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, 2006

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

      For the transition period from _______________ to _________________

      Commission file number 0-6620

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

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

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

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

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

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

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

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

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

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

or

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

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

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

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

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

The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant, based on the closing sale price of the Common
Stock on December 30, 2005, as reported on the Nasdaq Global Market (formerly,
the Nasdaq National Market), was approximately $264,254,331.

The number of shares of the Registrant's Common Stock outstanding on September
1, 2006 was 17,698,850.

<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for use in connection with its 2006
Annual Meeting of Shareholders are incorporated into Part III of this Annual
Report on Form 10-K.

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                                     PART I

Item 1. Business

General

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

Recent Developments

In June 2006, the Company announced it will be relocating its existing 25,000
square foot Suzhou, China Wireless Infrastructure manufacturing operation to a
new 76,000 square foot facility in Suzhou to accommodate its growing wireless
infrastructure business. The Company has entered into a lease agreement for the
new building as of April, 2006. The additional space is required to accommodate
its growing wireless business. The move is expected to be completed in the
fourth quarter of calendar year 2006, with no anticipated interruption to
production.

Additionally, in June 2006, the Company announced plans to expand its Syracuse,
New York based operations by constructing a 54,000 square foot addition to its
current 105,000 square foot facility. The expansion will allow continued growth
in the Company's Space and Defense design and manufacturing operations as well
as its Wireless design group. Anaren requested and received a $500,000 grant
from New York's Empire State Development to help fund the expansion. The project
is expected to be completed in the second quarter of calendar year 2007.

Effective July 1, 2005, the Company adopted Statement of Financial Accounting
Standards No. 123R Share Based Payment (SFAS 123R). This standard requires the
company to measure the cost of employee services received in exchange for equity
awards based on the grant date fair value of the awards. These costs are to be
recognized as compensation expense over the vesting period of the awards. SFAS
123R provides for a prospective application for adoption which the Company
chose. Under this method, the Company began recognizing compensation costs for
stock option equity-based compensation for all new or modified grants after June
30, 2005 and for the unvested portion of the grant date fair value of awards
issued prior to adoption, based on the fair value previously calculated for
footnote disclosure purposes. Equity based compensation cost for employee stock
options recognized in the year ended June 30, 2006 was $3,358,227.

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

Overview

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

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Through its focused research and development efforts, Anaren continues to design
components and subsystems for wireless communication systems, as well as
advanced radar, beamforming and receiver applications for the space and defense
markets and medical products with applications in pacemakers and defibulators.

In addition, the Company is developing and producing a diverse set of miniature
microwave component products for consumer wireless communications applications
such as WiFi, Bluetooth(R), cellular handsets and satellite TV reception. The
Company's customer base includes leading global original equipment manufacturers
that serve the wireless, space and defense markets, including:

o Andrew Corporation
o Boeing, Inc.
o CalAmp Corp
o LM Ericsson Telephone Co. ADR
o ITT Corporation
o Lockheed Martin Corporation
o Motorola, Inc.
o Nokia Corporation - ADR
o Nortel Networks Corporation
o Northrop Grumman Corporation
o Powerwave Technologies, Inc.
o Raytheon Co.
o St. Jude Medical

Industry Background
The volume of high-speed data traffic across global communications networks has
grown as the public Internet and private business intranets have become
essential for daily communications and electronic commerce. The number of
persons using the Internet and mobile internet terminals for e-commerce and
recreational use is also expected to continue to grow. Servicing the increasing
demand for higher bandwidth content and applications requires cost-effective and
high-speed connections. Wireless communications provide an advantageous access
solution for mobile high-speed Internet and multimedia services, with a faster
deployment and implementation. This is underscored by the increasing number of
wireless systems and subscribers worldwide.

Despite this continued growth in customer demand, capital spending by Wireless
service providers remains volatile and relatively unpredictable. Increased
wireless infrastructure spending during fiscal 2005 and 2006 had a positive
impact on the Company's business.

A Wireless Network
A typical mobile or fixed wireless communications system is comprised of a
geographic region containing a number of cells, each of which contains one or
more base stations, which are linked in a network to form a service provider's
coverage area. Each base station houses the equipment that receives incoming
telephone calls from the switching offices of the local wire-based 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
transmit and receive signals to and from the wireless user.

Mobile Wireless Communications
The late 1990's through 2000 saw dramatic growth in the demand for mobile
communications. This was fueled by decreasing prices for handsets and airtime, a
favorable global communications regulatory environment, increased competition
among service providers, opening of new frequency spectrum and services, and the
installation of mobile networks in developing nations as an alternative to
wire-based

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networks. Despite this rapid growth in customer demand, expenditures for capital
infrastructure equipment by service providers began to decline rapidly during
the first quarter of calendar year 2001. This had a negative impact on all of
the Company's Wireless product lines, particularly the printed-circuit board
business. During fiscal 2004, infrastructure spending rebounded due to the
deployment of new technology to expand existing network capacity resulting in
rising sales and orders across all of the Company's Wireless product lines. In
fiscal 2005 and 2006 demand and Wireless product sales have remained strong, at
or above fiscal 2004 levels due to continued deployment of new higher rate data
equipment, as well as new network buildouts in India and China.

Wireless Local Area Networking
Wireless local area networks (WLAN) generally referred to as WiFi are unlicensed
flexible data communication systems that can either replace or extend wired
communication systems. Using radio frequency technology, wireless local area
networks transmit and receive data over the air without wired cabling. A
wireless local area network provides all the features and benefits of
traditional local area network technologies like Ethernet, often with lower
installation costs and increased flexibility.

Wireless local area network technology is now in the process of widespread
deployment and accelerated development for low-cost, interoperable products.
Wireless local area network technology provides high data rates to rapidly
transfer large data files, access the web, and support wireless video
conferencing from mobile platforms including handheld personal computers and
laptops. The flexibility that the wireless local area network offers the
business and consumer user is leading to applications such as wireless home
multimedia, wireless e-business, and wireless printers and scanners.

Space and Defense
The Space and Defense industry is currently focused on supporting National
Defense programs, Homeland Security, integrated communications systems and
technologies that improve the performance and survivability of existing air,
land and sea based platforms. As a result of the priorities for these programs,
the funding for advanced radar systems, advanced jamming systems, smart
munitions, electronic surveillance systems and satellite and ground based
communication systems has remained strong.

The Anaren Solution
The Company's technology addresses the demands of the wireless market for high
quality products manufactured in volume with continuous improvements in
performance and cost. The Company also provides the satellite market with
enabling technologies that increase network capacity and flexibility, allowing
for increased revenue generation. The Company's proprietary Multi-Layer
Stripline, ceramic circuit technologies and advanced design and modeling
techniques, which are described more fully below, allow the Company to provide
compact, light weight, cost-effective, and highly integrated microwave
components, assemblies and subsystems. The Company's solution includes:

Broad Array of Standard and Customized Products. The Company offers a broad
array of standard and custom microwave products to the mobile and wireless
networking, satellite communications and defense electronics markets. The
technologies underlying the Company's product portfolio allow the Company to
address the new wireless data communications products being developed by its
existing and potential customers with limited incremental investment. As the
original equipment manufacturers in the wireless communications industry have
been reducing the number of their suppliers, the Company believes that its
expanding product portfolio has helped the Company become a strategic supplier
to many of these original equipment manufacturers.

Advanced Microwave Design and Manufacturing Capabilities. The Company's
engineering and

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design staff of 163 engineers, up 16%, (as of June 30, 2006) works with
customers to develop product solutions. Anaren's engineers collaborate with
customers to develop products that provide state-of-the-art performance that can
be manufactured in significant volume with excellent quality and reliability.
The Company has consistently met the stringent requirements of the wireless,
defense and satellite communications markets due to the Company's strengths in
advanced packaging and interconnecting of radio, microwave and extremely high
frequency signals, as well as its ability to produce small, light weight,
cost-effective and efficient microwave components and assemblies. The Company
utilizes its Suzhou China based operation to manufacture and test selected
microwave component and subassembly products for wireless infrastructure
applications. This local presence also provides rapid and cost effective
manufacturing for its Asian customer base.

Rapid Product Development. Anaren's integrated design and manufacturing
facilities allow it to produce custom solutions from concept to product delivery
often in a matter of days. With its Multi-Layer Stripline technology, design
libraries, manufacturing experience and investment in automation, the Company
can facilitate a rapid transition from development to production, thereby
offering its customers a complete turnkey solution and allowing them to bring
their products to market faster.

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

Technology
The Company utilizes three basic technologies: microwave design and
manufacturing of Multi-Layer Stripline, Thick Film Ceramics and Ball Grid Array
assembly. Additionally, the Company uses outside sources for lower cost and
unique process capabilities.

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 printed circuit board manufacturing, but
with superior microwave characteristics. Plated through holes are used to
interconnect layers. The Company's proprietary techniques enable it to implement
multi-layer connections that perform optimally at microwave frequencies. Unlike
traditional printed circuit board manufacturing, simply connecting the
appropriate points on the multi-layer board does not ensure adequate
performance. In order to achieve optimal microwave performance on a consistent
basis, material and process variations must be tightly controlled and the
circuit design must take into consideration variations in the manufacturing
process.

Ball Grid Array technology is a technique used to integrate active functionality
onto Multi-Layer Stripline circuits at microwave frequencies. Ball Grid Array
technology is an efficient integration technique offering superior high
frequency performance, and is compatible with standard low cost manufacturing
techniques.

Thick Film Ceramic technology is a technique of processing multi-layer ceramic
circuits in which the signal conductors are screen printed onto ceramic
substrates. Thick Film Ceramic technology is an efficient method of integrating
passive components such as resistors and capacitors, eliminating costly assembly
steps to mount discreet components.

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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 utilizing its
proprietary technologies.

Strategy
The Company's strategy is to continue to use its proprietary technologies,
extensive microwave design libraries and low cost manufacturing capabilities to
further expand its penetration in the wireless and space and defense markets.
Key components of the Company's strategy include the following:

Pursue Large Addressable Markets. The Company has successfully penetrated the
mobile wireless infrastructure market and intends to use its market position to
pursue other wireless markets like Wireless Local Area networks (WLAN), Mobile
Handsets, Bluetooth and other related applications such as WiMAX, Ultra Wide
Band and Broadcast. The Company also intends to continue to offer additional
products and technologies to address existing and developing space and defense
applications.

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

Strengthen and Expand Customer Relationships. Today, a limited number of large
systems manufacturers drive the wireless and space and defense markets. The
Company has developed, and plans to continue to expand, customer relationships
with many of these manufacturers, including Andrew, Ericsson, Huawei, Motorola,
Nokia and Nortel Networks, for wireless communications, Boeing, Lockheed Martin,
Northrup Grumman and Raytheon for space and defense, and St. Jude Medical for
medical applications. The Company intends to further strengthen its customer
relationships by offering complete outsourcing solutions, from research and
development through product design and production, thereby increasing the
customers' reliance on the Company.

Pursue Technology Leadership Position. The Company intends to use its
technological leadership in the mobile wireless and space and defense markets to
extend its competitive advantage. Anaren plans to pursue further technological
advances through continued investment in research and development, as well as
the utilization of a global supplier base. The Company will seek to advance its
leadership in wireless technology by developing next generation products for the
mobile and wireless networking markets. In addition, the Company will attempt to
build upon its relationships with key space and defense original equipment
manufacturers in order to develop state-of-the-art products.

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

Products

Wireless Communications
The Company provides microwave components, assemblies and subsystems to leading

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wireless infrastructure equipment manufacturers. Traditionally, all of the
signal distribution, or combining and splitting, within a base station has been
accomplished with discrete signal distribution components and coaxial cables.
Through the use of its Multi-Layer Stripline and ceramic technologies, the
Company provides microwave components, assemblies and subsystems that eliminate
the need for discrete components and interconnecting cables. These integrated
assemblies, which range from simple splitting and combining networks to complete
microwave backplanes that 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.

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

Component Products
Xinger(R) Surface Mount Components. The Company's Xinger(R) line of products
consists of off-the-shelf surface mount microwave components which provide
passive microwave signal distribution functions. They were developed to provide
a low-cost signal distribution component, which could be placed on standard
printed circuit boards with automated production equipment. The primary
application of these products is in radio frequency power amplifiers, but they
are also found in low-noise amplifiers and radios. The Company believes it is
currently the market leader in this product area, supplying industry leading
original equipment manufacturers and leading power amplifier manufacturers. The
Company continues to invest heavily in the expansion of this product line, as
well as its addressable market. During fiscal 2004, the Company introduced its
Xinger II product line offering significantly improved RF performance and power
handling in a package that supports the latest global environment friendly
initiatives. The Company has recently introduced several products specifically
designed to address the consumer components Wireless local area network market,
cellular telephone and Bluetooth applications. These products are 1/100th the
size of our typical Xinger(R) type of product and offer performance and cost
advantages over traditional components.

Ferrite Products. The Company's ferrite components are used in various wireless
and defense applications. They are a key component in base station amplifiers,
and their primary function is to protect the sensitive electronics from damage
by isolating them electronically from potentially harmful signal levels. The
Company has invested in expanding its Ferrite product line and in expanding its
production capacity for Ferrite products in fiscal 2006.

Resistive Products. The Company's resistive product line includes resistors,
power terminations, and attenuators for use in high power wireless and medical
imaging applications. They are typically found in power amplifiers and are used
in conjunction with ferrite products as well as Xinger(R) surface mount
components. The products are manufactured using specialized material substrates
designed for optimum heat transfer.

Custom Splitting and Combining Products. In addition to its standard products,
the Company offers a wide range of custom signal splitting solutions. These
custom solutions are typically used to distribute signals to and from radio
transceivers and power amplifiers. The Company's custom products offer
consistent performance and can be designed in unique configurations, allowing
base station designers an opportunity to greatly reduce space, complexity and
cost while enhancing performance.

Custom Radio Frequency Backplane Assemblies. The Company's radio frequency
backplanes provide efficient connections of microwave signals between subsystems
in wireless base

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stations. Radio frequency backplanes are conceptually similar to the motherboard
in a personal computer, which efficiently connects signals between multiple
subsystems. These assemblies range from radio frequency-only to fully integrated
radio frequency, direct current power, and signal routing solutions. They are
typically used in conjunction with radio transceivers and radio frequency power
amplifiers. The Company also offers backplane assemblies with fully integrated
radio-frequency signal switching capability.

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

High Frequency Etched Thick Film and LTCC Circuits. The Company's ceramic
capabilities include etched thick film circuits and Low Temperature Co-fired
Ceramic circuits built to customer specifications. These circuits are suitable
for wireless, defense, aerospace, and medical applications.

Space and Defense
The Company is a supplier of radar countermeasure subsystems and beamforming
networks for use in missile guidance systems, electronic surveillance, radar
countermeasures and communications systems. The Company's Multi-Layer Stripline
and Ball Grid Array technologies enable the Company to provide customers with
highly complex electronic subsystems and beamforming networks that maintain high
performance, while reducing size, cost and weight. Each of these products is
specifically designed for a particular program. A brief description of the
Company's major Space and Defense product categories is as follows:

Radar Countermeasure Subsystems. Defense radar countermeasure subsystems
digitally measure, locate and counter enemy radar systems.

Beamformers. Beamformers determine the number, size and quality of beams that
are produced from an antenna array. The Company supplies passive and active
beamformers. Passive beamformers produce fixed beam locations while active
beamformers allow for real-time reconfiguration of the beam pattern.

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

Radar Feed Networks. Radar feeds are power dividers that distribute radio
frequency energy to the antenna elements of the radar. The power dividers are
frequently arranged to provide two or three inputs and several thousand outputs.

Customers
During the fiscal year ended June 30, 2006, approximately 63% of the Company's
sales were to customers in the wireless markets and approximately 37% of its
sales were to customers in the space and defense markets. The Company had two
customers in fiscal 2006 who accounted for more than 10.0% of net sales, Nokia,
who represented approximately 13.8% and Raytheon Company, who represented 16.7%.

Wireless Communications. The Company sells its standard line of Xinger(R)
components, resistive components, and ferrite components to leading original
equipment manufacturers and a broad

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range of other wireless equipment contract manufacturers. In addition, the
Company sells its custom wireless products to major wireless infrastructure
original equipment manufacturers. In general, customers have purchased the
Company's products directly from the Company or through distributors or sales
representatives. The following is a list of the Company's Wireless customers who
generated $1,000,000 or more in revenues in the fiscal year ended June 30, 2006:

o        CalAmp Corporation
o        Avnet Electronics
o        Celestica Corp.
o        EG Components
o        MKS Instruments, Ltd.
o        Motorola, Inc.
o        Nokia Corporation - ADR
o        Nortel Networks
o        Powerwave Technologies, Inc.
o        Richardson Electronics, Inc.
o        St. Jude Medical
o        Telecom International, Inc.

Space and Defense. The Company currently sells passive components and electronic
subsystems to prime contractors serving the United States and foreign
governments. The following is a list of Space and Defense customers who
generated $1,000,000 or more in revenues in the fiscal year ended June 30, 2006:

o        BAE Systems
o        ITT Corporation
o        Lockheed Martin Corporation
o        NEX 1 Future, Co., Ltd.
o        Northrup Grumman Corporation
o        Raytheon Co.

Sales and Marketing
The Company markets its products worldwide to original equipment manufacturers
in the wireless and space and defense markets primarily through a sales and
marketing force of 27 people as of June 30, 2006. The Company has regional sales
offices located in Sacramento, California; Woolwich Township, New Jersey;
Waterlooville, England; and Suzhou, China. In addition, as of June 30, 2006, the
Company had contracts with three major distributors, with seventeen
manufacturers' representatives in the United States, and with ten international
representatives located in Western Europe, the Middle East and Asia. As part of
its marketing efforts, the Company advertises in major trade publications and
attends major industry shows. The Company has also invested significantly in its
Internet website which contains an electronic version of its entire catalog. In
addition, the website enables users to download important device parameter
files. These files contain the performance information for the catalog parts in
a format which is compatible with commonly used computer aided design/computer
aided modeling, or CAD/CAM equipment. The Company also provides mechanical
drawings and applications notes for proper use of the parts. This service allows
designers to get the information they require and to easily incorporate the
Company's parts into their designs.

