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

                                   ----------

                                   FORM 10-K/A
                                (Amendment No. 2)
(Mark One)

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

      For the fiscal year ended June 30, 2006

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

      For the  transition  period from  _______________  to    _________________

      Commission file number 0-6620 __________________

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

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

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

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

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

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

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

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

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

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

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

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

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

      Check  One:  Large   accelerated  filer  |  |  Accelerated  filer  |  x  |
Non-accelerated filer | |

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

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

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

                       DOCUMENTS INCORPORATED BY REFERENCE

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

<PAGE>

                                     PART I
                                Explanatory Note

      The purpose of this  amendment  No. 2 to the  Company's  Annual  Report on
Form10-K is to restate the Company's  consolidated  financial statements for the
year ended June 30, 2006 ("the financial  statements") and to modify the related
disclosures.  See Note 1 to the  financial  statements  included in this amended
Annual Report.

      The restatement arose from the Company's  determination  that an error had
occurred in the computer  program  used by the Company to value  work-in-process
inventory  resulting in a  misstatement  of the  Company's  inventory and pretax
income. As a result of this error, the Company has determined that its inventory
at June 30,  2006 and its pretax  income  for the year ended June 30,  2006 were
both overstated by $305,409.

      The restatement also arose from the Company's  determination that an error
had  occurred  in its  accounting  treatment  for the foreign  translation  gain
recognized  upon final  liquidation  of its European  subsidiary.  This gain was
previously  recorded in fiscal year 2006 but should have been recorded in fiscal
year  2004,  when  substantially  all of the  physical  assets  of the  European
subsidiary  had been  liquidated.  As a result of this  error,  the  Company has
determined  that its net income for the year ended June 30, 2006 was  overstated
and for the year ended June 30, 2004 was understated.

      Additionally,  the Company has corrected  certain errors in accounting for
income taxes related to the expiration of federal  research and  experimentation
tax credits at the end of calendar 2005.

         This amended Annual  Report,  except for the  restatement  information,
speaks as of the filing date  (September 6, 2006) of the original  Annual Report
and does not update or discuss any other Company  developments after the date of
the original filing. All information contained in this amended Annual Report and
the original Annual Report is subject to updating and  supplementing as provided
in the  periodic  reports  that the  Company  has filed and will file  after the
original filing date with the Securities and Exchange Commission.

      Amendment No. 1 to the Company's Annual Report on Form 10-K was previously
made  solely to  correct a  clerical  error to the  Consolidated  Statements  of
Stockholders'  Equity  and  Comprehensive  Income.   Specifically,   the  "Total
stockholders'  equity" column for the fiscal year ended June 30, 2006, line item
"Amortization of vested stock options" was corrected to $3,474,761 ($3,358,227 +
$116,534)  versus  $3,358,227,  and  line  item  "reclassification  of  unearned
compensation (note 13)" was corrected to $0.00 versus $116,534.

Item 1. Business

General

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


Recent Developments

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

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


                                       2
<PAGE>

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

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


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 for wireless  communication systems, as well as
advanced radar,  beamforming and receiver applications for the space and defense
markets and medical products with applications in pacemakers and defibulators.

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

      o  Andrew Corporation

      o  Boeing, Inc.

      o  CalAmp Corp

      o  LM Ericsson Telephone Co. ADR

      o  ITT Corporation

      o  Lockheed Martin Corporation

      o  Motorola, Inc.

      o  Nokia Corporation -- ADR

      o  Nortel Networks Corporation

      o  Northrop Grumman Corporation

      o  Powerwave Technologies, Inc.

      o  Raytheon Co.

      o  St. Jude Medical

Industry Background

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

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


                                       3
<PAGE>

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


                                       4
<PAGE>

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

Wireless Local Area Networking

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

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

Space and Defense

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

The Anaren Solution

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

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

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


                                       5
<PAGE>

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

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


Technology

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

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

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

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

      The Company's microwave design engineering staff has developed proprietary
modeling techniques and component design libraries that allow for consistent and
efficient  design and  production of complex  microwave  products  utilizing its
proprietary technologies.

Strategy

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

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

      Focus on value added  products.  The Company plans to continue to increase
the value of its products in wireless and space and defense systems. The Company
intends to expand its component  offerings to enable the Company to increase the
number of products addressing each wireless application. In addition, with its


                                       6
<PAGE>

Multi-Layer  Stripline,  Ball Grid  Array and Thick Film  Ceramic  manufacturing
technologies,  the Company intends to continue to increase the  functionality of
its products,  thereby enabling its wireless and space and defense  customers to
continue  to reduce  the size and cost of their  platforms,  while  the  Company
increases its content value.

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

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

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

Products

   Wireless Communications

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

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

   Component Products

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


                                       7
<PAGE>

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

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

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

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

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

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

Space and Defense

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

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

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

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

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


                                       8
<PAGE>

Customers

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

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

      o  CalAmp Corporation

      o  Avnet Electronics

      o  Celestica Corp.

      o  EG Components

      o  MKS Instruments, Ltd.

      o  Motorola, Inc.

      o  Nokia Corporation -- ADR

      o  Nortel Networks

      o  Powerwave Technologies, Inc.

      o  Richardson Electronics, Inc.

      o  St. Jude Medical

      o  Telecom International, Inc.

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

      o  BAE Systems

      o  ITT Corporation

      o  Lockheed Martin Corporation

      o  NEX 1 Future, Co., Ltd.

      o  Northrup Grumman Corporation

      o  Raytheon Co.

Sales and Marketing

      The  Company  markets  its  products   worldwide  to  original   equipment
manufacturers in the wireless and space and defense markets  primarily through a
sales and  marketing  force of 27 people as of June 30,  2006.  The  Company has
regional sales offices located in Sacramento, California; Woolwich Township, New
Jersey;  Waterlooville,  England; and Suzhou, China. In addition, as of June 30,
2006,  the Company had contracts with three major  distributors,  with seventeen
manufacturers'  representatives in the United States, and with ten international
representatives  located in Western Europe, the Middle East and Asia. As part of
its marketing  efforts,  the Company  advertises in major trade publications and
attends major industry shows. The Company has also invested significantly in its
Internet website which contains an electronic version of its entire catalog.  In
addition,  the website  enables  users to download  important  device  parameter
files. These files contain the performance


                                       9
<PAGE>

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

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

Backlog

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

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

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

Research and Development

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

      o  products for use in mobile and fixed wireless applications;

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

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

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


                                       10
<PAGE>

      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 $8.7  million in fiscal 2006,  $6.3 million in fiscal
2005 and $5.9 million in fiscal 2004. Research and development costs are charged
to expense as incurred.

Manufacturing

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

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

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

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

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

Competition

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


                                       11
<PAGE>

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

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

Government Regulation

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

Intellectual Property

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

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

Employees

      As of June 30, 2006, the Company employed 708 full-time people,  including
106 temporary employees. Of these employees, 163 were members of the engineering
staff,  474 were in  manufacturing  positions,  27 were in sales  and  marketing
positions,  and 44 were in  management  and  support  functions.  None of  these
employees are represented by a labor union,  and the Company has not experienced
any  work  stoppages.  The  Company  considers  its  employee  relations  to  be
excellent.

Item 1A. Risk Factors

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

      This  amended  Annual  Report  on  Form  10-K/A   restates  the  Company's
consolidated  financial  statements  for the twelve  months ended June 30, 2006,
modifies related disclosures, and discloses material weaknesses in the Company's
disclosure  controls and procedures.  The Company cannot predict the reaction to
the filing of this amended Annual Report from its shareholders and the financial
markets in general.  An adverse  reaction by its  shareholders  or the financial
markets in general could cause the market price of the Company's Common Stock to
decline, potentially rapidly and sharply.


                                       12
<PAGE>

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

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

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

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

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

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

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

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

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


                                       13
<PAGE>

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

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

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

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

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

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

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

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

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


                                       14
<PAGE>

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

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

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

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

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

      Failure to meet market expectations could impact our stock price.

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

      Other risks.

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

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

      o  order cancellations or extended postponements;

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

      o  technological shifts away from our technologies and core competencies;

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

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

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


                                       15
<PAGE>

Item 1B. Unresolved Staff Comments

      None.

Item 2. Properties

      The  principal  real  estate  of the  Company  is a  105,000  square  foot
building,  which the Company owns, located on a 30-acre parcel in East Syracuse,
New York. The Company's principal subsidiary,  Anaren Microwave,  Inc., utilizes
this  facility  which houses a substantial  portion of the Company's  marketing,
manufacturing,  administrative,  research and  development,  systems  design and
engineering activities. In June 2006, the Company announced plans to construct a
54,000 square foot addition to this existing building to accommodate, primarily,
the growth of its Space and  Defense  business.  The  project is  expected to be
completed  during the second  quarter of calendar  2007, at an estimated cost of
$5.8 million.

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

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

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

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

Item 3. Legal Proceedings

      There are no material legal proceedings pending against the Company.

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

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


Item 4A. Executive Officers of the Registrant

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

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


                                       16
<PAGE>

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

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

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

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

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

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

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


                                       17
<PAGE>

                                     PART II

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

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

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

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

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

Issuer Purchases of Equity Securities

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

<TABLE>
<CAPTION>

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

Item 6. Selected Consolidated Financial Data

      The selected financial data set forth in this Item 6 have been restated to
reflect adjustments to our consolidated financial statements and other financial
information  contained in our Annual Report on Form 10-K for the year ended June
30, 2006,  originally  filed with the U.S.  Securities  and Exchange  Commission
(SEC) on  September 6, 2006 as further  discussed in Note 1 to the  consolidated
financial  statements.  The following  selected financial data should be read in
conjunction  with our restated  financial  statements  and the related  Notes to
Consolidated  Financial  Statements.  The statements of operations  data for the
years ended June 30, 2002 and June 30, 2003,  and the balance sheet data at June
30, 2002, June 30, 2003 and June 30, 2004, are derived from audited consolidated
financial  statements not included in this Amended Annual Report.  The following
selected  financial  data should be read in  conjunction  with the  consolidated
financial  statements  for  the  Company  and  notes  thereto  and  Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
included elsewhere herein.


