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Calian Technologies Ltd. Reports Second Quarter 2010 Results
Page 12

Calian Technologies Ltd. 340 Legget Drive, Suite 101, Ottawa, Ontario Canada K2K 1Y6
Management Discussion and Analysis March 31, 2010:
(Canadian dollars in thousands, except per share data)
RESULTS OF OPERATIONS
Revenues:
For the second quarter 2010, revenues were $53,141 compared to $59,922 reported for the same period in 2009 representing an
11% decrease over the prior year. For the six-month period ending March 31, 2010 revenues were $105,249 compared to
$115,020 for 2009.

Systems Engineering's (SED) revenues were $15,726 in the quarter and $30,703 on a year-to-date basis representing a decrease of
25% from the $20,982 and $40,684 recorded last year. As expected, the second quarter returned to more traditional levels of
activity in both the satellite engineering and contract manufacturing sectors due to the completion or near-completion of several
large contracts in 2009 and decreased demand in the custom manufacturing area. Due to the project nature of its business, the SED
division is susceptible to significant variation in volumes of activity from period to period.

Business and Technology Services (BTS) revenues were $37,415 in the quarter and $74,546 on a year-to-date basis representing
a decrease of 4% and a 0.3% increase from the $38,940 and $74,336 for the same period last year. Belt-tightening by
government departments in the last quarter of the government fiscal year and completion of a certain contract that will not be re-
competed until later in the year, contributed to the drop in revenues. Also, the increased activity related to the Olympic readiness
review came to an end early in the quarter.

Management expects that the marketplace over the next few quarters will continue to be very competitive. The market conditions
for SED are expected to be positive and should present new opportunities. However, overall revenues are expected to recede to
more traditional levels until new programs are captured. Current BTS backlog is expected to provide a solid level of activity on
existing contracts and new opportunities are expected to be available. However, the timing of future contract awards, customer
demand in the short-term and the impact of government spending restrictions will ultimately determine BTS revenues for the next
few quarters.

Gross margin:
Gross margin was 19.0% in the second quarter of 2010, compared to the 23.0% reported in the second quarter a year ago. On a
year-to-date basis the Company reported margins of 19.7% compared to 22.0% for the same period last year. The consolidated
gross margin for 2010 was affected by lower margins realized in both divisions and was also biased by the smaller proportion of
SED revenues.

Gross margin in Systems Engineering was 25.5% this quarter compared to 34.1% in the second quarter of 2009 and was 25.5%
for the six-month period ending March 31, 2010 compared to 30.5% for the same period last year. With the level of business
returning to more traditional levels, especially in the contract manufacturing sector, economies of scale achieved in the prior year
could not be realized. Also, the retirement of a technical risk on a certain contract in the second quarter of last year helped boost
the margins in that period.

Gross margin in Business and Technology Services was 16.2% compared to the 17.0% reported in the second quarter of 2009
and 17.3% for the six-month period compared to 17.4% for the same period last year. Gross margin for the quarter decreased
compared to last year as a result of a slight change in project mix during the quarter. Also, the highly competitive nature of the
short-term staffing market since the economic downturn continues to make it difficult to sustain prior year margin levels.

Because of the significant difference in gross margin between each of the two divisions, the overall gross margin of the Company
is dependent on the relative level of revenue generated from each division. Management will continue to focus on execution in
order to maximize margins. However, the highly competitive environment faced by SED and BTS coupled with the continued
volatility of the Canadian dollar could impact margins. In addition, management does not expect that the margins realized by SED
throughout the balance of 2010 will equate to those earned for comparable quarters in 2009.






Operating expenses:
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Calian Technologies Ltd. Reports Second Quarter 2010 Results
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Calian Technologies Ltd. 340 Legget Drive, Suite 101, Ottawa, Ontario Canada K2K 1Y6
Selling and marketing, general and administration and facilities totalled $5,718 or 10.8% of revenues in the second quarter of
2010 compared to $5,970 or 10.0% of revenues reported in the second quarter of 2009. For the six-month period ending March
31, 2010 operating expenses totalled $11,608 compared to $12,126 in 2009, which included an allowance for doubtful accounts
of $757 set up against the Nortel accounts receivable.
Operating expenses are down compared to the same quarter in the prior year mainly as a result of decreased compensation related
to lower profitability. Selling and marketing costs are up marginally as a result of increased activity in this area. For the balance
of 2010, management expects to maintain its current level of operating expenses as a percentage of revenues.

