On June 15, 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.138 ("SFAS No.138"), Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No.133 ("SFAS No. 138"). This Statement addresses a limited number of issues causing implementation difficulties for numerous entities that are required to apply SFAS No.133. SFAS No.133, as amended by SFAS No.137, Accounting for Derivative Instruments and He

4.    Inventories:

Inventories consist of the following (in thousands):

On October 9, 1986, the Board of Directors authorized the Company to repurchase up to 344,892 additional shares of the outstanding stock at market price. On September 28, 1995, the Board of Directors authorized the Company to repurchase up to 199,650 additional shares of the outstanding stock at market price. The timing of stock purchases are made at the discretion of management. On October 19, 1999, the Board of Directors authorized the Company to repurchase up to 200,000 additional shares of the out

6.    Long-Term Investments:

During the quarter the Company invested $2 million in Vertical Buyer Inc., which is a holding company for a network of internet sites formed to capitalize on business to business e-commerce opportunities initially in the global commercial lighting and electrical markets. The Company announced that it would distribute 1 share of Vertical Buyer Inc. common stock for every 5 shares of CSPI stock owned for shareholders of record on July 7, 2000. The Company is accounting for this investment under the co

7.    Earnings Per Share Reconciliation:

The reconciliation of the numerators and denominators of the basic and diluted net income (loss) per common share computations for the Company's reported net income (loss) is as follows:

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The Company's comprehensive income is as follows:

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The following table presents certain operating segment information (Amounts in thousands).

Each segment is broken down by related business activities, which crosses different business operations. These segments are based on the different customer activity of the Company. CSPI has four major segments: systems which includes company manufactured hardware products, systems integration and services which includes maintenance of the Company and other systems sold and integration and sale of third party hardware products and services, E-Commerce software, and other software products which are deve

Profit from operations is sales less cost of sales, engineering and development, selling, general and administrative expenses but is not affected by either non-operating charges/income or by income taxes. Non operating charges/income consists principally of investment income and interest expense.

In calculating profit from operations for individual operating segments, substantial administration expenses incurred at the operating level are common to more than one segment and are allocated based on a sales basis except for those related to E-Commerce software which is allocated based upon employee headcount.

All intercompany transactions have been eliminated.

Identifiable assets include deferred income tax assets and other financial instruments managed by the Company. Capital expenditures common to more than one segment are allocated on a sales basis.

In April 2000 and March 1999, MODCOMP had a reduction of 2 and 15 individuals, respectively, in its domestic workforce. The expenses related to the action were approximately $64,000 and $310,000 for severance costs.

The actions contemplated by the above described workforce reductions have been completed as planned. There was a $53,000 accrual remaining at May 31, 2000, related to the April 2000 restructure program which will be paid in full by October 2000. The amounts accrued approximated the amounts paid under the March 1999 restructuring program.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

A summary of the period to period changes in principal items included in the Statements of Operations is shown in Schedules I and II (pages 15 and 16).

The discussion below contains certain forward-looking statements related to, among others but not limited to, among other things, statements concerning future revenues and future business plans. Actual results may vary from those contained in such forward-looking statements.

The Company's sales were $16,303,000 and $50,397,000 for the three and nine-month periods ended May 31, 2000, compared to $13,386,000 and $40,486,000 for the same periods in fiscal 1999. The increase in revenue was due primarily to the continued success of the outsourcing and integration services sales of MODCOMP's German subsidiary. The sales were primarily to customers in the telecommunication market. Service and system integration sales increased by 51% and 58% for the three and nine- month periods c

E-commerce software sales increased by 17% and 86% for three and nine-month periods of fiscal 2000, compared to fiscal 1999. During the quarter, MODCOMP signed a marketing alliance with Ainsworth & Associates, a UK management consulting firm, to sell ViewMax web to host software product and WAP-66 host to WAP server for the financial sector. Systems sales decreased less than 1% for the three-month period and 23% for the nine-month period ended May 31, 2000. The decrease was due to the decline in th

Scanalytics revenues were 2% and 3% of total sales for the three and nine-month periods, compared to 5% and 5% for the prior fiscal year.

MODCOMP continues to ship its real-time process control classic product line to it's existing customers which represented 17% of systems revenue for the one nine-month period ended May 31, 2000, compared to 12%for the comparative period of fiscal 1999.

Other software sales represented 2% and 3% of sales for the three and nine-month periods ended May 31,2000, compared to 12% and 8% of sales for the same periods of the prior fiscal year. Scanalytics accounted for most of the software sales for the three and nine- month periods during fiscal 2000. Scanalytics sales decreased by 21% for the first nine months of the current fiscal year, compared to the prior year. The decreased sales were due to the decline in equipment hardware sales with a decline in the e products.

European sales accounted for 71% of the total revenue for both the quarter and nine- month periods. The rest of the geographic revenue breakdown was 25% and 26% for the Americas, and 4% and 3% for the rest of the world (primarily Asia) for the three and nine- month periods ended May 31, 2000.