After identifying key potential customers, the Company makes sales calls with
its own sales, management and engineering personnel and with manufacturers'
representatives. To promote widespread acceptance of the Company's products and
provide customers with support for their wireless communications needs, the
sales and engineering teams work closely with the customers to develop solutions
tailored for their wireless requirements. The Company believes

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that its engineering team, comprised of 163 design and engineering professionals
as of June 30, 2006, is a key competitive advantage.

The Company uses distributors for its standard products, most notably the
Xinger(R) line of surface mount components. In the United States, Canada, Asia
and most of Europe, the Company has agreements with Richardson and Avnet, with
the latter operating under the name of BFI Optilas in Europe. The Company has an
agreement with Zenetron in Asia for distribution of commercial products. The
Scandinavian countries are serviced by E.G. Components, Inc., a subsidiary of
Elektronikgruppen. Distribution has become an important part of the Company's
sales efforts by providing the Company with a larger sales force to promote its
catalog offerings.

Backlog
The Company's backlog of orders for the Wireless group was $19.2 million as of
June 30, 2006, versus $14.4 million as of June 30, 2005. Backlog for the
Wireless group primarily represents firm orders for component products and
signed purchase orders (i.e., orders for specific custom sub-assemblies) for
custom components due to ship within eight to twelve weeks. The Company does not
believe that its Wireless backlog as of any particular date is representative of
actual sales for any succeeding period. Typically, large original equipment
manufacturers including Ericsson, Motorola, Nokia and Nortel, who use the
Company's component and custom products, negotiate set prices for estimated
annual volumes. The Company then receives a firm delivery commitment prior to
shipment. The Company does not recognize backlog until it has received a firm
order.

As part of the Company's close working relationships with major wireless
communications customers, the customers expect the Company to respond quickly to
changes in the volume and delivery schedule of their orders and, if necessary,
to inventory products at its facilities for just-in-time delivery. Therefore,
although contracts with these customers typically specify aggregate dollar
volumes of products to be purchased over an extended time period, these
contracts also provide for delivery flexibility, on short notice. In addition,
these customers may cancel orders with some financial penalty or defer orders
without significant penalty.

Backlog of orders for the Space and Defense group was $47.8 million as of June
30, 2006 versus $47.5 million as of June 30, 2005. During fiscal year 2007, the
Company expects to ship between $38.0 million and $40.0 million of its June 30,
2006 backlog. All of the orders included in the Space and Defense group backlog
are covered by signed contracts or purchase orders. However, backlog is not
necessarily indicative of future sales. Accordingly, the Company does not
believe that its backlog as of any particular date is representative of actual
sales for any succeeding period.

Research and Development
The Company's research and development efforts are focused on the design,
development and engineering of both products and manufacturing processes. The
Company intends to focus its future research and development efforts on next
generation products and technologies. The current development efforts of the
Company include:

o     products for use in mobile and fixed wireless applications;

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

o     advanced low temperature co-fired ceramic for use in low-cost, light
      weight integrated substrates; and

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

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These activities include customer-funded design and development, as well as
efforts funded d irectly by the Company. Research and development expenses
funded by the Company were $8.7 million in fiscal 2006, $6.3 million in fiscal
2005 and $5.9 million in fiscal 2004. Research and development costs are charged
to expense as incurred.

Manufacturing
The Company currently maintains manufacturing locations in Syracuse, New York;
Salem, New Hampshire; and Suzhou, China. During fiscal 2006, the company
announced plans to move its Suzhou operation from a leased 25,000 square foot
facility to a leased 76,000 square foot facility, and build a 54,000 square foot
addition to its 105,000 square foot Syracuse, NY facility. The facility move in
Suzhou will provide the Company with ample manufacturing space and ability to
readily respond to future wireless infrastructure business expansion needs. The
addition in Syracuse will facilitate expansion of its Space and Defense
manufacturing and engineering areas to support current and future growth. During
fiscal 2005, the Company consolidated its Amitron operation located in North
Andover, Massachusetts and its RF Power operation located in Bohemia, New York
into one facility located in Salem, New Hampshire, operating under a wholly
owned subsidiary, Anaren Ceramics, Inc. This facility includes significantly
more space for future expansion, and a State-of-the-Art Class 10,000 clean room
for manufacturing. During fiscal 2004, the Company closed and liquidated its
Almelo, Netherlands circuit board facility.

The Company continues to develop capability to produce highly engineered,
complex microwave subassemblies to support its Space and Defense business. In
fiscal 2004 and 2005, the Company continued to invest in equipment and processes
required to manufacture assemblies utilizing high-density and frequency Ball
Grid Array technology, supporting high reliability requirements suitable for
both defense and space based platforms. In 2006, the Company made investments in
electronic test equipment needed to measure the performance of its complex
defense and space based products.

A continued focus of the Company is to provide the lowest cost manufacturing
solutions. Part of this strategy has evolved with the opening of a facility in
Suzhou, China. Certain wireless manufacturing product lines from the Syracuse
and the Salem operations have been successfully transitioned to Suzhou over the
past two years. Manufacturing of newly released wireless custom products will be
initiated in Suzhou going forward. In addition, during fiscal 2006 the Suzhou
operation continued to provide support in identifying and qualifying new
lower-cost and local Asian sources of parts and raw materials for all of the
Company's non-military businesses. This trend is expected to continue and the
Company is investing in the resources required to support this activity.

All of the Company's facilities (Syracuse, New York; Salem, New Hampshire; and
Suzhou, China) are ISO 9001 certified. In addition, the East Syracuse facility
is certified to IPC 6010 for manufacture of high-reliability printed circuit
boards.

The Company manufactures its products from standard components, as well as from
items which are manufactured by vendors to its specifications. The raw materials
utilized in the various product areas are generally accessible and common to
both of the Company's business segments. The Company purchases most of its raw
materials from a variety of vendors and most of these raw materials are
available from a number of sources. During fiscal year 2006, the Company had one
vendor from which it purchased more than 10% of its total raw materials, and the
Company believes that alternate sources of supply are generally available for
all raw materials supplied by this and all other Company vendors.

Competition
The microwave component and subsystems industry continues to be highly
competitive. The

                                       12
<PAGE>

Company competes against many companies, both foreign and domestic, many of
which are larger and have greater financial and other resources. Direct
competitors of the Company in the wireless market include Aeroflex, M/A-com, a
division of Tyco International, Merrimac Industries, Filtronic PLC, Radiall,
Smith Industries, Soshin and Mini-Circuits. As a direct supplier to original
equipment manufacturers, the Company also faces significant competition from the
in-house capabilities of its customers. However, the current trend in the
wireless and defense marketplace has been for the original equipment
manufacturers to outsource more design and production work, thereby freeing up
their internal resources for other use.

In the wireless market, increased price pressure from the Company's customers is
a continuing challenge. It is anticipated that this pricing pressure will
continue indefinitely.

The principal competitive factors in both the foreign and domestic markets are
technical performance, reliability, ability to produce in volume, on-time
delivery and most critically, price. Based on these factors, the Company
believes that it competes favorably in its markets. The Company believes that it
is particularly strong in the area of technical performance in the wireless
marketplace. With the introduction of manufacturing capability in Suzhou, China,
and new innovative design techniques, the Company believes that it now competes
favorably on price as well.

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

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

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

Employees

As of June 30, 2006, the Company employed 708 full-time people, including 106
temporary

                                       13
<PAGE>

employees. Of these employees, 163 were members of the engineering
staff, 474 were in manufacturing positions, 27 were in sales and marketing
positions, and 44 were in management and support functions. None of these
employees are represented by a labor union, and the Company has not experienced
any work stoppages. The Company considers its employee relations to be
excellent.

Item 1A.  Risk Factors

In an effort to provide investors a balanced view of our current condition and
future growth opportunities, this Annual Report on Form 10-K includes comments
by our management about future performance. These statements which are not
historical information are "forward-looking statements" pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
These, and other forward-looking statements, are subject to business and
economic risks and uncertainties that could cause actual results to differ
materially from those discussed. The risks and uncertainties described below are
not the only risks and uncertainties that we face. Additional risks and
uncertainties not presently known to us or that are currently deemed immaterial
may also impair our business operations. If any of the following risks actually
occur, our business could be adversely affected, and the trading price of our
common stock could decline, and you may lose all or part of your investment. You
are encouraged to review our 2006 Annual Report, this Form 10-K for the fiscal
year ended June 30, 2006 and our Form 10-Q for the three months ended March 31,
2006, and exhibits to those Reports filed with the Securities and Exchange
Commission, to learn more about the various risks and uncertainties facing our
business and their potential impact on our revenue, earnings and stock price.
Unless required by law, we disclaim any obligation to update or revise any
forward-looking statement.

We may face unanticipated delays or difficulties in effectuating the relocation
of our Suzhou, China manufacturing facility.

Beginning in the latter part of the third quarter of calendar year 2006, we
intend to relocate our existing 25,000 square foot Suzhou, China wireless
infrastructure manufacturing operation to a new 76,000 square foot facility in
Suzhou. The additional space is required to accommodate our growing wireless
component business, and in particular to enable us to satisfy our obligations
with respect to a contract to produce certain wireless based combiners for
Nokia. Unanticipated delays in effectuating the relocation and in transitioning
production to the new facility due to factors beyond our control (such as
equipment failures, lack of raw materials, and failure to obtain appropriate
qualification approvals) could result in interruptions to production on the
Nokia contract and other business, adversely affecting our operating results. In
addition, our manufacturing operations in China may be subject to risks
generally affecting overseas operations, including potential exposure to more
volatile economic conditions, political instability, cultural and legal
differences in conducting business, and currency fluctuations.

Our Wireless Group has a significant concentration of business with one OEM
Customer.

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

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

In some cases we rely on a limited group of suppliers to provide us with
services and materials necessary for the manufacture of our products. While we
believe that substitute sources of supply at reasonably similar costs are
available for these and other products purchased, our reliance on a limited
group of suppliers involves several risks, including potential inability to
timely obtain critical materials or services; potential increase in raw
materials costs or production costs; potential delays in delivery of raw
materials or finished products; and reduced control over reliability and quality
of components or assemblies, as

                                       14
<PAGE>

outsourcing continues. We do not have binding contractual commitments or other
controls over our suppliers, and therefore cannot always rely upon the
guaranteed availability of the materials necessary for the manufacture of our
products. If we are required to seek alternative contract manufacturers or
suppliers because we are unable to obtain timely deliveries of acceptable
quality from existing manufacturers or suppliers, we could be forced to delay
delivery of our products to our customers. In addition, if our suppliers and
contract manufacturers increase their prices, we could suffer losses because we
may be unable to recover these cost increases under fixed price production
commitments to our customers.

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

The late 1990s through 2000 saw dramatic growth in the demand for mobile
communications. Despite this rapid growth in customer demand, expenditures for
capital infrastructure equipment by service providers began to decline rapidly
during the first quarter of calendar year 2001. This had a negative impact on
all of our Wireless product lines, particularly the printed-circuit board
business. During fiscal 2004, infrastructure spending rebounded due to the
deployment of new technology to expand existing network capacity resulting in
rising sales and orders across all of our Wireless product lines, and sales and
orders have remained strong in fiscal 2005 and 2006. Despite this recent growth
in customer demand, capital spending for wireless infrastructure equipment
remains volatile and relatively unpredictable. Future decreases in capital
expenditures for wireless infrastructure equipment may adversely impact the
success of these product lines.

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

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

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

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

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

We believe that our future growth depends in part on the success of the wireless
and satellite communications markets. A number of the markets for our products
in the wireless and satellite communications area have only recently begun to
develop. It is difficult to predict the rate at which these markets will grow,
if at all. Existing or potential wireless and satellite communications
applications for

                                       15
<PAGE>

our products may fail to develop or may erode. If the markets for our products
in wireless and satellite communications fail to grow, or grow more slowly than
anticipated, our business, financial condition and operating results could be
harmed.

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

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

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

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

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

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

We depend upon a small number of customers for a majority of our revenues.
During fiscal 2006, we had two customers that each accounted for more than 10%
of our net sales (Nokia, who represented approximately 13.8%, and Raytheon
Company, who represented 16.7%). We anticipate that we will continue to sell
products to a relatively small group of customers. Delays in manufacturing or
supply procurement or other factors could potentially cause cancellation,
reduction or delay in orders by a significant customer or in shipments to a
significant customer. Our future success depends significantly on the decision
of our current customers to continue to purchase products from us, as well as
the decision

                                       16
<PAGE>

of prospective customers to develop and market space and defense and wireless
communications systems that incorporate our products.

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

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

Failure to meet market expectations could impact our stock price.

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

Other risks.

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

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

      o     order cancellations or extended postponements;

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

      o     technological shifts away from our technologies and core
            competencies;

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

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

You are encouraged to review Anaren's 2006 Annual Report, this Form 10-K for the
fiscal year ended June 30, 2006, and Anaren's Form 10-Q for the three months
ended March 31, 2006 and exhibits to those Reports filed with the Securities and
Exchange Commission to learn more about the various risks and uncertainties
facing Anaren's business and their potential impact on Anaren's revenue,
earnings and stock price. Unless required by law, Anaren disclaims any
obligation to update or revise any forward-looking statement.

Item 1B.  Unresolved Staff Comments

None.

Item 2. Properties

The principal real estate of the Company is a 105,000 square foot building,
which the Company owns, located on a 30-acre parcel in East Syracuse, New York.
The Company's principal subsidiary, Anaren Microwave, Inc., utilizes this
facility which houses a substantial portion of the Company's marketing,
manufacturing, administrative, research and development, systems design and
engineering activities. In June 2006, the Company announced plans to construct a

                                       17
<PAGE>

54,000 square foot addition to this existing building to accommodate, primarily,
the growth of its Space and Defense business. The project is expected to be
completed during the second quarter of calendar 2007, at an estimated cost of
$5.8 million.

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

The Company leases a 25,000 square foot facility in Suzhou, China which houses
light manufacturing and assembly activities of the company's Anaren
Communications Suzhou Co. Ltd. subsidiary. This facility has an annual rent of
$46,400. In April 2006, the Company entered into a lease for a new 76,000 square
foot facility in Suzhou, at an annual rent of $165,227. The initial lease period
on the new building runs through April 2013 and is renewable through April 2023.
No additional cost will be incurred for termination of the lease on the current
building in the first quarter of fiscal 2007.

The Company leases a 20,000 square foot building in Frimley, England. Annual
rental cost of this facility is approximately $471,000, and the Company is
currently subletting the building. During the fiscal year ended June 30, 2006,
payments to the Company under this sublease were more than 95.0% of the full
lease value. The existing lease term on this building runs to 2014. The current
sub-lease expires in October 2007 and there is no assurance that the Company
will be able to continuously sublet the building during the remaining lease
term.

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

Item 3. Legal Proceedings

There are no material legal proceedings pending against the Company.

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

During the fourth quarter of the fiscal year ended June 30, 2006, there were no
matters submitted to a vote of security holders.

Item 4A. Executive Officers of the Registrant

Executive officers of Anaren, Inc., their respective ages as of June 30, 2006,
and their positions held with the Company are as follows:

Name                  Age                              Position
Lawrence A. Sala      43     President, Chief Executive Officer, Chairman
                               and Director
Carl W. Gerst, Jr     68     Chief Technical Officer, Vice Chairman and Director
Gert R. Thygesen      50     Senior Vice President, Technology
Joseph E. Porcello    54     Senior Vice President, Finance, Treasurer
Mark P. Burdick       48     Senior Vice President and General Manager
Timothy P. Ross       46     Senior Vice President, Business Development
Amy B. Tewksbury      42     Senior Vice President, Human Resources

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

                                       18
<PAGE>

in Electrical Engineering and a Master's Degree in Business Administration, all
from Syracuse University.

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

Gert R. Thygesen joined the Company in 1981 and has served as Sr. Vice President
of Technology since November 2005 and Vice President of Technology from
September 2000 until November 2005. He previously served as Vice President,
Operations from April 1995 to September 2000, as Operations Manager of the
Company from 1992 until 1995 and as Program Manager, Digital RF Memories &
Advanced Systems, from 1988 to 1992. Mr. Thygesen holds a Bachelor of Science
Degree and a Master's Degree in Electrical Engineering from Aalborg University
Center, Denmark.

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

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

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

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

                                     PART II

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

The common stock of the Company is quoted on the Nasdaq Global Market (formerly,
the Nasdaq National Market) under the symbol "ANEN." The following table sets
forth the range of

                                       19
<PAGE>

quarterly high and low sales prices reported on the Nasdaq Global Market for the
Company's common stock for the quarters indicated. Quotations represent prices
between dealers and do not include retail mark-ups, mark-downs or commissions.

                         Fiscal 2006                        Fiscal 2005
                           Quarter                            Quarter
                         -----------                        -----------
                    1st    2nd      3rd     4th       1st    2nd     3rd    4th
                    ---    ---      ---     ---       ---    ---     ---    ---
High ..........   $14.83  16.21    19.60   24.35    $16.50  14.91   13.33  13.57
Low ...........   $12.86  12.87    15.31   17.69    $10.50  11.96   10.54   9.29

The Company had approximately 344 holders of record of its common stock at
August 15, 2006.

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

Issuer Purchases of Equity Securities

On May 10, 2005, the Board of Directors increased by 2,000,000 the number of
shares that the Company was authorized to repurchase in open market or privately
negotiated transactions through its previously announced stock repurchase
program. The program, which may be suspended at any time without notice, has no
expiration date. The following table sets forth information regarding shares
repurchased and purchasable under the program during and as of the end of the
periods indicated. On June 30, 2006, 1,077,879 shares remained authorized for
purchase.

