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, 1999

__     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 MICROWAVE, INC.
             (Exact name of Registrant as specified in its Charter)

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

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

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

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 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. ___

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant at September 21, 1999 was approximately $144,750,000.

     The number of shares of Registrant's Common Stock outstanding on September
21, 1999 was 5,545,092.

                    DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's Proxy Statement for use in connection with its
1999 Annual Meeting of Shareholders are incorporated into Part III of this
Annual Report on Form 10-K.


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Item 1.  BUSINESS

FORWARD-LOOKING CAUTIONARY STATEMENT

     In an effort to provide investors a balanced view of the Company's current
condition and future growth opportunities, this Form 10-K report includes
comments by the Company's management about future performance. Because these
statements are forward-looking statements pursuant to the Safe Harbor provisions
of the Private Securities Litigation Reform Act of 1995, management's forecasts
involve risks and uncertainties, and actual results could differ materially from
those predicted in the forward-looking statements. Among the principal factors
that could cause actual results to differ materially are the following: general
market conditions, including demand for the Company's products, manufacturing
capacity and the ability to "ramp" to meet anticipated demand, fluctuations in
yield, availability of third-party supplier parts at reasonable prices,
availability of financial resources to fund anticipated growth, ability to
maintain sole supplier positions with certain defense sectors, successful
adaptation of existing Company technologies to produce new products that meet
specific customer requirements, price pressures, the level of worldwide spending
on military defense products, growth of wireless telephone and satellite
communications systems, acceptance of new products, customer order cancellations
or rescheduling and actual orders compared to annual blanket contracts from
wireless customers.

GENERAL

         Anaren Microwave,  Inc. ("Anaren" or "the Company") was incorporated in
New York in 1967 as Micronetics,  Inc., a name that changed to Anaren Microwave,
Inc. during 1967. The Company's  executive offices are located at 6635 Kirkville
Road, East Syracuse, New York 13057. The telephone number is (315) 432-8909.

         Anaren designs, develops, manufactures and sells complex microwave
signal distribution networks and components for the wireless communications,
satellite communications and defense electronics markets. The Company utilizes
its advanced, proprietary "Multi-Layer Stripline" technology to deliver compact,
light-weight, cost effective and highly integrated microwave products into the
rapidly expanding markets for cellular/Personal Communications Systems ("PCS")
base stations, microcells and new generations of communications satellites.
Anaren's customer base includes leading global systems suppliers for these
markets, including Motorola, Inc. ("Motorola"), Nortel, Inc. ("Nortel"), Lucent
Technologies Inc. ("Lucent"), Ericsson, Inc. ("Ericsson"), Lockheed Martin
Corporation ("Lockheed Martin"), Loral Space & Communications Ltd. ("Loral Space
& Communications") and Hughes Space & Communications International, Inc.
("Hughes"). The Company is also a leading provider of electronic counter measure
subsystems which primarily protect fighter aircraft. The Company has leveraged
over 30 years of microwave expertise to rapidly develop and implement leading
commercial microwave products, with commercial sales growing from $982,000 in
fiscal 1995 to over $30 million, representing 66% of total Company net sales, in
fiscal 1999.

INDUSTRY BACKGROUND

         Worldwide demand for telecommunications services has grown rapidly in
recent years, including basic telephony, mobile cellular communications, video
broadcast, high speed data transmission and paging. Mobile communications serve
basic needs for convenience and flexibility and have grown at rates higher than
the overall market for telecommunications services. The trend has led to
increased growth in the number of subscribers for existing and emerging wireless
applications that are served by terrestrial and satellite based networks. This
demand has resulted in an increased need for cost effective and reliable
telecommunications equipment among service providers.

         Telecommunications networks require interconnections and transmission
systems to link geographically dispersed nodes and to provide access to
customers and end users. Available transmission technologies include
twisted-pair copper, coaxial cable, fiber optic cable, microwave radio
technology and satellite broadcast technology. Wireless solutions, terrestrial
and satellite, offer advantages over wireline, including typically lower cost of
implementation and relatively rapid infrastructure deployment. Wireless
solutions are especially superior where geographically dispersed customers or
operations, difficult terrain and environmental constraints render the
installation of copper, coaxial cable on fiber optic cable impractical or
prohibitively expensive.


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         Wireless Communications

         The demand for cellular, PCS and wireless local loop ("WLL")
(collectively, "wireless") communications services has grown significantly
during the past decade, fueled by decreasing prices for wireless handsets, a
more favorable regulatory environment, increasing competition among service
providers and a greater availability of services and microwave spectrum. In
addition, many developing countries are installing wireless telephone networks
as an alternative to installing, expanding or upgrading traditional wireline
networks. Emerging bi-directional wireless data transmission applications have
the potential to further expand the market for wireless communications by
allowing service providers to increase revenue-generating traffic on their
networks. The growth in wireless communications has required, and will continue
to require, substantial investment by service providers in infrastructure
equipment.

         A typical wireless communications system comprises a geographic region
containing a number of cells, each of which contains a cell site (or base
station), which are networked to form a service provider's coverage area. Each
base station houses the equipment that receives incoming telephone calls from
the switching offices of the local wireline telephone company 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 and tunable filters, along with an antenna to receive and transmit
signals to and from the wireless telephone user.

         Traditional cellular systems, which are based on analog technology, are
capable of carrying only one call per channel of spectrum. The continuing growth
for the wireless communications market has resulted in the crowding of
transmissions within the available spectrum. Because the radio frequencies
assigned to transmissions are fixed, service providers are now seeking new
methods to more efficiently use the spectrum to increase capacity. Analog
systems are being supplanted by digital systems, which convert voice
transmissions into bits of electronic information, allowing more calls per
carrier frequency, improved quality and improved security, thereby significantly
increasing the performance of a given wireless network. In addition to digital
cellular networks, which operate within the 800 MHz and 900 MHz bandwidths,
service providers have also begun to construct PCS networks operating within the
1800 MHz and 2000 MHz bandwidths. PCS networks generally require two to three
times as many base stations as cellular networks. As a consequence of these
factors, wireless service providers must anticipate evolving industry standards,
and must invest in infrastructure equipment that both maximizes efficiency in
the management of the limited spectrum licensed to them, and is available in
volume for rapid deployment. There is also strong demand for wireless
infrastructure manufacturers to provide improved performance in smaller, more
cost effective cells and microcells which operate at higher frequencies.

         Space and Defense

         Satellites provide a number of advantages over terrestrial facilities
for many high-speed communications service applications. First, satellites
enable high-speed communications service where there is no suitable terrestrial
alternative available, or where the terrestrial alternative is inadequate.
Second, unlike the cost of terrestrial networks, the cost to provide services
via satellite does not increase with the distance between sending and receiving
stations. Finally, in contrast to the installation of fiber optic cable,
satellite networks can be rapidly and cost-effectively deployed.

         Demand for commercial satellites is determined by several factors
including: growth in demand for new satellite-based applications such as mobile
telephone services, business networking, direct-to-home television and related
voice, video and data systems; development of new satellite-based communications
architectures to provide basic telephone and television services in developing
regions of the world; and replenishment of orbiting satellite constellations
nearing the end of their useful lives. During the next decade continuing launch
activity for commercial satellites is expected. There are at least five
large-scale telecommunications projects (Iridium, Global Star, ICO, Spaceway and
Teledesic) in various stages of development and implementation that are
contributing to the demand for commercial satellites. Launch cost and capacity,
which are directly related to satellite size and weight, are significant factors
in the viability of these proposed systems. As a result, current commercial
satellite designs are being driven to incorporate lighter weight, smaller and
more highly integrated subsystems and components.

         Due to the narrowband frequency (10 MHz) allocated for commercial
satellites, system planners have moved from the traditional approach of
broadcasting signals over a large area of the Earth, to receiving and
transmitting via many small beams that cover much smaller areas of the Earth
(multi-beam transmission). The advantage of multi-beam transmission and
reception is that the same frequency can be used by different callers in
different beams (frequency re-use), allowing for significantly higher caller
capacity with the same amount of frequency allocation and increased system
sensitivity to allow for the use of lower-powered handsets. Caller capacity and
system sensitivity increase approximately in proportion to the number of beams
per satellite.


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         In addition, new multi-satellite systems are being developed in order
to provide the same global coverage for wideband (500 MHz) services such as
video-conferencing, data transmission, Internet access, and other multi-media
applications. These applications require significantly more bandwidth than
current voice communications systems because the information content in the
transmitted signal is much greater for these new applications. To implement
these systems, much wider frequency band allocations are required than have been
granted for existing voice communications systems. Such large bandwidth
allocations are not available at the operating frequencies of current
communications systems and regulatory authorities, therefore, have provided
wideband frequency allocations at 20-30 GHz, where a more limited base of
technology is available to implement the proposed systems. These proposed
systems are significantly more complex than current systems in that system
operators desire substantially more beams and increased flexibility. With
real-time adjustment of the size and location of the Earth being covered by a
particular beam and by incorporating signal switching networks into the
satellite payload, substantial improvements in system performance and
utilization rates can be achieved, thereby substantially increasing the revenue
generating ability of a satellite system. Increasingly, satellite system
developers are incorporating what has traditionally been ground-based
infrastructure into the satellite payload to improve system performance.

THE ANAREN SOLUTION

         Anaren has developed a system of proprietary processes, called
"Multi-Layer Stripline" ("MLS") technology, which enable the Company to deliver
compact, lightweight, cost effective and highly integrated complex microwave
signal distribution and interconnection networks for wireless and satellite
communication systems. The MLS process integrates multiple layers of microwave
circuitry, allowing the elimination of discrete components and discrete
microwave cables, dramatically reducing size, cost and weight while improving
performance. The MLS technology is used in combination with the Company's
extensive proprietary design libraries and turnkey design, development and
manufacturing capabilities which are required to provide custom solutions for
major Original Equipment Manufacturer ("OEM") customers. The technology has been
implemented into products utilizing passive components, including beamforming
networks and signal distribution networks, and is currently being utilized by
the Company to incorporate active devices, including switches, phase shifters
and amplifiers.

TECHNOLOGY

         Traditional stripline technology, which the Company has historically
utilized in its Defense products, consists of circuit runs etched on dielectric
sheets that are sandwiched in a precision machined aluminum case. The case
provides grounding on the top and bottom, and also provides a structure on the
edge for mounting connectors. Integration is achieved through connecting
multiple stripline components via numerous cables.

         Multi-Layer Stripline technology is a technique of processing stripline
circuits, in which multiple layers of etched stripline circuits are laminated
together in a manner that is similar to digital Printed Circuit Board "(PCB")
manufacturing, but with superior microwave characteristics. Like PCB
manufacturing, layers can be interconnected via plated-though holes. The
Company's proprietary techniques, however, enable it to implement multi-layer
transitions that perform optimally at microwave frequencies. Unlike PCB
manufacturing, simply connecting the appropriate points on the multi-layer board
does not ensure adequate performance. In order to achieve optimal microwave
performance consistently, material and process variations must be tightly
controlled and the circuit design must take into consideration all variation in
the manufacturing process. The Company's microwave design engineering staff has
developed proprietary modeling techniques and component design libraries that
allow for consistent and efficient design and production of complex microwave
products.

         The Company's microwave antenna beamforming technology, developed in
the defense industry, coupled with its MLS manufacturing process, produces
lightweight, cost-effective L band beamforming networks for Motorola's Iridium
Program. These passive networks provide multibeam coverage where the size and
direction of beams is fixed. Additionally, the Company is utilizing its MLS
technology and microwave design experience to develop cost effective solutions
for high data rate transmission applications, such as Internet access and
multi-media communications. In conjunction with Raytheon Company ("Raytheon")
the Company is developing a next generation of its MLS technology to address
applications at 20-30 GHz. In addition, the Company has developed high density
microwave switch matrices by incorporating active microwave switches into its
passive MLS technology, and is currently qualifying a production subsystem for a
commercial communications satellite program. These switch matrices are a key
element in providing the flexibility that system designers desire. In addition,
the Company is developing active beamforming networks, in which the size and
direction of the beams being produced can be remotely


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manipulated in real-time. Through these advancements, system operators can
direct capacity in response to changes in demand, and more efficiently utilize
their space infrastructure assets.

STRATEGY

         The Company's strategy is to attempt to continue to leverage its
proprietary Multi-Layer Stripline technology, extensive proprietary microwave
design libraries, and turnkey design, development and manufacturing capabilities
to further expand its penetration in the wireless communications and satellite
communications markets. Key components of the Company's strategy include the
following:

         Increase Levels of Component Integration and Value Added Content. The
Company plans to increase the value of its content in wireless and satellite
communications systems. Through its MLS manufacturing technology, the Company is
able to integrate multiple discrete functions into a single assembly.
Integration of active technologies, such as switching and amplification, into
its MLS assemblies would significantly broaden the array of functions that can
be integrated by the Company on satellite and terrestrial wireless communication
systems.

