which  did not  require  cash and in  fiscal  2007
operating cash flow was further  enhanced by a $3.4 million increase in accounts
payable.

      Net cash used in investing  activities in fiscal 2007 was $6.8 million and
consisted of capital  expenditures  of $13.2 million,  including $5.3 million in
current year  expenditures  to construct and equip a 54,000 square foot addition
to our East Syracuse,  New York manufacturing  facility,  less funds provided by
net maturities of marketable debt securities of $6.2 million.

      Net cash used in investing  activities in fiscal 2006 was $4.3 million and
consisted of capital  expenditures  of $7.5 million,  including $1.4 million for
infrastructure  work in the fourth  quarter to support  the 54,000  square  foot
building  expansion,  off-set by cash  provided by net  maturities of marketable
debt securities of $3.2 million.


                                       26
<PAGE>

      Net cash  provided  by  investing  activities  for  fiscal  2005 was $11.9
million and consisted of net maturities of marketable  debt  securities of $18.1
million and proceeds from the sale of Celeritek,  Inc. equity securities of $2.7
million, net of capital expenditures of $9.1 million, including $4.8 million for
the new Salem, New Hampshire facility.

      Net cash used in financing  activities  in fiscal 2007,  2006 and 2005 was
$23.1  million,  $2.6 million and $37.7 million,  respectively.  In fiscal 2007,
$2.6 million was provided by cash and tax benefits  resulting  from stock option
exercises  and $25.7  million  was used to purchase  1.5  million  shares of the
Company's  common stock for treasury.  In fiscal 2006, $7.2 million was provided
by cash and tax benefits  resulting  from the exercise of stock options and $9.8
million was used to purchase 697,000 shares,  while in fiscal 2005, $225,000 was
provided by the  exercise of stock  options  and $37.9  million was  expended to
repurchase 3.2 million shares.

      The Company  expects to continue to purchase shares of its common stock in
the open market and/or through private negotiated transactions under the current
Board authorization, depending on market conditions. At June 30, 2007 there were
1,575,016 shares remaining under the current Board repurchase authorization.

      At June 30, 2007,  the Company had  approximately  $74.6  million in cash,
cash  equivalents,  and marketable  securities and no debt, and has had positive
operating  cash flow for over ten  years.  The  Company  believes  that its cash
requirements for the foreseeable  future will be satisfied by currently invested
cash balances and expected cash flows from operations.

Disclosures About Contractual Obligations and Commercial Commitments

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

<TABLE>
<CAPTION>
                                                                       Less
                                                    Total            Than 1 Yr.      2 - 3 Yrs.       4 - 5 Yrs.        Over 5 Yrs.
                                                    -----            ----------      ----------       ----------        -----------
                                                                              Payment Due by Period
<S>                                               <C>                 <C>            <C>              <C>                <C>
Contractual obligations
Operating leases -- facilities.............       $4,190,438          $703,984       $1,407,969       $1,407,969         $670,516
Deferred compensation.....................           323,455            65,000          130,000          128,455               --
</TABLE>

Recent Accounting Pronouncements

      In July 2006, the Financial  Accounting  Standards  Board ("FASB")  issued
FASB Interpretation No. 48 ("FIN No. 48"), "Accounting for Uncertainty in Income
Taxes -- an  interpretation of FASB Statement No. 109." FIN No. 48 clarifies the
accounting  for  uncertainty  in  income  taxes  recognized  in an  enterprise's
financial  statements  in  accordance  with FASB  Statement  No. 109. FIN No. 48
prescribes a recognition  threshold and measurement  attribute for the financial
statement  recognition and measurement of a tax position taken or expected to be
taken  in  a  tax  return.  Additionally,   FIN  No.  48  provides  guidance  on
derecognition,  classification,  interest and  penalties,  accounting in interim
periods,  disclosure and transition. The Company is required to adopt FIN No. 48
for fiscal years beginning after June 30, 2007 (the Company's 2008 fiscal year),
with the cumulative  effect of applying the provisions of FIN No. 48 reported as
an adjustment to opening retained earnings in fiscal year 2008, is currently not
expected  to have a  material  impact on our  results of  operations,  financial
position or cash flows.

      In September  2006,  the FASB issued  Statement  of  Financial  Accounting
Standard No. 157, "Fair Value  Measurements" which is effective for fiscal years
beginning  after  November  15, 2007 (the  Company's  2009 fiscal  year) and for
interim  periods  within  those  years.   This  statement  defines  fair  value,
establishes  a  framework  for  measuring  fair value and  expands  the  related
disclosure  requirements.  The Company is  currently  evaluating  the  potential
impact of this statement.

      In  February  2007,  the FASB issued  Statement  of  Financial  Accounting
Standard No. 159,  "The Fair Value  Option for  Financial  Assets and  Financial
Liabilities - Including an Amendment of FASB Statement No. 115" (SFAS 159). This
Statement  provides  companies with an option to measure,  at specified election
dates, many financial instruments and certain other items at fair value that are
not currently measured at fair value. A company that adopts SFAS 159 will report
unrealized  gains and losses on items for which the fair  value  option has been
elected in earnings at each  subsequent  reporting  date.  This  Statement  also
establishes  presentation  and  disclosure


                                       27
<PAGE>

requirements  designed to facilitate  comparisons  between  entities that choose
different  measurement  attributes for similar types of assets and  liabilities.
This Statement is effective for fiscal years  beginning  after November 15, 2007
(the  Company's  2009 fiscal  year).  The Company is  currently  evaluating  the
potential impact of this statement.

Item 7A. 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 Annual Report.

      As of June 30, 2007, the Company had cash, cash equivalents and marketable
securities of $74.6 million, all of which consisted of highly liquid investments
in  marketable  debt  securities.  The  marketable  debt  securities  at date of
purchase  normally  have  maturities  between one and 18 months,  are exposed to
interest rate risk and will decrease in value if market interest rates increase.
A  hypothetical  decrease  in market  interest  rate of 10.0% from June 30, 2007
rates, or 0.375%,  would have reduced net income and cash flow by  approximately
$280,000,  or $0.015 per diluted share for the year. Due to the relatively short
maturities  of the  securities  and its  ability  to hold those  investments  to
maturity,  the Company does not believe  that an immediate  decrease in interest
rates would have a significant  effect on its financial  condition or results of
operations.  Over time,  however,  declines  in  interest  rates will reduce the
Company's interest income.

Item 8. Financial Statements and Supplementary Data

      The financial  statements and financial  statement schedules called for by
this Item are provided under "Item 14. Exhibits,  Financial  Statement Schedules
and Reports on Form 8-K," which information is incorporated herein by reference.
The  unaudited  supplementary  financial  information  required  by this Item is
contained in note 23 to the  consolidated  financial  statements  of the Company
which are included elsewhere in this Annual Report on Form 10-K.

Item 9A. Controls and Procedures

      (a)   Evaluation of Disclosure Controls and Procedures

            Based on their evaluation of the Company's  disclosure  controls and
            procedures  (as  defined  in Rule  13a-15(e)  under  the  Securities
            Exchange  Act of 1934) as of the end of the  period  covered by this
            report,  the Company's Chief  Executive  Officer and Chief Financial
            Officer  concluded  that  the  Company's   disclosure  controls  and
            procedures were not effective as of June 30, 2007 as a result of the
            material  weaknesses in internal  control over  financial  reporting
            discussed in  Management's  Annual  Report on Internal  Control Over
            Financial Reporting (Item 9A(b)).

            As a result of these material weaknesses,  management concluded that
            our disclosure controls and procedures were not effective as of June
            30, 2007.

      (b)   Management's  Annual  Report  on  Internal  Control  Over  Financial
            Reporting

            The  management  of  Anaren  is  responsible  for  establishing  and
            maintaining  adequate internal control over financial  reporting for
            the Company.  With the  participation of the Chief Executive Officer
            and  the  Chief  Financial  Officer,  our  management  conducted  an
            evaluation  of  the  effectiveness  of  our  internal  control  over
            financial  reporting as of June 30, 2007, based on the framework and
            criteria  established in Internal  Control -- Integrated  Framework,
            issued by the Committee of Sponsoring  Organizations of the Treadway
            Commission (COSO).

            A company's  internal control over financial  reporting is a process
            designed to provide reasonable  assurance  regarding the reliability
            of financial  reporting and the preparation of financial  statements
            for  external   purposes  in  accordance  with  generally   accepted
            accounting  principles.  A company's internal control over financial
            reporting includes those policies and procedures that (1) pertain to
            the  maintenance of records that, in reasonable  detail,  accurately
            and fairly reflect the  transactions  and dispositions of the assets
            of the company;  (2) provide reasonable  assurance that transactions
            are  recorded  as  necessary  to  permit  preparation  of  financial
            statements  in  accordance   with  generally


                                       28
<PAGE>

            accepted accounting  principles,  and that receipts and expenditures
            of the company are being made only in accordance with authorizations
            of  management  and  directors  of  the  company;  and  (3)  provide
            reasonable  assurance  regarding  prevention or timely  detection of
            unauthorized  acquisition,  use,  or  disposition  of the  company's
            assets  that  could  have  a  material   effect  on  the   financial
            statements.

            Because of its inherent limitations, internal control over financial
            reporting may not prevent or detect misstatements. Also, projections
            of any evaluation of  effectiveness to future periods are subject to
            the risk that controls may become  inadequate  because of changes in
            conditions,  or that the degree of  compliance  with the policies or
            procedures may deteriorate.

      A material weakness is a deficiency, or a combination of deficiencies,  in
internal  control  over  financial  reporting,  such that there is a  reasonable
possibility  that a material  misstatement  of the  company's  annual or interim
financial  statements  will not be prevented or detected on a timely  basis.  In
connection with the assessment  described  above,  management has identified the
following material weaknesses as of June 30, 2007:

      The Company did not maintain  policies and procedures that were sufficient
to assess financial reporting risks on a timely basis. Specifically,

      (i)   Management  did not have an  adequate  process to assess  risks when
            changes in the  internal  control  system or key  finance  personnel
            occur and provide the appropriate level of oversight.  This material
            weakness  contributed to the material  weakness listed in item (iii)
            below.

      (ii)  Management  did not  maintain  controls  sufficient  to  assess on a
            timely basis the financial statement impact of significant contracts
            and agreements or to identify,  monitor,  and measure and accounting
            practices  that  are  not  in  compliance  with  generally  accepted
            accounting  principles.  This material  weakness  contributed to the
            material weaknesses in items (iv) through (vi) below.

      These material weaknesses contributed to the material weaknesses listed in
      items (iii) through (vi) below.

      (iii) Accounting  for Inventory and Cost of Sales in China:  The Company's
            accounting  personnel  in  China  had  insufficient   knowledge  and
            experience in the application of U.S. generally accepted  accounting
            principles,  which resulted in inappropriate changes to the policies
            and  procedures  for the accounting for inventory and cost of sales.
            As a result,  the Company did not  maintain  effective  policies and
            procedures over the determination and reporting of its inventory and
            cost of sales. This material weakness resulted in restatement of the
            Company's 2007 interim financial statements.

      (iv)  Accounting for Distributor  Agreements:  The Company's  policies and
            procedures   were  not  adequate  to  properly   account  for  sales
            transactions with distributors. Specifically, the Company's policies
            allowed  for  the  recognition  of  revenue  upon  shipment  to  the
            distributor  rather than when  earned by the  Company in  accordance
            with U.S. generally accepted  accounting  principles.  This material
            weakness   resulted  in   adjustments  to  the  fiscal  2007  annual
            consolidated financial statements.

      (v)   Accounting for Stock-Based Compensation:  The Company's policies and
            procedures   were  not   adequate   to  properly   recognize   stock
            compensation expense.  Specifically,  the Company's policies allowed
            for the  recognition  of expense for retirement  eligible  employees
            over  nonsubstantive  service  periods  rather  than as  incurred in
            accordance with U.S. generally accepted accounting principles.  This
            material  weakness resulted in adjustments to the fiscal 2007 annual
            consolidated financial statements.

      (vi)  Accounting for Warranty  Reserves,  Sales Returns and Allowances and
            Inventory  Valuations:  The  warranty  accrual,  reserve  for  sales
            returns and  allowances  and  practices  related to the valuation of
            inventory  were  recognized  in the Company's  financial  statements
            using non-GAAP  policies.  The Company did not maintain policies and
            procedures  to  monitor  these   accounting   practices   that  were
            sufficient to prevent or detect,  on a timely basis,  a misstatement
            that could be considered  to be material to the Company's  financial
            statements.  This material  weakness  resulted in adjustments to the
            fiscal 2007 annual consolidated financial statements.

            Anaren's  independent   auditor,   KPMG  LLP,  a  registered  public
            accounting  firm, has issued an audit report on our internal control
            over financial reporting as of June 30, 2007.


                                       29
<PAGE>

      (c)   Remediation of Material Weakness in Internal Control

      The Company has engaged in, and is  continuing  to engage in, the remedial
      actions  below,  which  management  believes  are  adequate to correct the
      material weaknesses described above. These remedial actions include:

      Monitoring Financial Reporting Risks:

      o     On a  quarterly  basis,  members of the  Company's  management  will
            conduct reviews at each of the Company's subsidiaries to ensure that
            policies  and   procedures  are  being  applied   consistently   and
            accurately.  These  reviews  will  focus  on  areas  considered  and
            identified  each  quarter by the Company  with the most  significant
            risk of  material  financial  statement  misstatement  based  on the
            changing business environment.

      Accounting for Inventory and Cost of Sales in China:

      o     Improve the monitoring  controls over the Company's  subsidiaries by
            ensuring that a member from the corporate team is on site during the
            quarter close to ensure consistent accounting practices and policies
            are being  followed.  Another  member from the  corporate  team will
            review any work performed by the on-site corporate team member.

      o     Review  and  reperform  account   reconciliations   for  significant
            accounts at  subsidiaries  to ensure they were  prepared  consistent
            with prior periods, complete, and accurate.

      o     Improve the level of accounting  expertise and understanding of U.S.
            GAAP  at  its  subsidiary  in  China  by  hiring  more   experienced
            accounting personnel at that location,  as well as hire a new member
            to the  corporate  finance  team  exclusively  responsible  for  the
            oversight of that location. Accounting for Distributor Agreements:

      Accounting for Distribution Agreements

      o     All new contracts entered into are required to be reviewed by the VP
            of Finance,  Financial  Reporting  Manager and Corporate  Controller
            prior to being  formerly  executed  with the customer to ensure that
            all critical  contract  provisions that impact  financial  reporting
            have been considered in the  preparation of the Company's  financial
            statements.

      Accounting for Stock-Based Compensation:

      o     Improve  the  procedures  surrounding  the  review and  adoption  of
            accounting  standards that have a financial  impact on the Company's
            financial  statements.  Procedures will include a detailed review of
            the stock compensation expense calculation by personnel  independent
            of the preparer.  This review will be executed by finance department
            personnel  with  adequate   technical   expertise  relative  to  the
            accounting for stock based compensation.

      Accounting for Warranty  Reserve,  Sales Returns and Allowance Reserve and
      Inventory Valuation:

      o     On a  quarterly  basis,  the Company  will  monitor  their  warranty
            reserve,  sales  returns and allowance  reserve and those  practices
            relative  to  inventory   valuation  to  ensure  that  all  non-GAAP
            practices   utilized  do  not   materially   impact  the   Company's
            consolidated  financial  statements.  This  monitoring  process will
            include  the  preparation  of  analyses  over each  area,  which are
            reviewed by multiple levels within the corporate finance department.