<TABLE>
<CAPTION>
----------- ----------------- ----------------------- ---------------------- ----------------------
                                                                               Maximum Number (or
                                                         Total Number of       Approximate Dollar
                                                        Shares (or Units)     Value) of Shares (or
             Total Number of                          Purchased as Part of     Units) that May Yet
            Shares (or Units)   Average Price Paid     Publicly Announced      Be Purchased Under
  Period       Purchased        per Share (or Unit)     Plans or Programs     the Plans or Programs
----------- ----------------- ----------------------- ---------------------- ----------------------
<S>                       <C>                     <C>                    <C>            <C>
April 2006                 0                       -                      0              1,077,879
----------- ----------------- ----------------------- ---------------------- ----------------------
May 2006                   0                       -                      0              1,077,879
----------- ----------------- ----------------------- ---------------------- ----------------------
June 2006                  0                       -                      0              1,077,879
----------- ----------------- ----------------------- ---------------------- ----------------------
Total                      0                       -                      0                      -
----------- ----------------- ----------------------- ---------------------- ----------------------
</TABLE>

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, 2006, and with respect to the balance sheets at June 30,
2006 and 2005, are derived from the consolidated financial statements that have
been audited by KPMG LLP, independent registered public accounting firm, which
are included elsewhere in this Annual Report on Form 10-K, and are qualified by
reference to such consolidated financial statements. The statements of
operations data for the years ended June 30, 2002 and June 30, 2003, and the
balance sheet data at June 30, 2002, June 30, 2003 and June 30, 2004, are
derived from audited consolidated financial statements not included in this
Annual Report on Form 10-K. The following selected financial data should be read
in conjunction with the consolidated financial statements for the Company and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations included elsewhere herein.

                                       20
<PAGE>

<TABLE>
<CAPTION>
                                                                                            Years Ended
                                                                                            -----------
                                                       June 30,         June 30,         June 30,         June 30,          June 30,
                                                         2006             2005             2004             2003              2002
                                                       --------         --------         --------         --------          --------
                                                                        (In thousands, except per share data)
<S>                                                   <C>              <C>              <C>              <C>              <C>
Statement of Income Data:
Net sales .....................................       $ 105,464        $  94,461        $  85,079        $  75,520        $  70,638
Cost of sales .................................          67,189           64,591           55,070           51,821           45,713
                                                      ---------        ---------        ---------        ---------        ---------
Gross profit ..................................          38,275           29,870           30,009           23,699           24,925
                                                      ---------        ---------        ---------        ---------        ---------
Operating expenses:
  Marketing ...................................           7,036            6,858            6,723            6,160            6,771
  Research and development ....................           8,748            6,288            5,861            6,140            6,283
  General and administrative ..................          10,345            8,685            8,731            8,392            7,617
  Restructuring ...............................              --              458               --              795               --
                                                      ---------        ---------        ---------        ---------        ---------
  Total operating expenses ....................          26,129           22,289           21,315           21,487           20,671
                                                      ---------        ---------        ---------        ---------        ---------
Operating income ..............................          12,146            7,581            8,694            2,212            4,254
                                                      ---------        ---------        ---------        ---------        ---------
Other income (expense):
  Interest expense ............................             (25)             (29)             (10)             (50)             (93)
  Other, primarily interest income ............           2,453            1,599            1,678            2,211            3,745
                                                      ---------        ---------        ---------        ---------        ---------
    Total other income, net ...................           2,428            1,570            1,668            2,161            3,652
                                                      ---------        ---------        ---------        ---------        ---------
Income before income taxes ....................          14,574            9,151           10,362            4,373            7,906
Income taxes ..................................           3,225            1,738            2,695              798            1,179
                                                      ---------        ---------        ---------        ---------        ---------
Income from continuing operations .............          11,349            7,413            7,667            3,575            6,727
Discontinued operations:
Income (loss) from discontinued
  operations of Anaren Europe .................             817               --           (1,510)          (8,029)            (872)
Income tax benefit ............................              --               --           (1,800)            (662)          (1,584)
                                                      ---------        ---------        ---------        ---------        ---------
Net income (loss) from discontinued
  operations ..................................             817               --              290           (7,367)             712
                                                      ---------        ---------        ---------        ---------        ---------
 Net income (loss) ............................       $  12,166        $   7,413        $   7,957        $  (3,792)       $   7,439
                                                      =========        =========        =========        =========        =========
Basic earnings (loss) per share:
  Income from continuing operations ...........       $     .66        $     .38        $     .37        $     .16        $     .30
  Income (loss) from discontinued
    operations ................................             .05               --              .01             (.33)             .03
                                                      ---------        ---------        ---------        ---------        ---------
  Net income (loss) ...........................       $     .71        $     .38        $     .38        $    (.17)       $     .33
                                                      =========        =========        =========        =========        =========
Diluted earnings (loss) per share:
  Income from continuing operations ...........       $     .64        $     .37        $     .35        $     .16        $     .29
  Income (loss) from discontinued
    operations ................................             .05               --              .01             (.33)             .03
                                                      ---------        ---------        ---------        ---------        ---------
  Net income (loss) ...........................       $     .69        $     .37        $     .36        $    (.17)       $     .32
                                                      =========        =========        =========        =========        =========
Shares used in computing
net earnings per share:
  Basic .......................................          17,157           19,346           21,026           22,214           22,323
  Diluted .....................................          17,682           19,832           21,808           22,701           23,090
Balance Sheet Data:
Cash and cash equivalents .....................       $  15,733        $   5,901        $  23,303        $  11,063        $  12,565
Working capital ...............................         112,493           84,554          105,987          126,235          144,023
Total assets ..................................         189,332          175,482          207,482          213,088          221,586
Long-term debt, less
  current installments ........................              --               --               --               --               --
Stockholders' equity ..........................         172,451          159,079          190,364          200,597          209,553
</TABLE>

                                       21
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

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

Overview

The consolidated financial statements present the financial condition of the
Company as of June 30, 2006 and 2005, and the consolidated results of operations
and cash flows of the Company for the years ended June 30, 2006, 2005 and 2004.

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

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

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

                                       22
<PAGE>

In October, 2004 the Company announced that it had decided to consolidate its RF
Power, Inc. subsidiary with the Company's Amitron subsidiary and close RF
Power's facility in Bohemia, New York. The consolidated company, Anaren
Ceramics, Inc., operates at the Company's Salem, New Hampshire facility. The
relocation of RF Power's operation to the Salem, New Hampshire facility was
completed during the second quarter of fiscal 2005. As a result of this
consolidation, the Company recognized costs of $458,335 for severance and
outplacement expenses, $91,000 for lease cancellation and $300,000 for
additional inventory write-downs during the second quarter of fiscal 2005.
Further consolidation costs totaling approximately $397,000, including equipment
write-downs of $272,000, were recognized in the third quarter of fiscal 2005,
related to integrating RF Power's operation into Anaren Ceramics.

Effective July 1, 2005, the Company adopted Statement of Financial Accounting
Standards No. 123R (SFAS 123R). This standard requires the company to measure
the cost of employee services received in exchange for equity awards based on
the grant date fair value of the awards. These costs are to be recognized as
compensation expense over the vesting period of the awards. SFAS 123R provides
for a prospective application for adoption which the Company chose. Under this
method, the Company began recognizing compensation costs for stock option equity
based compensation for all new or modified grants after June 30, 2005 and for
the unvested portion of the grant date fair value of awards issued prior to
adoption, based on the fair value previously calculated for footnote disclosure
purposes. Equity based compensation cost for employee stock options recognized
in the year ended June 30, 2006 was $3,358,227.

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

Results of Operations

Net sales from continuing operations for the year ended June 30, 2006 were
$105.5 million, up 11.6% from $94.5 million for fiscal 2005. Income from
continuing operations for fiscal 2006 was $11.3 million, or 10.8% of net sales,
up $3.9 million, or 53%, from income from continuing operations of $7.4 million
in fiscal 2005.

                                       23
<PAGE>

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

                                                        Years Ended June 30,
                                                        --------------------
                                                    2006       2005       2004
                                                    ----       ----       ----
Net sales                                          100.0%     100.0%     100.0%
Cost of sales                                       63.7       68.4       64.7
                                                   -----      -----      -----
Gross profit                                        36.3       31.6       35.3
                                                   -----      -----      -----
Operating expenses:
     Marketing                                       6.7        7.2        7.9
     Research and development                        8.3        6.7        6.9
     General and administrative                      9.8        9.2       10.3
     Restructuring                                    --        0.5         --
                                                   -----      -----      -----
       Total operating expenses                     24.8       23.6       25.1
                                                   -----      -----      -----
Operating income                                    11.5        8.0       10.2
                                                   -----      -----      -----
Other income (expense):
     Interest expense                                 --         --         --
     Other, primarily interest income                2.3        1.7        2.0
                                                   -----      -----      -----
       Total other income                            2.3        1.7        2.0
                                                   -----      -----      -----
Income from continuing operations before
  Income taxes                                      13.8        9.7       12.2
Income taxes                                         3.0        1.9        3.2
                                                   -----      -----      -----
Net income from continuing operations               10.8        7.8        9.0
Discontinued operations:
  Income (loss) from discontinued
    operations of Anaren Europe                      0.7         --       (1.8)
  Income tax benefit                                  --         --       (2.1)
                                                   -----      -----      -----
    Net income (loss) from discontinued
      operations                                     0.7         --         .3
                                                   -----      -----      -----
  Net income (loss)                                 11.5%       7.8%       9.3%
                                                   -----      -----      -----

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

                                               Years Ended June 30,
                                               --------------------
                                      2006              2005             2004
                                      ----              ----             ----
                                                    (In thousands)
Wireless                             $ 66,731           $64,169          $58,078
Space & Defense                        38,733            30,292           27,001
                                     --------           -------          -------
                                     $105,464           $94,461          $85,079
                                     ========           =======          =======

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

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

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

                                       24
<PAGE>

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

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

Gross Profit. Gross profit represents net sales minus cost of sales. Cost of
sales consists primarily of engineering design costs, material, material
fabrication costs, assembly costs, direct and indirect overhead and test costs.
Gross profit for fiscal 2006 was $38.3 million, (36.3% of net sales) up $8.4
million from $29.9 million (31.6% of net sales) for the same period of the prior
year. Gross profit on sales increased in fiscal 2006 over last year due to
favorable manufacturing efficiencies and a more favorable wireless product mix
in the current year. These efficiencies resulted from higher production volumes
at our lower cost China facility and in our Defense group, as well as
manufacturing overhead cost savings realized by combining the RF Power and
Amitron production facilities into one operation at Anaren Ceramics. Current
year growth in gross profit was lowered by the recognition of $875,000 of stock
option equity based compensation expense in cost of sales in fiscal 2006.

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

Research and Development. Research and development expenses consist of material
and salaries and related overhead costs of employees engaged in ongoing
research, design and development activities associated with new products and
technology development. Research and development expenses were $8.7 million,
(8.3% of net sales) in fiscal 2006, up 39.1% from $6.3 million (6.7% of net
sales) for fiscal 2005. Research and development expenditures are supporting
further development of Wireless infrastructure and consumer component
opportunities as well as new technology development in the Space and Defense
Group. Research and development expenditures increased in fiscal 2006 over
fiscal 2005 levels due to the higher level of Wireless opportunities in the
marketplace and due to the inclusion of $346,000 for stock option equity based
compensation expense. These opportunities resulted in the hiring of additional
product development personnel in fiscal 2005 and 2006, and additional outside
vendor spending by the Company in the current year to expedite the new product
development process. The Company does not expect to reduce its current research
and development efforts and is presently working on a number of new standard and
custom Wireless and Space and Defense products.

General and Administrative. General and administrative expenses consist of
employee related expenses, professional services, intangible amortization,
travel related expenses and other corporate costs. General and administrative
expenses increased 19.1% to $10.3 million (9.8% of net sales) for fiscal 2006,
from $8.7 million (9.2% of net sales) for fiscal 2005. This increase resulted
primarily from the inclusion of $1,771,000 of stock option equity based
compensation

                                       25
<PAGE>

expense in fiscal 2006. Absent the inclusion of stock option equity based
compensation expense, general and administrative costs for fiscal 2006 was down
1.3% compared to fiscal 2005 due to consolidation savings and lower Sarbanes
Oxley compliance costs in fiscal 2006.

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

Operating Income: Operating income increased $4.5 million, or 60.2% in fiscal
2006 to $12.1 million (11.5% of net sales) compared to $7.6 million (8.0% of net
sales) for last fiscal year. In fiscal 2006, operating income was reduced by
$3.3 million for stock option equity based compensation expense. Operating
income for fiscal 2005 does not include any expense for stock option equity
based compensation. Operating income has improved significantly in fiscal 2006
due to manufacturing efficiencies achieved through operation consolidations and
sales volume increases, the relative flat levels of marketing in fiscal 2006
compared to fiscal 2005, and the absence of one time consolidation and
restructuring charges in the current year compared to fiscal 2005, which
included $1.5 million of one-time charges.

On a reporting segment basis, Wireless operating income was $7.5 million for
fiscal 2006 (including $1.7 million of stock option equity based compensation
expense), up $5.3 million from Wireless operating income of $2.2 million for
last year. Wireless operating income improved significantly in the current year
due to cost savings achieved through the consolidation of the RF Power and
Amitron operations in fiscal 2005, the absence of consolidation charges ($1.5
million in fiscal 2005), cost efficiencies resulting from higher manufacturing
volumes in the Company's China operation, and a more favorable wireless product
mix in the current year compared to last fiscal year.

Space and Defense operating income fell $765,000 in fiscal 2006 to $4.6 million
(including $1.7 million of stock option equity based compensation expense)
compared to $5.3 million in fiscal 2005. This decrease, despite a rise in sales
volume, resulted from the large number of new Space and Defense programs
entering production over the second half of fiscal 2005 and all of fiscal 2006,
as well as the $1.7 million of stock option equity based compensation. These
programs in their early production phase require a higher level of engineering
support, have lower manufacturing yields and efficiencies than more mature
programs. Operating margins in this group improved in the second half of fiscal
2006 and are expected to improve further as the new programs mature.

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

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

Income Taxes: Income taxes for fiscal 2006 were $3.2 million (3.0% of net sales)
representing an effective tax rate of 22.1%. This compares to income tax expense
of $1.7 million (1.9% of

                                       26
<PAGE>

net sales) for fiscal 2005, representing an effective tax rate of 19.0%. The
Company's effective tax rate is a direct result of the proportion of federally
exempt state municipal bond income, the amount of non-taxable income of the
Company's China subsidiary, and federal tax credits and benefits in relation to
the levels of taxable income or loss. The increase in the effective tax rate is
a result of both the higher level of income and the amount of nondeductible
incentive stock option equity based compensation expense in fiscal 2006 compared
to the level of deductible non-statutory stock option equity based compensation
expense resulting from the adoption of SFAS 123R. Stock options issued prior to
the adoption of SFAS 123R were mainly incentive stock options and are presently
generating the majority of the Company's equity based employee stock option
compensation expense. Compensation expense for these options, under SFAS 123R,
does not generate a tax deduction and related deferred tax benefit. New options
granted after the adoption of SFAS 123R are expected to be mainly non-statutory
stock options, which will generate a tax deduction and related deferred tax
benefit. The Company is presently in a "tax free holiday" for income earned at
its China subsidiary through December 2007. Earnings of the China subsidiary
subsequent to that date are expected to be taxed at a 15% rate.

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

Year Ended June 30, 2005 Compared to Year Ended June 30, 2004

Net Sales. Net sales increased $9.4 million, or 11.0%, to $94.5 million for the
year ended June 30, 2005, compared to $85.1 million for fiscal 2004. This
increase resulted from a $6.1 million rise in sales of Wireless infrastructure
products and a $3.3 million rise in sales of Space and Defense products.

The increase in sales of Wireless products was a result of a $6.8 million
increase in sales to Nokia of Wireless custom subassemblies due to a new design
win in fiscal 2004. This new custom assembly contract resulted in total revenue
of $9.3 million in fiscal 2005, compared to $2.9 million in fiscal 2004. Sales
of standard component Wireless products were flat at $42.1 million in fiscal
2005, compared to $42.7 million in fiscal 2004, reflecting the steady annual
worldwide demand for Wireless infrastructure components over the two year
period.

Sales in the Space and Defense products rose $3.3 million, or 12.2% in fiscal
2005 compared to the previous fiscal year. This increase consisted of a $6.4
million rise in sales of defense products, which was partially off-set by a $3.1
million decline in Space product shipments during the current fiscal year
compared to the same period in fiscal 2004. Defense product sales are increasing
due to the higher level of new defense business booked by the Company in fiscal
2004 and 2005, which is now in production. Defense product bookings in fiscal
2004 were $37.7 million compared to $40.9 million in fiscal 2005.

Gross Profit. Gross profit for fiscal 2005 was $29.9 million (31.6% of net
sales), compared to $30.0 million (35.3% of net sales) for the prior year. Gross
margins as a percent of sales declined 3.7 percentage points due to a change in
sales mix from higher margin standard Wireless component products to lower
margin custom Wireless products. Additionally, margins were eroded by a one-time
write-down of inventory at RF Power in conjunction with the closure

                                       27
<PAGE>

of the Bohemia, New York facility and general production inefficiencies during
the period of actual consolidation of the two operations in Salem, New
Hampshire.

Marketing. Marketing expenses increased 2.0% to $6.9 million (7.2% of net sales)
for fiscal 2005, from $6.7 million (7.9% of net sales) for fiscal 2004. This
increase is a result of higher commission expense caused by the sales increase,
and rising travel and support costs due to the higher volume of business.

Research and Development. Research and development expenses were $6.3 million
(6.7% of net sales) in fiscal 2005, up 7.3% from $5.9 million (6.9% of net
sales) for fiscal 2004. Research and development expenditures supported further
development of Wireless infrastructure products and consumer component
opportunities. Research and Development expenditures increased in fiscal 2005
over fiscal 2004 levels due to the higher level of opportunities in the
marketplace, which the Company responded to by adding new product development
engineering personnel during fiscal 2005.