                                       18
<PAGE>

<TABLE>
<CAPTION>

                                                                         Years Ended
                                                   --------------------------------------------------------------
                                                    June 30,     June 30,     June 30,     June 30,     June 30,
                                                      2006         2005         2004         2003         2002
                                                   (Restated)                (Restated)
                                                   ----------    ---------   ----------    ---------    ---------
                                                                (In thousands, except per share data)
<S>                                                <C>          <C>          <C>          <C>          <C>
Statement of Income Data:
Net sales ......................................   $ 105,464    $  94,461    $  85,079    $  75,520    $  70,638
Cost of sales ..................................      67,494       64,591       55,070       51,821       45,713
                                                   ---------    ---------    ---------    ---------    ---------
Gross profit ...................................      37,970       29,870       30,009       23,699       24,925
                                                   ---------    ---------    ---------    ---------    ---------
Operating expenses:
   Marketing ...................................       7,036        6,858        6,723        6,160        6,771
   Research and development ....................       8,748        6,288        5,861        6,140        6,283
   General and administrative ..................      10,345        8,685        8,731        8,392        7,617
   Restructuring ...............................          --          458           --          795           --
                                                   ---------    ---------    ---------    ---------    ---------
   Total operating expenses ....................      26,129       22,289       21,315       21,487       20,671
                                                   ---------    ---------    ---------    ---------    ---------
Operating income ...............................      11,841        7,581        8,694        2,212        4,254
                                                   ---------    ---------    ---------    ---------    ---------
Other income (expense):
   Interest expense ............................         (25)         (29)         (10)         (50)         (93)
   Other, primarily interest income ............       2,453        1,599        1,678        2,211        3,745
                                                   ---------    ---------    ---------    ---------    ---------
   Total other income, net .....................       2,428        1,570        1,668        2,161        3,652
                                                   ---------    ---------    ---------    ---------    ---------
Income before income taxes .....................      14,269        9,151       10,362        4,373        7,906
Income taxes ...................................       3,252        1,738        2,695          798        1,179
                                                   ---------    ---------    ---------    ---------    ---------
Income from continuing operations ..............      11,017        7,413        7,667        3,575        6,727
Discontinued operations:
Income (loss) from discontinued
   operations of Anaren Europe .................          82           --         (774)      (8,029)        (872)
Income tax benefit .............................          --           --       (1,800)        (662)      (1,584)
                                                   ---------    ---------    ---------    ---------    ---------
Net income (loss) from discontinued
   operations ..................................          82           --        1,026       (7,367)         712
                                                   ---------    ---------    ---------    ---------    ---------
Net income (loss) ..............................   $  11,099    $   7,413    $   8,693    $  (3,792)   $   7,439
                                                   =========    =========    =========    =========    =========
Basic earnings (loss) per share:
   Income from continuing operations ...........   $     .64    $     .38    $     .36    $     .16    $     .30
   Income (loss) from discontinued
     operations ................................         .01           --          .05         (.33)         .03
                                                   ---------    ---------    ---------    ---------    ---------
   Net income (loss) ...........................   $     .65    $     .38    $     .41    $    (.17)   $     .33
                                                   =========    =========    =========    =========    =========
Diluted earnings (loss) per share:
   Income from continuing operations ...........   $     .62    $     .37    $     .35    $     .16    $     .29
   Income (loss) from discontinued
     operations ................................         .01           --          .05         (.33)         .03
                                                   ---------    ---------    ---------    ---------    ---------
   Net income (loss) ...........................   $     .63    $     .37    $     .40    $    (.17)   $     .32
                                                   =========    =========    =========    =========    =========
Shares used in computing net earnings per share:
   Basic .......................................      17,157       19,346       21,026       22,214       22,323
   Diluted .....................................      17,682       19,832       21,808       22,701       23,090
Balance Sheet Data:
Cash and cash equivalents ......................   $  15,733    $   5,901    $  23,303    $  11,063    $  12,565
Working capital ................................     112,160       84,554      105,987      126,235      144,023
Total assets ...................................     189,026      175,482      207,482      213,088      221,586
Long-term debt, less current installments ......          --           --           --           --           --
Stockholders' equity ...........................     172,118      159,079      190,364      200,597      209,553
</TABLE>


                                       19
<PAGE>

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

      The following Management's  Discussion and Analysis of Financial Condition
and Results of Operations  should be read in conjunction  with the  consolidated
financial  statements  and the notes  thereto  appearing  elsewhere in this Form
10-K/A.  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 Amended Annual Report.

Overview

      The consolidated  financial  statements present the financial condition of
the  Company  as of June 30,  2006 and 2005,  and the  consolidated  results  of
operations and cash flows of the Company for the years ended June 30, 2006, 2005
and 2004.
      The  Company  designs,  develops  and  markets  microwave  components  and
assemblies for the wireless communications, satellite communications and defense
electronics  markets.  The  Company's  distinctive  manufacturing  and packaging
techniques enable it to cost-effectively produce compact,  lightweight microwave
products  for use in base  stations  for  wireless  communications  systems,  in
satellites and in defense  electronics  systems.  Beginning in 2004, the Company
has introduced new components  addressing consumer wireless applications such as
wireless  local  area  networks,  Bluetooth,  cellular  handsets  and  satellite
telecommunications.   The  Company  sells  its  products  to  leading   wireless
communications equipment manufacturers such as Ericsson, Motorola, Nokia, Nortel
Networks,  and Andrew, and to satellite  communications and defense  electronics
companies such as Boeing Satellite,  ITT, Lockheed Martin,  Northrup Grumman and
Raytheon.

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

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

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

      Effective  July 1,  2005,  the  Company  adopted  Statement  of  Financial
Accounting Standards No. 123R (SFAS 123R). This standard requires the company to
measure the cost of employee  services  received in exchange  for equity  awards
based  on the  grant  date  fair  value of the  awards.  These  costs  are to be
recognized as compensation


                                       20
<PAGE>

expense  over the  vesting  period  of the  awards.  SFAS  123R  provides  for a
prospective application for adoption which the Company chose. Under this method,
the Company began recognizing  compensation  costs for stock option equity based
compensation  for all new or  modified  grants  after June 30,  2005 and for the
unvested  portion  of the  grant  date  fair  value of  awards  issued  prior to
adoption,  based on the fair value previously calculated for footnote disclosure
purposes.  Equity based  compensation cost for employee stock options recognized
in the year ended June 30, 2006 was $3,358,227.

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

Results of Operations

      Net sales from continuing operations for the year ended June 30, 2006 were
$105.5  million,  up 11.6%  from $94.5  million  for fiscal  2005.  Income  from
continuing operations for fiscal 2006 was $11.0 million (restated),  or 10.4% of
net sales (restated), up $3.6 million (restated), or 49% (restated), from income
from continuing operations of $7.4 million in fiscal 2005.

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

                                                    Years Ended June 30,
                                             ----------------------------------
                                                2006        2005        2004
                                             (Restated)              (Restated)
                                             ----------    ------    ----------
Net sales..................................    100.0%      100.0%      100.0%
                                               =====       =====       =====
Cost of sales..............................     64.0        68.4        64.7
                                               -----       -----       -----
Gross profit...............................     36.0        31.6        35.3
                                               -----       -----       -----
Operating expenses:
   Marketing...............................      6.7         7.2         7.9
   Research and development................      8.3         6.7         6.9
   General and administrative..............      9.8         9.2        10.3
   Restructuring...........................       --         0.5          --
                                               -----       -----       -----
     Total operating expenses..............     24.8        23.6        25.1
                                               -----       -----       -----
Operating income...........................     11.2         8.0        10.2
                                               -----       -----       -----
Other income (expense):
   Interest expense........................       --          --          --
   Other, primarily interest income........      2.3         1.7         2.0
                                               -----       -----       -----
     Total other income....................      2.3         1.7         2.0
                                               -----       -----       -----
Income from continuing operations before
   Income taxes............................     13.5         9.7        12.2
Income taxes...............................      3.1         1.9         3.2
                                               -----       -----       -----
Net income from continuing operations......     10.4         7.8         9.0
Discontinued operations:
   Income (loss) from discontinued
     operations of Anaren Europe...........      0.1          --        (0.9)
   Income tax benefit......................       --          --        (2.1)
                                               -----       -----       -----
   Net income (loss) from discontinued
     operations............................      0.1          --         1.2
                                               -----       -----       -----
   Net income (loss).......................     10.5%        7.8%      10.2%
                                               -----       -----       -----


                                       21
<PAGE>

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

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

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

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

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

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

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

      Gross Profit.  Gross profit represents net sales minus cost of sales. Cost
of sales consists  primarily of  engineering  design costs,  material,  material
fabrication costs,  assembly costs, direct and indirect overhead and test costs.
Gross profit for fiscal 2006 was $38.0  million  (restated)  (36.0% of net sales
(restated)) up $8.1 million  (restated)  from $29.9 million (31.6% of net sales)
for the same period of the prior year. Gross profit on sales increased in fiscal
2006 over  last  year due to  favorable  manufacturing  efficiencies  and a more
favorable wireless product mix in the current year. These efficiencies  resulted
from  higher  production  volumes at our lower cost  China  facility  and in our
Defense  group,  as well as  manufacturing  overhead  cost  savings  realized by
combining the RF Power and Amitron  production  facilities into one operation at
Anaren  Ceramics.  Current  year  growth  in gross  profit  was  lowered  by the
recognition  of $875,000 of stock option  equity based  compensation  expense in
cost of sales in fiscal 2006.

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

      Research and  Development.  Research and development  expenses  consist of
material and salaries and related overhead costs of employees engaged in ongoing
research,  design and  development  activities  associated with new products and
technology  development.  Research and  development  expenses were $8.7 million,
(8.3% of net  sales) in fiscal  2006,  up 39.1% from $6.3  million  (6.7% of net
sales) for fiscal 2005.  Research and  development  expenditures  are supporting
further   development  of  Wireless   infrastructure   and  consumer   component
opportunities  as well as new  technology  development  in the Space and Defense
Group.  Research  and  development  expenditures  increased  in fiscal 2006 over
fiscal 2005  levels due to the higher  level of  Wireless  opportunities  in the
marketplace  and due to the  inclusion of $346,000 for stock option equity based
compensation expense.  These opportunities  resulted in the hiring of additional
product development personnel in fiscal 2005 and 2006, and additional outside


                                       22
<PAGE>

vendor  spending by the Company in the current  year to expedite the new product
development  process. The Company does not expect to reduce its current research
and development efforts and is presently working on a number of new standard and
custom Wireless and Space and Defense products.

      General and Administrative. General and administrative expenses consist of
employee  related  expenses,  professional  services,  intangible  amortization,
travel related  expenses and other corporate costs.  General and  administrative
expenses  increased  19.1% to $10.3 million (9.8% of net sales) for fiscal 2006,
from $8.7 million (9.2% of net sales) for fiscal 2005.  This  increase  resulted
primarily  from the  inclusion  of  $1,771,000  of  stock  option  equity  based
compensation expense in fiscal 2006. Absent the inclusion of stock option equity
based compensation expense, general and administrative costs for fiscal 2006 was
down  1.3%  compared  to  fiscal  2005 due to  consolidation  savings  and lower
Sarbanes Oxley compliance costs in fiscal 2006.