         Further Expansion into Commercial Markets. The Company has over 30
years experience in microwave technology used in designing and manufacturing
complex microwave subsystems for the defense market. During the past five years,
the Company has successfully expanded into the commercial satellite and wireless
communications markets as demonstrated by its revenue growth from commercial
applications to 66% of net sales in fiscal 1999 from 5% in fiscal 1995.

         Maintain Leadership in Microwave Technology. The Company intends to
pursue further technological advances through continued investment in research
and development. The Company will seek to advance its leadership in microwave
technology by continuing its participation in selected defense and satellite
programs that involve highly sophisticated, state-of-the-art microwave
technology. The Company will attempt to continue to leverage these technological
advancements into its terrestrial wireless products, as well as other commercial
applications.

         Strengthen and Expand Customer Relationships. The commercial wireless
and satellite communications markets are driven by a limited number of large
systems manufacturers. The Company has developed customer relationships with
many of these manufacturers, including Motorola, Lucent, Ericsson and Northern
Telecom, Ltd. ("Nortel") for wireless communications and Lockheed Martin,
Hughes, Loral Space & Communications and TRW, Inc. ("TRW") for satellite
communications. The Company intends to continue to build strong technical and
business relationships with major customers that are global industry leaders in
order to provide opportunities for recurring high volume supply contracts.

         Enhance Capabilities as Turnkey Supplier. The Company has in place
extensive design libraries, automated manufacturing equipment and statistical
process controls which have enabled it to competitively manufacture high volume
MLS assemblies. The Company intends to continue to expand, improve and automate
its design, manufacturing and test capabilities to provide innovative, cost
effective solutions. The Company believes that these investments are necessary
to maintain and enhance its position as a turnkey supplier to industry-leading
OEMs.

INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION

         The Company operates in two industry segments: The design and
manufacture of high volume custom and off-the-shelf surface mount components for
use in wireless basestation infrastructure construction ("Wireless"); and the
design and manufacture of complex custom signal processing devices for the
satellite communications and defense electronics counter-measure subsystems for
military aircraft ("Space and Defense"). The Company is managed on the basis of
these two industry segments and sells its product worldwide through a network of
sales representatives, distributors and an internal sales force, all of which
service both segments. The Company has one manufacturing plant, in East
Syracuse, New York, where all its products are produced.

         Information required by Statement of Financial Accounting Standards No.
131, Disclosures About Segments of an Enterprise and Related Information, is
provided for each of the operating segments as determined by the "management
approach" for each of the last three years in Note 12 of Notes to the
Consolidated Financial Statements included in "Item 8 - Financial Statements and
Supplementary Data."


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PRODUCTS

         Wireless Communications

         The Company provides custom microwave signal distribution networks to
leading wireless infrastructure equipment manufacturers. Traditionally, all of
the signal distribution (combining and splitting) within a base station has been
accomplished with discrete signal splitting/combining components with discrete
microwave cables providing the necessary interconnectivity. Through the use of
its MLS technology, the Company provides highly integrated microwave signal
distribution networks that eliminate the need for discrete componentry and
interconnecting cables. These integrated assemblies, which range from simple
splitting and combining networks to complete microwave backplanes, distribute
microwave signals throughout the base stations, from reception at the antenna,
to multiple radios, to multiple amplifiers, and back to the antenna for
transmission. Much like the mother board in a personal computer efficiently
provides interconnectivity of digital signals between multiple subsystems, the
Company's microwave signal distribution networks provide efficient
interconnectivity of microwave signals between subsystems in wireless base
stations.

         In addition to providing custom integrated system level signal
distribution solutions to wireless OEMs, the Company has developed and markets a
line of standard surface mount microwave signal splitting and combining
components, trade named Xinger(R), that are used in terrestrial wireless
communications base station amplifiers. The Company originally developed these
products in response to customers' needs for economical, high power signal
splitting and combining components that could be utilized in an automated
production environment. The Company is currently the market leader in this
product area, supplying industry leading OEMs such as Ericsson, Motorola, Nortel
and Lucent, as well as leading power amplifier manufacturers such as Powerwave
Technologies, Inc. and Spectrian Corporation.

         Space and Defense

         The Company is a supplier of passive (fixed) beamforming networks for
communications satellite multi-beam antennas. These products are custom designed
for a particular satellite program, and determine the number, size and quality
of beams that are produced from a single antenna array. Multi-beam satellite
antennas, which can have more than 100 independently modulated beams, require
very complex microwave signal distribution matrices, which would be too bulky,
heavy and unreliable for use in satellites if they used conventional microwave
interconnection techniques. These networks are utilized by leading
communications satellite manufacturers to achieve the desired ground coverage
and to provide the desired capacity allocation. Through the forming of multiple
beams, service providers are able to allocate a satellite's capacity based on
projected demand, and to increase the number of callers that can be serviced
simultaneously. In addition, the Company has recently developed the capability
to produce high-density microwave switch matrices which allow the dynamic
allocation of satellite capacity, thereby increasing utilization and revenue
generation.

         The Company is a leading supplier of certain subsystem products to the
defense electronics market, including Digital Frequency Discriminators ("DFDs")
and Digital RF Memories ("DRFMs"). These products are vertically integrated
within the Company utilizing advanced stripline, Application Specific Integrated
Circuits ("ASIC"), digital and signal processing technologies. DFD products
rapidly measure the frequency and other characteristics of radar signals. This
information is then used in electronic warfare systems to identify, classify
and/or counter radar systems. DRFM products digitize and store radar signals,
and can reproduce them in real time in counter advanced radar systems. DRFM
products are currently the only technology available that can replicate radar
signals with sufficient fidelity to counter today's advanced radar systems.

         The Company also produces a wide range of standard component products
for defense applications. These products include mixers, couplers, power
dividers, pin attenuators and correlators that are utilized in a variety of
electronic warfare applications to perform various RF microwave functions
including signal distribution, measurement and frequency conversion.

CUSTOMERS

         During the fiscal year ended June 30, 1999, approximately 13% of the
Company's sales were attributable to contracts with prime contractors to
numerous offices and agencies of the United States government. The Company had
two customers who received shipments in excess of 10% of consolidated net sales.
Approximately 18% resulted from shipments to Motorola, Inc. under several
contracts in the


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Wireless group and approximately 12% resulted from shipments to ITT Aerospace
under one contract in the Space and Defense group. No one other contract and no
other customer accounted for more than 10% of consolidated net sales.

         During fiscal year 1999, sales to foreign customers, most of which were
prime contractors to foreign governments, accounted for approximately 20% of the
Company's consolidated net sales and included shipments to twenty-seven
countries. All the Company's contracts with foreign customers are payable in
U.S. dollars. See note 12 of notes to the consolidated financial statements for
the sales to foreign customers for each of the last three fiscal years.

         Wireless Communications. The Company sells its custom wireless products
to major wireless infrastructure OEMs including Motorola, Nortel, Lucent and
Ericsson. In addition, the Company sells its standard line of Xinger(R)
components to leading OEMs and a broad range of other wireless equipment
manufacturers.

         Space and Defense. The Company currently sells satellite communications
subsystems to the world's leading satellite manufacturers, including Lockheed
Martin, Hughes, Loral Space & Communications and TRW. The Company's subsystems
are found on low Earth orbit satellite communications networks like Motorola's
Iridium program, as well as regional geostationary Earth orbit communications
satellites for Lockheed Martin. The Company is now actively involved in
developing products for a number of major, near-term commercial satellite
programs.

         The Company currently sells its defense electronics products to the
United States and foreign governments through prime contractors such as
Raytheon, the Avionics division of ITT Defense and Electronics Company ("ITT
Avionics"), Lockheed Martin and Racal, Ltd. The Company's DRFMs are being
utilized in ITT Avionics' portion of the Sanders division of Lockheed Martin's
IDECM program, an RF countermeasures subsystem to be used on multiple platforms,
including Navy F/A-18s and Air Force B-1D Lancer Jet bombers. In addition, the
Defense Electronics group has teamed with Lockheed Martin in the development of
a passive emitter location subsystem. The Company has also teamed with a large
defense OEM on a new, custom ASIC converter chip for next-generation receivers.

SALES AND MARKETING

         The Company markets its products worldwide to OEMs in commercial
markets and prime contractors in defense markets primarily through a sales force
of 18 people generally organized by geographic territory and market segment. In
addition, the Company has contracts with one major distributor and with 17
manufacturers' representatives in the United States and 24 international
representatives which are 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 in the commercial wireless
communications and defense markets.

         After the Company has identified key potential customers in its market
segments, the Company makes sales calls with its own sales, management and
engineering personnel and its manufacturers' representatives. Many of the
companies entering the wireless communications markets possess expertise in
digital processing, but have relatively little experience in analog signal
processing and wireless transmission. In order to promote widespread acceptance
of its products and provide customers with support for their wireless
communications needs, the Company's sales and engineering teams work closely
with its customers to develop tailored solutions to their wireless requirements.
The Company believes that its customer engineering support provides it with a
key competitive advantage.

BACKLOG

         The Company's total backlog of orders was $24.6 million and $27.6
million at June 30, 1999 and 1998, respectively. The Company's Wireless products
accounted for approximately 14% and 10% of backlog at June 30, 1999 and 1998,
respectively. Space and Defense products comprised approximately 90% and 86% of
backlog at June 30, 1999 and 1998, respectively.

         All of the orders included in backlog are covered by signed contracts
or purchase orders. However, backlog is not necessarily indicative of future
sales, particularly with respect to the Company's Wireless group. Accordingly,
the Company does not believe that its backlog as of any particular date is
representative of actual sales for any succeeding period. As part of the
Company's close working relationships with its major wireless communications
customers, these customers expect the Company to


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respond quickly to changes in the volume and delivery schedule of their orders,
and if necessary, to inventory products at the Company's facilities for
just-in-time delivery. Therefore, although contracts with these customers
typically specify aggregate dollar volumes of products to be purchased over an
extended time period, these contracts also provide that scheduled shipment dates
of particular volumes are generally released to the Company only a few days or
weeks prior to the actual required delivery dates. In addition, the Company's
customers may cancel or defer orders without significant penalty.

RESEARCH AND DEVELOPMENT

         The Company's research and development efforts are focused on design,
development, engineering and implementation activities. These activities include
customer-funded design and development, as well as efforts funded directly by
the Company.

         The Company's net sales for fiscal 1999 included approximately $1.4
million paid by customers for the design and development of products within the
Space and Defense group to meet their specific requirements. In any given year,
the amount of customer funding for design and development can vary widely
depending upon the status of particular contracts. The Company typically is not
restricted in its use of technologies developed through customer funding.

         Research and development costs are charged to expense as incurred. The
Company receives fees under a technology development contract and such fees are
recorded as a reduction of research and development costs as work is performed
pursuant to the related contract and as defined milestones are attained. In
fiscal 1999, 1998 and 1997 Company funded research and development expenses were
$2,835,000, $1,380,000 and $540,000, respectively, net of recognized product
development fees of $100,000, $335,000 and $339,000, respectively, under the
contract.

         The Company's current development efforts include: (i) advanced MLS
manufacturing processes for use in low-cost, light-weight satellite and wireless
applications; (ii) advanced manufacturing technology to produce millimeter wave
stripline structures for communication satellite applications; (iii) products
for use in cellular, PCS and other terrestrial wireless base station equipment
for both mobile and fixed wireless applications; and (iv) technologies for
airborne receiver systems.

MANUFACTURING

         The Company's manufacturing operations are vertically integrated from
the production of specialized hybrid circuits to the final assembly of complete
subsystems such as DRFMs and antenna beamforming networks. Most of the Company's
contracts for assemblies and subsystems have required engineering efforts to
modify existing Company products to meet a particular customer's technical
needs.

         The Company manufactures its products from standard components, as well
as from items which are manufactured by vendors to the company's specifications.
A majority of the Company's commercial and defense electronics assemblies and
subsystem products contain proprietary MLS technology which is designed and
tested by the Company's engineers and technicians and is manufactured at the
Company's own facilities.

         The Company continues to invest in the advancement of its proprietary
MLS manufacturing processes and in automation of the manufacturing processes of
its Wireless group. Automation is critical in meeting its customers' demands for
price improvement competitiveness, world class quality and on-time delivery. The
Company is also investing to enhance its responsiveness to increased production
demands from its wireless customers, as well as the need to accommodate
unpredictable surges in production rates that are common in this market.

         The raw materials utilized in the Company's various product areas are
readily accessible and common to both 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. The Company has two vendors
from which it makes approximately 14% and 11% of its total raw materials
purchases, respectively, but the Company believes that alternate sources of
supply are readily available for these and all other products purchases.

         The Company utilizes skilled permanent and contract personnel in the
manufacture of its products. Quality assurance checks are performed on
manufacturing processes, purchased items, work-in-process and


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finished products. Due to the complexity of the Company's products, final tests
are performed on some products by highly skilled engineers and technicians.

