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, 2004

__    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 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. X

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No __

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 31, 2003, as reported on the Nasdaq National Market, was
approximately $278,115,000.

The number of shares of Registrant's Common Stock outstanding on August 25, 2004
was 19,867,878.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for use in connection with its 2004
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

Forward-Looking Cautionary Statement

In an effort to provide investors a balanced view of the Company's current
condition and future growth opportunities, this Annual Report on Form 10-K
includes comments by the Company's management about future performance. These
statements which are not historical information are "forward-looking statements"
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These, and other forward-looking statements, are subject to
business and economic risks and uncertainties that could cause actual results to
differ materially from those discussed. The risks and uncertainties described
below are not the only risks and uncertainties facing our Company. Additional
risks and uncertainties not presently known to us or that are currently deemed
immaterial may also impair our business operations. If any of the following
risks actually occur, our business could be adversely affected, and the trading
price of our common stock could decline, and you may lose all or part of your
investment. Such known factors include, but are not limited to: the Company's
ability to timely ramp up to meet some of our customers' increased demands;
unanticipated delays and/or difficulties relocating the Company's Amitron
subsidiary from North Andover, Massachusetts to Salem, New Hampshire; increased
pricing pressure from our customers; decreased capital expenditures by wireless
service providers; the possibility that the Company may be unable to
difficulties in successfully execute its business strategies or achieve its
operating objectives, generate revenue growth or achieve profitability
expectations; successfully securing new design wins from our original equipment
manufacturer customers, reliance on a limited number of key component suppliers,
unpredictable difficulties or delays in the development of new products; order
cancellations or extended postponements including the new Wireless custom
assembly placed into production during the third quarter; the risks associated
with any technological shifts away from the Company's technologies and core
competencies; unanticipated impairments of assets including investment values
and goodwill; diversion of defense spending away from the Company's products
and/or technologies due to on-going military operations; and litigation
involving antitrust, intellectual property, environmental, product warranty,
product liability, and other issues. You are encouraged to review Anaren's 2004
Annual Report, Anaren's Form 10-K for the fiscal year ended June 30, 2004 and
Anaren's Form 10-Q for the three months ended March 31, 2004, 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.

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 National Market under the symbol "ANEN." Unless the
context otherwise provides, the "Company" or "Anaren" refers to Anaren, Inc. and
its subsidiaries.

Recent Developments

On August 3, 2004, the Company purchased a 65,000 square foot facility in Salem,
New


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Hampshire to support the anticipated growth at its Amitron operation which will
subsequently operate under a new wholly-owned subsidiary, Anaren Ceramics, Inc.,
effective September 2004. It is presently expected that operations will begin to
transition to the Salem facility beginning in September 2004.

In fiscal 2004, the Company introduced and sold its first components used in
consumer wireless applications.

On July 8, 2004, Teledyne Technologies Incorporated and Celeritek, Inc. jointly
announced that Teledyne, through its subsidiary Teledyne Wireless, Inc., had
entered into an agreement to acquire Celeritek's defense electronics business.
In light of this development, Anaren has determined that it no longer has an
interest in acquiring the business or assets of, or engaging in any other form
of business combination with, Celeritek. The shares of Celeritek Common Stock
beneficially owned by Anaren will, for so long as Anaren retains such ownership,
be held for investment purposes and not with a view towards effectuating a
business combination. As set forth in its latest Amendment to Schedule 13D,
Anaren has disposed of a portion of the Celeritek Common Stock previously held
by it. Depending on the results of its ongoing evaluation of the investment in
the Common Stock, prevailing market conditions, other investment opportunities,
and/or other investment considerations, Anaren may dispose of some or all of its
remaining holdings in privately negotiated or open market transactions, or may
retain such shares for investment purposes as described in its latest Amendment
to Schedule 13D. As of August 25, 2004, the Company has disposed of 72,500
shares of Celeritek's Common Stock and currently owns 704,800 shares.

In March 2004, the Company was selected to receive an order in excess of $11.0
million (to be shipped over 36 months) to supply digital RF memory jamming
subsystems, which will further strengthen the Company's Space and Defense
backlog.

On July 10, 2003, after several restructurings, the Company announced its
decision to dispose of its Anaren Europe subsidiary due to continuing low sales
levels and large operating losses. This facility ceased production during the
first quarter of fiscal 2004, an auction was held and all remaining equipment
was sold in September 2003. This subsidiary is now being accounted for as a
discontinued operation in the statements of earnings for the three years ended
June 30, 2004, 2003 and 2002.

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.

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

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 reception. The
Company's customer base includes leading global original equipment manufacturers
that serve the wireless, space and defense markets, including:

o Ericsson
o Lucent Technologies
o Motorola
o Nokia
o Nortel Networks


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o Andrews
o Boeing, Inc.
o ITT Aerospace/Communications
o Lockheed Martin
o Northrop Grumman
o Raytheon

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, expenditures for capital
infrastructure equipment by service providers began to decline rapidly during
the first quarter of calendar year 2001 and remained depressed during fiscal
2002 and 2003. During fiscal 2004, expenditures for wireless infrastructure
equipment rebounded with a positive impact on our 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 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.

Wireless Local Area Networking

Wireless local area networks (WLAN) generally referred to as WiFi are 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, 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


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wireless home multimedia, wireless roadside assistance, wireless e-business, and
wireless printers and scanners.

Space and Defense
The Space and Defense industry is currently focused on supporting National
Defense programs, integrated communications systems and technologies that
improve the performance and survivability of existing air, land and sea based
platforms. As a result, 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 and ceramic circuit technologies, 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 design staff of 106 engineers (as of June 30, 2004) 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 microwave
component and subassembly products for wireless infrastructure applications.
This local presence 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
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.


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Technology

The Company utilizes three basic technologies: Multi-Layer Stripline, Thick Film
Ceramics and Ball Grid Array assembly, including the integration of active
devices.

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. Similar to traditional printed circuit
board manufacturing, 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.

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 consumer component applications. 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 Ericsson, Lucent, Motorola, Nokia,
Nortel Networks and Andrew for wireless communications and Boeing, Lockheed
Martin, Raytheon and Northrup Grumman for space and defense. 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.


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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. 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 leverage 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
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, 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
next generation 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 announced several
products specifically designed to address the consumer components Wireless local
area network market, cellular telephone and Bluetooth applications. These
products are 1/50th 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.

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


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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.

AdrenaLine(R) Power Splitting and Combining Networks. The Company developed the
AdrenaLine(R) product line to provide a low-cost, high-performance network to
combine individual power modules. These products enable the Company's customers
to produce smaller, lower cost, more efficient power amplifiers. AdrenaLine(R)
supports all major wireless standards and frequencies.

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 stations. Radio frequency backplanes are 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.


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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, 2004, approximately 68% of the Company's
sales were to customers in the wireless markets and approximately 32% of its
sales were to customers in the space and defense markets. The Company had two
customers who accounted for more than 10.0% of net sales, Raytheon, who
represented approximately 14.2% of sales and Motorola, Inc., who represented
11.4% of sales in fiscal 2004.

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 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 $500,000 or more in revenues in the
fiscal year ended June 30, 2004:

o   Alcatel
o   Avnet
o   BAE Optilas
o   Celestica Corp.
o   EG Components
o   Lucent Technologies
o   MKS Instruments
o   Motorola
o   Nokia
o   Remec
o   Richardson Electronics Inc.
o   St. Jude
o   Solectron
o   Telecom International
o   Venture

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 $500,000 or more in revenues in the fiscal year ended June 30, 2004:

o   BAE
o   Boeing Inc.
o   Corbett
o   Harris
o   ITT Avionics
o   LG Innotek Co. Ltd.
o   Lockheed Martin
o   Northrup Grumman
o   Raytheon

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 32 people as of June 30,


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2004. The Company has regional sales offices located in Sacramento, California;
Raleigh, North Carolina; Waterlooville, England; and Suzhou, China. The regional
sales offices have dedicated technical product managers to better serve the
customer base. In addition, as of June 30, 2004, the Company had contracts with
two major distributors, with 15 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 that its customer
engineering support team, comprised of 106 design and engineering professionals
as of June 30, 2004, 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 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. The Company is also seeing a trend on the part of its
customers to consolidate their material handling activities, including
purchasing, warehousing, and fulfillment. The result is that many original
equipment manufacturers are outsourcing all or part of these activities to large
distribution firms like Avnet and Richardson.

Backlog

The Company's backlog of orders for the Wireless group was $15.6 million as of
June 30, 2004 versus $8.8 million as of June 30, 2003. The increase in backlog
is reflective of the overall increase in worldwide demand for wireless
infrastructure products that we experienced during the last half of fiscal 2004.
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 the next eight to
twelve weeks. However, backlog is not necessarily indicative of future sales.
Accordingly, 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, Lucent,
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 or defer orders without significant penalty.

Backlog of orders for the Space and Defense group was $37.1 million as of June
30, 2004 versus $26.3 million as of June 30, 2003. The increase in Space and
Defense backlog year over year was due largely to the receipt of a contract from
Raytheon (Goleta, CA) in excess of $11.0 million for Digital Radio


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<PAGE>

Frequency (RF) Memory subsystems used in the Raytheon AN/ALQ-187 internal (RF)
jammer. This contract is in support of a Raytheon contract for the provision of
an electronic warfare system for Hellenic Air Force F-16 fighters and deliveries
are anticipated to extend over approximately 36 months. During fiscal year 2004,
the Company expects to ship between $25.0 million and $28.0 million of its June
30, 2004 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 applications.

These activities include customer-funded design and development, as well as
efforts funded directly by the Company. Research and development expenses funded
by the Company were $5.9 million in fiscal 2004, $6.1 million in fiscal 2003 and
$6.3 million in fiscal 2002. Research and development costs are charged to
expense as incurred.

Manufacturing

The Company currently maintains manufacturing locations in Syracuse and Bohemia,
New York; North Andover, Massachusetts; and Suzhou, China. During fiscal 2004,
the Company closed and liquidated its Almelo, Netherlands circuit board
facility. During fiscal year 2003, the Company began the transitioning of much
of the ceramic processing capability from its Bohemia operation to its North
Andover operation. This transfer was initiated to reduce manufacturing cost and
to concentrate all ceramic processing and expertise in one location. Beginning
in September 2004, the Company's Amitron operation will begin manufacturing
operations in its newly acquired Salem, New Hampshire facility which includes a
State-of-the-Art Class 10,000 clean room, under a newly formed wholly owned
subsidiary, Anaren Ceramics, Inc.

The Company continues to develop capability to produce highly engineered,
complex microwave subassemblies to support its Space and Defense business. In
fiscal 2004, 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.

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. Manufacturing product lines from the Syracuse and North Andover
operations have been successfully transitioned to Suzhou, with additional
products and lines planned for fiscal year 2005. Additionally, the Suzhou
facility is expected to provide support in identifying and qualifying new
lower-cost and local Asian sources of raw materials for all of the Company's
businesses.

The Company's East Syracuse facility has been ISO 9001 certified; its Bohemia,
New York and North Andover, Massachusetts facilities are both ISO 9002
certified. In addition, the East Syracuse facility has


                                       11
<PAGE>

recently been 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 2004, the Company had no
vendors from which it purchased more than 10.0% of its total raw materials, and
the Company believes that alternate sources of supply are generally available
for all raw materials.


Competition

The microwave component and subsystems industry continues to be highly
competitive. The 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 marketplace has been for the original equipment
manufacturers to outsource more design and production work, thereby freeing up
their internal resources for other use. Thus, the Company believes that internal
customer competition exists predominantly in its Space and Defense and satellite
businesses.

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 areas of technical performance and on-time
delivery 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.


                                       12
<PAGE>

The Company currently has 8 active patents and has filed 13 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, 2004, the Company employed 582 full-time people, including 39
temporary employees. Of these employees, 106 were members of the engineering
staff, 404 were in manufacturing positions, 32 were in sales and marketing
positions, and 40 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 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. The Company's RF Power subsidiary leases a 15,700 square
foot facility in Bohemia, New York, which houses the production, engineering and
administrative functions of RF Power pursuant to a lease that expires in June
2006. Annual rent for this facility is approximately $132,000. The Company's
Amitron subsidiary currently leases an approximately 20,000 square foot facility
in North Andover, Massachusetts, which houses that operation. This lease
originally was set to expire in August 2006 and has an annual lease cost of
approximately $155,000. In May 2004 the Company, through a wholly owned
subsidiary, Anaren Properties, LLC, agreed to purchase a 65,000 square foot
building situated on approximately 12 acres in Salem, New Hampshire for $5.0
million. The building was acquired on August 3, 2004, and it is the Company's
intention to move the Amitron operation to this facility and operate under a
newly formed, wholly owned subsidiary, Anaren Ceramics, Inc. beginning in
September 2004. This facility was acquired to provide adequate space for future
growth of that business. In conjunction with the decision to move to this new
facility, the Company negotiated a buyout of the remaining lease of the North
Andover facility for a one-time charge of $350,000 and accelerated amortization
of leasehold improvements and certain intangibles related to lease amounting to
approximately $250,000. These expenses were recorded and recognized in the
quarter ended June 30, 2004. The Company expects similar related charges,
including moving expenses, of approximately $300,000 - $350,000, to be recorded
during the quarter ended September 30, 2004.

In March 2002, the Company's Anaren Suzhou Communications Inc. subsidiary signed
a lease for a 12,300 square foot facility in Suzhou, China to begin light
manufacturing and assembly activities for the Company's Asian customers. This
facility has an annual rent of $21,400, and the lease, which expires in March
2005, may be renewed for an additional three year period. Additionally, in
February 2003 Anaren Suzhou exercised an option to lease the second floor of
this facility (approximately 12,300 square feet) at a rate per square foot
totaling $21,000 annually through March 2005, subject to the three year renewal
period noted above.

The Company leases a 20,000 square foot building in Frimley, England. Annual
rental cost of this facility is approximately $470,000 and the Company is
currently subletting the building. During the fiscal year ended June 30, 2004,
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. There is no
assurance that the Company will be able to continuously sublet the building
during the remaining lease term so as to offset its rental cost in whole or in
part.


                                       13
<PAGE>

Management considers the foregoing facilities adequate for the current and
anticipated short-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, 2004, 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, 2004,
and their positions held with the Company are as follows:

Name                  Age                       Position
Lawrence A. Sala      41     President, Chief Executive Officer, Chairman
                               and Director
Carl W. Gerst, Jr     66     Chief Technical Officer, Vice Chairman and Director
Gert R. Thygesen      48     Vice President, Technology
Joseph E. Porcello    52     Vice President, Finance, Treasurer
Mark P. Burdick       46     Vice President and General Manager
Timothy P. Ross       44     Vice President, Business Development
Amy B. Tewksbury      40     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 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 Vice President of
Technology since September 2000. 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 Vice President,
Finance since May 1995 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 Vice
President and General Manager since September 2000. 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.


                                       14
<PAGE>

Timothy P. Ross has been with the Company since 1982 and has served as Vice
President -- Business Development since September 2000. 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 joined the Company in October 2002 as Vice President of Human
Resources. Prior to joining Anaren, Ms. Tewksbury was employed by Wegmans Food
Markets, Inc. for 16 years. She held various positions with Wegmans including
Syracuse Division Human Resources Manager, Corporate Human Resources Project
Manager, and Store Operations. Ms. Tewksbury holds a Bachelor of Science Degree
in Management from Syracuse University.


                                       15
<PAGE>

                                     PART II

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

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

                    Fiscal 2004                          Fiscal 2003
                      Quarter                              Quarter
           --------------------------------   ---------------------------------
             1st      2nd      3rd     4th      1st      2nd     3rd       4th
             ---      ---      ---     ---      ---      ----    ---       ---
High ....  $14.68   16.03     21.34   18.78   $10.64    12.54   10.15     10.37
Low .....  $ 9.25   12.20     14.21   14.50   $ 6.83     6.99    7.61      7.28

The Company had approximately 373 holders of record of its common stock at
August 11, 2004.

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 November 10, 2003, the Board of Directors increased the number of common
stock shares available for repurchase through its previously announced stock
repurchase program, up to 2,000,000 in open market or privately negotiated
transactions. 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 August 10, 2004, the Board increased its repurchase
authorization by 2,000,000 shares, which when combined with the remaining shares
from the prior authorization left a total authorization of 2,927,496 shares.