                                       30
<PAGE>

      (d)   Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Anaren, Inc.:

      We have audited Anaren,  Inc.'s internal control over financial  reporting
as of June 30,  2007,  based on  criteria  established  in  Internal  Control --
Integrated Framework issued by the Committee of Sponsoring  Organizations of the
Treadway  Commission  (COSO).   Anaren  Inc.'s  management  is  responsible  for
maintaining  effective  internal  control over  financial  reporting and for its
assessment of the  effectiveness of internal  control over financial  reporting,
included in the  accompanying  Annual Report on Internal  Control Over Financial
Reporting  (Item 9A (b)).  Our  responsibility  is to  express an opinion on the
Company's internal control over financial reporting based on our audit.

      We  conducted  our audit in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and  perform  the audit to obtain  reasonable  assurance  about  whether
effective  internal  control over  financial  reporting  was  maintained  in all
material  respects.  Our audit included  obtaining an  understanding of internal
control over financial  reporting,  assessing the risk that a material  weakness
exists,  and testing and  evaluating the design and operating  effectiveness  of
internal control based on the assessed risk. Our audit also included  performing
such other  procedures  as we  considered  necessary  in the  circumstances.  We
believe that our audit provides a reasonable basis for our opinion.

      A  company's  internal  control  over  financial  reporting  is a  process
designed to provide reasonable  assurance regarding the reliability of financial
reporting and the preparation of financial  statements for external  purposes in
accordance with generally accepted accounting  principles.  A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the  transactions  and dispositions of the assets of the company;
(2) provide reasonable  assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

      Because of its  inherent  limitations,  internal  control  over  financial
reporting  may not prevent or detect  misstatements.  Also,  projections  of any
evaluation  of  effectiveness  to future  periods  are  subject to the risk that
controls may become  inadequate  because of changes in  conditions,  or that the
degree of compliance with the policies or procedures may deteriorate.

      A material weakness is a deficiency, or a combination of deficiencies,  in
internal  control  over  financial  reporting,  such that there is a  reasonable
possibility  that a material  misstatement  of the  company's  annual or interim
financial  statements  will not be  prevented  or  detected  on a timely  basis.
Material weaknesses have been identified and included in management's assessment
(Item 9A(b)) relating to the Company's  processes for 1) assessing risks arising
from  changes  in  internal  control  over  financial  reporting;  2) the timely
assessment of the impact of significant  contracts and accounting  practices not
in accordance with generally accepted accounting principles; and in the policies
and procedures  relating to 3) the accounting for inventory and cost of sales in
China, 4) sales of product to distributors, 5) stock based compensation,  and 6)
sales returns, warranties and inventory valuation.

      We also have  audited,  in  accordance  with the  standards  of the Public
Company  Accounting  Oversight Board (United States),  the consolidated  balance
sheets of Anaren,  Inc. and  subsidiaries  as of June 30, 2007 and 2006, and the
related   consolidated   statements   of   income,   stockholders'   equity  and
comprehensive  income,  and cash  flows for each of the years in the  three-year
period  ended June 30,  2007.  These  material  weaknesses  were  considered  in
determining the nature,  timing,  and extent of audit tests applied in our audit
of the 2007 consolidated  financial statements,  and this report does not affect
our report dated September 28, 2007,  which expressed an unqualified  opinion on
those consolidated financial statements.


                                       31
<PAGE>

      In our  opinion,  because  of the  effect of the  aforementioned  material
weaknesses on the achievement of the objectives of the control criteria, Anaren,
Inc. has not maintained  effective internal control over financial  reporting as
of June 30, 2007, based on criteria established in Internal  Control--Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission.

                                                          KPMG LLP

Syracuse, New York
September 28, 2007

      (e)   Changes in Internal Control Over Financial Reporting

            Other  than  the  actions  taken  as part of  management's  plans to
            remediate the material  weakness that caused the  restatement of the
            Company's second and third quarter  financial  statements  (material
            weakness iii above) there were no changes in the Company's  internal
            control over  financial  reporting  (as defined in Rule  13a-15(f)),
            during  the  three-month  period  ended  June 30,  2007,  that  have
            materially affected,  or are reasonably likely to materially affect,
            the Company's internal control over financial reporting. As outlined
            above,  the new  control  procedures  which were put in place are as
            follows:

            o     Improvement  in the  monitoring  controls  over the  Company's
                  China subsidiary by ensuring that a member from corporate team
                  is on site  during  the  quarter  close to  ensure  consistent
                  accounting practices and policies are being followed.  Another
                  member from the corporate  team will review any work performed
                  by the on-site corporate team member.

            o     Instructions  given to the China  subsidiary on the proper way
                  to account for inventory and  inventory  related  payables for
                  the year-end closing procedures.

            o     Review and reperform account  reconciliations  for significant
                  accounts  at   subsidiaries   to  ensure  they  were  prepared
                  consistent with prior periods, complete, and accurate.

Item 9B. Other Information

      None.


                                       32
<PAGE>

                                    PART III

Item 10. Directors, Executive Officers and Corporate Governance

      Certain  information  required by this Item is contained in the  Company's
Proxy  statement  filed with respect to the 2007 Annual Meeting of  Shareholders
and is incorporated by reference herein. Certain information regarding executive
officers of the Company required by this Item is included in Item 4A hereof.

      On August 13, 2002, the Board of Directors adopted Anaren's Code of Ethics
and Business  Conduct,  which outlines the ethical  principles  that provide the
foundation for the Company's dealings with customers,  suppliers,  shareholders,
the investment community and employees.  The Code is applicable to all employees
including  officers,  and to the  Company's  directors.  The Code as  revised in
February 2006, has been distributed to all employees and is available for review
on the Company's website, www.anaren.com.

Item 11. Executive Compensation

      Information  required by this Item is  contained  in the  Company's  proxy
statement filed with respect to the 2007 Annual Meeting of  Shareholders  and is
incorporated by reference herein.

Item 12.  Security  Ownership of Certain  Beneficial  Owners and  Management and
Related Stockholder Matters

      Information  required by this Item is  contained  in the  Company's  proxy
statement filed with respect to the 2007 Annual Meeting of  Shareholders  and is
incorporated by reference herein.

Item  13.  Certain   Relationships  and  Related   Transactions,   and  Director
Independence

      Information  required by this Item is  contained  in the  Company's  proxy
statement filed with respect to the 2007 Annual Meeting of  Shareholders  and is
incorporated by reference herein.

Item 14. Principal Accounting Fees and Services

      Information  required by this Item is  contained  in the  Company's  proxy
statement filed with respect to the 2007 Annual Meeting of  Shareholders  and is
incorporated by reference herein.


                                       33
<PAGE>

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)   1. and 2.   Financial  Statements and Schedules:  Reference is made to the
                  Index of Financial Statements hereinafter contained

3.    Exhibits:

      Reference is made to the list of Exhibits hereinafter contained

(b)   Exhibits:

      Index to Exhibits

Exhibit No                             Description
----------                             -----------
   3.1      Certificate of Incorporation, as amended (1)

   3.2      Restated By-Laws (2)

   4.1      Specimen Certificate of Common Stock (3)

   4.2      Shareholder  Protection Rights Agreement dated as of April 20, 2001,
            between the Company and  American  Stock  Transfer & Trust  Company,
            including forms of Rights Certificate and Election to Exercise (4)

   10.1     Employment Agreement,  dated as of July 1, 2006, between the Company
            and Lawrence A. Sala (5)

   10.2     Pension Plan and Trust (6)

   10.3     Anaren Microwave, Inc. Incentive Stock Option Plan, as amended (7)

   10.4     Anaren  Microwave,  Inc.  1989  Non-statutory  Stock Option Plan, as
            amended (8)

   10.5     Anaren Microwave, Inc. Incentive Stock Option Plan for Key Employees
            (9)

   10.6     Anaren Microwave, Inc. Stock Option Plan (10)

   10.7     Form of Change of Control Agreements dated June 22, 2007 with Joseph
            Porcello,  Mark  Burdick,  Timothy  Ross,  Amy  Tewksbury  and  Gert
            Thygesen (11)

   10.8     Employment  Agreement,  dated as of February 14,  2004,  between the
            Company and Carl W. Gerst, Jr. (12)

   10.9     Anaren, Inc. Comprehensive Long-Term Incentive Plan (13)

   10.10    Addendum to the Employment  Agreement with Carl W. Gerst,  Jr. dated
            as of May 16, 2007, between the Company and Carl W. Gerst, Jr. (14)

   21       Subsidiaries of the Company

   23       Consent of KPMG LLP,  Independent  Registered Public Accounting Firm
            31 Rule 13a-14(a) Certifications

   32       Section 1350 Certifications

----------
(1)   (A) Restated Certificate of Incorporation of the Company,  filed on August
      11, 1967, is incorporated herein by reference to Exhibit 3(a) to Company's
      Registration  Statement  on  Form  S-1  (Registration  No.  2-42704);  (B)
      Amendment, filed on December 19, 1980, is incorporated herein by reference
      to Exhibit  4.1(ii) to the  Company's  Registration  Statement on Form S-2
      (Registration  No.  2-86025);  (C) Amendment,  filed on March 18, 1985, is
      incorporated  herein by reference to Exhibit 3.1 to the  Company's  Annual
      Report on Form 10-K (Commission File No. 0-6620) for the fiscal year ended
      June 30, 1987; (D) Amendment,  filed on December 14, 1987, is incorporated
      herein by  reference  to Exhibit  4(a)(iv) to the  Company's  Registration
      Statement on Form S-8 (Registration No. 33-19618); (E) Amendment, filed on
      April 8, 1999, is  incorporated  herein by reference to Exhibit 3.1 to the
      Company's  Annual Report on Form 10-K (Commission File No. 0-6620) for the
      fiscal year ended June 30, 1999; (F) Amendment, filed on February 8, 2000,
      is  incorporated   herein  reference  to  Exhibit  4.1  to  the  Company's
      Registration Statement on Form S-3 (Registration No. 333-31460) filed with
      the  Securities  and  Exchange  Commission  on  March  2,  2000;  and  (G)
      Amendment,  filed on November 22, 2000,  is  incorporated  by reference to
      Exhibit 3.1 to the  Company's  Quarterly  Report on Form 10-Q  (Commission
      File No. 0-6620) for the three months ended December 31, 2000.


                                       34
<PAGE>

(2)   Incorporated herein reference to Exhibit 4.2 to the Company's Registration
      Statement  on  Form  S-3  (Registration  No.  333-31460)  filed  with  the
      Securities and Exchange Commission on March 2, 2000.

(3)   Incorporated herein reference to Exhibit 4.3 to the Company's Registration
      Statement  on  Form  S-3  (Registration  No.  333-31460)  filed  with  the
      Securities and Exchange Commission on March 2, 2000.

(4)   Incorporated  herein by reference to Exhibits 4.1 and 4.2 to the Company's
      Registration Statement on Form 8-A (Commission File No. 0-6620) filed with
      the Securities and Exchange Commission on April 26, 2001.

(5)   Incorporated herein by reference to Exhibit 10.1 to the Company's Periodic
      Report  on  Form  8-K,  (Commission  File  No.  0-6620),  filed  with  the
      Securities and Exchange Commission on July 25, 2006.

(6)   Incorporated  herein  by  reference  to  Exhibit  4(b)  to  the  Company's
      Registration Statement on Form S-8 (Registration No. 33-19618).

(7)   Incorporated herein by reference to Appendix A to the Company's definitive
      proxy   statement  for  its  1998  annual  meeting  of  the   shareholders
      (Commission  File No.  0-6620),  filed with the  Securities  and  Exchange
      Commission on September 25, 1998.

(8)   Incorporated herein by reference to Appendix B to the Company's definitive
      proxy   statement  for  its  1998  annual  meeting  of  the   shareholders
      (Commission  File No.  0-6620),  filed with the  Securities  and  Exchange
      Commission on September 25, 1998.

(9)   Incorporated herein by reference to Appendix A to the Company's definitive
      proxy   statement  for  its  2000  annual  meeting  of  the   shareholders
      (Commission  File No.  0-6620),  filed with the  Securities  and  Exchange
      Commission on September 18, 2000.

(10)  Incorporated herein by reference to Appendix B to the Company's definitive
      proxy   statement  for  its  2000  annual  meeting  of  the   shareholders
      (Commission  File No.  0-6620),  filed with the  Securities  and  Exchange
      Commission on September 18, 2000.

(11)  Incorporated herein by reference to Exhibit 10.1 to the Company's Periodic
      Report on Form 8-K (Commission  File No. 0-6620) filed with the Securities
      and Exchange Commission on June 27, 2007.

(12)  Incorporated  herein  by  reference  to  Exhibit  10.12  to the  Company's
      Quarterly Report on Form 10-Q for the three months ended March 31, 2007.

(13)  Incorporated herein by reference to Appendix A to the Company's definitive
      proxy   statement  for  its  2004  annual  meeting  of  the   shareholders
      (Commission  File No.  0-6620),  filed with the  Securities  and  Exchange
      Commission on September 17, 2004.

(14)  Incorporated herein by reference to Exhibit 10.1 to the Company's periodic
      Report on Form 8-K (Commission  File No. 0-6620) filed with the Securities
      and Exchange Commission on July 25, 2007.


                                       35
<PAGE>

      Pursuant  to the  requirements  of Section 13 or 15 (d) 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.

                                    /s/ LAWRENCE A. SALA
                                    --------------------------------------------
                                    Name: Lawrence A. Sala
                                    Title: President and Chief Executive Officer

Date: September 28, 2007

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
         Signature                              Title                          Date
         ---------                              -----                          ----
<S>                              <C>                                     <C>
   /s/ LAWRENCE A. SALA          President, Chief Executive Officer      September 28, 2007
--------------------------       and Chairman of the Board, Director
     Lawrence A. Sala            (Principal Executive Officer)

  /s/ JOSEPH E. PORCELLO         Sr. Vice President of Finance and       September 28, 2007
--------------------------       Treasurer (Principal Financial and
    Joseph E. Porcello           Accounting Officer)

  /s/ CARL W. GERST, JR.         Chief Technical Officer, Vice           September 28, 2007
--------------------------       Chairman of the Board and
    Carl W. Gerst, Jr.           Director

   /s/ HERBERT I. CORKIN         Director                                September 28, 2007
--------------------------
     Herbert I. Corkin

      /s/ DALE F. ECK            Director                                September 28, 2007
--------------------------
        Dale F. Eck

  /s/ MATTHEW S. ROBISON         Director                                September 28, 2007
--------------------------
    Matthew S. Robison

   /s/ DAVID L. WILEMON          Director                                September 28, 2007
--------------------------
     David L. Wilemon

    /s/ JAMES G. GOULD           Director                                September 28, 2007
--------------------------
      James G. Gould

   /s/ ROBERT U. ROBERTS         Director                                September 28, 2007
--------------------------
     Robert U. Roberts

    /s/ JOHN L. SMUCKER          Director                                September 28, 2007
--------------------------
      John L. Smucker
</TABLE>


                                       36
<PAGE>

                                  ANAREN, INC.

                        Consolidated Financial Statements

                             June 30, 2007 and 2006

     (With Report of Independent Registered Public Accounting Firm Thereon)


                                       37
<PAGE>

                                  ANAREN, INC.

