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

                                    FORM 10-K

(Mark One)

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

      For the fiscal year ended June 30, 2003

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

      For the transition period from ___________________ to ___________________

      Commission file number 0-6620

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

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

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

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

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

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

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

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

The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant, based on the closing sale price of the Common
Stock on August 20, 2003, as reported on the Nasdaq National Market, was
approximately $236,469,928.

The number of shares of Registrant's Common Stock outstanding on August 20, 2003
was 21,867,032.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for use in connection with its 2003
Annual Meeting of Shareholders are incorporated into Part III of this Annual
Report on Form 10-K.
<PAGE>

                                     PART I

Item 1. Business

Forward-Looking Cautionary Statement

In an effort to provide investors a balanced view of the Company's current
condition and future growth opportunities, this Annual Report on Form 10-K
includes comments by the Company's management about future performance. Because
these statements are forward-looking statements pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, management's
forecasts involve risks and uncertainties, and actual results could differ
materially from those predicted in the forward-looking statements. Among the
factors that could cause actual results to differ materially from those
predicted are the following:

Current unpredictable wireless market conditions; decline in demand for Company
products; order cancellations; increased pricing pressure from the Company's
customers; decreased capital expenditures by wireless service providers; the
possibility that the Company may be unable to successfully execute its business
strategies or achieve its operating objectives, generate revenue growth or
achieve profitability; possible inability to successfully secure new design wins
from the Company's OEM customers, possible inability to successfully shutdown
the Company's Anaren Europe subsidiary which may result in additional costs
related to disposal of its assets, environmental clean-up, termination of Anaren
Europe's facility lease and other related issues; potential adverse effects of
SARS at the Company's Suzhou China subsidiary; unpredictable difficulties or
delays in the development of new products; the risks associated with any
technological shifts away from the Company's technologies and core competencies;
additional unanticipated impairments of assets including investment values and
goodwill; foreign currency fluctuations; diversion of defense spending away from
the Company's products and or technologies due to the on-going cost of
maintaining American troops in the Middle East; and litigation involving the
Company's ownership interest in Celeritek or a potential transaction with
Celeritek, or involving antitrust, intellectual property, product warranty,
product liability, and other issues.

General

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

Recent Developments

On December 16, 2002, at a Special Meeting of Shareholders, the Company's
Shareholders approved the creation of a holding company structure in which the
Company's operating assets would be transferred to a newly formed, wholly owned,
subsidiary and authorized an amendment to the Company's Certificate of
Incorporation to change the name of the Company from Anaren Microwave, Inc. to
Anaren, Inc. The name change to Anaren, Inc. became effective on December 20,
2002 and the Company's operating assets were transferred to a new wholly owned
subsidiary (named Anaren Microwave, Inc.) effective December 31, 2002.

In the first quarter of calendar 2002, the Company created a new subsidiary,
Anaren Communication Suzhou Company, Ltd. and signed a three year lease for a
12,300 square foot manufacturing facility in Suzhou Industrial Park in Suzhou,
China. A general manager and operating staff were hired from July through
September and light manufacturing and assembly was begun at the facility in the
second quarter of fiscal 2003. In February 2003, the Anaren Suzhou subsidiary
exercised its option to lease the 12,000


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square foot second floor of its facility to support anticipated additional
business needs in China. Presently, the facility has a staff of 29 workers and
expects to ramp-up to over 100 people in the first half of fiscal 2004 to
support production on a custom wireless program for a European customer. It is
anticipated that this facility will serve all of the Company's Asian customers.
Additionally, it is expected that this location will be used to facilitate
procurement of raw materials in China, when possible, for the Company's other
subsidiaries.

In September 2002, the Company made a decision to downsize its Anaren Europe
workforce as a result of the loss of customers due to a July 2001 fire and the
general decline in the wireless market. Twenty-four people were let go at that
time and a restructuring charge of $403,000 was recorded in the first quarter.
Large operating losses and negative cash flow continued at that facility in the
second and third quarter of fiscal 2003 due to the ongoing weakness in the
printed circuit board segment of the wireless infrastructure market. As a
result, it was determined at the end of the third quarter to significantly
downsize this operation again.

In March 2003, in conjunction with the second reorganization and due to
continued negative cash flow projections after the first restructuring, the
Company performed a FASB 144 evaluation to determine if the fixed assets used by
Anaren Europe were subject to an impairment loss. Based on the results of the
evaluation, an impairment loss of $681,000 was identified and recorded as a
charge in the income statements under the caption "Impairment Loss" for the
third quarter of fiscal 2003. Additionally, staffing at Anaren Europe was
reduced again by forty-four people and a restructuring charge of $631,000 for
severance and outplacement costs was recognized in April.

Operating losses and declining sales levels continued at Anaren Europe
throughout April and May. In late May, the Company decided to dispose of the
Anaren Europe facility as the recovery in sales levels required to make the
facility profitable was not likely to happen in the near future. In conjunction
with the decision to dispose of Anaren Europe, the Company recorded an
additional impairment charge of $2.0 million to adjust fixed asset balances at
that facility to liquidation value and restructuring charges of $281,000 to
record severance for the remaining twenty-three employees and $428,000 for an
inventory write down which was included in cost of sales - restructuring.

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

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

On September 19, 2002, the Company submitted an acquisition proposal to
Celeritek, Inc.'s Chairman, President and Chief Executive Officer, which stated
that the Company was prepared to offer $8.75 per share in an all-cash
transaction to acquire all of the outstanding shares of Celeritek, subject to
successful completion of customary due diligence and negotiation and execution
of a definitive acquisition agreement. On September 25, 2002, Celeritek issued a
press release announcing that its Board had rejected the Company's proposal
claiming that the proposal "is not in the best interests of Celeritek
shareholders." In June, 2003 the Company executed a Non Disclosure Agreement
with Celeritek. On July 28 and 29, 2003, the Company's management met with
Celeritek's Chairman, Tamer Husseini, and other members of Celeritek's senior
management to begin to conduct a due diligence review of Celeritek's business.
Anaren intends to continue to consider all of the alternatives available to it,
and may pursue one or more of the possible actions outlined in its Schedule 13D,
as amended.

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


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<PAGE>

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 has designed and
continues to design components and subsystems that enable wireless communication
systems, as well as advanced radar, beamforming and receiver applications for
the space and defense markets.

In addition, the Company is developing and producing a diverse set of products
and technologies to support the latest generation of wireless communications
systems. The Company's customer base includes leading global original equipment
manufacturers that serve the wireless, space and defense markets, including:

o  Ericsson
o  Lucent Technologies
o  Motorola
o  Nokia
o  Nortel Networks
o  Powerwave Technologies
o  Boeing, Inc.
o  ITT Aerospace/Communications
o  Lockheed Martin
o  Northrop Grumman
o  Raytheon

Industry Background

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

Despite  this  continued  growth in customer  demand,  expenditures  for capital
infrastructure  equipment by service  providers  began to decline rapidly during
the first quarter of calendar year 2001.  This severe market  downturn has had a
negative impact on all of the Company's  wireless  product lines, and it appears
that these unfavorable wireless market conditions will continue for an uncertain
time period.

A Wireless Network

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

Mobile Wireless Communications

The late 1990's through 2000 saw dramatic growth in the demand for mobile
communications. This was fueled by decreasing prices for handsets and airtime, a
favorable global communications regulatory environment, increased competition
among service providers, opening of new frequency spectrum and services, and the
installation of mobile networks in developing nations as an alternative to
wire-based networks. Despite this rapid growth in customer demand, expenditures
for capital infrastructure equipment by service providers began to decline
rapidly during the first quarter of calendar year 2001. Although this rate of
the decline has slowed, the market continues to be weak with no firm projection
for


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<PAGE>

recovery. This has had a negative impact on all of the Company's wireless
product lines, particularly the printed-circuit board business.

Wireless Local Area Networking

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

Wireless local area network technology is now in the process of widespread
deployment and accelerated development for low-cost, interoperable products.
Wireless local area network technology provides 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 expected to lead to applications such as wireless home
multimedia, wireless roadside assistance, wireless e-business, and wireless
printers and scanners.

Space and Defense

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

The Anaren Solution

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

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

Advanced Microwave Design and Manufacturing Capabilities. The Company's
engineering and design staff of 100 engineers as of June 30, 2003 works with
customers to develop product solutions. Anaren's engineers collaborate with
customers to develop products that provide state-of-the-art performance and 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.

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


                                       5
<PAGE>

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: Multi-Layer Stripline, Thick Film
Ceramics and Ball Grid Array assembly, including the integration of active
devices.

Multi-Layer Stripline technology is a technique of processing stripline
circuits, in which multiple layers of etched stripline circuits are laminated
together in a manner that is similar to printed circuit board manufacturing, but
with superior microwave characteristics. Similar to traditional printed circuit
board manufacturing, 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 market and intends to use its market position to pursue other
wireless markets. The Company also intends to continue to offer additional
products and technologies to address existing and developing space and defense
applications.

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

Strengthen and Expand Customer Relationships. Today, a limited number of large
systems manufacturers drive the wireless and space and defense markets. The
Company has developed, and plans to continue to


                                       6
<PAGE>

expand, customer relationships with many of these manufacturers, including
Ericsson, Lucent, Motorola, Nokia, Nortel Networks and Powerwave for wireless
communications and Boeing, Lockheed Martin, Raytheon and Northrup Grumman for
space and defense. The Company intends to further strengthen its customer
relationships by offering complete outsourcing solutions, from research and
development through product design and production, thereby increasing the
customers' reliance on the Company.

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

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

Products

Wireless Communications

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

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

Component Products

Xinger(R) Surface Mount Components. The Company's Xinger(R) line of products
consists of off-the-shelf surface mount microwave components which provide
passive microwave signal distribution functions. They were originally 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. The Company has recently announced several
products specifically designed to address the Wireless local area network
market, which are referred to as the "Femto" line.

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's "Xinger(R) Circulator" product line integrates its ferrite technology
with its Xinger(R) technology. This product line offers ferrite product
performance in a surface mountable Xinger(R) package for automated placement and
soldering.


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<PAGE>

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.

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

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

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

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

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

Space and Defense

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

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

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

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


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<PAGE>

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

Customers

During the fiscal year ended June 30, 2003, approximately 64% of the Company's
sales were to customers in the wireless markets and approximately 36% of its
sales were to customers in the space and defense markets. The Company had one
customer who accounted for more than 10.0% of net sales, Raytheon, who
represented approximately 12.5% of sales in fiscal 2003.

Wireless Communications. The Company sells its standard line of Xinger(R)
components, resistive components, ferrite components, and printed wiring boards,
to leading original equipment manufacturers and a broad range of other wireless
equipment contract manufacturers. In addition, the Company sells its custom
wireless products to major wireless infrastructure original equipment
manufacturers. In general, customers have purchased the Company's products
directly from the Company or through distributors or sales representatives. The
following is a list of the Company's Wireless customers who generated $500,000
or more in revenues in the fiscal year ended June 30, 2003:

o  Avnet
o  BFI Optilas
o  Cana
o  Celestica Corp.
o  EG Components
o  Ericsson
o  Knowles Electronics
o  Lucent Technologies
o  Motorola
o  Nokia
o  Nortel Networks
o  Pacesetter, Inc.
o  Powerwave Technologies
o  Richardson Electronics 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 $500,000 or more in revenues in the fiscal year ended June 30, 2003:

o Boeing Inc.
o ITT Avionics
o LG Innotek Co. Ltd.
o Lockheed Martin
o Northrup Grumman
o Raytheon
o Thales Defense, Ltd.

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 31 people as of June 30, 2003. The Company has regional sales
offices located in Sacramento, California; Raleigh, North Carolina;
Waterlooville, England; and Suzhou, China. The regional sales offices have
dedicated technical product managers to better serve the customer base. In
addition, as of June 30, 2003, the Company had contracts with two major
distributors, with 19 manufacturers' representatives in the United States, and
with nine international representatives located in Western Europe, the Middle
East and Asia. As part of its marketing efforts, the Company advertises in major
trade publications and attends major industry shows. The Company has also
invested significantly in its Internet website which contains an electronic
version


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of its entire catalog. In addition, the website enables users to download
important device parameter files. These files contain the performance
information for the catalog parts in a format which is compatible with commonly
used computer aided design/computer aided modeling, or CAD/CAM, equipment. The
Company also provides mechanical drawings and applications notes for proper use
of the parts. This service allows designers to get the information they require
and to easily incorporate the Company's parts into their designs.

After identifying key potential customers, the Company makes sales calls with
its own sales, management and engineering personnel and with manufacturers'
representatives. To promote widespread acceptance of the Company's products and
provide customers with support for their wireless communications needs, the
sales and engineering teams work closely with the customers to develop solutions
tailored for their wireless requirements. The Company believes that its customer
engineering support team, comprised of 100 design and engineering professionals
as of June 30, 2003, 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, which
operates under the name of BFI Optilas in Europe. The Scandinavian countries are
handled by E.G. Components, Inc., a subsidiary of Elektronikgruppen.
Distribution has become an important part of the Company's sales efforts by
providing the Company with a larger sales force to promote its catalog
offerings. The Company is also seeing a trend on the part of its customers to
consolidate their material handling activities, including purchasing,
warehousing, and fulfillment. The result is that many original equipment
manufacturers are outsourcing all or part of these activities to large
distribution firms like Avnet and Richardson.

Backlog

The Company's backlog of orders for the Wireless group was $8.8 million as of
June 30, 2003 and $10.4 million as of June 30, 2002. The decline in backlog was
a result of the $1.9 million decline in backlog at the Anaren Europe subsidiary
which the Company has announced the pending disposal of in the first half of
fiscal 2004. Backlog for the Wireless group primarily represents firm orders for
component products (i.e., orders for a fixed quantity of component products) and
signed purchase orders (i.e., orders for specific custom sub-assemblies) for
custom components due to ship within the next four to six weeks. 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. Typically, large original equipment
manufacturers including Ericsson, Lucent, Motorola, Nokia and Nortel, who use
the Company's component and custom products, negotiate set prices for estimated
annual volumes. The Company receives a firm delivery commitment one week prior
to shipment. The Company does not recognize backlog until it has received a firm
order.

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

Backlog of orders for the Space and Defense group was $26.3 million as of June
30, 2003 and $33.5 million as of June 30, 2002. The decline in Space and Defense
backlog year over year was due largely to the completion of the Spaceway program
in the fourth quarter of fiscal 2003. Spaceway backlog was $0 million at June
30, 2003, compared to $4.8 at June 30, 2002. During fiscal year 2004, the
Company expects to ship between $23.0 million and $26.0 million of its backlog
existing at June 30, 2003. 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.


                                       10
<PAGE>

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  Advanced Multi-Layer Stripline manufacturing processes for use in low-cost,
   light weight electronic sub-assembly and wireless applications;

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

o  Miniature components for wireless networking and subscriber applications

These activities include customer-funded design and development, as well as
efforts funded directly by the Company. Research and development expenses funded
by the Company were $6.1 million in fiscal 2003, $6.3 million in fiscal 2002 and
$5.0 million in fiscal 2001. Research and development costs are charged to
expense as incurred.

In addition, the Company's net sales included approximately $1.5 million for
fiscal year 2003, approximately $1.1 million for fiscal 2002 and approximately
$4.6 million for fiscal 2001 attributable to payments by customers for the
design and development of products within the Space and Defense group to meet
their specific requirements. In any given year, the amount of customer funding
for design and development can vary widely depending upon the status of
particular contracts. The Company is typically not restricted in the use of
technologies developed through customer funding for other applications.

Manufacturing

The Company currently supports manufacturing locations in Syracuse and Bohemia,
New York; North Andover, Massachusetts; and Suzhou, China. The Company
announced, in June 2003, its plans to dispose of its operations in Almelo, The
Netherlands. During fiscal 2002, the Company completed the consolidation of its
New Jersey based subsidiary, Anaren Power Products, Inc., into its East
Syracuse, New York operation. In March of 2002, the Company opened a facility in
Suzhou, China to support a growing Asia-Pacific customer base and to establish a
low cost light manufacturing operation supporting all of its wireless business.

The Company continues to invest in further development of its Multi-Layer
Stripline and ceramic technologies. In fiscal 2001, the Company completed a
major renovation in its Syracuse operation to enhance its Multi-Layer Stripline
manufacturing as well as improving the layout and throughput of its wireless
manufacturing areas. Continued incremental investments in equipment have further
improved the Multi-Layer Stripline and automated design capabilities of the
Syracuse operation. In late fiscal year 2002 the Company established a Low
Temperature Co-fired Ceramic capability in its North Andover, Massachusetts
operation. This capability is well-suited to support packaging requirements for
both defense and space based applications. Additionally, during fiscal year 2003
the Company began the transitioning of much of the ceramic processing capability
from its Bohemia, New York operation to its North Andover operation. This
transfer was initiated to reduce manufacturing cost and to concentrate all
ceramic processing and expertise in one location.