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------
         Period              Total Number of       Average Price Paid       Total Number of      Maximum Number (or
                            Shares (or Units)     per Share (or Unit)      Shares (or Units)     Approximate Dollar
                                Purchased                                Purchased as Part of   Value) of Shares (or
                                                                          Publicly Announced     Units) that May Yet
                                                                           Plans or Programs     Be Purchased Under
                                                                                                the Plans or Programs
----------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                     <C>                    <C>                 <C>
April 2004                                --                      --                     --              1,069,600
----------------------------------------------------------------------------------------------------------------------
May 2004                              25,704                  $14.99                 25,704              1,043,896
----------------------------------------------------------------------------------------------------------------------
June 2004                            116,400                  $15.01                116,400                927,496
----------------------------------------------------------------------------------------------------------------------
Total                                142,104                  $15.01                142,104
----------------------------------------------------------------------------------------------------------------------
</TABLE>

Item 6. Selected Consolidated Financial Data

The selected consolidated financial data set forth below with respect to the
Company's statements of income for each of the years in the three year period
ended June 30, 2004, and with respect to the balance sheets at June 30, 2004 and
2003, 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 income
data for the years ended June 30, 2000 and June 30, 2001, and the balance sheet
data at June 30, 2000, June 30, 2001 and June 30, 2002, are derived from audited
consolidated financial statements not included in this Annual Report on Form
10-K. The following


                                       16
<PAGE>

selected financial data should be read in conjunction with
the consolidated financial statements for the Company and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein.


                                       17
<PAGE>

<TABLE>
<CAPTION>

                                                                        Years Ended
                                            --------------------------------------------------------------
                                             June 30,     June 30,     June 30,      June 30,     June 30,
                                               2004         2003         2002         2001         2000
                                            ---------    ---------    ---------    ---------    ---------
                                                 (In thousands, except per share data)
<S>                                         <C>          <C>          <C>          <C>          <C>
Statement of Income Data:
Net sales ...............................   $  85,079    $  75,520    $  70,638    $  84,825    $  60,172
Cost of sales ...........................      55,070       51,821       45,713       52,527       35,074
                                            ---------    ---------    ---------    ---------    ---------
Gross profit ............................      30,009       23,699       24,925       32,298       25,098
                                            ---------    ---------    ---------    ---------    ---------
Operating expenses:
  Marketing .............................       6,723        6,160        6,771        6,584        5,434
  Research and development ..............       5,861        6,140        6,283        5,023        3,816
  General and administrative ............       8,731        8,392        7,617        8,392        4,394
  Restructuring .........................          --          795           --          688           --
                                            ---------    ---------    ---------    ---------    ---------
Total operating expenses ................      21,315       21,487       20,671       20,687       13,644
                                            ---------    ---------    ---------    ---------    ---------
Operating income ........................       8,694        2,212        4,254       11,611       11,454
                                            ---------    ---------    ---------    ---------    ---------
Other income (expense):
  Interest expense ......................         (10)         (50)         (93)        (159)         (66)
  Other, primarily interest income ......       1,678        2,211        3,745        7,162        3,316
                                            ---------    ---------    ---------    ---------    ---------
    Total other income, net .............       1,668        2,161        3,652        7,003        3,250
                                            ---------    ---------    ---------    ---------    ---------
Income before income taxes ..............      10,362        4,373        7,906       18,614       14,704
Income taxes ............................       2,695          798        1,179        6,400        5,063
                                            ---------    ---------    ---------    ---------    ---------
Income from continuing operations .......       7,667        3,575        6,727       12,214        9,641
Discontinued operations:
(Loss) from discontinued
  operations of Anaren Europe ...........      (1,510)      (8,029)        (872)          --           --
Income tax benefit ......................      (1,800)        (662)      (1,584)          --           --
                                            ---------    ---------    ---------    ---------    ---------
Net income (loss) from discontinued
  operations ............................         290       (7,367)         712           --           --
                                            ---------    ---------    ---------    ---------    ---------
 Net income (loss) ......................   $   7,957    $  (3,792)   $   7,439    $  12,214    $   9,641
                                            =========    =========    =========    =========    =========
Basic earnings (loss) per share:
  Income from continuing operations .....   $     .37    $     .16    $     .30    $     .55    $     .54
  Income (loss) from discontinued
    operations ..........................         .01         (.33)         .03           --           --
                                            ---------    ---------    ---------    ---------    ---------
  Net income (loss) .....................   $     .38    $    (.17)   $     .33    $     .55    $     .54
                                            =========    =========    =========    =========    =========
Diluted earnings (loss) per share:
  Income from continuing operations .....   $     .35    $     .16    $     .29    $     .52    $     .50
  Income (loss) from discontinued
    operations ..........................         .01         (.33)         .03           --           --
                                            ---------    ---------    ---------    ---------    ---------
  Net income (loss) .....................   $     .36    $    (.17)   $     .32    $     .52    $     .50
                                            =========    =========    =========    =========    =========
Shares used in computing net earnings
  per share:
  Basic .................................      21,026       22,214       22,323       22,134       17,978
  Diluted ...............................      21,808       22,701       23,090       23,455       19,299
Balance Sheet Data:
Cash and cash equivalents ...............   $  23,303    $  11,063    $  12,565    $  11,748    $   6,179
Working capital .........................     106,737      126,235      144,023      146,677      106,271
Total assets ............................     207,482      213,088      221,586      209,055      189,696
Long-term debt, less current installments          --           --           --           --           --
Stockholders' equity ....................     190,364      200,597      209,553      199,454      179,572
</TABLE>

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.


                                       18
<PAGE>

Overview

The consolidated financial statements present the financial condition of the
Company as of June 30, 2004 and 2003, and the consolidated results of operations
and cash flows of the Company for the years ended June 30, 2004, 2003 and 2002.

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. In 2004, the Company 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, Lucent Technologies, Motorola, Nokia, Nortel
Networks, and Andrews and to satellite communications and defense electronics
companies such as Boeing Satellite, I.T.T., Lockheed Martin, Northrup Grumman
and Raytheon.

The Company generally recognizes sales at the time products are shipped to
customers, provided that persuasive evidence of an arrangement exists, the sales
price is fixed or easily determinable, collectibility is reasonably assured and
title and risk of loss have 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 long-term fixed-price contracts for the sale of large
space and defense electronics products. Sales and estimated profits under
long-term contracts are recognized using the percentage of completion method of
accounting 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.

In March 2003, as a result of the continuing low level of business at the
Company's RF Power subsidiary, the decision was made to downsize the workforce
at that facility. Sixteen people were subsequently terminated at a cost of
$296,000, which has been recognized as a restructuring charge in the income
statements.

In April 2003, based on the then weak wireless market conditions and the
financial performance of the Company, the Company's Anaren Microwave, Inc.
subsidiary reduced its workforce by 30 people. In conjunction with this action,
the Company recorded a restructuring charge of $499,000 in the fourth quarter of
fiscal 2003.

On July 10, 2003, after several restructurings, the Company announced its
decision to dispose of its Anaren Europe subsidiary due to continuing low sales
levels and large operating losses. This facility ceased production during the
first quarter of fiscal 2004, an auction was held and all remaining equipment
was sold in September 2003. This subsidiary is now being accounted for as a
discontinued operation in the statements of earnings for the three years ended
2004, 2003, and 2002. Included in the results of discontinued operations for
fiscal 2004 are a loss from European operations of $1.5 million and a U.S. tax
benefit of $1.8 million resulting from investment losses attributable to Anaren
Europe.

On August 3, 2004, the Company purchased a 65,000 square foot building situated
on approximately 12 acres in Salem, New Hampshire for $5.0 million. It is the
Company's


                                       19
<PAGE>

intention to move the Amitron operation to this facility, beginning in September
2004, and operate the business under the name of Anaren Ceramics, Inc., a newly
created wholly owned subsidiary of the Company. This newly acquired 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 buyout of the remaining lease of the North Andover facility for a
one-time charge of $350,000 and accelerated amortization of the leasehold
improvements and lease related intangibles amounting to $250,000. These costs
were recorded and recognized in the June 30, 2004 income statement.

On July 8, 2004, Teledyne Technologies Incorporated and Celeritek, Inc. jointly
announced that Teledyne, through its subsidiary Teledyne Wireless, Inc., had
entered into an agreement to acquire Celeritek's defense electronics business.
In light of this development, the Company has determined that it no longer has
an interest in acquiring the business or assets of, or engaging in any other
form of business combination with, Celeritek. The shares of Celeritek Common
Stock beneficially owned by Anaren will, for so long as Anaren retains such
ownership, be held for investment purposes and not with a view towards
effectuating a business combination. As set forth in its latest Amendment to
Schedule 13D, Anaren has disposed of a portion of the Celeritek Common Stock
previously held by it. Depending on the results of its ongoing evaluation of the
investment in the Common Stock, prevailing market conditions, other investment
opportunities, and/or other investment considerations, Anaren may dispose of
some or all of its remaining holdings in privately negotiated or open market
transactions, or may retain such shares for investment purposes as described in
its latest Amendment to Schedule 13D. As of August 25, 2004, Anaren has disposed
of 72,500 shares of Celeritek's Common Stock and still owns 704,800 shares.

Results of Operations

Net sales from continuing operations for the year ended June 30, 2004 were $85.1
million, up 12.7% from $75.5 million for fiscal 2003. Income from continuing
operations for fiscal 2004 was $7.7 million, or 9.0% of net sales, up $4.1
million, or 115% from income from continuing operations of $3.6 million in
fiscal 2003.

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:


                                       20
<PAGE>

                                                       Years Ended June 30,
                                                --------------------------------
                                                2004          2003         2002
                                                ----          ----         ----
Net sales                                       100.0%       100.0%       100.0%
Cost of sales                                    64.7         68.6         64.7
                                                -----        -----        -----
Gross profit                                     35.3         31.4         35.3
                                                -----        -----        -----
Operating expenses:
     Marketing                                    7.9          8.2          9.6
     Research and development                     6.9          8.1          8.9
     General and administrative                  10.3         11.1         10.8
     Restructuring                               --            1.1         --
                                                -----        -----        -----
       Total operating expenses                  25.1         28.5         29.3
                                                -----        -----        -----
Operating income                                 10.2          2.9          6.0
                                                -----        -----        -----
Other income (expense):
     Interest expense                              --           --         (0.1)
     Other, primarily interest income             2.0          2.9          5.3
                                                -----        -----        -----
       Total other income                         2.0          2.9          5.2
                                                -----        -----        -----
Income from continuing operations before
  Income taxes                                   12.2          5.8         11.2
Income taxes                                      3.2          1.1          1.7
                                                -----        -----        -----
Net income from continuing operations             9.0          4.7          9.5
Discontinued operations:
  Income (loss) from discontinued
    operations of Anaren Europe                  (1.8)       (10.6)        (1.2)
  Income tax benefit                             (2.1)        (0.9)        (2.2)
                                                -----        -----        -----
    Net income (loss) from discontinued
      operations                                   .3         (9.7)         1.0
                                                -----        -----        -----
  Net income (loss)                               9.3%        (5.0%)       10.5%
                                                =====        =====        =====

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

                                                Years Ended June 30,
                                    ------------------------------------------
                                      2004              2003             2002
                                      ----              ----             ----
                                                  (In thousands)
Wireless                            $58,078           $46,629          $44,567
Space & Defense                      27,001            28,891           26,071
                                    -------           -------          -------
                                    $85,079           $75,520          $70,638
                                    =======           =======          =======

Year Ended June 30, 2004 Compared to Year Ended June 30, 2003

Net Sales. Net sales increased $9.6 million, or 12.7%, to $85.1 million for the
year ended June 30, 2004, compared to $75.5 million for fiscal 2003. This
increase resulted from a $11.4 million rise in sales of Wireless infrastructure
equipment which more than offset a $1.9 million decline in sales of Space and
Defense products.

The increase in sales of Wireless products, which consisted of standard
components, ferrite components, and custom subassemblies for use in building
wireless base station equipment, was the result of a significant increase in
worldwide demand for wireless base station components over the last twelve
months. This demand generated increased orders from a majority of the Company's
base station infrastructure original equipment manufacturing customers in fiscal
2004. Sales of standard components and custom subassemblies rose $14.7 million,
or 47% in the current year compared to fiscal 2003. This increase was partially
offset by a $3.2 million, or 39% decrease in sales of ferrite component products
in fiscal 2004 compared to last year as a result of the Company's continuing
efforts to eliminate unprofitable and low margin ferrite products in fiscal
2004.


                                       21
<PAGE>

Space and Defense products consist of custom components and assemblies for
communication satellites and defense radar and countermeasure subsystems for the
military. Sales in the Space and Defense group fell $1.9 million, or 7.0% in
fiscal 2004 to $27.0 million, compared to fiscal 2003. This decrease in sales
resulted from the completion of shipments under the Boeing Spaceway program in
the fourth quarter of fiscal 2003. This program accounted for over $4.8 million
in shipments in fiscal 2003. This decline in commercial space revenue in fiscal
2004 was partially off-set by a $2.9 million increase in military space and
defense product sales. Sales in the Space and Defense segment are expected to
average between $7.0 to $7.5 million per quarter through the first half of
fiscal 2005.

Gross Profit. Cost of sales consists primarily of engineering design costs,
materials, material fabrication costs, assembly costs, direct and indirect
overhead, and test costs. Gross profit for fiscal 2004 was $30.0 million (35.3%
of net sales), up $6.3 million from $23.7 million (31.4% of net sales) for
fiscal 2003. The rise in gross margin as a percent of sales was a result of the
$3.2 million decrease in sales of unprofitable and low margin ferrite products,
coupled with $14.7 million increase in sales of higher margin surface mount and
custom wireless products in fiscal 2004 compared to fiscal 2003. The Company
expects gross margins to continue at current levels over the next few quarters.

Marketing. Marketing expenses consist mainly of employee related expenses,
commissions paid to sales representatives, trade show expenses, advertising
expenses and related travel expenses. Marketing expenses were $6.7 million (7.9%
of net sales) for fiscal 2004, up $500,000 from $6.2 million (8.2% of net sales)
for fiscal 2003. This increase is a result of the addition of three new
geographic product line marketing positions and a general increase in sales and
marketing support costs to meet the increased demand in both the Wireless and
Space and Defense markets that the Company has experienced over the last year.

Research and Development. Research and development expenses consist of material
and salaries and related overhead costs of employees engaged in ongoing
research, design and development activities associated with new products and
technology development. Research and development expenses were $5.9 million
(6.9% of net sales) in fiscal 2004, down 4.6% from $6.1 million (8.1% of net
sales) for fiscal 2003. Research and development expenditures are supporting
further development of wireless infrastructure products and new wireless
networking product opportunities. Research and development expenditures fell in
fiscal 2004 compared to the prior year due to a significantly higher level of
customer funded development activity in the Space and Defense group, resulting
in a higher level of engineering costs being included in cost of goods sold.
Despite the current temporary decline in spending, the Company does not expect
to significantly reduce its current research and development efforts in the long
term and is presently working on a number of new standard wireless products.

General and Administrative. General and administrative expenses consist of
employee related expenses, professional services, intangible amortization,
travel related expenses and other corporate administrative costs. General and
administrative expenses increased 4.0% to $8.7 million (10.3% of net sales) for
fiscal 2004 from $8.4 million (11.1% of net sales) for last fiscal year. This
increase resulted primarily from rising administrative costs due to
Sarbanes-Oxley regulations, a rise in corporate donations to a local university
to support development of new microwave engineering talent, and a one-time
charge of $350,000 to recognize the cost of settling the existing lease for
Amitron's current facility in North Andover, net of offsetting decreases
resulting from fiscal 2004 cost cutting initiatives.


                                       22
<PAGE>

Restructuring. There were no restructuring charges in fiscal 2004. In fiscal
2003, the Company recorded a restructuring charge of $795,000 related to the
Company's restructuring plans at its RF Power and Anaren Microwave, Inc.
subsidiaries. These plans were primarily aimed at reducing the cost of excess
personnel and included the termination of 46 employees.