General and Administrative. General and administrative expenses were $8.7
million (9.2% of net sales) for fiscal 2005 compared to $8.7 million (10.3% of
net sales) for fiscal 2004. General and administrative costs were flat in fiscal
2005 compared with fiscal 2004 despite increased expenditures for compliance
with Sarbanes-Oxley regulations and one-time charges associated with the
consolidation of the Company's RF Power and Amitron operations due primarily to
the cost savings realized from that consolidation in the second half of fiscal
2005.

Restructuring. Restructuring costs which consisted of wages, health insurance
payroll taxes and outplacement costs were $458,000 (0.5% of net sales) in fiscal
2005. These costs were related to the termination of 79 people in conjunction
with the closure of RF Power's facility and the move of that operation to Salem,
New Hampshire in December 2004. There were no restructuring costs in fiscal
2004.

Operating Income: Operating income decreased in fiscal 2005 to $7.6 million
(8.0% of net sales) from $8.7 million (10.2% of net sales) for fiscal 2004. On a
reporting segment basis, Wireless operating income was $2.2 million for fiscal
2005, a decline of $2.2 million from fiscal 2004.

Wireless operating income fell in fiscal 2005 compared to fiscal 2004, (despite
the increase in Wireless product sales) due to the $1.5 million of consolidation
charges related to the facility closure, and move of the RF Power and Amitron
operations to Salem, New Hampshire, and the additional $250,000 first quarter
accelerated write-off of certain Amitron lease intangibles.

Space and Defense operating income rose $1.0 million in fiscal 2005 to $5.3
million compared to $4.3 million in fiscal 2004. This increase resulted from
higher sales volume in fiscal 2005 compared to fiscal 2004, and better
production efficiencies within the Space and Defense group in fiscal year 2005.

Other Income. Other income decreased 4.7% to $1.6 million (1.7% of net sales)
for fiscal 2005 from $1.7 million (2.0% of net sales) for fiscal 2004. This
decrease was caused mainly by a $67,000 loss on the sale of capital equipment
and a $343,000 loss on the disposal of 777,300 shares of Celeritek, Inc. common
stock owned by the Company. Additionally, Company cash balances were reduced
$38.0 million during fiscal 2005 due to $37.9 million used to repurchase
treasury shares and the purchase of the Salem, New Hampshire facility for $4.8
million. The decrease in other income caused by the loss on Celeritek stock and
the sale of equipment was

                                       28
<PAGE>

partially offset by higher interest rates resulting in an increase in interest
income of approximately $331,000 in fiscal 2005 compared to fiscal 2004.
Interest income fluctuates based on interest rates and the level of investable
cash balances.

Interest Expense. The Company does not have any long term debt and interest
expense represents interest paid on a deferred obligation. Interest expense for
fiscal 2005 was $29,000 (0.0% of net sales) compared to $10,000 (0.0% of net
sales) for fiscal 2004.

Income Taxes: Income taxes for fiscal 2005 were $1.7 million (1.9% of net
sales), representing an effective tax rate of 19.0%. This compares to income tax
expense of $2.7 million (3.2% of net sales) for fiscal 2004, representing an
effective tax rate of 26.1%. The Company's effective tax rate is a direct result
of the proportion of federally exempt state municipal bond income and federal
tax credits and benefits in relation to the levels of taxable income or loss.
The decrease in the effective tax rate in fiscal 2005 compared to fiscal 2004
resulted from higher foreign sales benefits due to a rise in foreign export
sales levels in fiscal 2005.

Discontinued Operations. In July 2003, the Company announced its decision to
dispose of its Anaren Europe operation. During the first quarter of fiscal 2004,
the Company ceased production at Anaren Europe and liquidated the production
equipment used in that operation. The results of operations for Anaren Europe
for fiscal 2004 have been classified as discontinued operations in the
statements of earnings filed as part of this Annual Report on Form 10-K.

Critical Accounting Policies

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

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

The Company states inventories at the lower of cost or market, using a standard
cost methodology to determine the cost basis for the inventory. This method
approximates actual cost

                                       29
<PAGE>

on a first-in-first-out basis. The recoverability of inventories is based on the
types and levels of inventory held, forecasted demand, pricing, competition and
changes in technology.

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

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

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

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

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

Liquidity and Capital Resources

Net cash provided by operations for the years ended June 30, 2006, 2005 and 2004
was $16.6 million, $8.4 million and $15.2 million, respectively. The positive
cash flow from operations was due primarily to profit before depreciation in
fiscal 2005 and 2004 and profit before depreciation and equity based
compensation expense in fiscal 2006. In all three years the positive cash flow
from earnings was partially off-set by a combined increase in inventory and
accounts receivable amounting to $4.3 million in fiscal 2006, $3.8 million in
fiscal 2005 and

                                       30
<PAGE>

$6.5 million in fiscal 2004. Additionally, in fiscal 2006, cash flow from
operations rose due to $3.5 million in equity based compensation expense which
did not require cash.

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

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

Net cash provided by investing activities for fiscal 2004 was $17.5 million and
consisted of net maturities of marketable debt securities of $16.8 million, and
a return of capital dividend on Celeritek, Inc. equity securities of $3.5
million, less $4.3 million used to fund capital equipment acquisitions.
Additionally, in fiscal 2004, $1.5 million was generated by the discontinued
operations in Europe from proceeds from the auction sale of surplus capital
equipment.

Net cash used in financing activities in fiscal 2006, 2005 and 2004 was $2.6
million, $37.7 million and $20.5 million, respectively. In fiscal 2006, $7.2
million was provided by cash and tax benefits resulting from the exercise of
stock options and $9.8 million was used to purchase 697,000 treasury shares.

In fiscal 2005, $225,000 was provided by the exercise of stock options and $37.9
million was expended to repurchase 3.2 million shares of the Company's common
stock.

Of the 2004 amount, $1.6 million was provided by the exercise of stock options
and $22.1 million was used to repurchase 1.6 million shares of the Company's
common stock.

The Company expects to continue to purchase shares of its common stock in the
open market and/or through private negotiated transactions under the current
Board authorization, depending on market conditions. At June 30, 2006 there were
1,077,879 shares remaining under the current Board repurchase authorization.

At June 30, 2006, the Company had approximately $88.6 million in cash, cash
equivalents, and marketable securities and no debt, and has had positive
operating cash flow for over ten years. The Company believes that its cash
requirements for the foreseeable future will be satisfied by currently invested
cash balances and expected cash flows from operations.

                                       31
<PAGE>

Disclosures About Contractual Obligations and Commercial Commitments

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

<TABLE>
<CAPTION>
                                                     Less
                                        Total      Than 1 Yr.     2 - 3 Yrs.  4 - 5 Yrs.  Over 5 Yrs.
                                        -----      ----------     ----------  ----------  -----------
                                                          Payment Due by Period
                                                          ---------------------
<S>                                  <C>            <C>          <C>          <C>          <C>
Contractual obligations
-----------------------
Operating leases -- facilities       $5,892,701     $775,370     $1,605,525   $1,605,525   $1,906,281
Deferred compensation                   337,870       65,000        130,000      130,000       12,870
</TABLE>

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

FASB Interpretation 48 was issued in July 2006 to clarify the criteria for
recognizing tax benefits under FASB Statement No. 109, Accounting for Income
Taxes. The Interpretation defines the threshold for recognizing the benefits of
tax-return positions in the financial statements as "more-likely-than-not" to be
sustained by the taxing authority and will affect many companies' reported
results and their disclosures of uncertain tax positions. The Interpretation
does not prescribe the type of evidence required to support meeting the
more-likely-than-not threshold, stating that it depends on the individual facts
and circumstances. The benefit recognized for a tax position meeting the
more-likely-than-not criterion is measured based on the largest benefit that is
more than 50 percent likely to be realized. The measurement of the related
benefit is determined by considering the probabilities of the amounts that could
be realized upon ultimate settlement, assuming the taxing authority has full
knowledge of all relevant facts and including expected negotiated settlements
with the taxing authority. Interpretation 48 is effective as of the beginning of
the first fiscal year beginning after December 15, 2006 (the Company's 2008
fiscal year). The company is currently analyzing the financial statement impact
of adopting this pronouncement.

Proposed Accounting for Pension and Other Postretirement Benefits - This FASB
proposal would require companies to report on their balance sheets the funded
status of pension and other postretirement benefit plans. The proposal would
also require companies to measure plan assets and obligations as of the
employer's balance-sheet date. As a result, companies would recognize on their
balance sheets actuarial gains and losses and prior service cost that have not
yet been included in income. This could significantly increase reported
liabilities for many companies with a corresponding reduction in equity reported
as accumulated other comprehensive income. The provisions for the proposed
statement, if passed, would be effective for fiscal years ending after December
15, 2006, (the Company's 2007 fiscal year) with earlier application encouraged.
The company is currently analyzing the financial statement impact of adopting
this pronouncement.

                                       32
<PAGE>

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

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

As of June 30, 2006, the Company had cash, cash equivalents and marketable
securities of $88.6 million, all of which consisted of highly liquid investments
in marketable debt securities. The marketable debt securities at date of
purchase normally have maturities between one and 18 months, are exposed to
interest rate risk and will decrease in value if market interest rates increase.
A hypothetical decrease in market interest rate of 10.0% from June 30, 2006
rates, or 0.375%, would have reduced net income and cash flow by approximately
$316,000, or $0.018 per diluted share for the year. Due to the relatively short
maturities of the securities and its ability to hold those investments to
maturity, the Company does not believe that an immediate decrease in interest
rates would have a significant effect on its financial condition or results of
operations. Over time, however, declines in interest rates will reduce the
Company's interest income.

Item 8.  Financial Statements and Supplementary Data

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

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

Item 9A. Controls and Procedures

      1.    Evaluation of disclosure controls and procedures. Based on their
            evaluation of the Company's disclosure controls and procedures (as
            defined in Rule 13a-15(e) and 15d-15(e) under the Securities
            Exchange Act of 1934) as of the end of the period covered by this
            Annual Report on Form 10-K, the Company's chief executive officer
            and chief financial officer have concluded that the Company's
            disclosure controls and procedures are designed to ensure that
            information required to be disclosed by the Company in the reports
            that it files or submits under the Exchange Act is recorded,
            processed, summarized and reported within the time periods specified
            in the SEC's rules and forms and are operating in an effective
            manner.

      2.    Management's Report on Internal Control over Financial Reporting.
            Anaren's management is responsible for establishing and maintaining
            adequate internal control over financial reporting. The Company's
            internal control system was designed to provide reasonable assurance
            to management and the Board of Directors regarding the preparation
            and fair presentation of published financial statements in
            accordance with generally accepted accounting principles. For the
            fiscal year ended June 30, 2006, the Company engaged the accounting
            firm of Fust Charles Chambers LLP to help the Company document and
            test its internal controls over financial reporting.

                                       33
<PAGE>

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

            All internal control systems, no matter how well designed, have
            inherent limitations. Therefore, even those systems determined to be
            effective can provide only reasonable assurance with respect to
            financial statement preparation and presentation. Because of
            inherent limitations due to, for example, the potential for human
            error or circumvention of controls, internal controls over financial
            reporting may not prevent or detect misstatements. Also, projections
            of any evaluation of effectiveness to future periods are subject to
            the risk that controls may become inadequate because of changes in
            conditions, or that the degree of compliance with the policies or
            procedures may deteriorate.

            Anaren's management assessed the effectiveness of the Company's
            internal control over financial reporting as of June 30, 2006. In
            making this assessment, management used the criteria set forth by
            the Committee of Sponsoring Organizations of the Treadway Commission
            (COSO) in Internal Control - Integrated framework. Based on its
            assessment, management believes that, as of June 30, 2006, the
            Company's internal control over financial reporting is effective
            based on those criteria.

            Anaren's independent registered public accounting firm, KPMG LLP,
            has issued a report on the Company's assessment of its internal
            control over financial reporting. This report appears below.

      3.    Attestation Report of the Registered Public Accounting Firm.

            Report of Independent Registered Public Accounting Firm.

The Board of Directors and Shareholders
Anaren, Inc.:

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting, that Anaren,
Inc. and subsidiaries maintained effective internal control over financial
reporting as of June 30, 2006, based on criteria established in Internal Control
- Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Anaren, Inc.'s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the Company's internal control over financial
reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the

                                       34
<PAGE>

design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

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

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

In our opinion, management's assessment that Anaren, Inc. and subsidiaries
maintained effective internal control over financial reporting as of June 30,
2006, is fairly stated, in all material respects, based on criteria established
in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also, in our opinion, Anaren,
Inc. and subsidiaries maintained, in all material respects, effective internal
control over financial reporting as of June 30, 2006, based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Anaren, Inc. and subsidiaries as of June 30, 2006 and 2005, and the related
consolidated statements of operations, stockholders' equity and comprehensive
income (loss), and cash flows for each of the years in the three-year period
ended June 30, 2006, and our report dated August 25, 2006 expressed an
unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Syracuse, New York
August 25, 2006

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

Item 9B. Other Information

None.

                                       35
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant
Information required by this Item is contained in the Company's proxy statement
filed with respect to the 2006 Annual Meeting of Shareholders and is
incorporated by reference herein. Certain information regarding executive
officers of the Company required by this Item is included in Item 4A hereof.

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

Item 11. Executive Compensation
Information required by this Item is contained in the Company's proxy statement
filed with respect to the 2006 Annual Meeting of Shareholders and is
incorporated by reference herein.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters Information required by this Item is contained in
the Company's proxy statement filed with respect to the 2006 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 Company's proxy statement
filed with respect to the 2006 Annual Meeting of Shareholders and is
incorporated by reference herein.

Item 14. Principal Accounting Fees and Services

Information required by this Item is contained in the Company's proxy statement
filed with respect to the 2006 Annual Meeting of Shareholders and is
incorporated by reference herein.

                                       36
<PAGE>

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules.

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

      Index to Exhibits

Exhibit No.                             Description
-----------                             -----------

      3.1   Certificate of Incorporation, as amended (1)
      3.2   Restated By-Laws (2)
      4.1   Specimen Certificate of Common Stock (3)
      4.2   Shareholder Protection Rights Agreement dated as of April 20, 2001,
            between the Company and American Stock Transfer & Trust Company,
            including forms of Rights Certificate and Election to Exercise (4)
      10.1  Employment Agreement, dated as of July 1, 2006, between the Company
            and Lawrence A. Sala (5)
      10.2  Pension Plan and Trust (6)
      10.3  Anaren Microwave, Inc. Incentive Stock Option Plan, as amended (7)
      10.4  Anaren Microwave, Inc. 1989 Non-statutory Stock Option Plan, as
            amended (8)
      10.5  Anaren Microwave, Inc. Incentive Stock Option Plan for Key Employees
            (9)
      10.6  Anaren Microwave, Inc. Stock Option Plan (10)
      10.7  Form of Change of Control Agreements dated March 15, 2002 with
            Joseph Porcello, Mark Burdick, Timothy Ross, Stanley Slingerland and
            Gert Thygesen (11)
      10.8  Employment Agreement, dated as of February 14, 2004, between the
            Company and Carl W. Gerst, Jr. (12)
      10.9  Anaren, Inc. Comprehensive Long-Term Incentive Plan (13)
      21    Subsidiaries of the Company
      23    Consent of KPMG LLP, Independent Registered Public Accounting Firm
      31    Rule 13a-14(a) Certifications
      32    Section 1350 Certifications

----------

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

                                       37
<PAGE>

(2)   Incorporated herein reference to Exhibit 4.2 to the Company's Registration
      Statement on Form S-3 (Registration No. 333-31460) filed with the
      Securities and Exchange Commission on March 2, 2000.
(3)   Incorporated herein reference to Exhibit 4.3 to the Company's Registration
      Statement on Form S-3 (Registration No. 333-31460) filed with the
      Securities and Exchange Commission on March 2, 2000.
(4)   Incorporated herein by reference to Exhibits 4.1 and 4.2 to the Company's
      Registration Statement on Form 8-A (Commission File No. 0-6620) filed with
      the Securities and Exchange Commission on April 26, 2001.
(5)   Incorporated herein by reference to Exhibit 10.1 to the Company's Periodic
      Report on Form 8-K, (Commission File No. 0-6620), filed with the
      Securities and Exchange Commission on July 25, 2006.
(6)   Incorporated herein by reference to Exhibit 4(b) to the Company's
      Registration Statement on Form S-8 (Registration No. 33-19618).
(7)   Incorporated herein by reference to Appendix A to the Company's definitive
      proxy statement for its 1998 annual meeting of the shareholders
      (Commission File No. 0-6620), filed with the Securities and Exchange
      Commission on September 25, 1998.
(8)   Incorporated herein by reference to Appendix B to the Company's definitive
      proxy statement for its 1998 annual meeting of the shareholders
      (Commission File No. 0-6620), filed with the Securities and Exchange
      Commission on September 25, 1998.
(9)   Incorporated herein by reference to Appendix A to the Company's definitive
      proxy statement for its 2000 annual meeting of the shareholders
      (Commission File No. 0-6620), filed with the Securities and Exchange
      Commission on September 18, 2000.
(10)  Incorporated herein by reference to Appendix B to the Company's definitive
      proxy statement for its 2000 annual meeting of the shareholders
      (Commission File No. 0-6620), filed with the Securities and Exchange
      Commission on September 18, 2000.
(11)  Incorporated herein by reference to Exhibit 10.11 to the Company's Annual
      Report on Form 10-K (Commission File No. 0-6620) for the fiscal year ended
      June 30, 2002.
(12)  Incorporated herein by reference to Exhibit 10.12 to the Company's
      Quarterly Report on Form 10-Q for the three months ended March 31, 2004.
(13)  Incorporated herein by reference to Appendix A to the Company's definitive
      proxy statement for its 2004 annual meeting of the shareholders
      (Commission File No. 0-6620), filed with the Securities and Exchange
      Commission on September 17, 2004.