COMPETITION

         The microwave component and subsystems industry is highly competitive
and the Company competes against many companies, both foreign and domestic, many
of which are larger, have greater financial resources and are better known. As a
supplier to prime contractors and OEMs, the Company also experiences significant
competition from the in-house capabilities of its actual and prospective
customers in both of its market segments. Other competitors include
Electromagnetic Sciences, Inc. (Space) S.T. Microwave, Inc. (defense), the
M/A-Com division of AMP, Inc., Mini Circuits Inc. and Filtronic Comtek, Inc.

         The principal competitive factors in both the domestic and foreign
markets are technical performance, reliability, ability to produce, on-time
delivery and price. Based on a combination of these factors, the Company
believes that it competes favorably in its markets. The Company's most important
competitive attributes are its emphasis on technical superiority and its ability
to produce in quantity to specific delivery schedules.

GOVERNMENT REGULATION

         The Company's wireless communications products are incorporated into
wireless telecommunications systems that are subject to regulation domestically
by the FCC 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 its 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, among other things,
the storage, discharge, handling, omission, generation, manufacture and disposal
of 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 impact
on the Company's business, financial condition and results of operations.

INTELLECTUAL PROPERTY

         While the Company holds several patents, the Company relies primarily
on a combination of trade secret, copyright and trademark laws and employee and
third-party nondisclosure agreements to protect its intellectual property, as
well as limiting access to and distribution of proprietary information. There
can be no assurance that the steps taken by the Company to protect its
intellectual property rights will be adequate to prevent misappropriation of the
Company's technology or to preclude competitors from independently developing
such technology. Furthermore, there can be no assurance that, in the future,
third parties will assert infringement claims against the Company or with
respect to its products for which the Company has indemnified certain of its
customers. Asserting the Company's rights or defending against third party
claims could involve substantial costs and diversion of resources, thus
materially and adversely affecting the Company's business, financial condition
and results of operations. In the event a third party were successful in a claim
that one of the Company's products infringed its proprietary rights, the Company
may have to pay substantial royalties or damages, remove that product from the
marketplace or expand substantial amounts in order to modify the product so that
it no longer infringes such proprietary rights, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

EMPLOYEES

         As of June 30, 1999, the Company employed 290 persons full time. Of
these employees, 83 comprise the engineering staff, 163 constitute manufacturing
personnel, 21 occupy sales and marketing positions, and 23 are in management and
support functions. In addition, the Company utilizes approximately 17 temporary
personnel in various positions throughout its organization.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following is a list of the Company's executive officers, their ages and
their positions as of June 30, 1999. Each executive officer is elected for a
term of one year at the organizational meeting of the board of directors
following the annual shareholders meeting.


                                       9
<PAGE>

         Name                     Age                     Position

Lawrence A. Sala                  36         President, Chief Executive Officer,
                                             Director

Hugh A. Hair                      64         Chairman of the Board

Carl W. Gerst, Jr.                62         Vice Chairman, Chief
                                             Technical Officer, Treasurer

Gert R. Thygesen                  44         Vice President Operations

Joseph E. Porcello                47         Vice President Finance

Stanley S. Slingerland            52         Vice President Human Resources

ITEM 2.  PROPERTIES

         The Company's principal facility is a 105,000 square foot building
located on a thirty acre parcel owned by the Company in East Syracuse, New York.
The plant was constructed during fiscal 1981 and expanded during fiscal 1985.
This facility houses all of the Company's marketing, manufacturing,
administrative, research and development, systems design and engineering
experimentation activities. The Company believes that its existing facilities
are adequate to meet its current needs and that suitable additional or
alternative space will be available on commercially reasonable terms as needed.

         The Company leases a 20,000 square foot facility in Frimley, England
which previously housed the administrative, marketing, and manufacturing
operations of Anaren Microwave, Ltd. prior to the Company's divestiture of its
electronic warfare simulator manufacturing operation in March 1996. Annual
rental cost of this facility is approximately $397,000 and the Company is
presently subletting the facility at the full lease rental value. The existing
lease term on this facility extends until 2014, however, and there can be no
assurance that the Company will be able to sublet the facility during the
remaining unexpired term of the lease to an extent that is sufficient to offset
its rental cost in whole or in part.

         The foregoing facilities are regarded by management as adequate for the
current and anticipated short-term future requirements of the Company's
business.

ITEM 3.  LEGAL PROCEEDINGS

         There are no material pending legal proceedings against the Company or
its subsidiaries.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         During the fourth quarter of the fiscal year covered by this Annual
Report on Form 10-K there were no matters submitted to a vote of security
holders.


                                       10
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
         MATTERS

         The Company's common stock is traded on the NASDAQ National Market
under the symbol "ANEN".

         The following table sets forth the range of quarterly high and low
sales prices on the NASDAQ National 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 1998                                            Fiscal 1999
                         Quarter                                                Quarter
             1st       2nd         3rd       4th                    1st       2nd      3rd        4th
<S>        <C>        <C>        <C>        <C>                   <C>        <C>        <C>      <C>
High       28-1/4     35-3/4     25-3/4     23-3/4                15-3/8     21-1/2     28       26-3/8

Low        13         13-1/2     13-3/8     14-3/8                 9-7/8     11         20-1/2   17-1/4


</TABLE>

           The Company has approximately 492 security holders of record at
September 21, 1999.

           The Company has never paid a cash dividend on its common stock and
the Company's Board of Directors has not set a policy with regard to the payment
of dividends.


                                       11
<PAGE>

 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, 1999, and with respect to the balance sheets at June
30, 1998 and 1999, are derived from the consolidated financial statements that
have been audited by KPMG LLP, independent auditors which are included elsewhere
in this Form 10-K and are qualified by reference to such consolidated financial
statements. The statement of operations data for the years ended July 1, 1995
and June 30, 1996 and the balance sheet data at July 1, 1995, June 30, 1996 and
June 30, 1997 are derived from audited consolidated financial statements not
included in this 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.

<TABLE>
<CAPTION>
                                                                       Years Ended
                                                ------------------------------------------------------------
                                                June 30,     June 30,     June 30,     June 30,      July 1,
                                                 1999         1998         1997         1996           1995
                                                 ----         ----         ----         ----           ----
<S>                                             <C>           <C>          <C>          <C>          <C>
Statement of Operations Data:                              (In thousands, except per share data)
Net sales ...................................   $45,739       $37,449      $24,227      $17,082      $17,996
Cost of sales ...............................    27,711        23,571       16,243       11,147       13,081
Provision for losses on contracts ...........        --            --           --           --          300
                                                -------       -------      -------      -------      -------
Gross profit ................................    18,028        13,878        7,984        5,935        4,615
                                                -------       -------      -------      -------      -------
Operating expenses:
     Marketing ..............................     4,177         3,998        3,170        2,970        3,028
     Research and development ...............     2,835         1,380          540        1,185          939
     General and administrative .............     3,220         2,873        2,239        2,075        2,041
     Restructuring ..........................       ---           ---          ---          810          360
                                                -------       -------      -------      -------      -------
         Total operating expenses ...........    10,232         8,251        5,949        7,040        6,368
                                                -------       -------      -------      -------      -------
Operating income (loss) .....................     7,796         5,627        2,035       (1,105)      (1,753)
                                                -------       -------      -------      -------      -------
Other income (expense):
Interest expense ............................       (38)          (82)         (94)        (123)        (213)
 Other, primarily interest income ...........     1,396           922          114          148          164
                                                -------       -------      -------      -------      -------
         Total other income (expense) .......     1,358           840           20           25         (49)
                                                -------       -------      -------      -------      -------
Income (loss) before income taxes ...........     9,154         6,467        2,055       (1,080)      (1,802)
Income taxes ................................     2,204         2,330           --           --         (330)
                                                -------       -------      -------      -------      -------
Net income (loss) ...........................   $ 6,950       $ 4,137      $ 2,055      $(1,080)     $(1,472)
                                                =======       =======      =======      =======      =======
Net income (loss) per common and
  common equivalent share:
     Basic ..................................   $  1.26       $   .83      $   .50      $  (.27)     $  (.36)
                                                =======       =======      =======      =======      =======
     Diluted ................................   $  1.20       $   .79      $   .47      $  (.27)     $  (.36)
                                                =======       =======      =======      =======      =======
Shares used in computing net income (loss)
per common and common equivalent share:
     Basic ..................................     5,522         4,984        4,106        4,057        4,047
     Diluted ................................     5,770         5,237        4,332        4,057        4,047

                                                June 30,     June 30,     June 30,     June 30,      July 1,
                                                 1999         1998         1997         1996           1995
                                                 ----         ----         ----         ----           ----
Balance Sheet Data:                                                        (In thousands)
Cash and cash equivalents ...................    13,482       $11,249      $ 3,807      $ 1,740      $ 2,140
Working capital .............................    39,053        38,965       15,042       12,914       13,258
Total assets ................................    58,467        50,903       25,973       21,794       23,365
Long-term debt, less current installments           ---           ---          453          680        1,052
Stockholders' equity ........................    51,845        45,506       20,327       18,195       18,824

</TABLE>


                                       12
<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 for the Company and the notes thereto
appearing elsewhere in this Form 10-K. The following discussion contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including risk
factors described elsewhere in this Form 10-K.

Overview

         Historically, the Company has principally engaged in designing and
manufacturing microwave components and subsystems for the defense industry. In
fiscal 1995, the Company expanded its capabilities in order to serve the
emerging commercial wireless and satellite communications markets.

         Organizationally, the Company operates predominately in the Wireless
Communications, and Space and Defense markets. The Company's two reportable
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, delivery channel, and other factors.

         During the third quarter of fiscal 1999, the Company combined its
Satellite Communications and Defense Electronics business groups into one new
group called Space and Defense. These two groups were combined to more
efficiently utilize the engineering, manufacturing and marketing resources
allocated to the separate groups. Increased commonality in the types of products
and manufacturing processes required by the groups, coupled with a marked
increase in new orders and development activity in the satellite area were the
basis for the change. The new combined entity, the Space and Defense group, will
continue to focus on both the defense electronics and space communications
markets.

         The Company recognized a tax benefit of $1,012,088 during the fourth
quarter of fiscal 1999 in connection with the dissolution of the Company's
European subsidiary. The disposition of the net assets of the subsidiary and a
corresponding restructuring charge were recognized for financial reporting
purposes in 1996. In the fourth quarter of fiscal 1999, all of the criteria
necessary to support a deduction for the tax investment in the subsidiary were
met and the tax benefit was recorded.

         The Company recognizes sales at the time products are shipped to its
customers. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined.

         The Company believes that it develops a significant amount of
intellectual capital through funded research and development. Customer-funded
design and development in fiscal 1999 represented approximately $1.4 million in
sales compared to $1.2 million in fiscal 1998 and $6.2 million in fiscal 1997.

         Operations for fiscal 1999 were highlighted by continuing escalation of
commercial Wireless sales, a resurgence of Defense product sales and a
significant improvement in operating margins and net income over fiscal 1998.

         Net sales for the year ended June 30, 1999 were $45.7 million, up 22%
from net sales of $37.4 million for fiscal 1998. Operating income for fiscal
1999 was $7.8 million, or 17.0% of sales, compared to $5.6 million and 15.0% of
net sales in the prior year. Net income was $6.9 million and $1.20 per share
 (diluted) for fiscal 1999, up significantly from net income of $4.1 million and
$.79 per share (diluted) for fiscal 1998.

Year 2000 Status

         The Company has conducted a full review of its computer systems to
identify the programs and systems that could be affected by the "year 2000
problem" and has developed and is continuing to develop an implementation plan
to resolve the problem. The "year 2000 problem" is the result of computer
programs being written using two digits instead of four to define the applicable
year. Programs with this problem may recognize a date using "00" as the year
1900 instead of the year 2000, resulting in system failures or miscalculations.


                                       13
<PAGE>

         The Company installed a major revision to its manufacturing software at
the end of December, 1998 and has thoroughly tested the system for compliance
with only minor problems encountered to date. This system includes all the
Company's operating software from order entry through production planning and
inventory control (MRP) and including all financial (accounts payable,
invoicing, receivable, purchasing and general ledger) systems.

         Presently, the Company is in the process of reviewing its PC based
systems and network for compliance problems and has determined the applicable
software upgrades that are required. We are now awaiting PC and network
operating system upgrades from Microsoft which are certified Y2K compatible.
Additionally, the Company's Y2K committee has performed a room by room
evaluation of all equipment in the Company's facility and has determined which
equipment requires a software upgrade to be compliant, and has completed a
survey of all critical Company vendors for compliance status. Required software
upgrades have been ordered and, where deemed necessary, additional vendor
resources are being evaluated for future use.

         Although no assurances can be given, the Company presently believes
that with additional modifications to existing software and conversion to new
software, the "Year 2000 problem" will not pose significant operational problems
for the Company's computer systems. The Company intends to continue to review
information systems for any possible problems, as well as monitor its key
suppliers and customers for any impact that the Year 2000 may have on their
information systems which could impact the Company.