The Company continues to develop capability to produce highly engineered,
complex microwave subassemblies to support its Space and Defense business. In
fiscal 2003 the Company invested 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.


                                       11
<PAGE>

A continued focus of the Company is to provide the lowest cost manufacturing
solutions. Part of this strategy has evolved with the opening of a facility in
Suzhou, China. Manufacturing product lines from the Syracuse and North Andover
operations have been successfully transitioned to Suzhou, with additional
products and lines planned for fiscal year 2004. Additionally, the Suzhou
facility is expected to provide support in identifying and qualifying new
lower-cost and local Asian sources of raw materials for all of the Company's
businesses.

The Company's East Syracuse facility has been ISO 9001 certified; its Bohemia,
New York and North Andover, Massachusetts facilities are both ISO 9002
certified. In addition, the East Syracuse facility has recently been certified
to IPC 6010 for manufacture of high-reliability printed circuit boards.

The Company manufactures its products from standard components, as well as from
items which are manufactured by vendors to its specifications. The raw materials
utilized in the various product areas are generally accessible and common to
both of the Company's business segments. The Company purchases most of its raw
materials from a variety of vendors and most of these raw materials are
available from a number of sources. During fiscal year 2002, the Company had one
vendor from which it purchased more than 10.0% of its total raw materials, but
the Company believes that alternate sources of supply are generally available
for these and other raw materials.

Competition

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

In the wireless market, the overall weak market conditions and reduction in
demand for wireless infrastructure equipment have resulted in increased price
pressure from the Company's customers. It is anticipated that this pricing
pressure will continue indefinitely until the overall wireless market conditions
improve.

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

Government Regulation

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


                                       12
<PAGE>

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 five active patents and has filed thirteen 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.

Employees

As of June 30, 2003, the Company employed 520 full-time people including 37
temporary employees. Of these employees, 100 were members of the engineering
staff, 346 were in manufacturing positions, 31 were in sales and marketing
positions, and 43 were in management and support functions. None of these
employees are represented by a labor union, and the Company has not experienced
any work stoppages. The Company considers its employee relations to be
excellent.

Item 2. Properties

The principal facility of the Company is a 105,000 square foot building, which
the Company owns, located on a 30 acre parcel in East Syracuse, New York. The
Company's principal subsidiary, Anaren Microwave, Inc., utilizes this facility
which houses a substantial portion of the Company's marketing, manufacturing,
administrative, research and development, systems design and engineering
activities. The Company's RF Power subsidiary leases a 15,700 square foot
facility in Bohemia, New York, which houses the production, engineering and
administrative functions of RF Power pursuant to a lease that expires in June,
2006. Annual rent for this facility is approximately $132,000. Effective August
31, 2001, the Company's Amitron, Inc. subsidiary signed a five year lease with
an option for five additional years for approximately 20,000 square feet in
North Andover, Massachusetts, which currently houses that business. Annual rent
for this facility is approximately $155,000.

The Company's Anaren Europe subsidiary that was acquired effective October 1,
2001 leases a 45,000 square foot facility in Almelo, The Netherlands. Annual
rent for this facility is approximately $182,000 and the lease expires in
December 2004.

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

The Company leases a 20,000 square foot building in Frimley, England. Annual
rental cost of this facility is approximately $370,000 and the Company is
currently subletting the building. During the fiscal year ended June 30, 2003,
payments to the Company under this sublease were more than 95.0% of the full
lease value. The existing lease term on this building runs to 2014. There is no
assurance that the Company will be able to continuously sublet the building
during the remaining lease term so as to offset its rental cost in whole or in
part.

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


                                       13
<PAGE>

Item 3. Legal Proceedings

There are no material pending legal proceedings 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, 2003, 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, 2003,
and their positions held with the Company are as follows:

<TABLE>
<CAPTION>
Name                     Age                                 Position
<S>                       <C>       <C>
Lawrence A. Sala          40        President, Chief Executive Officer, Chairman and Director
Carl W. Gerst, Jr         65        Chief Technical Officer, Vice Chairman and Director
Gert R. Thygesen          47        Vice President, Technology
Joseph E. Porcello        51        Vice President, Finance, Treasurer
Mark P. Burdick           45        Vice President and General Manager
Timothy P. Ross           43        Vice President, Business Development
Amy B. Tewksbury          39        Vice President, Human Resources
</TABLE>

Lawrence A. Sala joined the Company in 1984. He has been President since May
1995, has served as Chief Executive Officer since September 1997, and has been
Chairman of the Board of Directors since November 2001. Mr. Sala became a member
of the Board of Directors of the Company in 1995. He holds a bachelor's degree
in computer engineering, a master's degree in electrical engineering and a
master's degree in business administration, all from Syracuse University.

Carl W. Gerst, Jr. has been a member of the Board of Directors of the Company
since 1968. Mr. Gerst has served as Chief Technical Officer and Vice Chairman of
the Board since May 1995 and served as Treasurer from May 1992 to November 2001.
Mr. Gerst previously served as Executive Vice President of the Company from its
founding until May 1995. He holds a bachelor's degree from Youngstown University
and a master's degree in business administration from Syracuse University.

Gert R. Thygesen joined the Company in 1981 and has served as Vice President of
Technology since September 2000. He previously served as Vice President,
Operations from April 1995 to September 2000, as Operations Manager of the
Company from 1992 until 1995 and as Program Manager, Digital RF Memories &
Advanced Systems, from 1988 to 1992. Mr. Thygesen holds a bachelor of science
degree and a master's degree in electrical engineering from Aalborg University
Center, Denmark.

Joseph E. Porcello joined the Company in 1977 and has served as Vice President,
Finance since May 1995 and Treasurer since November 2001. He previously served
as the Company's Controller from 1981 to 1999. Mr. Porcello holds a bachelor's
degree from the State University of New York at Buffalo and is a certified
public accountant.

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

Timothy P. Ross has been with the Company since 1982 and has served as Vice
President -- Business Development since September 2000. He served as Vice
President and General Manager, Space and


                                       14
<PAGE>

Defense Group, of the Company from November 1999 until September 2000. Mr. Ross
served as Business Unit Manager -- Satellite Communications of the Company from
1995 to 1999 and as a Program Manager from 1988 to 1995. Mr. Ross holds an
associate's degree in engineering science, a bachelor of science in electrical
engineering from Clarkson University, and a Master's in Business Administration
from the University of Rochester.

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


                                       15
<PAGE>

                                     PART II

Item 5. Market For the Company's Common Equity and Related Stockholder Matters

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

                       Fiscal 2003                         Fiscal 2002
                ---------------------------        ---------------------------
                         Quarter                             Quarter
                ---------------------------        ---------------------------
                1st     2nd     3rd     4th        1st     2nd     3rd     4th
                ---     ---     ---     ---        ---     ---     ---     ---
High ......   $10.64   12.54   10.15   10.37     $26.01   19.33   19.63   16.10
Low .......   $ 6.83    6.99    7.61    7.28     $15.00   13.50   11.92    7.64

The Company had approximately 427 holders of record of its common stock at
August 8, 2003.

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.

Item 6. Selected Consolidated Financial Data

The selected consolidated financial data set forth below with respect to the
Company's statements of income for each of the years in the three year period
ended June 30, 2003, and with respect to the balance sheets at June 30, 2003 and
2002, are derived from the consolidated financial statements that have been
audited by KPMG LLP, independent auditors, which are included elsewhere in this
Annual Report on Form 10-K, and are qualified by reference to such consolidated
financial statements. The statements of income data for the years ended June 30,
1999 and June 30, 2000, and the balance sheet data at June 30, 1999, June 30,
2000 and June 30, 2001, are derived from audited consolidated financial
statements not included in this Annual Report on Form 10-K. The following
selected financial data should be read in conjunction with the consolidated
financial statements for the Company and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere herein.


                                       16
<PAGE>

<TABLE>
<CAPTION>
                                                                                 Years Ended
                                                      ----------------------------------------------------------------
                                                      June 30,      June 30,      June 30,      June 30,      June 30,
                                                        2003          2002          2001          2000          1999
                                                      --------      --------      --------      --------      --------
                                                                    (In thousands, except per share data)
<S>                                                   <C>           <C>           <C>           <C>           <C>
Statement of Income Data:
Net sales .......................................     $ 79,920      $ 73,568      $ 84,825      $ 60,172      $45,739
Cost of sales ...................................       58,723        51,369        52,527        35,074       27,711
Cost of sales restructuring .....................          428            --            --            --           --
                                                      --------      --------      --------      --------      -------
Gross profit ....................................       20,768        22,199        32,298        25,098       18,028
                                                      --------      --------      --------      --------      -------
Operating expenses:
  Marketing .....................................        6,620         7,256         6,584         5,434        4,177
  Research and development ......................        6,140         6,283         5,023         3,816        2,835
  General and administrative ....................        9,110         8,105         8,392         4,394        3,220
  Impairment loss ...............................        2,721            --            --            --           --
  Restructuring .................................        2,109            --           688            --           --
  Fire related ..................................           --           711            --            --           --
                                                      --------      --------      --------      --------      -------
Total operating expenses ........................       26,700        22,355        20,687        13,644       10,232
                                                      --------      --------      --------      --------      -------
Operating income (loss)  ........................       (5,932)         (156)       11,611        11,454        7,796
                                                      --------      --------      --------      --------      -------
Other income (expense):
  Interest expense ..............................          (51)         (149)         (159)          (66)         (38)
  Other, primarily interest income ..............        2,326         3,932         7,162         3,316        1,396
                                                      --------      --------      --------      --------      -------
    Total other income, net .....................        2,275         3,783         7,003         3,250        1,358
                                                      --------      --------      --------      --------      -------
Income (loss) before income taxes and
  extraordinary item ............................       (3,657)        3,627        18,614        14,704        9,154
Income taxes ....................................          136          (405)        6,400         5,063        2,204
                                                      --------      --------      --------      --------      -------
Income (loss) before extraordinary item .........       (3,793)        4,032        12,214         9,641        6,950
Extraordinary item-gain on acquisition ..........           --         3,407
                                                      --------      --------      --------      --------      -------
 Net income .....................................     $ (3,793)     $  7,439      $ 12,214      $  9,641      $ 6,950
                                                      ========      ========      ========      ========      =======
Basic earnings (loss) per share:
  Net income (loss) before
    extraordinary item ..........................     $   (.17)     $    .18      $    .55      $    .54      $   .42
  Extraordinary item -- gain
    on acquisition ..............................           --           .15            --            --           --
                                                      --------      --------      --------      --------      -------
  Net income (loss) .............................     $   (.17)     $    .33      $    .55      $    .54      $   .42
                                                      ========      ========      ========      ========      =======
Diluted earnings (loss) per share:
  Net income (loss) before
    extraordinary item ..........................     $   (.17)     $    .17      $    .52      $    .50      $   .40
  Extraordinary item -- gain on acquisition .....           --           .15            --            --           --
                                                      --------      --------      --------      --------      -------
  Net income (loss) .............................     $   (.17)     $    .32      $    .52      $    .50      $   .40
                                                      ========      ========      ========      ========      =======
Shares used in computing net earnings per share:
  Basic .........................................       22,214        22,323        22,134        17,978       15,566
  Diluted .......................................       22,214        23,090        23,455        19,299       17,310
Balance Sheet Data:
Cash and cash equivalents .......................     $ 11,063      $ 12,565      $ 11,748      $  6,179      $13,482
Working capital .................................      126,235       144,023       146,677       106,271       39,053
Total assets ....................................      213,088       221,586       209,055       189,696       58,467
Long-term debt, less current installments .......           --            --            --            --           --
Stockholders' equity ............................      200,597       209,553       199,454       179,572       51,845
</TABLE>

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

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


                                       17
<PAGE>

Overview

The consolidated financial statements present the financial condition of the
Company as of June 30, 2003 and 2002, and the consolidated results of operations
and cash flows of the Company for the years ended June 30, 2003, 2002 and 2001.

On December 16, 2002, at a Special Meeting of Shareholders, the Company's
shareholders approved the creation of a holding company structure in which the
Company's operating assets would be transferred to a newly formed, wholly owned,
subsidiary and authorized an amendment to the Company's Certificate of
Incorporation to change the name of the Company from Anaren Microwave, Inc. to
Anaren, Inc. The name change to Anaren, Inc. became effective on December 20,
2002 and the Company's operating assets were transferred to a wholly owned
subsidiary (named Anaren Microwave, Inc.) effective December 31, 2002.

The Company designs, develops and markets microwave components and assemblies
for the wireless communications, satellite communications and defense
electronics markets. The Company's distinctive manufacturing and packaging
techniques enable it to cost-effectively produce compact, lightweight microwave
products for use in base stations for wireless communications systems, in
satellites and in defense electronics systems. The Company sells its products to
leading wireless communications equipment manufacturers such as Ericsson, Lucent
Technologies, Motorola, Nokia, Nortel Networks, and Powerwave and to satellite
communications and defense electronics companies such as Boeing Satellite,
I.T.T., Lockheed Martin, Northrup Grumman and Raytheon.

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

In the first quarter of calendar 2002, the Company created a new subsidiary,
Anaren Communication Suzhou Company, Ltd. and signed a three year lease for a
12,300 square foot manufacturing facility in Suzhou Industrial Park in Suzhou,
China. A general manager and operating staff were hired from July through
September 2002 and light manufacturing and assembly was begun at the facility in
the second quarter of fiscal 2003. In February 2003, the Suzhou subsidiary
exercised its option to lease the 12,000 square foot second floor of this
facility to support anticipated additional business needs in China. Presently,
the facility has a staff of 29 workers and expects to ramp-up to over 100 people
in the first half of fiscal 2004 to support production for a custom wireless
program for a European customer. It is anticipated that this facility will serve
all of the Company's Asian customers. Additionally, it is expected that this
location will be used to facilitate procurement of raw materials in China, when
possible, for the Company's other subsidiaries.

In September 2002, as a result of the loss of customers due to the July 2001
fire and the general decline in the wireless market, the Company made a decision
to downsize the Anaren Europe


                                       18
<PAGE>

workforce. Twenty-four people were let go at that time and a restructuring
charge of $403,000 was recorded in the first quarter. Large operating losses and
negative cash flow continued at Anaren Europe in the second and third quarters
due to the continued weakness in the printed circuit board segment of the
wireless infrastructure market and it was determined at the end of the third
quarter to significantly downsize this operation again. In April 2003, in
conjunction with this reorganization and due to continued negative cash flow
projections after the restructuring, the Company performed a FASB 144 evaluation
to determine if the fixed assets used by Anaren Europe were subject to an
impairment loss. Based on the results of the evaluation, an impairment loss of
$681,000 was identified and was recorded as a charge in the income statements
under the caption "Impairment Loss" for the third quarter of fiscal 2003. Staff
at Anaren Europe was reduced again by 44 people and an additional restructuring
charge of $631,000 for severance and outplacement costs was recognized in April.

Operating losses and decreasing sales levels continued throughout April and May
and by the end of May the Company decided to dispose of the Anaren Europe
operation as the recovery in sales levels required to make the facility
profitable was not likely to happen in the near future. In conjunction with the
decision to dispose of Anaren Europe, the Company recorded an additional asset
impairment charge of $2.0 million to adjust fixed asset balances at that
facility to liquidation value and a restructuring charge of $281,000 to record
severance for the remaining 23 employees and $428,000 to record inventory write
downs included in cost of sales - restructuring.

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

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

On September 19, 2002, the Company submitted an acquisition proposal to
Celeritek, Inc.'s Chairman, President and Chief Executive Officer, which stated
that the Company was prepared to offer $8.75 per share in an all-cash
transaction to acquire all of the outstanding shares of Celeritek, subject to
successful completion of customary due diligence and negotiation and execution
of a definitive acquisition agreement. On September 25, 2002, Celeritek issued a
press release announcing that its Board had rejected the Company's proposal
claiming that the proposal "is not in the best interests of Celeritek
shareholders." In June, 2003 the Company executed a Non Disclosure Agreement
with Celeritek. On July 28 and 29, 2003, the Company's management met with
Celeritek's Chairman, Tamer Husseini, and other members of Celeritek's senior
management to begin to conduct a due diligence review of Celeritek's business.
Anaren intends to continue to consider all of the alternatives available to it,
and may pursue one or more of the possible actions outlined in its Schedule 13D,
as amended.