Operating Income: Operating income increased in fiscal 2004 to $8.7 million
(10.2% of sales) from $2.2 million (2.9% of net sales) for fiscal 2003. On a
reporting segment basis, Wireless operating income was $4.4 million for fiscal
2004, an improvement of $6.9 million from a Wireless operating loss of ($2.5
million) for fiscal 2003. The main reasons for the increase in Wireless income
in the current year were the Company's restructuring and cost reduction
activities in the second half of fiscal 2003 (which lowered Wireless operating
costs), the discontinuation of some unprofitable and low margin wireless ferrite
products, and the $11.5 million increase in Wireless sales in the current year
compared to fiscal 2003. In fiscal 2005, Wireless operating margins are expected
to approximate current levels depending on sales volume and product mix.

Space and Defense operating income fell $412,000 in fiscal 2004 to $4.3 million,
compared to $4.7 million in fiscal 2003. This decrease resulted from the lower
sales volume and a change in product mix during the current year compared to
fiscal 2003. This year's sales included more volume attributable to military
programs, while sales for fiscal 2003 consisted of more profitable shipments for
commercial space programs. Going forward, we expect Space and Defense sales to
be driven primarily by defense related programs.

Other Income. Other income is primarily interest income received on invested
cash balances. Other income decreased 24.1% to $1.7 million (2.0% of net sales)
for fiscal 2004, from $2.2 million (2.9% of net sales) for fiscal 2003. This
decrease was caused by the decline in market interest rates over the last 12
months brought about by reductions in the Federal Funds rate and the decrease in
investable cash balances due to the $22.1 million expenditure to repurchase
shares of the Company's common stock for Treasury shares during fiscal 2004.
Interest income will fluctuate based on the level of interest rates and the size
of investable cash balances.

Income Taxes: Income taxes for fiscal 2004 were $2.7 million (3.2% of net
sales), representing an effective tax rate of 26.1%. This compares to income tax
expense of $798,000 (1.1% of net sales) for fiscal 2003, representing an
effective tax rate of 18.2%. The Company's effective tax rate is a direct result
of the proportion of federally exempt state municipal bond income, federal tax
credits and export tax benefits in relation to the anticipated levels of taxable
income for the entire fiscal year.

Discontinued Operations. On July 10, 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 the remaining net assets of
that operation were liquidated. Effective with the Company's Form 10-Q Quarterly
Report for the first quarter ended September 30, 2003, the results of operations
for Anaren Europe for both the current and prior years have been reclassified as
discontinued operations in the statement of earnings. Discontinued operations
for the year ended June 30, 2004 included a loss from discontinued operations of
($1.5) million and a tax benefit of $1.8 million from the write-off of the
Company's investment resulting in a net gain of $290,000. For fiscal 2003 the
Company had a net loss from discontinued operations of ($8.0) million and a tax
benefit of $662,000 resulting in a net loss of ($7.4) million.


                                       23
<PAGE>

Year Ended June 30, 2003 Compared to Year Ended June 30, 2002

Net Sales. Net sales increased $4.9 million, or 6.9%, to $75.5 million for
fiscal 2003, compared to $70.6 million for the prior fiscal year. This increase
consisted of a $2.1 million (4.6%) rise in Wireless sales and a $2.8 million
(10.8%) increase in sales of Space and Defense products.

The $2.1 million increase in fiscal 2003 Wireless sales resulted from a
combination of a new acquisition during fiscal 2002 and increased customer
demand. Wireless sales for fiscal 2003 include a full twelve months of sales for
Amitron, while sales for fiscal 2002 included only ten months of sales for
Amitron. The Amitron acquisition resulted in additional sales in fiscal 2003 of
$1.7 million compared to fiscal 2002 sales levels. Additionally, customer
wireless infrastructure demand rose slightly in the first and second quarters,
coming mainly from Asian infrastructure build outs.

Sales in the Space and Defense group rose $2.8 million, or 10.8%, in fiscal
2003, compared to the prior fiscal year. This increase in shipments resulted
from a number of defense contracts for Digital Frequency Discriminators (DFDs)
and Digital RF memories (DRFMs) for foreign applications, radar antenna feed
networks and precision ranging subsystems (PRSS) for U.S. Government
applications. These products contributed to the rise in defense orders in the
Company's backlog during fiscal 2003.

Gross Profit. Gross profit for fiscal 2003 was $23.7 million (31.4% of net
sales), down $1.2 million from $24.9 million (35.3% of net sales) for fiscal
2002. The decline in margins as a percent of net sales in fiscal 2003 resulted
from continuing price pressure from Wireless customers, which has resulted in
lower average sale prices year over year and from the $2.8 million increase in
sales of space and defense products which normally have a somewhat lower gross
margin than typical wireless products.

Marketing. Marketing expenses decreased 9.0% to $6.2 million (8.2% of net sales)
for fiscal 2003 from $6.8 million (9.6% of net sales) for fiscal 2002. Marketing
expense declined in fiscal 2003 due to a budgeted decline in advertising
expenditures in fiscal 2003 compared to fiscal 2002 and the reassignment of some
marketing personnel to other company functions.

Research and Development. Research and development expenses were $6.1 million
(8.1% of net sales) in fiscal 2003, down $143,000 from $6.3 million (8.9% of net
sales) for fiscal 2002. Research and development expenditures are supporting
further development of wireless infrastructure products and new wireless
networking product opportunities, including a number of new standard surface
mount wireless products.

General and Administrative. General and administrative expenses consist of
employee related expenses, professional services, and intangible amortization,
travel related expenses and other corporate costs. General and administrative
expenses increased 10.2% to $8.4 million (11.1% of net sales) for fiscal 2003
from $7.6 million (10.8% of net sales) for fiscal 2002. This increase was due to
professional services costs associated with the Celeritek offer, costs incurred
at the new China facility, and a full twelve months of general and
administrative expenditures for Amitron compared to ten months in fiscal 2002.

Restructuring. In March 2003, the Company recorded a restructuring charge of
$296,000 related to the Company's restructuring plan at its RF Power subsidiary.
This plan was primarily aimed at reducing the cost of excess personnel in this
operation and included the termination of 16 employees. In June 2003, the
Company also incurred a restructuring charge of $499,000 related to the
Company's restructuring plan to reduce overhead at its Anaren Microwave, Inc.
subsidiary. This plan was aimed at reducing the excess cost of indirect
personnel at this operation and included the termination of 30 individuals. The
remaining restructuring accrual will be paid in full during fiscal 2005.

Operating Income. Operating income decreased $2.1 million in fiscal 2003 to $2.2
million (2.9% of net sales) from $4.3 million (6.0% of net sales) for fiscal
2002. On a reporting segment basis, the Wireless operating loss was ($2.5)
million for fiscal 2003, a decrease of $1.0 million from a Wireless operating
loss of ($3.5) million in fiscal 2002. The main reason for the improvement in
Wireless operating income in fiscal 2003 was the $2.1 million increase in
Wireless sales coupled with various cost cutting efforts which improved Wireless
gross margins year over year.


                                       24
<PAGE>

Space and Defense operating income fell $3.0 million in fiscal 2003 to $4.7
million compared to $7.7 million in fiscal 2002. This decrease resulted from a
change in product mix during fiscal 2003 compared to fiscal 2002. Fiscal 2003
sales included more military programs, while sales in fiscal 2002 consisted of
more profitable commercial space programs.

Other Income. Other income is primarily interest income received on invested
cash balances. Other income decreased 40.8% to $2.2 million (2.9% of net sales)
for the year ended June 30, 2003, from $3.7 million (5.3% of net sales) for
fiscal 2002. This decrease was caused mainly by the decline in market interest
rates over the 12 months ended June 30, 2003, brought about by reductions in the
Federal Fund rates.

Interest Expense: Interest expense represents commitment fees and interest paid
on a deferred obligation. Interest expense for fiscal 2003 was $50,000 (0.0% of
net sales) compared to $93,000 (0.1% of net sales) for fiscal 2002. This
decrease was the result of the intentional cancellation of the Company's line of
credit.

Income Taxes. Income taxes for fiscal 2003 were $798,000 (1.1% of net sales),
representing an effective tax rate of 18.2%. This compares to income tax of $1.2
million (1.1% of net sales) for fiscal 2002, representing an effective tax
benefit rate of 11.2%. 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. In
fiscal 2002, the Company finalized an analysis of certain available research
credits and export tax benefits and recorded a tax benefit of $857,000.

Discontinued Operations. During July 2003, the Company announced its decision to
dispose of its Anaren Europe operation. During the first quarter, production at
Anaren Europe ceased and the remaining net assets of that operation were
liquidated. Effective with the Company's Form 10-Q Quarterly Report for the
first quarter ended September 30, 2003, the results of operations for Anaren
Europe for both the current and prior year have been reclassified as
discontinued operations in the statements of earnings. Discontinued operations
for the year ended June 30, 2003 included a loss from operations of ($8.0)
million, and a federal tax benefit of $662,000. Discontinued operations for
fiscal 2002 included a loss from operations of ($872,000) which consisted of an
operating loss of ($4.3) million and an extraordinary gain at acquisition of
$3.4 million, and a tax benefit of $1.6 million.

Critical Accounting Policies

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


                                       25
<PAGE>

worthiness of customers and current market and economic conditions. The
allowance for doubtful accounts balance is established based on the portion of
those accounts receivable which are deemed to be potentially uncollectible.
Changes in judgments on these factors could impact the timing of costs
recognized.

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

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, 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, 2004, 2003 and 2002
was $15.2 million, $12.2 million and $17.1 million, respectively. The positive
cash flow from operations was due primarily to profit before depreciation in
each year. In fiscal 2004 cash flow was decreased by a rise in receivables,
while in fiscal 2002 and 2003 cash flows were increased due to a decline in
receivables and inventory.

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 equity securities (Celeritek, Inc.) held for
resale of $3.5 million, less $4.3 million used to fund capital equipment
acquisitions. Additionally, in fiscal 2004, $1.5 million was generated in
discontinued operations in


                                       26
<PAGE>

Europe through the auction sale of capital equipment. Net cash used in investing
activities in fiscal 2002 was $15.3 million and consisted of $4.0 million in
capital expenditures, $8.2 million used to make business acquisitions and $9.7
million related to the discontinued Anaren Europe operation. Additionally in
fiscal 2002, $6.5 million was provided by maturities of marketable debt
securities. Net cash used in investing activities in fiscal 2003 was $8.6
million and consisted of $3.9 million used to acquire capital equipment and net
purchases of marketable debt securities amounting to $4.0 million.

Net cash used in financing activities in fiscal 2004, 2003 and 2002 was $20.5
million, $5.1 million and $1.6 million, respectively. Of the fiscal 2004 amount,
$1.6 million was provided by the exercise of stock options and $22.1 million was
used to repurchase 1,579,204 shares of the Company's stock under a previously
approved repurchase plan. Of the fiscal 2003 amount, $248,000 was generated from
the exercise of stock options and $5.4 million was expended to repurchase
643,000 of the Company's stock. The fiscal 2002 amount consisted of $399,000
provided by the exercise of stock options and $2.0 million used to pay-off
acquisition loans.

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, 2004, there
were 927,000 shares remaining under the current Board repurchase authorization.
On August 10, 2004, the Board increased its repurchase authorization by two
million shares, and for the period July 1 through August 25, 2004 the Company
repurchased an additional 682,800 shares, leaving 2,245,000 under the current
authorization.

At June 30, 2004, the Company had approximately $120.5 million in cash, cash
equivalents, and marketable securities and no debt, and has had positive
operating cash flow for over eight years. The Company believes that its cash
requirements for the foreseeable future will be satisfied by currently invested
cash balances and expected cash flows from operations.

Disclosures About Contractual Obligations and Commercial Commitments

Accounting standards require disclosure concerning the Company's obligations and
commitments to make future payments under contracts, such as debt 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       $5,197,850     $1,015,293     $1,037,680     $943,462    $2,201,415
Deferred compensation                  428,520         65,000        130,000      130,000       103,520
Purchase of building                 4,735,000      4,735,000             --           --            --
</TABLE>

Recent Accounting Pronouncements

In April 2003, the FASB issued SFAS No. 149 Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts. SFAS No. 149 is effective
for contracts entered into or modified after June 30, 2003, except as stated
below, and for hedging relationships designated after June 30, 2003. In
addition, except as stated below, all provisions of SFAS No. 149 should be
applied prospectively. The provisions of SFAS No. 149 relating to SFAS No. 133
Implementation Issues that have been effective for fiscal quarters beginning
prior to June 15, 2003, should continue to be applied in accordance with their
respective effective dates. Adoption of SFAS No. 149 did not have a material
impact on our consolidated financial position, results of operations or cash
flows.


                                       27
<PAGE>

In May 2003, the FASB issued SFAS No. 150 Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of these instruments
were previously classified as temporary equity. SFAS No. 150 will be effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise shall be effective at the beginning of the first interim period
beginning after June 15, 2003. For financial instruments created before the
issuance date of SFAS No. 150 and still existing at the beginning of the interim
period of adoption, transition shall be achieved by reporting the cumulative
effect of a change in accounting principle by initially measuring the financial
instruments at fair value or other measurement attribute required by SFAS No.
150. Instruments with characteristics of both liabilities and equity not
addressed in SFAS No. 150 will be addressed in the next phase of the project.
Adoption of SFAS No. 150 did not have a material impact on our consolidated
financial position, results of operations or cash flows.

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

In December 2003, the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (the Act) became law in the United States. The Act introduces a
prescription drug benefit under Medicare as well as a federal subsidy to
sponsors of retiree health care benefit plans that provide a benefit that is at
least actuarially equivalent to the Medicare benefit. In accordance with FASB
Staff Position FAS 106-2,"Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003," the
Company has elected to defer recognition of the effects of the Act in any
measures of the benefit obligation or cost. Specific authoritative guidance on
the accounting for the federal subsidy is pending and that guidance, when
issued, could require the Company to change previously reported information.
Currently, we do not believe we will need to amend our plan to benefit from the
Act, nor do we expect the Act to have a material impact on our consolidated
financial position, results of operations or cash flows.

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. We have complied with the disclosure
requirements.

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, 2004, the Company had cash, cash equivalents and marketable
securities of $120.5 million, of which approximately $94.7 million consisted of
highly liquid investments in marketable debt securities and $3.0 million
consisted of marketable equity 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


                                       28
<PAGE>

of 10.0% from June 30, 2004 rates, or 0.15%, would have reduced net income and
cash flow by approximately $142,000, or $0.007 per 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.

The Company currently owns equity investments held for sale with a market value
of approximately $3.0 million. Fluctuations in market value of these securities
are charged to stockholders' equity monthly. A theoretical 10.0% decline in
market value of these securities would result in a $300,000 reduction in
stockholders' equity. In the future, if the decline in value of these securities
is considered other than temporary, then the full decline in value experienced
to the date of impairment will be reflected in the then current period income
statement.

All of the Company's sales from its domestic U.S. subsidiaries to foreign
customers are denominated in United States dollars and, accordingly, are not
exposed to foreign currency exchange risk.

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 22 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.    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.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

Information required by this Item concerning directors of the Company is
contained in the Company's proxy statement filed with respect to the 2004 Annual
Meeting of Shareholders and is incorporated by reference herein. The 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,


                                       29
<PAGE>

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 2004,
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 2004 Annual Meeting of Shareholders and is
incorporated by reference herein.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Information required by this Item is contained in the Company's proxy statement
filed with respect to the 2004 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 2004 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 2004 Annual Meeting of Shareholders and is
incorporated by reference herein.


                                       30
<PAGE>

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(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) Current Reports on Form 8-K:
    The Company filed a Current Report on Form 8-K on April 27, 2004 with
    respect to its results of operations for the third quarter ended March 31,
    2004.