                                       38
<PAGE>

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                  ANAREN, INC.

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

Date: September 6, 2006

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:

           Signature               Title                            Date
           ---------               -----                            ----

/s/ Lawrence A. Sala     President, Chief Executive Officer    September 6, 2006
----------------------   and Chairman of the Board, Director
                         (Principal Executive Officer)

/s/ Joseph E. Porcello   Sr. Vice President of Finance and     September 6, 2006
----------------------   Treasurer (Principal Financial
                         and Accounting Officer)

/s/ Carl W. Gerst, Jr.   Chief Technical Officer,              September 6, 2006
----------------------   Vice Chairman of the Board
                         and Director

/s/ Herbert I. Corkin    Director                              September 6, 2006
----------------------

/s/ Dale F. Eck          Director                              September 6, 2006
----------------------

/s/ Matthew S. Robison   Director                              September 6, 2006
----------------------

/s/ David L. Wilemon     Director                              September 6, 2006
----------------------

/s/ James G. Gould       Director                              September 6, 2006
----------------------

/s/ Robert U. Roberts    Director                              September 6, 2006
----------------------

/s/ John L. Smucker      Director                              September 6, 2006
----------------------

                                       39
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                        Consolidated Financial Statements

                             June 30, 2006 and 2005

                  (With Report of Independent Registered Public
                            Accounting Firm Thereon)

                                       40
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                                      Index

                                                                         Page
                                                                         ----

Report of Independent Registered Public Accounting Firm                    42

Consolidated Balance Sheets as of June 30, 2006 and 2005                   43

Consolidated Statements of Operations for the years ended
  June 30, 2006, 2005, and 2004                                            44

Consolidated Statements of Stockholders' Equity and Comprehensive
  Income for the years ended June 30, 2006, 2005, and 2004                 45

Consolidated Statements of Cash Flows for the years ended
  June 30, 2006, 2005, and 2004                                            46

Notes to Consolidated Financial Statements                              47-76

                                       41
<PAGE>

             Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Anaren, Inc.:

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

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Anaren, Inc. and
subsidiaries as of June 30, 2006 and 2005, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 2006, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Anaren, Inc.'s
internal control over financial reporting as of June 30, 2006, based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO), and our report
dated August 25, 2006 expressed an unqualified opinion on management's
assessment of, and the effective operation of, internal control over financial
reporting.

As discussed in note 12 to the consolidated financial statements, effective July
1, 2005, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 123R, Share-Based Payment.

/s/ KPMG LLP

Syracuse, New York
August 25, 2006

                                       42
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                             June 30, 2006 and 2005
<TABLE>
<CAPTION>

                                       Assets                                                            2006             2005
                                                                                                    -------------     -------------
<S>                                                                                                 <C>               <C>
Current assets:
     Cash and cash equivalents                                                                      $  15,733,214     $   5,900,841
     Securities available for sale (note 5)                                                            35,635,000        16,200,000
     Securities held to maturity (note 5)                                                              31,124,733        36,307,880
     Receivables, less allowance for doubtful accounts of $84,854 and
         $213,099 in 2006 and 2005, respectively                                                       16,362,011        14,780,146
     Inventories (note 6)                                                                              22,132,680        19,403,348
     Other receivables                                                                                  1,176,009         1,144,680
     Prepaid expenses                                                                                     744,321           662,247
     Deferred income taxes (note 18)                                                                      716,287           686,411
     Other current assets                                                                                 851,863           423,000
                                                                                                    -------------     -------------
               Total current assets                                                                   124,476,118        95,508,553
Securities available for sale (note 5)                                                                         --         3,500,000
Securities held to maturity (note 5)                                                                    6,131,425        20,100,547
Property, plant, and equipment, net (note 7)                                                           27,635,161        24,983,653
Deferred income taxes (note 18)                                                                            32,902                --
Goodwill (note 1)                                                                                      30,715,861        30,715,861
Other intangible assets, net of accumulated amortization of $2,684,595
     and $2,351,725 in 2006 and 2005, respectively (notes 1 and 3)                                        340,371           673,241
                                                                                                    -------------     -------------
               Total assets                                                                         $ 189,331,838     $ 175,481,855
                                                                                                    =============     =============
                       Liabilities and Stockholders' Equity
Current liabilities:
     Accounts payable                                                                               $   6,798,793     $   6,077,313
     Accrued expenses (note 8)                                                                          3,254,816         2,331,885
     Income taxes payable                                                                                 676,488         1,501,088
     Customer advance payments                                                                            483,722                --
     Other current liabilities (note 10)                                                                  769,523         1,044,759
                                                                                                    -------------     -------------
               Total current liabilities                                                               11,983,342        10,955,045

Deferred income taxes (note 18)                                                                         1,811,955         1,627,304
Pension and postretirement benefit obligation (notes 16 and 17)                                         2,356,789         3,253,188
Other liabilities (note 10)                                                                               728,943           567,755
                                                                                                    -------------     -------------
               Total liabilities                                                                       16,881,029        16,403,292
                                                                                                    -------------     -------------
Commitments and concentrations (notes 19, 20, and 21)

Stockholders' equity:
     Common stock, $0.01 par value. Authorized 200,000,000 shares (notes 11
         and 15); issued 26,857,554 and 26,070,804 in 2006 and 2005, respectively                         268,575           260,708
     Additional paid-in capital                                                                       181,780,660       171,333,975
     Unearned compensation (note 13)                                                                           --          (248,578)
     Retained earnings                                                                                 70,826,262        58,659,807
     Accumulated other comprehensive loss (note 14)                                                      (441,397)         (747,539)
                                                                                                    -------------     -------------
                                                                                                      252,434,100       229,258,373
     Less cost of 9,249,643 and 8,553,058 treasury shares in 2006 and 2005,
         respectively                                                                                  79,983,291        70,179,810
                                                                                                    -------------     -------------
               Total stockholders' equity                                                             172,450,809       159,078,563
                                                                                                    -------------     -------------
               Total liabilities and stockholders' equity                                           $ 189,331,838     $ 175,481,855
                                                                                                    =============     =============
See accompanying notes to consolidated financial statements.
</TABLE>

                                       43

<PAGE>

                         ANAREN, INC. AND SUBSIDIARIES
                     Consolidated Statements of Operations
                   Years ended June 30, 2006, 2005, and 2004
<TABLE>
<CAPTION>

                                                                                  2006                2005                 2004
                                                                              -------------       -------------       -------------
<S>                                                                           <C>                 <C>                 <C>
Net sales                                                                     $ 105,464,236       $  94,461,065       $  85,078,939
Cost of sales                                                                    67,188,568          64,590,866          55,069,793
                                                                              -------------       -------------       -------------
             Gross profit                                                        38,275,668          29,870,199          30,009,146
                                                                              -------------       -------------       -------------
Operating expenses:
     Marketing                                                                    7,036,240           6,857,974           6,723,478
     Research and development                                                     8,747,463           6,287,514           5,860,493
     General and administrative                                                  10,345,398           8,685,332           8,731,580
     Restructuring (note 9)                                                              --             458,335                  --
                                                                              -------------       -------------       -------------
             Total operating expenses                                            26,129,101          22,289,155          21,315,551
                                                                              -------------       -------------       -------------
             Operating income                                                    12,146,567           7,581,044           8,693,595
                                                                              -------------       -------------       -------------
Other income (expense):
     Interest expense                                                               (25,203)            (29,422)            (10,195)
     Other, primarily interest income                                             2,452,914           1,598,914           1,678,414
                                                                              -------------       -------------       -------------
             Total other income, net                                              2,427,711           1,569,492           1,668,219
                                                                              -------------       -------------       -------------
             Income before income taxes                                          14,574,278           9,150,536          10,361,814

Income tax expense (note 18)                                                      3,225,000           1,738,000           2,695,000
                                                                              -------------       -------------       -------------
             Income from continuing operations                                   11,349,278           7,412,536           7,666,814

Discontinued operations (note 4):
     Income (loss) from discontinued operations
        of Anaren Europe                                                            817,177                  --          (1,509,686)
     Income tax benefit                                                                  --                  --          (1,800,000)
                                                                              -------------       -------------       -------------
             Net income from discontinued
                operations                                                          817,177                  --             290,314
                                                                              -------------       -------------       -------------
             Net income                                                       $  12,166,455       $   7,412,536       $   7,957,128
                                                                              =============       =============       =============
Basic net income per common and common equivalent share:
     Income from continuing operations                                        $        0.66       $        0.38       $        0.37
     Income from discontinued operations                                               0.05                  --                0.01
                                                                              -------------       -------------       -------------
             Net income                                                       $        0.71       $        0.38       $        0.38
                                                                              =============       =============       =============
Diluted net income per common and common equivalent share:
     Income from continuing operations                                        $        0.64       $        0.37       $        0.35
     Income from discontinued operations                                               0.05                  --                0.01
                                                                              -------------       -------------       -------------
             Net income                                                       $        0.69       $        0.37       $        0.36
                                                                              =============       =============       =============
Shares used in computing net income per common and common
   equivalent share:
     Basic                                                                       17,156,720          19,346,491          21,026,001
     Diluted                                                                     17,682,231          19,831,710          21,807,538

See accompanying notes to consolidated financial statements.
</TABLE>

                                       44

<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES
    Consolidated Statements of Stockholders' Equity and Comprehensive Income
                    Years ended June 30, 2006, 2005, and 2004

<TABLE>
<CAPTION>

                                                                                                                      Additional
                                                                                   Comprehensive    Common stock        paid-in
                                                                                   income (loss)       amount           capital
                                                                                   -------------    -------------    -------------
<S>                                                                                <C>              <C>              <C>
Balance at June 30, 2003                                                                      --    $     256,818    $ 168,805,153
Comprehensive income:
      Net income                                                                   $   7,957,128               --               --
      Other comprehensive income:
            Foreign currency translation adjustment                                       56,426               --               --
            Minimum pension liability adjustment, net of tax of $255,181                 424,345               --               --
            Unrealized gain on securities available-for-sale                             777,300               --               --
                                                                                   -------------
                  Other comprehensive income                                           1,258,071               --               --
                                                                                   -------------
                  Total comprehensive income                                       $   9,215,199
                                                                                   =============
Purchase of treasury stock                                                                                     --               --
Stock options exercised (note 12)                                                                           2,689        1,562,397
Tax benefit from exercise of stock options (note 18)                                                           --          797,630
Amortization of unearned compensation (note 13)                                                                --               --
                                                                                                    -------------    -------------
Balance at June 30, 2004                                                                                  259,507      171,165,180
Comprehensive income:
      Net income                                                                   $   7,412,536               --               --
      Other comprehensive loss:
            Foreign currency translation adjustment                                        1,950               --               --
            Minimum pension liability adjustment, net of tax benefit of $468,112        (917,734)              --               --
            Unrealized gain on sale of securities available-for-sale                     127,135               --               --
                                                                                   -------------
            Other comprehensive loss                                                    (788,649)              --               --
                                                                                   -------------
            Total comprehensive income                                             $   6,623,887
                                                                                   =============
Purchase of treasury stock                                                                                     --               --
Stock options exercised (note 12)                                                                             985          223,762
Tax benefit from exercise of stock options (note 18)                                                           --           29,308
Issuance of restricted stock                                                                                  235          319,365
Forfeiture of restricted stock                                                                                (19)        (100,681)
Amortization of unearned compensation (note 13)                                                                --               --
Tax impact of restricted stock activity                                                                        --         (302,959)
                                                                                                    -------------    -------------
Balance at June 30, 2005                                                                                  260,708      171,333,975
Comprehensive income:
      Net income                                                                   $  12,166,455               --               --
      Other comprehensive income:
            Foreign currency translation adjustment                                     (632,455)              --               --
            Minimum pension liability adjustment, net of tax of $469,815                 938,597               --               --
                                                                                   -------------
            Other comprehensive income                                                   306,142
                                                                                   -------------
            Total comprehensive income                                             $  12,472,597
                                                                                   =============
Purchase of treasury stock                                                                                     --               --
Stock issued under equity plans (note 12)                                                                   7,867        5,541,353
Amortization of vested stock options                                                                           --        3,474,761
Tax benefit from exercise of stock options (note 18)                                                           --        1,679,149

Reclassification of unearned compensation (note 13)                                                            --         (248,578)
                                                                                                    -------------    -------------
Balance at June 30, 2006                                                                            $     268,575    $ 181,780,660
                                                                                                    =============    =============
</TABLE>

<TABLE>
<CAPTION>

                                                                                                                     Accumulated
                                                                                                                        other
                                                                                     Unearned         Retained       comprehensive
                                                                                   compensation       earnings       income (loss)
                                                                                   -------------    -------------    -------------
<S>                                                                                <C>              <C>              <C>
Balance at June 30, 2003                                                           $    (381,588)   $  43,290,143    $  (1,216,961)
Comprehensive income:
      Net income                                                                              --        7,957,128               --
      Other comprehensive income:
            Foreign currency translation adjustment                                           --               --               --
            Minimum pension liability adjustment, net of tax of $255,181                      --               --               --
            Unrealized gain on securities available-for-sale                                  --               --               --

                  Other comprehensive income                                                  --               --        1,258,071

                  Total comprehensive income

Purchase of treasury stock                                                                    --               --               --
Stock options exercised (note 12)                                                             --               --               --
Tax benefit from exercise of stock options (note 18)                                          --               --               --
Amortization of unearned compensation (note 13)                                          286,200               --               --
                                                                                   -------------    -------------    -------------
Balance at June 30, 2004                                                                 (95,388)      51,247,271           41,110
Comprehensive income:
      Net income                                                                              --        7,412,536               --
      Other comprehensive loss:
            Foreign currency translation adjustment                                           --               --               --
            Minimum pension liability adjustment, net of tax benefit of $468,112              --               --               --
            Unrealized gain on sale of securities available-for-sale                          --               --               --

            Other comprehensive loss                                                          --               --         (788,649)

            Total comprehensive income

Purchase of treasury stock                                                                    --               --               --
Stock options exercised (note 12)                                                             --               --               --
Tax benefit from exercise of stock options (note 18)                                          --               --               --
Issuance of restricted stock                                                            (319,600)              --               --
Forfeiture of restricted stock                                                                --               --               --
Amortization of unearned compensation (note 13)                                          166,410               --               --
Tax impact of restricted stock activity                                                       --               --               --
                                                                                   -------------    -------------    -------------
Balance at June 30, 2005                                                                (248,578)      58,659,807         (747,539)
Comprehensive income:
      Net income                                                                              --       12,166,455               --
      Other comprehensive income:
            Foreign currency translation adjustment                                           --               --               --
            Minimum pension liability adjustment, net of tax of $469,815                      --               --               --

            Other comprehensive income                                                                                     306,142

            Total comprehensive income

Purchase of treasury stock                                                                    --               --               --
Stock issued under equity plans (note 12)                                                     --               --               --
Amortization of vested stock options                                                          --               --               --
Tax benefit from exercise of stock options (note 18)                                          --               --               --

Reclassification of unearned compensation (note 13)                                      248,578               --               --
                                                                                   -------------    -------------    -------------
Balance at June 30, 2006                                                           $          --    $  70,826,262    $    (441,397)
                                                                                   =============    =============    =============
</TABLE>

<TABLE>
<CAPTION>

                                                                                                       Total
                                                                                   Treasury stock   stockholders'
                                                                                       amount          equity
                                                                                   -------------    -------------
<S>                                                                                <C>              <C>
Balance at June 30, 2003                                                           $ (10,156,160)   $ 200,597,405
Comprehensive income:
      Net income                                                                              --        7,957,128
      Other comprehensive income:
            Foreign currency translation adjustment                                           --               --
            Minimum pension liability adjustment, net of tax of $255,181                      --               --
            Unrealized gain on securities available-for-sale                                  --               --

                  Other comprehensive income                                                  --        1,258,071

                  Total comprehensive income

Purchase of treasury stock                                                           (22,097,252)     (22,097,252)
Stock options exercised (note 12)                                                             --        1,565,086
Tax benefit from exercise of stock options (note 18)                                          --          797,630
Amortization of unearned compensation (note 13)                                               --          286,200
                                                                                   -------------    -------------
Balance at June 30, 2004                                                             (32,253,412)     190,364,268
Comprehensive income:
      Net income                                                                              --        7,412,536
      Other comprehensive loss:
            Foreign currency translation adjustment                                           --               --
            Minimum pension liability adjustment, net of tax benefit of $468,112              --               --
            Unrealized gain on sale of securities available-for-sale                          --               --

            Other comprehensive loss                                                          --         (788,649)

            Total comprehensive income

Purchase of treasury stock                                                           (37,926,398)     (37,926,398)
Stock options exercised (note 12)                                                             --          224,747
Tax benefit from exercise of stock options (note 18)                                          --           29,308
Issuance of restricted stock                                                                  --               --
Forfeiture of restricted stock                                                                --         (100,700)
Amortization of unearned compensation (note 13)                                               --          166,410
Tax impact of restricted stock activity                                                       --         (302,959)
                                                                                   -------------    -------------
Balance at June 30, 2005                                                             (70,179,810)     159,078,563
Comprehensive income:
      Net income                                                                              --       12,166,455
      Other comprehensive income:
            Foreign currency translation adjustment                                           --               --
            Minimum pension liability adjustment, net of tax of $469,815                      --               --

            Other comprehensive income                                                                    306,142

            Total comprehensive income

Purchase of treasury stock                                                            (9,803,481)      (9,803,481)
Stock issued under equity plans (note 12)                                                     --        5,549,220
Amortization of vested stock options                                                          --        3,358,227
Tax benefit from exercise of stock options (note 18)                                          --        1,679,149

Reclassification of unearned compensation (note 13)                                           --          116,534
                                                                                   -------------    -------------
Balance at June 30, 2006                                                           $ (79,983,291)   $ 172,450,809
                                                                                   =============    =============
See accompanying notes to consolidated financial statements