The Company's original investment in Celeritek common stock averaged
approximately $8.47 a share and totaled $6.6 million. During the year ended June
30, 2003, the market value of Celeritek common stock has fluctuated
substantially, and the stock has at times traded above the cost of the Company's
investment. This investment had a market value at June 30, 2003 of approximately
$5.7 million, a decline of $904,000, which has been recorded as a component of
accumulated other comprehensive loss. The Company considers this to be a
temporary decline in market value. If, at a future date, this drop in market
value is determined to be other than temporary, then the decline in value,
including the amount previously charged as other


                                       19
<PAGE>

comprehensive loss to shareholders equity, would at that time be recognized as a
loss in the current period income statement.

For the fiscal year ended June 30, 2003, net sales were $79.9 million and the
net loss was $(3.8) million, or $(0.17) per diluted share, compared to net sales
of $73.6 million and net income of $7.4 million, or $0.32 per diluted share, for
fiscal 2002. Excluding the results of Anaren Europe, net sales for the 2003
fiscal year were $75.5 million and net income was $3.6 million, or $0.16 per
diluted share.

Results of Operations

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

                                                         Years Ended June 30,
                                                       -----------------------
                                                       2003      2002     2001
                                                       ----      ----     ----
Net sales                                             100.0%    100.0%   100.0%
Cost of sales                                          73.5      69.8     61.9
Cost of sales - restructuring                           0.5        --       --
                                                      -----     -----    -----
Gross profit                                           26.0      30.2     38.1
                                                      -----     -----    -----
Operating expenses:
     Marketing                                          8.3       9.9      7.8
     Research and development                           7.7       8.5      5.9
     General and administrative                        11.4      11.0      9.9
     Impairment loss                                    3.4        --       --
     Restructuring                                      2.6        --      0.8
     Fire related                                        --       1.0       --
                                                      -----     -----    -----
       Total operating expenses                        33.4      30.4     24.4
                                                      -----     -----    -----
Operating income (loss)                                (7.4)     (0.2)    13.7
                                                      -----     -----    -----
Other income (expense):
     Interest expense                                  (0.1)     (0.2)    (0.2)
     Other, primarily interest income                   2.9       5.3      8.4
                                                      -----     -----    -----
       Total other income                               2.8       5.1      8.2
                                                      -----     -----    -----
Income (loss) before income taxes and
  extraordinary item                                   (4.6)      4.9     21.9
Income taxes                                            0.2      (0.6)     7.5
                                                      -----     -----    -----
Net income (loss) before extraordinary item %          (4.8)%     5.5%    14.4%
Extraordinary item-- gain on acquisition                 --       4.6       --
                                                      -----     -----    -----
Net income (loss)                                      (4.8)%    10.1%    14.4%
                                                      =====     =====    =====

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

                                        Years Ended June 30,
                                   ----------------------------
                                   2003        2002        2001
                                   ----        ----        ----
                                         (In thousands)

Wireless                         $51,029     $47,497     $61,710
Space & Defense                   28,891      26,071      23,115
                                 -------     -------     -------
                                 $79,920     $73,568     $84,825
                                 =======     =======     =======

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

Net Sales. Net sales increased $6.3 million, or 8.6%, to $79.9 million for
fiscal 2003, compared to $73.6 million for the prior fiscal year. This increase
consisted of a $3.5 million (7.4%) rise in Wireless sales and a $2.8 million
(10.8%) increase in sales of Space and Defense products.


                                       20
<PAGE>

The $3.5 million increase in fiscal 2003 Wireless sales, which consist of
standard surface mount components and custom subassemblies for use in building
wireless base station equipment, resulted from a combination of new acquisitions
during fiscal 2002 and increased customer demand. Wireless sales for fiscal 2003
include a full twelve months of sales for Amitron and Anaren Europe, while sales
for fiscal 2002 included only nine months and ten months of sales for Anaren
Europe and Amitron, respectively. These acquisitions resulted in additional
sales in fiscal 2003 of $3.1 million compared to fiscal 2002 sales levels.
Additionally, customer wireless infrastructure demand rose slightly in the first
and second quarters, coming mainly from Asian infrastructure build outs.

Space and Defense products consist of custom components and assemblies for
communication satellites and defense radar and countermeasure subsystems for the
military. Sales in the Space and Defense group rose $2.8 million, or 10.8%, in
fiscal 2003, compared to the prior fiscal year. This increase in shipments
resulted from production sales under a number of defense contracts for Digital
Frequency Discriminators (DFDs) and Digital RF Memories (DRFMs) for foreign
applications, radar antenna feed networks, and precision ranging subsystems
(PRSS) for U.S. Government applications. These products contributed to the rise
in defense orders in the Company's backlog during the last fiscal year. Space
and Defense sales are expected to be between $6.0 and $7.0 million, quarterly,
in fiscal 2004.

Gross Profit. Cost of sales consists primarily of engineering design costs,
materials, material fabrication costs, assembly costs, direct and indirect
overhead, and test costs. Gross profit for fiscal 2003 was $20.8 million (26.0%
of net sales), down $1.4 million from $22.2 million (30.2% of net sales) for the
same quarter of the prior year. The drop in gross margin as a percentage of net
sales in fiscal 2003 is a result of the continuing negative margins at Anaren
Europe resulting from declining sales at that facility, and to continuing
pricing pressure from wireless customers, which has resulted in lower average
sales prices year over year. Additionally, cost of sales includes a $428,000
restructuring charge for inventory writedowns related to the disposition of
Anaren Europe. The Company is continuing its cost cutting programs and has
reduced its personnel levels through restructuring and attrition by
approximately 100 people, or over 15% during the past fiscal year. Additionally,
in June 2003, the Company decided to close the Anaren Europe facility and, where
possible, low margin products have been eliminated from the Company line-up. The
Company anticipates that these ongoing cost cutting efforts should help to
improve future gross margins in fiscal 2004, but any significant improvement in
gross margins will most likely occur only with a rise in sales volume.

Marketing. Marketing expenses consist mainly of employee related expenses,
commissions paid to sales representatives, trade show expenses, advertising
expenses and related travel expenses. Marketing expenses decreased 8.8% to $6.6
million (8.3% of net sales) for fiscal 2003 from $7.3 million (9.9% of net
sales) for fiscal 2002. Marketing expense declined in fiscal 2003 due to a
budgeted decline in advertising expenditures in the current fiscal year compared
to fiscal 2002 and the reassignment of some marketing personnel to other company
functions.

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 $6.1 million
(7.7% of net sales) in fiscal 2003, down $143,000 from $6.3 million (8.5% of net
sales) for fiscal 2002. Research and development expenditures are supporting
further development of wireless infrastructure products and new wireless
networking product opportunities. Despite the continuing wireless market
downturn, the Company does not expect to


                                       21
<PAGE>

significantly reduce its current research and development efforts in the near
term and is presently working on the development of a number of new standard
surface mount wireless products.

General and Administrative. General and administrative expenses consist of
employee related expenses, professional services, and intangible amortization,
travel related expenses and other corporate costs. General and administrative
expenses increased 12.4% to $9.1 million (11.4% of net sales) for fiscal 2003
from $8.1 million (11.0% of net sales) for fiscal 2002. This increase was due to
professional services costs associated with the Celeritek offer, costs incurred
at the new China facility, and a full twelve months of general and
administrative expenditures for Amitron and Anaren Europe compared to ten and
nine months, respectively, last year.

Impairment loss. In conjunction with the reorganization of Anaren Europe in
April 2003, the Company performed a FASB 144 evaluation to determine if the
fixed assets used by Anaren Europe were subject to an impairment loss, due to
continuing negative cash flow in that operation. A FASB 144 impairment loss of
$681,000 was identified, which was recorded as a charge in the income statements
under the caption "Impairment Loss" in the quarter ended March 31, 2003. In June
2003 due to further deterioration in the business conditions at Anaren Europe,
the Company decided to dispose of that facility and liquidate its assets. As
part of the liquidation process, an auction firm was contracted to appraise and
sell these assets at auction when production ceases at the facility. Due to the
pending closure, an additional FASB 144 evaluation was conducted which resulted
in an additional write down of $2,040,000 to estimated fair value, which was
recorded in the fourth quarter of fiscal 2003. The Company anticipates that this
operation will be liquidated by December 2003.

Restructuring. Restructuring expense consists of severance pay, outplacement
costs, extended benefit costs and other expenses incurred in reducing the
Company's workforce. In September 2002, April 2003 and June 2003, the Company
incurred restructuring charges related to reductions in workforce and the
anticipated closing of its Anaren Europe facility located in the Netherlands.
The restructuring charges amounted to $ 403,000 in September, 2002, and
$1,339,000 in April and June 2003 and included severance pay, outplacement
costs, extended benefits costs and write-offs of excess inventory, included in
cost of sales, related to the closing of Anaren Europe and the termination of
all of its 91 employees. In March 2003, the Company recorded a restructuring
charge of $296,000 related to the Company's restructuring plan at its RF Power
subsidiary. This plan was primarily aimed at reducing the cost of excess
personnel in this operation and included the termination of 16 employees. In
June 2003, the Company also incurred a restructuring charge of $499,000 related
to the Company's restructuring plan to reduce overhead at its Anaren Microwave,
Inc subsidiary. This plan was aimed at reducing the excess cost of indirect
personnel at this operation and included 30 individuals. All restructuring costs
are expected to be paid in full within twelve months.

Operating Income: The Operating loss increased $5.8 million in fiscal 2003 to a
loss of $(5.9) million (7.4% of sales), from a loss of $(156,000), (0.2% of net
sales), for fiscal 2002. On a reporting segment basis, the Wireless operating
loss was $(10.7) million for 2003, an increase of $2.8 million from the Wireless
operating loss of $(7.9) million in fiscal 2002. The principal reason for the
increase in the Wireless operating loss in the current year was the decline in
Wireless sales year over year, the $2.5 million restructuring charge and the
$2.7 million impairment loss recorded in connection with the announced closing
of Anaren Europe. Wireless operating results are expected to improve in fiscal
2004 as a result of the fiscal 2003 reorganizations and the resulting personnel
reductions.


                                       22
<PAGE>

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

Other Income. Other income is primarily interest income received on invested
cash balances. Other income decreased 40.8% to $2.3 million (2.9% of net sales)
for the year ended June 30, 2003, from $3.9 million (5.3% of net sales) for last
year. This decrease was caused mainly by the decline in market interest rates
over the last 12 months brought about by reductions in the Federal Fund rates.
Interest income will fluctuate based on the level of interest rates and the
level of investable cash balances.

Interest Expense: Interest expense represents commitment fees and interest paid
on a deferred obligation. Interest expense for fiscal 2003 was $51,000 (0.1% of
net sales) compared to $149,000 (0.2% of net sales) for fiscal 2002. This
decrease was the result of the intentional cancellation of the Company's line of
credit and pay-off of some minor Anaren Europe loan balances.

Income Taxes: Income taxes for fiscal 2003 were $136,000 (0.2% of net sales),
representing an effective tax rate of 3.7%. This compares to income tax benefit
of $405,000 (0.6% of net sales) for fiscal 2002, representing an effective tax
benefit rate of 11.2%. The Company's effective tax rate is a direct result of
the proportion of federally exempt state municipal bond income and federal tax
credits and benefits in relation to the levels of taxable income or loss and the
losses from Anaren Europe that have not generated current tax benefits. In
fiscal 2002, the Company finalized an analysis of certain available research
credits and export tax benefits and recorded a tax benefit of $857,000.

Year Ended June 30, 2002 Compared to Year Ended June 30, 2001

Net Sales. Net sales decreased $11.2 million, or 13.3%, to $73.6 million for the
year ended June 30, 2002 compared to $84.8 million for the previous year. This
decrease was caused by a 23.0% drop in Wireless sales, which was partially
offset by a 12.8% rise in sales of Space and Defense products.

The $14.2 million decrease in sales of Wireless products, was caused by a rapid
downturn in capital expenditures for wireless infrastructure equipment which
began in the latter part of fiscal 2001. This downturn resulted in numerous
reductions in customer demand forecasts and delivery push outs beginning in
March 2001 and continuing through fiscal 2002. This market downturn has affected
all of the Company's Wireless product lines and most severely affected sales of
Wireless standard components. The downturn in Wireless market sales was somewhat
offset by the inclusion of $8.4 million in sales in fiscal 2002 from Anaren
Europe and Amitron, the Company's fiscal 2002 acquisitions.

Sales in the Space and Defense group rose $3.0 million, or 12.8%, in fiscal
2002, compared to the prior fiscal year. This increase in shipments resulted
from factory production shipments for the Boeing Spaceway program.

Gross Profit. Gross profit for fiscal 2002 was $22.2 million (30.2% of net
sales), down from $32.3 million (38.1% of net sales) for the prior year. The
decrease in gross margin resulted from the decline in sales volume, which caused
under absorption of factory overhead compared to the previous year.

Marketing. Marketing expenses increased 10.1% to $7.3 million (9.9% of net
sales) for fiscal 2002 from $6.6 million (7.8% of net sales) for fiscal 2001.
Marketing expenses increased due to the addition of new east and west coast
marketing offices and the additional marketing expenses associated with the
Company's acquired businesses, Amitron and Anaren Europe, which amounted to
approximately $1.0 million in fiscal 2002.


                                       23
<PAGE>

Research and Development. Research and development expenses increased 25.1% to
$6.3 million (8.5% of net sales) in fiscal 2002 from $5.0 million (5.9% of net
sales) for fiscal 2001. Research and development expenditures are supporting
further development of wireless infrastructure products and new wireless
networking product opportunities with a renewed emphasis on developing new
standard surface mount wireless products.

General and Administrative. General and administrative expenses decreased 3.4%
to $8.1 million (11.0% of net sales) for fiscal 2002 from $8.4 million (9.9% of
net sales) for fiscal 2001. General and administrative expenses have decreased
primarily due to the adoption of FASB Statement No. 142 which eliminated the
amortization of goodwill starting in the first quarter of fiscal 2002. The
elimination of goodwill reduced general and administrative expenses by $1.6
million in the current year compared to last year. This elimination of goodwill
amortization was partially offset by an increase in identifiable intangible
amortization of $356,000 in fiscal 2002 associated with the Company's
acquisition of Amitron. Additionally, general and administrative expense for
fiscal 2002 includes ten months and nine of expense for Amitron and Anaren
Europe, respectively, which amounted to approximately $2.0 million in the
aggregate.

Operating Income. Operating income decreased $11.8 million to an operating loss
of $(156,000) (0.2% of net sales) for fiscal 2002, from an operating profit of
$11.6 million (13.7% of net sales) for fiscal 2001. On a reporting segment
basis, the Wireless operating loss was $(7.9) million for fiscal 2002, down
219.0% or $14.5 million from $6.6 million operating income in fiscal 2001. The
principal reason for the decrease in Wireless operating income in fiscal 2002
compared to fiscal 2001 was the 23.0% decrease in Wireless sales year over year
due to the large decrease in Wireless base station equipment demand worldwide.
The large decline in sales levels in the Wireless segment resulted in
significant under absorption of fixed overhead within the group during the
current fiscal year. Additionally, operating income in the Wireless sector was
further decreased by the $(4.4) million operating loss at Anaren Europe in
fiscal 2002 due to the fire recovery costs and the low level of sales caused by
the fire.

Space and Defense operating income rose $2.7 million, or 52.5%, for fiscal 2002
compared to fiscal 2001. This increase resulted from a $3.0 million rise in
Space and Defense revenues year over year, due to the Spaceway Program entering
full production at the end of fiscal year 2001. This increase in revenue
resulted in better absorption of fixed overhead in fiscal 2002 compared to the
previous year. Additionally, cost reduction and efficiency efforts in this
segment were successful in reducing the overall cost of operations in fiscal
2002 compared to the prior year.

Other Income. Other income decreased 45.1% to $3.9 million (5.3% of net sales)
for the year ended June 30, 2002 from $7.2 million (8.4% of net sales) for the
prior year. This decrease was caused mainly by the decline in market interest
rates over the preceeding 12 months brought about by reductions in the Federal
Fund rates, and the use of approximately $12.1 million in cash to complete the
acquisitions of Amitron and Anaren Europe. Interest income will fluctuate based
on the level of interest rates and the level of investible cash balances. During
the fourth quarter of fiscal 2002, the Company recorded an other income item
amounting to approximately $194,000 representing the remaining principal balance
on a capitalized lease obligation which was no longer payable by the Company.
The equipment leased by the Company was destroyed in the July 2001 fire.

