The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated condensed financial statements and the notes thereto appearing elsewhere in this Form 10-Q. 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 those factors described elsewhere in this Quarterly Report on Form 10-Q and the factors described in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2008.

Overview

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 and subscriber equipment for wireless communications as well as, in satellites and in defense electronics systems. The Company sells its products to leading wireless communications equipment manufacturers such as Ericsson, Motorola, Nokia Siemens Networks, and Huawei, and to satellite communications and defense electronics companies such as Boeing Satellite, ITT, Lockheed Martin, Northrop Grumman and Raytheon.

Net sales are derived from sales of the Company's products to other manufacturers or systems integrators. Net sales are generally recognized when units are shipped.

Net sales under certain long-term contracts of the Space & Defense Group, many of which provide for periodic payments, are recognized under the percentage-of-completion method using the units of delivery method. Estimated manufacturing cost-at-completion for these contracts are reviewed on a routine periodic basis, and adjustments are made periodically to the estimated cost-at-completion based on actual costs incurred, progress made, and estimates of the costs required to complete the contractual requirements. When the estimated manufacturing cost-at-completion exceeds the contract value, the contract is written down to its net realizable value, and the loss resulting from cost overruns is immediately recognized. To properly match net sales with costs, certain contracts may have revenue recognized in excess of billings (unbilled revenues), and other contracts may have billings in excess of net sales recognized (billings in excess of contract costs). Under long-term contracts, the prerequisites for billing the customer for periodic payments generally involve the Company's achievement of contractually specific, objective milestones (e.g., completion of design, testing, or other engineering phase, delivery of test data or other documentation, or delivery of an engineering model or flight hardware).

On July 31, 2008, the Company cancelled its previous $50.0 million demand note loan agreement with no balance outstanding on the loan; and on the same day, the Company signed a loan agreement with Keybank National Association Bank for a $50.0 million declining revolving line of credit to be used to finance acquisitions and working capital needs. On July 31 and August 29, 2008, the Company took advances totaling $49.8 million on this line to finance the acquisitions of M.S. Kennedy Corp. and Unicircuit, Inc. Advances under this line, at the Company's choice, bear interest at LIBOR, plus 100 to 425 basis points or at Keybank's prime rate, minus (100) to plus 225 basis points, depending upon the Company's EBITDA performance at the end of each quarter as measured by the formula: EBITDA divided by the Current Portion of Long-term debt plus interest expense. Availability of credit under the line declines 20% annually on each anniversary date of the note and any outstanding principal balance in excess of the new line limit is due and payable at that time.

On August 1, 2008, the Company completed the acquisition of M.S. Kennedy, Corp. ("MSK"), located in Syracuse, New York. MSK is a leading provider of high performance analog microelectronics to the Defense and Space markets and is a leading designer and producer of custom analog hybrids, power hybrids, and multi-chip modules. MSK offers broad electronic component design, packaging, and integration capability with net sales of $22.4 million in calendar 2007. MSK was integrated into Anaren's existing Space & Defense Group. Anaren acquired MSK for a purchase price, net of cash acquired, of $27.7 million, and earnings from MSK have been accretive in fiscal year 2009. The Company financed this transaction through its existing $50.0 million revolving debt facility.

On August 29, 2008, the Company completed the acquisition of Unicircuit Inc. ("Unicircuit") located in Littleton, Colorado. Unicircuit is a manufacturer of printed circuit boards ("PCB") used in various military and aerospace applications with net sales of $18.7 million in calendar 2007. Unicircuit is a leader in high frequency PCB technology and is expected to enhance Anaren's ability to capture integrated microwave assembly opportunities in

the defense, satellite and aerospace markets. Unicircuit was integrated into Anaren's existing Space & Defense Group. Anaren acquired Unicircuit, Inc. for a purchase price, net of cash acquired, of $20.8 million, and earnings from Unicircuit have been accretive in fiscal year 2009. The Company financed this transaction by utilizing its existing $50.0 million revolving debt facility.