         The company does not believe that there will be significant issues or
costs associated with its products related to Year 2000 compliance; however,
there can be no assurance that such products do not contain undetected errors or
defects associated with Year 2000 date functions or that there do not exist
heretofore undetected aspects of the Company's manufacturing process which could
be impacted by the Year 2000. Although the Company is not currently aware of any
material operational issues or costs associated with preparing its products,
manufacturing processes or internal information systems for the Year 2000, there
can be no assurance that the Company will not experience unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in its products, manufacturing processes or internal information
systems, which are comprised predominantly of third party software and hardware.
The Company does not currently anticipate that the Year 2000 programming issue
will have a material impact on its business, financial condition or results of
operations.

         Should the Company not be completely successful in mitigating internal
and external Year 2000 risks, the result could be a system failure or
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, manufacture products, and
invoices or engage in similar normal business activities at the Company or its
vendors and suppliers. The Compay believes that under a worse case scenario, it
could continue the majority of its normal business activities on a manual basis.
The Company does not currently have a contingency plan with respect to potential
Year 2000 failures of its suppliers or customers.


                                       14
<PAGE>

Results of Operations

         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:

                                                   Years Ended June 30,
                                                   --------------------
                                                 1999       1998       1997
                                                 ----       ----       ----
Net sales ...................................   100.0%       100.0%     100.0%
Cost of sales ...............................    60.6         62.9       67.1
                                              -------      -------    -------
Gross profit ................................    39.4         37.1       32.9
                                              -------      -------    -------

Operating expenses:
     Marketing ..............................     9.1         10.7       13.1
     Research and development ...............     6.2          3.7        2.2
      General and administrative ............     7.1          7.7        9.2
                                              -------      -------    -------
          Total operating expenses ..........    22.4         22.1       24.5
                                              -------      -------    -------
 Operating income ...........................    17.0         15.0        8.4
                                              -------      -------    -------

Other income (expense):
     Interest expense .......................    (0.1)        (0.2)      (0.4)
      Other, primarily interest income ......     3.1          2.4        0.5
                                              -------      -------    -------
         Total other income .................     3.0          2.2        0.1
                                              -------      -------    -------
Income before income taxes ..................    20.0         17.2        8.5
Income taxes ................................     4.8          6.2        0.0
                                              -------      -------    -------
Net income ..................................    15.2%        11.0%       8.5%
                                              =======      =======    =======


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

                                           Years Ended June 30,
                                           --------------------
                                         1999       1998       1997
                                         ----       ----       ----
                                                (In thousands)

Wireless ..........................   $21,450      $16,580    $ 7,645

Space & Defense ...................    24,289       20,869     16,582
                                      -------      -------    -------
                                      $45,739      $37,449    $24,227
                                      =======      =======    =======


                                       15
<PAGE>

Fiscal 1999 Compared to Fiscal 1998

Net Sales. Net sales increased 22% to $45.7 million for the year ended June 30,
1999 from $37.4 million for the year ended June 30, 1998. This increase was led
by a 29% rise in shipments of wireless products and a 16% increase in sales of
Space and Defense products. The increase in sales of wireless products, which
consist of catalog surface mount components and custom sub-assemblies for use in
building wireless base station equipment, reflects the rising worldwide demand
by the major OEM's for both the Company's surface mount products which are used
in base station amplifier manufacture and custom subassemblies which are used to
process cellular phone signals within the base station. Wireless sales were
further augmented by the first shipments of custom integrated backplane
assemblies which significantly increase the Company's dollar content per base
station from the $800-$1200 range to the $2,000 - $3,000 range due to the higher
level of complexity and functionality of the assemblies.

Sales of Space and Defense products consist of custom multi-layer components
such as butler matrices and beamforming networks for commercial and military
satellits, as well as, Digital Frequency Discriminators ("DFD's"), Digital RF
Memories ("DRFM's"), and Microwave Integrated Components ("MIC's"). Shipments in
this product area rose 16% in fiscal 1999 due principally to the Company being
in full production for DFD's and DRFM's for foreign and domestic sales of the
Airborne Self-Protection Jammer for all of fiscal 1999. The ASPJ program was
just entering initial factory production in the first half of the previous
fiscal year. Additionally, Space and Defense sales have been bolstered by
shipments on a number of small satellite component contracts for Hughes Space
and Communications and the initial non-recurring engineering sales for the ACeS
II satellite program being built for Lockheed Martin.

Gross Profit. Cost of sales consists primarily of engineering design costs,
material, material fabrication costs, assembly costs and test costs. Cost of
sales rose 17.5% to $27.7 million (60.6% of net sales) for the year ended June
30, 1999 from $23.6 million (62.9% of net sales) for fiscal 1998. Gross profit
was 39.4% of net sales for the year ended June 30, 1999 compared to 37.1% of net
sales for the same period in fiscal 1998. The improvement in gross profit was
due to improvements in yields for Wireless products, as well as continuing
economies of scale due to higher production volume in both business groups.

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 increased 4.4% to $4.2
million (9.1% of net sales) for the year ended June 30, 1999 from $4.0 million
(10.7% of net sales) for the year ended June 30, 1998. The increase is a result
of higher advertising expenses related to increased sales volume and further
development of the sales organization instituted in fiscal 1998 to support the
Company's expanding commercial markets.

Research and Development. Research and development expenses consist of material
and salaries and related overhead costs of employees engaged in ongoing
research, design and development activities associated with new products and
technology development. Gross research and development costs are reduced by
expense reimbursements received under a Technology Reinvestment Program through
Raytheon, for the Advance Research Project Agency of the United States
Government. Net research and development expenses increased 105% to $2.8 million
(6.2% of net sales) for the year ended June 30, 1999 from $1.4 million (3.7% of
net sales) for the year ended June 30, 1998. Research and development expenses
expanded to support the increased development demands of wireless infrastructure
and satellite communications markets.

General and Administrative. General and administrative expenses increased 12.1%
to $3.2 million (7.1% of net sales) for the year ended June 30, 1999 compared to
$2.9 million (7.7% of net sales) for the year ended June 30, 1998. General and
administrative expense increased due to higher professional fees resulting from
corporate growth and increased compensation levels for existing personnel.

Interest Expense. Interest expense represents commitment fees and interest paid
on the Company's line of credit and letter of credit. Interest expense decreased
52% to $39,000 (0.1% of net sales) for the year ended June 30, 1999 from $82,000
(0.2% of net sales) for the year ended June 30, 1998 due to the payoff of the
Company's outstanding loan balance in December 1997.

Other income. Other income is primarily interest income received on invested
cash balances. Other income increased to $1,396,000 (3.1% of net sales) for the
year ended June 30, 1999 from $922,000 (2.4% of net sales) for the year ended
June 30, 1998, due to a higher level of investable cash balances in the current
year as a result of the large increase in operating cash flow.

Income Taxes. Income tax expense for the year ended June 30, 1999 was $2.2
million (4.8% of net sales) an effective tax rate of 31.7% compared to an
effective tax rate of 36% for fiscal 1998. The decline in the


                                       16
<PAGE>

effective tax rate in fiscal 1999 was due to the Company recognizing a tax
benefit of approximately $1.0 million during the fourth quarter of the current
year in connection with the dissolution of the Company's European subsidiary.
The disposition of the net assets of the subsidiary and a corresponding
restructuring charge were recognized for financial reporting purposes in 1996.
In the fourth quarter of fiscal 1999, all of the criteria necessary to support a
deduction for the tax investment were met and the tax benefit was recorded.

Fiscal Year 1998 Compared to Fiscal Year 1997

Net sales. Net sales increased 55% to $37.4 million for the year ended June 30,
1998 up from $24.2 million for the year ended June 30, 1997. This increase was
driven by a 117% rise in shipments of Wireless products and a 26% increase in
sales of Space and Defense products. The increase in sales of Wireless products
was due to continuing strong demand by the major wireless base station OEM's for
the Company's custom products and off-the-shelf surface mount components. Sales
of Space and Defense products in fiscal 1998 consisted of initial shipments of
beamformers to Loral Space & Communications, Ltd., as well as continued
shipments to Lockheed Martin on the ACeS program and a program for Hughes. Sales
of Defense oriented products rose $4.2 million for the year ended June 30, 1998
as a result of shipments of DRFMs for foreign sales of the Airborne Self
Protection Jammer ("ASPJ") system, which first entered full production in the
second quarter of fiscal 1998.

Gross Profit. Cost of sales rose 45.1% to $23.6 million (62.9% of net sales) for
the year ended June 30, 1998 from $16.2 million (67.1% of net sales) for fiscal
1997. Gross profit was 37.1% of net sales for the year ended June 30, 1998
compared to 32.9% of net sales for the same period in fiscal 1997. The
improvement in gross profit was due to continuing economies of scale in the
Wireless and Space and Defense groups resulting from the higher sales volume.

Marketing. Marketing expenses increased 26.1% to $4.0 million (10.7% of net
sales) for the year ended June 30, 1998 from $3.2 million (13.1% of net sales)
for the year ended June 30, 1997. The increase was a result of higher commission
and advertising expenses related to increased sales volume and further
development of the marketing organization to support the Company's expanding
commercial markets.

Research and Development. Net research and development expenses increased 156%
to $1.4 million (3.7% of net sales) for the year ended June 30, 1998 from $.5
million (2.2% of net sales) for the year ended June 30, 1997. Research and
development expenses expanded to support the increased development of wireless
infrastructure and satellite communications products.

General and Administrative. General and administrative expenses increased 28.4%
to $2.9 million (7.7% of net sales) for the year ended June 30, 1998 compared to
$2.2 million (9.2% of net sales) for the year ended June 30, 1997. General and
administrative expenses increased due to the hiring of additional employees and
increased staffing levels, as well as higher professional fees and increased
compensation levels for existing personnel.

Interest Expense. Interest expense decreased 13% to $82,000 (0.2% of net sales)
for the year ended June 30, 1998 from $94,000 (0.4% of net sales) for the year
ended June 30, 1997, due to the payoff of the Company's outstanding term loan in
December 1997.

Other Income. Other income increased to $922,000 (2.4% of net sales) for the
year ended June 30, 1998 from $114,000 (0.5% of net sales) for the year ended
June 30, 1997, due to a higher level of investable cash balances in the current
year as a result of the public offering completed in November 1997.

Income Taxes. Income tax expense for the year ended June 30, 1998 was $2.3
million (6.2% of net sales), an effective tax rate of 36%. The Company incurred
no income tax expense for the year ended June 30, 1997 due to the utilization of
the remainder of its available loss carryforwards and substantially all of its
available tax credits in fiscal 1997.

Liquidity and Capital Resources

During the second quarter ended December 31, 1997 the Company completed a
secondary public offering of common stock. This offering resulted in the sale of
1,165,450 new shares and provided net proceeds to the Company after underwriters
fees and offering expenses of $19,750,000

Net cash provided by operations for the year ended June 30, 1999 and the year
ended June 30, 1998 were $11.5 million and $3.4 million, respectively. The
positive cash flow from operations in both fiscal 1999


                                       17
<PAGE>

and 1998 was due primarily to the profit attained in both years. The additional
$4.6 million in operating cash flow in excess of earnings in fiscal 1999 was the
result of significant reductions in both accounts receivable ($944,000) and
inventory ($1,970,000) during the year compared to the increases in both
balances in fiscal 1998. At June 30, 1999, day sales outstanding had fallen to
46 days compared to 62 days at June 30, 1998.

Net cash used in investing activities during fiscal 1999 and 1998 consisted of
funds used to purchase investments and capital equipment. Capital equipment
additions in fiscal 1999 and fiscal 1998 were $2.1 million and $2.3 million,
respectively. These capital investments consisted primarily of equipment needed
to further automate production for the Company's new Wireless and Satellite
Communications products, as well as test and production equipment for the
current production run of the ASPJ program.

Cash used in financing activities amounted to $1.0 million for the year ended
June 30, 1999 and consisted primarily of funds used to repurchase common stock
of the Company, net of funds received for the exercise of stock options. During
the fourth quarter of fiscal 1998, the Board of Directors authorized the
repurchase of up to 500,000 shares of the Company's common stock at prevailing
market prices. During fiscal 1999, the Company repurchased 128,000 shares and
expended $1,469,000. Cash provided by financing activities for the previous
fiscal year was $20.1 million and consisted primarily of cash generated by the
secondary public offering of common stock and the exercise of stock options.

During fiscal 2000, the Company's major cash requirements will be for additions
to capital equipment, which have been budgeted at $2.6 million. These additions
are expected to be funded by cash generated from operations, as projected
operating cash flows should be more than adequate to meet these financing needs.

During December, 1997 and 1998 the Company renegotiated its credit facility with
its bank, increasing the size of the facility and obtaining more favorable
terms. The new credit facility is an unsecured $10,000,000 working capital
revolving line of credit bearing interest at prime and maturing December 31,
2001. There was no balance outstanding under this credit facility at both June
30, 1999 and June 30, 1998. The terms of the credit facility require maintenance
of a minimum tangible net worth, a minimum ratio of cash flows to maturities,
and leverage ratio as defined in the respective agreements. The Company was in
compliance with all restrictions and covenants at June 30, 1999.