Interest Expense: Interest expense for fiscal 2002 was $149,000 (0.2% of net
sales) compared to $160,000 (0.2% of net sales) for fiscal 2001.

Income Taxes. The tax benefit for fiscal 2002 was $405,000 ((0.6)% of net
sales). This compared to tax expense of $6.4 million (7.5% of net sales) for
fiscal 2001, representing an effective tax rate of 34.4%. During fiscal 2002,
the Company finalized an analysis of certain available research credits and
export tax benefits and recorded a tax benefit of $857,000. In addition, the
Company's effective tax rate decreased as a direct result of the increased
proportion of federally exempt state municipal bond income in relation to income
before taxes.


                                       24
<PAGE>

Extraordinary gain. The extraordinary gain in fiscal 2002 of $3.4 million (4.6%
of net sales) resulted from the purchase of Anaren Europe. As a result of the
fire and the subsequent insurance settlement, the value of the Anaren Europe
assets at the time of purchase was significantly higher than the consideration
paid by Anaren. This situation resulted in significant negative goodwill being
generated by the transaction, which, under current accounting convention, was
first offset by writing down the acquired fixed assets to zero and then by
recognizing an "extraordinary gain" of $3,407,000, or $0.15 per share, in the
second quarter of fiscal 2002.

Critical Accounting Policies

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

The Company's accounts receivable represent those amounts which have been
billed to its customers but not yet collected. The Company analyzes various
factors including historical experience, credit 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.


                                       25
<PAGE>

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

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

Liquidity and Capital Resources

Net cash provided by operations for the years ended June 30, 2003 and 2002 were
$12.2 million and $17.1 million, respectively. The positive cash flow from
operations in fiscal 2003 was due primarily to the $3.7 million reduction in
accounts receivable and the $4.4 million reduction in inventory during the
period. The positive cash flow from operations in fiscal 2002 was due mainly to
the high income level and the large amount of cash ($10.7 million) received from
the Anaren Europe insurance settlement.

Net cash used in investing activities in fiscal 2003 and 2002 consists mainly of
funds used to purchase capital equipment, net purchases and maturities of
marketable securities and, in fiscal 2002, $12.1 million used to purchase the
capital stock of Amitron and Anaren Europe. Capital equipment placed in service
amounted to $4.8 million in fiscal 2003 compared to $9.8 million in the previous
fiscal year, including $5.8 million at Anaren Europe due to the July 2001 fire.

Net cash used in financing activities in fiscal 2003 was $5.1 million. Of this
amount, $248,000 was generated by the exercise of stock options and $5.4 million
was used to repurchase 643,000 shares of the Company's common stock under an
existing repurchase plan previously authorized by the Board of Directors. Net
cash used in financing activities was $1.6 million for fiscal 2002 and consisted
of $2.0 million used to pay off loans of Amitron and Anaren Europe, reduced by
$399,000 generated from the exercise of stock options.

At June 30, 2003, the Company had approximately $127.7 million in cash, cash
equivalents, and marketable securities, and no debt and has had positive
operating cash flow for over eight years. For the past six years the Company has
maintained a guaranteed revolving line of credit facility under which it has
never borrowed any funds. Effective October 1, 2002, the Company cancelled this
line to eliminate the then current annual fee of approximately $38,000. 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
-----------------------
Long term debt                      $       --      $     --      $       --      $     --      $       --
Operating leases-- facilities        5,746,043       944,623       1,472,415       890,577       2,438,427
Deferred compensation                  502,236        65,000         130,000       130,000         177,236
Lines of credit                             --            --              --            --              --
</TABLE>


                                       26
<PAGE>

Recent Accounting Pronouncements

In April 2003, the FASB issued Statement No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities (SFAS 149). SFAS 149, which amends
and clarifies reporting for derivative instruments, is effective for contracts
entered into or modified after June 30, 2003. The Company has reviewed the
provisions of SFAS 149, and believes that upon adoption, the Statement will not
have a significant effect on its financial statements.

In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity (FASB 150). The
statement clarifies how issuers classify and measure certain instruments with
characteristics of both liabilities and equity. It is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise for
fiscal periods beginning after June 15, 2003. The Company has reviewed the
provisions of SFAS 150, and believes that upon adoption, the Statement will not
have a significant effect on its financial statements.

In January 2003, the FASB issued FIN 46: Consolidation of Variable Interest
Entities an interpretation of ARB No. 51 (FIN 46). This interpretation clarifies
the application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements, to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The FIN applies immediately
to variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date. It
applies in the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The Company has reviewed the
provisions of FIN 46, and believes that upon adoption, the FIN will not have a
significant effect on its financial statements.

In March 2003, the Emerging Issues Task Force (EITF) reached a consensus on EITF
00-21: Revenue Arrangements with Multiple Deliverables (EITF 00-21). This Issue
addresses certain aspects of the accounting by a vendor for arrangements under
which it will perform multiple revenue-generating activities. Specifically, this
Issue addresses how to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting. In applying this Issue,
separate contracts with the same entity or related parties that are entered into
at or near the same time are presumed to have been negotiated as a package and
should, therefore, be evaluated as a single arrangement in considering whether
there are one or more units of accounting. That presumption may be overcome if
there is sufficient evidence to the contrary. This Issue also addresses how
arrangement consideration should be measured and allocated to the separate units
of accounting in the arrangement. The guidance in this Issue is effective for
revenue arrangements entered into in fiscal periods beginning after June 15,
2003. The Company has reviewed the provisions of EITF 00-21, and believes that
upon adoption, the Issue will not have a significant effect on its financial
statements.


                                       27
<PAGE>

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

As of June 30, 2003, the Company had cash, cash equivalents and marketable
securities of $127.7 million, of which approximately $111.0 million consisted of
highly liquid investments in marketable debt securities and $5.7 million
consisted of marketable equity securities. The marketable debt securities at
date of purchase normally have maturities between one and 18 months, are exposed
to interest rate risk and will decrease in value if market interest rates
increase. A hypothetical decrease in market interest rate of 10.0% from June 30,
2003 rates, or 0.15%, would have reduced net income and cash flow by
approximately $167,000, or $0.007 per share for the year. Due to the relatively
short maturities of the securities and its ability to hold those investments to
maturity, the Company does not believe that an immediate decrease in interest
rates would have a significant effect on its financial condition or results of
operations. Over time, however, declines in interest rates will reduce the
Company's interest income.

The Company currently owns equity investments held for sale with a market value
of approximately $5.7 million. Fluctuations in market value of these securities
are charged to stockholders' equity monthly. A theoretical 10.0% decline in
market value of these securities would result in a $570,000 reduction in
stockholders' equity. In the future, if the decline in value of these securities
is considered other than temporary, then the full decline in value experienced
to the date of impairment will be reflected in the then current period income
statement.

All of the Company's sales from its domestic U.S. subsidiaries to foreign
customers are denominated in United States dollars and, accordingly, are not
exposed to foreign currency exchange risk. Sales of the Company's Netherlands
subsidiary, Anaren Europe, are denominated in Euros to European customers and
United States dollars to U.S. customers. Sales to U.S. customers by Anaren
Europe denominated in United States dollars would be subject to currency
exchange losses. At present, due to the July 2001 fire at Anaren Europe, sales
of that subsidiary to U.S. customers in U.S. dollars subject to possible
currency losses are currently less than $100,000 per quarter and thus any
possible losses due to currency fluctuations would not be material to the
operating results of the Company. The Company anticipates that this facility
will be closing in the first half of fiscal 2004.

Item 8. Financial Statements and Supplementary Data

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

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

None.


                                       28
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of Registrant

Information required by this Item concerning directors of the Company is
contained in the Company's proxy statement filed with respect to the 2003 Annual
Meeting of Shareholders and is incorporated by reference herein. The information
regarding executive officers of the Company required by this Item is included in
Item 4A hereof.

On August 13, 2002, the board of directors adopted Anaren's code of ethics and
business conduct, 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 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 2003 Annual Meeting of Shareholders and is
incorporated by reference herein.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Information required by this Item is contained in the Company's proxy statement
filed with respect to the 2003 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 2003 Annual Meeting of Shareholders and is
incorporated by reference herein.

Item 14. Controls and Procedures

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

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

Item 15. Principal Accounting Fees and Services

Information required by this Item is contained in the Company's proxy statement
filed with respect to the 2003 Annual Meeting of Shareholders and is
incorporated by reference herein.


                                       29
<PAGE>

                                     PART IV

Item 16. Exhibits, Financial Statement Schedules and Reports on Form 8-K

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

(b)   Current Reports on Form 8-K:
      The Company filed a Current Report on Form 8-K on April 29, 2003 with
      respect to its results of operations for the third quarter ended March 31,
      2003.

(c)   Exhibits:

      Index to Exhibits

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

   3.1      Certificate of Incorporation, as amended (1)
   3.2      Restated By-Laws (2)
   4.1      Specimen Certificate of Common Stock (3)
   4.2      Shareholder Protection Rights Agreement dated as of April 20, 2001,
            between the Company and American Stock Transfer & Trust Company,
            including forms of Rights Certificate and Election to Exercise (4)
   10.1     Employment Agreement, dated as of July 1, 2001, between the Company
            and Lawrence A. Sala (5)
   10.2     Pension Plan and Trust (6)
   10.3     Anaren Microwave, Inc. Incentive Stock Option Plan, as amended (7)
   10.4     Anaren Microwave, Inc. 1989 Non-statutory Stock Option Plan, as
            amended (8)
   10.5     Credit Facility Agreement, dated as of December 23, 1997, between
            the Company and Manufacturers and Traders Trust Company, together
            with the Revolving Credit Note dated December 23, 1997 executed by
            the Company in favor of Manufacturers and Traders Trust Company (9)
   10.8     Amendment dated January 1, 2002 to Credit Facility Agreement, dated
            as of December 23, 1997, between the Company and Manufacturers and
            Traders Trust Company (10)
   10.8     Anaren Microwave, Inc. Incentive Stock Option Plan for Key Employees
            (11)
   10.9     Anaren Microwave, Inc. Stock Option Plan (12)
   10.10    Form of Change of Control Agreements dated March 15, 2002 with
            Joseph Porcello, Mark Burdick, Timothy Ross, Stanley Slingerland and
            Gert Thygesen (13)
   10.11    Employment Agreement, dated as of August 31, 2001, between the
            Company and Raymond C. Simione (14)
   21       Subsidiaries of the Company
   23       Consent of KPMG LLP
   31       Rule 13a-14(a) Certifications
   32       Section 1350 Certifications

----------
(1)   (A) Restated Certificate of Incorporation of the Company, filed on August
      11, 1967, is incorporated herein by reference to Exhibit 3(a) to Company's
      Registration Statement on Form S-1 (Registration No. 2-42704); (B)
      Amendment, filed on December 19, 1980, is incorporated herein by reference
      to Exhibit 4.1(ii) to the Company's Registration Statement on Form S-2
      (Registration No. 2-86025); (C) Amendment, filed on March 18, 1985, is
      incorporated herein by reference to Exhibit 3.1 to the Company's Annual
      Report on Form 10-K (Commission File No. 0-6620) for the fiscal year ended
      June 30, 1987; (D) Amendment, filed on December 14, 1987, is incorporated
      herein by reference to Exhibit 4(a)(iv) to the Company's Registration
      Statement on 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,


                                       30
<PAGE>

      2000, is incorporated herein reference to Exhibit 4.1 to the Company's
      Registration Statement on Form S-3 (Registration No. 333-31460) filed with
      the Securities and Exchange Commission on March 2, 2000; and (G)
      Amendment, filed on November 22, 2000, is incorporated by reference to
      Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q (Commission
      File No. 0-6620) for the three months ended December 31, 2000.

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

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

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

(5)   Incorporated herein by reference to Exhibit 10.1 to the Company's Annual
      Report on Form 10-K (Commission File No. 0-6620) for the fiscal year ended
      June 30, 2001.

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

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

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

(9)   Incorporated herein by reference to Exhibit 10.13 to the Company's
      Quarterly Report on Form 10-Q for the three months ended December 31,
      1997.

(10)  Incorporated herein by reference to Exhibit 10.1 to the Company's
      Quarterly Report on Form 10-Q for the three months ended December 31,
      2001.

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

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

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

(14)  Incorporated herein by reference to Exhibit 10.13 to the Company's Annual
      Report on Form 10-K (Commission File No. 0-6620) for the fiscal year ended
      June 30, 2002.


                                       31
<PAGE>

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

                                    ANAREN, INC.

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

Date: August 18, 2002

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

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

/s/ Lawrence A. Sala      President, Chief Executive Officer     August 18, 2003
--------------------      and Chairman of the Board, Director
                          (Principal Executive Officer)

/s/ Joseph E. Porcello    Vice President of Finance and          August 18, 2003
----------------------    Treasurer (Principal Financial
                          and Accounting Officer)

/s/ Carl W. Gerst, Jr.    Chief Technical Officer,               August 18, 2003
----------------------    Vice Chairman of the Board
                          and Director

/s/ Herbert I. Corkin     Director                               August 18, 2003
---------------------

/s/ Dale F. Eck           Director                               August 18, 2003
---------------

/s/ Matthew S. Robison    Director                               August 18, 2003
----------------------

/s/ David Wilemon         Director                               August 18, 2003
-----------------

/s/ James Gould           Director                               August 18, 2003
--------------


                                       32
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                        Consolidated Financial Statements

                             June 30, 2003 and 2002

                   (With Independent Auditors' Report Thereon)


                                       33
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                                      Index

                                                                            Page

Independent Auditors' Report                                                  35

Consolidated Balance Sheets as of June 30, 2003 and 2002                      36

Consolidated Statements of Operations for the years ended
    June 30, 2003, 2002, and 2001                                             37

Consolidated Statements of Stockholders' Equity and Comprehensive Income
   (Loss) for the years ended June 30, 2003, 2002, and 2001                   38

Consolidated Statements of Cash Flows for the years ended
   June 30, 2003, 2002, and 2001                                              39

Notes to Consolidated Financial Statements                                    40


                                       34
<PAGE>

                          Independent Auditors' Report

The Board of Directors
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 auditing standards generally accepted
in the United States of America. 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, 2003 and 2002, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 2003, in conformity with accounting principles generally accepted in the
United States of America.