Interest income:
Interest income for the second quarter of 2010 was $192 compared to $160 in 2009. For the six-month period ending March 31,
2010, interest income was $381 compared to $397 in 2009. Interest income is comprised of interest earned on the Company's
cash balances and accrued interest related to the investment in AIM Health Group Inc. (AIM). Interest income increased over the
prior year's second quarter due to the compounding effect of accreted interest on the investment in AIM.

Unrealized gain (loss) on fair value of conversion options of long-term investment:
The Company recorded a loss of $18 for the quarter and a gain of $62 on a year-to-date basis compared to a gain of $5 and a loss
of $250 for 2009 relating to the fair value of conversion options of long-term investment. The reported unrealized gain or loss is
a reflection of the movement in quoted market prices of AIM shares.

Income taxes:
The provision for income taxes for the second quarter of 2010 was $1,234 or 28.6% of earnings before tax compared to $2,667 in
2009 or 33.9% of earnings before tax. On a year-to-date basis, the provision for income taxes was $2,629 or 28.7% of earnings
before tax compared to $4,408 in 2009 or 34.1% of earnings before tax. The decrease in the realized tax rate is the result of a
continued decrease in prescribed federal and provincial tax rates, the recognition of an adjustment related to the 2009 tax returns,
and the non-taxable nature of the changes in the AIM investment. The effective tax rate for 2010, prior to considering the impact
of non-taxable transactions, is expected to be approximately 30%.

Net earnings:
As a result of the foregoing, in the second quarter of 2010 the Company recorded net earnings of $3,082 or $0.40 per share basic
and diluted, compared to $5,201 or $0.67 per share basic and diluted in the same quarter of the prior year. For the six-month
period ending March 31, 2010 the Company reported net earnings of $6,525 or $0.84 per share basic and diluted compared to
$8,520 or $1.09 per share basic and diluted in the same period of the prior year.


BACKLOG
The Company's backlog at March 31, 2010 was $970
million with terms extending to fiscal 2018. This compares to $873 million
reported at the end of September 2009. Contracted Backlog represents maximum potential revenues remaining to be earned on
signed contracts, whereas Option Renewals represent customers' options to further extend existing contracts under similar terms
and conditions.

Most fee for service contracts provide the customer with the ability to adjust the timing and level of effort throughout the contract
life and as such the amount actually realized could be materially different from the original contract value. The following table
represents management's best estimate of the backlog realization for 2010, 2011 and beyond based on management's current
visibility into customers' existing requirements.

Management's estimate of the realizable portion (current utilization rates and known customer requirements) is less than the total
value of signed contracts and related options by approximately $210 million. The majority of this amount relates to the health
services support contract. The Company's policy is to reduce the reported contractual backlog once it receives confirmation from
the customer that indicates the utilization of the full contract value may not materialize.





(dollars in millions)
Fiscal 2010 Fiscal
2011 Beyond
2011 Estimated
realizable
Excess over
estimated
TOTAL
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Calian Technologies Ltd. Reports Second Quarter 2010 Results
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Calian Technologies Ltd. 340 Legget Drive, Suite 101, Ottawa, Ontario Canada K2K 1Y6
portion of
Backlog
realizable
portion
Contracted Backlog
$ 70
$ 107
$ 116
$ 293
$ 106
$ 399
Option Renewals
29
41
397
467
104
571
TOTAL
$ 99
$ 148
$ 513
$ 760
$ 210
$ 970
Business and
Technology Services
$ 72
$ 120
$ 480
$ 672
$ 210
$ 882
Systems Engineering
27
28
33
88
-
88
TOTAL
$ 99
$ 148
$ 513
$ 760
$ 210
$ 970


FINANCIAL CONDITION AND CASHFLOWS
Operating activities:
Cash inflows from operating activities for the six-month period ending March 31, 2010 were $3,801 compared to cash outflows of
$1,310 in 2009. Although earnings decreased this year, working capital element changes were not as severe as in the prior year.
Working capital fluctuations are in line with the ebbs and flows of the business. Specifically accounts receivable and accounts
payable had increased during the six-month period ending March 31, 2009 mainly as a result of an increase in business and the
achievement of several milestones late in the second quarter of 2009. The market for the Systems Engineering Division is
characterized by long-term contracts with billings tied to milestones achieved, which often results in significant working capital
requirements. Conversely, given the nature of this business, it is sometimes possible to negotiate advance payments on contracts.
Such advance payments give rise to unearned revenue that will be realized as revenue over the course of the contract. As at March
31, 2010, the Company's total unearned revenue amounted to $18,957. This compares to $6,631 one year earlier, with the increase
primarily attributable to a significant advance payment from ESA related to the recently signed contract for a third deep space
antenna.