                                      Index

<TABLE>
<CAPTION>
                                                                                                                              Page
                                                                                                                              ----
<S>                                                                                                                             <C>
Report of Independent Registered Public Accounting Firm.................................................................        39

Consolidated Balance Sheets as of June 30, 2007 and 2006................................................................        40

Consolidated Statements of Income for the years ended
    June 30, 2007, 2006, and 2005 ......................................................................................        41

Consolidated Statements of Stockholders' Equity and Comprehensive
    Income for the years ended June 30, 2007, 2006, and 2005 ...........................................................        42

Consolidated Statements of Cash Flows for the years ended
    June 30, 2007, 2006, and 2005 ......................................................................................        43

Notes to Consolidated Financial Statements..............................................................................   44 - 66
</TABLE>


                                       38
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Anaren Inc.:

      We have audited the consolidated  financial statements of Anaren, Inc. and
subsidiaries as listed in the accompanying  index. These consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

      We conducted  our audits in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

      In our opinion,  the consolidated  financial  statements referred to above
present fairly, in all material respects, the financial position of Anaren, Inc.
and  subsidiaries  as of June  30,  2007  and  2006,  and the  results  of their
operations and their cash flows for each of the years in the  three-year  period
ended June 30, 2007,  in  conformity  with U.S.  generally  accepted  accounting
principles.

      As  discussed  in Note 2 to the  consolidated  financial  statements,  the
Company  adopted the  recognition  and  disclosure  provisions  of  Statement of
Financial  Accounting  Standards  No.  158,  Employers'  Accounting  for Defined
Benefit Pension and Other Postretirement Plans, as of June 30, 2007.

      As discussed in Note 2 to the consolidated financial statements, effective
July 1, 2006,  the beginning of the fiscal year ended June 30, 2007, the Company
adopted  Securities and Exchange  Commission Staff Accounting  Bulletin No. 108,
Considering   the  Effects  of  Prior  Year   Misstatements   when   Quantifying
Misstatements in the Current Year Financial Statements.

      We also have  audited,  in  accordance  with the  standards  of the Public
Company  Accounting  Oversight Board (United  States),  Anaren,  Inc.'s internal
control  over  financial  reporting  as of June  30,  2007,  based  on  criteria
established in Internal  Control - Integrated  Framework issued by the Committee
of Sponsoring  Organizations of the Treadway  Commission  (COSO), and our report
dated  September 28, 2007 expressed an adverse opinion on the  effectiveness  of
the Company's internal control over financial reporting.

                                                        /S/ KPMG LLP

Syracuse, New York
September 28, 2007


                                       39
<PAGE>

                                  ANAREN, INC.
                           Consolidated Balance Sheets
                             June 30, 2007 and 2006

<TABLE>
<CAPTION>
                                     Assets

                                                                                                    2007                  2006
                                                                                               -------------          -------------
<S>                                                                                            <C>                    <C>
Current assets:
    Cash and cash equivalents ........................................................         $   7,912,276          $  15,733,214
    Securities available for sale (note 5) ...........................................            14,150,000             35,635,000
    Securities held to maturity (note 5) .............................................            20,951,788             31,124,733
    Receivables, less allowances of $255,677 and $84,854 in
      2007 and 2006, respectively ....................................................            19,768,701             16,362,011
    Inventories (note 6) .............................................................            24,331,597             21,827,271
    Other receivables ................................................................             1,606,093              1,336,009
    Prepaid expenses .................................................................               771,251                584,321
    Deferred income taxes (note 17) ..................................................             1,174,255                716,287
    Other current assets .............................................................             1,121,513                851,863
                                                                                               -------------          -------------
                     Total current assets ............................................            91,787,474            124,170,709
Securities held to maturity (note 5) .................................................            31,540,247              6,131,425
Property, plant, and equipment, net (note 7) .........................................            37,091,786             27,635,161
Deferred income taxes (note 17) ......................................................                31,447                 32,902
Goodwill (note 1) ....................................................................            30,715,861             30,715,861
Other intangible assets, net of accumulated amortization (note 3) ....................                37,500                340,371
                                                                                               -------------          -------------
                     Total assets ....................................................         $ 191,204,315          $ 189,026,429
                                                                                               =============          =============
                      Liabilities and Stockholders' Equity
Current liabilities:
    Accounts payable .................................................................         $  11,717,120          $   6,798,793
    Accrued expenses (note 8) ........................................................             3,907,652              3,254,816
    Income taxes payable .............................................................               726,240                703,488
    Customer advance payments ........................................................             1,318,812                483,722
    Other current liabilities (note 10) ..............................................             1,259,616                769,523
                                                                                               -------------          -------------
                     Total current liabilities .......................................            18,929,440             12,010,342
    Deferred income taxes (note 17) ..................................................             1,373,353              1,811,955
    Pension and postretirement benefit obligation (notes 15 and 16) ..................             2,954,664              2,356,789
    Other liabilities (note 10) ......................................................             1,152,710                728,943
                                                                                               -------------          -------------
                     Total liabilities ...............................................            24,410,167             16,908,029
                                                                                               -------------          -------------
Commitments and concentrations
    (notes 18, 19, and 20)
Stockholders' equity:
    Common stock, $0.01 par value. Authorized 200,000,000 shares
      (note 14); issued 27,128,855 and 26,857,554 at June 30, 2007
      and 2006, respectively .........................................................               271,288                268,575
    Additional paid-in capital .......................................................           187,877,944            181,780,660
    Retained earnings ................................................................            85,306,813             70,493,853
    Accumulated other comprehensive loss (note 13) ...................................              (984,640)              (441,397)
                                                                                               -------------          -------------
                                                                                                 272,471,405            252,101,691
    Less 10,752,506 and 9,249,643 treasury shares at June 30, 2007
      and 2006, respectively, at cost ................................................           105,677,257             79,983,291
                                                                                               -------------          -------------
                     Total stockholders' equity ......................................           166,794,148            172,118,400
                                                                                               -------------          -------------
                     Total liabilities and stockholders' equity ......................         $ 191,204,315          $ 189,026,429
                                                                                               =============          =============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       40
<PAGE>

                                  ANAREN, INC.
                        Consolidated Statements of Income
                    Years ended June 30, 2007, 2006, and 2005

<TABLE>
<CAPTION>
                                                                             2007                  2006                   2005
                                                                        -------------          -------------          -------------
<S>                                                                     <C>                    <C>                    <C>
Net sales .....................................................         $ 128,987,104          $ 105,464,236          $  94,461,065
Cost of sales .................................................            83,125,048             67,493,977             64,590,866
                                                                        -------------          -------------          -------------
            Gross profit ......................................            45,862,056             37,970,259             29,870,199
                                                                        -------------          -------------          -------------
Operating expenses:
    Marketing .................................................             7,416,140              7,036,240              6,857,974
    Research and development ..................................             9,134,147              8,747,463              6,287,514
    General and administrative ................................            12,297,591             10,345,398              8,685,332
    Restructuring (note 9) ....................................                    --                     --                458,335
                                                                        -------------          -------------          -------------
            Total operating expenses ..........................            28,847,878             26,129,101             22,289,155
                                                                        -------------          -------------          -------------
            Operating income ..................................            17,014,178             11,841,158              7,581,044
                                                                        -------------          -------------          -------------
Other income (expense):
    Interest expense ..........................................               (24,572)               (25,203)               (29,422)
    Other, primarily interest income ..........................             3,571,354              2,452,914              1,598,914
                                                                        -------------          -------------          -------------
            Total other income, net ...........................             3,546,782              2,427,711              1,569,492
                                                                        -------------          -------------          -------------
            Income before income taxes ........................            20,560,960             14,268,869              9,150,536
Income tax expense (note 17) ..................................             5,211,000              3,252,000              1,738,000
                                                                        -------------          -------------          -------------
            Income from continuing operations .................            15,349,960             11,016,869              7,412,536
Discontinued operations (note 4):
    Income from discontinued operations
      of Anaren Europe ........................................                    --                 81,713                     --
    Income tax benefit ........................................                    --                     --                     --
                                                                        -------------          -------------          -------------
            Net income from discontinued
              operations ......................................                    --                 81,713                     --
                                                                        -------------          -------------          -------------
            Net income ........................................         $  15,349,960          $  11,098,582          $   7,412,536
                                                                        =============          =============          =============
Basic earnings per share equivalent share:
    Income from continuing operations .........................         $        0.89          $        0.64          $        0.38
    Income from discontinued operations .......................                    --                   0.01                     --
                                                                        -------------          -------------          -------------
            Net income ........................................         $        0.89          $        0.65          $        0.38
                                                                        =============          =============          =============
Diluted earnings per share equivalent share:
    Income from continuing operations .........................         $        0.87          $        0.62          $        0.37
    Income from discontinued operations .......................                    --                   0.01                     --
                                                                        -------------          -------------          -------------
            Net income ........................................         $        0.87          $        0.63          $        0.37
                                                                        =============          =============          =============
Weighted average common shares outstanding
            Basic .............................................            17,318,508             17,156,720             19,346,491
            Diluted ...........................................            17,720,723             17,682,231             19,831,710
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       41
<PAGE>

                                  ANAREN, INC.
    Consolidated Statements of Stockholders' Equity and Comprehensive Income
                    Years ended June 30, 2007, 2006, and 2005

<TABLE>
<CAPTION>
                                       Common                                            Accumulated      Treasury
                                       stock     Additional                                other            stock         Total
                       Comprehensive  --------    paid-in      Unearned      Retained   comprehensive  --------------  stockholders'
                       income (loss)   amount     capital    compensation    earnings   income (loss)      amount         equity
                       -------------  --------  ------------ ------------  -----------  -------------  --------------  -------------
<S>                     <C>           <C>       <C>            <C>         <C>          <C>            <C>             <C>
Balance at
  June 30, 2004 .......           ~   $259,507  $171,165,180   $(95,388)   $51,982,735  $  (694,354)   $ (32,253,412)  $190,364,268
Comprehensive income:
  Net income .......... $ 7,412,536         --            --         --      7,412,536           --               --      7,412,536
  Other comprehensive
   loss:
   Foreign currency
     translation
     adjustment .......       1,950         --            --         --             --           --               --             --
   Minimum pension
     liability
     adjustment, net
     of tax benefit
     of $468,112 ......    (917,734)        --            --         --             --           --               --             --
   Unrealized gain on
     sale of
     securities
     available-for-
     sale .............     127,135         --            --         --             --           --               --             --
                        -----------
     Other
       comprehensive
       loss ...........    (788,649)        --            --         --             --     (788,649)              --       (788,649)
                        -----------
     Total
       comprehensive
       income ......... $  6,623,887
                        ============
Purchase of treasury
  stock (3,153,032
  shares) .............           ~         --            --         --             --           --      (37,926,398)   (37,926,398)
Stock options
  exercised
  (note 11) ...........           ~        985       223,762         --             --           --               --        224,747
Tax benefit from
  exercise of stock
  options (note 17) ...           ~         --        29,308         --             --           --               --         29,308
Issuance of
  restricted stock ....           ~        235       319,365    319,600)            --           --               --             --
Forfeiture of
  restricted stock ....           ~        (19)     (100,681)        --             --           --               --       (100,700)
Amortization of
  unearned
  compensation ........           ~         --            --    166,410             --           --               --        166,410
Tax impact of
  restricted stock
  activity ............           ~         --      (302,959)        --             --           --               --       (302,959)
                                      --------  ------------   --------    -----------  -----------    -------------   ------------
Balance at
  June 30, 2005 .......           ~    260,708   171,333,975    248,578)    59,395,271   (1,483,003)     (70,179,810)   159,078,563
Comprehensive income:
  Net income .......... $11,098,582         --            --         --     11,098,582           --               --     11,098,582
  Other comprehensive
   income:
   Foreign currency
     translation
     adjustment .......     103,009         --            --         --             --           --               --             --
   Minimum pension
     liability
     adjustment, net
     of tax of
     $469,815 .........     938,597         --            --         --             --           --               --             --
                        -----------
     Other
       comprehensive
       income .........   1,041,606          ~             ~          ~              ~    1,041,606                ~      1,041,606
                        -----------
     Total
       comprehensive
       income ......... $12,140,188
                        ===========
Purchase of treasury
  stock (696,585
  shares) .............           ~         --            --         --             --           --       (9,803,481)    (9,803,481)
Exercise of stock
  options under
  equity plans
  (note 11) ...........           ~      7,867     5,541,353         --             --           --               --      5,549,220
Stock based employer
  compensation ........           ~         --     3,474,761         --             --           --               --      3,474,761
Tax benefit from
  exercise of stock
  options (note 17) ...           ~         --     1,679,149         --             --           --               --      1,679,149
Reclassification of
  unearned
  compensation
  (note 11) ...........           ~         --      (248,578)   248,578             --           --               --             --
                                      --------  ------------   --------    -----------  -----------    -------------   ------------
Balance at
  June 30, 2006 .......           ~    268,575   181,780,660         --     70,493,853     (441,397)     (79,983,291)   172,118,400
Cumulative effect of
  the adjustment
  resulting from the
  adoption of SAB108,
  net of tax benefit
  of $302,000
  (note 2) ............           ~         --            --         --       (537,000)          --               --       (537,000)
                                      --------  ------------   --------    -----------  -----------    -------------   ------------
Adjusted balance at
  June 30, 2006 .......           ~    268,575   181,780,660         --     69,956,853     (441,397)     (79,983,291)   171,581,400
Comprehensive income:
  Net income .......... $15,349,960         --            --         --     15,349,960           --               --     15,349,960
  Other comprehensive
   income:
   Foreign currency
     translation
     adjustment .......     260,090         --            --         --             --           --               --             --
   Minimum pension
     liability
     adjustment, net
     of tax of
     $281,742 .........     546,913         --            --         --             --           --               --             --
                        -----------
     Other
       comprehensive
       income .........     807,003         --            --         --             --      807,003               --        807,003
                        -----------
     Total
       comprehensive
       income ......... $16,156,963
                        ===========
Purchase of treasury
  stock (1,502,863
  shares) .............           ~         --             ~         --             --           --      (25,693,966)   (25,693,966)
Exercise of stock
  options under
  equity plans
  (note 11) ...........           ~      2,713     2,195,386         --             --           --               --      2,198,099
Adjustment to
  initially apply
  SFAS No. 158, net
  of tax benefit of
  $695,581 (note 2) ...           ~         --            --         --             --   (1,350,246)              --     (1,350,246)
Tax benefit from
  exercise of stock
  options (note 17) ...           ~         --       433,042         --             --           --               --        433,042
Stock based employer
  compensation ........           ~         --     3,468,856         --             --           --               --      3,468,856
                                      --------  ------------   --------    -----------  -----------    -------------   ------------
Balance at
  June 30, 2007 .......           ~   $271,288  $187,877,944   $     --    $85,306,813  $  (984,640)   $(105,677,257)  $166,794,148
                                      ========  ============   ========    ===========  ===========    =============   ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       42
<PAGE>

                                  ANAREN, INC.
                      Consolidated Statements of Cash Flows
                    Years ended June 30, 2007, 2006, and 2005