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

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

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

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

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

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

      Income  Taxes:  Income taxes for fiscal 2006 were $3.3 million  (restated)
(3.1% of net  sales  (restated))  representing  an  effective  tax rate of 22.8%
(restated).  This  compares to income tax expense of $1.7  million  (1.9% of net
sales)  for  fiscal  2005,  representing  an  effective  tax rate of 19.0%.  The
Company's  effective tax rate is a direct result of the  proportion of federally
exempt state  municipal  bond income,  the amount of  non-taxable  income of the
Company's China subsidiary,  and federal tax credits and benefits in relation to
the levels of taxable  income or loss. The increase in the effective tax rate is
a result of both the  higher  level of income  and the  amount of  nondeductible
incentive stock option equity based compensation expense in fiscal 2006 compared
to the level of deductible non-statutory stock


                                       23
<PAGE>

option equity based  compensation  expense  resulting  from the adoption of SFAS
123R.  Stock  options  issued  prior to the  adoption  of SFAS 123R were  mainly
incentive  stock  options  and are  presently  generating  the  majority  of the
Company's equity based employee stock option compensation expense.  Compensation
expense for these  options,  under SFAS 123R,  does not generate a tax deduction
and related deferred tax benefit. New options granted after the adoption of SFAS
123R are expected to be mainly non-statutory stock options,  which will generate
a tax deduction and related deferred tax benefit.  The Company is presently in a
"tax free holiday" for income earned at its China  subsidiary  through  December
2006.  Earnings of the China subsidiary  subsequent to that date are expected to
be taxed at a 15% rate.

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

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

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

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

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

      Gross Profit. Gross profit for fiscal 2005 was $29.9 million (31.6% of net
sales), compared to $30.0 million (35.3% of net sales) for the prior year. Gross
margins as a percent of sales declined 3.7 percentage  points due to a change in
sales mix from  higher  margin  standard  Wireless  component  products to lower
margin custom Wireless products. Additionally, margins were eroded by a one-time
write-down  of  inventory  at RF Power in  conjunction  with the  closure of the
Bohemia,  New York  facility and general  production  inefficiencies  during the
period of actual consolidation of the two operations in Salem, New Hampshire.

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

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

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


                                       24
<PAGE>

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

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

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

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

      Other  Income.  Other income  decreased  4.7% to $1.6 million (1.7% of net
sales) for fiscal 2005 from $1.7  million  (2.0% of net sales) for fiscal  2004.
This  decrease  was  caused  mainly  by a  $67,000  loss on the sale of  capital
equipment  and a $343,000  loss on the disposal of 777,300  shares of Celeritek,
Inc. common stock owned by the Company. Additionally, Company cash balances were
reduced $38.0 million during fiscal 2005 due to $37.9 million used to repurchase
treasury shares and the purchase of the Salem,  New Hampshire  facility for $4.8
million.  The decrease in other income caused by the loss on Celeritek stock and
the sale of equipment was partially offset by higher interest rates resulting in
an increase in interest income of approximately $331,000 in fiscal 2005 compared
to fiscal 2004. Interest income fluctuates based on interest rates and the level
of investable cash balances.

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

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

      Discontinued Operations (Restated). In July 2003, the Company announced
its decision to dispose of its Anaren Europe operation. During the first quarter
of fiscal 2004, the Company ceased production at Anaren Europe and liquidated
the production equipment used in that operation. The results of operations for
Anaren Europe for fiscal 2004 have been classified as discontinued operations in
the statements of earnings filed as part of this Amended Annual Report. Results
of discontinued operations for the year ended June 30, 2004 consist of sales of
$675,340, less net expenses of $667,273 (net of foreign currency translation
gain of $735,464) and a loss on sale of equipment of ($782,289).

Critical Accounting Policies

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


                                       25
<PAGE>

adjustments  based on  historical  experiences,  current  conditions  and future
expectations.  The reviews are performed  regularly and  adjustments are made as
required by current available information.  The Company believes these estimates
are  reasonable,  but actual results could and have differed at times from these
estimates.

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

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

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

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

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

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

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

Liquidity and Capital Resources

      Net cash  provided by operations  for the years ended June 30, 2006,  2005
and 2004 was $16.6 million,  $8.4 million and $15.2 million,  respectively.  The
positive  cash  flow  from   operations  was  due  primarily  to  profit  before
depreciation in fiscal 2005 and 2004 and profit before  depreciation  and equity
based compensation  expense in fiscal 2006. In all three years the positive cash
flow from earnings was partially off-set by a combined increase in inventory and
accounts  receivable  amounting to $4.0 million  (restated) in fiscal 2006, $3.8
million in fiscal 2005 and $6.5 million in fiscal 2004. Additionally,  in fiscal
2006,  cash flow  from  operations  rose due to $3.5  million  in  equity  based
compensation expense which did not require cash.


                                       26
<PAGE>

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

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

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

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

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

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

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

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

Disclosures About Contractual Obligations and Commercial Commitments

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

<TABLE>
<CAPTION>

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

Recent Accounting Pronouncements

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


                                       27
<PAGE>

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

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

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 Amended Annual Report.

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

Item 8. Financial Statements and Supplementary Data

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

Item 9A. Controls and Procedures

(a) Background

In the course of integrating a Company-wide  work-in-process  inventory  system,
management  identified a program error  resulting from a program change that was
incorrectly made in the second quarter of fiscal 2006. This program error caused
the  system  to   miscalculate   the  value  of  the   material   component   of
work-in-process  inventory.  After completing its final review of this matter on
January  22,  2007,  management  recommended  to the  Audit  Committee  that the
three-month  period  ended  December 31, 2005 and the fiscal year ended June 30,
2006 be restated to reflect the correction of this error.

During the  restatement  process  for the June 30,  2006  financial  statements,
management,  in consultation  with the Company's  independent  registered public
accounting firm KPMG LLP,  determined that the currency  translation  portion of
the gain on the final  closure and  liquidation  of the  Company's  discontinued
operations should have been recorded in the fiscal 2004 discontinued  operations
results.  The Company,  in consultation with KPMG LLP,  previously  recorded the
gain in the  third  quarter  ended  March 31,  2006  results  from  discontinued
operations.  After  completing  its final  review of this  matter on January 25,
2007, management  recommended to the Audit Committee that the three-month period
ended  March 31,  2006 and the fiscal  year ended June 30,  2006 be  restated to
reflect the correction of this error.

Pursuant to the  recommendation  of the Audit Committee,  the Board of Directors
determined  that  previously  reported  results  for the Company for the periods
noted above should be restated to correct these errors.

(b) Evaluation of Disclosure Controls and Procedures


                                       28
<PAGE>

Based on their  initial  evaluation  of the  Company's  disclosure  controls and
procedures  (as defined in Rule 13a-15(e)  under the Securities  Exchange Act of
1934) as of the end of the period  covered by this report,  the Company's  Chief
Executive  Officer and Chief  Financial  Officer  initially  concluded  that the
Company's disclosure controls and procedures were effective as of June 30, 2006.
In  connection  with  the  restatement   matters  described  above,   management
reevaluated the Company's  disclosure  controls and procedures.  As discussed in
Management's  Annual  Report on Internal  Control Over  Financial  Reporting (as
restated) (Item 9A(c)),  management  identified  material weaknesses in internal
control over financial reporting with respect to (i) program change controls and
(ii)  the  accounting  for  foreign   currency   translation   adjustments   for
discontinued operations.

As a result of these material  weakness matters,  management  concluded that the
Company's  disclosure  controls and procedures were not effective as of June 30,
2006.

(c) Management's  Annual Report on Internal Control Over Financial Reporting (as
restated)

The  management  of Anaren  is  responsible  for  establishing  and  maintaining
adequate  internal  control over financial  reporting for the Company.  With the
participation  of the Chief Executive  Officer and the Chief Financial  Officer,
management  conducted an evaluation of the effectiveness of our internal control
over  financial  reporting  as of June  30,  2006,  based on the  framework  and
criteria established in  Internal Control - Integrated Framework,  issued by the
Committee of Sponsoring Organizations of the Treadway Commission.

In the Company's Annual Report on Form 10-K for the year ended June 30, 2006, as
originally  filed on September 6, 2006,  management  concluded that our internal
control  over   financial   reporting   was  effective  as  of  June  30,  2006.
Subsequently,   management  identified  the  following  material  weaknesses  in
internal control over financial reporting at June 30, 2006:

      o  The Company's policies and procedures for review and testing of program
         changes  did  not  operate  effectively.   Specifically,   the  control
         requiring that management test the program change prior to approving it
         was not operating effectively. As a result, a program change error in a
         work-in-process inventory system was not detected and, accordingly, the
         value of material costs was incorrect when certain conditions  existed;
         and

      o  The Company lacked  adequate  technical  expertise to ensure the proper
         application  of the  criteria  with respect to  accounting  for foreign
         currency  translation   adjustments  for  discontinued   operations  in
         accordance  with the  provisions  of Statement of Financial  Accounting
         Standards No. 52, Foreign Currency Translation.

The material  weakness matters noted above resulted in errors that were material
to  previously  issued  financial  statements  and in our  restatement  of those
consolidated  financial  statements  for the year ended June 30,  2006,  and the
quarters ended December 31, 2005, March 31, 2006 and for the year ended June 30,
2004.

As a result of these material weakness  matters,  our management has revised its
earlier  assessment  and  has now  concluded  that  our  internal  control  over
financial reporting was not effective as of June 30, 2006.

Anaren's independent auditor, KPMG LLP, a registered public accounting firm, has
issued an audit report on our  management's  revised  assessment of our internal
control over financial reporting as of June 30, 2006.

(d) Remediation of Material Weakness in Internal Control

We believe that,  as of the date of this filing,  we have fully  remediated  the
material weakness in our internal control over financial  reporting with respect
to program change controls.  The remedial actions included:

      o  Improving training and education in the area of program change controls
         to  ensure  all  relevant  personnel  involved  in the  program  change
         management   review  and  approval   process  fully   understand  their
         responsibility  for testing the completeness and accuracy of all output
         reports and related  financial data before approving the program change
         and placing it into operation;

      o  Adding  enhanced  controls and testing to any program change  affecting
         financial reports prior to implementing a program change; and

      o  Introduction of a new control  requiring  authorized  users  requesting
         program changes to retest and recalculate the completeness and accuracy
         of the first  output  reports  and  related  financial  data  generated
         directly after the program is placed into operation.

To  remediate  the  material  weakness  related to the  accounting  for  foreign
currency translation adjustments for discontinued operations described above and
enhance our internal control over financial reporting,  subsequent to the filing
of this Form 10-K/A, management has implemented the following change:


                                       29
<PAGE>

      o  Improve  training and education  and  understanding  of accounting  for
         foreign currency translation adjustments for discontinued operations in
         accordance  with  generally  accepted  accounting  principles  for  all
         relevant personnel involved in foreign currency accounting.

(e) Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Anaren, Inc.:

We have audited management's  restated assessment,  included in the accompanying
Management's  Annual  Report on Internal  Control over  Financial  Reporting (as
restated) (Item 9A(c)) that Anaren did not maintain  effective  internal control
over  financial  reporting  as of June 30,  2006,  because  of the effect of the
material weaknesses  identified in management's  restated  assessment,  based on
criteria  established in Internal  Control - Integrated  Framework issued by the
Committee  of  Sponsoring  Organizations  of the Treadway  Commission  ("COSO").
Anaren management is responsible for maintaining effective internal control over
financial  reporting  and for its  assessment of the  effectiveness  of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of Anaren's internal
control over financial reporting based on our audit.