(c) 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, 2001, 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  Credit Facility Agreement, dated as of December 23, 1997, between
            the Company and Manufacturers and Traders Trust Company, together
            with the Revolving Credit Note dated December 23, 1997 executed by
            the Company in favor of Manufacturers and Traders Trust Company (9)
      10.8  Amendment dated January 1, 2002 to Credit Facility Agreement, dated
            as of December 23, 1997, between the Company and Manufacturers and
            Traders Trust Company (10)
      10.8  Anaren Microwave, Inc. Incentive Stock Option Plan for Key Employees
            (11)
      10.9  Anaren Microwave, Inc. Stock Option Plan (12)
      10.10 Form of Change of Control Agreements dated March 15, 2002 with
            Joseph Porcello, Mark Burdick, Timothy Ross, Stanley Slingerland and
            Gert Thygesen (13)
      10.11 Employment Agreement, dated as of August 31, 2001, between the
            Company and Raymond C. Simione (14)
      10.12 Employment Agreement, dated as of February 14, 2004, between the
            Company and Carl W. Gerst, Jr. (15)
      21    Subsidiaries of the Company
      23    Consent of KPMG LLP
      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


                                       31
<PAGE>

      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.
(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 Annual
      Report on Form 10-K (Commission File No. 0-6620) for the fiscal year ended
      June 30, 2001.
(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 Exhibit 10.13 to the Company's
      Quarterly Report on Form 10-Q for the three months ended December 31,
      1997.
(10)  Incorporated herein by reference to Exhibit 10.1 to the Company's
      Quarterly Report on Form 10-Q for the three months ended December 31,
      2001.
(11)  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.
(12)  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.
(13)  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.
(14)  Incorporated herein by reference to Exhibit 10.13 to the Company's Annual
      Report on Form 10-K (Commission File No. 0-6620) for the fiscal year ended
      June 30, 2002.
(15)  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.


                                       32
<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: August 31, 2004

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    August 31, 2004
----------------------     and Chairman of the Board, Director
                           (Principal Executive Officer)

/s/ Joseph E. Porcello     Vice President of Finance and         August 31, 2004
----------------------     Treasurer (Principal Financial
                           and Accounting Officer)

/s/ Carl W. Gerst, Jr.     Chief Technical Officer,              August 31, 2004
----------------------     Vice Chairman of the Board
                           and Director

/s/ Herbert I. Corkin      Director                              August 31, 2004
----------------------

/s/ Dale F. Eck            Director                              August 31, 2004
----------------------

/s/ Matthew S. Robison     Director                              August 31, 2004
----------------------

/s/ David Wilemon          Director                              August 31, 2004
----------------------

/s/ James Gould            Director                              August 31, 2004
----------------------


                                       33
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                        Consolidated Financial Statements

                             June 30, 2004 and 2003

                  (With Report of Independent Registered Public
                            Accounting Firm Thereon)


                                       34
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                                      Index

                                                                            Page

Report of Independent Registered Public Accounting Firm                      36

Consolidated Balance Sheets as of June 30, 2004 and 2003                     37

Consolidated Statements of Operations for the years ended June 30,
  2004, 2003, and 2002                                                       38

Consolidated Statements of Stockholders' Equity and Comprehensive
  Income (Loss) for the years ended June 30, 2004, 2003, and 2002            39

Consolidated Statements of Cash Flows for the years ended June 30,
  2004, 2003, and 2002                                                       40

Notes to Consolidated Financial Statements                                   41


                                       35
<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, 2004 and 2003, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 2004, in conformity with U.S. generally accepted accounting principles.

                                                        /s/ KPMG LLP

Syracuse, New York
August 6, 2004


                                       36
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                             June 30, 2004 and 2003
                                     Assets

<TABLE>
<CAPTION>

                                                                                     2004              2003
                                                                                 -------------    -------------
<S>                                                                              <C>              <C>
Current assets:
    Cash and cash equivalents                                                    $  23,303,263    $  11,062,662
    Securities available for sale (note 5)                                           2,961,710        5,682,260
    Securities held to maturity (note 5)                                            59,076,923       87,584,016
    Receivables, less allowance for doubtful accounts of $145,500 and $245,000
       in 2004 and 2003, respectively                                               13,812,853        9,317,941
    Inventories (note 6)                                                            16,608,055       15,671,659
    Accrued interest receivable                                                      1,040,838          823,189
    Refundable income taxes (note 19)                                                       --          876,220
    Prepaid expenses                                                                   995,590        1,025,145
    Deferred income taxes (note 19)                                                  1,037,103        1,132,016
    Other current assets                                                               230,784          210,180
                                                                                 -------------    -------------
               Total current assets                                                119,067,119      133,385,288
Securities held to maturity (note 5)                                                35,113,068       23,394,382
Property, plant, and equipment, net (note 7)                                        21,342,554       23,639,821
Goodwill (note 3)                                                                   30,715,861       30,715,861
Other intangible assets, net of accumulated amortization of $1,781,080
    and $1,071,542 in 2004 and 2003, respectively (notes 1 and 3)                    1,243,886        1,953,424
                                                                                 -------------    -------------
               Total assets                                                      $ 207,482,488    $ 213,088,776
                                                                                 =============    =============
                        Liabilities and Stockholders' Equity
Current liabilities:
    Accounts payable                                                             $   7,198,252    $   4,380,459
    Accrued expenses (note 8)                                                        3,092,370        2,477,670
    Income taxes payable                                                             1,331,895           66,594
    Customer advance payments                                                          411,486               --
    Other current liabilities (note 10)                                                295,784          225,534
                                                                                 -------------    -------------
               Total current liabilities                                            12,329,787        7,150,257
Deferred income taxes (note 19)                                                      1,584,251        1,601,346
Pension and postretirement benefit obligation (notes 17 and 18)                      2,762,992        3,302,532
Other liabilities (note 10)                                                            441,190          437,236
                                                                                 -------------    -------------
               Total liabilities                                                    17,118,220       12,491,371
                                                                                 -------------    -------------
Commitments and concentrations (notes 20, 21, and 22)

Stockholders' equity:
    Common stock, $0.01 par value. Authorized 200,000,000 shares
      (notes 12 and 16);
       issued 25,950,704 and 25,681,854 in 2004 and 2003, respectively                 259,507          256,818
    Additional paid-in capital                                                     171,165,180      168,805,153
    Unearned compensation (note 14)                                                    (95,388)        (381,588)
    Retained earnings                                                               51,247,271       43,290,143
    Accumulated other comprehensive income (loss) (note 15)                             41,110       (1,216,961)
                                                                                 -------------    -------------
                                                                                   222,617,680      210,753,565
    Less cost of 5,400,026 and 3,820,822 treasury shares in 2004 and 2003,
       respectively                                                                 32,253,412       10,156,160
                                                                                 -------------    -------------
               Total stockholders' equity                                          190,364,268      200,597,405
                                                                                 -------------    -------------
               Total liabilities and stockholders' equity                        $ 207,482,488    $ 213,088,776
                                                                                 =============    =============
</TABLE>

See accompanying notes to consolidated financial statements


                                       37
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations
                    Years ended June 30, 2004, 2003, and 2002

<TABLE>
<CAPTION>

                                                                    2004           2003            2002
                                                               ------------    ------------    ------------
<S>                                                            <C>             <C>             <C>
Net sales                                                      $ 85,078,939    $ 75,520,020    $ 70,637,918
Cost of sales                                                    55,069,793      51,820,520      45,712,578
                                                               ------------    ------------    ------------
               Gross profit                                      30,009,146      23,699,500      24,925,340
                                                               ------------    ------------    ------------
Operating expenses:
    Marketing                                                     6,723,478       6,160,557       6,771,173
    Research and development                                      5,860,493       6,140,157       6,282,846
    General and administrative                                    8,731,580       8,392,023       7,616,631
    Restructuring (note 9)                                               --         794,527              --
                                                               ------------    ------------    ------------
               Total operating expenses                          21,315,551      21,487,264      20,670,650
                                                               ------------    ------------    ------------
               Operating income                                   8,693,595       2,212,236       4,254,690
                                                               ------------    ------------    ------------
Other income (expense):
    Interest expense                                                (10,195)        (49,950)        (93,376)
    Other, primarily interest income                              1,678,414       2,210,482       3,745,233
                                                               ------------    ------------    ------------
               Total other income, net                            1,668,219       2,160,532       3,651,857
                                                               ------------    ------------    ------------
               Income before income taxes                        10,361,814       4,372,768       7,906,547
Income tax expense (note 19)                                      2,695,000         798,268       1,179,483
                                                               ------------    ------------    ------------
               Income from continuing operations                  7,666,814       3,574,500       6,727,064
Discontinued operations:
    Loss from discontinued operations
       of Anaren Europe (note 2)                                 (1,509,686)     (8,029,222)       (872,437)
    Income tax benefit                                           (1,800,000)       (662,268)     (1,584,483)
                                                               ------------    ------------    ------------
               Net income (loss) from discontinued
                  operations                                        290,314      (7,366,954)        712,046
                                                               ------------    ------------    ------------
               Net income (loss)                               $  7,957,128    $ (3,792,454)   $  7,439,110
                                                               ============    ============    ============
Basic net income (loss) per common and common
  equivalent share:
       Loss from continuing operations                         $       0.37    $       0.16    $       0.30
       Income (loss) from discontinued operations                      0.01           (0.33)           0.03
                                                               ------------    ------------    ------------
               Net income (loss)                               $       0.38    $      (0.17)   $       0.33
                                                               ============    ============    ============
Diluted net income per common and common equivalent share:
       Income (loss) from continuing operations                $       0.35    $       0.16    $       0.29
       Income (loss) from discontinued operations                      0.01           (0.33)           0.03
                                                               ------------    ------------    ------------
               Net income (loss)                               $       0.36    $      (0.17)   $       0.32
                                                               ============    ============    ============
Shares used in computing net income (loss) per common and
  common equivalent share:
       Basic                                                     21,026,001      22,214,181      22,322,546
       Diluted                                                   21,807,538      22,701,245      23,089,553
</TABLE>

See accompanying notes to consolidated financial statements


                                       38
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

 Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)

                    Years ended June 30, 2004, 2003, and 2002

<TABLE>
<CAPTION>


                                                                                      Common stock       Additional
                                                                     Comprehensive    ------------        paid-in         Unearned
                                                                     income (loss)       Amount           capital       compensation
                                                                     -------------    ----------       -----------      ------------
<S>                                                                <C>              <C>              <C>                <C>
Balance at June 30, 2001                                                            $     254,962    $ 166,051,341      $(1,723,377)
Comprehensive income (loss):
   Net income                                                      $   7,439,110               --               --               --
   Other comprehensive income (loss):
     Foreign currency translation adjustment                             687,667               --               --               --
     Minimum pension liability adjustment, net of tax
       benefit of $54,737                                               (106,254)              --               --               --
     Unrealized loss on securities available-for-sale                 (1,409,474)              --               --               --
                                                                   -------------
           Other comprehensive loss                                     (828,061)              --               --               --
                                                                   -------------
           Total comprehensive income (loss)                       $   6,611,049
                                                                   =============
Stock options exercised (note 13)                                                             445          398,273               --
Tax benefit from exercise of stock options (note 19)                                           --          460,672               --
Issuance of stock in connection with acquisition (note 2)                                     957        1,754,452               --
Stock options granted in connection with acquisition (note 2)                                  --          218,724               --
Amortization of unearned compensation (note 14)                                                --               --          636,708
Stock options granted for services (note 13)                                                   --           18,183               --
                                                                                    -------------    -------------    -------------
Balance at June 30, 2002                                                                  256,364      168,901,645       (1,086,669)
Comprehensive income (loss):
   Net income (loss)                                               $  (3,792,454)              --               --               --
   Other comprehensive income (loss):
     Foreign currency translation adjustment                              (8,072)              --               --               --
     Minimum pension liability adjustment, net of
       tax benefit of $456,355                                          (885,867)              --               --               --
     Unrealized gain on securities available-for-sale                    505,039               --               --               --
                                                                   -------------
           Other comprehensive (loss)                                   (388,900)              --               --               --
                                                                   -------------
           Total comprehensive income (loss)                       $  (4,181,354)
                                                                   =============
Purchase of treasury stock                                                                     --               --               --
Stock options exercised (note 13)                                                             513          247,522               --
Tax benefit from exercise of stock options (note 19)                                           --           71,477               --
Amortization of unearned compensation (note 14)                                                --               --          575,640
Forfeiture of restricted stock grants                                                         (59)        (253,691)         129,441
Tax impact of restricted stock activity                                                        --         (161,800)              --
                                                                                    -------------    -------------    -------------
Balance at June 30, 2003                                                                  256,818      168,805,153         (381,588)
Comprehensive income (loss):
   Net income (loss)                                               $   7,957,128               --               --               --
   Other comprehensive income (loss):
     Foreign currency translation adjustment                              56,426               --               --               --
     Minimum pension liability adjustment, net of tax of $255,081        424,345               --               --               --
     Unrealized gain on securities available-for-sale                    777,300               --               --               --
                                                                   -------------
           Other comprehensive income                                  1,258,071               --               --               --
                                                                   -------------
           Total comprehensive income (loss)                       $   9,215,199
                                                                   =============
Purchase of treasury stock                                                                     --               --               --
Stock options exercised (note 13)                                                           2,689        1,562,397               --
Tax benefit from exercise of stock options (note 19)                                           --          797,630               --
Amortization of unearned compensation (note 14)                                                --               --          286,200
                                                                                    -------------    -------------    -------------
Balance at June 30, 2004                                                            $     259,507    $ 171,165,180    $    (95,388)
                                                                                    =============    =============    =============
</TABLE>


<TABLE>
<CAPTION>

                                                                                      Accumulated     Treasury
                                                                                         other         stock              Total
                                                                     Retained       comprehensive     --------        stockholders'
                                                                     earnings        income (loss)     Amount            equity
                                                                     ---------       ------------     ---------       ------------
<S>                                                                 <C>                <C>           <C>              <C>
Balance at June 30, 2001                                            $39,643,487               --     $ (4,772,638)    $199,453,775
Comprehensive income (loss):
   Net income                                                         7,439,110               --               --        7,439,110
   Other comprehensive income (loss):
     Foreign currency translation adjustment                                 --               --               --               --
     Minimum pension liability adjustment, net of tax
       benefit of $54,737                                                    --               --               --
     Unrealized loss on securities available-for-sale                        --               --               --               --

           Other comprehensive loss                                          --         (828,061)              --         (828,061)

           Total comprehensive income (loss)

Stock options exercised (note 13)                                             --              --               --          398,718
Tax benefit from exercise of stock options (note 19)                          --              --               --          460,672
Issuance of stock in connection with acquisition (note 2)                     --              --               --        1,755,409
Stock options granted in connection with acquisition (note 2)                 --              --               --          218,724
Amortization of unearned compensation (note 14)                               --              --               --          636,708
Stock options granted for services (note 13)                                  --              --               --           18,183
                                                                  -------------    -------------    -------------    -------------
Balance at June 30, 2002                                              47,082,597        (828,061)      (4,772,638)     209,553,238
Comprehensive income (loss):
   Net income (loss)                                                 (3,792,454)              --               --       (3,792,454)
   Other comprehensive income (loss):
     Foreign currency translation adjustment                                 --               --               --               --
     Minimum pension liability adjustment, net of
       tax benefit of $456,355                                               --               --               --               --
     Unrealized gain on securities available-for-sale                        --               --               --               --

           Other comprehensive income                                        --         (388,900)              --         (388,900)

           Total comprehensive income (loss)

Purchase of treasury stock                                                    --              --       (5,383,522)      (5,383,522)
Stock options exercised (note 13)                                             --              --               --          248,035
Tax benefit from exercise of stock options (note 19)                          --              --               --           71,477
Amortization of unearned compensation (note 14)                               --              --               --          575,640
Forfeiture of restricted stock grants                                         --              --               --         (124,309)
Tax impact of restricted stock activity                                       --              --               --         (161,800)
                                                                  -------------    -------------    -------------    -------------
Balance at June 30, 2003                                              43,290,143      (1,216,961)     (10,156,160)     200,597,405
Comprehensive income (loss):
   Net income (loss)                                                  7,957,128               --               --        7,957,128
   Other comprehensive income (loss):
     Foreign currency translation adjustment                                 --               --               --               --
     Minimum pension liability adjustment, net of tax of $255,081            --               --               --               --
     Unrealized gain on securities available-for-sale                        --               --               --               --

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

           Total comprehensive income (loss)

Purchase of treasury stock                                                   --               --      (22,097,252)     (22,097,252)
Stock options exercised (note 13)                                            --               --               --        1,565,086
Tax benefit from exercise of stock options (note 19)                         --               --               --          797,630
Amortization of unearned compensation (note 14)                              --               --               --          286,200
                                                                  -------------    -------------    -------------    -------------
Balance at June 30, 2004                                          $  51,247,271    $      41,110    $ (32,253,412)   $ 190,364,268
                                                                  =============    =============    =============    =============
</TABLE>

