(Exact name of registrant as specified in its charter)

                                  Massachusetts                         04-2441294
                            (State of Incorporation)            (IRS Employer Identification Number)

(Address and telephone number of principal executive offices)

None

Common Stock (par value $0.01 per share)

Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

As of November 24, 2000, there were 3,562,659 shares of Common Stock outstanding. The aggregate market value of shares of such Common Stock (based upon the last sale price of $3.84 of a share as reported for November 24, 2000 on the NASDAQ National Market System) held by non-affiliates was approximately $13,680,611.

CSP, Inc. ("CSPI" or the "Company") was founded in 1968 and is based in Billerica, Massachusetts, just off Route 128 in the Boston computer corridor. To meet the diverse requirements of its industrial, commercial, scientific and defense customers worldwide, CSPI and its subsidiaries develop and market Internet software for E-commerce solutions, image-processing software, network management integration services and high-performance cluster computer systems.

On June 27, 1997, CSPI acquired the assets of MODCOMP/Cerplex L.P. ("MODCOMP"), a wholly owned subsidiary of The Cerplex Group Inc. for $8,709,000 in cash. This transaction was accounted for as a purchase. This multi-national subsidiary provides network integration services including, consulting, system integration and outsourcing. WAP66™, MODCOMP's newest product, makes existing enterprise data available to mobile business (M-business) and is available on Palm IV™ from Palm, Inc. In addition, MODCOMP's ViewMax® is an Internet software product that allows companies to easily integrate their IT systems with Internet technology for E-commerce applications. MODCOMP sells all products through its own direct sales force in the U.S., Germany, and the United Kingdom. MODCOMP sells via a worldwide organization of distributors in the rest of the world.

In 1988, the Company established the Scanalytics product group to develop and market imaging systems for molecular and cell biology. In June 1997, the Company acquired the assets of Signal Analytics Corp. ("Signal"), a software company that provides products for scientific imaging to the life science and biotechnology fields. CSPI purchased the assets of Signal for $2,159,000 in cash. This transaction was accounted for as a purchase. In June 1997, the Scanalytics product group was consolidated with the assets acquired from Signal and was setup as a wholly owned subsidiary called Scanalytics, Inc. ("Scanalytics"). Scanalytics specializes in the development and marketing of highly sophisticated image capture and analysis software products used by researchers in the biological and physical sciences. By integrating these software products with a diverse group of image-capture devices, Scanalytics is able to solve application-specific problems in biotechnology and life science research including Digital Microscopy, Genomics, and High-Throughput Screening. Scanalytics sells both direct and through a network of distributors and resellers.

The CSPI MultiComputer Division ("MultiComputer Division) helps its customers solve high-performance computing problems in the medical imaging and defense markets by supplying very dense multiprocessing systems distinguished by elegant packaging and high-speed node-to-node communications in a completely integrated architecture. These systems are used in a broad array of applications, including radar, sonar and surveillance signal processing. The MultiComputer Division sells all products through its own direct sales force in the U.S. and via a worldwide organization of distributors in the rest of the world.

The Company considers its products to be of four classes, Systems, System and Service Integration, E-Commerce Software, and Other Software. Systems accounted for 21%, 30%, and 27% of total revenues for fiscal years 2000, 1999, and 1998, respectively. System and Service Integration accounted for 73%, 64%, and 69%, of total revenues for fiscal years 2000, 1999, and 1998, respectively. E-Commerce Software accounted for 3%, 1%, and 0%, of total revenues for fiscal years 2000, 1999, and 1998, respectively. Other Software accounted for 3%, 5% and 4%, of total revenues for fiscal years 2000, 1999, and 1998, respectively.

Additional segment information and financial information about the Company's foreign operations is included in Note 12 to the Consolidated Financial Statements of the Registrant included in Item 8.

The Company and its subsidiaries develop and market Internet software for E-commerce solutions, image-processing software, network management integration services and high-performance cluster computer systems.

CSPI MultiComputer Division supplies very dense high-performance cluster computer systems ("HPC") for the high-end scientific/technical/commercial computing markets and high-performance embedded computer systems ("HPEC") for the signal/image processing market (HPEC). Applications expertise, product innovation, strong technical support, and dedicated customer support makes CSPI one of the industry's leading providers of high-performance cluster computer systems.

Applying its three plus decades of experience, the CSPI MultiComputer Division designs, manufactures, sells and services high-performance cluster computer systems for compute intensive applications needing tens to hundreds of processors interconnected with a very high bandwidth network. All the CSPI MultiComputer Division's current products are easily scalable to very large size, are specially designed to require minimum space and power and are based upon open and standard hardware and software components.

The 2000 SERIES MultiComputer and FastCluster are the MultiComputer Division's newest products. Product improvements as well as new complimentary products beneficial to both of these product lines are continuously under development.