The Company believes that its cash requirements for the foreseeable future will
be satisfied by currently invested cash balances, expected cash flows from
operations and funds available under its credit facilities.

Management believes the Company has the products, human resources, facilities,
and financial resources to continue its growth, but future revenues, margins and
profits are all influenced by a number of risk factors, including but not
limited to those referenced above.


                                       18
<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements and financial statement schedules called for
by this item are submitted 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 5 to the consolidated financial statements which have been
submitted as a separate section of this report.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.


                                       19
<PAGE>

                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

           Information required by this item, other than executive officers
which appears in Part I hereof, is contained in the Registrant's proxy statement
to be filed with respect to the 1999 Annual Meeting of Shareholders and is
incorporated by reference herein.

ITEM 11.   EXECUTIVE COMPENSATION

           Information required by this item is contained in the Registrant's
proxy statement to be filed with respect to the 1999 Annual Meeting of
Shareholders and is incorporated by reference herein.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

           Information required by this item is contained in the Registrant's
proxy statement to be filed with respect to the 1999 Annual Meeting of
Shareholders and is incorporated by reference herein.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

           Information required by this item is contained in the Registrant's
proxy statement to be filed with respect to the 1999 Annual Meeting of
Shareholders and is incorporated by reference herein.


                                       20
<PAGE>

                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

                                                                        Page

(a)      1. and 2.   Financial Statements and Schedules:

                     Reference is made to the List of Financial
                     Statements hereinafter contained ................   23

         3.          Exhibits:

                     Reference is made to the List of Schedules
                     hereinafter contained ...........................   23

(b)      Current Reports on Form 8-K:

         No Current Reports on Form 8-K were filed by the Company during the
         last quarter of the fiscal year ended June 30, 1999.

(c)      Exhibits:

         Reference is made to the List of Exhibits hereinafter
           contained .................................................  48


                                       21


<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 Microwave, Inc.

                               S/Lawrence A. Sala
                                 -----------------
                               President & Chief Executive Officer

                              S/Joseph E. Porcello
                                ------------------
                              Vice President of Finance/Controller

Date:  ____________________

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:

S/Hugh A. Hair                S/Abraham Manber              S/Carl W. Gerst, Jr.
--------------                ----------------              --------------------
Director                      Director                      Director

S/Dale F. Eck                 S/Herbert I. Corkin           S/David Wilemon
-------------                 -------------------           ---------------
Director                      Director                      Director

S/Matthew S. Robison
---------------------
Director

Date:  September 21, 1999


                                       22
<PAGE>

                             ANAREN MICROWAVE, INC.
                                AND SUBSIDIARIES

                   Index To Consolidated Financial Statements

                                                                            Page

Independent Auditors' Report                                                 24

Consolidated Balance Sheets as of June 30, 1999 and 1998                     25

Consolidated Statements of Operations for the Years ended
  June 30, 1999, 1998, and 1997                                              26

Consolidated Statements of Stockholders' Equity for the Years ended
  June 30, 1999, 1998, and 1997                                              27

Consolidated Statements of Cash Flows for the Years ended
June 30, 1999, 1998 and 1997                                                 28

Notes to Consolidated Financial Statements                                   29


                                       23
<PAGE>

                          Independent Auditors' Report


The Board of Directors
Anaren Microwave, Inc.:

We have audited the consolidated financial statements of Anaren Microwave,  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  generally   accepted  auditing
standards.  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 Microwave,
Inc.  and  subsidiaries  as of June 30, 1999 and 1998,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  June  30,  1999,  in  conformity  with  generally   accepted   accounting
principles.

                                                              /s/ KPMG LLP
                                                              ------------
                                                                  KPMG LLP


Syracuse, New York
August 2, 1999


                                       24
<PAGE>

<TABLE>
<CAPTION>
                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets

                             June 30, 1999 and 1998


                                  Assets                           1999          1998
                                                               -----------    ----------
<S>                                                            <C>            <C>
Current assets:
    Cash and cash equivalents                                  $13,481,576    11,248,925
    Marketable debt securities (note 2)                         15,005,129    13,842,397
    Receivables, less allowance for bad debts of
       $13,000 in 1999 and 1998                                  6,333,096     7,277,584
    Inventories (note 3)                                         8,384,922    10,355,025
    Refundable income taxes                                        461,846            --
    Prepaid expenses                                               224,358       138,649
    Deferred income taxes (note 11)                                116,688       108,801
                                                               -----------   -----------

              Total current assets                              44,007,615    42,971,381

Marketable debt securities (note 2)                              4,976,275            --
Property, plant and equipment, net (note 4)                      8,603,784     7,890,272
Deferred income taxes (note 11)                                    304,060        41,169
Patent (note 1)                                                    574,965            --
                                                               -----------   -----------

                                                               $58,466,699    50,902,822
                                                               ===========   ===========

                   Liabilities and Stockholders' Equity

Current liabilities:
    Accounts payable                                             2,360,226     2,221,397
    Accrued expenses (note 5)                                    1,773,762     1,277,193
    Income taxes payable                                           472,190       317,260
    Customer advance payments                                      348,454       190,681
                                                               -----------   -----------

              Total current liabilities                          4,954,632     4,006,531

Postretirement benefit obligation (note 10)                      1,278,569     1,246,421
Deferred compensation (note 9)                                     388,000       144,000
                                                               -----------   -----------

              Total liabilities                                  6,621,201     5,396,952
                                                               -----------   -----------

Stockholders' equity:
    Common stock of $.01 par value.  Authorized
       25,000,000 shares; issued 6,554,366 and 6,455,366
       in 1999 and 1998, respectively                               65,544        64,554
    Additional paid-in capital                                  37,469,470    36,611,751
    Retained earnings                                           17,791,467    10,841,642
                                                               -----------   -----------

                                                                55,326,481    47,517,947
    Less cost of 1,020,274 and 892,274 treasury
       shares in 1999 and 1998, respectively                     3,480,983     2,012,077
                                                               -----------   -----------

              Total stockholders' equity                        51,845,498    45,505,870
                                                               -----------   -----------

Commitments and concentrations (notes 12, 13, and 14)
                                                               $58,466,699    50,902,822
                                                               ===========   ===========
</TABLE>

See accompanying notes to consolidated financial statements


                                       25
<PAGE>

<TABLE>
<CAPTION>
                                   ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                                   Consolidated Statements of Operations

                                   Years ended June 30, 1999, 1998, and 1997


                                                                                   1999            1998            1997
                                                                              ------------    ------------    ------------
<S>                                                                           <C>               <C>             <C>
Net sales                                                                     $ 45,738,992      37,449,449      24,226,792

Cost of sales                                                                   27,710,807      23,571,334      16,242,884
                                                                              ------------    ------------    ------------

            Gross profit                                                        18,028,185      13,878,115       7,983,908
                                                                              ------------    ------------    ------------

Operating expenses:
    Marketing                                                                    4,176,762       3,998,407       3,170,373
    Research and development                                                     2,834,697       1,380,218         540,189
    General and administrative                                                   3,220,238       2,873,154       2,237,876
                                                                              ------------    ------------    ------------

            Total operating expenses                                            10,231,697       8,251,779       5,948,438
                                                                              ------------    ------------    ------------

            Operating income                                                     7,796,488       5,626,336       2,035,470
                                                                              ------------    ------------    ------------

Other income (expense):
    Interest expense                                                               (38,537)        (81,914)        (94,086)
    Other, primarily interest income                                             1,395,874         922,196         113,718
                                                                              ------------    ------------    ------------

            Total other income                                                   1,357,337         840,282          19,632
                                                                              ------------    ------------    ------------

Income before income taxes                                                       9,153,825       6,466,618       2,055,102

Income tax expense (note 11)                                                     2,204,000       2,330,000              --
                                                                              ------------    ------------    ------------

            Net income                                                        $  6,949,825       4,136,618       2,055,102
                                                                              ============    ============    ============

Net income per common and common equivalent share:
            Basic                                                             $       1.26             .83             .50
                                                                              ============    ============    ============

            Diluted                                                           $       1.20             .79             .47
                                                                              ============    ============    ============

Shares used in computing net income per common and common equivalent share:
            Basic                                                                5,522,056       4,984,307       4,106,245
                                                                              ============    ============    ============

            Diluted                                                              5,769,699       5,237,157       4,331,662
                                                                              ============    ============    ============
</TABLE>

See accompanying notes to consolidated financial statements.


                                       26
<PAGE>

<TABLE>
<CAPTION>
                                                      ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                                                  Consolidated Statements of Stockholders' Equity

                                                     Years ended June 30, 1999, 1998, and 1997


                                           Common Stock        Additional                        Treasury Stock            Total
                                        -------------------     Paid-in        Retained       ----------------------   Stockholders'
                                         Shares      Amount     Capital        Earnings       Shares        Amount         Equity
                                        ---------   -------    ----------      ---------      -------    -----------     ----------
<S>                                     <C>         <C>        <C>             <C>            <C>        <C>             <C>
Balance at June 30, 1996                4,992,116   $49,921    15,507,088      4,649,922      892,274    $(2,012,077)    18,194,854

  Net income                                   --        --            --      2,055,102           --             --      2,055,102

  Stock options exercised (note 8)         20,000       200        77,174             --           --             --         77,374
                                        ---------   -------    ----------      ---------      -------    -----------     ----------
Balance at June 30, 1997                5,012,116    50,121    15,584,262      6,705,024      892,274     (2,012,077)    20,327,330

  Net income                                   --        --            --      4,136,618           --             --      4,136,618

  Stock options exercised (note 8)        277,800     2,778     1,050,694             --           --             --      1,053,472

  Sale of common stock (note 7)         1,165,450    11,655    19,738,795             --           --             --     19,750,450

  Tax benefit from exercise
    of stock options (note 11)                 --        --       238,000             --           --             --        238,000
                                        ---------   -------    ----------      ---------      -------    -----------     ----------
Balance at June 30, 1998                6,455,366    64,554    36,611,751     10,841,642      892,274     (2,012,077)    45,505,870

  Net income                                   --        --            --      6,949,825           --             --      6,949,825

  Purchase of treasury stock                   --        --            --             --      128,000     (1,468,906)    (1,468,906)

  Stock options exercised (note 8)         99,000       990       515,529             --           --             --        516,519

  Stock options granted in connection
    with acquisition of patent
    (notes 1 and 8)                            --        --       249,965             --           --             --        249,965

  Tax benefit from exercise
    of stock options (note 11)                 --        --        92,225             --           --             --         92,225
                                        ---------   -------    ----------      ---------      -------    -----------     ----------
Balance at June 30, 1999                6,554,366   $65,544    37,469,470     17,791,467    1,020,274    $(3,480,983)    51,845,498
                                        =========   =======    ==========     ==========    =========    ===========     ==========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       27
<PAGE>

<TABLE>
<CAPTION>
                             ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                              Consolidated Statements of Cash Flows

                              Years ended June 30, 1999, 1998, and 1997


                                                       1999           1998              1997
                                                   ------------    ------------    ------------
<S>                                                <C>                <C>             <C>
Cash flows from operating activities:
    Net income                                     $  6,949,825       4,136,618       2,055,102
    Adjustments to reconcile net income to net
       cash provided by operating activities:
         Depreciation and amortization                1,432,808       1,335,561       1,239,864
         Deferred income taxes                         (270,778)        317,576        (467,546)
         Deferred compensation                          244,000         144,000              --
         Changes in operating assets and
            liabilities:
               Receivables                              944,488        (560,478)     (1,549,110)
               Refundable income taxes                 (461,846)             --         320,945
               Inventories                            1,970,103      (2,619,018)       (525,687)
               Prepaid expenses                         (85,709)         58,503          58,571
               Other assets                            (325,000)         13,919          29,874
               Accounts payable                         138,829         720,534         837,015
               Income taxes payable                     247,155          61,707         493,553
               Accrued expenses                         496,569         557,777         247,751
               Customer advance payments                157,773        (812,858)        753,539
               Postretirement benefit obligation         32,148          65,145          43,061
                                                   ------------    ------------    ------------

                  Net cash provided by
                     operating activities            11,470,365       3,418,986       3,536,932
                                                   ------------    ------------    ------------

Cash flows from investing activities:
    Capital expenditures                             (2,146,320)     (2,256,532)     (1,154,295)
    Net purchases of marketable debt securities      (6,139,007)    (13,842,397)             --
                                                   ------------    ------------    ------------

                  Net cash used in investing
                     activities                      (8,285,327)    (16,098,929)     (1,154,295)
                                                   ------------    ------------    ------------

Cash flows from financing activities:
    Proceeds from long-term debt                             --              --         906,667
    Principal payments on long-term debt                     --        (682,058)     (1,299,243)
    Stock options exercised                             516,519       1,053,472          77,374
    Purchase of treasury stock                       (1,468,906)             --              --
    Proceeds from sale of common stock, net
       (note 7)                                            --        19,750,450              --
                                                   ------------    ------------    ------------

                  Net cash provided by (used
                     in) financing activities          (952,387)     20,121,864        (315,202)
                                                   ------------    ------------    ------------

                  Net increase in cash and
                     cash equivalents                 2,232,651       7,441,921       2,067,435

Cash and cash equivalents at beginning of year       11,248,925       3,807,004       1,739,569
                                                   ------------    ------------    ------------

Cash and cash equivalents at end of year           $ 13,481,576      11,248,925       3,807,004
                                                   ============    ============    ============
</TABLE>

See accompanying notes to consolidated financial statements.


