CSP Inc. Reports First-Quarter Fiscal 2006 Financial Results

For the first quarter of fiscal 2006, CSP Inc. reported sales of $15.1 million compared with $14.1 million in the first quarter of fiscal 2005. CSP's first quarter net loss was $546,000, or $0.15 per share, compared with net income of $237,000, or $0.06 per diluted share, for the first quarter a year ago. During the first quarter the Company recorded compensation expense of $58,000 for the initial adoption of SFAS 123 (R) Share Based Payment for employee and director stock options and the employee stock purchase plan. "While we achieved year-over-year revenue growth in the first fiscal quarter, our bottom-line performance was disappointing for several reasons," stated CSP President and Chief Executive Officer Alex Lupinetti. "At the MultiComputer systems segment, margins were affected by product mix as well as lower year-over-year revenues. As we previously announced, we expected that we would not record significant MultiComputer revenues in the first fiscal quarter due to the timing of orders. At MODCOMP, which comprises our service and system integration segment, our Systems and Solutions Division in Florida was disrupted for an extended period in October due to Hurricane Wilma, and our IT systems integration business in Germany experienced increased pricing pressure that results in reduced margins. "We are encouraged about our MultiComputer business," continued Lupinetti. "During the first quarter, we received multiple orders for MultiComputers as we continued to see interest in our fully ruggedized open source products. We look forward to capitalizing on further opportunities for customers seeking equipment to operate in harsh and confined shipboard, airborne and land environments. "At MODCOMP, we grew first-quarter revenue year-over-year on demand for our IT systems integration services and our best-of-breed integrated IT solutions," continued Lupinetti. "Our market share remains strong in both of these areas. As the demand for IT products and services in Europe improves, we plan to grow at MODCOMP by increasing sales and leveraging our strength in key markets. To do this, we plan to add to our sales force and capitalize on emerging opportunities in markets such as telecommunications and cable television. While we will focus on sales growth, we also will remain vigilant on cost controls. We anticipate that MODCOMP will recover the lost sales due to Hurricane Wilma by the end of the fiscal year. "Looking forward," continued Lupinetti, "we believe we will see improvement in our overall margins in the second fiscal quarter as we report revenues from new MultiComputer orders. We expect to enhance margins at MODCOMP as the year progresses." Safe Harbor The Company wishes to take advantage of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995 with respect to statements that may be deemed to be forward-looking under the Act. Such forward-looking statements may include, but are not limited to, those relating to future interest in the Company's MultiComputers, its expectations regarding MultiComputer orders in the second fiscal quarter, its plan to add to its sales force, enhance margins and sales volume at MODCOMP, its expectation that it will recover the sales volume that was lost due to Hurricane Wilma by the end of the fiscal year, and its expectation that it will see improvement in margins in the second quarter. The Company cautions that numerous factors could cause actual results to differ materially from any forward-looking statements made by the Company. Such risks include general economic conditions, market factors, competitive factors and pricing pressures, and others described in the Company's filings with the SEC. Please refer to the section on forward-looking statements included in the Company's filings with the Securities and Exchange Commission. About CSP Inc. Based in Billerica, Massachusetts and founded in 1968, CSP Inc. (Nasdaq: CSPI) and its subsidiaries develop and market best-of-breed IT solutions, systems integration services, and high-performance computer systems. CSP's Systems segment includes the MultiComputer Division, which supplies high- performance Linux cluster systems for a broad array of defense applications, including radar, sonar and surveillance signal processing. The Company's MODCOMP, Inc. subsidiary, part of its Service and Systems Integration segment founded in 1970 and which includes the fiscal 2003 acquisition of Technisource, is a leading provider of IT solutions and systems integration services. MODCOMP works with third parties to develop customized solutions in the global IT markets and has offices in the U.S., U.K. and Germany. More information about CSP is available on the company's Web site at http://www.cspi.com. To learn more about MODCOMP, Inc., consult http://www.modcomp.com. Contact: Gary Levine Chief Financial Officer CSP Inc. Tel: 978.663.7598 ext. 1200 Fax: 978.663.0150

CSP INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

December 31, September 30

2005 2005 Assets Current assets:

Cash and short-term investments $12,333 $12,727

Accounts receivable, net 7,355 6,891

Inventories 4,268 3,711

Other current assets 827 923 Total current assets 24,783 24,252

Property, equipment and improvements, net 1,065 1,179

Other assets 5,495 5,513 Total assets $31,343 $30,944

Liabilities and Shareholders' Equity Current liabilities:

Accounts payable and accrued expenses 8,453 7,581

Total current liabilities 8,453 7,581 Pension and retirement plans 7,193 7,129

Deferred income taxes 185 166 Shareholders' equity 15,512 16,068 Total liabilities and shareholders' equity $31,343 $30,944 CSP INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF

OPERATIONS

(Amounts in thousands, except per share data )

/-----Three Months Ended-----/

December 31 December 31

2005 2004

Sales:

Product $11,938 $10,930

Service 3,158 3,162 Total sales 15,096 14,092 Cost of sales:

Product 9,933 8,302

Service 2,214 2,091 Total cost of sales 12,147 10,393 Gross Profit 2,949 3,699 Operating expenses:

Engineering and development 512 769

Selling, general & administrative 2,944 2,436

Total operating expenses 3,456 3,205 Operating income (loss) (507) 494 Other income (expense), net 55 (9) Income (loss) from continuing

operations before income taxes (452) 485 Provision for income taxes 94 197 Income (loss) from continuing

operations (546) 288 Loss from discontinued operations -- (51) Net income (loss) ($546) $237 Income (loss) per share from

continuing operations - basic ($0.15) $0.08

Loss per share from discontinued

operations - basic -- ($0.01)

Net income (loss) per share - basic ($0.15) $0.07 Weighted average shares outstanding - basic 3,679 3,576 Income (loss) per share from

continuing operations - diluted ($0.15) $0.07

Loss per share from discontinued

operations-diluted -- ($0.01)

Net income (loss) per share - diluted ($0.15) $0.06 Weighted average shares outstanding -

diluted 3,679 3,860