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

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

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

      A material  weakness is a control  deficiency,  or  combination of control
deficiencies,  that  results  in more than a remote  likelihood  that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.  Management has identified and included in its restated  assessment
the  following  material  weaknesses  as of June  30,  2006:  (i) the  Company's
policies  and  procedures  for review and  testing  of program  changes  did not
operate  effectively.  Specifically,  the control requiring that management test
the program  change prior to approving it was not  operating  effectively.  As a
result,  a program change error in a  work-in-process  inventory  system was not
detected  and,  accordingly,  the value of  material  costs was  incorrect  when
certain  conditions  existed;  and (ii) the Company  lacked  adequate  technical
expertise  to ensure the proper  application  of the  criteria  with  respect to
accounting  for  foreign  currency  translation   adjustments  for  discontinued
operations  in  accordance   with  the  provisions  of  Statement  of  Financial
Accounting  Standards  No. 52,  Foreign  Currency  Translation.  These  material
weaknesses  resulted  in  a  restatement  of  the  Company's  previously  issued
consolidated  financial  statements  as of  June  30,  2006  and  2004,  and the
financial  information  for the quarters  ended  December 31, 2005 and March 31,
2006.

As stated in the fourth  paragraph  of  Management's  Annual  Report on Internal
Control over Financial Reporting (as restated),  management's  assessment of the
effectiveness  of Anaren's  internal  control over financial  reporting has been
restated to reflect the aforementioned  material  weaknesses in internal control
over financial reporting.

We also have  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States),  the consolidated balance sheets of
Anaren,  Inc.  and  subsidiaries  as of June 30, 2006 and 2005,  and the related
consolidated  statements of operations,  stockholders'  equity and comprehensive
income, and cash flows for each of the years in the three-year period ended June
30, 2006. The aforementioned  material weaknesses were considered in determining
the nature,  timing,  and extent of audit tests applied in our audit of the 2006
consolidated financial statements (as restated), and this report does not affect
our report


                                       30
<PAGE>

dated August 25, 2006,  except as to the restatement  discussed in note 1 to the
consolidated  financial  statements,  which is as of  January  31,  2007,  which
expressed an unqualified opinion on those consolidated  financial statements (as
restated).

In our opinion,  management's  restated  assessment that Anaren did not maintain
effective  internal  control over  financial  reporting as of June 30, 2006,  is
fairly  stated,  in all  material  respects,  based on criteria  established  in
Internal  Control - Integrated  Framework  issued by COSO. Also, in our opinion,
because  of the  effect  of  the  material  weaknesses  described  above  on the
achievement of the objectives of the control  criteria,  Anaren did not maintain
effective  internal control over financial  reporting as of June 30, 2006, based
on criteria  established in Internal  Control - Integrated  Framework  issued by
COSO.


KPMG LLP
Syracuse, New York

August  25,  2006,  except as to the  second,  third and  fourth  paragraphs  of
Management's  Annual  Report on Internal  Control over  Financial  Reporting (as
restated),  which are as of January 31, 2007

(f) Changes in Internal Control Over Financial Reporting

During the three-month  period ended June 30, 2006, there were no changes in the
Company's  internal  control  over  financial  reporting  (as  defined  in  Rule
13a-15(f)) that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.

Item 9B. Other Information

      None.


                                       31
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

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

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

Item 11. Executive Compensation

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

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

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

Item 13. Certain Relationships and Related Transactions

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

Item 14. Principal Accounting Fees and Services

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


                                       32
<PAGE>

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules.

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

3. Exhibits:

      Reference is made to the list of Exhibits hereinafter contained

(b) Exhibits:

      Index to Exhibits

Exhibit No.                            Description
-----------                            -----------
    3.1       Certificate of Incorporation, as amended (1)
    3.2       Restated By-Laws (2)
    4.1       Specimen Certificate of Common Stock (3)
    4.2       Shareholder  Protection  Rights  Agreement  dated as  of April 20,
              2001,  between the Company  and  American  Stock  Transfer & Trust
              Company,  including forms  of  Rights  Certificate and Election to
              Exercise (4)
   10.1       Employment  Agreement, dated  as  of  July  1,  2006,  between the
              Company and Lawrence A. Sala (5)
   10.2       Pension Plan and Trust (6)
   10.3       Anaren Microwave, Inc. Incentive Stock Option Plan, as amended (7)
   10.4       Anaren  Microwave, Inc. 1989 Non-statutory  Stock  Option Plan, as
              amended (8)
   10.5       Anaren  Microwave,  Inc.  Incentive  Stock  Option  Plan  for  Key
              Employees (9)
   10.6       Anaren Microwave, Inc. Stock Option Plan (10)
   10.7       Form  of  Change  of Control  Agreements dated March 15, 2002 with
              Joseph Porcello,  Mark Burdick,  Timothy Ross,  Stanley
              Slingerland and Gert Thygesen (11)
   10.8       Employment Agreement, dated as of February 14, 2004,  between  the
              Company and Carl W. Gerst, Jr. (12)
   10.9       Anaren,   Inc .  Comprehensive   Long-Term  I ncentive  Plan  (13)
   21         Subsidiaries of the Company
   23         Consent of KPMG LLP, Independent Registered Public Accounting Firm
   31         Rule 13a-14(a) Certifications
   32         Section 1350 Certifications

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

(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.


                                       33
<PAGE>

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

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

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

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

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

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

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

(11)  Incorporated  herein by reference to Exhibit 10.11 to the Company's Annual
      Report on Form 10-K (Commission File No. 0-6620) for the fiscal year ended
      June 30, 2002.

(12)  Incorporated  herein  by  reference  to  Exhibit  10.12  to the  Company's
      Quarterly Report on Form 10-Q for the three months ended March 31, 2004.

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


                                       34
<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: January 31, 2007

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

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

 /s/ LAWRENCE A. SALA     President, Chief Executive Officer    January 31, 2007
 ---------------------    and Chairman of the Board, Director
   Lawrence A. Sala       (Principal Executive Officer)

/s/ JOSEPH E. PORCELLO    Sr. Vice President of Finance and     January 31, 2007
 ---------------------    Treasurer (Principal Financial and
  Joseph E. Porcello      Accounting Officer)

/s/ Carl W. Gerst, Jr.    Chief Technical Officer,              January 31, 2007
 ---------------------    Vice Chairman of the Board and
  Carl W. Gerst, Jr.      Director

 /s/ HERBERT I. CORKIN    Director                              January 31, 2007
 ---------------------
   Herbert I. Corkin

    /s/ DALE F. ECK       Director                              January 31, 2007
 ---------------------
      Dale F. Eck

/s/ MATTHEW S. ROBISON    Director                              January 31, 2007
 ---------------------
  Matthew S. Robison

 /s/ DAVID L. WILEMON     Director                              January 31, 2007
 ---------------------
   David L. Wilemon

  /s/ JAMES G. GOULD      Director                              January 31, 2007
 ---------------------
    James G. Gould

 /s/ ROBERT U. ROBERTS    Director                              January 31, 2007
 ---------------------
   Robert U. Roberts

  /s/ JOHN L. SMUCKER     Director                              January 31, 2007
 ---------------------
    John L. Smucker


                                       35
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                        Consolidated Financial Statements

                             June 30, 2006 and 2005

     (With Report of Independent Registered Public Accounting Firm Thereon)


                                       36
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                                      Index

                                                                            Page
                                                                            ----
Report of Independent Registered Public Accounting Firm..................     38

Consolidated Balance Sheets as of June 30, 2006 and 2005.................     39

Consolidated Statements of Operations for the years ended
    June 30, 2006 (restated), 2005, and 2004 (restated)..................     40

Consolidated Statements of Stockholders' Equity and Comprehensive
    Income for the years ended June 30, 2006 (restated), 2005,
    and 2004 (restated)..................................................     41

Consolidated Statements of Cash Flows for the years ended
    June 30, 2006 (restated), 2005, and 2004 (restated)..................     42

Notes to Consolidated Financial Statements...............................  43-67


                                       37
<PAGE>

         REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Anaren Inc.:

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

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

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

As discussed in note 1 to the consolidated financial statements, the Company has
restated  its  consolidated  balance  sheet as of June 30,  2006 and the related
consolidated  statements of operations,  stockholders'  equity and comprehensive
income, and cash flows for the years ended June 30, 2006 and 2004.

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

We also have  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States),  the effectiveness of the Company's
internal control over financial reporting as of June 30, 2006, based on criteria
established in Internal  Control - Integrated  Framework issued by the Committee
of Sponsoring  Organizations of the Treadway  Commission  (COSO), and our report
dated August 25, 2006,  except as to the second,  third and fourth paragraphs of
Management's  Annual  Report on Internal  Control Over  Financial  Reporting (as
restated),  which is as of January 31, 2007, expressed an unqualified opinion on
management's  assessment of, and an adverse  opinion on the effective  operation
of, internal control over financial reporting as of June 30, 2006.

KPMG LLP
Syracuse, New York
August  25,  2006,  except  as to the  restatement  discussed  in  note 1 to the
consolidated financial statements which is as of January 31, 2007


                                       38
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                             June 30, 2006 and 2005