                                       28
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997


(1)    Summary of Significant Accounting Policies

       (a)    Principles of Consolidation

              The  consolidated  financial  statements  include the  accounts of
              Anaren  Microwave,  Inc. and its wholly-owned  subsidiaries  ("the
              Company").  All significant intercompany balances and transactions
              have been eliminated in consolidation.

       (b)    Operations

              The Company is engaged in the design,  development and manufacture
              of microwave signal  processing  devices which receive and analyze
              radar  signals  and other  microwave  transmissions.  Its  primary
              products   include  devices  and  systems  used  in  the  wireless
              communications  market,  and the  space  and  defense  electronics
              market.

       (c)    Sales Recognition

              The Company  recognizes  sales at the time products are shipped to
              its  customers.  Revenues  and  estimated  profits on  fixed-price
              contracts are recognized under the percentage of completion method
              of  accounting  on the  units-of-delivery  basis.  Provisions  for
              estimated  losses on uncompleted  contracts are made in the period
              in which such losses are determined.

       (d)    Cash Equivalents

              Cash  equivalents of $13,396,334  and $11,160,395 at June 30, 1999
              and 1998,  respectively,  consist of  certificates  of deposit and
              money  market  instruments  having  maturities  of three months or
              less. Cash equivalents are stated at cost which  approximates fair
              value.

       (e)    Marketable Debt Securities

              The Company classifies its portfolio of marketable debt securities
              as  held-to-maturity  in  accordance  with  Statement of Financial
              Accounting  Standards No. 115,  Accounting for Certain Investments
              in Debt and Equity  Securities,  as the Company  does not hold any
              securities considered to be trading.  Securities  held-to-maturity
              are those  securities  the  Company  has the ability and intent to
              hold to maturity.

              Held-to-maturity  securities  are  recorded at  amortized  cost. A
              decline in the fair value of a  held-to-maturity  security that is
              deemed to be other than temporary  results in a charge to earnings
              resulting  in  the  establishment  of a new  cost  basis  for  the
              security,  and dividend and interest  income are  recognized  when
              earned.


                                                                     (Continued)


                                       29
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997



       (f)    Inventories

              Inventories are stated at the lower of cost or market,  cost being
              determined  on  a  first-in,   first-out  basis.   Work-in-process
              inventories  related to  fixed-price  contracts  are stated at the
              accumulated cost of material,  labor and  manufacturing  overhead,
              less the estimated cost of units delivered.

       (g)    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 are depreciated  primarily by the  straight-line  method
              based on estimated useful lives of 5 to 10 years.

       (h)    Patent

              During  fiscal 1999,  the Company  purchased a patent for $325,000
              and  50,000  stock  options.  The  stock  options  were  valued at
              $249,965 as discussed in note 8. The patent is being  amortized on
              a  straight-line  basis over its remaining  contractual  life of 8
              years.

       (i)    Net Income Per Share

              Basic income per share is based on the weighted  average number of
              common shares  outstanding.  Diluted  income per share is based on
              the weighted average number of common shares outstanding,  as well
              as dilutive  potential common shares which, in the Company's case,
              comprise shares issuable under the stock option plans described in
              note 8. 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 weighted  average number of common shares  outstanding for the
              basic income per share  calculation  was 5,522,056,  4,984,307 and
              4,106,245  for 1999,  1998,  and 1997,  respectively.  For diluted
              earnings per share purposes,  these balances increased by 247,643,
              252,850,   and   225,417   shares  for  1999,   1998,   and  1997,
              respectively,  due to the effect of common equivalent shares which
              were issuable under the Company's stock option plans.

       (j)    Pension and Postretirement Plans

              On  July  1,  1998,  the  Company  adopted  Financial   Accounting
              Standards Board Statement No. 132,  Employers'  Disclosures  about
              Pension  and  Other   Postretirement   Benefits  (Statement  132).
              Statement  132 revises  employers'  disclosures  about pension and
              other postretirement  benefit plans; it does not change the method
              of accounting for such plans.


                                                                     (Continued)


                                       30
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997



       (k)    Research and Development Costs

              Research and development costs are charged to expense as incurred.
              The Company receives fees under a technology  development contract
              and  such  fees  are  recorded  as a  reduction  of  research  and
              development  costs as work is  performed  pursuant  to the related
              contract and as defined  milestones are attained.  In fiscal 1999,
              1998, and 1997, the Company recognized product development fees of
              $100,013,   $335,390,  and  $338,939,   respectively,   under  the
              contract, which were netted with research and development costs.

       (l)    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   operating   loss  and  tax   credit
              carryforwards.  Deferred tax assets and  liabilities  are measured
              using enacted tax rates.

       (m)    Financial Instruments

              The Company's financial  instruments,  which include cash and cash
              equivalents, receivables, and accounts payable, are stated at cost
              which  approximates  fair  value at June 30,  1999 and  1998.  The
              Company's marketable debt securities are stated at amortized cost,
              and their fair values, as determined by quoted market prices,  are
              presented in note 2.

       (n)    Stock-based Compensation

              The Company  measures  compensation  expense  for its  stock-based
              employee  compensation  plans using the intrinsic value method and
              has provided pro forma disclosures of the effect on net income and
              earnings  per  share as if the fair  value-based  method  has been
              applied in measuring compensation expense.

       (o)    Segment Information

              Effective June 30, 1999, the Company adopted Financial  Accounting
              Standards Board Statement No. 131,  Disclosures  About Segments of
              an Enterprise and Related  Information,  which changes the way the
              Company  reports  information  about its operating  segments.  The
              information  for  fiscal  1998  and  1997  has  been  restated  in
              accordance with the requirements of the new standard.


                                                                     (Continued)


                                       31
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997



       (p)    Use of Estimates

              The  preparation  of  financial   statements  in  conformity  with
              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.


(2)    Marketable Debt Securities

       Marketable debt securities  classified as held-to-maturity are summarized
as follows:

<TABLE>
<CAPTION>
                                                                        June 30, 1999
                                                                        -------------
                                                                   Gross               Gross
                                            Amortized           Unrealized           Unrealized              Fair
                                              Cost                 Gains               Losses                Value
                                        -------------           ----------           ----------           ----------
<S>                                     <C>                          <C>                 <C>              <C>
          U.S. Government and
              agency obligations        $     151,319                   --                1,131              150,188
          Corporate bonds                   9,301,129                   --               43,851            9,257,278
          Medium and short-term
              notes                         1,784,263                   --                8,637            1,775,626
          Euro Dollar bonds                 7,944,693                  375               30,048            7,915,020
          Taxable auction securities          800,000                   --                   --              800,000
                                        -------------           ----------           ----------           ----------

                     Total              $  19,981,404                  375               83,667           19,898,112
                                        =============           ==========           ==========           ==========

                                                                        June 30, 1998
                                                                        -------------
                                                                   Gross               Gross
                                            Amortized           Unrealized           Unrealized              Fair
                                              Cost                 Gains               Losses                Value
                                        -------------           ----------           ----------           ----------
<S>                                     <C>                          <C>                 <C>              <C>
          U.S. Government and
              agency obligations        $      80,300                  175                   --               80,475
          Corporate bonds                   2,751,034                  457                4,768            2,746,723
          Medium and short-term
              notes                           953,348                   --                1,518              951,830
          Euro Dollar bonds                 8,557,715                  809                8,335            8,550,189
          Taxable auction securities        1,500,000                   --                   --            1,500,000
                                        -------------           ----------           ----------           ----------

                     Total              $  13,842,397                1,441               14,621           13,829,217
                                        =============           ==========           ==========           ==========
</TABLE>

       Marketable  debt securities are classified as either current or long-term
       assets in the accompanying  consolidated  balance sheets based upon their
       maturity dates. Marketable debt securities with maturity dates of greater
       than one year  were  $4,976,275  and zero as of June 30,  1999 and  1998,
       respectively.

                                                                     (Continued)


                                       32
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997



(3)    Inventories

       Inventories at June 30 are summarized as follows:

                                                   1999                  1998
                                               -----------           -----------

Component parts                                $ 3,688,704             4,212,925
Work-in-process                                  3,241,935             4,410,112
Finished goods                                   1,454,283             1,731,988
                                               -----------           -----------

                                               $ 8,384,922            10,355,025
                                               ===========           ===========


(4)    Property, Plant and Equipment

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

                                                       1999             1998
                                                   -----------       -----------

Land and land improvements                         $ 1,362,050         1,362,050
Buildings                                            5,266,135         5,242,499
Machinery and equipment                             27,854,840        25,732,156
                                                   -----------       -----------

                                                    34,483,025        32,336,705
Less accumulated depreciation
    and amortization                                25,879,241        24,446,433
                                                   -----------       -----------

                                                   $ 8,603,784         7,890,272
                                                   ===========       ===========


(5)    Accrued Expenses

       Accrued expenses at June 30 are summarized as follows:

                                                   1999                  1998
                                                ----------            ----------

Compensation                                    $1,096,420               859,032
Commissions                                        400,447               293,434
Other                                              276,895               124,727
                                                ----------            ----------

                                                $1,773,762             1,277,193
                                                ==========            ==========


                                                                     (Continued)


                                       33
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997


(6)    Long-term Debt

       The Company has a $10,000,000 unsecured working capital revolving line of
       credit bearing interest at prime (7.5% at June 30, 1999) through December
       31, 2001. The terms of the revolving  line of credit require  maintenance
       of  a  minimum  tangible  net  worth,  ratio  of  cash  flow  to  current
       maturities,  and leverage ratio, as defined in the respective  agreement.
       There were no  borrowings  against  the line of credit in fiscal 1999 and
       1998.

       Cash  payments  for interest  were  $38,537,  $93,148 and $92,358  during
       fiscal 1999, 1998, and 1997, respectively.

(7)    Common Stock Offering

       During the second  quarter of fiscal 1998, the Company sold an additional
       1,165,450   shares  of  its  common  stock  in  a  public   offering  for
       $19,750,450, net of issuance costs. A portion of the proceeds was used to
       pay bank debt and other general corporate purposes.

(8)    Stock Option Plans

       Under the  Company's  Incentive  Stock  Option Plan (1996  ISO),  400,000
       shares of common  stock  were  reserved  for the  granting  of options to
       eligible  employees.  Options  are  granted at a price not less than fair
       market  value of  shares  at the date of grant,  become  exercisable  20%
       twelve  months  from the date of grant and 20% per year  thereafter,  and
       must be exercised  within ten years of the date of grant.  During  fiscal
       1999, an additional  500,000 shares of common stock were reserved for the
       granting of options.

       The Company also has a Non-Statutory Stock Option Plan (NSO) which allows
       for the granting of options to Board members and nonemployees.  Under the
       Plan,  100,000  shares of common stock were  reserved for the granting of
       options at prices to be determined by the Board (options granted to Board
       members may not be less than the fair market value on the date of grant).
       Options become exercisable  immediately and must be exercised within five
       years of the date of grant.  During fiscal 1999,  an  additional  150,000
       shares of common stock were reserved for the granting of options.

       As discussed in note 1, during fiscal 1999,  the Company  granted  50,000
       stock options as partial  consideration  for a patent.  The stock options
       were valued at $249,965 using the Black-Scholes model as of June 30, 1999
       (the date of grant),  are  exercisable in one year, and must be exercised
       within five years of the date of grant.