                                                                    /s/ KPMG LLP

Syracuse, New York
August 5, 2003


                                       35
<PAGE>


                          ANAREN, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets

                             June 30, 2003 and 2002

<TABLE>
<CAPTION>
                                        Assets                                                       2003             2002
                                                                                                 -----------      -----------
<S>                                                                                        <C>                    <C>
Current assets:
   Cash and cash equivalents                                                               $      11,062,662       12,565,424
   Securities available for sale (note 4)                                                          5,682,260        3,820,942
   Securities held to maturity (note 4)                                                           87,584,016       98,955,299
   Receivables, less allowance for doubtful accounts of $245,000 and $529,000
      in 2003 and 2002, respectively                                                               9,317,941       13,106,583
   Inventories (note 5)                                                                           15,671,659       20,119,433
   Accrued interest receivable                                                                       823,189        1,206,396
   Refundable income taxes (note 18)                                                                 876,220              --
   Prepaid expenses                                                                                1,025,145          941,691
   Deferred income taxes (note 18)                                                                 1,132,016        1,356,294
   Other current assets                                                                              210,180          188,482
                                                                                                 -----------      -----------
               Total current assets                                                              133,385,288      152,260,544
Securities held to maturity (note 4)                                                              23,394,382        9,564,558
Property, plant, and equipment, net (note 6)                                                      23,639,821       26,592,375
Goodwill (note 3)                                                                                 30,715,861       30,715,861
Other intangible assets, net of accumulated amortization of $1,071,542
   and $572,003 in 2003 and 2002, respectively (notes 1 and 3)                                     1,953,424        2,452,963
                                                                                                 -----------      -----------
               Total assets                                                                $     213,088,776      221,586,301
                                                                                                 ===========      ===========
                          Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable                                                                        $       4,380,459        5,046,048
   Accrued expenses (note 7)                                                                       2,477,670        2,230,476
   Income taxes payable                                                                               66,594          530,857
   Customer advance payments                                                                             --           244,831
   Other current liabilities (note 9)                                                                225,534          185,725
                                                                                                 -----------      -----------
               Total current liabilities                                                           7,150,257        8,237,937
   Deferred income taxes (note 18)                                                                 1,601,346        1,357,359
   Pension and postretirement benefit obligation (notes 16 and 17)                                 3,302,532        1,975,959
   Other liabilities (note 9)                                                                        437,236          461,808
                                                                                                 -----------      -----------
               Total liabilities                                                                  12,491,371       12,033,063
                                                                                                 -----------      -----------
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 25,681,854 and 25,636,442 in 2003 and 2002, respectively                                256,818          256,364
   Additional paid-in capital                                                                    168,805,153      168,901,645
   Unearned compensation (note 13)                                                                  (381,588)      (1,086,669)
   Retained earnings                                                                              43,290,143       47,082,597
   Accumulated other comprehensive loss (note 14)                                                 (1,216,961)        (828,061)
                                                                                                 -----------      -----------
                                                                                                 210,753,565      214,325,876
   Less cost of 3,820,822 and 3,177,822 treasury shares in 2003 and 2002, respectively            10,156,160        4,772,638
                                                                                                 -----------      -----------
               Total stockholders' equity                                                        200,597,405      209,553,238
                                                                                                 -----------      -----------
               Total liabilities and stockholders' equity                                  $     213,088,776      221,586,301
                                                                                                 ===========      ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       36
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                      Consolidated Statements of Operations

                    Years ended June 30, 2003, 2002, and 2001

<TABLE>
<CAPTION>
                                                                             2003            2002           2001
                                                                          ----------      ----------      ----------
<S>                                                                 <C>                   <C>             <C>
Net sales                                                           $     79,919,791      73,568,319      84,825,275
Cost of sales                                                             58,723,401      51,369,597      52,526,584
Cost of sales - restructuring (note 8)                                       428,000              --              --
                                                                          ----------      ----------      ----------
                 Gross profit                                             20,768,390      22,198,722      32,298,691
                                                                          ----------      ----------      ----------
Operating expenses:
     Marketing                                                             6,620,409       7,255,465       6,584,090
     Research and development                                              6,140,157       6,282,846       5,022,882
     General and administrative                                            9,109,717       8,105,264       8,392,118
     Impairment (note 8)                                                   2,720,626              --              --
     Restructuring (note 8)                                                2,109,291              --         688,337
     Fire related (note 2)                                                        --         711,400              --
                                                                          ----------      ----------      ----------
                 Total operating expenses                                 26,700,200      22,354,975      20,687,427
                                                                          ----------      ----------      ----------
                 Operating income (loss)                                  (5,931,810)       (156,253)     11,611,264
                                                                          ----------      ----------      ----------
Other income (expense):
     Interest expense                                                        (50,610)       (149,257)       (159,506)
     Other, primarily interest income                                      2,325,966       3,932,376       7,162,210
                                                                          ----------      ----------      ----------
                 Total other income, net                                   2,275,356       3,783,119       7,002,704
                                                                          ----------      ----------      ----------
                 Income (loss) before income taxes                        (3,656,454)      3,626,866      18,613,968
Income tax expense (benefit) (note 18)                                       136,000        (405,000)      6,400,000
                                                                          ----------      ----------      ----------
                 Income before extraordinary item                         (3,792,454)      4,031,866      12,213,968
Extraordinary item - gain on acquisition (note 2)                                --        3,407,244              --
                                                                          ----------      ----------      ----------
                 Net income (loss)                                  $     (3,792,454)      7,439,110      12,213,968
                                                                          ==========      ==========      ==========
Basic net income (loss) per common and common equivalent share:
        Income (loss) before extraordinary item                     $          (0.17)           0.18            0.55
        Extraordinary item - gain on acquisition                                  --            0.15              --
                                                                          ----------      ----------      ----------
                 Net income (loss)                                  $          (0.17)           0.33            0.55
                                                                          ==========      ==========      ==========
Diluted net income per common and common
     equivalent share:
        Income (loss) before extraordinary item                     $          (0.17)           0.17            0.52
        Extraordinary item - gain on acquisition                                  --            0.15              --
                                                                          ----------      ----------      ----------
                 Net income (loss)                                  $          (0.17)           0.32            0.52
                                                                          ==========      ==========      ==========
Shares used in computing net income (loss) per
     common and common equivalent share:
        Basic                                                             22,214,181      22,322,546      22,133,585
        Diluted                                                           22,214,181      23,089,553      23,455,244
</TABLE>

See accompanying notes to consolidated financial statements.


                                       37
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

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

                    Years ended June 30, 2003, 2002, and 2001

<TABLE>
<CAPTION>
                                                                                       Common stock     Additional
                                                                   Comprehensive       ------------      paid-in        Unearned
                                                                   income (loss)          Amount         capital      compensation
                                                                   -------------       ------------     ----------    ------------
<S>                                                           <C>                  <C>                 <C>             <C>
Balance at June 30, 2000                                                           $      249,644      156,097,167       (723,712)
     Net income                                                                                --               --             --
     Purchase of treasury stock                                                                --               --             --
     Stock options exercised (note 12)                                                      5,009        2,882,102             --
     Tax benefit from exercise of stock options (note 18)                                      --        5,375,231             --
     Issuance of restricted stock (note 13)                                                   309        1,524,791     (1,525,100)
     Amortization of unearned compensation (note 13)                                           --               --        525,435
     Stock options granted for services (note 12)                                              --          172,050             --
                                                                                          -------      -----------     ----------
Balance at June 30, 2001                                                                  254,962      166,051,341     (1,723,377)

Comprehensive income (loss):
     Net income                                               $       7,439,110                --               --             --
     Other comprehensive income (loss):
        Foreign currency translation adjustment                         687,667                --               --             --
        Minimum pension liability adjustment, net of
           tax of $54,737                                              (106,254)               --               --             --
        Unrealized loss on securities available-for-sale             (1,409,474)               --               --             --
                                                                     ----------
                 Other comprehensive loss                              (828,061)               --               --             --
                                                                     ----------
                 Total comprehensive income                   $       6,611,049
                                                                     ==========
Stock options exercised (note 12)                                                             445          398,273             --
Tax benefit from exercise of stock options (note 18)                                                       460,672             --
Issuance of stock in connection with
     acquisition (note 2)                                                                     957        1,754,452             --
Stock options granted in connection with
     acquisition (note 2)                                                                      --          218,724             --
Amortization of unearned compensation (note 13)                                                --               --        636,708
Stock options granted for services (note 12)                                                   --           18,183             --
                                                                                          -------      -----------     ----------
Balance at June 30, 2002                                                                  256,364      168,901,645     (1,086,669)

Comprehensive income (loss):
     Net income (loss)                                        $      (3,792,454)               --               --             --
     Other comprehensive income (loss):
        Foreign currency translation adjustment                          (8,072)               --               --             --
        Minimum pension liability adjustment, net of
           tax of $456,355                                             (885,867)               --               --             --
        Unrealized gain on securities available-for-sale                505,039                --               --             --
                                                                     ----------
                 Other comprehensive loss                              (388,900)               --               --             --
                                                                     ----------
                 Total comprehensive income (loss)            $      (4,181,354)
                                                                     ==========
Purchase of treasury stock                                                                     --               --             --
Stock options exercised (note 12)                                                             513          247,522             --
Tax benefit from exercise of stock options (note 18)                                           --           71,477             --
Amortization of unearned compensation (note 13)                                                --               --        575,640
Forfeiture of restricted stock grants                                                         (59)        (253,691)       129,441
Tax impact of restricted stock activity                                                        --         (161,800)            --
                                                                                          -------      -----------     ----------
Balance at June 30, 2003                                                           $      256,818      168,805,153       (381,588)
                                                                                          =======      ===========     ==========

<CAPTION>

                                                                                    Accumulated
                                                                                       other                            Total
                                                                      Retained     comprehensive    Treasury stock   stockholders'
                                                                      earnings     loss (note 15)       Amount          equity
                                                                     ----------    --------------   --------------   -------------
<S>                                                           <C>                    <C>             <C>              <C>
Balance at June 30, 2000                                             27,429,519              --       (3,480,983)     179,571,635
     Net income                                                      12,213,968              --               --       12,213,968
     Purchase of treasury stock                                              --              --       (1,291,655)      (1,291,655)
     Stock options exercised (note 12)                                       --              --               --        2,887,111
     Tax benefit from exercise of stock options (note 18)                    --              --               --        5,375,231
     Issuance of restricted stock (note 13)                                  --              --               --               --
     Amortization of unearned compensation (note 13)                         --              --               --          525,435
     Stock options granted for services (note 12)                            --              --               --          172,050
                                                                     ----------      ----------      -----------      -----------
Balance at June 30, 2001                                             39,643,487              --       (4,772,638)     199,453,775

Comprehensive income (loss):
     Net income                                               $       7,439,110              --               --        7,439,110
     Other comprehensive income (loss):
        Foreign currency translation adjustment                              --              --               --               --
        Minimum pension liability adjustment, net of
           tax of $54,737                                                    --              --               --               --
        Unrealized loss on securities available-for-sale                     --              --               --               --
                 Other comprehensive loss                                    --        (828,061)              --         (828,061)
                 Total comprehensive income                   $
Stock options exercised (note 12)                                            --              --               --          398,718
Tax benefit from exercise of stock options (note 18)                         --              --               --          460,672
Issuance of stock in connection with
     acquisition (note 2)                                                    --              --               --        1,755,409
Stock options granted in connection with
     acquisition (note 2)                                                    --              --               --          218,724
Amortization of unearned compensation (note 13)                              --              --               --          636,708
Stock options granted for services (note 12)                                 --              --               --           18,183
                                                                     ----------      ----------      -----------      -----------
Balance at June 30, 2002                                             47,082,597        (828,061)      (4,772,638)     209,553,238

Comprehensive income (loss):
     Net income (loss)                                        $      (3,792,454)             --               --       (3,792,454)
     Other comprehensive income (loss):
        Foreign currency translation adjustment                              --              --               --               --
        Minimum pension liability adjustment, net of
           tax of $456,355                                                   --              --               --               --
        Unrealized gain on securities available-for-sale                     --              --               --               --
                 Other comprehensive loss                                    --        (388,900)              --         (388,900)
                 Total comprehensive income (loss)            $
Purchase of treasury stock                                                   --              --       (5,383,522)      (5,383,522)
Stock options exercised (note 12)                                            --              --               --          248,035
Tax benefit from exercise of stock options (note 18)                         --              --               --           71,477
Amortization of unearned compensation (note 13)                              --              --               --          575,640
Forfeiture of restricted stock grants                                        --              --               --         (124,309)
Tax impact of restricted stock activity                                      --              --               --         (161,800)
                                                                     ----------      ----------      -----------      -----------
Balance at June 30, 2003                                             43,290,143      (1,216,961)     (10,156,160)     200,597,405
                                                                     ==========      ==========      ===========      ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       38
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                    Years ended June 30, 2003, 2002, and 2001

<TABLE>
<CAPTION>
                                                                               2003             2002             2001
                                                                            ----------       ----------       ----------
<S>                                                                   <C>                    <C>              <C>
Cash flows from operating activities:
     Net income (loss)                                                $     (3,792,454)       7,439,110       12,213,968
     Adjustments to reconcile net income (loss) to net cash
        provided by operating activities:
           Depreciation and amortization of plant and equipment              5,014,994        3,844,834        2,775,594
           Impairment loss                                                   2,720,626               --               --
           Amortization of intangibles                                         499,539          428,261        1,624,913
           Provision for doubtful accounts                                      71,599          334,000          140,000
           Deferred income taxes                                               468,265       (1,863,179)        (347,025)
           Unearned compensation                                               451,331          636,708          525,435
           Tax benefit (expense) from stock compensation activity              (90,323)         460,672        5,375,231
           Extraordinary gain on acquisition                                        --       (3,407,244)              --
           Changes in operating assets and liabilities, net of
              business acquisitions:
                 Receivables                                                 3,717,042          272,979          836,617
                 Refundable income taxes                                      (876,220)          53,804          636,925
                 Inventories                                                 4,447,774          159,164       (4,184,124)
                 Accrued interest receivable                                   383,207          486,484          816,173
                 Prepaid expenses                                              (83,454)        (372,449)          89,550
                 Insurance receivable                                               --       10,749,113               --
                 Other assets                                                  (21,698)       1,004,493         (607,052)
                 Accounts payable                                             (665,589)          62,622       (3,376,398)
                 Income taxes payable                                         (464,263)        (408,127)         315,553
                 Accrued expenses                                              247,194       (2,421,212)         537,628
                 Customer advance payments                                    (244,831)        (522,959)         165,833
                 Pension and postretirement benefit obligation                 440,706           22,440           66,518
                 Other liabilities                                              15,237           96,153         (947,222)
                                                                            ----------       ----------       ----------
                    Net cash provided by operating activities               12,238,682       17,055,667       16,658,117
                                                                            ----------       ----------       ----------
Cash flows from investing activities:
     Capital expenditures                                                   (4,783,066)      (9,809,078)      (7,975,512)
     Net (purchases) maturities of marketable debt securities               (5,171,098)       1,323,451       13,517,619
     Purchase of equity securities                                           1,356,279        5,210,219               --
     Purchase of businesses, net of cash acquired (note 2)                          --      (12,073,362)     (17,818,476)
                                                                            ----------       ----------       ----------
                    Net cash used in investing activities                   (8,597,885)     (15,348,770)     (12,276,369)
                                                                            ----------       ----------       ----------
Cash flows from financing activities:
     Payments on notes and line of credit                                           --       (1,976,400)        (407,864)
     Stock options exercised                                                   248,035          398,718        2,887,111
     Purchase of treasury stock                                             (5,383,522)              --       (1,291,655)
                                                                            ----------       ----------       ----------
                    Net cash provided by (used in)
                       financing activities                                 (5,135,487)      (1,577,682)       1,187,592
                                                                            ----------       ----------       ----------
Effect of exchange rates                                                        (8,072)         687,667               --
                    Net increase (decrease) in cash
                       and cash equivalents                                 (1,502,762)         816,882        5,569,340
Cash and cash equivalents at beginning of year                              12,565,424       11,748,542        6,179,202
                                                                            ----------       ----------       ----------
Cash and cash equivalents at end of year                              $     11,062,662       12,565,424       11,748,542
                                                                            ==========       ==========       ==========
Cash paid during the period for:
     Interest                                                         $         50,610          149,257          159,506
</TABLE>

See accompanying notes to consolidated financial statements.


                                       39
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

(1)   Summary of Significant Accounting Policies

      (a)   Principles of Consolidation

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

      (b)   Operations

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

      (c)   Sales Recognition

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

      (d)   Cash Equivalents

            Cash  equivalents of $10,007,462 and $9,608,324 at June 30, 2003 and
            2002,  respectively,  consist of  certificates  of deposit and money
            market  instruments  having  original  maturities of three months or
            less. Cash  equivalents are stated at cost which  approximates  fair
            value.

      (e)   Marketable Securities

            The Company  classifies its securities as either  available-for-sale
            or held to  maturity,  as the Company  does not hold any  securities
            considered to be trading. Held to maturity securities are those debt
            securities  for which the  Company has the  positive  intent and the
            ability to hold until maturity. All other securities not included in
            held to maturity are classified as available-for-sale.

            Held to maturity  securities are recorded at amortized cost adjusted
            for  the   amortization  or  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.

            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.


                                       40                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

      (f)   Trade Accounts Receivable

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

      (g)   Inventories

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

      (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

            Upon  adoption  of SFAS 142,  effective  July 1, 2001,  goodwill  is
            tested  annually for  impairment  at the reporting  until level,  by
            comparing  the fair value of the  reporting  unit with its  carrying
            value.  Valuation  methods  for  determining  the fair  value of the
            reporting unit include reviewing quoted market prices and discounted
            cash flows. If the goodwill is indicated as being impaired, the fair
            value of the  reporting  unit is then  allocated  to its  assets and
            liabilities in a manner  similar to a purchase  price  allocation in
            order to  determine  the implied  fair value of the  reporting  unit
            goodwill.  This implied fair value of the reporting unit goodwill is
            then  compared  with  the  carrying  amount  of the  reporting  unit
            goodwill,  and if it is less,  the Company  would then  recognize an
            impairment loss. No impairment losses were recorded through June 30,
            2003.

      (j)   Patent

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


                                       41                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

      (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  2,355,744,
            1,126,550,   and  886,976  at  June  30,  2003,   2002,   and  2001,
            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 weighted  average  number of common shares  outstanding  for the
            basic income per share calculation was 22,214,181,  22,322,546,  and
            22,133,585  for 2003,  2002,  and 2001,  respectively.  For  diluted
            earnings per share purposes, these balances increased by 0, 767,000,
            and 1,321,659 shares for 2003, 2002, and 2001, respectively,  due to
            the effect of common equivalent shares which were issuable under the
            Company's stock option and restricted stock plans.