                                     Assets

<TABLE>
<CAPTION>

                                                                         2006
                                                                     (Restated -           2005
                                                                     see note 1)        (Revised)
                                                                     -------------    -------------
<S>                                                                  <C>              <C>
Current assets:
   Cash and cash equivalents .....................................   $  15,733,214    $   5,900,841
   Securities available for sale (note 5) ........................      35,635,000       16,200,000
   Securities held to maturity (note 5) ..........................      31,124,733       36,307,880
   Receivables, less allowance for doubtful accounts of
     $84,854 and $213,099 in 2006 and 2005, respectively .........      16,362,011       14,780,146
   Inventories (note 6) ..........................................      21,827,271       19,403,348
   Other receivables .............................................       1,176,009        1,144,680
   Prepaid expenses ..............................................         744,321          662,247
   Deferred income taxes (note 18) ...............................         716,287          686,411
   Other current assets ..........................................         851,863          423,000
                                                                     -------------    -------------
                  Total current assets ...........................     124,170,709       95,508,553
Securities available for sale (note 5) ...........................              --        3,500,000
Securities held to maturity (note 5) .............................       6,131,425       20,100,547
Property, plant, and equipment, net (note 7) .....................      27,635,161       24,983,653
Deferred income taxes (note 18) ..................................          32,902               --
Goodwill (note 1) ................................................      30,715,861       30,715,861
Other intangible assets, net of accumulated amortization of
   $2,684,595 and $2,351,725 in 2006 and 2005, respectively
   (notes 1 and 3) ...............................................         340,371          673,241
                                                                     -------------    -------------
                  Total assets ...................................   $ 189,026,429    $ 175,481,855
                                                                     =============    =============
                      Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable ..............................................   $   6,798,793    $   6,077,313
   Accrued expenses (note 8) .....................................       3,254,816        2,331,885
   Income taxes payable ..........................................         703,488        1,501,088
   Customer advance payments .....................................         483,722               --
   Other current liabilities (note 10) ...........................         769,523        1,044,759
                                                                     -------------    -------------
                  Total current liabilities ......................      12,010,342       10,955,045
   Deferred income taxes (note 18) ...............................       1,811,955        1,627,304
   Pension and postretirement benefit obligation (notes 16 and 17)       2,356,789        3,253,188
   Other liabilities (note 10) ...................................         728,943          567,755
                                                                     -------------    -------------
                  Total liabilities ..............................      16,908,029       16,403,292
                                                                     =============    =============
Commitments and concentrations
   (notes 19, 20, and 21)
Stockholders' equity:
   Common stock, $0.01 par value. Authorized 200,000,000 shares
     (notes 11 and 15); issued 26,857,554 and 26,070,804 in 2006
     and 2005, respectively ......................................         268,575          260,708
   Additional paid-in capital ....................................     181,780,660      171,333,975
   Unearned compensation (note 13) ...............................              --         (248,578)
   Retained earnings .............................................      70,493,853       59,395,271
   Accumulated other comprehensive loss (note 14) ................        (441,397)      (1,483,003)
                                                                     -------------    -------------
                                                                       252,101,691      229,258,373
   Less cost of 9,249,643 and 8,553,058 treasury shares in 2006
     and 2005, respectively ......................................      79,983,291       70,179,810
                                                                     -------------    -------------
                   Total stockholders' equity .....................    172,118,400      159,078,563
                                                                     -------------    -------------
                  Total liabilities and stockholders' equity .....   $ 189,026,429    $ 175,481,855
                                                                     =============    =============
</TABLE>

           See accompanying notes to consolidated financial statements


                                       39
<PAGE>

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

<TABLE>
<CAPTION>

                                                                  2006             2005              2004
                                                               (Restated -                       (Restated -
                                                               see note 1)                       See note 1)
                                                              ------------      -----------      -----------
<S>                                                           <C>               <C>              <C>
Net sales ................................................    $105,464,236      $94,461,065      $85,078,939
Cost of sales ............................................      67,493,977       64,590,866       55,069,793
                                                              ------------      -----------      -----------
           Gross profit ..................................      37,970,259       29,870,199       30,009,146
                                                              ------------      -----------      -----------
Operating expenses:
   Marketing .............................................       7,036,240        6,857,974        6,723,478
   Research and development ..............................       8,747,463        6,287,514        5,860,493
   General and administrative ............................      10,345,398        8,685,332        8,731,580
   Restructuring (note 9) ................................              --          458,335               --
                                                              ------------      -----------      -----------
           Total operating expenses ......................      26,129,101       22,289,155       21,315,551
                                                              ------------      -----------      -----------
           Operating income ..............................      11,841,158        7,581,044        8,693,595
                                                              ------------      -----------      -----------
Other income (expense):
   Interest expense ......................................         (25,203)         (29,422)         (10,195)
   Other, primarily interest income ......................       2,452,914        1,598,914        1,678,414
                                                              ------------      -----------      -----------
           Total other income, net .......................       2,427,711        1,569,492        1,668,219
                                                              ------------      -----------      -----------
           Income before income taxes ....................      14,268,869        9,150,536       10,361,814
Income tax expense (note 18) .............................       3,252,000        1,738,000        2,695,000
                                                              ------------      -----------      -----------
           Income from continuing operations .............      11,016,869        7,412,536        7,666,814
Discontinued operations (note 4):
   Income (loss) from discontinued operations
     of Anaren Europe ....................................          81,713               --         (774,222)
   Income tax benefit ....................................              --               --       (1,800,000)
                                                              ------------      -----------      -----------
           Net income from discontinued
             operations ..................................          81,713               --        1,025,778
                                                              ------------      -----------      -----------
           Net income ....................................    $ 11,098,582      $ 7,412,536      $ 8,692,592
                                                              ============      ===========      ===========
Basic net income per common and common equivalent share:
   Income from continuing operations .....................    $       0.64      $      0.38      $      0.36
   Income from discontinued operations ...................            0.01               --             0.05
                                                              ------------      -----------      -----------
           Net income ....................................    $       0.65      $      0.38      $      0.41
                                                              ============      ===========      ===========
Diluted net income per common and common equivalent share:
   Income from continuing operations .....................    $       0.62      $      0.37      $      0.35
   Income from discontinued operations ...................            0.01               --             0.05
                                                              ------------      -----------      -----------
           Net income ....................................    $       0.63      $      0.37      $      0.40
                                                              ============      ===========      ===========
Shares used in computing net income per
  common and common equivalent share:
           Basic .........................................      17,156,720       19,346,491       21,026,001
           Diluted .......................................      17,682,231       19,831,710       21,807,538
</TABLE>

           See accompanying notes to consolidated financial statements


                                       40
<PAGE>

<TABLE>
<CAPTION>


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

                                                                                            Accumulated
                                                                                               other                      Total
                                Comprehensive                                    Retained  comprehensive               stockholders'
                                   income     Common    Additional               earnings   income (loss) Treasury        equity
                                 (Restated -   stock     paid-in      Unearned   (Restated - (Restated -    stock       (Restated -
                                 see note 1)  amount     capital    compensation see note 1) see note 1)    amount      See note 1)
                                ------------- ------    ----------  ------------ ---------- ------------- --------      ------------
<S>                              <C>          <C>      <C>           <C>        <C>         <C>          <C>           <C>
Balance at June 30, 2003.                 --  $256,818 $168,805,153  $(381,588) $43,290,143 $(1,216,961) $(10,156,160) $200,597,405
Comprehensive income:
  Net income (restated)......... $ 8,692,592        --           --         --    8,692,592          --            --     8,692,592
  Other comprehensive income:
   Foreign currency translation
    adjustment...........           (679,038)       --           --         --           --          --            --            --
   Minimum pension liability
    adjustment, net of tax
    of $255,181.................     424,345        --           --         --           --          --            --            --
   Unrealized gain on securities
    available-for-sale..........     777,300        --           --         --           --          --            --            --
                                 -----------
    Other comprehensive
      income....................     522,607        --           --         --           --     522,607            --       522,607
                                 -----------
    Total comprehensive income.. $ 9,215,199
                                 ===========
Purchase of treasury stock                --        --                      --           --          --   (22,097,252)  (22,097,252)
Stock options exercised
  (note 12).....................                 2,689    1,562,397         --           --          --            --     1,565,086
Tax benefit from exercise of
  stock options (note 18).......                    --      797,630         --           --          --            --       797,630
  Amortization of unearned
   compensation (note 13).......                    --           --    286,200           --          --            --       286,200
                                              -------- ------------    -------  -----------  ----------  ------------  ------------
Balance at June 30, 2004.                      259,507  171,165,180    (95,388)  51,982,735    (694,354)  (32,253,412)  190,364,268
Comprehensive income:
  Net income.................... $ 7,412,536        --           --         --    7,412,536          --            --     7,412,536
  Other comprehensive loss:
   Foreign currency translation
    adjustment..................       1,950        --           --         --           --          --            --            --
   Minimum pension liability
    adjustment, net of tax
    benefit of $468,112.........    (917,734)       --           --         --           --          --            --            --
   Unrealized gain on sale of
    securities available-for-sale    127,135        --           --         --           --          --            --            --
                                 -----------
    Other comprehensive
      loss......................    (788,649)       --           --         --           --    (788,649)           --      (788,649)
                                 -----------
    Total comprehensive income   $ 6,623,887
                                 ===========
Purchase of treasury stock                          --          --          --           --          --   (37,926,398)  (37,926,398)
Stock options exercised
  (note 12).....................                   985      223,762         --           --          --            --       224,747
Tax benefit from exercise of
  stock options (note 18).......                    --       29,308         --           --          --            --        29,308
Issuance of restricted stock....                   235      319,365   (319,600)          --          --            --            --
Forfeiture of restricted stock..                   (19)    (100,681)        --           --          --            --      (100,700)
Amortization of unearned
  compensation (note 13)........                    --           --    166,410           --          --            --       166,410
Tax impact of restricted
  stock activity................                    --     (302,959)        --           --          --            --      (302,959)
                                              -------- ------------    -------  -----------  ----------  ------------  ------------
Balance at June 30, 2005.                      260,708  171,333,975   (248,578)  59,395,271  (1,483,003)  (70,179,810)  159,078,563
Comprehensive income:
  Net income (restated)......... $11,098,582        --           --         --   11,098,582          --            --    11,098,582
  Other comprehensive income:
   Foreign currency translation
    adjustment..................     103,009        --           --         --           --          --            --            --
   Minimum pension liability
    adjustment, net of tax
    of $469,815.................     938,597        --           --         --           --          --            --            --
                                 -----------
    Other comprehensive
      income....................   1,041,606                                                  1,041,606                   1,041,606
                                 -----------
    Total comprehensive
      income (restated)......... $12,140,188
                                 ===========
Purchase of treasury stock                          --           --         --           --          --    (9,803,481)   (9,803,481)
Stock issued under equity plans
  (note 12).....................                 7,867    5,541,353         --           --          --            --     5,549,220
Amortization of vested stock
  options.......................                    --    3,474,761         --           --          --            --     3,474,761
Tax benefit from exercise of
  stock options (note 18).......                    --    1,679,149         --           --          --            --     1,679,149
Reclassification of unearned
  compensation (note 13)........                    --     (248,578)   248,578           --          --            --            --
                                              -------- ------------    -------  -----------  ----------  ------------  ------------
Balance at June 30, 2006.                     $268,575 $181,780,660    $    --  $70,493,853  $ (441,397 )$(79,983,291) $172,118,400
                                              ======== ============    =======  ===========  ==========  ============  ============
</TABLE>