Fourth Quarter of Fiscal 2009 Outlook

For the fourth quarter of fiscal 2009, we anticipate comparable sales to our just completed third quarter with higher demand for the Space & Defense Group and lower demand for the Wireless Group. As a result, we expect net sales to be in the range of $41 to $46 million. We expect GAAP net earnings per diluted share to be in the range of $0.19 - $0.23 using an anticipated tax rate of approximately 31.0% and is inclusive of approximately $0.05 - $0.06 per share in charges related to expected equity based compensation expense and amortization of acquired intangibles related to the Company's acquisition of MSK and Unicircuit.

Results of Operations

Net sales for the three months ended March 31, 2009 were $43.5 million, up 33.4% from sales of $32.6 million for the third quarter of fiscal 2008, and included $10.8 million in sales from M.S. Kennedy Corp. and Unicircuit, Inc. Net income for the third quarter of fiscal 2009 was $3.5 million, or 8.0% of net sales, up $660,000 from net income of $2.8 million in the third quarter of fiscal 2008. Net income in the third quarter of fiscal 2009 included $63,000 of acquisition related expense for intangible amortization compared to no expense for these items in the third quarter of fiscal 2008. Additionally, net income for the third quarter of fiscal 2008, included $770,000 of income from discontinued operations, compared to no income from discontinued operations in the third quarter of fiscal 2009.

The following table sets forth the percentage relationships of certain items from the Company's consolidated condensed statements of earnings as a percentage of net sales.

                                                            Three Months Ended                   Nine Months Ended
                                                     Mar. 31, 2009       Mar. 31, 2008     Mar. 31, 2009     Mar. 31, 2008
                                                     -------------       -------------     -------------     -------------
Net Sales                                                100.0%              100.0%             100.0%            100.0%

Cost of sales                                             65.3%               68.9%              68.4%             68.0%
                                                         -----               -----              -----             -----
Gross profit                                              34.7%               31.1%              31.6%             32.0%
                                                         -----               -----              -----             -----

Operating expenses:
   Marketing                                               5.4%                5.4%               5.3%              5.5%
   Research and development                                7.8%                8.2%               7.7%              7.8%
   General and administrative                             10.6%               10.5%              11.4%             10.4%
                                                         -----               -----              -----             -----
      Total operating expenses                            23.8%               24.1%              24.4%             23.7%
                                                         -----               -----              -----             -----

Operating income                                          10.9%                7.0%               7.2%              8.3%
                                                         -----               -----              -----             -----

Other (expense) income:

      Other, primarily interest income                     0.6%                1.6%               0.8%              1.9%
      Interest expense                                    (0.7)%               0.0%              (1.0)%              0.0%
                                                         -----               -----              -----             -----
      Total other income (expense), net                   (0.1)%               1.6%              (0.2)%             1.9%
                                                         -----               -----              -----             -----

Income from continuing operations
   before income taxes                                    10.8%                8.6%               7.0%             10.2%
Income taxes                                               2.8%                2.3%               1.8%              2.7%
                                                         -----               -----              -----             -----
Income from continuing operations                          8.0%                6.3%               5.2%              7.5%
                                                         =====               =====              =====             =====

Discontinued operations:
Income from discontinued operations                        0.0%                2.3%               0.0%              0.8%
                                                         -----               -----              -----             -----
Net income                                                 8.0%                8.6%               5.2%              8.3%
                                                         =====               =====              =====             =====

The following table summarizes the Company's net sales by operating segments for the periods indicated. Amounts are in thousands.

                                                               Three Months Ended                    Nine months Ended
                                                         Mar. 31, 2009    Mar. 31, 2008       Mar. 31, 2009      Mar. 31, 2008
                                                         -------------    -------------       -------------      -------------
Wireless Group                                              $17,255           $20,222            $ 53,434           $59,183
Space & Defense Group                                        26,252            12,397              69,640            37,894
                                                            -------           -------            --------           -------
     Total                                                  $43,507           $32,619            $123,074           $97,077
                                                            =======           =======            ========           =======

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

Net sales. Net sales were $43.5 million for the third quarter ended March 31, 2009, up 33.4% compared to $32.6 million for the third quarter of fiscal 2008 and included $10.8 million from M.S. Kennedy Corp. and Unicircuit, Inc. in the current third quarter. Shipments of Wireless Group products fell $3.0 million, or 14.7%, and sales of Space & Defense Group products rose $13.9 million, or 111.8%, in the current third quarter compared to the third quarter of fiscal 2008.