      (l)   Research and Development Costs

            Research and development costs are charged to expense as incurred.

      (m)   Income Taxes

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

      (n)   Financial Instruments

            The  Company's  financial  instruments,  which include cash and cash
            equivalents,  receivables,  and accounts payable, are stated at cost
            which  approximates  fair  value at June  30,  2003  and  2002.  The
            Company's  available-for-sale  equity securities are stated at their
            fair value,  as determined by quoted market prices on June 30, 2003.
            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 4.


                                       42                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

      (o)   Stock-Based Compensation

            At June 30,  2003 the  Company  had 3  stock-option  based  employee
            compensation  plans,  which are described more fully in note 12. The
            Company   accounts  for  those  plans  under  the   recognition  and
            measurement  principles of APB Opinion No. 25,  Accounting for Stock
            Issued to Employees,  and related  interpretations.  No stock-option
            based employee  compensation cost is reflected in net income, as all
            options granted under those plans had an exercise price equal to the
            underlying  common stock on the date of grant.  The following  table
            illustrates  the effect on net income and  earnings per share if the
            Company had applied the fair value  recognition  provisions  of FASB
            Statement  No. 123,  Accounting  for  Stock-Based  Compensation,  to
            stock-option based employee compensation.

                                                    Year ended June 30,
                                          -------------------------------------
                                              2003         2002         2001
                                          -----------   ----------    ---------
Net income (loss), as reported        $    (3,792,454)   7,439,110   12,213,968

Deduct: total stock option based
  employee compensation expense
  determined under fair value based
  method for all awards, net of
  related tax effects                      (8,748,657)  (8,837,767)  (7,474,580)
                                          -----------   ----------    ---------
Proforma net income (loss)            $   (12,541,111)  (1,398,657)   4,739,388
                                          ===========   ==========    =========

Earnings per share:
  Basic - as reported                           (0.17)        0.33         0.55
  Basic - proforma                              (0.56)       (0.07)        0.22
  Diluted - as reported                         (0.17)        0.32         0.52
  Diluted - proforma                            (0.56)       (0.07)        0.20

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

      (p)   Use of Estimates

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


                                       43                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

      (q)   Recent Pronouncements

            In April 2003,  the FASB issued  Statement  No.  149,  Amendment  of
            Statement 133 on Derivative Instruments and Hedging Activities (SFAS
            149).  SFAS  149  amends  and  clarifies  reporting  for  derivative
            instruments.  Is effective  for  contracts  entered into or modified
            after June 30, 2003. The Company has reviewed the provisions of SFAS
            149, and believes that upon adoption,  the Statement will not have a
            significant effect on its financial statements.

            In May 2003,  the FASB  issued  Statement  No. 150,  Accounting  for
            Certain   Financial   Instruments  with   Characteristics   of  Both
            Liabilities  and Equity  (FASB 150).  The  statement  clarifies  how
            issuers    classify   and   measure   certain    instruments    with
            characteristics  of both liabilities and equity. It is effective for
            financial  instruments  entered into or modified after May 31, 2003,
            and otherwise for fiscal periods  beginning after June 15, 2003. The
            Company has reviewed the  provisions  of SFAS 150, and believes that
            upon adoption,  the Statement will not have a significant  effect on
            its financial statements.

            In January 2003, the FASB issued FIN 46:  Consolidation  of Variable
            Interest  Entities an  interpretation  of ARB No. 51 (FIN 46).  This
            interpretation  clarifies the  application  of  Accounting  Research
            Bulletin  No.  51,  Consolidated  Financial  Statements,  to certain
            entities in which equity  investors do not have the  characteristics
            of a controlling financial interest or do not have sufficient equity
            at risk for the entity to finance its activities  without additional
            subordinated  financial support from other parties.  The FIN applies
            immediately to variable  interest entities created after January 31,
            2003,  and to  variable  interest  entities  in which an  enterprise
            obtains an interest  after that date. It applies in the first fiscal
            year or interim  period  beginning  after June 15, 2003, to variable
            interest  entities in which an enterprise holds a variable  interest
            that it acquired  before  February 1, 2003. The Company has reviewed
            the provisions of FIN 46, and believes that upon  adoption,  the FIN
            will not have a significant effect on its financial statements.

            In March  2003,  the  Emerging  Issues Task Force  (EITF)  reached a
            consensus  on  EITF  00-21:   Revenue   Arrangements  with  Multiple
            Deliverables  (EITF 00-21).  This Issue addresses certain aspects of
            the  accounting  by a vendor for  arrangements  under  which it will
            perform multiple revenue-generating activities.  Specifically,  this
            Issue  addresses how to determine  whether an arrangement  involving
            multiple deliverables contains more than one unit of accounting.  In
            applying  this  Issue,  separate  contracts  with the same entity or
            related  parties  that are entered into at or near the same time are
            presumed to have been negotiated as a package and should, therefore,
            be evaluated as a single  arrangement in  considering  whether there
            are  one or  more  units  of  accounting.  That  presumption  may be
            overcome if there is sufficient evidence to the contrary. This Issue
            also addresses how arrangement  consideration should be measured and
            allocated to the separate  units of accounting  in the  arrangement.
            The  guidance in this Issue is  effective  for revenue  arrangements
            entered into in fiscal  periods  beginning  after June 15, 2003. The
            Company has reviewed the provisions of EITF 00-21, and believes that
            upon adoption,  the Issue will not have a significant  effect on its
            financial statements.

      (r)   Reclassifications

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


                                       44                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

(2)   Acquisitions

      On July 31, 2000, the Company acquired substantially all the net assets of
      Ocean  Microwave  Corporation  (Ocean).  Ocean was based in  Neptune,  New
      Jersey and was primarily engaged in the design and manufacture of isolator
      and circulator  components.  The acquired Ocean business is conducted from
      the  Company's  subsidiary,   Anaren  Power  Products,  Inc.  (APPI).  The
      transaction  was accounted for using the purchase method of accounting for
      business combinations and, accordingly,  the results of operations of APPI
      have been  included in the  Company's  consolidated  financial  statements
      since the date of acquisition.

      The purchase price was  $17,990,526,  including direct  acquisition  costs
      (note 13), which was allocated to the net assets  acquired and liabilities
      assumed based upon respective  fair market values.  The fair market values
      of plant and equipment were  determined by an independent  valuation which
      also validated the nonexistence of any identifiable intangible assets. The
      excess consideration over such fair values is recorded as goodwill and was
      assigned to the Company's Wireless segment. The allocation of the purchase
      price to the assets acquired and liabilities assumed follows:

            Working capital           $    812,532
            Long lived assets              269,390
            Notes payable                 (407,864)
            Goodwill                    17,316,468
                                        ----------
                                      $ 17,990,526
                                        ==========

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

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


                                       45                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

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

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

      On October 1, 2001,  the  Company,  through  its wholly  owned  subsidiary
      Anaren Microwave Europe B.V., acquired all of the outstanding stock of The
      5M Company  Europe B.V. (now named Anaren  Europe,  B.V.).  Anaren Europe,
      based in Almelo,  Netherlands  is a  manufacturer  of microwave  circuits.
      Anaren Europe's manufacturing  technology is very similar to the Company's
      multi-layer stripline technology.  In addition, Anaren Europe has a unique
      metal backing  technology that offers  performance and cost advantages for
      high power  applications.  The Company believes that this acquisition will
      enable it to reduce its manufacturing costs in Europe, increase its dollar
      content in high power  applications  and provide  customers  with a higher
      level of vendor  security  with a second  manufacturing  facility.  Anaren
      Europe has  completed  the  rebuilding  of its  factory due to a fire that
      occurred  in July  2001.  The  transaction  was  accounted  for  using the
      purchase method of accounting for business  combinations and, accordingly,
      the  results of  operations  of Anaren  Europe  have been  included in the
      Company's consolidated financial statements since the date of acquisition.

      The  purchase  consideration  for Anaren  Europe was  $3,869,823  in cash,
      including  direct  acquisition  costs,  and Company  stock options with an
      aggregate  fair  value of  $218,724.  The fair  values of Anaren  Europe's
      assets   acquired   and   liabilities   assumed   exceeded   the  purchase
      consideration  and the negative  goodwill  served first to reduce the fair
      value of purchased  equipment to zero with the remaining excess recognized
      as an extraordinary gain.

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

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


                                       46                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

      The  Anaren  Europe  fire  loss in July  2001  was  subject  to  property,
      casualty,  and business interruption  insurance.  As of December 31, 2001,
      the  Company  settled  the  insurance  claim and an  insurance  receivable
      aggregating  $10,749,113  is  reflected  in the  allocation  of the Anaren
      Europe  purchase  price as of October 1, 2001.  During the year ended June
      30,  2002,   Anaren  Europe  recognized   incremental   outsourcing  costs
      aggregating  $555,120  in cost of sales,  and fire  related  cleaning  and
      remediation  expenses of $711,400 in operating  expenses.  During the year
      ended June 30, 2003,  the Company  decided to liquidate  Anaren Europe and
      recorded restructurings, and impairment charges as described in note 8.

      The  following  unaudited  pro forma  financial  information  presents the
      combined results of operations of the Company,  Ocean, Amitron, and Anaren
      Europe as if the acquisitions took place as of July 1, 2000. The pro forma
      information  includes certain  adjustments,  including the amortization of
      goodwill and intangibles,  reduction of interest income, and certain other
      adjustments,  together with the related income tax effects.  The pro forma
      financial   information  does  not  necessarily  reflect  the  results  of
      operations that would have occurred had the Company,  Ocean,  Amitron, and
      Anaren Europe constituted a single entity during such periods.

                                             Year ended June 30
                                         --------------------------
                                            2002            2001
                                         ----------     -----------
      Net sales                      $   75,900,631     106,745,701
      Insurance recoveries               15,999,972              --
      Net income                         12,874,677      11,948,196
      Earnings per share:
         Basic                                 0.57            0.53
         Diluted                               0.55            0.50

      For purposes of the pro forma financial information,  the July 2001 Anaren
      Europe fire loss  insurance  recoveries  have been reflected in operations
      versus the  recognition as a  pre-acquisition  contingency in the purchase
      price  allocation  as  previously  discussed.  The pro  forma  information
      reflects  insurance  recoveries of $15,999,972 for the year ended June 30,
      2002.

      The pro forma information does reflect goodwill  amortization  aggregating
      $1,649,245  and  $1,675,823  for the years  ended June 30,  2002 and 2001,
      respectively, related to acquisitions which occurred prior to the adoption
      of SFAS 142, Goodwill and Intangible Assets, by the Company.

(3)   Adoption of Accounting Pronouncements

      In August 2001,  the Financial  Accounting  Standards  Board (FASB) issued
      Statement of Financial  Accounting  Standards No. 144,  Accounting for the
      Impairment of Disposal of Long-Lived Assets (SFAS 144). SFAS 144 addresses
      financial accounting and reporting for the impairment of long-lived assets
      and for  long-lived  assets to be disposed  of. SFAS 144 was  required for
      adoption for fiscal years  beginning  after  December 15, 2001 and interim
      periods  within those fiscal years.  The Company has adopted SFAS 144, and
      recorded impairment charges of $2,720,626 as described in note 8.


                                       47                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

      In July 2002,  the  Financial  Accounting  Standards  Board (FASB)  issued
      Statement  of  Financial  Accounting  Standards  No. 146,  Accounting  for
      Restructuring  Costs (SFAS 146). SFAS 146 applies to costs associated with
      an  exit  activity  (including   restructuring)  or  with  a  disposal  of
      long-lived  assets.  Those activities can include  eliminating or reducing
      product lines,  terminating employees and contracts,  and relocating plant
      facilities or personnel. Under SFAS 146, a company will record a liability
      for a cost  associated  with  an  exit  or  disposal  activity  when  that
      liability  is incurred  and can be  measured at fair value.  SFAS 146 will
      require a company  to  disclose  information  about its exit and  disposal
      activities,  the related costs, and changes in those costs in the notes to
      the interim and annual  financial  statements  that  include the period in
      which an exit activity is initiated and in any subsequent period until the
      activity is completed.  SFAS 146 was effective  prospectively  for exit or
      disposal  activities  initiated  after  December  31,  2002.  The  Company
      accounted for all of its exit activities initiated after December 31, 2002
      under  the  requirements  of SFAS  146 as  described  in  note 8.  The new
      Statement  grandfathers  the accounting for liabilities that a company had
      previously recorded under EITF 94-3.

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

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

      In July 2001,  the  Financial  Accounting  Standards  Board (FASB)  issued
      Statement of Financial  Accounting  Standards No. 141 (SFAS 141), Business
      Combinations  which supersedes APB Opinion No. 16, Business  Combinations.
      SFAS No. 141 eliminates the pooling-of-interests  method of accounting for
      business  combinations  and  modifies  the  application  of  the  purchase
      accounting method. The elimination of the  pooling-of-interests  method is
      effective for  transactions  initiated  after June 30, 2001. The remaining
      provisions of SFAS No. 141 are effective  for  transactions  accounted for
      using the purchase  method that are  completed  after June 30,  2001.  The
      Company  adopted  SFAS No.  141 during  the first  quarter of fiscal  2002
      (effective July 1, 2001). Adoption of the Statement did not have an impact
      on   the   Company,    as   the   Company   has   not   historically   had
      pooling-of-interest  transactions and business combinations  subsequent to
      June 30, 2001 (note 2) were accounted for under the purchase method.


                                       48                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

      During the first  quarter of fiscal 2002  (effective  July 1,  2001),  the
      Company adopted Statement of Financial  Accounting Standards No. 142 (SFAS
      142), Goodwill and Intangible Assets, which supercedes APB Opinion No. 17,
      Intangible  Assets.  SFAS No. 142  eliminates  the current  requirement to
      amortize  goodwill and indefinite lived intangible  assets,  addresses the
      amortization  of  intangible  assets with a defined life and addresses the
      impairment  testing and recognition of goodwill and intangible assets. The
      following  information  describes the impact that the adoption of SFAS No.
      142 had on the Company for the fiscal years ended June 30:

      (a)   Intangible Assets

            Intangible assets as of June 30, 2003 and 2002 are as follows:

<TABLE>
<CAPTION>
                                                 2003                           2002
                                       -------------------------      -------------------------
                                         Gross                          Gross
                                        carrying    Accumulated        carrying    Accumulated
                                         amount     amortization        amount     amortization
                                       ---------    ------------      ---------    ------------
<S>                             <C>                  <C>              <C>            <C>
Patent                          $        574,966       287,484          574,966      215,613
Customer base                          1,350,000       412,500        1,350,000      187,500
Trade name                               320,000       195,558          320,000       88,890
Noncompetition agreements                180,000        66,000          180,000       30,000
Favorable lease                          600,000       110,000          600,000       50,000
                                       ---------     ---------        ---------      -------
Total                           $      3,024,966     1,071,542        3,024,966      572,003
                                       =========     =========        =========      =======
</TABLE>

            Intangible asset  amortization  expense for the years ended June 30,
            2003,  2002, and 2001 aggregated  $499,539,  $428,261,  and $71,871,
            respectively.  Amortization expense related to intangible assets for
            the next five years is as follows:

                  Year ending June 30:
                     2004                   $   499,539
                     2005                       410,645
                     2006                       392,871
                     2007                       362,879
                     2008                        97,500

      (b)   Goodwill

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

                                    2003           2002             2001
                                 ----------      ----------       ----------
Goodwill as of July 1        $   30,715,861      23,410,534        7,647,108
Goodwill acquired                        --       7,305,327       17,316,468
Goodwill amortization                    --              --       (1,553,042)
                                 ----------      ----------       ----------
Goodwill as of June 30       $   30,715,861      30,715,861       23,410,534
                                 ==========      ==========       ==========


                                       49                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

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

            The  impact  that the  adoption  of SFAS 142 had on net  income  and
            earnings  per share for the year ended June 30 2001 is  presented as
            follows:

                                                            2001
                                                         ----------
Net income                                           $   12,213,968
Add back goodwill amortization (net of tax)               1,553,042
                                                         ----------
      Adjusted net income                            $   13,767,010
                                                         ==========
Basic earnings per share:
   Net income                                        $         0.55
   Goodwill amortization (net of tax)                          0.07
                                                         ----------
      Adjusted net income                            $         0.62
                                                         ==========
Diluted earnings per share:
   Net income                                        $         0.52
   Goodwill amortization (net of tax)                          0.07
                                                         ----------
      Adjusted net income                            $         0.59
                                                         ==========