           See accompanying notes to consolidated financial statements


                                       41
<PAGE>

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

<TABLE>
<CAPTION>

                                                                    2006             2005             2004
                                                                (Restated -                       (Restated -
                                                                see note 1)                       See note 1)
                                                               -------------    -------------    -------------
<S>                                                            <C>              <C>              <C>
Cash flows from operating activities:
   Net income ..............................................   $  11,098,582    $   7,412,536    $   8,692,592
   Net income from discontinued operations .................          81,713               --        1,025,778
                                                               -------------    -------------    -------------
         Net income from continuing operations .............      11,016,869        7,412,536        7,666,814
   Adjustments to reconcile net income from
      continuing operations to net cash
      provided by operating activities:
   Depreciation ............................................       4,875,335        4,887,154        4,296,999
   Impairment loss .........................................              --          272,118               --
   Loss on sale of equipment ...............................          15,875           98,332               --
   Loss on sale of equity securities .......................              --          342,715               --
   Amortization of intangibles .............................         332,870          570,645          709,539
   Deferred income taxes ...................................        (356,986)         558,902         (140,784)
   Stock based compensation ................................       3,474,761           65,710          286,200
   Provision for doubtful accounts .........................         (40,948)          67,599          (16,532)
   Tax benefit from exercise of stock options ..............              --           29,308          797,630
   Changes in operating assets and liabilities:
      Receivables ..........................................      (1,540,917)      (1,034,892)      (5,071,555)
      Inventories ..........................................      (2,423,923)      (2,795,293)      (1,426,801)
      Other receivables ....................................         (31,329)        (103,842)          91,484
      Other current assets, including prepaids .............        (552,671)         141,127         (405,611)
      Refundable income taxes ..............................              --               --          876,220
      Accounts payable .....................................         755,007       (1,120,939)       3,379,732
      Accrued expenses .....................................         922,931         (760,485)         919,259
      Income taxes payable .................................        (797,600)         169,193        3,065,301
      Customer advance payments ............................         483,722         (411,486)         411,486
      Other liabilities ....................................         435,453          142,849        1,468,336
      Pension and postretirement benefit obligation ........         158,718         (162,963)      (1,290,722)
                                                               -------------    -------------    -------------
         Net cash provided by operating activities
           from continuing operations ......................      16,727,167        8,368,288       15,616,995
   Net cash used in operating activities
      from discontinued operations .........................         (97,241)              --         (404,886)
                                                               -------------    -------------    -------------
         Net cash provided by operating activities .........      16,629,926        8,368,288       15,212,109
                                                               -------------    -------------    -------------
Cash flows from investing activities:
   Capital expenditures ....................................      (7,543,718)      (9,058,703)      (4,274,681)
   Proceeds from sale of equity securities .................              --        2,746,130               --
   Proceeds from sale of fixed assets ......................           1,000          160,000               --
   Dividend return of capital in equities held for resale ..              --               --        3,497,850
   Maturities and sales of marketable debt securities ......     103,595,269      117,321,661      194,358,406
   Purchase of marketable debt and equity securities .......     100,378,000)     (99,240,097)    (177,570,000)
                                                               -------------    -------------    -------------
         Net cash provided by (used in) investing
           activities from continuing operations ...........      (4,325,449)      11,928,991       16,011,575
   Net cash provided by investing activities
      from discontinued operations .........................              --               --        1,492,657
                                                               -------------    -------------    -------------
         Net cash provided by (used in) investing activities      (4,325,449)      11,928,991       17,504,232
                                                               -------------    -------------    -------------
Cash flows from financing activities:
   Stock options exercised .................................       5,549,220          224,747        1,565,086
   Tax benefit from exercise of stock options ..............       1,679,149               --               --
   Purchase of treasury stock ..............................      (9,803,481)     (37,926,398)     (22,097,252)
         Net cash used in financing activities from
           continuing operations ...........................      (2,575,112)     (37,701,651)     (20,532,166)
                                                               -------------    -------------    -------------
   Net cash used in financing activities from
      discontinued operations ..............................              --               --               --
                                                               -------------    -------------    -------------
         Net cash used in financing activities .............      (2,575,112)     (37,701,651)     (20,532,166)
                                                               -------------    -------------    -------------
Effect of exchange rates ...................................         103,008            1,950           56,426
                                                               -------------    -------------    -------------
         Net increase (decrease) in cash and
           cash equivalents ................................       9,832,373      (17,402,422)      12,240,601
Cash and cash equivalents at beginning of year .............       5,900,841       23,303,263       11,062,662
                                                               -------------    -------------    -------------
Cash and cash equivalents at end of year ...................   $  15,733,214    $   5,900,841    $  23,303,263
                                                               =============    =============    =============
Supplemental  disclosures  of cash flow  information:
  Cash paid during the year for:
      Interest .............................................   $      25,203    $      29,422    $       7,519
</TABLE>

           See accompanying notes to consolidated financial statements


                                       42
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                          June 30, 2006, 2005 and 2004

(1) Summary of Significant Accounting Policies

Restatement of Financial Statements

The  restatement  arose  from the  Company's  determination  that an  error  had
occurred in the computer  program  used by the Company to value  work-in-process
inventory  resulting in a misstatement of inventory.  As a result of this error,
the Company has determined  that its inventory and net income for the year ended
June 30, 2006 were overstated.  Additionally,  the Company has corrected certain
errors in accounting  for income taxes related to the expiration of the Research
and  Experimentation  federal tax credit at the end of calendar 2005,  which had
previously been considered immaterial.

The  work-in-process  inventory error also resulted in the Company restating its
second  quarter  financial  statements for the three month period ended December
31, 2005. Additionally,  the Company has revised its quarterly income statements
for the quarters ended  September 30, 2005,  March 31, 2006 and June 30, 2006 to
reflect the immaterial impact of the inventory error and tax expense  correction
on these periods. Refer to Note 23, Quarterly Financial Data.

The Company's  restatement also arose from the  determination  that an error had
occurred in its accounting treatment for the foreign translation gain recognized
upon the final liquidation of its European subsidiary in the quarter ended March
31, 2006.  This gain of  $735,464,  which was  previously  recorded in the third
quarter ended March 31, 2006,  should have been  recorded in the second  quarter
ended  December  31,  2003 of fiscal  year 2004  when  substantially  all of the
physical assets of the European subsidiary had been liquidated. The Company also
restated its third quarter financial statements for the three-month period ended
March 31, 2006 related to the foreign currency gain. Refer to Note 23, Quarterly
Financial Data.

      The Company's previously issued consolidated  financial statements for the
      year  ended  June 30,  2006 and 2004 have been  restated  to  correct  the
      accounting for the following items:

      o     Recording in fiscal 2006 a $305,409  reduction  in  inventory  and a
            corresponding  additional cost of sales to correct the overstatement
            of work-in-process inventory at June 30, 2006 caused by the error in
            the Company's inventory software.

      o     Recording  in fiscal  2006 an  increase  in income  tax  expense  of
            $27,000, consisting of a reduction in tax expense of $132,000 due to
            the  reduction  in  taxable  income  caused by the  inventory  error
            correction  and an  increase  in tax expense of $159,000 to properly
            reflect the expiration of the research and experimentation credit at
            the end of December 2005.

      o     Recording  an increase in taxes  payable at June 30, 2006 of $27,000
            as a result of the change in tax expense for fiscal 2006.

      o     Recording a decrease in net income from discontinued  operations for
            fiscal  2006 of $735,464  and a decrease  in loss from  discontinued
            operations  for fiscal 2004 of  $735,464,  as a result of  reversing
            from fiscal 2006 the $735,464 foreign currency  translation gain and
            recording it in fiscal year 2004.

The following table summarizes the effect of the restatement on the consolidated
financial statements as of and for the year ended June 30, 2006.

                                                 Year Ended June 30,
                                      --------------------------------------
                                               2006                  2006
                                      (Previously Reported)       (Restated)
                                      ---------------------       ----------
Cost of sales                              $67,188,568           $67,493,977
Gross profit                                38,275,668            37,970,259
Operating income                            12,146,567            11,841,158
Income before income taxes                  14,574,278            14,268,869
Income tax expense                           3,225,000             3,252,000
Income from continuing operations           11,349,278            11,016,869
Income from discontinued operations            817,177                81,713
  of Anaren Europe
Net income from discontinued
  operations                                   817,177                81,713
Net income                                 $12,166,455           $11,098,582
Basic net income per common
  and common equivalent share:
  Income from continuing operations              $0.66                 $0.64
Income from discontinued operations              $0.05                 $0.01
  Net income                                     $0.71                 $0.65


                                       43
<PAGE>

Diluted net income per common
  and comment equivalent share:
  Income from continuing operations              $0.64                 $0.62
Income from discontinued operations              $0.05                 $0.01
  Net income                                     $0.69                 $0.63


                                       44
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)


                                                        Year Ended June 30,
                                                  ------------------------------
                                                      2004               2004
                                                      ----               ----
                                             (Previously Reported)    (Restated)
Income (loss) from discontinued                   ($1,509,686)        ($774,222)
  Operations of Anaren Europe
Net income from discontinued operations               290,314         1,025,778
Net income                                          7,957,128         8,692,592
Basic net income per common
  and common equivalent share:
Income from discontinued operations                     $0.01             $0.05
Net income                                              $0.38             $0.41
Diluted net income per common
  share and common equivalent share:
Income from discontinued operations:                    $0.01             $0.05
Net income                                              $0.36             $0.40

                                                              June 30,
                                              ----------------------------------
                                                 2006                   2006
                                                 ----                   ----
                                         (Previously Reported)       (Restated)
Inventories                                   $22,132,680           $21,827,271
Total current assets                          124,476,118           124,170,709
Total assets                                  189,331,838           189,026,429
Income taxes payable                              676,488               703,488
Total current liabilities                      11,983,342            12,010,342
Total liabilities                              16,881,029            16,908,029
Retained earnings                              70,826,262            70,493,853
Total stockholders' equity                    172,450,809           172,118,400
Total liabilities and stockholders' equity    189,331,838           189,026,429


The  balance  sheet at June 30,  2005 has been  revised to reflect the effect of
recording the foreign currency  translation gain in the second quarter of fiscal
2004 instead of the third quarter of fiscal 2006 as follows:


                                                     As of June 30,
                                           --------------------------------
                                                2005                 2005
                                                ----                 ----
                                      (Previously Reported)       (Revised)
Retained earnings                          $58,659,807           $59,395,271
Accumulated other comprehensive loss         (747,539)           (1,483,003)

   The statement of equity for the year ended June 30, 2004 has been restated to
reflect the following:
                                                       As of June 30,
                                            ---------------------------------
                                                2004                  2004
                                                ----                  ----
                                       (Previously Reported)       (Restated)
Retained earnings                           $51,247,271           $51,982,735
Accumulated other comprehensive
  income (loss)                                  41,110             (694,354)

The  adjustments  to the balance sheet and income  statement at and for the year
ended  June 30,  2006  had no  impact  on  total  cash  flows  from  operations,
investing,   and  financing.  The  restatement  of  the  consolidated  financial
statements also affected footnotes 4, 6, 12, 14, 18, 19, and 23.

   (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.


                                       45
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)

   (b) Operations

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

   (c) Revenue Recognition

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

    (d) Cash Equivalents

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

   (e) Marketable Securities

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

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

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

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

   (f) Trade Accounts Receivable

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

   (g) Inventories

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


                                       46
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)

   (h) Property, Plant, and Equipment

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

   (i) Goodwill

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

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

    (j) Long-Lived Assets

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

   (k) Net Income Per Share
      Basic income per share is based on the weighted  average  number of common
shares  outstanding.  Diluted income per share is based on the weighted  average
number of common shares outstanding, as well as dilutive potential common shares
which,  in the Company's  case,  comprise shares issuable under the stock option
and restricted  stock plans  described in notes 12 and 13. The weighted  average
number of common shares  utilized in the  calculation  of the diluted income per
share does not include antidilutive shares aggregating 206,600,  1,927,922,  and
583,582 at June 30, 2006,  2005,  and 2004,  respectively.  The  treasury  stock
method is used to calculate  dilutive  shares which  reduces the gross number of
dilutive  shares by the number of shares  purchasable  from the  proceeds of the
options assumed to be exercised.