                                                                     (Continued)


                                       34
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997


       Information for the three years ended June 30, 1999 with respect to these
plans are as follows:

<TABLE>
<CAPTION>
                                                                                                            Weighted
                                                Shares                                                      Average
                             -----------------------------------------------                                Exercise
                               ISO             NSO           Other            Total       Option Price       Price
                             -------         ------         ------          -------       --------------    --------
<S>                          <C>             <C>            <C>             <C>           <C>                 <C>
       Outstanding at
         June 30, 1996       627,870             --             --          627,870       $ 1.38 to 7.50       4.25
             Issued           95,000         10,000             --          105,000         6.50 to 8.25       6.95
             Exercised       (20,000)            --             --          (20,000)        1.38 to 7.50       2.97
             Expired         (31,870)            --             --          (31,870)        6.88               6.88
                             -------         ------         ------          -------

       Outstanding at
         June 30, 1997       671,000         10,000             --          681,000         1.38 to 8.25       4.58
             Issued           74,500         14,000             --           88,500       15.00 to 21.13      19.72
             Exercised      (277,800)            --             --         (277,800)        1.38 to 7.50       3.79
                             -------         ------         ------          -------
       Outstanding at
         June 30, 1998       467,700         24,000             --          491,700        1.38 to 21.13       7.75
             Issued          154,000         20,000         50,000          224,000       11.13 to 25.08      18.06
             Exercised       (99,000)            --             --          (99,000)       1.38 to 19.88       5.22
             Expired         (12,000)            --             --          (12,000)                5.88       5.88
                             -------         ------         ------          -------

       Outstanding at
         June 30, 1999       510,700         44,000         50,000          604,700        1.38 to 25.08      12.02
                             =======         ======         ======          =======

       Shares exercisable
         at June 30, 1999    356,700         44,000             --          400,700        1.38 to 21.13       8.98
                             =======         ======         ======          =======

       Shares available for
         grant at June 30,
         1999                431,300         80,000             --          511,300
                             =======         ======         ======          =======
</TABLE>


       The following  table  summarizes  significant  ranges of outstanding  and
exercisable options at June 30, 1999:

<TABLE>
<CAPTION>
                                    Options Outstanding                                    Options Exercisable
                              ------------------------------------------------      ------------------------------
                                                   Weighted
                                                    average           Weighted                            Weighted
          Range of                                 remaining           average                             average
          exercise                                 life in            exercise                            exercise
           prices                Shares              years              price            Shares             price
    ----------------          -----------          ---------          --------           -------          --------

<S> <C>                           <C>                <C>               <C>               <C>                <C>
    $   1.38 to 4.12               51,000            1.25               1.38              51,000             1.38
        4.13 to 6.49              100,000            5.83               4.13             100,000             4.13
        6.50 to 8.25              142,400            6.64               7.12             142,400             7.12
       8.26 to 13.88               12,000            9.25              11.77                  --               --
      13.89 to 19.88              231,300            8.70              18.14              96,300            19.47
      19.89 to 25.08               68,000            9.87              21.09              11,000            20.56
                              --------------                                        ---------------

                                  604,700                                                400,700
                              ==============                                        ===============
</TABLE>




                                                                     (Continued)


                                       35
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997


       The per share weighted average fair value of stock options granted during
       fiscal  years  1999,  1998,  and  1997  was  $9.60,  $12.86,  and  $4.71,
       respectively.  The fair  value of  options  at the date of the  grant was
       estimated  using the  Black-Scholes  model  with the  following  weighted
       average assumptions for the respective fiscal year:

                                               1999           1998         1997
                                               ----           ----         ----

Expected life                                     5              5            5
Interest rate                                  4.82%          5.81%        6.08%
Volatility                                       69%            75%          78%
Dividend yield                                    0%             0%           0%

       Stock-based  compensation  costs  would  have  reduced  pretax  income by
       $773,810,   $393,662,  and  $166,106  in  fiscal  1999,  1998,  and  1997
       ($735,791,  $374,718, and $161,678 after tax and $.13, $.08, and $.04 per
       share in fiscal 1999, 1998, and 1997, respectively) if the fair values of
       options granted in that year had been recognized as compensation  expense
       on a  straight-line  basis over the vesting period of the grant.  The pro
       forma  effect  on net  income  for  fiscal  1999,  1998,  and 1997 is not
       representative  of the pro  forma  effect on net  income in future  years
       because  it does not  take  into  consideration  pro  forma  compensation
       expense related to grants made prior to fiscal 1996.

(9)    Employee Benefit Plans

       The Company has a non-contributory  defined benefit pension plan covering
       substantially  all of its  employees.  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,
       1999, 1998, and 1997:

                                          1999            1998           1997
                                      -------------    ---------      ---------
Change in benefit obligation:
    Benefit obligation at
       beginning of year              $ 5,565,886      4,628,285      4,286,150
    Service cost                          198,406        144,518        140,609
    Interest cost                         374,331        351,138        316,779
    Actuarial loss (gain)                  96,912        571,487        (16,783)
    Benefits paid                        (147,884)      (129,542)       (98,470)
                                      -----------      ---------      ---------

    Benefit obligation at end
       of year                        $ 6,087,651      5,565,886      4,628,285
                                      ===========      =========      =========


                                                                     (Continued)


                                       36
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997


                                       1999           1998            1997
                                   -----------    -----------      ---------
Change in plan assets:
    Fair value of plan assets at
       beginning of year           $ 5,594,504      4,970,705      4,400,776
    Actual return on plan assets       128,367        690,506        549,333
    Employer contributions              51,782         62,835        119,066
    Benefits paid                     (147,884)      (129,542)       (98,470)
                                   -----------    -----------    -----------

    Fair value of plan assets at
       end of year                 $ 5,626,769      5,594,504      4,970,705
                                   ===========    ===========    ===========

Funded status                         (460,882)        28,618        342,420
Unrecognized net (gain)/loss           234,227       (203,778)      (501,657)
Unrecognized net assets
    existing at initial
    application                         37,861         47,327         56,793
Unrecognized prior service
    cost                                97,155        115,394        133,633
                                   -----------    -----------    -----------

Prepaid (accrued) pension cost     $   (91,639)       (12,439)        31,189
                                   ===========    ===========    ===========

                                                                     (Continued)


                                       37
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997


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

                                            1999           1998          1997
                                         ---------       -------       -------

Service cost                             $ 198,406       144,518       140,609
Interest cost                              374,331       351,138       316,779
Actual return on plan assets              (128,367)     (690,506)     (549,333)
Amortization of prior service cost          18,239        18,239        18,239
Deferral of gain                          (341,093)      273,608       195,949
Amortization of net asset at
    transition                               9,466         9,466         9,466
                                         ---------     ---------     ---------

    Net periodic pension cost            $ 130,982       106,463       131,709
                                         =========     =========     =========

Weighted-average assumptions:
    Discount rate                             6.70%         6.70%         7.50%
    Rate of increase in
       compensation levels,
       applicable to Salaried Plan
       only                                    4.0           4.0           5.0
    Expected return on plan assets             8.5           8.0           8.0


       Plan assets consist principally of equity securities, and U.S. government
       and corporate obligations.

       The Company  maintains a voluntary  contributory  salary  savings plan to
       which participants may contribute up to 15% of their total  compensation.
       During fiscal 1997, the Company contributed an amount equal to 50% of the
       participants'  contribution  up to a maximum  of 3% of the  participants'
       compensation.   In  fiscal  1998,  the  Company  increased  its  matching
       contribution to an amount equal to 50% of the participants'  contribution
       up to a maximum of 5% of the  participants'  compensation.  During fiscal
       1999,  1998, and 1997,  the Company  contributed  $256,590,  $173,369 and
       $129,115, respectively, to this plan.

       During fiscal 1998,  the Company  instituted 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  $207,000 and
       $231,000 in fiscal 1999 and 1998, respectively. While the Company intends
       to continue  this plan,  it reserves  the right to terminate or amend the
       Plan at any time.


                                                                     (Continued)


                                       38
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997


       During fiscal 1998, the Company implemented a deferred  compensation plan
       for one  employee.  Under the plan,  the  Company  will pay a certain sum
       annually for fifteen years upon the employee's retirement or in the event
       of their death,  to the  employee's  beneficiary.  Deferred  compensation
       expense in fiscal 1999 and 1998 was $244,000 and $144,000, respectively.

(10)   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.

       The following  table presents the changes in the  postretirement  benefit
       obligation and the funded status of the Plan at June 30, 1999,  1998, and
       1997:

                                          1999            1998           1997
                                      -----------      ---------      ----------
Benefit obligation at beginning
    of year                           $ 1,316,452      1,191,632      1,129,920
Service cost                               24,192         27,664         32,784
Interest cost                              88,202         89,372         84,744
Plan participants' contributions           30,444         22,865         21,067
Actuarial loss/(gain)                      14,690         59,675         (2,868)
Benefits paid                            (110,690)       (74,756)       (74,015)
                                      -----------    -----------    -----------

Benefit obligation at end of year     $ 1,363,290      1,316,452      1,191,632
                                      ===========    ===========    ===========

Fair value of plan assets             $        --             --             --
                                      ===========    ===========    ===========

Funded status                          (1,363,290)    (1,316,452)    (1,191,632)
Unrecognized actuarial (gain) loss         84,721         70,031         10,356
                                      -----------    -----------    -----------

Accrued postretirement benefit cost   $(1,278,569)    (1,246,421)    (1,181,276)
                                      ===========    ===========    ===========


                                                                     (Continued)


                                       39
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997



       Net  periodic   postretirement   benefit  cost   includes  the  following
components:

                                                1999          1998         1997
                                              --------      -------       ------

Service cost                                  $ 24,192       27,664       32,784
Interest cost                                   88,202       89,372       84,744
                                              --------      -------      -------

Net periodic postretirement benefit
    cost                                      $112,394      117,036      117,528
                                              ========      =======      =======

       The  weighted-average  discount rate used in determining  the accumulated
       postretirement  benefit  obligation  was 6.7% in 1999,  6.7% in 1998, and
       7.5% in 1997. For  measurement  purposes,  the annual rate of increase in
       the per capita  cost of covered  benefits  (i.e.,  health care cost trend
       rate)  was  assumed  to be 5%,  5% and 8.5% for  1999,  1998,  and  1997,
       respectively;  the rate is assumed to remain at 5% thereafter. The health
       care cost trend rate  assumption has a significant  effect on the amounts
       reported. A one-percentage point change in assumed health care cost trend
       rates would have the following effects:

                                                    1% increase    1% decrease
                                                    -----------    -----------

Effect on total of service and interest
    cost components                                  $ 92,860        83,777

Effect on postretirement benefit obligation           107,394        28,160


                                                                     (Continued)


                                       40
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997


(11)   Income Taxes

       Income tax expense (benefit) consists of:

                              Current         Deferred        Total
                            -----------    -----------    -----------
Year ended June 30, 1999:
    U.S. Federal            $ 1,806,767       (256,613)     1,550,154
    State                       668,011        (14,165)       653,846
                            -----------    -----------    -----------

                            $ 2,474,778       (270,778)     2,204,000
                            ===========    ===========    ===========

Year ended June 30, 1998:
    U.S. Federal            $ 1,831,327         21,547      1,852,874
    State                       181,097        296,029        477,126
                            -----------    -----------    -----------

                            $ 2,012,424        317,576      2,330,000
                            ===========    ===========    ===========

Year ended June 30, 1997:
    U.S. Federal            $   450,262       (738,824)      (288,562)
    State                        17,284        271,278        288,562
                            -----------    -----------    -----------

                            $   467,546       (467,546)            --
                            ===========    ===========    ===========

A reconciliation of the expected  consolidated  income tax expense,  computed by
applying  the U.S.  Federal  corporate  income tax rate of 34% to income  before
income taxes, to income tax expense, is as follows:

                                 1999          1998           1997
                             -----------    -----------    -----------
Expected consolidated
    income tax expense       $ 3,112,301      2,198,650        698,735
Tax benefit related to
    liquidation of foreign
    subsidiary                (1,012,088)            --             --
State income taxes, net of
    Federal income tax
    benefit                      431,538        314,903        190,451
Change in valuation
    allowance                   (233,044)      (350,060)    (1,060,599)
Other, net                       (94,707)       166,507        171,413
                             -----------    -----------    -----------

                             $ 2,204,000      2,330,000             --
                             ===========    ===========    ===========


                                                                     (Continued)


                                       41
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997


       The tax effects of temporary  differences  that give rise to the deferred
       tax assets and  deferred  tax  liabilities  at June 30, 1999 and 1998 are
       presented below:

                                                    1999           1998
                                                -----------    -----------

Deferred tax assets:
    Inventories                                 $    56,662         65,411
    Deferred compensation                           151,320         58,500
    Retirement benefits                              48,566         31,930
    Postretirement benefits                         509,700        485,692
    Nondeductible reserves                           11,460         11,460
    State investment tax credit carryforwards       683,715        665,840
                                                -----------    -----------

               Total deferred tax assets          1,461,423      1,318,833
               Less valuation allowance                  --        233,044
                                                -----------    -----------
               Net deferred tax asset             1,461,423      1,085,789
                                                -----------    -----------

Deferred tax liabilities:
    Plant and equipment, principally due to
       differences in depreciation               (1,040,675)      (935,819)
                                                -----------    -----------

               Net deferred taxes               $   420,748        149,970
                                                ===========    ===========

Presented as:
    Current deferred tax asset                      116,688        108,801
    Long-term deferred tax asset                    304,060         41,169
                                                -----------    -----------

                                                $   420,748        149,970
                                                ===========    ===========


                                                                     (Continued)


                                       42
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997


       The  valuation  allowance for deferred tax assets as of June 30, 1999 and
       1998 was $0 and  $233,044,  respectively.  The net  change  in the  total
       valuation  allowance  for the years  ended  June 30,  1999 and 1998 was a
       decrease  of  $233,044  and  $350,060,  respectively.  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.  Based  upon  the  level of  historical  taxable  income  and
       projections for future taxable income over the periods which the deferred
       tax assets are deductible, management believes it is more likely than not
       the Company will realize the  benefits of these  deductible  differences,
       net of the existing  valuation  allowances at June 30, 1999. The deferred
       tax  asset   valuation   allowance   is   principally   related   to  the
       recoverability of the Company's state investment tax credit carryforwards
       at June 30, 1998.