          See accompanying notes to consolidated financial statements


                                       39
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                    Years ended June 30, 2004, 2003, and 2002

<TABLE>
<CAPTION>

                                                                             2004              2003             2002
                                                                         -------------    -------------    -------------
<S>                                                                      <C>              <C>              <C>
Cash flows from operating activities:
    Net income (loss)                                                    $   7,957,128    $  (3,792,454)   $   7,439,110
    Net income (loss) from discontinued operations                             290,314       (7,366,954)         712,046
                                                                         -------------    -------------    -------------
             Net income from continuing operations                           7,666,814        3,574,500        6,727,064
    Adjustments to reconcile net income to net cash provided
      by operating activities:
      Depreciation                                                           4,296,999        3,904,308        3,447,132
      Amortization of intangibles                                              709,539          499,539          428,261
      Deferred income taxes                                                   (140,784)       1,094,390         (302,063)
      Unearned compensation                                                    286,200          451,331          636,708
      Provision for doubtful accounts                                          (16,532)          53,243          269,578
      Tax benefit from exercise of stock options                               797,630          (90,323)         460,672
      Changes in operating assets and liabilities, net of acquisition:
        Receivables                                                         (5,071,555)       3,408,410          355,856
        Inventories                                                         (1,426,801)       3,933,842          533,241
        Accrued interest receivable                                             91,484          383,207          486,484
        Prepaid expenses                                                      (405,611)        (130,308)        (210,076)
        Other current assets                                                        --         (103,564)         727,566
        Refundable income taxes                                                876,220         (876,220)          53,804
        Accounts payable                                                     3,379,732         (109,542)         872,030
        Accrued expenses                                                       919,259         (134,591)      (2,532,671)
        Income taxes payable                                                 3,065,301         (464,263)        (274,577)
        Customer advance payments                                              411,486         (244,831)        (522,959)
        Other liabilities                                                      718,336           15,237        1,618,616
        Pension and postretirement benefit obligation                         (540,722)         440,706           22,440
                                                                         -------------    -------------    -------------
             Net cash provided by operating activities
               from continuing operations                                   15,616,995       15,605,071       12,797,106
  Net cash provided by (used in) operating activities from
    discontinued operations                                                   (404,886)      (3,366,389)       4,258,561
                                                                         -------------    -------------    -------------
             Net cash provided by operating activities                      15,212,109       12,238,682       17,055,667
                                                                         -------------    -------------    -------------
Cash flows from investing activities:
    Capital expenditures                                                    (4,274,681)      (3,899,549)      (3,992,822)
    Dividend return of capital in equities held for resale                   3,497,850               --               --
    Maturities of marketable debt securities                               194,358,406      203,186,757      216,270,000
    Purchase of marketable debt and equity securities                     (177,570,000)    (205,645,297)    (204,526,111)
    Purchase of equity securities                                                   --       (1,356,279)      (5,210,219)
    Purchase of business, net of cash acquired (note 2)                             --               --       (8,203,539)
                                                                         -------------    -------------    -------------
             Net cash provided by (used in) investing activities
               from continuing operations                                   16,011,575       (7,714,368)      (5,662,691)
    Net cash provided by (used in) investing activities
      from discontinued operations                                           1,492,657         (883,517)      (9,686,079)
                                                                         -------------    -------------    -------------
             Net cash provided by (used in) investing activities            17,504,232       (8,597,885)     (15,348,770)
                                                                         -------------    -------------    -------------
Cash flows from financing activities:
    Payments on notes and line of credit                                            --               --         (716,153)
    Stock options exercised                                                  1,565,086          248,035          398,718
    Purchase of treasury stock                                             (22,097,252)      (5,383,522)              --
                                                                         -------------    -------------    -------------
             Net cash used in financing activities from
               continuing operations                                       (20,532,166)      (5,135,487)        (317,435)
    Net cash used in financing activities from discontinued operations              --               --       (1,260,247)
                                                                         -------------    -------------    -------------
             Net cash used in financing activities                         (20,532,166)      (5,135,487)      (1,577,682)
                                                                         -------------    -------------    -------------
Effect of exchange rates                                                        56,426           (8,072)         687,667
                                                                         -------------    -------------    -------------
             Net increase (decrease) in cash and cash equivalents           12,240,601       (1,502,762)         816,882
Cash and cash equivalents at beginning of year                              11,062,662       12,565,424       11,748,542
                                                                         -------------    -------------    -------------
Cash and cash equivalents at end of year                                 $  23,303,263    $  11,062,662    $  12,565,424
                                                                         =============    =============    =============
Supplemental disclosures of cash flow information:
  Cash paid during the period for:
      Interest                                                           $       7,519    $      50,610    $          --
</TABLE>

See accompanying notes to consolidated condensed financial statements.


                                       40
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


(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 generally 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 long-term fixed-price contracts for the sale
          of large space and defense electronics  products.  Sales and estimated
          profits under long-term  contracts are recognized using the percentage
          of  completion  method of  accounting  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 $20,407,660  and $10,007,462 at June 30, 2004 and
          2003,  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.

          Held to maturity  securities  are recorded at amortized  cost adjusted
          for  the   amortization   of  accretion  of  premiums  of   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.

          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.

                                                                     (Continued)


                                       41
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


     (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  determines the
          allowance  based  on  historical  write-off  experience.  The  Company
          reviews its allowance for doubtful accounts monthly. Past due balances
          over 90 days and a  specified  amount 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  until
          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 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, 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

                                                                     (Continued)


                                       42
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


          between the carrying  amount and fair value of the asset.  The Company
          evaluates its long-lived assets if impairment indicators arise.

          During  fiscal 1999,  the Company  purchased a patent for $325,000 and
          150,000  stock  options  valued at $249,965,  which were  subsequently
          exercised  in  fiscal  2000.  The  patent  is  being  amortized  on  a
          straight-line basis over its remaining life of 8 years.

     (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  583,582,
          1,868,680,   and  1,126,550  at  June  30,  2004,   2003,   and  2002,
          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
          earnings per share as of June 30:
<TABLE>
<CAPTION>

                                                            2004          2003            2002
                                                        ------------   ------------    ------------
          <S>                                           <C>            <C>                <C>
          Numerator:
          Earnings (loss) available to common
               stockholders                             $  7,597,128   $ (3,792,454)      7,439,110
                                                        ============   ============    ============
          Denominator:
          Denominator for basic earnings per share:
               Weighted average shares outstanding        21,026,001     22,214,181      22,322,546
                                                        ============   ============    ============
          Denominator for diluted earnings per share:
               Weighted average shares outstanding        21,026,001     22,214,181      22,322,546
               Common stock options and restricted
                  stock                                      781,537        487,064         767,007
                                                        ------------   ------------    ------------
          Weighted average shares and conversions         21,807,538     22,701,245      23,089,553
                                                        ============   ============    ============
</TABLE>
     (l)  Research and Development Costs

          Research and development costs are expensed as incurred.

                                                                     (Continued)


                                       43
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


     (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, 2004 and 2003. The Company's
          available-for-sale  equity  securities are stated at their fair value,
          as determined by quoted market prices on June 30, 2004.  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)  Stock-Based Compensation

          At June  30,  2004  the  Company  had 3  stock-option  based  employee
          compensation  plans,  which are  described  more fully in note 12. The
          Company accounts for those plans under the recognition and measurement
          principles  of APB  Opinion  No. 25,  Accounting  for Stock  Issued to
          Employees, and related interpretations. No stock-option based employee
          compensation  cost is reflected in net income,  as all options granted
          under those plans had an exercise price equal to the underlying common
          stock 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  FASB  Statement  No.  123,
          Accounting  for  Stock-Based   Compensation,   to  stock-option  based
          employee compensation.

<TABLE>
<CAPTION>

                                                                   Year ended June 30,
                                                    ---------------------------------------------
                                                         2004              2003           2002
                                                    ------------       ------------   -----------
          <S>                                       <C>              <C>              <C>
          Net income (loss), as reported            $  7,957,128     $ (3,792,454     $ 7,439,110
          Deduct total stock option based
               employee compensation expense
               determined under fair value based
               method for all awards, net of
               related tax effects                    (9,331,173)        (8,748,657)   (8,837,767)
                                                    ------------       ------------   -----------
          Pro forma net income (loss)               $ (1,374,045)      $(12,541,111)  $(1,398,657)
                                                    ============       ============   ===========
          Earnings per share:
               Basic - as reported                  $       0.38       $    (0.17)    $      0.33
               Basic - pro forma                           (0.07)           (0.56)          (0.07)
               Diluted - as reported                        0.36            (0.17)           0.32
               Diluted - pro forma                         (0.06)           (0.55)          (0.07)
</TABLE>

                                                                     (Continued)


                                       44
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


          Upon issuance of shares of stock pursuant to the Company's  Restricted
          Stock  Program,  an unearned  compensation  charge  equivalent  to the
          market  value  of the  shares  on the  date of  grant  is  charged  to
          stockholders'   equity  and  is  amortized   over  the  related  share
          restriction period.

     (p)  Use of Estimates

          The  preparation of  consolidated  financial  statements in conformity
          with accounting  principles generally accepted in the United States of
          America  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.

     (q)  Recent Pronouncements

          In December  2003, the Medicare  Prescription  Drug,  Improvement  and
          Modernization  Act of 2003 (the Act) became law in the United  States.
          The Act introduces a prescription  drug benefit under Medicare as well
          as a federal  subsidy to sponsors of retiree health care benefit plans
          that provide a benefit that is at least actuarially  equivalent to the
          Medicare  benefit.  In accordance  with FASB Staff Position FAS 106-2,
          "Accounting  and  Disclosure  Requirements  Related  to  the  Medicare
          Prescription  Drug,  Improvement and  Modernization  Act of 2003," the
          Company has elected to defer  recognition of the effects of the Act in
          any measures of the benefit obligation or cost. Specific authoritative
          guidance on the accounting for the federal subsidy is pending and that
          guidance,  when issued, could require the Company to change previously
          reported information. Currently, the Company believes it will not need
          to amend the plan to benefit from the Act, nor does the Company expect
          the  Act to  have a  material  impact  on the  consolidated  financial
          position, results of operations or cash flows.

     (r)  Reclassifications

          Certain 2003 and 2002 amounts have been  reclassified  to conform with
          the 2004 presentation.

     (s)  Statement of Cash Flows

          During the year ended June 30, 2004 the Company wrote-off  $847,216 of
          fully   depreciated   fixed   assets  and  its   related   accumulated
          depreciation.

(2)  Acquisitions

     On August 31, 2001 the Company  acquired  all of the  outstanding  stock of
     Amitron,  Inc.  Amitron is based in North  Andover,  Massachusetts,  and is
     primarily  engaged in the  manufacture  of  precision  thick  film  ceramic
     components  and circuits for the medical,  telecommunications,  and defense
     electronics  markets.  Amitron's  technology is very  complimentary  to the
     Company's   multi-layer   stripline   technology.   Whereas  the  Company's
     multi-layer  stripline  technology  is well suited for large scale and high
     power applications, Amitron's technology is well suited for miniaturization
     and low power applications.  The Company believes the Amitron's  technology
     will enable it to significantly  increase its current addressable  markets.
     The  transaction  was accounted for using the purchase method of accounting
     for business  combinations and,  accordingly,  the results of operations of
     Amitron  have  been  included  in  the  Company's   consolidated  financial
     statements since the date of acquisition.

                                                                     (Continued)


                                       45
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


     The  aggregate   purchase   consideration   for  Amitron  was  $11,693,256,
     consisting of cash of $9,919,664 (including cash direct acquisition costs),
     noncash direct  acquisition costs in the form of stock options for services
     of  $18,183  and  95,704  shares  of the  Company's  common  stock  with an
     aggregate value of $1,755,409.  The purchase price was allocated to the net
     assets acquired and  liabilities  assumed based upon respective fair market
     values.  The fair market  values of plant and  equipment  and  identifiable
     intangible  assets  were  determined  by  an  independent  valuation.   The
     identifiable  intangible  assets  aggregating  $2,450,000  with a  weighted
     average useful life of  approximately  seven years include customer base of
     $1,350,000  (six-year  weighted  average useful life),  favorable  lease of
     $600,000  (ten-year  weighted average useful life),  trade name of $320,000
     (three-year weighted average useful life), and noncompetition agreements of
     $180,000 (five-year weighted average useful life). The excess consideration
     over such fair  values is  recorded  as  goodwill  and was  assigned to the
     Company's Wireless segment.

     During  fiscal year June 30,  2004,  the Company  entered an  agreement  to
     terminate  the lease at its  Amitron  facility  as of August 31,  2004.  As
     discussed above, there is a $600,000  intangible asset associated with this
     lease due to favorable lease terms that existed when the Company  purchased
     Amitron.  As such, the  amortization  associated  with the favorable  lease
     intangible has been accelerated such that it will be fully amortized at the
     end of the lease.

     The  allocation of the purchase  consideration  to the assets  acquired and
     liabilities assumed follows:

     Working capital                                        $  1,783,699
     Plant and equipment                                       1,822,230
     Loans payable                                              (716,154)
     Net deferred tax liability                                 (951,846)
     Intangible assets                                         2,450,000
     Goodwill                                                  7,305,327
                                                            ------------
                                                            $ 11,693,256
                                                            ============

     On October 1, 2001, the Company, through its wholly owned subsidiary Anaren
     Microwave  Europe  B.V.,  acquired all of the  outstanding  stock of The 5M
     Company Europe B.V. (now named Anaren Europe,  B.V.). Anaren Europe,  based
     in Almelo,  Netherlands is a  manufacturer  of microwave  circuits.  Anaren
     Europe's  manufacturing   technology  is  very  similar  to  the  Company's
     multi-layer  stripline  technology.  The purchase  consideration for Anaren
     Europe was $3,869,823 in cash,  including  direct  acquisition  costs,  and
     Company  stock options with an aggregate  fair value of $218,724.  The fair
     values of Anaren Europe's assets acquired and liabilities  assumed exceeded
     the purchase consideration and the negative goodwill served first to reduce
     the fair value of  purchased  equipment to zero with the  remaining  excess
     recognized as an extraordinary gain.

                                                                     (Continued)


                                       46
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


     The  allocation  of the  purchase  consideration  to the  assets  acquired,
     liabilities assumed, and extraordinary gain follows:

     Working capital                                      $ 10,943,279
     Notes payable                                            (856,978)
     Long-term debt                                           (403,268)
     Net deferred tax liability                             (2,187,242)
     Extraordinary gain                                     (3,407,244)
                                                          ------------
                                                          $  4,088,547
                                                          ============

     Anaren Europe  experienced  a fire loss in July 2001,  which was subject to
     property, casualty, and business interruption insurance. As of December 31,
     2001, the Company settled the insurance  claim and an insurance  receivable
     aggregating $10,749,113 is reflected in the allocation of the Anaren Europe
     purchase price as of October 1, 2001.  During the year ended June 30, 2003,
     the Company decided to liquidate Anaren Europe and recorded restructurings,
     and impairment  charges as described in note 9. During the first quarter of
     fiscal 2004 the Company  discontinued  the  operations  of Anaren Europe as
     described in note 4.

     The  following  unaudited  pro forma  financial  information  presents  the
     combined  results of  operations  of the  Company  and  Amitron,  as if the
     acquisition  took place as of July 1,  2001,  as the  acquisition  occurred
     during  fiscal 2002.  The results of Anaren  Europe have been excluded from
     the proforma financial information due to the cessation of operations,  and
     subsequent restatement of prior periods to display discontinued  operations
     as  described  in  note 4.  The  pro  forma  information  includes  certain
     adjustments,  including  the  amortization  of  intangibles,  reduction  of
     interest income, and certain other  adjustments,  together with the related
     income  tax  effects.   The  pro  forma  financial   information  does  not
     necessarily  reflect the results of operations that would have occurred had
     the Company and Amitron constituted a single entity.