</TABLE>

                                       45

<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                    Years ended June 30, 2006, 2005, and 2004
<TABLE>
<CAPTION>

                                                                                         2006            2005              2004
                                                                                    -------------    -------------    -------------
<S>                                                                                 <C>              <C>             <C>
Cash flows from operating activities:
  Net income                                                                        $  12,166,455    $   7,412,536    $   7,957,128
  Net income from discontinued operations                                                 817,177               --          290,314
                                                                                    -------------    -------------    -------------
           Net income from continuing operations                                       11,349,278        7,412,536        7,666,814

  Adjustments to reconcile net income to net cash provided
    by operating activities:
      Depreciation                                                                      4,875,335        4,887,154        4,296,999
      Impairment loss                                                                          --          272,118               --
      Loss on sale of equipment                                                            15,875           98,332               --
      Loss on sale of equity securities                                                        --          342,715               --
      Amortization of intangibles                                                         332,870          570,645          709,539
      Deferred income taxes                                                              (356,986)         558,902         (140,784)
      Stock based compensation                                                          3,474,761           65,710          286,200
      Provision for doubtful accounts                                                     (40,948)          67,599          (16,532)
      Tax benefit from exercise of stock options                                               --           29,308          797,630
      Changes in operating assets and liabilities:
        Receivables                                                                    (1,540,917)      (1,034,892)      (5,071,555)
        Inventories                                                                    (2,729,332)      (2,795,293)      (1,426,801)
        Other receivables                                                                 (31,329)        (103,842)          91,484
        Other current assets, including prepaids                                         (552,671)         141,127         (405,611)
        Refundable income taxes                                                                --               --          876,220
        Accounts payable                                                                  755,007       (1,120,939)       3,379,732
        Accrued expenses                                                                  922,931         (760,485)         919,259
        Income taxes payable                                                             (824,600)         169,193        3,065,301
        Customer advance payments                                                         483,722         (411,486)         411,486
        Other liabilities                                                                 435,453          142,849        1,468,336
        Pension and postretirement benefit obligation                                     158,718         (162,963)      (1,290,722)
                                                                                    -------------    -------------    -------------
           Net cash provided by operating activities
             from continuing operations                                                16,727,167        8,368,288       15,616,995

  Net cash used in operating activities from discontinued operations                      (97,241)              --         (404,886)
                                                                                    -------------    -------------    -------------
           Net cash provided by operating activities                                   16,629,926        8,368,288       15,212,109
                                                                                    -------------    -------------    -------------
Cash flows from investing activities:
  Capital expenditures                                                                 (7,543,718)      (9,058,703)      (4,274,681)
  Proceeds from sale of equity securities                                                      --        2,746,130               --
  Proceeds from sale of fixed assets                                                        1,000          160,000               --
  Dividend return of capital in equities held for resale                                       --               --        3,497,850
  Maturities of marketable debt securities                                            103,595,269      117,321,661      194,358,406
  Purchase of marketable debt and equity securities                                   100,378,000)     (99,240,097)    (177,570,000)
                                                                                    -------------    -------------    -------------
           Net cash provided by (used in) investing
             activities from continuing operations                                     (4,325,449)      11,928,991       16,011,575

  Net cash provided by investing activities from discontinued operations                       --               --        1,492,657
                                                                                    -------------    -------------    -------------
           Net cash provided by (used in) investing activities                         (4,325,449)      11,928,991       17,504,232
                                                                                    -------------    -------------    -------------
Cash flows from financing activities:
    Stock options exercised                                                             5,549,220          224,747        1,565,086
    Tax benefit from exercise of stock options                                          1,679,149               --               --
    Purchase of treasury stock                                                         (9,803,481)     (37,926,398)     (22,097,252)
                                                                                    -------------    -------------    -------------
          Net cash used in financing activities from continuing operations             (2,575,112)     (37,701,651)     (20,532,166)
    Net cash used in financing activities from discontinued operations                         --               --               --
                                                                                    -------------    -------------    -------------
           Net cash used in financing activities                                       (2,575,112)     (37,701,651)     (20,532,166)
                                                                                    -------------    -------------    -------------
Effect of exchange rates                                                                  103,008            1,950           56,426
                                                                                    -------------    -------------    -------------
           Net increase (decrease) in cash and cash equivalents                         9,832,373      (17,402,422)      12,240,601

Cash and cash equivalents at beginning of year                                          5,900,841       23,303,263       11,062,662
                                                                                    -------------    -------------    -------------
Cash and cash equivalents at end of year                                            $  15,733,214    $   5,900,841    $  23,303,263
                                                                                    =============    =============    =============
Supplemental disclosures of cash flow information:
  Cash paid during the year for:
    Interest                                                                        $      25,203    $      29,422    $       7,519

See accompanying notes to consolidated financial statements.

</TABLE>

                                       46

<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

(1)   Summary of Significant Accounting Policies

      (a)   Principles of Consolidation

            The consolidated financial statements include the accounts of
            Anaren, Inc. and its wholly owned subsidiaries (the Company). 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 and radio frequency components, assemblies, and
            subsystems which receive, process, and transmit radar, wireless
            communications, and other wireless signals and other microwave
            transmissions. Its primary products include devices and systems used
            in the wireless communications, satellite communications, and
            defense electronics markets.

      (c)   Revenue Recognition

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

      (d)   Cash Equivalents

            Cash equivalents of $9,214,455 and $3,470,927 at June 30, 2006 and
            2005, respectively, consist of certificates of deposit and money
            market instruments having original maturities of three months or
            less. Cash equivalents are stated at cost which approximates fair
            value.

      (e)   Marketable Securities

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

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

                                       47
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

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

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

      (f)   Trade Accounts Receivable

            Trade accounts receivable are recorded at the invoiced amount and do
            not bear interest. The allowance for doubtful accounts is the
            Company's best estimate of the amount of probable credit losses in
            the Company's existing accounts receivable. The Company reviews its
            allowance for doubtful accounts monthly. Past due balances over 90
            days are reviewed individually for collectibility. Account balances
            are charged off against the allowance after all means of collection
            have been exhausted and the potential for recovery is considered
            remote. The Company does not have any off-balance-sheet credit
            exposure related to its customers.

      (g)   Inventories

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

      (h)   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.

      (i)   Goodwill

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

            Goodwill is tested annually for impairment at the reporting unit
            level in the fourth quarter of the Company's fiscal year, by
            comparing the fair value of the reporting unit with its carrying
            value. Valuation methods for determining the fair value of the
            reporting unit include reviewing quoted market prices and discounted
            cash flows. If the goodwill is indicated as being impaired, the fair
            value of the reporting unit is then allocated to its assets and
            liabilities in a manner similar to a purchase price allocation in
            order to determine the implied fair value of the reporting unit
            goodwill. This implied fair value of the reporting unit goodwill is
            then compared with the carrying amount of the reporting unit
            goodwill, and if it is less, the Company would then recognize an
            impairment loss. No impairment losses were recorded through June 30,
            2006.

                                       48
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

      (j)   Long-Lived Assets

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

      (k)   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 and restricted stock
            plans described in notes 12 and 13. The weighted average number of
            common shares utilized in the calculation of the diluted income per
            share does not include antidilutive shares aggregating 206,600,
            1,927,922, and 583,582 at June 30, 2006, 2005, and 2004,
            respectively. The treasury stock method is used to calculate
            dilutive shares which reduces the gross number of dilutive shares by
            the number of shares purchasable from the proceeds of the options
            assumed to be exercised.

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

<TABLE>
<CAPTION>

                                                            2006                  2005                    2004
                                                        -----------            -----------            -----------
<S>                                                     <C>                    <C>                    <C>
Numerator:
     Earnings available to
        common stockholders                              12,166,455              7,412,536              7,957,128
                                                         ==========             ==========             ==========
Denominator:
     Denominator for basic earnings per share:
                                                         ==========             ==========
              outstanding                                17,156,720             19,346,491             21,026,001
                                                         ==========             ==========             ==========
Denominator for diluted earnings per share:
        Weighted average shares
           outstanding                                   17,156,720             19,346,491             21,026,001
        Common stock options and
           restricted stock                                 525,511                485,219                781,537
                                                         ----------             ----------             ----------
                 Weighted average shares                 17,682,231             19,831,710             21,807,538
                                                         ==========             ==========             ==========
</TABLE>

                                       49
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

      (l)   Research and Development Costs

            Research and development costs are expensed as incurred.

      (m)   Income Taxes

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

      (n)   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, 2006 and 2005. The
            Company's available-for-sale equity securities are stated at their
            fair value, as determined by quoted market prices on June 30, 2006
            and 2005. 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 5.

      (o)   Use of Estimates

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

      (p)   Recent Pronouncements

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

            In May 2005, the FASB published Statement of Financial Accounting
            Standards No. 154, Accounting Changes and Error Corrections.
            Statement 154 replaces APB No. 20, Accounting Changes, and FASB
            Statement No. 3, Reporting Changes in Interim Financial Statements.
            The Statement changes the accounting for, and reporting of, a change
            in accounting principle. Statement 154 requires retrospective
            application to prior period's financial statements of voluntary
            changes in accounting principle and changes required by new
            accounting standards when the standard does not include specific
            transition provisions, unless it is impracticable to do so.
            Statement 154 is effective

                                       50
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

            for accounting changes and corrections of errors in fiscal years
            beginning after December 15, 2005 (the Company's 2007 fiscal year).
            Early application is permitted for accounting changes and
            corrections of errors during fiscal years beginning after June 1,
            2005.

            FASB Interpretation 48 was issued in July 2006 to clarify the
            criteria for recognizing tax benefits under FASB Statement No. 109,
            Accounting for Income Taxes. The Interpretation defines the
            threshold for recognizing the benefits of tax return positions in
            the financial statements as "more-likely-than-not" to be sustained
            by the taxing authority and will affect many companies' reported
            results and their disclosures of uncertain tax positions. The
            Interpretation does not prescribe the type of evidence required to
            support meeting the more-likely-than-not threshold, stating that it
            depends on the individual facts and circumstances. The benefit
            recognized for a tax position meeting the more-likely-than-not
            criterion is measured based on the largest benefit that is more than
            50 percent likely to be realized. The measurement of the related
            benefit is determined by considering the probabilities of the
            amounts that could be realized upon ultimate settlement, assuming
            the taxing authority has full knowledge of all relevant facts and
            including expected negotiated settlements with the taxing authority.
            Interpretation 48 is effective as of the beginning of the first
            fiscal year beginning after December 15, 2006 (the Company's 2008
            fiscal year). The Company is currently analyzing the financial
            statement impact of adopting this pronouncement.

            Proposed Accounting for Pension and Other Postretirement Benefits -
            This FASB proposal would require companies to report on their
            balance sheets the funded status of pension and other postretirement
            benefit plans. The proposal would also require companies to measure
            plan assets and obligations as of the employer's balance sheet date.
            As a result, companies would recognize on their balance sheets
            actuarial gains and losses and prior service cost that have not yet
            been included in income. This could significantly increase reported
            liabilities for many companies, with a corresponding reduction in
            equity reported as accumulated other comprehensive income. The
            provisions for the proposed statement, if passed, would be effective
            for fiscal years ending after December 15, 2006 (the Company's 2007
            fiscal year), with earlier application encouraged. The Company is
            currently analyzing the financial statement impact of adopting this
            pronouncement.

            There were no other new pronouncements affecting the Company's
            financial statements during the fiscal year ended June 30, 2006.

(2)   Adoption of Accounting Pronouncements

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

      During 2004, the FASB issued FASB Staff Position 106-2, Accounting and
      Disclosure Requirements Related to the Medicare Prescription Drug,
      Improvement and Modernization Act of 2003 (FSP 106-2). FSP 106-2 relates
      to the Medicare Prescription Drug, Improvement, and Modernization Act of
      2003 (the Act), signed into law in December 2003. The Act introduced a
      prescription drug benefit under Medicare known as Medicare Part D. The Act
      also established a federal subsidy to sponsors of retiree health care
      plans that provide a benefit that is at least actuarially equivalent to
      Medicare Part D. During

                                       51
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

      fiscal year 2005, the Company adopted the provisions of FSP 106-2. The
      reduction in the accumulated postretirement benefit for the subsidy
      related to benefits attributed to past service as of June 30, 2005 was
      $547,592.

      In December 2003, the FASB issued SFAS No. 132 (revised), Employers'
      Disclosures about Pensions and Other Postretirement Benefits, which
      revises employers' disclosures about pension plans and other post
      retirement benefits. The disclosure provisions are effective for fiscal
      years ending after June 15, 2004. The Company has provided the required
      disclosures.

      EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and
      Its Application to Certain Investments, must be applied in reporting
      periods beginning after June 15, 2004. The disclosure requirements are
      effective for all fiscal years after December 15, 2003. The Company has
      complied with the disclosure requirements.

(3)   Other Intangible Assets

      Other intangible assets as of June 30 are as follows:
<TABLE>
<CAPTION>

                                                                         2006                                     2005
                                                           -------------------------------           -------------------------------
                                                              Gross                                   Gross
                                                            carrying          Accumulated            carrying           Accumulated
                                                             amount           amortization             amount           amortization
                                                           ----------         ------------           ----------         ------------
<S>                                                        <C>                  <C>                  <C>                  <C>
Patent                                                     $  574,966         $    503,095           $  574,966         $    431,225
Customer base                                               1,350,000            1,087,500            1,350,000              862,500
Trade name                                                    320,000              320,000              320,000              320,000
Noncompetition agreements                                     180,000              174,000              180,000              138,000
Favorable lease                                               600,000              600,000              600,000              600,000
                                                           ----------         ------------           ----------         ------------
                Total                                      $3,024,966         $  2,684,595           $3,024,966         $  2,351,725
                                                           ==========         ============           ==========         ============
</TABLE>

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

                                       52
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

       Intangible asset amortization expense for the years ended June 30, 2006,
       2005, and 2004 aggregated $332,870, $570,645, and $709,539, respectively.
       Amortization expense related to intangible assets for the next five years
       is as follows:

            Year ending June 30:
                     2007                                     $302,874
                     2008                                       37,497
                     2009                                           --
                     2010                                           --
                     2011                                           --

(4)   Discontinued Operations

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

                                                                                2006                  2005                2004
                                                                          ----------------      ----------------      -----------
<S>                                                                       <C>                   <C>                   <C>
Net sales                                                                 $            --       $           --        $   675,340
Income (expense)                                                                   817,177                  --         (1,402,737)
Loss on sale of equipment                                                             --                    --           (782,289)
                                                                          ----------------      ----------------      -----------
                 Net income (loss) from
                    discontinued operations                               $        817,177      $           --        $(1,509,686)
                                                                          ================      ================      ===========
</TABLE>

      The Company also recorded income tax benefits related to discontinued
      operations of $1,800,000 for the fiscal year ended June 30, 2004.

                                       53
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

(5)   Securities

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

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

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

                                       54
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

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

                                  2006                         2005
                         -------------------------   -------------------------
                                       Fair market                 Fair market
                            Cost          value         Cost         value
                            ----       -----------      ----       -----------
Within one year          $31,124,733   $30,994,480   $36,307,880   $36,176,998
One year to five years     6,131,425     6,075,967    20,100,547    19,951,761
                         -----------   -----------   -----------   -----------
                Total    $37,256,158   $37,070,447   $56,408,427   $56,128,759
                         ===========   ===========   ===========   ===========

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

                                  2006                         2005
                         -------------------------   -------------------------
                                       Fair market                 Fair market
                            Cost          value         Cost         value
                            ----       -----------      ----       -----------
Within one year          $35,635,000   $35,635,000   $16,200,000   $16,200,000
One year to five years            --            --     3,500,000     3,500,000
                         -----------   -----------   -----------   -----------
                Total    $35,635,000   $35,635,000   $19,700,000   $19,700,000
                         ===========   ===========   ===========   ===========

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

      On July 11, 2002, the Company filed a Schedule 13D with the Securities and
      Exchange Commission to disclose that it had, through open market
      purchases, acquired an ownership position of approximately 6.35% of the
      common stock of Celeritek, Inc. The Company's original investment in
      Celeritek common stock averaged $8.47 a share and totaled $6.6 million. In
      March 2004, the Company received a nontaxable return of capital dividend
      of $4.50 per share reducing the Company's basis in Celeritek to $3.97 per
      share. On June 30, 2004 the Company's cost basis in Celeritek totaled
      approximately $3.1 million. The investment had a market value of $3.0
      million on June 30, 2004, an increase of $777,300, for the year ended June
      30, 2004, which has been recorded as a component of accumulated other
      comprehensive loss.

      During the first half of fiscal year 2005, the remaining shares of
      Celeritek were sold and the Company recorded a realized loss of $342,715
      that is included in other income in the Company's fiscal 2005 statement of
      operations. The Company used the average cost method in order to determine
      the realized loss.