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

                                                 2006        2005        2004
                                              (Restated)              (Restated)
                                              ----------  ----------  ----------
Numerator:
Earnings available to common
  stockholders ............................. $11,098,582 $ 7,412,536 $ 8,692,592
                                             =========== =========== ===========
Denominator:
Denominator for basic earnings per share:
   outstanding .............................  17,156,720  19,346,491  21,026,001
                                             =========== =========== ===========
Denominator for diluted earnings per share:
   Weighted average shares outstanding .....  17,156,720  19,346,491  21,026,001
   Common stock options and restricted stock     525,511     485,219     781,537
                                             ----------- ----------- -----------
Weighted average shares ....................  17,682,231  19,831,710  21,807,538
                                             =========== =========== ===========

   (l) Research and Development Costs

      Research and development costs are expensed as incurred.


                                       47
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                     June 30, 2006, 2005 and 2004 (continued)

   (m) Income Taxes

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

   (n) Financial Instruments

      The  Company's  financial   instruments,   which  include  cash  and  cash
equivalents,  receivables,  and  accounts  payable,  are  stated  at cost  which
approximates   fair   value  at  June  30,   2006  and   2005.   The   Company's
available-for-sale  equity  securities  are  stated  at  their  fair  value,  as
determined  by quoted  market  prices on June 30, 2006 and 2005.  The  Company's
marketable  debt securities are stated at amortized cost, and their fair values,
as determined by quoted market prices, are presented in note 5.

   (o) Use of Estimates

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

    (p) Recent Pronouncements

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


                                       48
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                     June 30, 2006, 2005 and 2004 (continued)

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

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

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

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

(2) Adoption of Accounting Pronouncements

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

      During 2004,  the FASB issued FASB Staff  Position  106-2,  Accounting and
Disclosure  Requirements Related to the Medicare Prescription Drug,  Improvement
and  Modernization  Act of 2003 (FSP 106-2).  FSP 106-2  relates to the Medicare
Prescription Drug, Improvement,  and Modernization Act of 2003 (the Act), signed
into law in December 2003. The Act introduced a prescription  drug benefit under
Medicare known as Medicare Part D. The Act also established a federal subsidy to
sponsors of retiree  health care plans that  provide a benefit  that is at least
actuarially  equivalent to Medicare Part D. During fiscal year 2005, the Company
adopted  the  provisions  of  FSP  106-2.   The  reduction  in  the  accumulated
postretirement  benefit for the subsidy  related to benefits  attributed to past
service as of June 30, 2005 was $547,592.


                                       49
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)

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

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

(3) Other Intangible Assets

      Other intangible assets as of June 30 are as follows:

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

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

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

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


                                       50
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)

 (4) Discontinued Operations (restated)

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

                                              2006         2005          2004
                                           (Restated)                 (Restated)
                                           ----------      ----       ----------
Net sales.................................  $    --        $ --       $ 675,340
Income (expense)..........................   81,713          --        (667,273)
Loss on sale of equipment.................       --          --        (782,289)
                                            -------        ----       ---------
Net income (loss) from discontinued
  operations..............................  $81,713        $ --       $(774,222)
                                            =======        ====       =========

      The Company  also  recorded  income tax benefits  related to  discontinued
operations  of  $1,800,000  for the  fiscal  year  ended  June  30,  2004 and in
conjunction with the liquidation of substantially all remaining assets, recorded
a currency translation adjustment gain of $735,464.

(5) Securities

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

<TABLE>
<CAPTION>

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

<CAPTION>

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


                                       51
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)

The  unrealized  loses  on  the  Company's  held  to  maturity  marketable  debt
securities were caused by interest rate  increases.  Because the Company has the
ability and intent to hold these  investments until they recover their amortized
cost,    the   Company   does   not   consider    these    investments   to   be
other-than-temporarily impaired at June 30, 2006.


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

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

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

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

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

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

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

(6) Inventories (restated)

      Inventories at June 30 are summarized as follows:

                                                      2006              2005
                                                   (Restated)
                                                  -----------       -----------
Component parts ..............................    $10,567,804       $10,369,049
Work in process ..............................      8,660,682         7,709,465
Finished goods ...............................      3,790,075         2,766,157
                                                  -----------       -----------
                                                   23,018,561        20,844,671
Reserve for obsolescence .....................     (1,191,290)       (1,441,323)
                                                  -----------       -----------
Net inventories ..............................    $21,827,271       $19,403,348
                                                  ===========       ===========


                                       52
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)

 (7) Property, Plant, and Equipment

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

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

(8) Accrued Expenses

      Accrued expenses at June 30 consist of the following:

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

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

(9) Restructuring and Impairment

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

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

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

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


                                       53
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)


 (10) Other Liabilities

      Other liabilities as of June 30 consist of the following:

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

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

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

(11) Common Stock

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

(12) Stock-Based Compensation (Restated)

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

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

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

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

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


                                       54
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)


                     Nonvested Shares Issued Under the Plan

                                                               Weighted-Average
                                                  Number          Grant-Date
                                                 of Shares        Fair Value
                                                 ---------     ----------------
Nonvested at June 30, 2005....................   1,073,592          $6.60
Granted.......................................     387,500           8.88
Forfeited.....................................     (24,180)          6.28
Vested........................................    (431,994)          9.72
                                                 ---------          -----
Nonvested at June 30, 2006....................   1,004,918          $6.16
                                                 =========          =====

      As of June 30, 2006,  there were 2,445,907 stock options  outstanding.  At
June 30,  2006,  the  aggregate  value of unvested  options,  as  determined  on
respective  grant  dates  using a  Black-Scholes  option  valuation  model,  was
$6,185,810  (net of  estimated  forfeitures),  all of  which is  expected  to be
recognized  as  compensation  expense in fiscal  years 2007  through  2011.  The
aggregate  intrinsic value of both vested and unvested  options at June 30, 2006
was  $16,694,529  (net of  forfeitures).  As of June 30, 2006,  1,440,989  stock
options were  exercisable,  which  represents  an aggregate  intrinsic  value of
$9,766,008.

      During  the  year  ended  June  30,  2006,  the  Company  granted  387,500
nonstatutory  stock  options with a fair value of  $3,446,140  (net of estimated
forfeitures),  and 60,270 options were forfeited and/or expired. During the year
ended  June  30,  2006,  there  were  664,103  stock  options  exercised,  which
represents an aggregate  intrinsic  value of $6,938,901.  New option grants made
after July 1, 2005,  as well as option  grants  issued prior to that date,  have
been valued using a Black-Scholes  option  valuation model. For the twelve month
period ended June 30, 2006, the Company used the  Simplified  Method to estimate
the expected  term of the expected life of stock option grants as defined by SEC
Accounting  Staff Bulletin No. 107 for each award granted.  Expected  volatility
for the  twelve  month  period  ended  June 30,  2006,  is  based on  historical
volatility levels of the Company's common stock. The risk-free interest rate for
the year ended June 30, 2006 is based on the implied yield  currently  available
on U.S.  Treasury  zero  coupon  issues  with the  remaining  term  equal to the
expected life.

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

                                                           Year ended June 30
                                                       -------------------------
                                                                        2004
                                                           2005      (Restated)
                                                       -----------   ----------
Net income, as reported............................... $ 7,412,536   $8,692,592
Add compensation expense related to
  restricted stock grants.............................      65,710      286,200
Deduct total stock-based employee compensation
  expense determined under fair value-based
  method for all awards, net of related tax effects...  (5,589,306)  (7,400,660)
                                                       -----------   ----------
      Pro forma net income............................ $ 1,888,940   $1,578,132
                                                       ===========   ==========
Earnings per share:
  Basic - as reported.................................      $ 0.38       $ 0.41
  Basic - pro forma...................................        0.10         0.08
  Diluted - as reported...............................        0.37         0.40
  Diluted - pro forma.................................        0.10         0.07


                                       55
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)


Stock Option Plans

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

      Information with respect to this plan is as follows:

                                                                        Weighted
                                                                        average
                                          Total          Option         exercise
                                         shares           price          price
                                        ---------    ---------------    --------
Outstanding at June 30, 2003..........  2,717,380    $ 1.38 to 62.44     $14.88
   Issued.............................    395,400     14.73 to 17.24      14.77
   Exercised..........................   (268,750)     1.38 to 16.35       5.81
   Expired............................    (24,538)     9.51 to 53.00      23.59
   Canceled...........................    (22,830)     9.51 to 53.00      28.66
                                        ---------
Outstanding at June 30, 2004..........  2,796,662    $ 1.38 to 62.44     $15.53
   Issued.............................    389,600     12.05 to 13.43      12.05
   Exercised..........................    (98,460)      1.38 to 9.51       1.26
   Expired............................   (220,692)     8.57 to 62.44      26.90
   Canceled...........................    (84,330)     9.51 to 62.44      11.28
                                        ---------
Outstanding at June 30, 2005..........  2,782,780    $ 2.27 to 57.59     $14.73
   Issued.............................    387,500     11.97 to 21.15      14.22
   Exercised..........................   (664,103)     2.27 to 20.17       8.04
   Expired............................    (36,090)    14.73 to 57.59      39.05
   Canceled...........................    (24,180)     9.51 to 53.00      14.43
                                        ---------
Outstanding at June 30, 2006..........  2,445,907    $ 2.27 to 54.00     $15.91
                                        =========
Shares exercisable at June 30, 2006...  1,440,989    $ 2.27 to 54.00     $17.84
                                        =========

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

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


                                       56
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)


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

<TABLE>
<CAPTION>

                                                          2006              2005              2004
                                                          ----              ----              ----
<S>                                                 <C>                <C>               <C>
Expected option life............................    6.0 - 6.5 years    3.0 - 5.0 years   3.0 - 5.0 years
Weighted average risk-free interest rate........      3.92% - 5.02%        3.22%              3.15%
Weighted average expected volatility............    54.12% - 62.00%    59.75% - 87.57%     92.9% - 125.7%
Rate of dividends...............................           0.0%             0.0%               0.0%
</TABLE>

(13) Restricted Stock Program

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

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

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

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

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

(14) Accumulated Other Comprehensive Income (Loss) (Restated)

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

<TABLE>
<CAPTION>

                                 Foreign        Minimum         Unrealized         Accumulated
                                 currency       pension       gain/(loss) on          other
                                translation    liability        securities        comprehensive
                                adjustment     adjustment   available-for-sale    income (loss)
                                -----------    ----------   ------------------    -------------
<S>                             <C>           <C>                  <C>            <C>
Balances at June 30, 2005.....  $   2,507     $(1,485,510)         $ --           $(1,483,003)
Current period change.........    103,009         938,597                           1,041,606
                                ---------     -----------          ----           -----------
Balances at June 30, 2006.....  $ 105,516     $  (546,913)         $ --           $  (441,397)
                                =========     ===========          ====           ===========
</TABLE>


(15) Shareholder Protection Rights Plan

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


                                       57
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)


 (16) Employee Benefit Plans

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

<TABLE>
<CAPTION>

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


                                       58
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)


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

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

   Plan Assets

<TABLE>
<CAPTION>

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

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


                                       59
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)

   Determination of Assumed Rate of Return

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

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

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

   Expected Contributions

      Expected contributions for fiscal 2007 are $312,660.