<TABLE>
<CAPTION>
                                                                                  2007                2006                2005
                                                                              -------------       -------------       -------------
<S>                                                                           <C>                 <C>                 <C>
Cash flows from operating activities:
    Net income .........................................................      $  15,349,960       $  11,098,582       $   7,412,536
    Net income from discontinued operations ............................                 --              81,713                  --
                                                                              -------------       -------------       -------------
           Net income from continuing operations .......................         15,349,960          11,016,869           7,412,536
    Adjustments to reconcile net income from continuing
       operations to net cash provided by operating activities:
    Depreciation .......................................................          5,205,144           4,875,335           4,887,154
    Impairment loss ....................................................                 --                  --             272,118
    Gain (loss) on sale of land and equipment ..........................            (77,508)             15,875              98,332
    Loss on sale of equity securities ..................................                 --                  --             342,715
    Amortization of intangibles ........................................            302,871             332,870             570,645
    Deferred income taxes ..............................................           (179,276)           (356,986)            558,902
    Stock based compensation ...........................................          3,468,856           3,474,761              65,710
    Provision for doubtful accounts and sales allowance ................              3,977             (40,948)             67,599
    Tax benefit from exercise of stock options .........................                 --                  --              29,308
    Changes in operating assets and liabilities:
       Receivables .....................................................         (3,798,667)         (1,540,917)         (1,034,892)
       Inventories .....................................................         (2,504,326)         (2,423,923)         (2,795,293)
       Other receivables ...............................................           (270,084)            (31,329)           (103,842)
       Other current assets, including prepaids ........................           (456,580)           (552,671)            141,127
       Accounts payable ................................................          3,374,228             755,007          (1,120,939)
       Accrued expenses ................................................            652,836             922,931            (760,485)
       Income taxes payable ............................................             22,752            (797,600)            169,193
       Customer advance payments .......................................            835,090             483,722            (411,486)
       Other liabilities ...............................................            775,520             435,453             142,849
       Pension and postretirement benefit obligation ...................           (931,957)            158,718            (162,963)
                                                                              -------------       -------------       -------------
           Net cash provided by operating activities
             from continuing operations ................................         21,772,836          16,727,167           8,368,288
    Net cash used in operating activities
       from discontinued operations ....................................                 --             (97,241)                 --
                                                                              -------------       -------------       -------------
           Net cash provided by operating activities ...................         21,772,836          16,629,926           8,368,288
                                                                              -------------       -------------       -------------
Cash flows from investing activities:
    Capital expenditures ...............................................        (13,174,670)         (7,543,718)         (9,058,703)
    Proceeds from sale of equity securities ............................                 --                  --           2,746,130
    Proceeds from sale of land and equipment ...........................            134,508               1,000             160,000
    Maturities and sales of marketable debt and equity securities ......        136,150,578         103,595,269         117,321,661
    Purchase of marketable debt and equity securities ..................       (129,901,455)       (100,378,000)        (99,240,097)
                                                                              -------------       -------------       -------------
           Net cash provided by (used in) investing
             activities from continuing operations .....................         (6,791,039)         (4,325,449)         11,928,991
    Net cash provided by investing activities
       from discontinued operations ....................................                 --                  --                  --
                                                                              -------------       -------------       -------------
           Net cash provided by (used in) investing activities .........         (6,791,039)         (4,325,449)         11,928,991
                                                                              -------------       -------------       -------------
Cash flows from financing activities:
    Stock options exercised ............................................          2,198,099           5,549,220             224,747
    Excess tax benefit from exercise of stock options ..................            433,042           1,679,149                  --
    Purchase of treasury stock .........................................        (25,693,966)         (9,803,481)        (37,926,398)
                                                                              -------------       -------------       -------------
           Net cash used in financing activities from
             continuing operations .....................................        (23,062,825)         (2,575,112)        (37,701,651
    Net cash used in financing activities from
       discontinued operations .........................................                 --                  --                  --
                                                                              -------------       -------------       -------------
           Net cash used in financing activities .......................        (23,062,825)         (2,575,112)        (37,701,651)
                                                                              -------------       -------------       -------------
Effect of exchange rates on cash .......................................            260,090             103,008               1,950
                                                                              -------------       -------------       -------------
           Net increase (decrease) in cash and
             cash equivalents ..........................................         (7,820,938)          9,832,373         (17,402,422)
Cash and cash equivalents at beginning of year .........................         15,733,214           5,900,841          23,303,263
                                                                              -------------       -------------       -------------
Cash and cash equivalents at end of year ...............................      $   7,912,276       $  15,733,214       $   5,900,841
                                                                              =============       =============       =============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       43
<PAGE>

                                  ANAREN, INC.

                   Notes to Consolidated Financial Statements
                          June 30, 2007, 2006 and 2005

(1) Summary of Significant Accounting Policies

   (a) Principles of Consolidation

      The consolidated financial statements include the accounts of Anaren, Inc.
and its wholly  owned  subsidiaries  (the  Company).  Intercompany  accounts and
transactions have been eliminated.

   (b) Operations

      The  Company is engaged in the design,  development,  and  manufacture  of
microwave and radio  frequency  components,  assemblies,  and  subsystems  which
receive,  process,  and  transmit  radar,  wireless  communications,  and  other
wireless signals and other microwave transmissions. Its primary products include
devices   and   systems   used  in  the   wireless   communications,   satellite
communications, and defense electronics markets.

   (c) Revenue Recognition

      The Company  recognizes revenue when products are shipped and the customer
takes ownership and assumes risk of loss,  collection of the relevant receivable
is probable, persuasive evidence of an arrangement exists and the sales price is
fixed or determinable.  Payments  received from customers in advance of products
delivered are recorded as customer advance payments until earned.  Approximately
three  percent of sales are derived from  fixed-price  contracts for the sale of
engineering  design and  development  efforts for space and defense  electronics
products. Sales and estimated profits under development contracts are recognized
according  to customer  contractual  milestones  on a  units-of-delivery  basis.
Profit estimates are revised  periodically based upon changes in sales value and
costs at completion.  Any losses on these contracts are recognized in the period
in which such losses are determined.

   (d) Cash and Cash Equivalents

      Cash and cash equivalents  includes cash on hand,  certificates of deposit
and  short-term  cash  investments  that are  highly  liquid in nature  and have
original maturities of three months or less.

   (e) Marketable Securities

      The Company classifies its securities as either available-for-sale or held
to  maturity,  as the  Company  does not hold any  securities  considered  to be
trading.  Held to maturity  securities  are those debt  securities for which the
Company  has the  positive  intent and the ability to hold until  maturity.  All
other   securities   not  included  in  held  to  maturity  are   classified  as
available-for-sale.  Management  determines the  appropriate  classification  of
securities at the time of purchase and reevaluates  such  designation as of each
balance sheet date.

      Held to maturity  securities  are recorded at amortized  cost adjusted for
the  amortization  of  accretion  of premiums or  discounts.  Available-for-sale
securities are recorded at fair value.  Unrealized holding gains and losses, net
of the related tax effect,  on  available-for-sale  securities are excluded from
earnings  and are reported as  accumulated  other  comprehensive  income or loss
until realized.

      The Company  invests  its excess  cash  principally  in  municipal  bonds,
commercial  paper,  corporate  bonds  and  notes,  and  U.S.  government  agency
securities.  The Company also invests in auction rate  securities.  Auction rate
securities have long-term underlying  maturities.  However, the market is highly
liquid and the interest rates reset every 7, 28, or 35 days.

      A decline in the fair value of any  available-for-sale or held to maturity
security,  that is deemed other than temporary, is charged to earnings resulting
in the  establishment  of a new cost basis for the  security,  and  dividend and
interest income are recognized when earned.

   (f) Trade Accounts Receivable

      Trade accounts  receivable are recorded at the invoiced  amount and do not
bear  interest.  The  allowance  for  doubtful  accounts is the  Company's  best
estimate  of the amount of  probable  credit  losses in the  Company's  existing
accounts  receivable.  The Company  reviews its allowance for doubtful  accounts
monthly by reviewing


                                       44
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

      balances over 90 days for collectibility. Account balances are charged off
against the allowance  after all means of collection have been exhausted and the
potential  for  recovery is  considered  remote.  The Company  does not have any
off-balance-sheet  credit exposure  related to its customers.  The allowance for
sales returns is the Company's  best estimate of probable  customer  credits for
returns of previously shipped products.  The balance in the allowance account is
determined based on historical rates of returns by customers.

   (g) Inventories

      Inventories  are  stated  at the  lower  of cost  or  market,  cost  being
determined on a first-in, first-out basis.

   (h) Warranty

      The Company  provides its customers with a one year warranty from the date
the goods are sold.  Quarterly,  the Company analyzes its warranty liability for
reasonableness.  Based upon a three year history of warranty costs incurred, the
nature of the products  shipped subject to warranty,  and  anticipated  warranty
trends,  the  Company  believes  its  warranty  liability  at June  30,  2007 is
reasonable.

   (i) Property, Plant, and Equipment

      Property,  plant,  and equipment are stated at cost.  Depreciation of land
improvements  and buildings is calculated  by the  straight-line  method over an
estimated service life of 25 years.  Machinery and equipment,  and furniture and
fixtures  are  depreciated  primarily  by  the  straight-line  method  based  on
estimated useful lives of 5 to 10 years.

   (j) Goodwill

      Goodwill  represents  the  excess of cost  over the fair  value of the net
tangible assets and identifiable intangible assets of businesses acquired.

      Goodwill is tested  annually for impairment at the reporting unit level in
the fourth quarter of the Company's  fiscal year, by comparing the fair value of
the reporting unit with its carrying  value.  Valuation  methods for determining
the fair value of the reporting unit include  reviewing quoted market prices and
discounted cash flows. If the goodwill is indicated as being impaired,  the fair
value of the reporting unit is then allocated to its assets and liabilities in a
manner similar to a purchase price  allocation in order to determine the implied
fair  value of the  reporting  unit  goodwill.  This  implied  fair value of the
reporting  unit  goodwill  is then  compared  with the  carrying  amount  of the
reporting unit goodwill,  and if it is less, the Company would then recognize an
impairment  loss.  During 2007, we were not required to record any impairment on
goodwill.

   (k) Long-Lived Assets

      The  Company  accounts  for  long-lived  assets,  excluding  goodwill,  in
accordance  with the  provisions  of Statement  144,  Impairment  on Disposal of
Long-Lived  Assets.  Statement  144 sets  forth  criteria  to  determine  when a
long-lived  asset is held for sale. Such criteria specify that the asset must be
available for immediate sale in its present condition subject only to terms that
are usual and customary for sales of such assets.  In addition,  the sale of the
asset must be probable,  and its transfer expected to qualify for recognition as
a completed sale,  generally within one year. Statement 144 requires recognition
of an impairment loss only if the carrying  amount of a long-lived  asset is not
recoverable from its undiscounted  cash flows. An impairment loss is measured as
the  difference  between the  carrying  amount and fair value of the asset.  The
Company evaluates its long-lived assets if impairment indicators arise.

   (l) Foreign Currency Translation

      The financial statements of the China subsidiary have been translated into
U.S.  dollars in accordance  with  Statement of Financial  Accounting  Standards
("SFAS") No. 52, "Foreign Currency Translation." All balance sheet accounts have
been  translated  using the exchange  rates in effect at the balance sheet date.
Income statement


                                       45
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

amounts have been translated  using the average  exchange rate for the year. The
resulting  cumulative  translation  adjustment  of  approximately  $366,000  and
$106,000 at June 30, 2007 and 2006,  respectively,  is reflected as  accumulated
other comprehensive income, a component of stockholders' equity.

   (m) Earnings 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 stock option
and restricted  stock plans  described in notes 11 and 12. The weighted  average
number of common shares utilized in the calculation of the diluted  earnings per
share does not include antidilutive shares aggregating  1,052,964,  500,100, and
1,927,922 at June 30, 2007,  2006,  and 2005,  respectively.  The treasury stock
method is used to calculate  dilutive  shares which  reduces the gross number of
dilutive  shares by the number of shares  purchasable  from the  proceeds of the
options assumed to be exercised.

      The following table sets forth the computation of basic and diluted shares
for use in the calculation of earnings per share as of June 30:

<TABLE>
<CAPTION>
                                                                                2007                  2006                  2005
                                                                             -----------           -----------           -----------
<S>                                                                          <C>                   <C>                   <C>
Numerator:
Earnings available to common stockholders ........................           $15,349,960           $11,098,582           $ 7,412,536
                                                                             ===========           ===========           ===========
Denominator:
Denominator for basic earnings per share:
   outstanding ...................................................            17,318,508            17,156,720            19,346,491
                                                                             ===========           ===========           ===========
Denominator for diluted earnings per share:
   Weighted average shares outstanding ...........................            17,318,508            17,156,720            19,346,491
   Common stock options and restricted stock .....................               402,215               525,511               485,219
                                                                             -----------           -----------           -----------
Weighted average shares ..........................................            17,720,723            17,682,231            19,831,710
                                                                             ===========           ===========           ===========
</TABLE>

   (n) Research and Development Costs

      Research and development costs are expensed as incurred.

   (o) Income Taxes

      The Company  utilizes the asset and  liability  method of  accounting  for
income  taxes.  Under this  method,  deferred  tax assets  and  liabilities  are
recognized for the future tax consequences  attributable to differences  between
the financial  statement carrying amounts of existing assets and liabilities and
their respective tax bases and tax credit carryforwards. Deferred tax assets and
liabilities  are measured  using  enacted tax rates.  The effect on deferred tax
assets and  liabilities  of a change in tax rates is recognized in income in the
period that includes the enactment date.

   (p) Cash Flow Supplemental Disclosure

<TABLE>
<CAPTION>
                                                                                     2007                2006                2005
                                                                                  ----------          ----------          ----------
<S>                                                                               <C>                 <C>                 <C>
Cash paid during the year for:
   Interest ............................................................          $   24,572          $   25,203          $   29,422
   Taxes paid (net of refunds) .........................................           4,938,011           2,718,391             890,601
Fixed asset purchases included in accounts payable .....................           1,544,099                  --                  --
</TABLE>


                                       46
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

   (q) Use of Estimates

      The  preparation of consolidated  financial  statements in conformity with
U.S.  generally  accepted  accounting  principles  requires  management  to make
estimates and assumptions that affect the reported amounts of certain assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the financial  statements and the reported  amounts of sales and expenses during
the reporting period. Actual results could differ from those estimates.

   (r) Accounting Pronouncements Not Yet Adopted

      In September  2006,  the FASB issued  Statement  of  Financial  Accounting
Standard No. 157, "Fair Value  Measurements" which is effective for fiscal years
beginning  after  November  15, 2007 (the  Company's  2009 fiscal  year) and for
interim  periods  within  those  years.   This  statement  defines  fair  value,
establishes  a  framework  for  measuring  fair value and  expands  the  related
disclosure  requirements.  The Company is  currently  evaluating  the  potential
impact of this statement.

      In  February  2007,  the FASB issued  Statement  of  Financial  Accounting
Standard No. 159,  "The Fair Value  Option for  Financial  Assets and  Financial
Liabilities - Including an Amendment of FASB Statement No. 115" (SFAS 159). This
Statement  provides  companies with an option to measure,  at specified election
dates, many financial instruments and certain other items at fair value that are
not currently measured at fair value. A company that adopts SFAS 159 will report
unrealized  gains and losses on items for which the fair  value  option has been
elected in earnings at each  subsequent  reporting  date.  This  Statement  also
establishes  presentation  and  disclosure  requirements  designed to facilitate
comparisons  between entities that choose different  measurement  attributes for
similar types of assets and liabilities.  This Statement is effective for fiscal
years  beginning  after November 15, 2007 (the Company's 2009 fiscal year).  The
Company is currently evaluating the potential impact of this statement.