                                       55
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

(6)      Inventories

      Inventories at June 30 are summarized as follows:

                                                   2006                2005
                                                   ----                ----
Component parts                                 $ 10,521,929       $ 10,369,049
Work in process                                    9,034,733          7,709,465
Finished goods                                     3,767,308          2,766,157
                                                ------------       ------------
                                                  23,323,970         20,844,671
Reserve for obsolescence                          (1,191,290)        (1,441,323)
                                                ------------       ------------
                 Net inventories                $ 22,132,680       $ 19,403,348
                                                ============       ============

(7)   Property, Plant, and Equipment

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

                                                    2006                 2005
                                                    ----                 ----
Land and land improvements                       $ 2,207,823         $ 2,207,823
Buildings, furniture, and fixtures                17,081,807          16,654,351
Machinery and equipment                           58,621,347          51,680,883
                                                 -----------         -----------
                                                  77,910,977          70,543,057
Less accumulated depreciation
  and amortization                                50,275,816          45,559,404
                                                 -----------         -----------
                                                 $27,635,161         $24,983,653
                                                 ===========         ===========

(8)   Accrued Expenses

      Accrued expenses at June 30 consist of the following:

                                                     2006               2005
                                                     ----               ----
Compensation                                      $2,082,104          $1,222,891
Commissions                                          732,749             620,990
Restructuring (note 9)                                    --              19,863
Health insurance                                     294,500             271,561
Other                                                145,463             196,580
                                                  ----------          ----------
                                                  $3,254,816          $2,331,885
                                                  ==========          ==========

(9)   Restructuring and Impairment

       On October 26, 2004, the Company announced that in order to accelerate
       ceramic product growth initiatives and improve operating efficiency, it
       had decided to consolidate its RF Power operation with the Company's
       Amitron operation and close RF Power's facility in Bohemia, New York. The
       consolidated

                                       56
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

      operation, Anaren Ceramics, Inc., operates at the Company's Salem, NH
      facility, which fully accommodates the current capacity needs of the
      combined entity as well as significant future growth. The move of the RF
      Power operation to the Salem, NH facility was completed during the second
      quarter ended December 31, 2004. As a result of the facility closure and
      move, the Company recognized consolidation costs of $458,335 for severance
      and outplacement, $91,000 for lease cancellation (included in general and
      administrative expense) and $300,000 for additional inventory write-downs
      (included in cost of sales) during the second quarter of fiscal 2005. All
      of RF Power's employees were either terminated or transferred to the New
      Hampshire facility.

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

                                             Year ending June 30, 2005
                                    Balance  -------------------------  Balance
                                    June 30,      Cash        Cash      June 30,
                                     2004       incurred  expenditures   2005
                                    --------    --------  ------------  --------
Severance payments                  $     --   $ 391,575    $(371,712)   $19,863
Outplacement services and                 --      66,760      (66,760)        --
                                    --------   ---------    ---------    -------
                                    $     --   $ 458,335    $(438,472)   $19,863
                                    ========   =========    =========    =======

                                             Year ending June 30, 2006
                                    Balance  -------------------------  Balance
                                    June 30,      Cash        Cash      June 30,
                                     2005       incurred  expenditures   2006
                                    --------    --------  ------------  --------
Severance payments                  $ 19,863   $      --    $ (19,863)   $    --
                                    ========   =========    =========    =======

(10)  Other Liabilities

      Other liabilities as of June 30 consist of the following:

                                                     2006                2005
                                                     ----                ----
Deferred compensation                             $  793,943          $  650,064
Pension liability                                    312,660             675,000
Other                                                391,863             287,450
                                                  ----------          ----------
                                                   1,498,466           1,612,514
Less current portion                                 769,523           1,044,759
                                                  ----------          ----------
                                                  $  728,943          $  567,755
                                                  ==========          ==========

                                       57
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

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

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

(11)  Common Stock

      On December 2, 2000, the Company's shareholders approved an amendment to
      the Certificate of Incorporation to increase the total number of shares of
      common stock from 25,000,000 to 200,000,000.

(12)  Stock-Based Compensation

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

      Total stock-based compensation expense recognized for the years ended June
      30, 2006, 2005, and 2004 was $3,474,761, $65,710, and $286,200,
      respectively. These amounts include $116,534, $65,710, and $286,200
      related to the Company's restricted stock program (see note 13) and
      $3,358,227 related to the Company's stock option program for the year
      ended June 30, 2006.

      As a result of the adoption of SFAS 123R, both operating income and income
      before taxes for the year ended June 30, 2006 were reduced by $3,267,277,
      while net income was reduced by $3,040,277, or $0.18 per basic and $0.17
      per diluted share for the year then ended.

                                       58
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

      Stock-based compensation expense included in operating expenses is as
      follows for the year ended June 30, 2006:

                                             Stock     Restricted      Total
                                            option       stock      stock-based
                                            program     program    compensation
                                            -------    ----------  ------------
Cost of goods sold                        $   966,207    $106,534   $ 1,072,741
Marketing                                     274,631          --       274,631
Research and development                      346,167          --       346,167
General and administrative                  1,771,222      10,000     1,781,222
                                          -----------    --------   -----------
             Total cost of stock-based
                compensation                3,358,227     116,534     3,474,761
Amounts capitalized in inventory
     at year end                              (90,950)         --       (90,950)
                                          -----------    --------   -----------

Net stock-based compensation expense      $ 3,267,277    $116,534   $ 3,383,811
                                          ===========    ========   ===========
Amount of related income tax benefit
     recognized in income                 $   227,000    $     --   $   227,000
                                          ===========    ========   ===========

                     Nonvested Shares Issued Under the Plan

                                                           Weighted-Average
                                                              Grant-Date
                                    Number of Shares          Fair Value
                                    ----------------          ----------

Nonvested at June 30, 2005            1,073,592                $ 6.60

Granted                                 387,500                  8.88
Forfeited                               (24,180)                 6.28
Vested                                 (431,994)                 9.72
                                      ---------

Nonvested at June 30, 2006            1,004,918                $ 6.16
                                      =========

      As of June 30, 2006, there were 2,445,907 stock options outstanding. At
      June 30, 2006, the aggregate value of unvested options, as determined
      using a capital Black-Scholes option valuation model, was $6,185,810 (net
      of estimated forfeitures) which is expected to be recognized as
      compensation expense in fiscal years 2007 through 2011. The aggregate
      intrinsic value of these options was $16,694,529 (net of forfeitures). As
      of June 30, 2006, 1,440,989 stock options were exercisable, which
      represents an aggregate intrinsic value of $9,766,008. During the year
      ended June 30, 2006, the Company granted 387,500 nonstatutory stock
      options with a fair value of $3,446,140 (net of estimated forfeitures),
      and 60,270 options were forfeited and/or expired. During the year ended
      June 30, 2006, there were 664,103 stock options exercised, which
      represents an aggregate intrinsic value of $6,938,901. New option grants
      made after July 1, 2005, as well as option grants issued prior to that
      date, have been valued using a Black-Scholes option valuation model.

                                       59
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

      Prior to adopting SFAS 123R on July 1, 2005, the Company's stock-based
      employee compensation expense was accounted for under the recognition and
      measurement principles of APB Opinion No. 25, Accounting for Stock Issued
      to Employees, and related interpretations. For the years ended June 30,
      2005 and 2004, no equity option-based employee compensation cost is
      reflected in net income, as all options granted under the Company's stock
      option plans had an exercise price equal to the underlying common stock
      price on the date of grant. The following table illustrates the effect on
      net income and earnings per share if the Company had applied the
      fair-value recognition provisions of SFAS 123, Accounting for Stock-Based
      Compensation, to stock-based employee compensation for the years ended
      June 30, 2005 and 2004:

                                                       Year ended June 30
                                                 -------------------------------
                                                     2005               2004
                                                     ----               ----
Net income, as reported                          $   7,412,536    $   7,957,128
Deduct total stock-based employee
     compensation expense determined
     under fair value-based method for
     all awards, net of related tax effects         (5,523,596)      (7,114,460)
                                                 -------------    -------------
                 Pro forma net income            $   1,888,940    $     842,668
                                                 =============    =============
Earnings per share:
     Basic - as reported                         $        0.38    $        0.38
     Basic - pro forma                                    0.10             0.04
     Diluted - as reported                                0.37             0.36
     Diluted - pro forma                                  0.10             0.04

      Stock Option Plans

      In November 2004, the shareholders approved the amendment and restatement
      of the Company's three existing stock option plans, which combined these
      plans under one single consolidated equity compensation plan, the Anaren,
      Inc. Comprehensive Long-Term Incentive Plan. The effect of the amendment
      and restatement was to combine the separate share pools available for
      grant under the three existing plans into a single grant pool, expand the
      type of equity-based awards the Company may grant, and extend the term of
      the combined plan to October 31, 2014. Under the restated plan, the
      Company may issue incentive stock options, nonstatutory stock options,
      stock appreciation rights, restricted stock, performance shares, and
      performance units that can vest immediately or up to five years. Under
      this plan, the Company reserved 1,326,488 new common shares available for
      grant. On June 30, 2006, the Company had 1,106,443 shares available for
      grant under the restated plan.

                                       60
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

      Information with respect to this plan is as follows:

                                                                     Weighted
                                        Total          Option        average
                                        shares         price      exercise price
                                        ------         -----      --------------
Outstanding at June 30, 2003          2,717,380   $ 1.38 to 62.44    $14.88

     Issued                             395,400    14.73 to 17.24     14.77
     Exercised                         (268,750)    1.38 to 16.35      5.81
     Expired                            (24,538)    9.51 to 53.00     23.59
     Canceled                           (22,830)    9.51 to 53.00     28.66
                                      ---------
Outstanding at June 30, 2004          2,796,662   $ 1.38 to 62.44    $15.53

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

     Issued                             387,500    11.97 to 21.15     14.22
     Exercised                         (664,103)    2.27 to 20.17      8.04
     Expired                            (36,090)   14.73 to 57.59     39.05
     Canceled                           (24,180)    9.51 to 53.00     14.43
                                      ---------
Outstanding at June 30, 2006          2,445,907   $ 2.27 to 54.00    $15.91
                                      =========
Shares exercisable at June 30, 2006   1,440,989   $ 2.27 to 54.00    $17.84
                                      =========

      The following table summarizes significant ranges of outstanding and
      exercisable options at June 30, 2006:

                Options outstanding                         Options exercisable
----------------------------------------------------------  --------------------
                                  Weighted
                                  average                              Weighted
                                  remaining   Weighted                  average
Range of exercise                 life in      average                 exercise
     prices            Shares      years    exercise price    Shares     price
-----------------      ------     --------- --------------    ------   --------
$ 1.00 -  5.00           24,300     0.64       $ 2.28          24,300   $ 2.28
  5.01 - 15.00        2,045,897     5.89        12.04       1,077,501    11.76
 15.01 - 40.00          205,110     4.31        19.15         168,588    20.36
 40.01 - 65.00          170,600     4.57        53.04         170,600    53.04
                      ---------                             ---------
                      2,445,907                             1,440,989
                      =========                             =========

                                       61
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

      During the years ended June 30, 2006, 2005, and 2004, the per-share
      weighted average fair value of the nonstatutory stock options granted was
      $8.88, $7.79, and $10.78. The fair value of options at the date of the
      grant was estimated using the Black-Scholes model with the following
      assumptions for the respective period ending June 30:

                                  2006             2005              2004
                                  ----             ----              ----
Expected option life         6.0 - 6.5 years   3.0 - 5.0 years   3.0 - 5.0 years
Weighted average risk-free
    interest rate             3.92% - 5.02%        3.22%              3.15%
Weighted average expected
    volatility               54.12% - 62.00%   59.75% - 87.57%   92.9% - 125.7%

(13)  Restricted Stock Program

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

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

      On May 17, 2006, the Company issued a grant of 120,082 shares of
      restricted stock. The per-share price of the grant was $21.15. The shares
      vest after a 36 to 60 month period if certain sales and operating income
      goals are met.

      As of June 30, 2006, 2005, and 2004, the Company has issued restricted
      shares aggregating 146,187, 23,500, and 21,600, respectively, under its
      2004 Comprehensive Long-Term Incentive Plan. During fiscal year 2005,
      there were 1,900 shares forfeited, while no shares were forfeited during
      fiscal years 2006 and 2004. During fiscal year 2005, there were 19,700
      shares that vested, while no shares vested during 2006 and 2004. The
      shares of restricted stock vest after a period of 36, 48, and 60 months.

      The Company recognized compensation expense associated with the lapse of
      restrictions aggregating $116,534, $65,710, and $286,200, in 2006, 2005,
      and 2004, respectively.

                                       62
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

(14)  Accumulated Other Comprehensive Income (Loss)

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

                                                       Unrealized
                                                       gain (loss)
                              Foreign      Minimum        on       Accumulated
                             currency      pension     securities     other
                            translation   liability    available-  comprehensive
                             adjustment   adjustment   for-sale    income (loss)
                            -----------   ----------   ----------  -------------
Balances at June 30, 2005    $ 737,971   $(1,485,510)    $   --     $(747,539)
Current period change         (632,455)      938,597                  306,142
                            ----------   -----------     ------     ---------
Balances at June 30, 2006    $ 105,516   $  (546,913)    $   --     $(441,397)
                            ==========   ===========     ======     =========

(15)  Shareholder Protection Rights Plan

      In April 2001, the board of directors adopted a Shareholder Protection
      Rights Plan. The plan provides for a dividend distribution of one right on
      each outstanding share of the Company's stock, distributed to shareholders
      of record on April 27, 2001. The rights will be exercisable and will allow
      the shareholders to acquire common stock at a discounted price if a person
      or group acquires 20% or more of the outstanding shares of common stock.
      Rights held by persons who exceed the 20% threshold will be void. In
      certain circumstances, the rights will entitle the holder to buy shares in
      an acquiring entity at a discounted price. The board of directors may, at
      its option, redeem all rights for $0.001 per right at any time prior to
      the rights becoming exercisable. The rights will expire on April 27, 2011,
      unless earlier redeemed, exchanged or amended by the Board.

                                       63
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

(16)  Employee Benefit Plans

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

<TABLE>
<CAPTION>
                                                    2006             2005             2004
                                                ------------     ------------     -----------
<S>                                             <C>              <C>              <C>
Change in benefit obligation:
     Benefit obligation at beginning of year    $ 11,537,111     $  9,350,523     $ 9,011,361
     Service cost                                    342,349          247,301         262,849
     Interest cost                                   607,181          564,361         540,825
     Actuarial (gain) loss                        (1,364,787)       1,737,221        (169,012)
     Benefits paid                                  (402,956)        (362,295)       (295,500)
                                                ------------     ------------     -----------
     Benefit obligation at end of year          $ 10,718,898     $ 11,537,111     $ 9,350,523
                                                ============     ============     ===========
Change in plan assets:
     Fair value of plan assets at beginning
        of year                                 $  8,151,843     $  7,234,214     $ 6,334,848
     Actual return on plan assets                    606,490          594,742         790,353
     Employer contributions                          486,012          685,182         365,130
     Benefits paid                                  (402,956)        (362,295)       (256,117)
                                                ------------     ------------     -----------
     Fair value of plan assets at end of year   $  8,841,389     $  8,151,843     $ 7,234,214
                                                ============     ============     ===========
Under funded status                             $ (1,877,509)    $ (3,385,268)    $(2,116,309)
Unrecognized net loss                              1,981,589        3,449,148       1,729,576
Unrecognized net obligation existing at
     initial application                                  --               --              --
Unrecognized prior service cost                       (1,298)          (4,530)          5,960
Adjustment required to recognize minimum
     liability                                      (828,654)      (2,237,066)       (823,787)
                                                ------------     ------------     -----------
                 Accrued pension cost           $   (725,872)    $ (2,177,716)    $(1,204,560)
                                                ============     ============     ===========
Weighted average assumptions:
     Discount rate at year-end                          6.25%            5.25%           6.25%
     Rate of increase in compensation levels
        at year end                                     4.00             4.00            4.00
     Expected return on plan assets during
        the year                                        8.50             8.50            8.50
     Measurement date                                June 30          June 30         June 30
</TABLE>

                                       64
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

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

<TABLE>
<CAPTION>
                                                   2006          2005          2004
                                                ---------     ---------     ---------
<S>                                             <C>           <C>           <C>
Service cost                                    $ 342,349     $ 247,301     $ 262,849
Interest cost                                     607,181       564,361       540,825
Expected return on plan assets                   (693,461)     (626,751)     (536,451)
Amortization of unrecognized prior
     service cost                                  (3,232)       10,490        18,239
Amortization of unrecognized (gain) loss          189,743        49,658       108,265
                                                ---------     ---------     ---------
                 Net periodic pension cost      $ 442,580     $ 245,059     $ 393,727
                                                =========     =========     =========
Weighted average assumptions:
     Discount rate                                   5.25%         6.25%         6.00%
     Expected increase in compensation levels
        at year end                                  4.00          4.00          4.00
     Expected return on plan assets during
        the year                                     8.50          8.50          8.50
</TABLE>

Plan Assets

<TABLE>
<CAPTION>
                                                         2006                                   2005
                                         -------------------------------------  -------------------------------------
                                              Actual             Percentage          Actual            Percentage
                                             allocation          allocation         allocation         allocation
                                         ----------------------------------------------------------------------------
<S>                                    <C>                              <C>   <C>                              <C>
Money market                             $        298,659                3.38%   $        218,514                2.68%
Common equities                                   459,812                5.20             329,835                4.05
Corporate debt securities                       1,043,243               11.80           1,370,775               16.82
Government debt securities                      1,976,803               22.36           1,769,844               21.71
Global equity mutual fund                         588,510                6.65             471,510                5.78
Closed end equity mutual funds                  4,474,362               50.61           3,991,365               48.96
                                         -----------------   -----------------   -----------------   -----------------
                                         $      8,841,389              100.00%   $      8,151,843              100.00%
                                         =================   =================   =================   =================
</TABLE>

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

                                       65
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

Determination of Assumed Rate of Return

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

                                                  Expected
                                                   compound
                                   Target         annualized        Expected
                                  percentage       5-year           weighted
                                 allocation     (index) return   average return
                                -------------   --------------   --------------
Large-cap stocks                       30.00%       11.10%            3.33%
Mid-cap stocks                         11.00        12.70             1.40
Small-cap stocks                       11.00        12.90             1.42
International common stocks             8.00        10.50             0.84
Broad bond market                      40.00         5.10             2.04
                                      ------                          ----
                 Total                100.00%                         9.03%
                                      ======                          ====

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

Expected Contributions

Expected contributions for fiscal 2007 are $312,660.