       The  Company  recognized  a tax benefit of  $1,012,088  during the fourth
       quarter  of  fiscal  1999  in  connection  with  the  dissolution  of the
       Company's European  subsidiary.  The disposition of the net assets of the
       subsidiary and a corresponding  restructuring  charge were recognized for
       financial  reporting  purposes in 1996.  In the fourth  quarter of fiscal
       1999,  all of the criteria  necessary to support a deduction  for the tax
       investment in the subsidiary were met and the tax benefit was recorded.

       At June 30, 1999, the Company has investment tax credit carryforwards for
       state  income tax  purposes of  $683,715  which are  available  to reduce
       future state income taxes, if any, through 2014.

       The tax  benefit  associated  with  the  exercise  of stock  options  and
       disqualifying  dispositions by employees reduced taxes payable by $92,225
       and  $238,000 in fiscal 1999 and 1998,  respectively.  Such  benefits are
       reflected as additional paid-in capital.

       Cash  payments  for  income  taxes  were  $2,689,469  in fiscal  1999 and
       $1,950,717 in fiscal 1998.

(12)   Segment and Related Information

       Segments

       Organizationally,  the Company  operates  predominately  in the  wireless
       communications,  and space and defense electronics markets. The Company's
       two reportable 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,
       delivery channel, and other factors.

       The  wireless  segment  designs,   manufactures  and  markets  commercial
       products  used mainly by the  wireless  communications  market.  Products
       produced in this business  segment  include highly  integrated  microwave
       signal distribution components and subsystems,  as well as a product line
       of standard  surface  mount  microwave  signal  splitting  and  combining
       components,  trade name  Xinger,  that are used in  terrestrial  wireless
       communications base station amplifiers.

                                                                     (Continued)


                                       43
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997


       The space and defense segment of the business, designs,  manufactures and
       markets  specialized  products  for  those  Companies  in the  radar  and
       satellite  communications  market.  Products  produced  in this  business
       segment include passive beamforming networks for communications satellite
       multi-beam  antennas,  digital frequency  discriminators  and other radar
       type  discriminators,  as  well as a wide  range  of  standard  component
       products  for  defense  electronics,  such  as  mixers,  couplers,  power
       dividers and correlators.

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

<TABLE>
<CAPTION>
                                                                  Space &          Corporate and
                                            Wireless              Defense           Unallocated         Consolidated
                                        -------------          -----------         -------------        ------------
<S>                                     <C>                     <C>                  <C>                <C>
       Net sales:
          1999                          $  21,450,113           24,288,879                   --           45,738,992
          1998                             16,580,092           20,869,357                   --           37,449,449
          1997                              7,644,672           16,582,120                   --           24,226,792

       Operating income:
          1999                              3,266,508            4,529,980                   --            7,796,488
          1998                              2,961,156            2,665,180                   --            5,626,336
          1997                                202,100            1,833,370                   --            2,035,470

       Identifiable assets*:
          1999                              5,355,217            8,792,434           44,319,048           58,466,699
          1998                              4,575,307           11,582,816           34,744,699           50,902,822
          1997                              2,841,944           11,479,187           11,651,412           25,972,543

       Depreciation and amortization**:
          1999                                612,836              819,972                   --            1,432,808
          1998                                517,162              818,399                   --            1,335,561
          1997                                350,572              889,292                   --            1,239,864
</TABLE>

          *  Segment  assets  primarily  include trade  accounts  receivable 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 debt securities other receivables; prepaid
             expenses; deferred income taxes; refundable income taxes; property,
             plant and equipment; and patent.

         **  Depreciation  expense  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.

                                                                     (Continued)


                                       44
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997


       Geographic Information

       Geographic net sales by geographic region are as follows:

                                               Other Foreign      Consolidated
            United States        Canada          Countries          Net Sales
            -------------       ---------      -------------      ------------

1999       $ 36,468,513         4,590,991         4,679,488         45,738,992
1998         29,837,123         3,252,605         4,359,721         37,449,449
1997         19,525,698         1,102,859         3,598,235         24,226,792

       Customers

       In 1999, sales to two customers  (approximately  $6,400,000,  relating to
       the wireless business segment, and $5,200,000,  relating to the space and
       defense  electronics  segment) exceeded 10% of consolidated net sales. In
       1998, sales to one customer  (approximately  $6,800,000,  relating to the
       wireless  business  segment)  exceeded 10% of consolidated  net sales. In
       1997, sales to two customers (approximately  $3,400,000,  relating to the
       space and defense electronics  segment,  and $2,700,000,  relating to the
       wireless segment) exceeded 10% of consolidated net sales.


(13)   Commitments

       The Company is obligated under an operating lease for a building.  Future
       minimum  payments under the  noncancelable  operating  lease for the next
       five years and thereafter are summarized as follows:

      Year ending June 30,
             2000                                   $  396,861
             2001                                      396,861
             2002                                      396,861
             2003                                      396,861
             2004                                      396,861
             Thereafter                              3,836,324
                                                    ----------

                                                     5,820,629
      Less amounts representing
          sublease income                              942,546
                                                    ----------
                                                    $4,878,083
                                                    ==========

       Rent  expense  for the years  ended  June 30,  1999,  1998,  and 1997 was
       $396,861, $392,051, and $384,835,  respectively.  Rent expense for fiscal
       1999, 1998, and 1997 was offset by sublease income of $347,254, $242,435,
       and $125,667, respectively.

                                                                     (Continued)


                                       45
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997


       As  discussed  in note 1(j),  the Company is  currently  engaged  under a
       technology  development  contract.  Under this contract,  the Company was
       committed to provide research and development  services through September
       1998.  Technology  development  fees and related costs under the contract
       are anticipated to aggregate approximately $288,000 in fiscal 2000.

(14)   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 the Government accounted
       for  approximately  13%, 18% and 16% of consolidated  net sales in fiscal
       1999, 1998, and 1997, respectively.  While management believes there is a
       high probability of continuation of the Company's current defense-related
       programs,  it  continues  to  reduce  its  dependence  on  sales  to  the
       Government through development of its commercial electronic business.


                                                                     (Continued)


                                       46
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 1999, 1998, and 1997



(15)   Quarterly Financial Data (Unaudited)

       The following  table sets forth  certain  unaudited  quarterly  financial
       information for the years ended June 30, 1999 and 1998, respectively:

<TABLE>
<CAPTION>
                                                         1999 Quarter Ended
                                                         ------------------
                                        Sept. 30      Dec. 31     March 31      June 30
                                     ------------   ----------   ----------   ----------
<S>                                  <C>            <C>          <C>          <C>
Net sales                            $ 10,478,787   11,056,604   11,832,624   12,370,977
                                     ============   ==========   ==========   ==========

Cost of sales                        $  6,473,591    6,550,512    7,156,615    7,530,089
                                     ============   ==========   ==========   ==========

Net income                           $  1,322,604    1,430,345    1,568,510    2,628,366
                                     ============   ==========   ==========   ==========

Net income per common and
  common equivalent share:

       Basic                         $        .24          .26          .28          .47
                                     ============   ==========   ==========   ==========

       Diluted                       $        .23          .25          .27          .45
                                     ============   ==========   ==========   ==========

                                                          1998 Quarter Ended
                                                          ------------------
                                         Dec. 31      March 31    June 30      Sept. 30
                                     ------------   ----------   ----------   ----------

Net sales                            $  7,721,323    9,361,780    9,951,100   10,415,246
                                     ============   ==========   ==========   ==========

Cost of sales                        $  4,853,726    6,034,971    6,291,273    6,391,364
                                     ============   ==========   ==========   ==========

Net income                           $    759,599      957,864    1,171,289    1,247,866
                                     ============   ==========   ==========   ==========

Net income per common and
  common equivalent share:

       Basic                         $        .17          .20          .21          .22
                                     ============   ==========   ==========   ==========

       Diluted                       $        .17          .19          .20          .22
                                     ============   ==========   ==========   ==========
</TABLE>

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


                                       47
<PAGE>

                          INDEX TO EXHIBITS (1)

Exhibit No.             Description


               3.1      Certificate   of   Incorporation   of   Registrant   and
                        amendments thereof.

                        (i)     Restated   Certificate   of   Incorporation   is
                                incorporated  by  reference  to Exhibit  3(a) to
                                Registrant's  Registration Statement on Form S-1
                                (No. 2-42704).

                        (ii)    Amendment,   filed   December   19,   1980,   is
                                incorporated  by reference to Exhibit 4.1(ii) to
                                Registrant's  Registration Statement of Form S-2
                                (No. 2-86025).

                        (iii)   Amendment,  filed March 18, 1985 is incorporated
                                by reference to the identically numbered exhibit
                                to the  Registrant's  Annual  Reporton Form 10-K
                                (Commission  File No. 0-6620) for the year ended
                                June 30, 1987.

                        (iv)    Amendment,   filed   December   14,   1987,   is
                                incorporated  by  reference to Exhibit 4(a) (iv)
                                to the  Registrant's  Registration  Statement on
                                Form S-8 (33-19618).

                        (v)     Amendment, filed April 8, 1999

a              3.2      Registrant's By-Laws, as amended.

l              10.3     Credit  Facility  Agreement  dated as of October 1, 1996
                        between the Company and  Manufacturers and Traders Trust
                        Company,  together with Term Note and  Revolving  Credit
                        Note each dated  October 1, 1996 executed by the Company
                        to Manufacturers  and Traders Trust Company and Security
                        Agreement  dated October 1, 1996 between the Company and
                        Manufacturers and Traders Trust Company.

l              10.4     Employment  Agreement  dated as of July 1, 1997  between
                        the Company and Lawrence A. Sala.

l              10.5     Consulting  Agreement  dated  as of the  March  1,  1997
                        between the Company and Dale F.Eck.

a              10.6     Registrant's Pension Plan and Trust. (2)

j              10.7     Anaren Microwave,  Inc.  Incentive Stock Option Plan, as
                        amended,  incorporated herein by reference to Appendix A
                        to the registrant's  proxy statement for its 1998 annual
                        shareholders'  meeting,  as filed with the Commission on
                        September 25, 1998 (Commission File No. 0-6620).

e              10.9     Anaren Microwave,  Inc. 1989 Non-statutory  Stock Option
                        Plan,  as amended,  incorporated  herein by reference to
                        Appendix B to the  registrant's  proxy statement for its
                        1998  annual  shareholders'  meeting,  as filed with the
                        Commission  on September 25, 1998  (Commission  File No.
                        0-6620).

m              10.12    Employment Agreement dated as of October 7, 1997 between
                        the Company and Hugh A. Hair.

n              10.13    Credit Facility  Agreement dated as of December 23, 1997
                        between the Company and  Manufacturers and Traders Trust
                        Company,  together with the Revolving  Credit Note dated
                        December   23,   1997   executed   by  the   Company  to
                        Manufacturers and Traders Trust Company.

g              21       Subsidiaries of Registrant.

               23       Consent of KPMG LLP.

               27       Financial  Data  Schedule  for the twelve  month  period
                        ended June 30, 1999,  which is submitted  electronically
                        to  the   Securities   and   Exchange   Commission   for
                        information only and is not filed.


                                       48
<PAGE>

                           EXHIBIT INDEX (Continued)

a              Incorporated   herein  by   reference  to  exhibit  4(b)  to  the
               Registrant's Registration Statement on Form S-8 (Registration No.
               33-19618).

e              Incorporated  herein  by  reference  from  Exhibit  No.  4 to the
               Registrant's Registration Statement on Form S-8 (Registration No.
               33-36761).

g              Incorporated  herein  by  reference  to  exhibit  No.  22 to  the
               Registrant's  Annual  Report on Form 10-K for the year ended June
               30, 1991.

j              Incorporated  herein by reference to exhibit to the  Registrant's
               Registration Statement on Form S-8 (Registration No. 333-03193).

l              Incorporated  herein by  reference  to the  identically  numbered
               exhibit to the  Registrant's  Annual  Report on Form 10-K for the
               year ended June 30, 1997.

m              Incorporated  herein by  reference  to exhibit  No.  10.12 to the
               Registrant's  Quarterly  Report on Form 10-Q for the three months
               ended September 30, 1997.

n              Incorporated  herein by  reference  to exhibit  No.  10.13 to the
               Registrant's  Quarterly  Report on Form 10-Q for the three months
               ended December 31, 1997.

               (1) The Company's quarterly and annual reports are filed with the
                   Securities and Exchange Commission under file no. 0-6620.

               (2) Management contract or compensatory plan arrangement.


                                       49