      In July 2006, the Financial  Accounting  Standards  Board ("FASB")  issued
FASB Interpretation No. 48 ("FIN No. 48"), "Accounting for Uncertainty in Income
Taxes - an  interpretation  of FASB Statement No. 109." FIN No. 48 clarifies the
accounting  for  uncertainty  in  income  taxes  recognized  in an  enterprise's
financial  statements  in  accordance  with FASB  Statement  No. 109. FIN No. 48
prescribes a recognition  threshold and measurement  attribute for the financial
statement  recognition and measurement of a tax position taken or expected to be
taken  in  a  tax  return.  Additionally,   FIN  No.  48  provides  guidance  on
derecognition,  classification,  interest and  penalties,  accounting in interim
periods,  disclosure and transition. The Company is required to adopt FIN No. 48
for fiscal years beginning July 1, 2007, with the cumulative  effect of applying
the  provisions  of FIN No. 48 reported  as an  adjustment  to opening  retained
earnings  in fiscal  year 2008,  is  currently  not  expected to have a material
impact on our results of operation, financial position, or cash flows.

(2) Adoption of Recent Accounting Pronouncements

      In September  2006,  the FASB issued  Statement  of  Financial  Accounting
Standard No. 158,  "Employer's  Accounting for Defined Benefit Pension and Other
Postretirement  Plans-an  amendment to FASB  Statements  87, 88, 106 and 132(R)"
("SFAS 158"),  which  requires  balance sheet  recognition  of the overfunded or
underfunded status of pension and postretirement  benefit plans. Under SFAS 158,
actuarial  gains and losses,  prior service costs or credits,  and any remaining
transition  assets or obligations  that have not been recognized  under previous
accounting  standards  must be recognized  in  Accumulated  Other  Comprehensive
Income,  net of tax  effects,  until they are  amortized  as a component  of net
periodic benefit cost. In addition, the measurement date, the date at which plan
assets and the benefit obligation are measured,  is required to be the company's
fiscal year end.  This  Statement  is  effective  for fiscal  years ending after
December 15, 2006 (the Company's 2007 fiscal year).  Upon adoption,  the Company
has recognized an $1,350,246 reduction in accumulated other comprehensive income
on the balance sheet, net of tax benefit of $695,581.


                                       47
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

<TABLE>
<CAPTION>
                                                                            Before                                        After
                                                                        Application of                                Application of
                                                                         SFAS No. 158           Adjustments            SFAS No. 158
                                                                         -------------         -------------          --------------
<S>                                                                      <C>                   <C>                    <C>
Pension and postretirement benefit obligation ..................         $     908,837         $   2,045,827          $   2,954,664
Deferred income taxes ..........................................             2,068,934              (695,581)             1,373,353
Total liabilities ..............................................            23,059,921             1,350,246             24,410,167
Accumulated other comprehensive income (loss) ..................               365,606            (1,350,246)              (984,640)
Total stockholders' equity .....................................           168,144,394            (1,350,246)           166,794,148
</TABLE>

      In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108,
"Considering   the  Effects  of  Prior  Year   misstatements   when  Quantifying
misstatements  in Current Year Financial  Statements"  ("SAB 108").  SAB 108 was
issued to provide  interpretive  guidance on how the effects of the carryover or
reversal of prior year  misstatements  should be  considered  in  quantifying  a
current year misstatement.  Under SAB 108, both the balance sheet and the income
statement  approach  must be  considered  when  evaluating  the  materiality  of
misstatements.  The  Company  adopted  SAB 108 in the  fourth  quarter  of 2007,
effective July 1, 2006. After applying the dual approach,  the accounting errors
relating to the warranty accrual,  the sales returns reserve, and the accounting
for a distributor contract, that were deemed immaterial in the prior years using
the  income  statement  approach,  were  deemed  material  to the  current  year
financial  statements  using the balance sheet approach.  In accordance with SAB
108, the cumulative effect  adjustment of these accounting  changes was recorded
to the  beginning  retained  earnings as of July 1, 2006.  The impact of the two
items noted above on the July 1, 2006 balances are presented below:

       Accounts receivable......................       $(388,000)
       Other liabilities........................        (451,000)
                                                       ---------
       Total:...................................        (839,000)
       Less deferred tax benefit................         302,000
                                                       ---------
       Adjustment to retained earnings..........       $(537,000)
                                                       =========

(3) Other Intangible Assets

      Other intangible assets as of June 30 are as follows:

<TABLE>
<CAPTION>
                                                                      2007                                   2006
                                                       --------------------------------          --------------------------------
                                                         Gross                                     Gross
                                                        carrying           Accumulated            carrying           Accumulated
                                                         amount            amortization            amount            amortization
                                                       ----------          ------------          ----------          ------------
<S>                                                    <C>                  <C>                  <C>                  <C>
Patent .........................................       $  574,966           $  574,966           $  574,966           $  503,095

Customer relationships .........................        1,350,000            1,312,500            1,350,000            1,087,500

Noncompetition agreements ......................          180,000              180,000              180,000              174,000
                                                       ----------           ----------           ----------           ----------
      Total ....................................       $2,104,966           $2,067,466           $2,104,966           $1,764,595
                                                       ==========           ==========           ==========           ==========
</TABLE>

      During  fiscal  year  2004,  the  Company  entered  into an  agreement  to
terminate the lease at its Amitron  facility as of August 31, 2004.  There was a
$600,000  intangible  asset  associated  with this lease due to favorable  lease
terms that existed when the Company purchased Amitron.  During fiscal year 2005,
amortization associated with the favorable lease intangible has been accelerated
such that it was fully amortized at the termination of the lease.

      Intangible asset  amortization  expense for the years ended June 30, 2007,
2006, and 2005 aggregated $302,871,  $332,870, and $570,645,  respectively.  The
remaining   amortization  amounting  to  $37,500,  that  relates  to  the  above
intangible assets, will be fully amortized in fiscal year 2008.


                                       48
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

(4) Discontinued Operations

      On July 10,  2003,  the Company  announced  its decision to dispose of its
Anaren Europe operation.  After completing  production of the remaining customer
orders under  contract  during the first  quarter of fiscal 2004,  production at
Anaren Europe ceased and the  production  equipment was  liquidated via auction.
The subsidiary was dissolved during the third quarter of fiscal year 2006, after
resolution of administrative  proceedings.  The results of operations for Anaren
Europe for the prior years have been  classified as  discontinued  operations in
the  statement  of  operations.  Components  of  net  income  from  discontinued
operations of Anaren Europe for the years ended June 30 are as follows:

                                                   2007        2006         2005
                                                   ----       -------       ----
Income (expense) ...............................   $ --       $81,713       $ --
                                                   ----       -------       ----
Net income from discontinued operations ........   $ --       $81,713       $ --
                                                   ====       =======       ====

(5) Securities

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

<TABLE>
<CAPTION>
                                                                                            June 30, 2007
                                                                     ---------------------------------------------------------------
                                                                                        Gross            Gross
                                                                      Amortized       unrealized      unrealized
                                                                        cost            gains           losses           Fair value
                                                                     -----------      ----------      -----------        -----------
<S>                                                                  <C>               <C>            <C>                <C>
Securities available for sale:
      Auction rate securities ................................       $14,150,000       $     --       $        --        $14,150,000
                                                                     -----------       --------       -----------        -----------
            Total securities available-for-sale ..............       $14,150,000             --       $        --        $14,150,000
                                                                     ===========       ========       ===========        ===========
Securities held to maturity:
      Municipal bonds ........................................       $47,059,882       $     --       $  (143,577)       $46,916,305
      Commercial paper .......................................         2,595,026             --                --          2,595,026
      Corporate bonds ........................................         2,238,166             --              (264)         2,237,902
      Federal agency bonds ...................................           598,961             --              (411)           598,550
                                                                     -----------       --------       -----------        -----------
            Total securities held to maturity ................       $52,492,035       $     --       $  (144,252)       $52,347,783
                                                                     ===========       ========       ===========        ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                                            June 30, 2006
                                                                     ---------------------------------------------------------------
                                                                                        Gross            Gross
                                                                      Amortized       unrealized      unrealized
                                                                        cost            gains           losses           Fair value
                                                                     -----------      ----------      -----------        -----------
<S>                                                                  <C>               <C>            <C>                <C>
Securities available for sale:
      Auction rate securities ................................       $35,635,000       $     --       $        --        $35,635,000
                                                                     -----------       --------       -----------        -----------
            Total securities available-for-sale ..............       $35,635,000       $     --       $        --        $35,635,000
                                                                     ===========       ========       ===========        ===========
Securities held to maturity:
      Municipal bonds ........................................       $29,056,496       $     --       $  (143,144)       $28,913,352
      Commercial paper .......................................         2,976,555             --                --          2,976,555
      Corporate bonds ........................................         1,824,132          1,989            (2,666)         1,823,455
      Federal agency bonds ...................................         3,398,975             --           (41,890)         3,357,085
                                                                     -----------       --------       -----------        -----------
            Total securities held to maturity ................       $37,256,158       $  1,989       $  (187,700)       $37,070,447
                                                                     ===========       ========       ===========        ===========
</TABLE>

      The unrealized  losses on the Company's held to maturity  marketable  debt
securities were caused by interest rate  increases.  Because the Company has the
ability and intent to hold these  investments until they recover their amortized
cost,    the   Company   does   not   consider    these    investments   to   be
other-than-temporarily impaired at June 30, 2007.


                                       49
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

      Contractual  maturities of marketable  debt securities held to maturity at
June 30 are summarized as follows:

<TABLE>
<CAPTION>
                                                                     2007                                        2006
                                                       ---------------------------------           ---------------------------------
                                                                                Fair                                        Fair
                                                                               market                                      market
                                                           Cost                 value                 Cost                  value
                                                       -----------           -----------           -----------           -----------
<S>                                                    <C>                   <C>                   <C>                   <C>
Within one year ............................           $20,951,788           $20,943,580           $31,124,733           $30,994,480
One year to five years .....................           $31,540,247            31,404,203             6,131,425             6,075,967
                                                       -----------           -----------           -----------           -----------
      Total ................................           $52,492,035           $52,347,783           $37,256,158           $37,070,447
                                                       ===========           ===========           ===========           ===========
</TABLE>

      Contractual  maturities of auction rate  securities  available for sale at
June 30 are summarized as follows:

<TABLE>
<CAPTION>
                                                                     2007                                        2006
                                                       ---------------------------------           ---------------------------------
                                                                                Fair                                        Fair
                                                                               market                                      market
                                                           Cost                 value                 Cost                  value
                                                       -----------           -----------           -----------           -----------
<S>                                                    <C>                   <C>                   <C>                   <C>
Within one year ............................           $14,150,000           $14,150,000           $35,635,000           $35,635,000
One year to five years .....................                    --                    --                    --                    --
                                                       -----------           -----------           -----------           -----------
      Total ................................           $14,150,000           $14,150,000           $35,635,000           $35,635,000
                                                       ===========           ===========           ===========           ===========
</TABLE>

      The Company  invests in auction rate  securities.  Auction rate securities
have long-term underlying  maturities;  however, the market is highly liquid and
the interest rates reset every 7, 28, or 35 days.

      On July 11, 2002, the Company filed a Schedule 13D with the Securities and
Exchange  Commission  to disclose  that it had,  through open market  purchases,
acquired an  ownership  position of  approximately  6.35% of the common stock of
Celeritek,  Inc. The Company's  original  investment  in Celeritek  common stock
averaged $8.47 a share and totaled $6.6 million. During the first half of fiscal
year 2005, the remaining  shares of Celeritek were sold and the Company recorded
a realized  loss of $342,715  that is included in other income in the  Company's
fiscal 2005 statement of operations. The Company used the average cost method in
order to determine the realized loss.

(6) Inventories

      Inventories at June 30 are summarized as follows:

                                                      2007              2006
                                                   -----------       -----------
Component parts ............................       $11,841,427       $ 9,936,858
Work in process ............................         7,392,973         8,330,110
Finished goods .............................         5,097,197         3,560,303
                                                   -----------       -----------
                                                   $24,331,597       $21,827,271
                                                   ===========       ===========

(7) Property, Plant, and Equipment

      Components  of property,  plant,  and  equipment at June 30 consist of the
following:

                                                      2007               2006
                                                   -----------       -----------
Land and land improvements .................       $ 4,157,617       $ 2,207,823
Construction in process ....................         5,774,893         1,918,653
Buildings, furniture,
  and fixtures .............................        17,956,858        16,608,430
Machinery and equipment ....................        64,683,378        57,176,071
                                                   -----------       -----------
                                                    92,572,746        77,910,977
Less accumulated depreciation
  and amortization .........................        55,480,960        50,275,816
                                                   -----------       -----------
                                                   $37,091,786       $27,635,161
                                                   ===========       ===========


                                       50
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

(8) Accrued Expenses

      Accrued expenses at June 30 consist of the following:

                                                    2007                2006
                                                 ----------           ----------
Compensation .........................           $2,945,888           $2,082,104
Commissions ..........................              654,596              732,749
Health insurance .....................              280,819              294,500
Other ................................               26,349              145,463
                                                 ----------           ----------
                                                 $3,907,652           $3,254,816
                                                 ==========           ==========

      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) Restructuring and Impairment

      On October 26, 2004,  the Company  announced  that in order to  accelerate
ceramic product growth  initiatives  and improve  operating  efficiency,  it had
decided  to  consolidate  its RF  Power  operation  with the  Company's  Amitron
operation and close RF Power's  facility in Bohemia,  New York. The consolidated
operation,  Anaren Ceramics, Inc., operates at the Company's Salem, NH facility,
which fully  accommodates  the current  capacity needs of the combined entity as
well as  significant  future growth.  The move of the RF Power  operation to the
Salem,  NH facility was completed  during the second  quarter ended December 31,
2004.  As a result of the  facility  closure and move,  the  Company  recognized
consolidation  costs of $458,335 for  severance  and  outplacement,  $91,000 for
lease cancellation (included in general and administrative expense) and $300,000
for  additional  inventory  write-downs  (included in cost of sales)  during the
second  quarter  of  fiscal  2005.  All  of RF  Power's  employees  were  either
terminated or transferred to the New Hampshire facility.

      Additionally,  included in general  and  administrative  expenses  for the
wireless segment is a $272,000 write-down of RF Power Custom automated equipment
that became  impaired in the third  quarter of fiscal year 2005.  The  remaining
market value of the custom  equipment was determined based upon quoted values of
similar types of equipment.

<TABLE>
<CAPTION>
                                                              Year ending June 30, 2006
                                                  Balance     -------------------------     Balance
                                                  June 30,       Cash          Cash         June 30,
                                                    2005       incurred    expenditures       2006
                                                  --------       ----        --------         ----
<S>                                               <C>            <C>         <C>              <C>
Severance payments ............................   $ 19,863       $ --        $(19,863)        $ --
                                                  ========       ====        ========         ====
</TABLE>

(10) Other Liabilities

      Other liabilities as of June 30 consist of the following:

                                                       2007              2006
                                                    ----------        ----------
Deferred compensation ......................        $  937,811        $  793,943
Pension liability ..........................                --           312,660
Supplemental Retirement Plan ...............           460,459           382,909
Accrued lease ..............................           542,056                --
Warranty Accrual ...........................           472,000                --
Other ......................................                --             8,954
                                                    ----------        ----------
                                                     2,412,326         1,498,466
Less current portion .......................         1,259,616           769,523
                                                    ----------        ----------
                                                    $1,152,710        $  728,943
                                                    ==========        ==========


                                       51
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

      During fiscal 1998, the Company  implemented a deferred  compensation plan
for an  employee.  Under the plan,  the Company  will pay $65,000  annually  for
fifteen years upon the employee's  retirement or, in the event of death,  to the
employee's  beneficiary.  During fiscal 2002,  the employee was deceased and the
annual compensation is being paid to the former employee's beneficiary.