In April of this fiscal year CSPI MultiComputer Division introduced the FastCluster line of high-performance cluster computer systems incorporating hundreds of processors, all interconnected by a very high-bandwidth network. FastCluster systems are very dense Linux cluster computers designed to meet the needs of a wide range of computationally intensive applications in the scientific/technical high-performance computer marketplace. Applications areas include modeling, simulation, signal and image processing, scientific computing, image/video processing and data mining.

FastCluster offers customers a very dense open hardware platform including the most modern processors, memory and networking components, easy upgrades through continuous insertion of the latest technologies and seamless application reuse through the use of industry standards, such as Open Source Software (OSS) including Linux, MPI and VSIPL. The superior architectural design of FastCluster products is based on 7400 processors from Motorola™ incorporating AltiVec™ technology, high-speed memory and Myrinet™ 2000. FastCluster products use the industry-standard Linux operating system for PowerPC™ processors and are compatible with the full range of third party software packages including FORTRAN compilers, vectorizers, math and image processing libraries, debuggers, profilers and other cluster development and run-time tools. CSPI MultiComputer's Linux-based products are offered with many high-availability features including instant booting from a cold start, error-correcting memory, a fault tolerant MPI-like library, hot-swappable hardware, extended environmental specifications and built-in test.

Entry price for a 16 processor FastCluster desktop is under $100,000. Larger FastCluster systems incorporating over 1000 processors are available and sell for several million dollars. All FastCluster products are sold with standard hardware and software warranties. Contract support and service are optionally available from CSPI MultiComputer's support organization.

2000 SERIES products are very dense high-performance cluster computer systems especially designed to solve applications with demanding analysis of complex signals and images in real time. Typical computational intense applications requiring 2000 SERIES products include SONAR, RADAR and stimulation applications within the defense market segment, CT and MRI applications in the medical imaging market, stimulation/modeling for real-time simulation markets and target/image/voice recognition in video and audio processing markets.

The 2000 SERIES systems use the best of open systems technologies incorporating the latest PowerPC™ RISC processors, Myrinet™ networking technology, Message Passing Interface (MPI) software for interprocessor communications and the VxWorks® real-time operating system. The 2000 SERIES product offers very high density, low power and a full set of reliability, maintainability and repairability features. The incorporation of open and standard technologies in the 2000 SERIES systems ensures that customers receive systems using the latest technology while reducing the risks associated with proprietary technology.

The 2000 SERIES product line was first offered in fiscal year 1997. Several new and improved versions of the 2000 SERIES have been offered since its introduction. 2000 SERIES products have been shipped in a variety of configurations, including multiple-chassis systems with over 400 processors.

The MultiComputer Division continues to manufacture, sell and support certain of its older products, principally the SuperCard product line. SuperCards are VME-based board products that are incorporated into customized signal processing systems by OEM customers. SuperCard products are no longer being applied into new designs but are incorporated in systems still being deployed by our customers. The SuperCard family line of embedded signal processors employ multiple Intel i860 RISC microprocessors. Intel discontinued production of the i860 at the end of the 1998 calendar year. CSPI has made provisions to accommodate the future needs of its SuperCard customers. Management believes current inventory levels of this product are adequate to support future customer needs.

CSPI MultiComputers supplies on an 'as available' basis support for other older products, some initially released a decade or more ago, still in use by our customers, mainly on critical applications within the defense industry.

Scanalytics gives "sight" to computers by creating software that captures images from digital cameras and scanners and extracts information from those images. The Company integrates those software products with off-the-shelf hardware components to create high-performance vision systems that support scientific researchers in the biological and the physical sciences. During 2000, Scanalytics focused its efforts in three applications areas of biotechnology and life science research: Digital Microscopy, Genomics, and High Throughput Screening. Scanalytics' products are sold through two channels: directly to researchers via Scanalytics' own sales force, and through a network of international and domestic dealers, OEMs, and VARs.

IPLab is a general-purpose image analysis software package. It was originally available only on Macintosh computers, where IPLab has been called "the de facto standard in Macintosh image analysis". Since then, IPLab has also been programmed to work within the Windows operating systems. Add-on modules for IPLab, called Extensions, provide application-specific functionality, making IPLab extremely adaptable for a wide variety of customers and industries. Extensions can easily be written by IPLab customers and third party developers, as well as by Scanalytics itself. Scanalytics makes and markets individual Extensions for multi-fluorescence microscopy, calcium-ratio imaging, 3-D image visualization, time lapse studies, and microscope automation. The list price of Basic IPLab is $2,995 and extensions range in price from $600 to $3,000.