Wireless Group products consist of standard components, ferrite components and custom subassemblies for use in building wireless basestation and consumer equipment. Sales of Wireless Group products declined in the third quarter of fiscal 2009 due primarily to a large fall-off in demand for custom Wireless Group components compared to the third quarter of last year, as well as a smaller general decline in overall Wireless Group infrastructure standard component demand. The decline in demand year over year for both custom and standard component basestation products is a result of the general decline in the worldwide economy and in the case of custom products was heightened by a new platform introduction at a customer.

Space & Defense Group products consist of custom components and assemblies for communication satellites and defense radar, receiver, and countermeasure systems for the military. Sales of Space & Defense Group products rose $10.2 million, or 111.8% in the third quarter of fiscal year 2009 compared to the third quarter of fiscal year 2008. Sales of Space & Defense Group products in the third quarter of the current fiscal year included $10.8 million of sales from M.S. Kennedy Corp. and Unicircuit, Inc. Space & Defense Group product sales continue to benefit from the higher level of business won by the Company over the past few fiscal years, with orders in the current quarter exceeding $26.0 million, resulting in the current Space & Defense Group backlog of approximately $87.0 million.

Gross Profit. Cost of sales consists primarily of engineering design costs, materials, material fabrication costs, assembly costs, intangible amortization, direct and indirect overhead, and test costs. Gross profit for the third quarter of fiscal 2009 was $15.1 million (34.7% of net sales), up from $10.1 million (31.1% of net sales) for the same quarter of the prior year. Gross profit, as a percent of sales, increased in the third quarter of fiscal 2009 from the third quarter of last year due to the decrease in sales of lower margin custom Wireless Group products and a more favorable sales mix in the Space & Defense Group.

Marketing. Marketing expenses consist mainly of employee related expenses, commissions paid to sales representatives, trade show expenses, advertising expenses and related travel expenses. Marketing expenses were $2.4 million (5.4% of net sales) for the third quarter of fiscal 2009, up $594,000 from $1.8 million (5.4% of net sales) for the third quarter of fiscal 2008. This increase was attributable to the inclusion of $600,000 of marketing expenses from Unicircuit and M.S. Kennedy.

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 $3.4 million (7.8% of net sales) in the third quarter of fiscal 2009, up 26.8% from $2.7 million (8.2% of net sales) for the third quarter of fiscal 2008. Research and development expenditures support further development of Wireless Group infrastructure and consumer component products, as well as new technology development in the Space & Defense Group. Research and Development expenditures have increased in the third quarter of fiscal 2009 as compared to the third quarter of last year due to the higher level of opportunities in both the Wireless Group and Space & Defense Group marketplaces and the addition of M.S Kennedy and Unicircuit, which accounted for $400,000 of the increase in research and development expense. The Company does not expect to reduce its current research and development efforts through year-end and is presently working on a number of new standard and custom Wireless Group and Space & Defense Group opportunities.

General and Administrative. General and administrative ("G&A") expenses consist of employee related expenses, professional services, intangible amortization, travel related expenses and other corporate costs. General and administrative expenses increased $1.2 million, to $4.6 million (10.6% of net sales) for the third quarter of fiscal 2009, from $3.4 million (10.5% of net sales) for the third quarter of fiscal 2008. The increase in G&A expense in the third quarter of fiscal 2009 compared to the third quarter of last year resulted from additional personnel in the finance, human resources and information technology functions, and the inclusion of $1.1 million in additional G&A costs, including $300,000 of intangible amortization from the acquisitions of M.S. Kennedy and Unicircuit during the third quarter of fiscal 2009. This increase was partially off-set by a decline in G&A costs by consolidating subsidiary operations.