   Estimated Future Benefit Payments

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

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

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

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

(17) Postretirement Benefits

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


                                       60
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)

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

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


      Net  periodic   postretirement   benefit  cost   includes  the   following
components:

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

      The weighted  average  discount rate used in determining  the  accumulated
postretirement  benefit  obligation was 6.25%,  5.25%,  and 6.25%, at the end of
fiscal 2006, 2005, and 2004, respectively.  For measurement purposes, the annual
rate of increase in the per capita cost of covered  benefits (i.e.,  health care
cost trend rate) was assumed to be 5% for 2006,  2005, and 2004. The health care
cost  trend  rate  assumption  may  have a  significant  effect  on the  amounts
reported.  A one-percentage point change in assumed health care cost trend rates
would have the following effects:

                                                  1% increase      1% decrease
                                                  -----------      -----------
Effect on total of service and interest
  cost components................................   $ 17,573        $ (15,517)
Effect on postretirement benefit obligation......    223,430         (197,350)

   Estimated Future Benefit Payments

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

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


                                       61
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)

 (18) Income Taxes (restated)

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

<TABLE>
<CAPTION>

                                                            Year ended June 30
                                                ----------------------------------------
                                                    2006          2005          2004
                                                (Restated)
                                                -----------    ----------    -----------
<S>                                             <C>            <C>           <C>
Income (loss) before income taxes and
  discontinued operations:
      Domestic ..............................   $10,568,029    $8,620,237    $11,873,719
      Foreign ...............................     3,700,840       530,299     (1,511,905)
                                                -----------    ----------    -----------
                                                $14,268,869    $9,150,536    $10,361,814
                                                ===========    ==========    ===========
Income tax expense charged to the
  income statement from continuing
  operations:
      Current:
        Federal .............................   $ 3,431,352    $  951,453    $ 2,827,536
        State and local .....................       177,634       227,645          8,246
        Foreign .............................            --            --             --
                                                -----------    ----------    -----------
          Total current .....................     3,608,986     1,179,098      2,835,782
                                                -----------    ----------    -----------
      Deferred:
        Federal .............................      (144,577)      558,457       (523,921)
        State and local .....................      (179,507)          445        383,139
        Foreign .............................       (32,902)           --             --
                                                -----------    ----------    -----------
          Total deferred ....................      (356,986)      558,902       (140,782)
                                                -----------    ----------    -----------
          Subtotal ..........................     3,252,000     1,738,000      2,695,000
                                                -----------    ----------    -----------
Income taxes credited to the income statement
  from discontinued operations:
      Federal ...............................            --            --     (1,800,000)
                                                -----------    ----------    -----------
        Subtotal ............................            --            --     (1,800,000)
                                                -----------    ----------    -----------
        Total income taxes charged to the
          income statement ..................     3,252,000     1,738,000        895,000
                                                -----------    ----------    -----------
Income taxes charged (credited) to
  shareholders' equity:
  Current benefit of stock based compensation   $(1,679,149)      (29,308)      (794,500)
  Deferred taxes (benefit) of stock based
    compensation ............................            --       302,958         (3,130)
  Deferred taxes (benefit) from recognition
    of minimum pension liability ............       469,815      (468,112)       255,081
                                                -----------    ----------    -----------
        Income taxes credited to
          shareholders' equity ..............    (1,209,334)     (194,462)      (542,549)
                                                -----------    ----------    -----------
        Total income taxes ..................   $ 2,042,666     1,543,538        352,451
                                                ===========    ==========    ===========
</TABLE>


                                       62
<PAGE>

                          ANAREN, INC. AND SUBSIDARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)


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

<TABLE>
<CAPTION>

                                                    2006           2005          2004
                                                 (Restated)
                                                 -----------    ----------     ----------
<S>                                              <C>            <C>            <C>
Expected consolidated income tax expense.......  $ 4,851,415    $3,111,182     $3,523,017
State taxes, net of Federal benefit............       (8,640)      150,539        258,314
Nontaxable interest income.....................     (523,791)     (403,498)      (382,546)
Change in valuation allowance..................     (238,169)       40,827        226,786
Effect of foreign operations...................   (1,191,964)     (154,965)       287,262
Non-deductible stock-based compensation........      886,007            --             --
Export tax benefits............................     (232,533)     (708,640)      (808,124)
Research credits...............................     (416,600)     (175,380)      (371,870)
Other, net.....................................      126,275      (122,065)       (37,839)
                                                 -----------    ----------     ----------
                                                 $ 3,252,000    $1,738,000     $2,695,000
                                                 ===========    ==========     ==========
</TABLE>

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

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

                                                          2006         2005
                                                      -----------   -----------
Presented as:
Current deferred tax asset.........................   $   716,287   $   686,411
Long-term deferred tax asset.......................        32,902            --
Long-term deferred tax liability...................    (1,811,955)   (1,627,304)
                                                      -----------   -----------
                                                      $(1,062,766)  $  (940,893)
                                                      ===========   ===========


                                       63
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)

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

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

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

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

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

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

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

(19) Segment and Related Information (restated)

   (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 communications  markets.  The revenue disclosures for
the Company's reportable segments depict products that are similar in nature.


                                       64
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)

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

<TABLE>
<CAPTION>

                                                                             Corporate
                                                             Space and          and
                                              Wireless        defense       unallocated     Consolidated
                                             -----------    -----------     -----------     ------------
<S>                                          <C>            <C>              <C>            <C>
Net sales:
   2006..................................    $66,731,312    $38,732,924      $        --    $105,464,236
   2005..................................     64,169,326     30,291,739               --      94,461,065
   2004..................................     58,078,091     27,000,848               --      85,078,939
Operating income:
   2006 (restated).......................      7,369,184      4,471,974               --      11,841,158
   2005..................................      2,233,614      5,347,430               --       7,581,044
   2004..................................      4,373,892      4,319,703               --       8,693,595
Goodwill and intangible assets:
   June 30, 2006.........................     31,056,232             --               --      31,056,232
   June 30, 2005.........................     31,389,102             --               --      31,389,102
Identifiable assets:*
   June 30, 2006 (restated)..............     20,376,293     17,944,131      119,649,773     157,970,197
   June 30, 2005.........................     21,497,591     12,685,903      109,909,259     144,092,753
Depreciation:**
   2006 (restated).......................      2,594,443      2,280,892               --       4,875,335
   2005..................................      2,839,280      2,047,874               --       4,887,154
   2004..................................      2,420,370      1,876,629               --       4,296,999
Intangibles amortization:***
   2006..................................        332,870             --               --         332,870
   2005..................................        570,645             --               --         570,645
   2004..................................        709,539             --               --         709,539
</TABLE>
----------
  *  Segment assets primarily include receivables,  and inventories. The Company
     does not  segregate  other  assets on a  products  and  services  basis for
     internal  management  reporting  and,  therefore,  such  information is not
     presented.  Assets  included in corporate and  unallocated  principally are
     cash  and  cash  equivalents,  marketable  securities,  other  receivables,
     prepaid expenses,  deferred income taxes, and property, plant and equipment
     not specific to business acquisitions.

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

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

   (b) Geographic Information

      Net sales by geographic region are as follows:

<TABLE>
<CAPTION>

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


                                       65
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (continued)

    (c) Customers

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

(20) Commitments

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

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

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

      The  minimum  lease  payments  for  the  Company's  operating  leases  are
recognized on a  straight-line  basis over the minimum lease term. The Company's
leases  have  no  step  rent  provisions,  escalation  clauses  or  other  lease
concessions.

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

(21) Concentrations

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

(22) Foreign Operations

      The Company  maintains  and operates a facility in Suzhou,  China.  During
fiscal  year  2006,  net  sales  (net  of  intercompany   eliminations)  totaled
$4,853,152.  Included  in the  company's  total  assets,  as of June  30,  2006,
includes  $1,462,764  (restated)  of  inventory  held  for  resale,  as  well as
$1,627,204 of fixed assets (net of related accumulated depreciation). As of June
30, 2006, there is no reason to believe that any of the Company's foreign assets
or future operations will be impaired.


                                       66
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                    June 30, 2006, 2005 and 2004 (concluded)

 (23) Quarterly Financial Data (Unaudited)

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

<TABLE>
<CAPTION>

                                                                   2006 quarter ended
                                      -------------------------------------------------------------------------------
                                            September 30         September 30      December 31           December 31
                                      (As Previously Reported)    (Revised)    (As Previously Reported)   (Restated)
                                      -----------------------    ------------  ------------------------  -----------
<S>                                          <C>                 <C>                 <C>                 <C>
Net sales................................    $24,614,358         $24,614,358         $25,019,013         $25,019,013
Gross profit.............................      8,654,446           8,654,446           9,036,509           8,745,626
Net income...............................      2,254,017           2,226,017           2,229,965           2,010,082
Net income (loss) per common share
   from continuing operations:
   Basic income (loss) per share from
     continuing operations...............         $ 0.13              $ 0.13              $ 0.13              $ 0.12
   Diluted income (loss) per share from
     continuing operations...............           0.13                0.12                0.13                0.11
</TABLE>

<TABLE>
<CAPTION>

                                                                     2006 quarter ended
                                      -------------------------------------------------------------------------------
                                              March 31             March 31              June 30           June 30
                                      (As Previously Reported)    (Restated)   (As Previously Reported)   (Revised)
                                      -----------------------    ------------  ------------------------  -----------
<S>                                          <C>                 <C>                  <C>                <C>
Net sales................................    $26,701,083         $26,701,083          $29,129,782        $29,129,782
Gross profit.............................     10,242,981          10,249,407           10,341,732         10,320,780
Net income...............................      4,031,355           3,252,317            3,651,118          3,610,166
Net income (loss) per common share
   from continuing operations:
   Basic income (loss) per share from
     continuing operations...............         $ 0.19              $ 0.19               $ 0.21             $ 0.21
   Diluted income (loss) per share from
     continuing operations...............           0.18                0.19                 0.20               0.20
Net income (loss) per common share
   from discontinued operations:
   Basic income (loss) per share from
     discontinued operations.............         $ 0.05              $ 0.00               $   --             $   --
   Diluted income (loss) per share from
     discontinued operations.............         $ 0.05              $ 0.00               $   --             $   --

</TABLE>


<TABLE>
<CAPTION>

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

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

      Gross  profit,  net income and  income  per share for the  quarters  ended
September 30, 2005 and March 31, 2006 have been revised for  immaterial  changes
related to the inventory valuation error and the tax correction in fiscal 2006.


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