GeneProfiler is the backbone of Scanalytics software products oriented towards Genomics. It is widely recognized as the most sophisticated and easy to use software of its kind in the industry. Scanalytics makes several other products within this group: OneDscan for either Macintosh or Windows provides basic gel documentation and analysis, Gellab II+ is used for 2D gel analysis, and DNAscan is a package for automatic sequencing of DNA sequencing gels. Prices for these products range from $995 to $2,995.

High Throughput Screening systems are characterized by a high density of samples, automated analysis and experimental repeatability. MicroArray Suite, introduced by Scanalytics in 1999, is an extension to IPLab that was developed by and licensed from the National Center for Human Genome Research at the National Institutes of Health. This software package assists researchers in analyzing microarrays, which are devices that let researchers evaluate potential drug candidates by testing them against thousands of DNA fragments simultaneously. MicroArray Suite is priced at $6,000. Scanalytics is continuing development of the Elispot Imager in collaboration with the Navy Medical Research Center. This system of software and hardware is used for immunological assays. (Elispot stands for Enzyme Linked Immuno-Spot). ELISpot Imager is priced at $21,000.

MODCOMP continues to sell and manufacture legacy systems and components, especially as it relates to servicing current customers with replacement and/or upgraded systems. MODCOMP's computer systems generally can be expanded without major redesign as customer requirements change.

MODCOMP's computer systems are generally utilized in industrial plants, research laboratories and data processing applications and operate in real-time.

The purchase prices of MODCOMP's computer systems are typically priced from $6,000 to $150,000, depending upon customer requirements.

In 1988, MODCOMP began selling RealStar family of computers, based on open systems VME and Motorola 68 and 88k processor technology. This was a direct result of faster processing technology and customer demand. MODCOMP provides migration paths for CLASSIC proprietary customers with these systems. Prices range from $15,000 to $100,000.

In July 1997, MODCOMP began the launch of its RealStar II line of computer systems. This is a line of third party hardware based on Pentium processor technology. This hardware is specially configured for optimum performance with MODCOMP's REAL/IX PX operating system. MODCOMP adds additional components and software to these systems such as RAID subsystems, interface cards, disks, video displays, to optimize them for the real-time, process control market place. During fiscal year 1999 MODCOMP purchased a license for ScadaBase from Access Ware in order to complement the capabilities of the REAL/IX operating system. ScadaBase has also been programmed to work with the LINUX operating system for applications like the monitoring of Internet Service Provider's (ISP's) facilities. Prices for these systems range from $6,000 to $25,000.

MODCOMP also continues to offer its proprietary CLASSIC and MODACS Systems, parts and services, which it manufactures in its Fort Lauderdale headquarters. The CLASSIC systems are mini and supermini computers designed specifically to support real-time applications. The MODACS and MODACSX products are data acquisition and control systems. Prices range from $15,000 to $150,000.

MODCOMP's computers are supported by high-level operating software, referred to as MAX, REAL/IX, REAL/IX PX and ScadaBase. This software is designed specifically for optimum real-time performance. MODCOMP's software enables customers to write their own real-time application software. These applications, when combined with MODCOMP computers or third party computers, create systems which simultaneously perform different control functions, program tests and a batch processing operation with response and interrupt times that are required in this marketplace. Prices range from $3,000 to $35,000.

The Company also offers specialized programming and software engineering services to supply customers with customized e-commerce solutions.

In fiscal year 1997, MODCOMP launched ViewMax® in the United States. ViewMax® is a development environment that allows MODCOMP to rapidly re-engineer and integrate legacy systems such as mainframe, midrange, and other diverse host systems with Internet technology for E-commerce applications. Using ViewMax® technology, MODCOMP creates solutions that can extend corporate data to a much wider audience via a corporate Intranet, Extranet, or the Internet. Using ViewMax®, MODCOMP creates solutions that can also integrate Electronic Commerce transactions with existing legacy systems. Although the product has broad potential, the early adopters of this technology have used it primarily for facilitating Electronic Commerce and creating Extranets. Current ViewMax® customers are in the travel, insurance, financial, health services, governmental and manufacturing/ distribution markets. Prices for ViewMax® range from $40,000 to $250,000.

MODCOMP markets solutions using ViewMax directly to end-users. The direct market is cross industry, to companies of substantial size, and is not dependent on the fluctuations of any particular business segments. ViewMax® is positioned primarily as an integration solution, with a strong focus on Electronic Commerce, Intranet and Extranet implementations. In the US and UK, a wide range of companies from a broad spectrum of industry have signed up, including travel, insurance, system integrators, automotive and consumer electronics.