Operating Income. Operating income rose 106.6% in the third quarter of fiscal 2009 to $4.7 million (10.9% of net sales), compared to $2.3 million (7.0% of net sales) for the third quarter of fiscal 2008. This increase was due mainly to the higher sales level in the current third quarter compared to the third quarter last year, as well as the more favorable product mix in the current third quarter which resulted in improved gross margins year over year. Assuming a similar sales volume and product mix, operating margins are expected to remain at or near current levels for the fourth quarter of fiscal 2009.

On an operating segment basis, Wireless Group operating income was $2.0 million for the third quarter of fiscal 2009, up $400,000 from $1.6 million in the third quarter of fiscal 2008. Despite the decline in Wireless Group sales levels, for the third quarter of fiscal 2009, operating income increased due to a more favorable product mix.

Space & Defense Group operating income was $3.0 million in the third quarter of fiscal 2009, up $2.1 million from $900,000 for the third quarter of fiscal 2008. Operating margins in this Group increased in the current third quarter due to higher Group sales levels and the operating profit generated by M.S. Kennedy and Unicircuit. Space & Defense Group operating margins, assuming similar sales volume and product mix, are expected to remain at or near current levels for the fourth quarter of fiscal 2009

Other Income. Other income primarily consists of interest income received on invested cash balances and rental income. Other income decreased 51.9% to $257,000 in the third quarter of fiscal 2009 compared to $536,000 for the third quarter of last year. This decrease was caused by the decline in available investable cash due to the purchase of treasury shares over the last twelve months and the decline in interest rates during the past nine months. Other income will fluctuate based on short term market interest rates and the level of investable cash balances.

Interest Expense. Interest expense consists mainly of interest on Company borrowings and deferred items. Interest expense in the third quarter of fiscal 2009 was $311,000 (0.7% of net sales), compared to $6,000 for the third quarter of fiscal 2008. This increase was due to the interest expense generated by the Company's borrowings starting in the first quarter of fiscal 2009 to finance the acquisitions of M.S. Kennedy and Unicircuit. The Company borrowed a total of $49.8 million under its $50.0 million revolving declining line of credit in the first quarter. These borrowings bear interest at the 90 day LIBOR, plus 100 to 425 basis points, depending upon the Company's rolling twelve month EBITDA performance. The rate is reset quarterly and was approximately 2.5% for the current third quarter. The interest rate on this outstanding loan balance for the fourth quarter of fiscal 2009 is expected to be approximately 2.5%.

Income Taxes. Income taxes for the third quarter of fiscal 2009 were $1.2 million (2.8% of net sales), representing an effective tax rate of 25.7%. This compares to income tax expense of $773,000 (2.3% of net sales) for the third quarter of fiscal 2008, representing an effective tax rate of 27.4%. The projected effective tax rate for fiscal year 2009 is now expected to be approximately 27.5%. 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 United States and foreign taxable income or loss.

Discontinued Operations. Income from discontinued operations for the third quarter of fiscal 2008 included $770,000 due to the reduction of an unrecognized tax benefit resulting from the lapse of the applicable statute of limitations related to the prior dissolution of the Company's European subsidiary, Anaren Europe, B.V.

Nine Months Ended March 31, 2009 Compared to Nine Months Ended March 31, 2008

Net sales. Net sales were $123.1 million for the nine months ended March 31, 2009, up 26.8% compared to $97.1 million for the third quarter of fiscal 2008. Sales in the first nine months of the current fiscal year included $25.6 million of sales from M.S. Kennedy and Unicircuit. Shipments of Wireless Group products fell $5.7 million, or 9.7%, and sales of Space & Defense Group products rose $31.7 million, or 83.8%, in the current nine months compared to the first nine months of fiscal 2008.

The decline in Wireless Group sales was the result of a decline in demand for custom components during the first nine months of fiscal 2009 compared to the same period of last year. Sales of custom products fell $9.3 million, or 37.1% in the first nine months of fiscal 2009 compared to the same period in fiscal 2008 reflecting the overall slowing of the economy due to the worldwide economic slow down.

Space & Defense Group sales rose $31.7 million, or 83.8% in the first nine months of fiscal 2009 compared to the first nine months of the previous fiscal year. Space & Defense Group sales in the first nine months of the current fiscal year included $25.6 million of sales from M.S. Kennedy and Unicircuit. Space & Defense Group product sales continue to benefit from the higher level of business won by the Company over the past few fiscal years, with orders in the first nine months exceeding $73.0 million.