Financing activities:
During the six-month period ending March 31, 2010, the Company paid quarterly dividends totalling $0.37 per share compared to
2009 when the Company paid quarterly dividends totalling $0.30 per share. In the first quarter of 2010, the Company also paid a
special dividend of $1.00 in recognition of the exceptional performance in 2009. The Company intends to continue with its
quarterly dividend policy for the foreseeable future.

During the six-month period ending March 31, 2010, the Company repurchased 53,170 common shares through its normal course
issuer bid at an average price of $17.24 compared to the previous year when the Company repurchased 467,300 shares at an
average price of $10.35.

Capital resources:
At March 31, 2010 the Company had a short-term credit facility of $10,000 with a Canadian chartered bank that bears interest at
prime and is secured by assets of the Company. An amount of $612 was drawn to issue a letter of credit to meet customer
contractual requirements. Management believes that Calian has sufficient cash resources to continue to finance its working
capital requirements and pay a quarterly dividend.


ADOPTION OF NEW ACCOUNTING RULES AND IMPACT ON 2010 FINANCIAL RESULTS
Effective October 1, 2009, management adopted amended Section 3855, Financial Instruments Recognition and Measurement.
Based on the amendments, management has the choice of classifying the host contract portion of its investment in AIM
Healthcare Group (AIM) as an Available-For-Sale asset or as a Loans and Receivable asset. Management chooses to classify the
host contract as a Loans and Receivables. Loans and Receivable assets are recognized at amortized cost. At September 30, 2009,
the carrying amount of the investment was decreased by $128 with a corresponding adjustment to Accumulated Other
Comprehensive Income.
SELECTED QUARTERLY FINANCIAL DATA
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Calian Technologies Ltd. Reports Second Quarter 2010 Results
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Calian Technologies Ltd. 340 Legget Drive, Suite 101, Ottawa, Ontario Canada K2K 1Y6
SEASONALITY
The Company's operations are subject to some quarterly seasonality due to the timing of vacation periods and statutory holidays.
Typically the Company's first and last quarter will be negatively impacted as a result of the Christmas season and summer
vacation period. During these periods, the Company can only invoice for work performed and is also required to pay for
statutory holidays. This results in reduced levels of revenues and in a drop in gross margins. This seasonality may not be
apparent in the overall results of the Company depending on the impact of the realized sales mix of its various projects.
OUTLOOK
Management believes the Company is well positioned for long-term sustained growth. The Company operates in markets that will
continue to require the services that the Company offers. To further assure itself of a stable source of revenues, the Company will
focus on increasing the percentage of its revenues derived from recurring business while pursuing new business in adjacent
markets.
The Systems Engineering Division has been working within a stable satellite sector for the last two years and the division is
expecting new opportunities to arise as systems adopting the latest technologies will be required by customers to maintain and
improve their service offerings. Management is also confident that systems such as MSTAR will continue to be in demand in the
security and surveillance market although it cannot predict the timing and extent of future orders. Custom manufacturing activity
levels will continue to be directly dependant upon SED's customers' requirements. The continued volatility of the Canadian dollar
could impact the Systems Engineering Division's competitiveness when bidding against foreign competition on projects
denominated in foreign currencies.

The Business and Technology Services Division's services are adaptable to many different markets. Currently, its strength lies in
providing program management and delivery services to the Department of National Defence. Management believes that this
department and many others within the federal government will continue to require more support services from private enterprises
to supplement their current workforce. Management believes that the types of service the division offers will continue to be
attractive to government agencies going forward.
GUIDANCE
Fiscal 2009 was truly an exceptional year for the Company. While we believe that market potential remains strong, we do not
expect to continue the unprecedented level of performance achieved in 2009 and therefore management expects to return to more
traditional levels of revenues and earnings for 2010. While revenues ultimately realized will be dependent on the extent and
timing of future contract awards, at this early stage in the year we expect revenues for 2010 to be in the range of $205 million to
$225 million and net earnings per share in the range of $1.50 to $1.80 per share.

