CSP Inc. Announces Third-Quarter Fiscal 2008 Financial Results

BILLERICA, MA, Aug 05 (MARKET WIRE) --
CSP Inc. (NASDAQ: CSPI), a provider of IT solutions, systems integration
services and dense cluster computing systems, today reported financial
results for the three and nine months ended June 30, 2008.

For the third quarter of fiscal 2008, CSP Inc. sales were $19.2 million
compared with $25.9 million in the third quarter of fiscal 2007. Net loss
for the third quarter of fiscal 2008 was $8 thousand, or $0.00 per share,
compared with net income of $882 thousand, or $0.23 per diluted share, in
the third quarter of fiscal 2007.

For the first nine months of fiscal 2008, CSP Inc. sales were $58.7
million compared with $65.9 million in the first nine months of fiscal
2007. Net loss for the fiscal 2008 nine-month period was $78 thousand, or
$0.02 per share, compared with net income of $2.1 million, or $0.56 per
diluted share, for the fiscal 2007 nine-month period.

The Company's cash and short-term investments were $16.2 million as of
June 30, 2008 compared with $21.4 million as of year ended September 30,
2007. This decrease was the caused by two factors as previously reported.
First, during the second quarter, the Company reclassified $4.8 million in
short-term auction rate securities to long-term investments. These auction
rate securities were issued by state organizations and are collateralized
by student loans, for which repayment is substantially guaranteed by the
U.S. government under the Federal Family Education Loan Program ("FFELP")
or the MBIA Insurance Corporation. All of CSP's auction rate securities
are currently rated Aaa by Moody's, AAA by Standard & Poor's and/or AAA by
Fitch, which are the highest ratings issued by each respective rating
agency. CSP currently has retained $450 thousand of auction rate
securities in short-term investments because the Company expects these
securities to be redeemed. The Company redeemed $1.550 million of auction
rate securities in the third quarter of fiscal 2008.

Management Comments

"CSP's Service and Systems Integration business reported solid results in
the third quarter of fiscal 2008, while the Systems business continues to
be affected by the shifting of military priorities away from strategic
programs," said Alexander R. Lupinetti, CSP chairman and chief executive
officer.

"Our year-over-year comparisons are challenged for the three- and
nine-month periods as we reported a significant amount of Systems revenue
in fiscal 2007 from a major supply contract with Raytheon," added
Lupinetti. "In fiscal 2008, we are recording Systems revenue from a number
of small multicomputer contracts in contrast to the large contract we were
awarded last year. In addition, contracts that previously had been delayed
and were expected to result in revenue in the second half of fiscal 2008
have now been pushed out to fiscal 2009. As a result, we now expect that
revenues for the second half of fiscal 2008 from our Systems business will
approximate those from the first half of the year."

"During the fourth quarter, our Systems business will introduce a hybrid
computing platform through our previously announced partnership with
Annapolis Micro Systems," said Lupinetti. "The new platform will include
Annapolis' innovative design and development tools on a Field Programmable
Gate Array (FPGA) integrated chip within our FastCluster rugged computing
platform. This hybrid FastCluster computing environment is capable of
supporting hundreds of hybrid compute blades and includes a broad set of
libraries, diagnostics and development tools that promote collaboration,
productivity and portability. We are excited to be offering a high-quality
hybrid computing solution to military and commercial customers."

"CSP's Service and Systems Integration business continued to perform well
across each of its subsidiaries in the third quarter," said Lupinetti.
"Our German subsidiary is capitalizing on demand for its professional
service practices, including 'Lifecycle Management, Archiving and Network
Migration' and 'Security.' In the United States, our Systems and Solutions
Division (SSD), which provides IT infrastructure solutions, is leveraging
an expanded sales force to generate excellent sales growth. We also are
pleased with our U.K. subsidiary, which reported another profitable
quarter."

"As we head into the final quarter of fiscal 2008, we remain cautiously
optimistic about the demand environment and the opportunities we are
seeing at our Service and Systems Integration business. However, we are
keeping a watchful eye for any changes in the economies of the countries
in which we operate. We are focused on continuing to grow this business
organically as well as through strategic acquisitions that would provide
complementary technical or geographic practices," concluded Lupinetti.

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, the
redemption of its auction rate securities, the delay of certain Systems
contracts, the expectation for Systems revenue in the second half of the
year, the introduction of the hybrid computing platform, demand for the
German subsidiary's service offerings, SSD's growth prospects, the demand
environment for the overall Service and Systems Integration business, and
growing the Service and Systems Integration business organically and
through acquisitions. The Company cautions that numerous factors could
cause actual results to differ materially from 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. 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, also part of its Service and
Systems Integration segment founded in 1970, 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 website at www.cspi.com. To learn more about
MODCOMP, Inc., consult
www.modcomp.com.

CSP INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)

June 30, September 30,
2008 2007

------------ ------------
Assets

Current assets:
Cash and short-term investments $ 16,237 $ 21,377
Accounts receivable, net 10,616 10,678
Inventories 6,533 6,072
Other current assets 1,982 1,843
------------ ------------
Total current assets 35,368 39,970
Non current investments 4,800 --
Property, equipment and improvements, net 1,034 1,044
Other assets 5,603 5,427
------------ ------------
Total assets $ 46,805 $ 46,441
============ ============

Liabilities and Shareholders' Equity

Current liabilities $ 14,075 $ 13,860
Pension and retirement plans 7,288 6,859
Deferred income taxes 449 388
Non-current liabilities 260 --

Shareholders' equity 25,733 25,334
------------ ------------

Total liabilities and shareholders' equity $ 47,805 $ 46,441
============ ============

CSP INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)

Three Months Nine Months
Ended Ended
June 30 June 30 June 30 June 30
2008 2007 2008 2007
-------- --------- -------- ---------
Sales:
Product $ 14,730 $ 21,871 $ 46,254 $ 54,929
Service 4,425 4,073 12,455 10,964
-------- --------- -------- ---------
Total sales 19,155 25,944 58,709 65,893

Cost of sales:
Product 12,339 16,837 38,246 42,217
Service 3,385 3,405 9,520 8,131
-------- --------- -------- ---------
Total cost of sales 15,724 20,242 47,766 50,348
Gross Profit 3,431 5,702 10,943 15,545
Operating expenses:
Engineering and development 471 665 1,650 1,838
Selling, general &
administrative 3,113 3,762 9,875 10,317
-------- --------- -------- ---------

Total operating expenses 3,584 4,427 11,525 12,155
-------- --------- -------- ---------
Operating income (loss) (153) 1,275 (582) 3,390

Other income, net 123 332 464 502
-------- --------- -------- ---------
Income (loss) before income taxes (30) 1,607 (118) 3,892

Provision for income taxes (22) 725 (40) 1,777
-------- --------- -------- ---------
Net income (loss) $ (8) $ 882 $ (78) $ 2,115
======== ========= ======== =========

Net income (loss) per share -
basic $ (0.00) $ 0.23 $ (0.02) $ 0.56
======== ========= ======== =========
Weighted average shares
outstanding - basic 3,778 3,810 3,790 3,761
======== ========= ======== =========

Net income(loss) per share -
diluted $ (0.00) $ 0.22 $ (0.02) $ 0.56
======== ========= ======== =========

Weighted average shares
outstanding - diluted 3,778 3,967 3,790 3,791
======== ========= ======== =========

Contact:
Gary Levine
Chief Financial Officer
CSP Inc.
Tel: 978.663.7598 ext. 1200
Fax: 978.663.0150

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