                                                            Year ended
                                                          June 30, 2002
                                                          -------------
     Net sales                                             $72,028,615
     Net income from continuing operations                   6,669,732
     Earnings per share:
          Basic                                                0.33
          Diluted                                              0.32

                                                                     (Continued)


                                       47
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


(3)  Adoption of Accounting Pronouncements

     In August 2001,  the  Financial  Accounting  Standards  Board (FASB) issued
     Statement of Financial  Accounting  Standards No. 144,  Accounting  for the
     Impairment of Disposal of Long-Lived  Assets (SFAS 144). SFAS 144 addresses
     financial  accounting and reporting for the impairment of long-lived assets
     and for  long-lived  assets to be disposed  of. SFAS 144 was  required  for
     adoption for fiscal  years  beginning  after  December 15, 2001 and interim
     periods  within those fiscal  years.  The Company has adopted SFAS 144, and
     recorded  impairment  charges of  $2,720,626 in fiscal 2003 as described in
     note 4.

     In July 2002,  the  Financial  Accounting  Standards  Board  (FASB)  issued
     Statement  of  Financial  Accounting  Standards  No.  146,  Accounting  for
     Restructuring  Costs (SFAS 146). SFAS 146 applies to costs  associated with
     an exit activity (including restructuring) or with a disposal of long-lived
     assets. Those activities can include eliminating or reducing product lines,
     terminating  employees and contracts,  and relocating  plant  facilities or
     personnel.  Under SFAS 146, a company  will record a  liability  for a cost
     associated  with  an exit or  disposal  activity  when  that  liability  is
     incurred and can be measured at fair value. SFAS 146 will require a company
     to disclose information about its exit and disposal activities, the related
     costs,  and  changes in those  costs in the notes to the interim and annual
     financial  statements  that include the period in which an exit activity is
     initiated  and in any  subsequent  period until the activity is  completed.
     SFAS  146 was  effective  prospectively  for  exit or  disposal  activities
     initiated  after  December 31, 2002.  The Company  accounted for all of its
     exit activities initiated after December 31, 2002 under the requirements of
     SFAS  146 as  described  in note  9.  The new  Statement  grandfathers  the
     accounting for  liabilities  that a company had  previously  recorded under
     EITF 94-3.

     In December 2002, the Financial  Accounting  Standards  Board (FASB) issued
     Statement No. 148, Accounting for Stock Based Compensation - Transition and
     Disclosure,  an amendment of FASB  Statement  No. 123 (SFAS 148).  SFAS 148
     addresses  the various  methods of transition  for voluntary  change to the
     fair value based method of accounting  for stock  compensation,  and amends
     the  disclosure  provisions  of that  statement.  SFAS 148 is required  for
     fiscal years ending after  December 15, 2002.  The Company has reviewed the
     provisions  of SFAS  148  and  while  they  have  not  adopted  fair  value
     accounting,  they have complied  with the  disclosure  requirements  of the
     standard.

     In  November  2002,  the FASB  issued  Financial  Interpretation  (FIN) 45:
     Guarantor's   Accounting  and  Disclosure   Requirements   for  Guarantees,
     Including Indirect  Guarantees of Indebtedness of Others, an interpretation
     of FASB Statements No. 5, 57, and 107 and rescission of FASB interpretation
     No. 34 (FIN 45). This  Interpretation  elaborates on the  disclosures to be
     made by a guarantor in its interim and annual  financial  statements  about
     its  obligations  under  certain  guarantees  that it has  issued.  It also
     clarifies that a guarantor is required to recognize,  at the inception of a
     guarantee,  a liability for the fair value of the obligation  undertaken in
     issuing the guarantee.  It is effective for  guarantees  issued or modified
     after  December 31, 2002 for initial  recognition  and initial  measurement
     provisions;  for financial  statements of interim of annual  periods ending
     after  December  15,  2002 for  disclosure  requirements.  The  Company has
     complied with the disclosure requirements of FIN 45.

                                                                     (Continued)


                                       48
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


     During the first  quarter of fiscal  2002  (effective  July 1,  2001),  the
     Company adopted Statement of Financial  Accounting  Standards No. 142 (SFAS
     142), Goodwill and Intangible Assets,  which supercedes APB Opinion No. 17,
     Intangible  Assets.  SFAS No. 142  eliminates  the current  requirement  to
     amortize  goodwill and indefinite  lived intangible  assets,  addresses the
     amortization  of  intangible  assets with a defined life and  addresses the
     impairment  testing and recognition of goodwill and intangible  assets. The
     following information provides the disclosures required by SFAS No. 142.

     (a)  Intangible Assets

          Intangible assets as of June 30, 2004 and 2003 are as follows:

<TABLE>
<CAPTION>
                                               2004                         2003
                                     --------------------------  -------------------------
                                       Gross                        Gross
                                      carrying     Accumulated     carrying    Accumulated
                                       amount      amortization     amount    amortization
                                     ----------    ------------   ----------  ------------
          <S>                          <C>          <C>          <C>          <C>
          Patent                       $  574,966   $  359,354   $  574,966   $  287,484
          Customer base                 1,350,000      637,500    1,350,000      412,500
          Trade name                      320,000      302,226      320,000      195,558
          Noncompetition agreements       180,000      102,000      180,000       66,000
          Favorable lease                 600,000      380,000      600,000      110,000
                                       ----------   ----------   ----------   ----------
                                       ----------   ----------   ----------   ----------
                           Total       $3,024,966   $1,781,080   $3,024,966   $1,071,542
                                       ==========   ==========   ==========   ==========
</TABLE>

          Intangible  asset  amortization  expense  for the years ended June 30,
          2004,  2003, and 2002  aggregated  $709,537,  $499,539,  and $428,261,
          respectively.  Included  in  the  2004  amortization  expense  is  the
          $210,000  acceleration of the favorable lease intangible  discussed in
          note 2. Amortization expense related to intangible assets for the next
          five years is as follows:

          Year ending June 30:
          2005                                   $570,643
          2006                                    332,869
          2007                                    302,874
          2008                                     37,500
          2009                                         --

     (b)  Goodwill

          The changes in the  carrying  amount of  goodwill  for the years ended
          June 30 are as follows:

                                       2004          2003          2002
                                   -----------   -----------   -----------
          Goodwill as of July 1    $30,715,861   $30,715,861   $23,410,534
          Goodwill acquired                 --            --     7,305,327
                                   -----------   -----------   -----------
          Goodwill as of June 30   $30,715,861   $30,715,861   $30,715,861
                                   ===========   ===========   ===========

                                                                     (Continued)


                                       49
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


          In connection with the adoption of SFAS 142, the Company completed the
          transitional  impairment assessment within six months from the date of
          adoption  as allowed by the  Standard.  As a result of the  impairment
          assessment,  no  goodwill  impairment  was found and no current  asset
          write  down  was  required.  Goodwill  has  subsequently  been  tested
          annually for impairment, and no write-down has been required.

     In April 2003,  the FASB issued SFAS No. 149 Amendment of Statement No. 133
     on Derivative  Instruments and Hedging Activities.  SFAS No. 149 amends and
     clarifies  financial  accounting and reporting for derivative  instruments,
     including certain derivative instruments embedded in other contracts.  SFAS
     No. 149 is effective for contracts  entered into or modified after June 30,
     2003,  except as stated  below,  and for hedging  relationships  designated
     after June 30, 2003. In addition, except as stated below, all provisions of
     SFAS No. 149 should be applied  prospectively.  The  provisions of SFAS No.
     149 relating to SFAS No. 133 Implementation Issues that have been effective
     for fiscal quarters beginning prior to June 15, 2003, should continue to be
     applied in accordance with their respective  effective  dates.  Adoption of
     SFAS No. 149 did not have a material impact on our  consolidated  financial
     position, results of operations or cash flows.

     In May 2003, the FASB issued SFAS No. 150 Accounting for Certain  Financial
     Instruments with  Characteristics of both Liabilities and Equity.  SFAS No.
     150 establishes standards for how an issuer classifies and measures certain
     financial  instruments with characteristics of both liabilities and equity.
     It requires that an issuer  classify a financial  instrument that is within
     its scope as a liability (or an asset in some circumstances). Many of these
     instruments were previously  classified as temporary  equity.  SFAS No. 150
     will be effective for financial  instruments entered into or modified after
     May 31, 2003,  and  otherwise  shall be  effective at the  beginning of the
     first  interim  period   beginning  after  June  15,  2003.  For  financial
     instruments  created  before  the  issuance  date of SFAS No. 150 and still
     existing at the  beginning of the interim  period of  adoption,  transition
     shall be  achieved  by  reporting  the  cumulative  effect  of a change  in
     accounting  principle by initially  measuring the financial  instruments at
     fair  value or  other  measurement  attribute  required  by SFAS  No.  150.
     Instruments  with  characteristics  of  both  liabilities  and  equity  not
     addressed  in SFAS No.  150  will be  addressed  in the  next  phase of the
     project.  Adoption  of SFAS No. 150 did not have a  material  impact on the
     Company's  consolidated  financial position,  results of operations or cash
     flows.

     In  December  2003,  the FASB  issued  SFAS No.  132  (revised)  Employers'
     Disclosures about Pensions and Other Postretirement  Benefits, which revise
     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.

                                                                     (Continued)


                                       50
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


(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  remaining net assets of that
     operations were liquidated  through the sale of equipment via auction.  The
     results of  operations  for Anaren  Europe for both the  current  and prior
     years have been reclassified as discontinued operations in the statement of
     earnings.  Components  of the loss from  discontinued  operations of Anaren
     Europe for the years ended June 30 are as follows:

                                        2004          2003          2002
                                    -----------   -----------   -----------
     Net sales                      $   675,340    $ 4,433,989    $ 2,930,401
     Operating expenses              (1,402,737)    (9,742,585)    (7,210,082)
     Impairment charges                      --     (2,720,626)            --
     Extraordinary item                      --             --      3,407,244
     Loss on sale of equipment         (782,289)            --             --
                                    -----------    -----------    -----------
     Net losses from discontinued
       operations                   $(1,509,686)   $(8,029,222)      (872,437)
                                    ===========    ===========    ===========

     Included in losses from discontinued  operations are impairment  charges in
     the amount of $2,720,626 for the year ending June 30, 2003  attributable to
     certain  assets of Anaren  Europe,  B.V. As a result of the  historical and
     continuing  operating  losses and negative  cash flow at the Anaren  Europe
     circuit  board  facility,  and  the  continuing  weakness  in the  wireless
     infrastructure  market,  it was determined to  significantly  downsize this
     operation.  In conjunction  with this  reorganization  and due to continued
     negative  cash  flow  projections  after  the  restructuring,  the  Company
     performed  an  evaluation  to  determine if the fixed assets used by Anaren
     Europe were  subject to an  impairment  loss as required by FAS 144. It was
     determined that a possible  impairment existed and as a result, the Company
     had an independent  appraisal performed of the assets of Anaren Europe. The
     basis  of this  appraisal  was  current  market  value  in an  arms  length
     transaction  between a willing  buyer and seller in an  unforced  sale.  An
     impairment  loss of  $2,720,626  was  identified,  which was  recorded as a
     charge for the year ended June 30, 2003.

     The Company  also  recorded  income tax  benefits  related to  discontinued
     operations of  $1,800,000,  $662,268 and  $1,584,483 for fiscal years ended
     June 30, 2004, 2003 and 2002, respectively.

                                                                     (Continued)


                                       51
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


(5)  Securities

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

<TABLE>
<CAPTION>

                                                                June 30, 2004
                                             ----------------------------------------------------------
                                                                Gain          Gross
                                              Amortized      unrealized     unrealized
                                                 cost           gains         losses        Fair value
                                             ------------   ------------   ------------    ------------
     <S>                                     <C>            <C>            <C>             <C>
     Securities available for sale:
         Common stock                        $  3,088,679   $         --   $   (126,969)   $  2,961,710
                                             ------------   ------------   ------------    ------------
                     Total securities
                        available-for-sale   $  3,088,679   $         --   $   (126,969)   $  2,961,710
                                             ============   ============   ============    ============
     Securities held to maturity:
         Municipal bonds                     $ 50,770,695   $         --   $   (227,638)   $ 50,543,057
         Commercial paper                       2,596,712             83             --       2,596,795
         Corporate bonds                        5,581,257         83,188             --       5,664,445
         Zero coupon bonds                      5,138,853             --        (21,952)      5,116,901
         Federal agency bonds                   5,052,050          9,684        (24,720)      5,037,014
         Tax free auction securities           25,050,424             --         (1,024)     25,049,400
                                             ------------   ------------   ------------    ------------
                     Total securities
                        held to maturity     $ 94,189,991   $     92,955   $   (275,334)   $ 94,007,612
                                             ============   ============   ============    ============
</TABLE>

<TABLE>
<CAPTION>
                                                                June 30, 2003
                                             ----------------------------------------------------------
                                                                Gain          Gross
                                              Amortized      unrealized     unrealized
                                                 cost           gains         losses        Fair value
                                             ------------   ------------   ------------    ------------
     <S>                                     <C>            <C>            <C>             <C>
     Securities available for sale:
         Common stock                        $  6,586,529   $         --   $   (904,269)   $  5,682,260
                                             ------------   ------------   ------------    ------------
                     Total securities
                        available-for-sale   $  6,586,529   $         --   $   (904,269)   $  5,682,260
                                             ============   ============   ============    ============
     Securities held to maturity:
         Municipal bonds                     $ 52,819,662   $     36,204   $         --    $ 52,855,866
         Commercial paper                       2,000,000          3,834             --       2,003,834
         Corporate bonds                       13,360,348         26,030             --      13,386,378
         Zero coupon bonds                      5,061,977             --         (6,842)      5,055,135
         Federal agency bonds                   5,028,569         47,298             --       5,075,867
         Tax free auction securities           32,707,842             --         (7,842)     32,700,000
                                             ------------   ------------   ------------    ------------
                     Total securities
                        held to maturity     $110,978,398   $    113,366   $    (14,684)   $111,077,080
                                             ============   ============   ============    ============
</TABLE>

                                                                     (Continued)


                                       52
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


     Marketable  debt  securities  are classified as either current or long-term
     assets in the  accompanying  consolidated  balance  sheets based upon their
     maturity dates.

     Marketable securities are summarized as follows:

                                                       June 30       June 30
                                                         2004          2003
                                                    ------------   ------------
     Marketable debt securities - held-
       to-maturity                                  $ 94,189,991   $110,978,398
     Marketable equity securities - available
       for sale                                        2,961,710      5,682,260
                                                    ------------   ------------
                   Total                              97,151,701    116,660,658
     Current portion                                  62,038,633     93,266,276
                                                    ------------   ------------
                                                    ------------   ------------
                   Long term                        $ 35,113,068   $ 23,394,382
                                                    ============   ============

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

                                  2004                          2003
                       ---------------------------   ---------------------------
                                           Fair                           Fair
                                          market                         market
                            Cost          value           Cost           value
                       ------------   ------------   ------------   ------------
     Within one year   $ 59,076,923   $ 59,127,824   $ 87,584,016   $ 87,689,524
     One year to five
       years             35,113,068     34,879,788     23,394,382     23,387,556
                       ------------   ------------   ------------   ------------
          Total        $ 94,189,991   $ 94,007,612   $110,978,398   $111,077,080
                       ============   ============   ============   ============

     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  non-taxable  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 and $5.7 million
     on June 30, 2004 and 2003,  respectively,  an  increase  of $777,300  and a
     decline  of  $904,000,  for  the  years  ended  June  30,  2004  and  2003,
     respectively,  which has been recorded as a component of accumulated  other
     comprehensive  loss.  Within the past 60 days,  Celeritek's  stock has been
     trading at a price above the Company's per share basis and, therefore,  the
     Company  considers its investment in Celeritek to be temporarily  impaired.
     If, at a future date,  this decline in value is determined to be other than
     temporary,  then the  decline in value,  including  the  amount  previously
     charged as accumulated  other  comprehensive  loss to shareholders  equity,
     would at that time be  recognized  as a loss in the current  period  income
     statement.