      In  fiscal  year  2004,   the  Company  began   accruing  for  a  deferred
compensation  agreement that the Company  entered into with an employee in March
2004,  and extended the agreement in May 2007.  Under the terms of this contract
the  Company  has agreed to pay  $250,000,  annually  for three  years,  to this
employee beginning in July 2008.

      In  fiscal  year  2007,  the  Company  accrued  for a  potential  sublease
obligation, as the current tenant will be moving from the location in the second
quarter  of  fiscal  year  2008.  The  amount  accrued  for as of June 30,  2007
represents the full amount of the estimated liability, net of sublease income.

(11) Stock-Based Compensation

      Effective  July 1, 2005, the Company  adopted the  fair-value  recognition
provisions of Statement of Financial  Accounting  Standards No. 123R (SFAS 123R)
on a prospective  basis.  This standard requires the Company to measure the cost
of  employee  services  received  in  exchange  for equity  awards  based on the
grant-date  fair value of the awards.  The cost is  recognized  as  compensation
expense  over the vesting  period of the awards.  The Company has  provided  the
required  disclosures.  The unearned compensation balance of $248,578 as of June
30, 2005, which was accounted for under APB 25, was reclassified into additional
paid-in capital.

      Total stock-based compensation expense recognized for the years ended June
30, 2007, 2006, and 2005 was $3,415,905,  $3,383,811, and $65,710, respectively.
These amounts include $420,492,  $116,534, and $65,710,  respectively related to
the Company's  restricted  stock program (note 12) and $2,995,413 and $3,267,277
related to the Company's  stock option  program for the year ended June 30, 2007
and 2006, respectively.

      Stock-based  compensation  expense  included in  operating  expenses is as
follows for the year ended:

<TABLE>
<CAPTION>
                                                                                                 June 30, 2007
                                                                             -------------------------------------------------------
                                                                                Stock              Restricted               Total
                                                                               option                 stock              stock-based
                                                                               program               program            compensation
                                                                             -----------           -----------          ------------
<S>                                                                          <C>                   <C>                  <C>
Cost of goods sold ................................................          $   681,378           $   248,512          $   929,890
Marketing .........................................................              233,952                    --              233,952
Research and development ..........................................              464,323                    --              464,323
General and administrative ........................................            1,668,711               171,980            1,840,691
                                                                             -----------           -----------          -----------
      Total cost of stock-based compensation ......................            3,048,364               420,492            3,468,856
Amounts capitalized in inventory for the year .....................              (52,951)                   --              (52,951)
                                                                             -----------           -----------          -----------
Net stock-based compensation expense ..............................          $ 2,995,413           $   420,492          $ 3,415,905
                                                                             ===========           ===========          ===========
Amount of related income tax benefit
  recognized in income ............................................          $   483,000           $   151,000          $   634,000
                                                                             ===========           ===========          ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                                                 June 30, 2006
                                                                             -------------------------------------------------------
                                                                                Stock              Restricted               Total
                                                                               option                 stock              stock-based
                                                                               program               program            compensation
                                                                             -----------           -----------          ------------
<S>                                                                          <C>                   <C>                  <C>
Cost of goods sold ................................................          $   966,207           $   106,534          $ 1,072,741
Marketing .........................................................              274,631                    --              274,631
Research and development ..........................................              346,167                    --              346,167
General and administrative ........................................            1,771,222                10,000            1,781,222
                                                                             -----------           -----------          -----------
      Total cost of stock-based compensation ......................            3,358,227               116,534            3,474,761
Amounts capitalized in inventory for the year .....................              (90,950)                   --              (90,950)
                                                                             -----------           -----------          -----------
Net stock-based compensation expense ..............................          $ 3,267,277           $   116,534          $ 3,383,811
                                                                             ===========           ===========          ===========
Amount of related income tax benefit
  recognized in income ............................................          $   251,000           $    45,000          $   296,000
                                                                             ===========           ===========          ===========
</TABLE>


                                       52
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

                     Nonvested Shares Issued Under the Plan

                                                                Weighted-Average
                                                                   Grant-Date
                                              Number of Shares     Fair Value
                                              ----------------  ----------------
Nonvested at June 30, 2006 .................      1,004,918          $ 6.16
Granted ....................................        186,850           13.89
Forfeited ..................................        (19,850)          10.55
Vested .....................................       (275,532)          10.60
                                                  ---------          ------
Nonvested at June 30, 2007 .................        896,386          $ 6.29
                                                  =========          ======

      As of June 30, 2007 and 2006,  there were  2,348,063 and  2,445,907  stock
options  outstanding,  respectively.  At June 30, 2007,  the aggregate  value of
unvested options,  as determined on respective grant dates using a Black-Scholes
option valuation model,  was $5,513,071 (net of estimated  forfeitures),  all of
which is expected to be recognized as compensation  expense in fiscal years 2008
through 2012. The aggregate  intrinsic value of both vested and unvested options
at June 30,  2007 was  $8,061,443  (net of  forfeitures).  As of June 30,  2007,
1,451,677  stock  options  were  exercisable,   which  represents  an  aggregate
intrinsic value of $5,488,858.

      During the year ended June 30, 2007 and 2006, the Company  granted 186,850
and 387,500  nonstatutory  stock  options  with a fair value of  $2,529,901  and
$3,446,140  (net of estimated  forfeitures),  and 19,850 and 24,180 options were
forfeited and/or expired, respectively.  During the year ended June 30, 2007 and
2006, there were 210,637 and 664,103 stock options  exercised,  which represents
an aggregate  intrinsic  value of $1,871,608 and $6,938,901,  respectively.  New
option  grants made after July 1, 2006, as well as option grants issued prior to
that date, have been valued using a Black-Scholes  option  valuation  model. For
the years ended June 30, 2007 and 2006, the Company used the  Simplified  Method
to estimate the expected  term of the  expected  life of stock option  grants as
defined  by SEC  Accounting  Staff  Bulletin  No.  107 for each  award  granted.
Expected volatility for the twelve month period ended June 30, 2007, is based on
historical  volatility  levels of the  Company's  common  stock.  The  risk-free
interest  rate for the year ended June 30,  2007 is based on the  implied  yield
currently  available on U.S. Treasury zero coupon issues with the remaining term
equal to the expected life.

      Prior to adopting  SFAS 123R on July 1, 2005,  the  Company's  stock-based
employee  compensation  expense  was  accounted  for under the  recognition  and
measurement  principles  of APB Opinion No. 25,  Accounting  for Stock Issued to
Employees,  and related  interpretations.  For the year ended June 30, 2005,  no
equity  option-based  employee  compensation cost is reflected in net income, as
all options granted under the Company's stock option plans had an exercise price
equal to the underlying  common stock price on the date of grant.  The following
table illustrates the effect on net income and earnings per share if the Company
had applied the fair-value  recognition  provisions of SFAS 123,  Accounting for
Stock-Based  Compensation,  to stock-based  employee  compensation  for the year
ended June 30, 2005:

                                                                    Year Ended
                                                                      June 30
                                                                       2005
                                                                    -----------
Net income, as reported..........................................   $ 7,412,536
Add compensation expense related to restricted stock grants......        65,710
Deduct total stock-based employee compensation expense
  determined under fair value-based method for all awards,
  net of related tax effects.....................................    (5,589,306)
                                                                    -----------
    Pro forma net income.........................................   $ 1,888,940
                                                                    ===========
Earnings per share:
  Basic - as reported............................................   $      0.38
  Basic - pro forma..............................................          0.10
  Diluted - as reported..........................................          0.37
  Diluted - pro forma............................................          0.10


                                       53
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

Stock Option Plans

      In November 2004, the shareholders  approved the amendment and restatement
of the Company's  three existing stock option plans,  which combined these plans
under one  single  consolidated  equity  compensation  plan,  the  Anaren,  Inc.
Comprehensive  Long-Term  Incentive  Plan.  The  effect  of  the  amendment  and
restatement  was to combine the separate  share pools  available for grant under
the  three  existing  plans  into a  single  grant  pool,  expand  the  type  of
equity-based  awards the Company may grant,  and extend the term of the combined
plan to October  31,  2014.  Under the  restated  plan,  the  Company  may issue
incentive stock options,  nonstatutory stock options, stock appreciation rights,
restricted  stock,  performance  shares,  and  performance  units  that can vest
immediately or up to five years. Under this plan, the Company reserved 1,326,488
new common shares available for grant. On June 30, 2007, the Company had 932,986
shares available for grant under the restated plan.

      Information with respect to this plan is as follows:

<TABLE>
<CAPTION>
                                                                                                               Weighted
                                                                    Total                Option                average
                                                                   shares                price              exercise price
                                                                  ---------         ---------------         --------------
<S>                                                               <C>               <C>                         <C>
Outstanding at June 30, 2004 ................................     2,796,662         $ 1.38 to 62.44             $15.53
    Issued ..................................................       389,600          12.05 to 13.43              12.05
    Exercised ...............................................       (98,460)           1.38 to 9.51               1.26
    Expired .................................................      (220,692)          8.57 to 62.44              26.90
    Canceled ................................................       (84,330)          9.51 to 62.44              11.28
                                                                  ---------
Outstanding at June 30, 2005 ................................     2,782,780         $ 2.27 to 57.59             $14.73
    Issued ..................................................       387,500          11.97 to 21.15              14.22
    Exercised ...............................................      (664,103)          2.27 to 20.17               8.04
    Expired .................................................       (36,090)         14.73 to 57.59              39.05
    Canceled ................................................       (24,180)          9.51 to 53.00              14.43
                                                                  ---------
Outstanding at June 30, 2006 ................................     2,445,907         $ 2.27 to 54.00             $15.91
    Issued ..................................................       186,850         $19.56 to 20.00              19.56
    Exercised ...............................................      (210,637)          2.28 to 19.21              10.86
    Expired .................................................       (54,207)          2.28 to 19.21              22.32
    Canceled ................................................       (19,850)          9.51 to 20.00              16.56
                                                                  ---------
Outstanding at June 30, 2007 ................................     2,348,063         $ 5.73 to 56.13             $16.65
                                                                  =========
Shares exercisable at June 30, 2007 .........................     1,451,677         $ 5.73 to 56.13             $17.07
                                                                  =========
</TABLE>

      The following  table  summarizes  significant  ranges of  outstanding  and
exercisable options at June 30, 2007:

<TABLE>
<CAPTION>
                         Options outstanding                                             Options exercisable
------------------------------------------------------------------------            -----------------------------
                                            Weighted            Weighted                                 Weighted
    Range of                                 average             average                                  average
    exercise                                remaining           exercise                                 exercise
     prices            Shares             life in years           price              Shares                price
---------------      ---------            -------------         --------            ---------            --------
<S>                  <C>                       <C>               <C>                <C>                   <C>
$ 5.73 - $15.00      1,844,999                 5.49              $12.39             1,138,380             $11.47
 15.01 - 40.00         343,864                 4.85               19.86               154,097              20.24
 40.01 - 65.00         159,200                 3.34               53.04               159,200              53.04
                     ---------                                                      ---------
             ~       2,348,063                    ~                    ~            1,451,677                    ~
                     =========                                                      =========
</TABLE>


                                       54
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

      During the years  ended  June 30,  2007,  2006,  and 2005,  the  per-share
weighted  average  fair value of the  nonstatutory  stock  options  granted  was
$13.89, $8.88, and $7.79. The fair value of options at the date of the grant was
estimated using the Black-Scholes  model with the following  assumptions for the
respective period ending June 30:

<TABLE>
<CAPTION>
                                                                           2007                2006               2005
                                                                     ---------------     ---------------     ---------------
<S>                                                                  <C>                 <C>                 <C>
Expected option life...........................................      6.0 - 6.5 years     6.0 - 6.5 years     3.0 - 5.0 years
Weighted average risk-free interest rate.......................         4.56% - 4.87%       3.92% - 5.02%               3.22%
Weighted average expected volatility...........................       60.00% - 75.00%     54.12% - 62.00%     59.75% - 87.57%
Rate of dividends..............................................                  0.0%                0.0%                0.0%
</TABLE>

(12) Restricted Stock Program

      The following  table  summarizes the restricted  stock issuances that have
not yet vested:

<TABLE>
<CAPTION>
                                     November        September           May             August         February           May
Date Issued                           2004              2005             2006             2006            2007             2007
-----------                         ---------        ---------         -------         ---------        ---------       ---------
<S>                                    <C>               <C>           <C>                <C>               <C>             <C>
Shares Issued ..................       23,500            2,605         120,082            48,450            4,476           7,738
Price per share ................       $13.60           $13.82          $21.15            $19.56           $17.65          $16.80
Term ...........................    36 Months        36 Months               *         36 Months        36 Months       36 Months
</TABLE>

----------
*     On May 17, 2006,  the Company  issued  restricted  stock  grants  totaling
      120,082 shares. The per-share value of each grant was $21.15. These shares
      are subject to a forfeiture  period  which  expires as of the later of May
      17, 2009 and the last day of the Company's single fiscal year during which
      the Company has both net sales from  operations  of at least $250  million
      and  operating  income of at least 12 percent of net  sales.  These  grant
      agreements expire if both financial  performance  conditions above are not
      met  by  June  30,  2011.   Presently,   the  Company  has  recognized  no
      compensation  expense for this grant and the shares have not been included
      in the  current  diluted  earnings  per share  calculation  as the Company
      believes  that it is probable  that these goals will not be met within the
      time period  specified.  In the future,  if it becomes  probable  that the
      sales  and  earnings  goals  will  be  achieved  then  at  that  time  the
      compensation  cost  associated  with the grant will be recognized over the
      remaining vesting period.

      As of June 30, 2007,  2006,  and 2005,  the Company has issued  restricted
shares aggregating  206,851,  146,187 and 23,500,  respectively,  under its 2004
Comprehensive  Long-Term  Incentive  Plan.  During fiscal year 2005,  there were
1,900 shares forfeited,  while no shares were forfeited during fiscal years 2007
and 2006.  During fiscal year 2005, there were 19,700 shares that vested,  while
no shares vested during 2007 or 2006. The shares of restricted  stock vest after
a period of 36, 48, and 60 months.

      The Company recognized  compensation  expense associated with the lapse of
restrictions  aggregating  $420,492,  $116,534,  and $65,710, in 2007, 2006, and
2005, respectively.

(13) Accumulated Other Comprehensive Income (Loss)

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

                                         Foreign       Minimum      Accumulated
                                        currency       pension         other
                                       translation    liability    comprehensive
                                        adjustment    adjustment   income (loss)
                                       -----------   -----------   -------------
Balances at June 30, 2006 ..........   $   105,516   $  (546,913)   $  (441,397)
Current period change ..............       260,090       546,913        807,003
Adjustment to initially apply
  SFAS No. 158, net of tax .........            --    (1,350,246)    (1,350,246)
                                       -----------   -----------    -----------
Balances at June 30, 2007 ..........   $   365,606   $(1,350,246)   $  (984,640)
                                       ===========   ===========    ===========

(14) Shareholder Protection Rights Plan

      In April 2001,  the board of directors  adopted a  Shareholder  Protection
Rights Plan. The plan provides for a dividend  distribution of one right on each
outstanding share of the Company's stock,  distributed to shareholders of record
on  April  27,  2001.  The  rights  will  be  exercisable  and  will  allow  the
shareholders to acquire common stock


                                       55
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

at a  discounted  price  if a  person  or  group  acquires  20% or  more  of the
outstanding  shares of common  stock.  Rights held by persons who exceed the 20%
threshold  will be void. In certain  circumstances,  the rights will entitle the
holder to buy shares in an acquiring entity at a discounted  price. The board of
directors may, at its option, redeem all rights for $0.001 per right at any time
prior to the rights  becoming  exercisable.  The rights will expire on April 27,
2011, unless earlier redeemed, exchanged or amended by the Board.