Cost of sales as a percentage of sales were 70% and 72% for the three and nine-month periods ended May 31, 2000. This compared to 63% and 62% for the same periods of the prior fiscal year. The increase in the cost of sales for the three and nine-month period was due to the change in product mix with increased sales of service and systems integration which has a higher cost of goods due to the large amount of third-party products. Outsourcing and integration systems sales remain a large percentage o

Operating Expense:

Engineering and development expenses for the three-month period ended May 31, 2000 increased approximately $49,000 or 5% from the same period of fiscal 1999. The nine- month period of fiscal 2000 amount remained consistent compared with the prior fiscal year. Increased expense relates primarily to increases experienced by MODCOMP for the development of the WAP-66 and Palm based ViewMax product and improvements to the ViewMax product, which was offset by decreases in expense in the MultiComputer Division

Sales, general and administrative expenses decreased $358,000 (10%) and $523,000 (5%) for the three and nine-month periods ended May 31, 2000, compared to the same periods of fiscal 1999. The nine-month decrease relates primarily to reductions in sales and administrative personnel at MODCOMP and Scanalytics. Scanalytics expenses decreased $202,000 and $501,000 for the three and nine-month periods compared to the prior year. MODCOMP expenses decreased $240,000 (12%) and decreased $395,000 (6%) for the t

During the third quarter of fiscal 2000, MODCOMP had a reduction in staff of two domestic employees and expenses of $64,000 for severance pay. This will save the Company approximately $140,000 annually.

Other Income Expenses and Taxes:

Other income decreased by $93,000 and $180,000 for the three and nine-month periods ended May 31, 2000. Last year the company had realized gains on the sale of investments during the quarter ended May 28, 1999. This represented approximately 68% of the decrease.

The Company had an effective tax rate of approximately 53% for the nine-month period ended May 31, 2000, which is above the normal US statutory rate. This was due to the large portion of foreign-based revenue and profits from Germany and France, which have high statutory tax rates. The Company has continued to review with advisors, the most effective tax strategy to reduce the effective rate.

The Company has a solid financial position, with working capital of $22.9 million at May 31, 2000, compared to $23.4 million at August 27, 1999. Accounts receivable increased to $12.6 million at May 31, 2000, compared to $7.4 million at August 27, 1999. The increase in account receivable was due to the timing of shipments and not collection issues. Accounts payable and accrued expenses increased to $9.5 million at May 31, 2000, from $6.2 million on August 27, 1999. The increase was due to the purch

During the quarter the Company invested $2 million in Vertical Buyer Inc., which is a holding company for a network of internet sites formed to capitalize on business to business e-commerce opportunities initially in the global commercial lighting and electrical markets. The Company announced that it would distribute 1 share of Vertical Buyer Inc. common stock for every 5 shares of CSPI stock owned for shareholders of record on July 7, 2000.

Management believes that all the Company's current and foreseeable needs can be met through working capital generated by operations and investments.

Inflation and Changing Prices:

Management does not believe that inflation and changing prices had significant impact on sales, revenues or operating income during fiscal 2000 or 1999. There is no assurance, however, that the Company's business will not be materially and adversely affected by inflation and changing prices in the future.

Factors That May Affect Future Performance:

This document contains forward-looking statements based on current expectations that involve a number of risks and uncertainties. The factors that could cause actual results to differ materially include the following: general economic conditions and growth rates in the peripherals and computer products, biological imaging software and instruments and machine code readers industries; competitive factors and pricing pressures; changes in product mix; the timely development and acceptance of new products;

Markets for the Company's products are characterized by rapidly changing technology, new products introduction and short product life cycles. These changes can adversely affect the business and operating results. The Company's success will depend upon its ability to enhance its existing products and to develop and introduce, on a timely and cost effective basis, new products that keep pace with technological developments and address increasing customer requirements. The inability to meet these demands c

Year 2000:

Historically, certain computer programs have been written using two digits rather than four digits to define the year. This could result in computers recognizing a date of "00" as the year 1900 rather than the year 2000, resulting in potential major system failures or miscalculations. This problem is referred to as "Year 2000".

The Company reviewed both its internal computer systems and its products that could have been affected by the "Year 2000" issue and has updated some systems and a few products which were affected. With the modification to existing software and conversion to new software, the "Year 2000" issues related to internal computer systems and products did not cause any significant operational or computer problems. Furthermore, the cost of implementing these solutions has been fully expensed

The Company has not experienced any problems related to the "Year 2000" issue as of July 12, 2000.

             None

1. Exhibits

27.0 Financial Data Schedule

2. Reports on Form 8-K

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CSP Inc.
(Registrant)

Date: July 12, 2000                                               By: /s/ Alexander R. Lupinetti
                                                                                       Ch                                                                                        Pr

Date: July 12, 2000                                               By: /s/ Gary W. Levine
                                                                                       &n                                                                                        &n

                                               /----------------Three months ended--------/ /------Nine months ended-----------/

                                                     /--For the three months ended---/          /---For the nine months ended----/
                                                                                       &n

			$	%		$	%
			Change	Change		Change	Change
Sales			$2,917	22%		$9,911	24%
Cost of sales			2,926	35%		11,396	46%
Engineering and
development			49	5%		(6)	--
Selling, general,
administrative			(112)	(3%)		(277)	(3%)
Restructuring			(246)	(79%)		(246)	(79%)
Total costs and
expenses			2,617	20%		10,867	28%
Operating income			300	102%		(956)	(49%)
Other income			(93)	(35%)		(180)	(36%)
Income before
taxes			207	37%		(1,136)	(46%)
Income tax expense			155	53%		(572)	(45%)
Net income			52	19%		(564)	(48%)