For the third quarter of fiscal 2006, CSP Inc. sales increased to $18.6 million from $11.5 million in the third quarter of fiscal 2005. Net loss for the third quarter of fiscal 2006 was $44,000, or $0.01 per diluted share, compared with net income of $211,000, or $0.06 per diluted share, in the year ago quarter. CSP's third-quarter fiscal 2006 net loss includes approximately $243,000 in expenses related a reduction in the work force at the company's German subsidiary, and $82,000 in equity-based compensation expense under SFAS 123R relating to employee and director stock options and the employee stock purchase plan. The Company's third-quarter 2005 net income included a gain of $114,000 from the sale of the assets of its Scanalytics subsidiary.

For the first nine months of fiscal 2006, CSP reported an increase in sales to $51.3 million from $44.4 million for the same period in fiscal 2005. Net income for the fiscal 2006 nine-month period was $443,000, or $0.12 per diluted share, compared with net income of $1.2 million, or $0.31 per diluted share, for the first nine months of fiscal 2005. Net income for the fiscal 2006 nine-month period includes $384,000 for professional fees related to the previously announced restatement of the Company's interim and annual financial results for fiscal 2004 and fiscal 2003, expenses for a reduction in our work force of $243,000 and equity-based compensation expense of $202,000. The 2005 nine-month period included the above-referenced $114,000 gain from the sale of assets.

"Our 61 percent year-over-year revenue growth in the third quarter was driven by demand for our best-of-breed integrated IT systems," said Alexander R. Lupinetti, chairman and chief executive officer of CSP Inc. "Our year-over-year decline in net income was the result of less higher-margin services revenues in the Service and system integration segment from our German MODCOMP subsidiary as well as a number of extraordinary expenses in the third-quarter of fiscal 2006 and a one-time gain in the year-ago quarter. As we previously announced, two integration services customers of our German subsidiary have significantly reduced their contract service levels in order to cut costs."

"We are continuing to realign our German MODCOMP workforce with current business volume for systems integration services," continued Lupinetti. "At the same time, we are encouraged by the success of our German subsidiary and our U.S.-based IT Systems and Solutions division in increasing sales for our integrated IT infrastructure solutions. Our focus on growing our U.S Systems and Solutions sales force is paying solid dividends, and we are continuing this effort."

"We are excited by the prospects for our Systems segment" added Lupinetti. "After the close of the quarter, we announced a major contract award to our MultiComputer division valued between $17 and $18 million to provide Raytheon Company with our FastCluster 220R MultiComputer systems. Initial delivery of these systems will begin late in the calendar year and will continue throughout 2007. This contract demonstrates the confidence that Raytheon has in the quality and performance of our multicomputers and in our ability to meet critical deadlines. Our optimism for our MultiComputer division is reinforced by the growing interest we are seeing in our new second-generation FastCluster 3000 Series, which provides our customers with the most advanced interconnect technology in the industry."

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 realigning the German MODCOMP workforce, growing the U.S. Systems and Solutions sales force, the prospects for the MultiComputer division, the timing of deliveries relating to the Raytheon contract, and the interest in the Company's FastCluster 3000 Series. 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.

CSP INC. AND SUBSIDIARIES
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