Estimated Future Benefit Payments

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

July 1, 2006 - June 30, 2007                       $   419,601
July 1, 2007 - June 30, 2008                           480,626
July 1, 2008 - June 30, 2009                           487,453
July 1, 2009 - June 30, 2010                           525,600
July 1, 2010 - June 30, 2011                           543,938
Years 2012 - 2016                                    3,122,875

The Company  maintains a voluntary  contributory  salary  savings  plan to which
participants may contribute.  The Company's matching  contribution is 75% of the
participants'   contribution  up  to  a  maximum  of  5%  of  the  participants'
compensation.  During  fiscal  2006,  2005,  and 2004,  the Company  contributed
$592,602, $530,626, and $445,766, respectively, to this plan.

The  Company   maintains  a  profit   sharing  plan  which  provides  an  annual
contribution  by the Company based upon a percentage of operating  earnings,  as
defined.  Eligible employees are allocated amounts under the profit sharing plan
based upon their respective earnings,  as defined.  Contributions under the plan
were approximately  $409,000,  $176,000,  and $259,000 in fiscal 2006, 2005, and
2004, respectively. While the Company intends to continue this plan, it reserves
the right to terminate or amend the plan at any time.

                                       66
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

(17)  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:

<TABLE>
<CAPTION>
                                             2006           2005            2004
                                          -----------    -----------    -----------
<S>                                       <C>            <C>            <C>
Benefit obligation at beginning of year   $ 2,881,474    $ 1,910,271    $ 1,915,728
Service cost                                   74,708         57,139         61,145
Interest cost                                 146,662        185,309        111,207
Plan participants' contributions              130,862        119,636         61,362
Actuarial (gain) loss                        (415,240)       854,315        (98,279)
Benefits paid                                (211,957)      (245,196)      (140,892)
                                          -----------    -----------    -----------
Benefit obligation at end of year         $ 2,606,509    $ 2,881,474    $ 1,910,271
                                          ===========    ===========    ===========
Fair value of plan assets                 $        --    $        --    $        --
Under funded status                        (2,606,509)    (2,881,474)    (1,910,271)
Unrecognized actuarial loss                   662,932      1,131,002        351,839
                                          -----------    -----------    -----------
                 Accrued postretirement
                    benefit cost          $(1,943,577)   $(1,750,472)   $(1,558,432)
                                          ===========    ===========    ===========
</TABLE>

Net periodic postretirement benefit cost includes the following components:

                                                 2006       2005        2004
                                               --------   --------   --------
Service cost                                   $ 74,708   $ 57,139   $ 61,145
Interest cost                                   146,662    185,309    111,207
Amortized loss                                   52,830     75,152     18,467
                                               --------   --------   --------
                 Net periodic postretirement
                    benefit cost               $274,200   $317,600   $190,819
                                               ========   ========   ========

                                       67
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

      The weighted average discount rate used in determining the accumulated
      postretirement benefit obligation was 6.25%, 5.25%, and 6.25%, at the end
      of fiscal 2006, 2005, and 2004, respectively. 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% for 2006, 2005,
      and 2004. The health care cost trend rate assumption may have 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   $ 17,573    $ (15,517)
Effect on postretirement benefit obligation                223,430     (197,350)

      Estimated Future Benefit Payments

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

                                                   Gross                Subsidy
                                                  payments              receipts
                                                 ----------           ----------
2007                                             $  204,530           $ (39,381)
2008                                                199,286             (48,950)
2009                                                214,390             (53,689)
2010                                                216,892             (59,938)
2011                                                220,394             (64,144)
Years 2012 - 2016                                 1,140,941            (364,243)

                                       68
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

(18)  Income Taxes

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

<TABLE>
<CAPTION>
                                                            Year ended June 30
                                               ------------------------------------------
                                                   2006            2005          2004
                                               ------------    -----------   ------------
<S>                                            <C>             <C>           <C>
Income (loss) before income taxes and
     discontinued operations:
        Domestic                               $ 10,934,486    $ 8,620,237   $ 11,873,719
        Foreign                                   3,639,792        530,299     (1,511,905)
                                               ------------    -----------   ------------
                                               $ 14,574,278    $ 9,150,536   $ 10,361,814
                                               ============    ===========   ============
Income tax expense charged to the income
     statement from continuing operations:
        Current:
           Federal                             $  3,404,352    $   951,453   $  2,827,536
           State and local                          177,634        227,645          8,246
           Foreign                                       --             --             --
                                               ------------    -----------   ------------
                 Total current                    3,581,986      1,179,098      2,835,782
                                               ------------    -----------   ------------
        Deferred:
           Federal                                 (144,577)       558,457       (523,921)
           State and local                         (179,507)           445        383,139
           Foreign                                  (32,902)            --             --
                                               ------------    -----------   ------------
                 Total deferred                    (356,986)       558,902       (140,782)
                                               ------------    -----------   ------------
                 Subtotal                         3,225,000      1,738,000      2,695,000
                                               ------------    -----------   ------------
Income taxes credited to the income
     statement from discontinued operations:
        Foreign                                          --             --     (1,800,000)
                                               ------------    -----------   ------------
                 Subtotal                                --             --     (1,800,000)
                                               ------------    -----------   ------------
                 Total income taxes charged
                    to the income statement       3,225,000      1,738,000        895,000
                                               ------------    -----------   ------------
</TABLE>

                                       69
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

<TABLE>
<CAPTION>
                                                              Year ended June 30
                                                    -------------------------------------
                                                       2006           2005         2004
                                                    -----------    ----------    --------
<S>                                                 <C>               <C>        <C>
Income taxes charged (credited) to
     shareholders' equity:
        Current benefit of stock based
           compensation                             $(1,679,149)      (29,308)   (794,500)
        Deferred taxes (benefit) of stock based
           compensation                                      --       302,958      (3,130)
        Deferred taxes (benefit) from recognition
           of minimum pension liability                 469,815      (468,112)    255,081
                                                    -----------    ----------    --------
                 Income taxes credited
                    to shareholders' equity          (1,209,334)     (194,462)   (542,549)
                                                    -----------    ----------    --------
                 Total income taxes                 $ 2,015,666     1,543,538     352,451
                                                    ===========    ==========    ========
</TABLE>

      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 and discontinued operations, to income tax expense, is
      as follows:

<TABLE>
<CAPTION>
                                              2006            2005           2004
                                           -----------    -----------    -----------
<S>                                        <C>            <C>            <C>
Expected consolidated income tax expense   $ 4,955,255    $ 3,111,182    $ 3,523,017
State taxes, net of Federal benefit             (1,236)       150,539        258,314
Nontaxable interest income                    (523,791)      (403,498)      (382,546)
Change in valuation allowance                 (238,169)        40,827        226,786
Effect of foreign operations                (1,171,208)      (154,965)       287,262
Non-deductible stock-based compensation        886,007             --             --
Export tax benefits                           (232,533)      (708,640)      (808,124)
Research credits                              (575,600)      (175,380)      (371,870)
Other, net                                     126,275       (122,065)       (37,839)
                                           -----------    -----------    -----------
                                           $ 3,225,000    $ 1,738,000    $ 2,695,000
                                           ===========    ===========    ===========
</TABLE>

                                       70
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

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

<TABLE>
<CAPTION>
                                                               2006           2005
                                                           -----------    -----------
Deferred tax assets:
<S>                                                            <C>            <C>
     Inventories                                           $   723,100    $   800,096
     Deferred compensation                                     447,204        362,833
     Retirement benefits                                       242,685        554,509
     Postretirement benefits                                   738,559        665,179
     Stock-based compensation                                  322,892         26,988
     Nondeductible reserves                                     32,245         94,019
     Federal and state tax attribute carryforwards             709,019      1,073,508
     Foreign and state net operating loss carryforwards         26,458        184,748
                                                           -----------    -----------
                 Gross deferred tax assets                   3,242,162      3,761,880
     Valuation allowance                                      (130,231)      (368,400)
                                                           -----------    -----------
                 Net deferred tax assets                     3,111,931      3,393,480
                                                           -----------    -----------
Deferred tax liabilities:
     Plant and equipment, principally due to differences
        in depreciation                                     (1,844,987)    (2,361,348)
     Intangible assets including goodwill                   (2,329,710)    (1,973,025)
                                                           -----------    -----------
                 Gross deferred tax liabilities             (4,174,697)    (4,334,373)
                                                           -----------    -----------
                 Net deferred tax liabilities              $(1,062,766)   $  (940,893)
                                                           ===========    ===========

Presented as:

                                                               2006           2005
                                                           -----------    -----------
     Current deferred tax asset                            $   716,287    $   686,411
     Long-term deferred tax asset                               32,902             --
     Long-term deferred tax liability                       (1,811,955)    (1,627,304)
                                                           -----------    -----------
                                                           $(1,062,766)   $  (940,893)
                                                           ===========    ===========
</TABLE>

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

      During  2005,  securities  were  sold  resulting  in  $342,712  of  losses
      characterized,  for income tax purposes, as capital losses, which may only
      be used to offset  capital  gains and expire in 2010. As a result of these
      limitations,  at June 30,  2006 and  2005,  the  Company  has a  valuation
      allowance of $130,231 with respect to these losses.

                                       71
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

      At June 30,  2006,  the Company has $471,615 of state net  operating  loss
      carryforwards,  which begin to expire in 2015.  The Company  relocated its
      Amitron operation from Massachusetts to New Hampshire in fiscal 2005. As a
      result of  satisfying  the final  Massachusetts  filing  requirement,  the
      Company has  eliminated  the  deferred tax asset and  valuation  allowance
      related to the Massachusetts net operating losses.  Management believes it
      is more likely than not that the Company  will  realize the  deferred  tax
      benefits of the remaining  New  Hampshire net operating  losses and that a
      valuation  allowance  is no  longer  required,  representing  a  valuation
      allowance decrease of $139,057.

      The Company's  subsidiary in China is eligible for a tax holiday resulting
      from  reduced  tax rates for the first five tax years  after it  generates
      taxable income in excess of its existing net operating loss carryforwards.
      The tax benefit varies over the remaining years of the holiday. During the
      fiscal year ended June 30, 2006,  the  subsidiary  fully  utilized its net
      operating loss  carryforwards  and received a benefit of the first year of
      its tax  holiday.  Assuming a 15%  statutory  rate,  the effect of the tax
      holiday is approximately $606,000, or $0.03, per diluted share. Management
      believes  it is more likely  than not that the  Company  will  realize the
      benefits  of the  remaining  deferred  tax  assets  and  that a  valuation
      allowance  is no  longer  required,  representing  a  valuation  allowance
      decrease of $99,112.

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

      At June 30,  2006,  the  Company  has  Federal  and  State  tax  attribute
      carryforwards  of $953,846,  the majority of which expire at various dates
      from 2010 through 2026.

      Cash  payments   (receipts)   for  income  taxes  (net  of  refunds)  were
      $2,718,391,  $890,601,  and  $(1,903,464) in fiscal 2006,  2005, and 2004,
      respectively.

(19)  Segment and Related Information

      (a)   Segments

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

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

                                       72
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

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

<TABLE>
<CAPTION>
                                                               Corporate
                                                 Space and        and
                                    Wireless      defense     unallocated    Consolidated
                                  -----------   -----------   ------------   ------------
<S>                               <C>           <C>           <C>            <C>
Net sales:
  2006                            $66,731,312   $38,732,924   $         --   $105,464,236
  2005                             64,169,326    30,291,739             --     94,461,065
  2004                             58,078,091    27,000,848             --     85,078,939

Operating income:
  2006                              7,564,438     4,582,129             --     12,146,567
  2005                              2,233,614     5,347,430             --      7,581,044
  2004                              4,373,892     4,319,703             --      8,693,595

Goodwill and intangible assets:
  June 30, 2006                    31,056,232            --             --     31,056,232
  June 30, 2005                    31,389,102            --             --     31,389,102

Identifiable assets:*
  June 30, 2006                    20,572,238    18,053,595    119,649,773    158,275,606
  June 30, 2005                    21,497,591    12,685,903    109,909,259    144,092,753

Depreciation:**
  2006                              2,593,750     2,281,585             --      4,875,335
  2005                              2,839,280     2,047,874             --      4,887,154
  2004                              2,420,370     1,876,629             --      4,296,999

Intangibles amortization:***
  2006                                332,870            --             --        332,870
  2005                                570,645            --             --        570,645
  2004                                709,539            --             --        709,539
</TABLE>

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

      **    Depreciation  expense  related to  acquisition - specific  property,
            plant,  and equipment is included in the segment  classification  of
            the acquired business.  Depreciation  expense related to nonbusiness
            combination assets is allocated  departmentally based on an estimate
            of  capital  equipment  employed  by each  department.  Depreciation
            expense  is then  further  allocated  within  the  department  as it
            relates to the specific business segment impacted by the

                                       73
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

            consumption of the capital resources utilized. Due to the similarity
            of the property, plant, and equipment utilized, the Company does not
            specifically  identify these assets by individual  business  segment
            for internal reporting purposes.

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

      (b)   Geographic Information

            Net sales by geographic region are as follows:

           United                                                   Consolidated
           States    Asia Pacific   Europe     Americas    Other      net sales
        -----------  ------------ ----------- ---------- ---------- ------------
2006    $57,317,412   29,242,776  $12,143,309 $2,869,330 $3,891,409 $105,464,236
2005     46,558,563   25,530,705   18,114,496  3,070,760  1,186,541   94,461,065
2004     45,562,351   16,746,852   16,656,740  6,112,996         --   85,078,939

      (c)   Customers

            In 2006,  sales to two customers  both exceeded 10% of  consolidated
            net sales, totaling approximately  $32,255,000  ($17,659,000 related
            to the space and defense electronics segment and $14,596,000 related
            to the wireless  segment).  In 2005,  sales to one customer  totaled
            approximately  $13,023,652  (related to the  wireless  segment)  and
            exceeded  10% of  consolidated  net  sales.  In  2004,  sales to two
            customers totaled approximately $21,800,000, ($12,100,000 related to
            the space and defense  electronics segment and $9,700,000 related to
            the wireless segment) and exceeded 10% of consolidated net sales.

(20)  Commitments

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

Year ending June 30:
  2007                             $   840,370
  2008                                 867,762
  2009                                 867,762
  2010                                 867,762
  2011                                 867,762
Thereafter                           1,919,153
                                   -----------
                                     6,230,571
Less sublease income                  (632,072)
                                   -----------
                                   $ 5,598,499
                                   ===========

                                       74
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

      Net rent expense for the years ended June 30, 2006, 2005, and 2004 was
      $748,961, $760,410, and $874,965, respectively. Rent expense for fiscal
      2006, 2005, and 2004 was offset by sublease income of $464,209, $485,121,
      and $430,311, respectively.

      During fiscal year 2006, the Company entered plans to expand its Syracuse,
      New York facility by 54,000 square feet.  This expansion  represents a 51%
      increase in square footage of the existing facility.  Estimated total cost
      for this  expansion  is  $5,800,000.  Included in fixed assets as land and
      improvements on June 30, 2006 are approximately  $1,446,000 of capitalized
      costs and  $4,354,000  of  estimated  future costs  remain,  which will be
      funded by existing cash balances.

(21)  Concentrations

      The  Company and others,  which are engaged in  supplying  defense-related
      equipment to the United States Government (the Government), are subject to
      certain  business  risks  peculiar to the defense  industry.  Sales to the
      Government  may be affected  by changes in  procurement  policies,  budget
      considerations,   changing   concepts  of  national   defense,   political
      developments abroad, and other factors. Sales to direct contractors of the
      United States Government  accounted for approximately 30%, 22%, and 26% of
      consolidated net sales in fiscal 2006, 2005, and 2004, respectively. While
      management  believes there is a high  probability of  continuation  of the
      Company's current defense-related programs, it is attempting to reduce its
      dependence on sales to direct  contractors of the United States Government
      through development of its commercial electronics business.

(22)  Foreign Operations

      The Company  maintains  and operates a facility in Suzhou,  China.  During
      fiscal year 2006,  net sales (net of  intercompany  eliminations)  totaled
      $4,853,152.  Included in the company's total assets,  as of June 30, 2006,
      includes $1,401,716 of inventory held for resale, as well as $1,627,204 of
      fixed  assets (net of related  accumulated  depreciation).  As of June 30,
      2006,  there is no reason to  believe  that any of the  Company's  foreign
      assets or future operations will be impaired.

                                       75
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2006, 2005 and 2004

(23)  Quarterly Financial Data (Unaudited)

      The  following  table sets forth  certain  unaudited  quarterly  financial
      information for the years ended June 30, 2006 and 2005:

<TABLE>
<CAPTION>
                                                             2006 quarter ended
                                         ---------------------------------------------------------
                                         September 30   December 31      March 31        June 30
                                         ------------   -----------   --------------   -----------
<S>                                       <C>           <C>           <C>              <C>
Net sales                                 $24,614,358   $25,019,013   $   26,701,083   $29,129,782
Gross profit                                8,654,446     9,036,509       10,242,981    10,341,732
Net income                                  2,254,017     2,229,965        4,031,355     3,651,118
Net income (loss) per common share
     from continuing operations:
        Basic income (loss) per share
           from continuing operations     $      0.13   $      0.13   $         0.19   $      0.21
        Diluted income (loss) per share
           from continuing operations            0.13          0.13             0.18          0.20
Net income (loss) per common share
     from discontinued operations:
        Basic income (loss) per share
           from discontinued operations   $        --   $        --   $         0.05   $        --
        Diluted income (loss) per share
           from discontinued operations   $        --   $        --   $         0.05   $        --
<CAPTION>

                                                             2005 quarter ended
                                         ---------------------------------------------------------
                                         September 30   December 31      March 31        June 30
                                         ------------   -----------   --------------   -----------
<S>                                       <C>           <C>           <C>              <C>
Net sales                                 $24,907,357   $23,650,022   $   21,783,418   $24,120,268
Gross profit                                7,890,818     6,761,172        7,152,648     8,065,561
Net income                                  1,981,165       980,884        1,860,530     2,589,957
Net income (loss) per common share:
     Basic income (loss) per share        $      0.10   $      0.05   $         0.10   $      0.14
     Diluted income (loss) per share             0.10          0.05             0.09          0.14
</TABLE>

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

                                       76