(15) Employee Benefit Plans

      The Company has a  noncontributory  defined  benefit pension plan covering
substantially  all of its  employees.  Effective  August  15,  2000 the plan was
closed for new participants. Benefits under this plan generally are based on the
employee's years of service and  compensation.  The following table presents the
changes in the  defined  benefit  pension  plan and the fair value of the Plan's
assets for the years ended June 30:

                                                    2007              2006
                                                ------------      ------------
Change in benefit obligation:
      Benefit obligation at
        beginning of year ..................    $ 10,718,898      $ 11,537,111
      Service cost .........................         286,353           342,349
      Interest cost ........................         658,800           607,181
      Actuarial (gain) loss ................        (113,593)       (1,364,787)
      Benefits paid ........................        (389,289)         (402,956)
                                                ------------      ------------
      Benefit obligation at
        end of year ........................    $ 11,161,169      $ 10,718,898
                                                ============      ============
Change in plan assets:
      Fair value of plan assets at
        beginning of year ..................    $  8,841,389      $  8,151,843
      Actual return on plan assets .........       1,186,022           606,490
      Employer contributions ...............       1,367,727           486,012
      Benefits paid ........................        (389,289)         (402,956)
                                                ------------      ------------
      Fair value of plan assets at
        end of year ........................    $ 11,005,849      $  8,841,389
                                                ============      ============
      Under funded status ..................    $   (155,320)     $ (1,877,509)
      Unrecognized net loss ................             --*         1,981,589
      Unrecognized prior service cost ......              --            (1,298)
      Adjustment required to recognize
        minimum liability ..................             --*          (828,654)
                                                ------------      ------------
      Accrued pension cost .................    $   (155,320)     $   (725,872)
                                                ============      ============
Amounts Recognized in Accumulated
Other Comprehensive Income
      Net actuarial loss ...................         890,144               --*
Weighted average assumptions:
      Discount rate at year-end ............            6.35%             6.25%
      Rate of increase in compensation
        levels at year end .................            4.00%             4.00%
      Expected return on plan assets
        during the year ....................            8.50%             8.50%
      Measurement date .....................         June 30           June 30

----------
*     Not applicable due to the adoption of SFAS No. 158.


                                       56
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

      The  accumulated  benefit  obligation for the defined  benefit pension was
$9,958,387 and $9,567,261 at June 30, 2007 and 2006, respectively.

      Components of net periodic pension cost for the years ended June 30 are as
follows:

<TABLE>
<CAPTION>
                                                                      2007           2006           2005
                                                                   ---------      ---------       ---------
<S>                                                                <C>            <C>             <C>
Service cost ..................................................    $ 286,353      $ 342,349       $ 247,301
Interest cost .................................................      658,800        607,181         564,361
Expected return on plan assets ................................     (740,273)      (693,461)       (626,751)
Amortization of unrecognized
    prior service cost ........................................       (1,298)        (3,232)         10,490
Amortization of unrecognized
    (gain) loss ...............................................       73,544        189,743          49,658
                                                                   ---------      ---------       ---------
Net periodic pension cost .....................................    $ 277,126      $ 442,580       $ 245,059
                                                                   =========      =========       =========
Weighted average assumptions:
    Discount rate .............................................         6.25%          5.25%           6.25%
    Expected increase in compensation
      levels at year end ......................................         4.00%          4.00%           4.00%
    Expected return on plan assets
      during the year .........................................         8.50%          8.50%           8.50%
</TABLE>

      The  estimated  amount of net actuarial  loss that will be amortized  from
accumulated other comprehensive income into net periodic pension cost in 2008 is
$18,097.

   Plan Assets

<TABLE>
<CAPTION>
                                                                   2007                             2006
                                                        --------------------------       ---------------------------
                                                           Actual       Percentage          Actual        Percentage
                                                         allocation     allocation        allocation      allocation
                                                        -----------     ----------       -----------      ----------
<S>                                                     <C>                 <C>          <C>                  <C>
Money market .....................................      $   201,064         1.83%        $   298,659          3.38%
Common equities ..................................          551,728         5.01             459,812          5.20
Corporate debt securities ........................        1,440,389        13.09           1,043,243         11.80
Government debt securities .......................        2,846,157        25.86           1,976,803         22.36
Global equity mutual fund ........................        1,231,743        11.19             588,510          6.65
Closed end equity mutual funds ...................        4,734,768        43.02           4,474,362         50.61
                                                        -----------       ------         -----------        ------
                                                        $11,005,849       100.00%        $ 8,841,389        100.00%
                                                        ===========       ======         ===========        ======
</TABLE>

      Plan's  Investment  Policy:  Investments  shall  be made  pursuant  to the
following  objectives:  1)  preserve  purchasing  power of  plan's  assets  base
adjusted  for  inflation;  2) provide  long term  growth;  3) avoid  significant
volatility.  Asset  allocation  shall be determined  based on a long term target
allocation having 30% of assets invested in Large-Cap domestic equities,  11% in
mid-cap  domestic  equities,   11%  in  small-cap   domestic  equities,   8%  in
international  equities,  and 40% in the broad bond market,  with little or none
invested in cash. Both investment  allocation and performance  shall be reviewed
periodically.


                                       57
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

   Determination of Assumed Rate of Return

      The  Corporation  has  selected  the assumed  rate of return  based on the
following:

                                                     Expected
                                                     compound
                                      Target        annualized       Expected
                                    percentage        5-year         weighted
                                    allocation   (index) return   average return
                                    ----------   --------------   --------------
Large-cap stocks ................     30.00%          11.20%           3.36%
Mid-cap stocks ..................     11.00           12.80            1.41
Small-cap stocks ................     11.00           13.00            1.43
International common stocks .....      8.00           10.90            0.87
Broad bond market ...............     40.00            5.30            2.12
                                     ------                            ----
  Total .........................    100.00%                           9.19%
                                     ======                            ====

      The Company  estimated  investment  expenses of approximately  0.5% of the
portfolio annually.

   Expected Contributions

      The Company had no minimum  requirements  to fund the pension plan for the
fiscal year ended June 30, 2007, however discretionary  contributions  amounting
to $1,367,727 were made. Expected contributions for fiscal 2008 are $0.

   Estimated Future Benefit Payments

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

      July 1, 2007 - June 30, 2008.................................   $  490,175
      July 1, 2008 - June 30, 2009.................................      485,599
      July 1, 2009 - June 30, 2010.................................      519,210
      July 1, 2010 - June 30, 2011.................................      534,238
      July 1, 2011 - June 30, 2012.................................      578,426
      Years 2013 - 2017............................................    3,197,372

      The Company  maintains a voluntary  contributory  salary  savings  plan to
which participants may contribute.  The Company's matching  contribution is 100%
of the  participants'  contribution  up to a maximum of 5% of the  participants'
compensation.  During  fiscal  2007,  2006,  and 2005,  the Company  contributed
$841,097, $592,602, and $530,626, respectively, to this plan.

      The  Company  maintains  a profit  sharing  plan which  provides an annual
contribution  by the Company based upon a percentage of operating  earnings,  as
defined.  Eligible employees are allocated amounts under the profit sharing plan
based upon their respective earnings,  as defined.  Contributions under the plan
were approximately  $526,000,  $409,000,  and $176,000 in fiscal 2007, 2006, and
2005, respectively. While the Company intends to continue this plan, it reserves
the right to terminate or amend the plan at any time.

(16) Postretirement Benefits

      The Company  provides  medical  coverage  for current and future  eligible
retirees of the Company  plus their  eligible  dependents.  Employees  generally
become eligible for retiree medical  coverage by retiring from the Company after
attaining at least age 55 with 15 years of service (active employees at June 27,
1993 were eligible by retiring after  attaining at least age 55 with 10 years of
service).  Retirees at June 27, 1993 pay  approximately $30 per month for health
care coverage and the Company is responsible for paying the remaining costs. For
this group,  any increase in health care  coverage  costs for retired  employees
will be shared by the Company and  retirees on a  fifty-fifty  basis,  while any
increase in coverage  costs for retiree  dependents  will be totally paid by the
retirees.  For eligible  employees  retiring  after June 26,  1993,  the Company
contributes  a fixed dollar  amount  towards the cost of the medical  plan.  Any
future cost  increases for the retiree  medical  program for these  participants
will be charged to the retiree.


                                       58
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

      The following  table  presents the changes in the  postretirement  benefit
obligation and the funded status of the Plan at June 30:

                                                       2007             2006
                                                   -----------      -----------
Benefit obligation at beginning of year ......     $ 2,606,509      $ 2,881,474
Service cost .................................          63,423           74,708
Interest cost ................................         157,746          146,662
Plan participants' contributions .............         123,679          130,862
Actuarial (gain) loss ........................          59,406         (415,240)
Benefits paid ................................        (228,141)        (211,957)
Medicare Part D prescription drug subsidy ....          16,722               --
                                                   -----------      -----------
Benefit obligation at end of year ............     $ 2,799,344      $ 2,606,509
                                                   ===========      ===========
Fair value of plan assets ....................     $        --      $        --
Under funded status ..........................      (2,799,344)      (2,606,509)
Unrecognized actuarial loss ..................              --*         662,932
                                                   -----------      -----------
Accrued postretirement benefit cost ..........     $(2,799,344)     $(1,943,577)
                                                   ===========      ===========
Amounts Recognized in Accumulated Other
  Comprehensive Income
Net actuarial loss ...........................     $   460,102               --*

----------
*     Not applicable due to the adoption of SFAS No. 158.

      Net  periodic   postretirement   benefit  cost   includes  the   following
components:

                                              2007          2006          2005
                                            --------      --------      --------
Service cost .........................      $ 63,423      $ 74,708      $ 57,139
Interest cost ........................       157,746       146,662       185,309
Amortized loss .......................        25,215        52,830        75,152
                                            --------      --------      --------
Net periodic postretirement
  benefit cost .......................      $246,384      $274,200      $317,600
                                            ========      ========      ========

      The  estimated  amount of net actuarial  loss that will be amortized  from
accumulated other comprehensive income into net periodic  postretirement benefit
cost in 2008 is $30,460.

      The weighted  average  discount rate used in determining  the  accumulated
postretirement  benefit  obligation was 6.28%,  6.25%,  and 5.25%, at the end of
fiscal 2007, 2006, and 2005, respectively.

      Assumed health care cost trend rates are as follows:

<TABLE>
<CAPTION>
                                                                        2007          2006
                                                                     -----------   -----------
<S>                                                                  <C>              <C>
Health care cost trend rate assumed for next year .................  8.0 - 10.0%      8.5%
Rate that the cost trend rate gradually declines to ...............      5%            5%
Year that the rate reaches the rate it is assumed to remain at ....     2015          2012
</TABLE>

      A  one-percentage  point  change in assumed  health  care cost trend rates
would have the following effects:

<TABLE>
<CAPTION>
                                                                      1% increase     1% decrease
                                                                      -----------     -----------
<S>                                                                     <C>             <C>
Effect on total of service and interest cost components...........      $ 30,295        $ (26,642)
Effect on postretirement benefit obligation.......................       333,745         (298,589)
</TABLE>


                                       59
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

Estimated Future Benefit Payments

      Shown  below  are  the  expected   gross   benefit   payments   (including
prescription drug benefits) and the expected gross amount of subsidy receipts.

                                                         Gross        Subsidy
                                                       payments       receipts
                                                      ----------     ----------
2008 ............................................     $  199,766     $  (49,000)
2009 ............................................        216,123        (53,754)
2010 ............................................        219,968        (60,028)
2011 ............................................        225,003        (64,254)
2012 ............................................        239,184        (72,381)
Years 2013 - 2017 ...............................      1,197,139       (317,235)

(17) Income Taxes

      The following table presents the Domestic and Foreign components of income
before income taxes and  discontinued  operations and the expense  (benefit) for
income taxes as well as the taxes charged or credited to stockholders' equity:

<TABLE>
<CAPTION>
                                                                                             Year ended June 30
                                                                         ----------------------------------------------------------
                                                                             2007                   2006                   2005
                                                                         ------------           ------------           ------------
<S>                                                                      <C>                    <C>                    <C>
Income before income taxes and
   discontinued operations:
      Domestic ................................................          $ 18,142,512           $ 10,568,029           $  8,620,237
      Foreign .................................................             2,418,448              3,700,840                530,299
                                                                         ------------           ------------           ------------
                                                                         $ 20,560,960           $ 14,268,869           $  9,150,536
                                                                         ============           ============           ============
Income tax expense charged to the income
   statement from continuing operations:
      Current:
        Federal ...............................................          $  5,026,921           $  3,431,352           $    951,453
        State and local .......................................               215,697                177,634                227,645
        Foreign ...............................................               147,658                     --                     --
                                                                         ------------           ------------           ------------
          Total current .......................................             5,390,276              3,608,986              1,179,098
                                                                         ------------           ------------           ------------
      Deferred:
        Federal ...............................................              (153,010)              (144,577)               558,457
        State and local .......................................               (27,721)              (179,507)                   445
        Foreign ...............................................                 1,455                (32,902)                    --
                                                                         ------------           ------------           ------------
          Total deferred ......................................              (179,276)              (356,986)               558,902
                                                                         ------------           ------------           ------------
          Total income taxes charged to the
            income statement ..................................          $  5,211,000           $  3,252,000           $  1,738,000
                                                                         ============           ============           ============
Income taxes charged (credited) to
   shareholders' equity:
Current benefit of stock based compensation ...................          $   (433,042)          $ (1,679,149)          $    (29,308)
Deferred taxes from stock based
   compensation ...............................................                    --                     --                302,958
Deferred taxes (benefit) from recognition
   of pension liability .......................................              (413,839)               469,815               (468,112)
                                                                         ------------           ------------           ------------
      Income taxes credited to
        shareholders' equity ..................................          $   (846,881)          $ (1,209,334)          $   (194,462)
                                                                         ============           ============           ============
</TABLE>


                                       60
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

      A reconciliation of the expected consolidated income tax expense, computed
by applying the U.S.  Federal  corporate  income tax rate (35% in 2007 and 2006,
34% in 2005) to income  before  income  taxes,  to  income  tax  expense,  is as
follows:

<TABLE>
<CAPTION>
                                                                              2007                   2006                   2005
                                                                          -----------            -----------            -----------
<S>                                                                       <C>                    <C>                    <C>
Expected consolidated income tax expense ......................           $ 7,196,336            $ 4,994,104            $ 3,111,182
State taxes, net of Federal benefit ...........................               122,184                 (1,217)               150,539
Nontaxable interest income ....................................              (806,272)              (539,197)              (403,498)
Change in valuation allowance .................................                38,428               (238,169)                40,827
Effect of foreign operations ..................................              (697,045)            (1,227,022)              (154,965)
Non-deductible stock-based compensation .......................               540,103                912,066                     --
Export tax benefits ...........................................              (217,350)              (239,372)              (708,640)
Research credits ..............................................              (611,455)              (416,600)              (175,380)
Other, net ....................................................              (353,929)                 7,407               (122,065)
                                                                          -----------            -----------            -----------
                                                                          $ 5,211,000            $ 3,252,000            $ 1,738,000
                                                                          ===========            ===========            ===========
</TABLE>

      The tax effects of  temporary  differences  that give rise to the deferred
tax assets and deferred tax liabilities at June 30 are presented below:

<TABLE>
<CAPTION>
                                                                                         2007              2006
                                                                                      -----------       -----------
<S>                                                                                   <C>               <C>
Deferred tax assets:
      Inventories ................................................................    $   831,996       $   723,100
      Deferred compensation ......................................................        503,377           447,204
      Retirement benefits ........................................................        265,963           242,685
      Postretirement benefits ....................................................        756,800           738,559
      Stock-based compensation ...................................................        925,163           322,892
      Nondeductible reserves .....................................................        537,399            32,245
      Federal and state tax attribute carryforwards ..............................        168,659           709,019
      Foreign and state net operating loss carryforwards .........................         60,991            26,458
                                                                                      -----------       -----------
          Gross deferred tax assets ..............................................      4,050,348         3,242,162
      Valuation allowance ........................................................       (168,659)         (130,231)
                                                                                      -----------       -----------
          Net deferred tax assets ................................................      3,881,689         3,111,931
                                                                                      -----------       -----------
Deferred tax liabilities:
      Plant and equipment, principally due to differences
        in depreciation ..........................................................     (1,518,521)       (1,844,987)
      Intangible assets including goodwill .......................................     (2,530,819)       (2,329,710)
                                                                                      -----------       -----------
       Gross deferred tax liabilities ............................................     (4,049,340)       (4,174,697)
                                                                                      -----------       -----------
       Net deferred tax liabilities ..............................................    $  (167,651)      $(1,062,766)
                                                                                      ===========       ===========
Presented as:
Current deferred tax asset .......................................................    $ 1,174,255       $   716,287
Long-term deferred tax asset .....................................................         31,447            32,902
Long-term deferred tax liability .................................................     (1,373,353)       (1,811,955)
                                                                                      -----------       -----------
      Net deferred tax liabilities ...............................................    $  (167,651)      $(1,062,766)
                                                                                      ===========       ===========
</TABLE>


                                       61
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

      In  assessing  the  realizability  of  deferred  tax  assets,   management
considers  whether it is more  likely  than not that some  portion or all of the
deferred tax assets will not be realized.  The ultimate  realization of deferred
tax assets is dependent  upon the generation of future taxable income during the
periods in which  those  temporary  differences  become  deductible.  Management
considers the scheduled  reversal of deferred tax liabilities,  projected future
taxable income, and tax planning strategies in making this assessment.