Gross Profit. Gross profit for the first nine months of fiscal 2009 was $38.9 million, (31.6% of net sales), up from $31.1 million (32.0% of net sales) for the same period of the prior year. Gross profit as a percent of sales declined in the first nine months of the current fiscal year compared to the same period in fiscal 2008 due to the inclusion of $2.3 million of amortization of inventory step-up costs and intangibles related to the acquisition of M.S. Kennedy and Unicircuit. The amortization of acquisition inventory step-up costs was completed in the second quarter of fiscal 2009.

Marketing. Marketing expenses were $6.5 million (5.3% of net sales) for the first nine months of fiscal 2009, up $1.2 million from $5.3 million (5.5% of net sales) for the first nine months of fiscal 2008. Marketing expenses in the current nine month period included $1.4 million of marketing expenses from Unicircuit and M.S. Kennedy, which was partially offset by an accounting adjustment in the second quarter for the reduction of commission expense of $275,000 to correct an over accrual that was accumulated over a number of prior periods.

Research and Development. Research and development expenses were $9.5 million (7.7% of net sales) in the first nine months of fiscal 2009, up 25.6% from $7.6 million (7.8% of net sales) for the first nine months of fiscal 2008. Research and development expenditures support further development of Wireless Group infrastructure and consumer component opportunities, as well as new technology development in the Space & Defense Group. Research and Development expenditures have increased in the first nine months of fiscal 2009 as compared to the first nine months of last year due to the higher level of opportunities in both the Wireless Group and Space & Defense Group marketplaces, which resulted in approximately $800,000 in additional spending at our Anaren Ceramics and Anaren Microwave operations. The addition of M.S Kennedy and Unicircuit accounted for the remaining $1.1 million of the increase. The Company does not expect to reduce its current research and development efforts through year-end and is presently working on a number of new standard and custom Wireless Group and Space & Defense Group opportunities.

General and Administrative. General and administrative expenses increased $3.9 million, to $14.0 million (11.4% of net sales) for the first nine months of fiscal 2009, from $10.1 million (10.4% of net sales) for the first nine months of fiscal 2008. The increase in G&A expense in the first nine months of fiscal 2009 compared to the first nine months of last year resulted from additional personnel in the finance, human resources and information technology functions, and the inclusion of $3.6 million in additional G&A costs, including intangible amortization of $700,000 from the acquisition of M.S. Kennedy and Unicircuit. This increase was partially off-set by a decline in G&A costs by consolidating subsidiary operations.

Operating Income. Operating income rose 10.5% in the first nine months of fiscal 2009 to $8.9 million (7.2% of net sales), compared to $8.1 million (8.3% of net sales) for the first nine months of fiscal 2008. This increase was due mainly to the improvement in profitability in the third quarter resulting from a higher margin product mix. Operating income as a percent of sales declined year over year for the first three quarters due to the inclusion of $3.0 million of combined acquisition related inventory step-up costs and intangible amortization in the current first nine months compared to the first nine months of last year.

On an operating segment basis, Wireless Group operating income was $5.0 million for the first three quarters of fiscal 2009, up $1.2 million from $3.8 million in the first nine months of fiscal 2008. The increase in Wireless Group operating income in the first nine months of fiscal 2009 compared to the first nine months of fiscal 2008, despite the decline in Wireless Group sales, was due to a more favorable sales mix.

Space & Defense Group operating income was $4.5 million in the first nine months of fiscal 2009, down $200,000 from $ 4.7 million for the first nine months of fiscal 2008. Operating margins in this Group declined in the current first nine months due to the inclusion of $3.0 million of combined acquisition related inventory step-up and intangible amortization costs resulting from the acquisition of M.S. Kennedy and Unicircuit. Excluding these costs, operating income for the Space & Defense Group rose $2.8 million, or 15%, in the current year first nine months,

compared to $4.7 million for the first nine months of last year. This improvement was due mainly to the increase in sales volume and the combined level of profitability at the Company's new acquisitions.

. . .