INTERNATIONAL FINANCIAL REPORTING STANDARDS
The Canadian Accounting Standards Board has recently confirmed that Canadian publicly accountable enterprises will be required
to report under International Financial Reporting Standards (IFRS) as replacement guidance for the Canadian generally accepted
accounting principles (Canadian GAAP). IFRS uses a conceptual framework similar to current Canadian GAAP, but there are
significant differences in recognition, measurement and disclosures. In addition, it is expected that IFRS at the transition date will
differ from current IFRS. The Company expects to issue its first financial statement in accordance with IFRS effective with its
three-month period ending December 31, 2011.



Q2/10 Q1/10 Q4/09 Q3/09 Q2/09 Q1/09 Q4/08 Q3/08
Revenues
$ 53,141 $ 52,108 $ 54,365 $ 57,845 $ 59,922 $ 55,098
$ 48,904
$ 50,964
Net earnings
$ 3,082 $ 3,443 $ 3,449 $ 4,483 $ 5,201 $ 3,319 $ 2,715
$ 3,330
Net earnings per share
Basic
$ 0.40 $ 0.44 $ 0.45 $ 0.58 $ 0.67 $ 0.42
$ 0.33
$ 0.40
Diluted
$ 0.40 $ 0.44 $ 0.44 $ 0.58 $ 0.67 $ 0.42
$ 0.33
$ 0.40
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Calian Technologies Ltd. Reports Second Quarter 2010 Results
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Calian Technologies Ltd. 340 Legget Drive, Suite 101, Ottawa, Ontario Canada K2K 1Y6
In order to prepare for the conversion to IFRS, the Company has developed an IFRS changeover plan. This plan addresses key
elements of the Company's conversion to IFRS including:
Accounting policy changes and financial reporting requirements;
Education and training requirements;
Impacts on business activities and on Information technology and data systems;
Internal control over financial reporting

We have also established a formal governance structure for the conversion to IFRS. The initiative is lead by the Chief Financial
Officer who reports regularly to the Chief Executive Officer. The Chief Financial Officer also reports quarterly to the Audit
Committee of the Board of Directors on the status of the project and the implications of the changeover to IFRS.

During 2009, we completed the high-level diagnostic gap and impact analysis between Canadian GAAP and IFRS applicable to
the Company. In the first quarter of 2010, we began assessing the key differences between current IFRS and Canadian GAAP. By
the end of 2010, we expect to have completed our detailed analysis and also completed all the required changes to our systems,
processes and internal controls for purposes of dual-reporting in fiscal 2011.

During the balance of 2010 we will complete the necessary work required to quantify the impact of the changeover to IFRS on the
Company's financial position and result of operations at date of transition and affecting the reporting for 2011 and 2012 based on
standards published at that date. We will continue to monitor changes to IFRS and assess the impact that these new standards will
have on the Company's financial results and on the Company's changeover plan. These changes may have an impact on the
Company's consolidated financial statements; however it is too early in the Company's changeover process to provide
quantification of those effects. Based on the Company's work to date, we believe that the areas with potential impact will be
around hedge accounting documentation and overall disclosure requirements.


INTERNAL CONTROLS OVER FINANCIAL REPORTING

During the most recent interim quarter ending March 31, 2010, there have been no changes in the design of the Company's internal
controls over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal
controls over financial reporting.


FORWARD-LOOKING STATEMENT
Certain information included in this management discussion and analysis is forward-looking and is subject to important risks and
uncertainties. The results or events predicted in these statements may differ materially from actual results or events. Such
statements are generally accompanied by words such as "intend", "anticipate", "believe", "estimate", "expect" or similar
statements. Factors which could cause results or events to differ from current expectations include, among other things: the impact
of price competition; scarce number of qualified professionals; the impact of rapid technological and market change; loss of
business or credit risk with major customers; technical risks on fixed price projects; general industry and market conditions and
growth rates; international growth and global economic conditions, currency exchange rate fluctuations; and the impact of
consolidations in the business services industry. For additional information with respect to certain of these and other factors, please
see the Company's most recent annual report and other reports filed by the Company with the Ontario Securities Commission.
Calian disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. No assurance can be given that actual results, performance or achievement expressed in,
or implied by, forward-looking statements within this disclosure will occur, or if they do, that any benefits may be derived from
them.

The foregoing discussion and analysis should be read in conjunction with the financial statements for the second quarter of 2010,
and with the Management Discussion and Analysis in the 2009 annual report, including the section on risks and opportunities.


Date: May 5, 2010