                                       50                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

(4)   Securities

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

<TABLE>
<CAPTION>
                                                                    June 30, 2003
                                            -------------------------------------------------------------
                                                               Gross             Gross
                                            Amortized       unrealized        unrealized
                                               cost            gains            losses         Fair value
                                            ----------      -----------       ----------       ----------
<S>                                   <C>                       <C>            <C>              <C>
Securities available for sale:
   Common stock                       $      6,586,529               --        (904,269)        5,682,260
                                           -----------          -------         -------       -----------
      Total securities
           available-for-sale         $      6,586,529               --        (904,269)        5,682,260
                                           ===========          =======         =======       ===========
Securities held to maturity:
   Municipal bonds                    $     52,819,662           36,204          --            52,855,866
   Commercial paper                          2,000,000            3,834          --             2,003,834
   Corporate bonds                          18,388,917           73,328          --            18,462,245
   Zero coupon bonds                         5,061,977               --          (6,842)        5,055,135
   Tax free auction securities              32,707,842               --          (7,842)       32,700,000
                                           -----------          -------         -------       -----------
      Total securities
           held to maturity           $    110,978,398          113,366         (14,684)      111,077,080
                                           ===========          =======         =======       ===========

<CAPTION>

                                                                    June 30, 2002
                                            -------------------------------------------------------------
                                                               Gross            Gross
                                            Amortized       unrealized        unrealized
                                               cost            gains            losses         Fair value
                                            ----------      -----------       ----------       ----------
Securities available for sale:
<S>                                   <C>                       <C>          <C>                <C>
   Common stock                       $      5,230,416               --      (1,409,474)        3,820,942
                                           -----------          -------      ----------       -----------
      Total securities
           available-for-sale         $      5,230,416               --      (1,409,474)        3,820,942
                                           ===========          =======      ==========       ===========
Securities held to maturity:
   Municipal bonds                    $     62,223,440          175,344              --        62,398,784
   Corporate bonds                          20,800,237           18,566              --        20,818,803
   Zero coupon bonds                         1,496,180            1,869              --         1,498,049
   Tax free auction securities              24,000,000               --              --        24,000,000
                                           -----------          -------      ----------       -----------
      Total securities
           held to maturity           $    108,519,857          195,779              --       108,715,636
                                           ===========          =======      ==========       ===========
</TABLE>

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


                                       51                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

      On July 11, 2002, the Company filed a Schedule 13D with the Securities and
      Exchange   Commission  to  disclose  that  it  has,  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.
      The  investment  had a market  value of $5.7  million on June 30,  2003, a
      decline of $904,000, which has been recorded as a component of accumulated
      other  comprehensive  loss.  The Company  considers this to be a temporary
      decline in market  value.  If, at a future date,  this decline in value is
      determined  to be  other  than  temporary,  then  the  decline  in  value,
      including the amount previously charged as accumulated other comprehensive
      loss to shareholders equity, would at that time be recognized as a loss in
      the current  period  income  statement.  Anaren  believes  that a business
      combination  between Anaren and Celeritek would be in the best interest of
      the respective  shareholders,  customers,  and employees of both companies
      and intends to seek a  negotiated  acquisition  of Celeritek or take other
      actions to effect such a potential transaction, as more fully described in
      Anaren's Schedule 13D filing.

(5)   Inventories

      Inventories at June 30 are summarized as follows:

                                         2003                  2002
                                      ----------            ----------
Component parts                   $    8,810,207            11,368,156
Work in process                        5,627,150             6,179,545
Finished goods                         2,656,029             4,821,732
                                      ----------            ----------
                                      17,093,386            22,369,433
Reserve for obsolescence              (1,421,727)           (2,250,000)
                                      ----------            ----------
   Net inventory                  $   15,671,659            20,119,433
                                      ==========            ==========

(6)   Property, Plant, and Equipment

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

                                                         2003           2002
                                                      ----------     ----------
Land and land improvements                        $    1,595,821      1,595,821
Buildings, furniture, and fixtures                    12,944,778     12,258,796
Machinery and equipment                               47,590,955     47,720,881
                                                      ----------     ----------
                                                      62,131,554     61,575,498
Less accumulated depreciation and amortization        38,491,733     34,983,123
                                                      ----------     ----------
                                                  $   23,639,821     26,592,375
                                                      ==========     ==========


                                       52                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

(7)   Accrued Expenses

      Accrued expenses at June 30 consist of the following:

                                            2003            2002
                                         ----------       ---------
Compensation                          $     924,290       1,045,085
Commissions                                 355,098         573,325
Restructuring (note 8)                      710,885              --
Health insurance                            290,424         330,177
Other                                       196,973         281,889
                                          ---------       ---------
                                      $   2,477,670       2,230,476
                                          =========       =========

(8)   Restructuring and Impairment

      In  September  2002,  March  2003,  April 2003 and June 2003,  the Company
      recorded  restructuring  and other  non-recurring  charges  at its  Anaren
      Europe, B.V., RF Power and Anaren Microwave,  Inc. subsidiaries associated
      with the Company's strategic restructuring plan. The restructuring plan is
      designed to improve both financial  results and the long-term value of the
      business.  The restructuring charges consisted of workforce reductions and
      asset  write-offs.  As a result of this plan,  the Company  recorded total
      pretax  restructuring  charges of  $2,537,291  for the year ended June 30,
      2003, as follows:

Anaren Europe, B.V.                           $   1,742,764
RF Power                                            295,706
Anaren Microwave, Inc.                              498,821
                                                  ---------
                                              $   2,537,291
                                                  =========

      Anaren Europe,  B.V. includes charges related to employee separation costs
      (91 positions),  and inventory  write-offs.  On July 10, 2003, the Company
      announced  its decision to dispose of its Anaren Europe  operation.  It is
      anticipated  that Anaren  Europe  operations  will cease  during the first
      quarter  of  fiscal  2004,  and  the  liquidation  of net  assets  will be
      completed during the second and third quarter.

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


                                       53                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

      Reconciliation of the restructuring  liability, as of June 30, 2003, is as
      follows:

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

      The  remaining  balance  is  expected  to be paid by the end of the  third
      quarter of 2004.

      Additionally,  the  Company  recognized  asset  impairment  charges in the
      amount of  $2,720,626  for the year ending June 30, 2003  attributable  to
      certain  assets of Anaren  Europe,  B.V. As a result of the historical and
      continuing  operating  losses and negative  cash flow at the Anaren Europe
      circuit  board  facility,  and the  continuing  weakness  in the  wireless
      infrastructure  market,  it was determined to significantly  downsize this
      operation.  In conjunction with this  reorganization  and due to continued
      negative  cash flow  projections  after  the  restructuring,  the  Company
      performed  an  evaluation  to determine if the fixed assets used by Anaren
      Europe were subject to an  impairment  loss as required by FAS 144. It was
      determined that a possible impairment existed and as a result, the Company
      had an independent  appraisal performed of the assets of Anaren Europe. An
      impairment  loss of  $2,720,626  was  identified,  which was recorded as a
      charge in the statement of operations under the caption  "Impairment Loss"
      for the year ended June 30, 2003.  Additionally,  Anaren Europe is part of
      the Company's  Wireless segment,  and the charge was also reflected in the
      Wireless  segment  results  included  in  footnote  19  to  the  financial
      statements.

(9)   Other Liabilities

      Other liabilities as of June 30 consist of the following:

                                               2003          2002
                                              -------       -------
Deferred compensation                     $   502,236       526,808
Other                                         160,534       120,725
                                              -------       -------
                                              662,770       647,533
Less current portion                          225,534       185,725
                                              -------       -------
                                          $   437,236       461,808
                                              =======       =======

      During fiscal 1998, the Company  implemented a deferred  compensation plan
      for one 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.


                                       54                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

(10)  Long-Term Debt

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

      Cash payments for annual fees relating to  maintaining  the line of credit
      were $9,375,  $37,500,  and $37,500  during fiscal 2003,  2002,  and 2001,
      respectively.

(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 Option Plans

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

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

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

      In connection  with the  acquisition  of Ocean as discussed in note 2, the
      Company  issued  5,000 NSO's to a  nonemployee  for  services  provided in
      brokering  the  transactions.  The stock  options  were valued at $172,050
      using the Black-Scholes  model as of November 2, 2000 (the date of grant),
      became exercisable on the date of grant, and must be exercised within five
      years of the date of grant.  The  option  value is  included  with  Oceans
      direct acquisition costs.


                                       55                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

      Information  for the three years ended June 30, 2003 with respect to these
      plans are as follows:

<TABLE>
<CAPTION>
                                                                           Shares
                                    -----------------------------------------------------------------------------------------
                                                                                                                     Weighted
                                             ISO                                                                      Shares
                                    ---------------------                                                            average
                                       Key       Company-                                               Option       exercise
                                    Employee       Wide         NSO       Other         Total           price          price
                                    --------     --------     -------   ---------     ---------    ---------------   --------
<S>                                 <C>          <C>          <C>       <C>           <C>          <C>               <C>
Outstanding at June 30, 2000        1,776,100         --      147,000    150,000      2,073,100    $0.46 to $54.00   $  8.13
   Issued                             625,500     45,900       80,000         --        751,400    14.70 to 62.44      50.40
   Exercised                         (331,900)        --      (19,000)  (150,000)      (500,900)   0.46 to 13.42        5.78
   Canceled                           (19,500)    (2,900)          --         --        (22,400)   4.63 to 53.00       21.81
                                    ---------    -------      -------   --------      ---------
Outstanding at June 30, 2001        2,050,200     43,000      208,000         --      2,301,200    1.38 to 62.44       22.31
   Issued                             506,850     98,300       87,500         --        692,650    12.63 to 19.21      16.43
   Exercised                          (18,500)        --      (26,000)        --        (44,500)   1.38 to 12.42        8.96
   Expired                                 --         --      (13,000)        --        (13,000)   19.21 to 53.00      45.20
   Canceled                          (368,300)    (9,400)     (65,000)        --       (442,700)   12.42 to 53.00      48.51
                                    ---------    -------      -------   --------      ---------
Outstanding at June 30, 2002        2,170,250    131,900      191,500         --      2,493,650    1.38 to 62.44       16.15
   Issued                             342,000     37,100       32,000         --        411,100    8.57 to 10.18        9.46
   Exercised                          (24,300)        --      (27,000)        --        (51,300)   1.38 to 7.10         4.83
   Expired                            (49,450)   (25,400)      --             --        (74,850)   9.51 to 53.00       24.96
   Canceled                           (49,220)        --      (12,000)        --        (61,220)   12.42 to 53.00      26.38
                                    ---------    -------      -------   --------      ---------
Outstanding at June 30, 2003        2,389,280    143,600      184,500         --      2,717,380    $1.38 to $62.44   $ 14.88
                                    =========    =======      =======   ========      =========
Shares exercisable at
   June 30, 2003                    1,208,506         --      184,500         --      1,393,006    $1.38 to $62.44   $ 12.85
Shares available for grant
   at June 30, 2003                 1,007,920    856,400      218,000         --      2,082,320
</TABLE>

      The following  table  summarizes  significant  ranges of  outstanding  and
      exercisable options at June 30, 2003:

<TABLE>
<CAPTION>
                             Options outstanding                                Options exercisable
      -------------------------------------------------------------------  -----------------------------
                                            Weighted
                                             average          Weighted                       Weighted
            Range of                        remaining          average                        average
        exercise prices       Shares      life in years    exercise price      Shares     exercise price
        ---------------       ------      -------------    --------------      ------     --------------
<S>                          <C>              <C>            <C>            <C>          <C>
  $   1.00 to 5.00             339,700        2.96           $   2.13         333,700    $     2.10
      5.01 to 15.00          1,792,850        6.44              10.57         831,820          9.61
      15.01 to 40.00           325,630        7.12              21.41          92,906         22.10
      40.01 to 65.00           259,200        6.52              53.15         134,580         53.15
                             ---------                                      ---------
                             2,717,380                                      1,393,006
                             =========                                      =========
</TABLE>


                                       56                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

      The per share weighted  average fair value of stock options granted during
      fiscal  years  2003,  2002,  and  2001  was  $6.48,  $11.37,  and  $32.74,
      respectively.  The fair  value of  options  at the date of the  grant  was
      estimated using the Black-Scholes model with the following assumptions for
      the respective fiscal year:

                                                2003         2002         2001
                                              -------       ------       ------
Expected option life - key employee plan            5            5            5
Expected option life - company-wide plan            3            3           --
Weighted average risk-free interest rate         3.20%        4.00%        6.00%
Weighted average expected volatility            89.00%       92.00%       74.00%
Expected dividend yield                          0.00%        0.00%        0.00%

      Stock-based  compensation  costs would have reduced  pretax  income by the
      following  amounts if the fair values of options  granted in that year had
      been recognized as compensation  expense on a straight-line basis over the
      vesting period of the grant. The pro forma effect on net income for fiscal
      2003, 2002, and 2001 is not  representative of the pro forma effect on net
      income in future  years  because it does not take into  consideration  pro
      forma compensation expense related to grants made prior to fiscal 1996.

                                              2003         2002         2001
                                             ------       ------       ------
Reduction in pretax income                $ 8,823,478    9,183,657    7,830,825
Reduction in after tax income               8,748,657    8,837,767    7,474,580
Per share                                 $      0.39  $      0.40  $      0.33

(13)  Restricted Stock Program

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

(14)  Accumulated Other Comprehensive Income (Loss)

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

<TABLE>
<CAPTION>
                                                                        Unrealized
                                      Foreign          Minimum        gain/(loss) on      Accumulated
                                     currency          pension          securities           other
                                    translation       liability       available-for-     comprehensive
                                    adjustment       adjustment            sale          income (loss)
                                    -----------      ----------       --------------     -------------
<S>                                 <C>               <C>              <C>                  <C>
Balances at June 30, 2002           $  687,667        (106,254)        (1,409,474)          (828,061)
Current period change                   (8,072)       (885,867)           505,039           (388,900)
                                       -------        --------         ----------         ----------
Balances at June 30, 2003           $  679,595        (992,121)          (904,435)        (1,216,961)
                                       =======        ========         ==========         ==========
</TABLE>


                                       57                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

(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.