      During  2005,  securities  were  sold  resulting  in  $342,712  of  losses
characterized,  for income tax purposes,  as capital  losses,  which may only be
used to  offset  capital  gains  and  expire  in  2010.  As a  result  of  these
limitations,  at June 30, 2006 the Company had a valuation allowance of $130,231
with  respect  to  these  losses.  During  2007,  investment  property  was sold
resulting in a capital gain which was offset by the capital loss  carryforwards.
At June 30,  2007,  the Company had  remaining  capital  loss  carryforwards  of
$265,204 and a valuation allowance of $92,821 with respect to these losses.

      At June 30, 2007,  the Company has  $1,087,182 of state net operating loss
carryforwards,  which begin to expire in 2015. At June 30, 2007, the Company has
State tax credit  carryforwards  of $114,905 which expire from 2010 through 2012
The  state  tax  credits  may  only be  realized  after  utilization  of the net
operating loss carryforwards. Management does not believe it is more likely than
not that the Company  will  realize the  deferred  tax benefits of the state tax
credits  before  their  expiration  and  established  a valuation  allowance  of
$75,838.

      The Company's  subsidiary in China is eligible for a tax holiday resulting
from reduced tax rates for the first five tax years after it  generates  taxable
income in excess of its  existing  net  operating  loss  carryforwards.  The tax
benefit varies over the remaining  years of the holiday.  Fiscal year ended June
30, 2007, is the second year of its tax holiday.  Assuming a 25% statutory rate,
the effect of the tax holiday is approximately  $614,000,  or $0.03, per diluted
share.

      United  States  income  taxes  have not  been  provided  on  undistributed
earnings of the China subsidiary.  The Company's  intention is to reinvest these
earnings permanently.

      Based upon the level of  historical  taxable  income and  projections  for
future  taxable  income,  management  believes  it is more  likely  than not the
Company  will  realize the  benefits  of the  deferred  tax  assets,  net of the
existing valuation allowance.

      As  discussed  in note 2,  deferred  tax  assets as of June 30,  2006 were
subsequently  increased  as a result  of the tax  effect of the  adoption  of an
accounting pronouncement.

      The  Company is subject to ongoing tax  examinations  and  assessments  in
various  jurisdictions.  Accordingly,  the Company  provides for  additional tax
expense based on probable outcomes of such matters.  While it is often difficult
to predict the final outcome or the timing of resolution of any  particular  tax
matter,  the Company believes the reserves reflect the probable outcome of known
tax contingencies.  Unfavorable settlement of any particular issue would require
use of cash.  Favorable  resolution  would be  recognized  as a reduction to the
effective tax rate in the year of resolution.

(18) Segment and Related Information

   (a) Segments

      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  segment and the Space and
Defense  segment.  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.


                                       62
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

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

      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>
                                                                                                   Corporate
                                                                              Space and               and
                                                         Wireless              defense            unallocated           Consolidated
                                                       -------------        -------------        -------------         -------------
<S>                                                    <C>                  <C>                  <C>                   <C>
Net sales:
    2007 ......................................        $  77,799,507        $  51,187,597        $          --         $ 128,987,104
    2006 ......................................           66,731,312           38,732,924                   --           105,464,236
    2005 ......................................           64,169,326           30,291,739                   --            94,461,065
Operating income:
    2007 ......................................            7,968,604            9,587,630             (542,056)           17,014,178
    2006 ......................................            7,369,184            4,471,974                   --            11,841,158
    2005 ......................................            2,233,614            5,347,430                   --             7,581,044
Goodwill and intangible assets:
    June 30, 2007 .............................           30,753,361                   --                   --            30,753,361
    June 30, 2006 .............................           31,056,232                   --                   --            31,056,232
Identifiable assets:*
    June 30, 2007 .............................           28,039,869           16,475,428          115,935,657           160,450,954
    June 30, 2006 .............................           20,376,293           17,944,131          119,649,773           157,970,197
Depreciation:**
    2007 ......................................            2,904,112            2,301,032                   --             5,205,144
    2006 ......................................            2,594,443            2,280,892                   --             4,875,335
    2005 ......................................            2,839,280            2,047,874                   --             4,887,154
Intangibles amortization:***
    2007 ......................................              302,871                   --                   --               302,871
    2006 ......................................              332,870                   --                   --               332,870
    2005 ......................................              570,645                   --                   --               570,645
</TABLE>

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

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

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

   (b) Geographic Information

      Net sales by geographic region are as follows:

<TABLE>
<CAPTION>
                                                                                                                        Consolidated
                        United States       Asia Pacific          Europe             Americas            Other            net sales
                         ------------       ------------       ------------       ------------       ------------       ------------
<S>                      <C>                <C>                <C>                <C>                <C>                <C>
2007 .............       $ 72,619,796       $ 31,123,632       $ 16,422,835       $  2,888,990       $  5,931,851       $128,987,104
2006 .............         57,317,412         29,242,776         12,143,309          2,869,330          3,891,409        105,464,236
2005 .............         46,558,563         25,530,705         18,114,496          3,070,760          1,186,541         94,461,065
</TABLE>


                                       63
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

   (c) Customers

      In 2007,  sales to two  customers  both exceeded 10% of  consolidated  net
sales, totaling approximately  $38,597,000  ($21,498,000 related to the Wireless
segment  and  $17,099,000  related to the Space and Defense  segment).  In 2006,
sales to two customers  both exceeded 10% of  consolidated  net sales,  totaling
approximately  $32,255,000 ($17,659,000 related to the Space and Defense segment
and $14,596,000 related to the wireless segment). In 2005, sales to one customer
totaled approximately $13,023,652 (related to the wireless segment) and exceeded
10% of consolidated net sales.

(19) Commitments

      The Company is obligated under contractual  obligations and commitments to
make future payments such as lease  agreements and contingent  commitments.  The
Company's obligations and commitments are as follows:

          Year ending June 30:
              2008...................................     $ 768,984
              2009...................................       768,984
              2010...................................       768,984
              2011...................................       768,984
              2012...................................       767,439
              Thereafter.............................       670,516
                                                         ----------
                                                          4,513,891
              Less sublease income...................      (157,344)
                                                         ----------
                                                         $4,356,547
                                                         ==========

      Net rent  expense for the years ended June 30,  2007,  2006,  and 2005 was
$882,363,  $748,963, and $760,410,  respectively.  Rent expense for fiscal 2007,
2006,  and 2005 was  offset  by  sublease  income  of  $504,338,  $464,209,  and
$485,121, respectively.

      The  minimum  lease  payments  for  the  Company's  operating  leases  are
recognized on a  straight-line  basis over the minimum lease term. The Company's
China operation building lease has a step rent provision.

(20) Concentrations

      The  Company and others,  which are engaged in  supplying  defense-related
equipment  to the United  States  Government  (the  Government),  are subject to
certain business risks peculiar to the defense industry. Sales to the Government
may be  affected  by changes in  procurement  policies,  budget  considerations,
changing concepts of national defense,  political developments abroad, and other
factors.  Sales to direct contractors of the United States Government  accounted
for  approximately  36%, 30%, and 22% of consolidated  net sales in fiscal 2007,
2006,  and  2005,  respectively.  While  management  believes  there  is a  high
probability of continuation of the Company's current  defense-related  programs,
it is attempting to reduce its dependence on sales to direct  contractors of the
United States  Government  through  development  of its  commercial  electronics
business.

(21) Foreign Operations

      The Company  maintains  and operates a facility in Suzhou,  China.  During
fiscal  year  2007,  net  sales  (net  of  intercompany   eliminations)  totaled
$6,064,903.  Included  in the  company's  total  assets,  as of June  30,  2007,
includes $4,117,740 of inventory held for resale, as well as $3,534,017 of fixed
assets (net of related accumulated depreciation).  As of June 30, 2007, there is
no  reason  to  believe  that any of the  Company's  foreign  assets  or  future
operations will be impaired.


                                       64
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (continued)

(22) Quarterly Financial Data (Unaudited)

      The  following  table sets forth  certain  unaudited  quarterly  financial
information for the years ended June 30, 2007 and 2006:

<TABLE>
<CAPTION>
                                                                                     2007 quarter ended
                                                            ------------------------------------------------------------------------
                                                            September 30         December 31          March 31             June 30
                                                            ------------        ------------         -----------         -----------
                                                                                (As restated)       (As restated)
<S>                                                          <C>                 <C>                 <C>                 <C>
Net sales ..........................................         $30,203,110         $30,322,785         $32,600,635         $35,860,574
Gross profit .......................................          10,839,332          10,897,780          11,358,481          12,766,463
Net income .........................................           3,760,678           3,761,294           3,510,725           4,317,263
Net income per common share:
    Basic income per share .........................         $      0.21         $      0.21         $      0.20         $      0.26
    Diluted income per share .......................                0.21                0.21                0.20                0.25
</TABLE>

<TABLE>
<CAPTION>
                                                                                     2006 quarter ended
                                                            ------------------------------------------------------------------------
                                                            September 30         December 31          March 31             June 30
                                                            ------------        ------------         -----------         -----------
<S>                                                          <C>                 <C>                 <C>                 <C>
Net sales ..........................................         $24,614,358         $25,019,013          26,701,083         $29,129,782
Gross profit .......................................           8,654,446           8,745,626          10,249,407          10,320,780
Net income .........................................           2,226,017           2,010,082           3,252,317           3,610,166
Net income per common share
    from continuing operations:
    Basic income per share from
      continuing operations ........................         $      0.13         $      0.12         $      0.19         $      0.21
    Diluted income per share from
      continuing operations ........................                0.12                0.11                0.19                0.20
Net income per common share
    from discontinued operations:
    Basic income per share from
      discontinued operations ......................         $        --         $        --         $        --         $        --
    Diluted income per share from
      discontinued operations ......................         $        --         $        --         $        --         $        --
</TABLE>

      Income per share  amounts  for each  quarter  are  required to be computed
independently.  As a result, their sum does not necessarily equal the total year
income per share amounts.

      Certain  amounts,  that are  referenced  below,  have been restated in the
consolidated  statement of operations for the second and third  quarters  ending
December  31, 2006 and March 31, 2007 to reflect the  correction  of  accounting
errors relating to accounting  errors at the Company's China  subsidiary.  These
errors, that were caused by unapproved and undetected changes in procedures over
accounting  for the  reconciliation  of  inventory  and the  recording of vendor
payables for materials received but not yet invoiced (1 - $333,000 and $543,000)
at  the  China  facility,  resulted  in a  misstatement  of  pretax  income  and
inventory.  As a result of these  errors,  the Company has  determined  that its
inventory was  understated at December 31, 2006 and its net income for the three
months ended December 31, 2006 and March 31, 2007 were overstated. Additionally,
the Company has corrected  certain  errors in  accounting  for income taxes (2 -
$49,000 and $(85,000)),  equity based  compensation (3 - $34,000 and $1,000) and
pension  expense (4 -  $(83,000)  and  $83,000)  and,  as part of the  Company's
adoption of the Securities and Exchange  Commissions  Staff Accounting  Bulletin
No.  108,  the  Company  has  corrected  errors in their  warranty  expense (5 -
$(49,000)  and  $43,000)  and  allowance  for sales  returns (6 -  $(3,000)  and
$(6,000)). The adjustments listed above are summarized as follows.


                                       65
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2007, 2006 and 2005 (concluded)

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<CAPTION>
                                                                   As Previously     Restatement
                                                                      Stated         Adjustments      As Restated
                                                                   -------------     -----------      -----------
<S>                                                                 <C>              <C>              <C>
Three Months Ended December 31, 2006
Sales (6) ....................................................      $30,325,785      $    (3,000)     $30,322,785
Cost of sales (1)(4)(5) ......................................       19,224,005          201,000       19,425,005
Gross profit .................................................       11,101,780         (204,000)      10,897,780
General and administrative (3) ...............................        2,726,742           34,000        2,760,742
Total operating expenses .....................................        6,848,423           34,000        6,882,423
Operating income .............................................        4,253,357         (238,000)       4,015,357
Income before income taxes ...................................        5,164,294         (238,000)       4,926,294
Income tax expense (2) .......................................        1,116,000           49,000        1,165,000
Net income ...................................................      $ 4,048,294      $  (287,000)     $ 3,761,294
Basic net income per share ...................................      $      0.23      $     (0.02)     $      0.21
Diluted net income per share .................................      $      0.22      $     (0.01)     $      0.21

Three Months Ended March 31, 2007
Sales (6) ....................................................      $32,606,635      $    (6,000)     $32,600,635
Cost of sales (1)(4)(5) ......................................       20,573,154          669,000       21,242,154
Gross profit .................................................       12,033,481         (675,000)      11,358,481
General and administrative (3) ...............................        3,154,894            1,000        3,155,894
Total operating expenses .....................................        7,329,910            1,000        7,330,910
Operating income .............................................        4,703,571         (676,000)       4,027,571
Income before income taxes ...................................        5,571,725         (676,000)       4,895,725
Income tax expense (2) .......................................        1,470,000          (85,000)       1,385,000
Net income ...................................................      $ 4,101,725      $  (591,000)     $ 3,510,725
Basic net income per share ...................................      $      0.24      $     (0.04)     $      0.20
Diluted net income per share .................................      $      0.23      $     (0.03)     $      0.20
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