                                                                     (Continued)


                                       53
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


(6)  Inventories

     Inventories at June 30 are summarized as follows:

                                                       2004            2003
                                                   ------------    ------------
     Component parts                               $  9,136,401    $  8,810,207
     Work in process                                  6,138,068       5,627,150
     Finished goods                                   2,349,585       2,656,029
                                                   ------------    ------------
                                                     17,624,054      17,093,386
     Reserve for obsolescence                        (1,015,999)     (1,421,727)
                                                   ------------    ------------
                      Net inventories              $ 16,608,055    $ 15,671,659
                                                   ============    ============

(7)  Property, Plant, and Equipment

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

                                                       2004            2003
                                                   ------------    ------------
     Land and land improvements                    $  1,874,323    $  1,595,821
     Buildings, furniture, and fixtures              13,200,633      12,944,778
     Machinery and equipment                         48,213,982      47,590,955
                                                   ------------    ------------
                                                     63,288,938      62,131,554
     Less accumulated depreciation and
       amortization                                  41,946,384      38,491,733
                                                   ------------    ------------
                                                   $ 21,342,554    $ 23,639,821
                                                   ============    ============

(8)  Accrued Expenses

     Accrued expenses at June 30 consist of the following:

                                                       2004            2003
                                                   ------------    ------------
     Compensation                                  $  1,698,411    $    924,290
     Commissions                                        386,075         355,098
     Restructuring (note 9)                              32,870         710,885
     Health insurance                                   371,010         290,424
     Lease buyout                                       350,000              --
     Other                                              254,004         196,973
                                                   ------------    ------------
                                                   $  3,092,370    $  2,477,670
                                                   ============    ============

                                                                     (Continued)


                                       54
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


(9)  Restructuring and Impairment

     In  September  2002,  March 2003,  April 2003,  and June 2003,  the Company
     recorded restructuring and other nonrecurring charges at its Anaren Europe,
     RF Power  and  Anaren  Microwave,  Inc.  subsidiaries  associated  with the
     Company's strategic  restructuring plan. The restructuring plan is designed
     to improve both financial  results and the long-term value of the business.
     The  restructuring  charges  consisted  of workforce  reductions  and asset
     write-offs.

     As a result of this plan, the Company  recorded total pretax  restructuring
     charges of $2,537,291 for the year ended June 30, 2003, as follows:

     RF Power                                                    $  295,706
     Anaren Microwave, Inc.                                         498,821
                                                                 ----------
        Restructuring costs included in continuing operations       794,527
     Anaren Europe                                                1,742,764
                                                                 ----------
                                                                 $2,537,291
                                                                 ==========

     Anaren Europe  includes  charges related to employee  separation  costs (91
     positions),  and  inventory  write-offs.  On July  10,  2003,  the  Company
     announced  its decision to dispose of its Anaren Europe  operation.  Anaren
     Europe  operations  were  discontinued  during the first  quarter of fiscal
     2004, as described in note 4.

     RF Power and Anaren Microwave,  Inc. include employee  separation costs (16
     and 30 positions, respectively).

     Additionally,  the Company recognized asset impairment charges (included in
     discontinued  operations)  in the amount of $2,720,626  for the year ending
     June 30, 2003 attributable to certain assets of Anaren Europe, as discussed
     in note 4.

     Reconciliation of the restructuring liability, is as follows:

<TABLE>
<CAPTION>
                                                                                 Balance
                                     2003           Cash        Non-cash        June 30,
                                  Provision     expenditures   write-offs         2003
                                 -----------    ------------   -----------    -----------
     <S>                         <C>            <C>            <C>            <C>
     Severance                   $ 1,850,460    $(1,173,209)   $        --    $   677,251
     Outplacement services           112,540        (78,906)            --         33,634
     Inventory write-off             428,000             --       (428,000)            --
     Other                           146,291       (155,291)         9,000             --
                                 -----------    -----------    -----------    -----------
                                 $ 2,537,291    $(1,407,406)   $  (419,000)   $   710,885
                                 ===========    ===========    ===========    ===========
</TABLE>

                                                                     (Continued)


                                       55
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002

<TABLE>
<CAPTION>

                                   Balance                                       Balance
                                   June 30,         Cash         Non-cash        June 30,
                                     2003       expenditures    write-offs        2004
                                 -----------    ------------   -----------    -----------
     <S>                         <C>            <C>            <C>            <C>
     Severance                   $   677,251    $  (644,381)   $        --    $    32,870
     Outplacement services and            --
          other                       33,634        (33,634)            --             --
                                 -----------    -----------    -----------    -----------
                                 $   710,885    $  (678,015)   $        --    $    32,870
                                 ===========    ===========    ===========    ===========
</TABLE>

     The remaining balance is expected to be paid by the end of 2005.

(10) Other Liabilities

     Other liabilities as of June 30 consist of the following:

                                                    2004             2003
                                                  --------         --------
     Deferred compensation                        $506,190         $502,236
     Other                                         230,784          160,534
                                                  --------         --------
                                                   736,974          662,770
     Less current portion                          295,784          225,534
                                                  --------         --------
                                                  $441,190         $437,236
                                                  ========         ========

     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) Long-Term Debt

     The Company had a $10,000,000  unsecured  working capital revolving line of
     credit bearing  interest at prime.  The line of credit was cancelled by the
     Company on September 30, 2002. There were no borrowings against the line of
     credit in fiscal 2003 and 2002.

     Cash  payments for annual fees relating to  maintaining  the line of credit
     were $9,375, and $37,500 during fiscal 2003 and 2002, respectively.

(12) 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.

                                                                     (Continued)


                                       56
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


(13) Stock Option Plans

     Under the Company's Key Employee  Incentive Stock Option Plan (Key Employee
     Plan),  2,050,200  shares of common stock were reserved for the granting of
     options to eligible  employees in November  2000.  Options are granted at a
     price  not less  than  fair  market  value of  shares at the date of grant,
     become  exercisable  20% six months from the date of grant and 20% per year
     thereafter, and must be exercised within ten years of the date of grant.

     In November 2000, the Company  established  the  Company-Wide  Stock Option
     Plan (Company-Wide Plan) reserving 1,000,000 shares of common stock for the
     granting of  incentive  stock  options to eligible  employees.  All Company
     employees are eligible to participate in the Company-Wide Plan in any given
     fiscal year,  except for employees who have been granted  options under the
     Key Employee Plan in any given fiscal year.  Options are granted at a price
     not less than the fair market value of shares at the date of grant,  become
     exercisable 36 months from the date of grant,  and must be exercised within
     five years of the date of grant.

     The Company  also has a  Nonstatutory  Stock Option Plan (NSO) which allows
     for the granting of options to Board  members and  nonemployees.  Under the
     Plan,  500,000  shares of common  stock were  reserved  for the granting of
     options at prices to be determined by the Board  (options  granted to Board
     members may not be less than the fair  market  value on the date of grant).
     Options become  exercisable  immediately and must be exercised  within five
     years of the date of grant.

     Information  for the three years ended June 30, 2004 with  respect to these
     plans are as follows:

<TABLE>
<CAPTION>
                                                                             Shares
                                     -------------------------------------------------------------------------------
                                               ISO                                                                       Weighted
                                     -----------------------                                                            average
                                         Key         Company-                                             Option         exercise
                                      Employee         Wide          NSO      Other        Total           price          price
                                     ---------       -------      --------   -------     ----------    --------------    -------
     <S>                             <C>              <C>          <C>            <C>     <C>          <C>               <C>
     Outstanding at June 30, 2001    2,050,200        43,000       208,000        --      2,301,200    1.38 to 62.44     $ 22.31
         Issued                        506,850        98,300        87,500        --        692,650    12.63 to 19.21      16.43
         Exercised                     (18,500)           --       (26,000)       --        (44,500)   1.38 to 12.42        8.96
         Expired                            --            --       (13,000)       --        (13,000)   19.21 to 53.00      45.20
         Canceled                     (368,300)       (9,400)      (65,000)       --       (442,700)   12.42 to 53.00      48.51
                                     ---------       -------      --------   -------     ----------
     Outstanding at June 30, 2002    2,170,250       131,900       191,500        --      2,493,650    1.38 to 62.44       16.15
         Issued                        342,000        37,100        32,000        --        411,100    8.57 to 10.18        9.46
         Exercised                     (24,300)           --       (27,000)       --        (51,300)   1.38 to 7.10         4.83
         Expired                       (49,450)      (25,400)           --        --        (74,850)   9.51 to 53.00       24.96
         Canceled                      (49,220)           --       (12,000)       --        (61,220)   12.42 to 53.00      26.38
                                     ---------       -------      --------   -------     ----------
     Outstanding at June 30, 2003    2,389,280       143,600       184,500        --      2,717,380    $1.38 to $62.44     14.88
         Issued                        328,500        37,900        29,000        --        395,400    $14.73 to 17.24     14.77
         Exercised                    (228,250)           --       (40,500)       --       (268,750)   $1.38 to 16.35       5.81
         Expired                       (23,438)       (1,100)           --        --        (24,538)   $9.51 to 53.00      23.59
         Canceled                      (14,430)       (8,400)           --        --        (22,830)   $9.51 to 53.00      28.66
                                     ---------       -------      --------   -------     ----------
     Outstanding at June 30, 2004    2,451,662       172,000       173,000        --      2,796,662                        15.53
                                     =========       =======      ========   =======     ==========
     Shares exercisable at
         June 30, 2004               1,404,612        36,200       173,000        --      1,613,812    $1.38 to $62.4$     14.98
     Shares available for grant
         at June 30, 2004              718,488       809,100       189,000        --      1,716,588
</TABLE>

                                                                     (Continued)


                                       57
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


     The  following  table  summarizes  significant  ranges of  outstanding  and
     exercisable options at June 30, 2004:

<TABLE>
<CAPTION>

                               Options outstanding                                Options exercisable
      ------------------------------------------------------------------      ----------------------------
                                            Weighted
                                             average         Weighted                         Weighted
            Range of                        remaining        average                           average
        exercise prices      Shares       life in years   exercise price       Shares       exercise price
        ---------------      ------       -------------   --------------       ------       --------------
        <S>                 <C>                <C>          <C>               <C>             <C>
        $1.00 - 5.00          264,400          2.52         $   2.73          264,400         $  2.11
         5.01 - 15.00       1,973,680          6.62            10.02          987,780           10.52
         15.01 - 40.00        307,682          6.67            22.99          147,392           22.10
         40.01 - 65.00        250,900          5.70            54.91          214,240           53.15
                            ---------                                       ---------
                            2,796,662                                       1,613,812
                            =========                                       =========
</TABLE>

     The per share weighted  average fair value of stock options  granted during
     fiscal  years  2004,  2003,  and  2002  was  $10.78,   $6.48,  and  $11.37,
     respectively.  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 fiscal year:

                                                       2004     2003     2002
                                                       ----     ----     ----
     Expected option life - key employee plan             5        5        5
     Expected option life - company-wide plan             3        3        3
     Weighted average risk-free interest rate          3.15%    3.20%    4.00%
     Weighted average expected volatility             98.00%   89.00%   92.00%
     Expected dividend yield                           0.00%    0.00%    0.00%

(14) Restricted Stock Program

     As of June  30,  2004,  2003  and  2002,  the  Company  has  issued  shares
     aggregating 21,600, 21,600 and 102,976, respectively, under it's Restricted
     Stock  Program.  There were 5,888 shares  forfeited  and 75,488 shares that
     matured during 2003. The shares of restricted stock vest on a straight line
     basis over a period of 42 to 48 months.  For the years ended June 30, 2004,
     2003, and 2002 the Company recognized  compensation expense associated with
     the lapse of restrictions  aggregating  $286,200,  $451,331,  and $636,708,
     respectively.

                                                                     (Continued)


                                       58
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


(15) Accumulated Other Comprehensive Income (Loss)

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

<TABLE>
<CAPTION>

                                                              Unrealized
                                    Foreign      Minimum     gain/(loss) on    Accumulated
                                   currency      pension       securities         other
                                  translation   liability    available-for-    comprehensive
                                  adjustment   adjustment         sale         income (loss)
                                 -----------   -----------    -----------      -----------
     <S>                         <C>           <C>            <C>              <C>
     Balances at June 30, 2003   $   679,595   $  (992,121)   $  (904,435)     $(1,216,961)
     Current period change            56,426       424,345        777,300        1,258,071
                                 -----------   -----------    -----------      -----------
     Balances at June 30, 2004   $   736,021   $  (567,776)   $  (127,135)     $    41,110
                                 ===========   ===========    ===========      ===========
</TABLE>

(16) 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.

                                                                     (Continued)


                                       59
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


(17) 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>

                                                         2004           2003           2002
                                                     -----------    -----------    -----------
     Change in benefit obligation:
     <S>                                             <C>            <C>            <C>
          Benefit obligation at beginning of year    $ 9,011,361    $ 7,277,360    $ 6,562,855
          Service cost                                   262,849        212,865        213,839
          Interest cost                                  540,825        504,758        469,017
          Actuarial (gain) loss                         (169,012)     1,280,223        281,005
          Benefits paid                                 (295,500)      (263,845)      (249,356)
                                                     -----------    -----------    -----------
          Benefit obligation at end of year          $ 9,350,523    $ 9,011,361    $ 7,277,360
                                                     ===========    ===========    ===========
     Change in plan assets:
          Fair value of plan assets at beginning
             of year                                 $ 6,334,848    $ 6,106,958    $ 6,237,552
          Actual return on plan assets                   790,353        231,104        (85,062)
          Employer contributions                         365,130        260,631        203,824
          Benefits paid                                 (256,117)      (263,845)      (249,356)
                                                     -----------    -----------    -----------
          Fair value of plan assets at end of year   $ 7,234,214    $ 6,334,848    $ 6,106,958
                                                     ===========    ===========    ===========
     Under funded status                             $(2,116,309)   $(2,676,513)   $(1,170,402)
     Unrecognized net loss                             1,729,576      2,300,138        743,618
     Unrecognized net obligation existing at
          initial application                                 --             --          9,463
     Unrecognized prior service cost                       5,960         24,199         42,438
     Adjustment required to recognize minimum
          liability                                     (823,787)    (1,503,213)      (160,991)
                                                     -----------    -----------    -----------
                      Accrued pension cost           $(1,204,560)   $(1,855,389)   $  (535,874)
                                                     ===========    ===========    ===========
</TABLE>

                                                                     (Continued)


                                       60
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


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

<TABLE>
<CAPTION>

                                                        2004             2003           2002
                                                    -----------     -----------     -----------
     <S>                                            <C>             <C>             <C>
     Service cost                                   $   262,849     $   212,865     $   213,839
     Interest cost                                      540,825         504,758         469,017
     Actual return on plan assets                       790,353         231,104          85,062
     Amortization of prior service cost                  18,239          18,239          18,239
     Deferral of loss                                (1,326,804)       (744,139)       (617,948)
     Amortization of net obligation at transition            --           9,463           9,466
     Unrecognized net loss                              108,265           5,634              --
                                                    -----------     -----------     -----------
                      Net periodic pension cost     $   393,727     $   237,924     $   177,675
                                                    ===========     ===========     ===========
     Weighted average assumptions:
          Discount rate at year-end                        6.25%           6.00%           7.00%
          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%
</TABLE>

     Plan Assets

                                                  Actual           Percentage
                                                Allocation         Allocation
                                                ----------         ----------'
     Money market                               $   53,973            0.75%
     Common equities                               326,569            4.51%
     Corporate debt securities                   1,088,944           15.05%
     Government debt securities                  1,650,367           22.82%
     Global equity mutual funds                    429,000            5.93%
     Closed end equity mutual funds              3,685,361           50.94%
                                                ----------           ------
                                                $7,234,214          100.00%
                                                ==========          ======

     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,  12% in mid-cap  domestic  equities,  12% 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.

                                                                     (Continued)


                                       61
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


     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%         11.50%           3.45%
     Mid-cap stocks                   11.00%         12.40%           1.36%
     Small-cap stocks                 11.00%         13.00%           1.43%
     International common stocks       8.00%         13.00%           1.04%
     Broad bond market                40.00%          6.10%           2.44%
                                     ------                           -----
          Total                      100.00%                          9.72%

     The  Company  estimated  investment  expenses  of  approximately  1% of the
     portfolio annually.

     Expected Contributions

     Expected contributions for fiscal 2005 are $750,000.