                                       58                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

(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>
                                                      2003               2002             2001
                                                    ---------         ---------        ---------
<S>                                              <C>                  <C>              <C>
Change in benefit obligation:
   Benefit obligation at beginning of year       $  7,277,360         6,562,855        5,908,615
   Service cost                                       212,865           213,839          204,440
   Interest cost                                      504,758           469,017          437,762
   Actuarial loss                                   1,280,223           281,005          237,835
   Benefits paid                                     (263,845)         (249,356)        (225,797)
                                                   ----------        ----------        ---------
   Benefit obligation at end of year             $  9,011,361         7,277,360        6,562,855
                                                   ==========        ==========        =========
Change in plan assets:
   Fair value of plan assets at beginning
        of year                                  $  6,106,958         6,237,552        5,744,994
   Actual return on plan assets                       231,104           (85,062)         718,355
   Employer contributions                             260,631           203,824               --
   Benefits paid                                     (263,845)         (249,356)        (225,797)
                                                   ----------        ----------        ---------
   Fair value of plan assets at end of year      $  6,334,848         6,106,958        6,237,552
                                                   ==========        ==========        =========
(Under) over funded status                       $ (2,676,513)       (1,170,402)        (325,303)
Unrecognized net loss (gain)                        2,300,138           743,618         (155,335)
Unrecognized net obligation existing at
   initial application                                     --             9,463           18,929
Unrecognized prior service cost                        24,199            42,438           60,677
Adjustment required to recognize minimum
   liability                                       (1,503,213)         (160,991)              --
                                                   ----------        ----------        ---------
      Accrued pension cost                       $ (1,855,389)         (535,874)        (401,032)
                                                   ==========        ==========        =========
</TABLE>


                                       59                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

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

<TABLE>
<CAPTION>
                                                       2003              2002             2001
                                                     --------           -------         --------
<S>                                                <C>                  <C>              <C>
Service cost                                       $  212,865           213,839          204,440
Interest cost                                         504,758           469,017          437,762
Actual return on plan assets                          231,104            85,062         (718,355)
Amortization of prior service cost                     18,239            18,239           18,239
Deferral of gain (loss)                              (744,139)         (617,948)         237,636
Amortization of net obligation at transition            9,463             9,466            9,466
Unrecognized net loss                                   5,634                --               --
                                                     --------          --------         --------
   Net periodic pension cost                       $  237,924           177,675          189,188
                                                     ========          ========         ========
Weighted average assumptions:
   Discount rate at year-end                             6.00%             7.00%            7.25%
   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%
</TABLE>

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

      The Company  maintains a voluntary  contributory  salary  savings  plan to
      which  participants may contribute up to 15% of their total  compensation.
      The  Company's   matching   contribution  is  75%  of  the   participants'
      contribution  up to a  maximum  of 5% of the  participants'  compensation.
      During fiscal 2003,  2002,  and 2001,  the Company  contributed  $568,721,
      $550,094, and $491,550, 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  $240,500,  $549,693,  and
      $300,390 in fiscal 2003, 2002, and 2001,  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                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

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

<TABLE>
<CAPTION>
                                                      2003              2002             2001
                                                   ----------        ----------       ----------
<S>                                              <C>                  <C>              <C>
Benefit obligation at beginning of year          $  1,720,753         1,528,610        1,213,601
Service cost                                           48,018            46,969           43,040
Interest cost                                         119,861           111,832          105,780
Plan participants' contributions                       53,498            39,816           39,274
Actuarial loss                                        194,229           143,554          248,491
Benefits paid                                        (220,631)         (150,028)        (121,576)
                                                   ----------        ----------       ----------
Benefit obligation at end of year                $  1,915,728         1,720,753        1,528,610
                                                   ==========        ==========       ==========
Fair value of plan assets                        $         --                --               --
(Under) over funded status                       $ (1,915,728)       (1,720,753)      (1,528,610)
Unrecognized actuarial loss                           468,585           280,668          137,114
                                                   ----------        ----------       ----------
   Accrued postretirement
        benefit cost                             $ (1,447,143)       (1,440,085)      (1,391,496)
                                                   ==========        ==========       ==========
</TABLE>

      Net  periodic   postretirement   benefit  cost   includes  the   following
      components:

<TABLE>
<CAPTION>
                                                        2003              2002             2001
                                                      -------           -------          -------
<S>                                              <C>                     <C>              <C>
Service cost                                     $     48,018            46,969           43,040
Interest cost                                         119,861           111,832          105,780
Amortized loss                                          6,312                --               --
                                                      -------           -------          -------
   Net periodic postretirement
        benefit cost                             $    174,191           158,801          148,820
                                                      =======           =======          =======
</TABLE>

      The weighted  average  discount rate used in determining  the  accumulated
      postretirement  benefit obligation was 6.00%, 7.00%, and 7.25%, at the end
      of fiscal 2003, 2002, and 2001,  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 5.0% for 2003, 2002,
      and 2001;  the rate is  assumed to remain at 5.0%  thereafter.  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                                $       3,356    $    (5,034)
Effect on postretirement benefit obligation       $      47,945    $   (71,917)


                                       61                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

(18)  Income Taxes

      The following table presents the Domestic and Foreign components of income
      (loss)  before  income  taxes  and  extraordinary  item  and  the  expense
      (benefit) for income taxes from continuing operations:

<TABLE>
<CAPTION>
                                                                  Year ended June 30
                                                      2003              2002             2001
                                                   ----------        ----------       ----------
<S>                                              <C>                  <C>             <C>
Income (loss) before income taxes
   and extraordinary item:
        Domestic                                 $  4,787,907         7,947,190       18,613,968
        Foreign                                    (8,444,361)       (4,320,324)              --
                                                   ----------        ----------       ----------
                                                 $ (3,656,454)        3,626,866       18,613,968
                                                   ==========        ==========       ==========
Income tax expense (benefit) consists of:
   Current:
      Federal                                    $   (411,978)        1,407,316        6,151,164
      State and local                                (181,700)           74,230          595,861
      Foreign                                              --                --               --
                                                   ----------        ----------       ----------
        Total current                                (593,678)        1,481,546        6,747,025
                                                   ----------        ----------       ----------
   Deferred:
      Federal                                         747,754          (306,857)        (333,599)
      State and local                                 644,192             4,793          (13,426)
      Foreign                                        (662,268)       (1,584,482)             --
                                                   ----------        ----------       ----------
        Total deferred                                729,678        (1,886,546)        (347,025)
                                                   ----------        ----------       ----------
        Total income taxes                       $    136,000          (405,000)       6,400,000
                                                   ==========        ==========       ==========
</TABLE>

      Certain tax benefits are not reflected in income taxes in the statement of
      operations. Such benefits of $366,032,  $515,409, and $5,375,231 in fiscal
      2003,  2002,  2001,   respectively,   relate  to  the  Company's  required
      additional minimum pension liability (fiscal 2003 and 2002), stock options
      (fiscal 2003,  2002 and 2001) and  restricted  stock awards (fiscal 2003).
      These net tax  benefits  have been  recorded in  stockholders'  equity and
      reduced taxes payable by $68,477,  $460,672 and $5,375,231 in fiscal 2003,
      2002 and 2001, respectively, and reduced the net deferred tax liability by
      $297,555 and $54,737 in fiscal 2003 and 2002, respectively.


                                       62                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

      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  extraordinary  item,  to  income  tax  expense
      (benefit), is as follows:

<TABLE>
<CAPTION>
                                                      2003              2002             2001
                                                   ----------        ----------       ----------
<S>                                              <C>                  <C>              <C>
Expected consolidated income tax expense
   (benefit)                                     $ (1,243,194)        1,233,134        6,328,749
State taxes, net of Federal benefit                   305,245            52,156          384,407
Nontaxable interest income                           (659,566)         (867,624)        (815,095)
Increase in valuation allowance                     2,671,408                --               --
Foreign tax rate differential                        (321,777)               --               --
Adjustment of prior years' taxes                     (158,420)               --               --
Export tax benefits                                  (278,123)         (238,000)              --
Research credits                                     (184,939)         (591,038)              --
Other, net                                              5,366             6,372          501,939
                                                   ----------         ---------        ---------
                                                 $    136,000          (405,000)       6,400,000
                                                   ==========         =========        =========
</TABLE>

      The tax effects of  temporary  differences  that give rise to the deferred
      tax assets and  deferred  tax  liabilities  at June 30,  2003 and 2002 are
      presented below:

<TABLE>
<CAPTION>
                                                                        2003             2002
                                                                     ----------       ----------
<S>                                                                <C>                 <C>
Deferred tax assets:
   Inventories                                                     $    942,174        1,082,273
   Deferred compensation                                                251,853          246,063
   Retirement benefits                                                  569,840          140,823
   Postretirement benefits                                              549,914          547,232
   Restricted stock                                                     290,016          506,323
   Nondeductible reserves                                               139,756          176,700
   Net unrealized loss on investments                                   343,623          535,600
   Federal and state tax credit carryforwards                           528,280          710,734
   Foreign and state net operating loss carryforwards                 4,851,135        2,439,857
   Other                                                                     --           21,674
                                                                     ----------       ----------
      Gross deferred tax assets                                       8,466,591        6,407,279
   Valuation allowance                                               (3,015,031)        (535,600)
                                                                     ----------       ----------
      Net deferred tax assets                                         5,451,560        5,871,679
Deferred tax liabilities:
      Plant and equipment, principally due to differences
         in depreciation                                             (2,219,016)      (2,875,725)
      Intangible assets including goodwill                           (1,615,695)        (923,451)
      Reinvestment reserve                                           (2,086,179)      (2,073,568)
                                                                     ----------       ----------
         Net deferred tax liabilities                                (5,920,890)      (5,872,744)
                                                                     ----------       ----------
         Net deferred taxes                                        $   (469,330)          (1,065)
                                                                     ==========       ==========
</TABLE>


                                       63                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

                                                   2003             2002
                                                ----------       ----------
Presented as:
      Current deferred tax asset              $  1,132,016        1,356,294
      Long-term deferred tax liability          (1,601,346)      (1,357,359)
                                                ----------       ----------
                                              $   (469,330)          (1,065)
                                                ==========       ==========

      Under the  income  tax law of the  Netherlands,  the gain  related  to the
      insurance  claim on the assets of Anaren Europe  destroyed in the fire (as
      discussed at note 2) can be deferred until replacement assets are acquired
      by Anaren  Europe.  If the  assets  are not  replaced,  a tax gain will be
      recognized  for  Dutch  tax  purposes  that will be offset by the tax loss
      carryforward.

      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.

      The Company has recorded a valuation  allowance of $2,671,408 with respect
      to the foreign net  operating  loss  carryforwards  as these  deferred tax
      benefits may not be  realized.  The Company has net  unrealized  losses on
      securities  available-for-sale of $904,270 and $1,409,474 at June 30, 2003
      and 2002,  respectively.  If realized, these losses would be characterized
      for  income tax  purposes  as  capital  losses,  which may only be used to
      offset capital gains. As a result of this  limitation on  utilization,  at
      June 30,  2003 the  Company has a  valuation  allowance  of $343,623  with
      respect  to  the  unrealized  losses  on  securities   available-for-sale,
      representing a decrease of $191,977 from June 30, 2003. Therefore,  no net
      tax benefit for the unrealized losses on securities available-for-sale has
      been  recorded in  stockholders'  equity.  The Company has  recorded a net
      increase in the deferred tax asset valuation allowance of $2,479,431.

      Based upon the level of  historical  taxable  income and  projections  for
      future taxable income, management believes that 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, 2003,  the Company has Federal and State credit  carryforwards
      of  $617,599,  the  majority  of which  expire at various  dates from 2015
      through  2023.  At June 30,  2003,  the Company has foreign net  operating
      losses of $14,009,952 which may be carried forward  indefinitely.  At June
      30,  2003,  the  Company has state net  operating  loss  carryforwards  of
      $1,491,968 that begin to expire in 2007.

      Cash payments for income taxes (net of refunds  received)  were  $678,329,
      $1,387,200, and $419,316 in fiscal 2003, 2002, and 2001, respectively.

      The  Company's  subsidiary in China will be eligible for a tax holiday for
      five years  beginning  with the first year taxable  income exceeds the net
      operating loss carryforwards.  The tax benefit varies during the five year
      holiday period, which has not yet commenced.


                                       64                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

(19)  Segment and Related Information

      (a)   Segments

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

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


                                       65                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

            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:
      2003                            $    51,029,263      28,890,528               --        79,919,791
      2002                                 47,497,015      26,071,304               --        73,568,319
      2001                                 61,709,080      23,116,195               --        84,825,275
Operating income (loss):
      2003                                (10,663,234)      4,731,424               --        (5,931,810)
      2002                                 (7,872,293)      7,716,040               --          (156,253)
      2001                                  6,550,461       5,060,803               --        11,611,264
Goodwill and intangible assets:
      June 30, 2003                        32,669,285              --               --        32,669,285
      June 30, 2002                        33,168,824              --               --        33,168,824
Identifiable assets:*
      June 30, 2003                        15,229,406       9,760,194      155,429,891       180,419,491
      June 30, 2002                        19,129,093      14,096,923      155,191,461       188,417,477
Depreciation:**
      2003                                  3,459,253       1,555,741               --         5,014,994
      2002                                  2,662,683       1,182,151               --         3,844,834
      2001                                  1,629,113       1,146,481               --         2,775,594
Intangibles amortization:***
      2003                                    499,539              --               --           499,539
      2002                                    428,261              --               --           428,261
      2001                                  1,624,913              --               --         1,624,913
</TABLE>

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


                                       66                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

            **    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       net sales
                   -------------     ------------      --------       --------      ------------
<S>               <C>                 <C>             <C>             <C>            <C>
2003              $  44,336,275       14,816,375      18,042,485      2,724,656      79,919,791
2002                 51,922,978        6,963,158      12,354,336      2,327,847      73,568,319
2001                 63,223,230        3,301,608      11,826,444      6,473,993      84,825,275
</TABLE>

      (c)   Customers

            In 2003, sales to one customer (approximately $9,427,000, related to
            the  space  and  defense   electronics   segment)  exceeded  10%  of
            consolidated   net   sales.   In  2002,   sales   to  one   customer
            (approximately  $11,791,000,   related  to  the  space  and  defense
            electronics  segment)  exceeded 10% of  consolidated  net sales.  In
            2001, sales to two customers (approximately $13,012,000, relating to
            the wireless segment, and approximately  $9,422,000,  related to the
            space and defense electronics  segment) exceeded 10% of consolidated
            net sales.


                                       67                            (Continued)
<PAGE>

                          ANAREN, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

(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:
      2004                                 $  1,009,623
      2005                                      833,387
      2006                                      769,028
      2007                                      525,267
      2008                                      495,311
      Thereafter                              2,615,663
                                              ---------
                                              6,248,279
      Less sublease income                      430,311
                                              ---------
                                           $  5,817,968
                                              =========

      Rent  expense  for the  years  ended  June 30,  2003,  2002,  and 2001 was
      $932,033,  $811,294, and $616,422,  respectively.  Rent expense for fiscal
      2003, 2002, and 2001 was offset by sublease income of $399,930,  $376,678,
      and $367,566, respectively.

(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 the Government accounted
      for  approximately  20%, 15%, and 9% of  consolidated  net sales in fiscal
      2003, 2002, and 2001,  respectively.  While management believes there is a
      high probability of continuation of the Company's current  defense-related
      programs,  it is  attempting  to  reduce  its  dependence  on sales to the
      Government through development of its commercial electronics business.


                                       68                            (Continued)
<PAGE>

                     ANAREN MICROWAVE, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          June 30, 2003, 2002, and 2001

(22)  Supplemental Financial Information

<TABLE>
<CAPTION>
                                            Balance                                                Balance
                                          at Beginning        Charge to                            at End
                                           of Period       Costs & Expenses     Deductions(1)     of Period
                                          ------------     ----------------     -------------     ---------
<S>                                       <C>                 <C>                <C>             <C>
Year ending June 30, 2001
Allowance for uncollectible accounts      $   55,000            140,000                  --        195,000
Inventory reserve                                 --            642,275                  --        642,275

Year ending June 30,2002
Allowance for uncollectible accounts         195,000            386,798             (52,376)       529,422
Inventory reserve                            642,275          2,790,974          (1,183,249)     2,250,000

Year ending June 30, 2003
Allowance for uncollectible accounts         529,422            118,681            (403,292)       244,811
Inventory reserve                          2,250,000          1,279,641          (2,107,914)     1,421,727
</TABLE>

(1) Represents write-offs of accounts receivable and inventory

                                                                   Exhibit 10.11

(23)  Quarterly Financial Data (Unaudited)

      The  following  table sets forth  certain  unaudited  quarterly  financial
      information for the years ended June 30, 2003 and 2002:

<TABLE>
<CAPTION>
                                                                 2003 quarter ended
                                         -----------------------------------------------------------------
                                         September 30      December 31       March 31            June 30
                                         ------------      -----------      ----------          ----------
<S>                                     <C>                 <C>             <C>                 <C>
Net sales                               $  20,423,873       20,885,138      19,188,954          19,421,826
Gross profit                                5,391,507        5,570,516       5,027,902           4,778,465
Net income (loss)                             146,206          475,168        (958,109)         (3,455,719)
Net income (loss) per common share:
   Basic income (loss) per share        $        0.01      $      0.02     $     (0.04)        $     (0.16)
   Diluted income (loss) per share               0.01             0.02           (0.04)              (0.16)

<CAPTION>

                                                                   2002 quarter ended
                                         -----------------------------------------------------------------
                                         September 30      December 31       March 31            June 30
                                         ------------      -----------      ----------          ----------
<S>                                      <C>                <C>             <C>                 <C>
Net sales                                $ 15,001,191       17,244,979      19,821,239          21,500,910
Gross profit                                5,131,053        4,467,752       6,370,719           6,229,198
Income (loss) before
      extraordinary item                    1,374,484         (351,643)        996,328           2,012,696
Extraordinary item - gain on
      acquisition                                  --        3,407,244              --                  --
Net income                                  1,374,484        3,055,601         996,328           2,012,696
Net income (loss) per common share:
   Basic income (loss) per share:
      Income (loss) before
           extraordinary item            $       0.06            (0.02)           0.04                0.09
      Extraordinary item - gain on
           acquisition                             --             0.15              --                  --
      Net income                                 0.06             0.13            0.04                0.09
   Diluted income (loss) per share:
      Income (loss) before
           extraordinary item                    0.06            (0.02)           0.04                0.09
      Extraordinary item - gain on
           acquisition                             --             0.15              --                  --
      Net income                                 0.06             0.13            0.04                0.09
</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.


                                       69