     Estimated Future Benefit Payments

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

                   July 1, 2004 - June 30, 2005           $  365,000
                   July 1, 2005 - June 30, 2006              395,000
                   July 1, 2006 - June 30, 2007              405,000
                   July 1, 2007 - June 30, 2008              470,000
                   July 1, 2008 - June 30, 2009              480,000
                   Years 2009-2013                         2,875,000

     The Company maintains a voluntary contributory salary savings plan to which
     participants  may  contribute  up to 15% of their total  compensation.  The
     Company's matching contribution is 75% of the participants' contribution up
     to a maximum of 5% of the participants'  compensation.  During fiscal 2004,
     2003, and 2002, the Company contributed $445,766,  $568,721,  and $550,094,
     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  $258,947,  $240,500,  and
     $549,693 in fiscal 2004,  2003, and 2002,  respectively.  While the Company
     intends to continue  this plan, it reserves the right to terminate or amend
     the Plan at any time.

                                                                     (Continued)


                                       62
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


(18) 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:

                                           2004          2003         2002
                                       -----------   -----------   -----------
     Benefit obligation at beginning
       of year                         $ 1,915,728   $ 1,720,753   $ 1,528,610
     Service cost                           61,145        48,018        46,969
     Interest cost                         111,207       119,861       111,832
     Plan participants' contributions       61,362        53,498        39,816
     Actuarial (gain) / loss               (98,279)      194,229       143,554
     Benefits paid                        (140,892)     (220,631)     (150,028)
                                       -----------   -----------   -----------
     Benefit obligation at end of year $ 1,910,271   $ 1,915,728   $ 1,720,753
                                       ===========   ===========   ===========
     Fair value of plan assets         $        --   $        --   $        --
     Under funded status               $(1,910,271)  $(1,915,728)  $(1,720,753)
     Unrecognized actuarial loss           351,839       468,585       280,668
                                       -----------   -----------   -----------
          Accrued postretirement
             benefit cost              $(1,558,432)  $(1,447,143)  $(1,440,085)
                                       ===========   ===========   ===========

     Net periodic postretirement benefit cost includes the following components:



                                           2004          2003         2002
                                       -----------   -----------   -----------
     Service cost                      $    61,145   $    48,018   $    46,969
     Interest cost                         111,207       119,861       111,832
     Amortized loss                         18,467         6,312            --
                                       -----------   -----------   -----------
          Net periodic postretirement
             benefit cost              $   190,819   $   174,191   $   158,801
                                       ===========   ===========   ===========

                                                                     (Continued)


                                       63
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


     The weighted  average  discount rate used in  determining  the  accumulated
     postretirement  benefit obligation was 6.25%,  6.00%, and 7.00%, at the end
     of fiscal 2004, 2003, and 2002, 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 2004, 2003, and 2002.
     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                             $  2,081       $ (1,984)
     Effect on postretirement benefit obligation    $ 35,761       $(34,049)

                                                                     (Continued)


                                       64
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


(19) 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
     shareholders equity:

<TABLE>
<CAPTION>
                                                                 Year ended June 30
                                                    --------------------------------------------
                                                        2004             2003           2002
                                                    ------------    ------------    ------------
<S>                                                 <C>             <C>             <C>
Income (loss) before income taxes
     and discontinued operations
        Domestic                                    $ 11,873,719    $  4,761,726    $  7,947,190
        Foreign                                       (1,511,905)       (388,958)        (40,643)
                                                    ------------    ------------    ------------
                                                    $ 10,361,814    $  4,372,768    $  7,906,547
                                                    ============    ============    ============
Income tax expense (benefit) charged
  (credited) to the income statement for
  continuing operations:
        Current:
           Federal                                  $  2,827,536    $   (411,978)   $  1,407,316
           State and local                                 8,246        (181,700)         74,230
           Foreign                                            --              --              --
                                                    ------------    ------------    ------------
                 Total current                         2,835,782        (593,678)      1,481,546
                                                    ------------    ------------    ------------
     Deferred:
        Federal                                         (523,921)        747,754        (306,856)
        State and local                                  383,139         644,192           4,793
        Foreign                                               --              --              --
                                                    ------------    ------------    ------------
                 Total deferred                         (140,782)      1,391,946        (302,063)
                                                    ------------    ------------    ------------
                 Subtotal                              2,695,000         798,268       1,179,483
                                                    ------------    ------------    ------------
Income taxes charged (credited) to the
  income statement for discontinued
  operations:
        Foreign                                       (1,800,000)       (662,268)     (1,584,483)
                                                    ------------    ------------    ------------
                 Subtotal                             (1,800,000)       (662,268)     (1,584,483)
                                                    ------------    ------------    ------------
                 Total income taxes charged
                    (credited) to the income
                    statement                            895,000         136,000        (405,000)
                                                    ------------    ------------    ------------
Income taxes charged (credited) to stockholders'
  equity:
        Current benefit of stock based
           compensation                                 (794,500)        (68,477)       (460,672)
        Deferred taxes (benefit) of stock
           based compensation                             (3,130)        158,800              --
        Deferred taxes (benefit) from recognition
           of minimum pension liability                  255,081        (456,355)        (54,737)
                                                    ------------    ------------    ------------
                 Income taxes charged (credited)
                    to shareholders' equity             (542,549)       (366,032)       (515,409)
                                                    ------------    ------------    ------------
                 Total income taxes                 $    352,451    $   (230,032)   $   (920,409)
                                                    ============    ============    ============
</TABLE>

                                                                     (Continued)


                                       65
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


     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
     (benefit), is as follows:

                                            2004          2003          2002
                                        -----------   -----------   -----------
     Expected consolidated income tax
       expense (benefit)                $ 3,523,017   $ 1,486,741   $ 2,688,226
     State taxes, net of Federal benefit    258,314       305,245        52,156
     Nontaxable interest income            (382,546)     (518,750)     (760,874)
     Increase in valuation allowance        226,786        58,344            --
     Foreign tax rate differential          287,262        73,902            --
     Adjustment of prior years' taxes            --      (158,420)           --
     Export tax benefits                   (808,124)     (278,123)     (238,000)
     Research credits                      (371,870)     (184,939)     (591,038)
     Other, net                             (37,839)       14,268        29,013
                                        -----------   -----------   -----------
                                        $ 2,695,000   $   798,268   $ 1,179,483
                                        ===========   ===========   ===========

     The tax effects of temporary differences that give rise to the deferred tax
     assets and deferred tax liabilities at June 30, 2004 and 2003 are presented
     below:

                                                         2004            2003
                                                     -----------    -----------
     Deferred tax assets:
          Inventories                                $   535,459    $   942,174
          Deferred compensation                          280,050        251,853
          Retirement benefits                            396,046        569,840
          Postretirement benefits                        592,204        549,914
          Restricted stock                               398,772        290,016
          Nondeductible reserves/accruals                418,548        139,756
          Net unrealized loss on investments              48,311        343,623
          Federal and state tax attribute
            carryforwards                              1,268,463        528,280
          Foreign and state net operating loss
            carryforwards                                327,574      4,851,135
                                                     -----------    -----------
                      Gross deferred tax assets        4,265,427      8,466,591
          Valuation allowance                           (375,884)    (3,015,031)
                                                     -----------    -----------
                      Net deferred tax assets          3,889,543      5,451,560
                                                     -----------    -----------
     Deferred tax liabilities:
          Plant and equipment, principally due to
            differences in depreciation               (2,647,279)    (2,219,016)
          Intangible assets including goodwill        (1,789,412)    (1,615,695)
          Reinvestment reserve                                --     (2,086,179)
                                                     -----------    -----------
                    Gross deferred tax liabilities    (4,436,691)    (5,920,890)
                                                     -----------    -----------
                      Net deferred tax liabilities   $  (547,148)   $  (469,330)
                                                     ===========    ===========

                                                                     (Continued)


                                       66
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002

                                                       2004            2003
                                                   -----------    -----------
     Presented as:
          Current deferred tax asset               $ 1,037,103    $ 1,132,016
          Long-term deferred tax liability          (1,584,251)    (1,601,346)
                                                   -----------    -----------
                                                   $  (547,148)   $  (469,330)
                                                   ===========    ===========

     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.

                                                                     (Continued)


                                       67
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


     At June 30, 2004,  the Company has a valuation  allowance of $375,884  with
     respect to unrealized losses on securities  available-for-sale  and foreign
     and state net  operating  loss  carryforwards,  representing  a decrease of
     $2,639,147 from June 30, 2003.

     The Company  has  unrealized  losses on  securities  available-for-sale  of
     $127,134 and $904,270 at June 30, 2004 and 2003, respectively. If realized,
     these  losses  would be  characterized  for income tax  purposes as capital
     losses, which may only be used to offset capital gains. As a result of this
     limitation  on  utilization,  at June 30,  2004 the Company has a valuation
     allowance of $48,311 with respect to these losses,  representing a decrease
     of $295,312 from June 30, 2003.

     The Company has state net operating loss  carryforwards of $676,936,  which
     begin to expire in 2007. As a result of the Company's  plan relating to the
     relocation of Amitron's  operations as discussed in footnote 24, management
     established a valuation allowance of $42,444, as it is more likely than not
     that the Company will not realize these deferred tax benefits.

     The Company's  subsidiary in China has net operating loss  carryforwards of
     $1,900,863.  At June 30,  2004 the Company  has a  valuation  allowance  of
     $285,129 with respect to the net operating loss carryforwards, representing
     an increase of $226,786.  The subsidiary will be eligible for a tax holiday
     for five years beginning with the first year taxable income exceeds the net
     operating loss  carryforwards.  The tax benefit varies during the five-year
     holiday once it begins.

     As discussed in footnote 4, the Company has discontinued  operations at its
     European  subsidiary.  At June 30, 2004, the deferred tax asset relating to
     the net operating loss  carryforwards and related valuation  allowance have
     been  eliminated,  representing  a decrease in the  valuation  allowance of
     $2,613,064 from June 30, 2003.

     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,  2004,  the  Company  has  Federal  and  State  tax  attribute
     carryforwards of $1,268,463,  the majority of which expire at various dates
     from 2015 through 2023.  Cash payments  (receipts) for income taxes (net of
     refunds) were $(1,903,464),  $678,329, and $1,387,200 in fiscal 2004, 2003,
     and 2002, respectively.

                                                                     (Continued)


                                       68
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


(20) 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.

                                                                     (Continued)


                                       69
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


     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:
          2004                         $58,078,091      $27,000,848      $         --       85,078,939
          2003                          46,629,492       28,890,528                --       75,520,020
          2002                          44,566,614       26,071,304                --       70,637,918

     Operating income (loss):
          2004                           4,373,892        4,319,703                --        8,693,595
          2003                          (2,519,188)       4,731,424                --        2,212,236
          2002                          (3,461,350)       7,716,040                --        4,254,690

     Goodwill and intangible assets:
          June 30, 2004                 31,959,747               --                --       31,959,747
          June 30, 2003                 32,669,285               --                --       32,669,285

     Identifiable assets:*
          June 30, 2004                 19,681,543       10,884,864       144,956,334      175,522,741
          June 30, 2003                 14,145,826        9,760,194       156,513,471      180,419,491

     Depreciation:**
          2004                           2,420,370        1,876,629                --        4,296,999
          2003                           2,348,567        1,555,741                --        3,904,308
          2002                           2,264,981        1,182,151                --        3,447,132

     Intangibles amortization:***
          2004                             709,539               --                --          709,539
          2003                             499,539               --                --          499,539
          2002                             428,261               --                --          428,261
     </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,  and plant and equipment not specific to business
          acquisitions  and assets  associated with  discontinued  operations of
          Anaren Europe.

                                                                     (Continued)


                                       70
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


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

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

     (b)  Geographic Information

          Net sales by geographic region are as follows:

                                                                   Consolidated
            United States Asia Pacific     Europe       Americas    net sales
            ------------- ------------     ------       --------    ---------
     2004    $45,562,351   $16,745,852   $16,656,740   $6,112,996  $85,078,939
     2003     44,299,529    14,650,219    13,850,396    2,719,876   75,520,020
     2002     51,908,181     6,697,248     9,704,642    2,327,847   70,637,918

     (c)  Customers

          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. In 2003, sales to one customer  (approximately
          $9,427,000,  related  to the space and  defense  electronics  segment)
          exceeded 10% of consolidated net sales. In 2002, sales to one customer
          (approximately   $11,791,000,   related  to  the  space  and   defense
          electronics segment) exceeded 10% of consolidated net sales.

                                                                     (Continued)


                                       71
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


(21) 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:
          2005                                           $ 1,015,293
          2006                                               565,949
          2007                                               471,731
          2008                                               471,731
          2009                                               471,731
          Thereafter                                       2,201,415
                                                         -----------
                                                           5,197,850
          Less sublease income                             1,415,193
                                                         -----------
                                                         $ 3,782,657
                                                         ===========

     Rent  expense  for the  years  ended  June  30,  2004,  2003,  and 2002 was
     $874,965,  $932,033,  and $811,294,  respectively.  Rent expense for fiscal
     2004,  2003, and 2002 was offset by sublease income of $430,311,  $399,930,
     and $376,678, respectively.

(22) Concentrations

     The  Company and others,  which are  engaged in  supplying  defense-related
     equipment to the United States Government (the Government),  are subject to
     certain  business  risks  peculiar  to the defense  industry.  Sales to the
     Government  may be  affected  by changes in  procurement  policies,  budget
     considerations,   changing   concepts   of  national   defense,   political
     developments  abroad, and other factors.  Sales to the Government accounted
     for  approximately  26%, 20%, and 15% of  consolidated  net sales in fiscal
     2004, 2003, and 2002,  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 the
     Government through development of its commercial electronics business.

                                                                     (Continued)


                                       72
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002


(23) Quarterly Financial Data (Unaudited)

     The  following  table  sets forth  certain  unaudited  quarterly  financial
     information for the years ended June 30, 2004 and 2003:

<TABLE>
<CAPTION>
                                                                    2004 quarter ended
                                               ---------------------------------------------------------
                                               September 30       December 31     March 31       June 30
                                               ------------       -----------     --------       -------
     <S>                                        <C>              <C>             <C>           <C>
     Net sales                                  $ 18,270,673     $ 19,593,930    $22,387,222   $24,827,114
     Gross profit                                  5,958,895        6,641,227      7,913,937     9,495,087
     Net income (loss) from continuing
         operations                                1,197,252        1,590,998      2,222,327     2,656,237
     Net income (loss) from discontinued
         operations                                  586,655         (335,053)        38,579           133
     Net income (loss) per common share
         from continuing operations:
            Basic income (loss) per share
               from continuing operations       $       0.05     $       0.08     $     0.11   $      0.13
            Diluted income (loss) per share
               from continuing operations               0.05             0.07           0.10          0.12
     Net income (loss) per common from
         discontinued operations:
            Basic income (loss) per share
               from discontinued operations             0.03            (0.02)            --            --
            Diluted income (loss) per share
               from discontinued operations             0.03            (0.01)            --            --
</TABLE>

                                                                     (Continued)


                                       73
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2004, 2003, and 2002

<TABLE>
<CAPTION>

                                                                        2003 quarter ended
                                               ---------------------------------------------------------
                                               September 30       December 31     March 31       June 30
                                               ------------       -----------     --------       -------
     <S>                                        <C>              <C>             <C>           <C>
     Net sales                                  $ 19,197,817     $ 19,736,523    $18,101,491   $18,484,189
     Gross profit                                  6,189,546        6,193,808      5,680,493     5,635,653
     Net income (loss) from continuing
         operations                                1,299,928        1,264,439        611,150       398,982
     Net income (loss) from discontinued
         operations                               (1,153,722)        (789,271)    (1,569,259)   (3,854,702)
     Net income (loss) per common from
         continuing operations:
            Basic income (loss) per share
               from continuing operations             $ 0.06           $ 0.06         $ 0.03        $ 0.02
            Diluted income (loss) per share
               from continuing operations               0.06             0.05           0.03          0.02
     Net income (loss) per common from
         discontinued operations:
            Basic income (loss) per share
               from discontinued operations            (0.05)           (0.04)         (0.07)        (0.18)
            Diluted income (loss) per share
               from discontinued operations            (0.05)           (0.03)         (0.07)        (0.17)
</TABLE>

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

(24) Subsequent Events

     In August 2004, the Company  purchased a building and land in New Hampshire
     for  approximately  $5,060,000.  In  October  2004,  the  Company  plans to
     relocate  Amitron Inc.'s  operating  facilities from  Massachusetts  to the
     newly acquired property.

     In August 2004, the Company's  Board of Directors  increased its repurchase
     authorization  for the  repurchase of the  Company's  shares by two million
     shares.


                                       74