In fiscal 2000, MODCOMP launched WAP66 in Germany for the wireless market. WAP66 is universal wireless portal server software. Its configuration toolset allows you to write once and deploy anywhere on any type of mobile device. WAP66 automatically addresses the technical requirements to implement a WAP server as well as implements the ability to combine dynamic information flow with on-the-fly formatting for optimal support of various WAP mobile devices. In addition, WAP66 provides a simple user administration system and strict session control that allows you to perform highly complex transactions for complete E-business solutions.

The MultiComputer Division markets its FastCluster cluster computer systems into the high-end scientific/technical/commercial high-performance computing (HPC) segment and markets its 2000 SERIES high-performance embedded computer (HPEC) systems into signal/image processing segment with emphasis on analysis of complex signals. The Company distributes its products in these markets as an original equipment manufacturer (OEM) supplier to system integrators, distributors and value added resellers (VARs).

The MultiComputer Division's newly introduced FastCluster line of high-performance cluster computer systems was designed to meet the needs of a wide range of computationally intensive applications in the scientific/technical high-performance computer marketplace. Typical applications in this market include modeling, simulation, signal and image analysis, scientific computing, image/video processing and data mining.

FastCluster brings to the high-performance cluster computing market a family of products incorporating many important features differentiating it from all other cluster computing offerings. FastCluster products are distinguished by their elegant packaging - providing the highest density and lowest power consumption, high-speed node-to-node communications - providing optimum performance with true scalability and a completely integrated architecture - combining Linux, MPI, Myrinet and fault tolerance features. FastCluster products offer the high-performance cluster computing market the best combined performance, features and price.

2000 SERIES products are sold primarily to prime contractors within the defense industry for use in sonar and radar systems, simulators, speech recognition equipment, night vision systems and signal & image analysis computers.

Within the defense segment the overall market for new high-performance signal and image processing systems continues to shrink. New programs requiring signal/image processing and analysis equipment as well as upgrades to existing military systems considered essential for maintaining our military leadership continues at a steady rate. However, fewer new programs are now funded into full deployment as the number of platforms (ships, planes, tanks, etc.) for computer systems reduce in number. Both new and upgrade programs require a substantial period of development and evaluation before products are deployed into field use. With the reduction in defense spending, time from development to deployment varies based on the program, however, many programs are now stretching out well beyond the historical twelve to twenty-four months.

The MultiComputer division supplies commercial-off-the-shelf (COTS) products to defense industry prime contractors who are being encouraged to use COTS solutions rather than build systems in-house using proprietary designs. The COTS initiative is in response to US Defense Department's efforts to contain program costs and to improve the time and cost to insert new technology into existing field equipment. This initiative is now being adopted by other governmental procurement agencies around the world. 2000 SERIES MultiComputer products have been shipped to a number of customers developing COTS-based systems or evaluating its use for future COTS programs.

The MultiComputer Division's SuperCard products are being used in programs currently in deployment such as the U.S. Navy's sonar computers where they are used to co-ordinate information from hydraphone sensor arrays in both ship-based and shore-based installations. These programs typically stretch over many years. The deployment phases of many programs incorporating SuperCards are now nearing completion. SuperCards are also sold to medical imaging equipment suppliers on an OEM basis. No new SuperCard based programs are anticipated.

The MultiComputer Division sells all products through its own direct sales force in the U.S. and via a worldwide organization of distributors in the rest of the world.

MODCOMP supplies and integrates network solutions and designs, manufactures, services and markets worldwide, high-speed mini-computer principally for use in demanding real-time applications. These computer systems are used in operations involving process measurement and control, power production and distribution, manufacturing test and inspection, scientific data collection and monitoring, as well as financing and other communications networks. MODCOMP has expanded its product line by including third-party equipment in their sales and servicing offerings. This new focus as a "total solutions company" allows MODCOMP to meet the needs of their customers with a variety of products including internally produced as well as those from third-party manufacturers.

Sales to individual customers constituting 10% or more of total sales consisted of sales to E-Plus of $22,363,000 (36%) in 2000. This customer is a "wireless" telecommunication company in Germany. The Company anticipates that, for the foreseeable future, a significant percentage of its sales will be dependent upon a relatively small number of customers.

The Company markets its products through various sales offices in the U.S., Canada, Germany and England (for a detailed list see Item 2 of Form 10-K contained herein). Throughout the remainder of the world, these offices coordinate the activities of independent distributors and manufacturers representatives who represent other company's product lines not competitive with CSPI and are either paid a commission on units sold or are permitted to buy units at a discount for subsequent resale.

Geographically, Europe accounts for approximately 71% of total sales. The significant increase in European sales was due to MODCOMP business. Historically, approximately 80% of MODCOMP's revenue are generated internationally. During the current year, MODCOMP had significant sales from system integration customers in Germany. Accordingly, changes in market conditions in these countries may significantly affect MODCOMP's performance.

The following table sets forth the amounts (in thousands of dollars) and percentage of sales by geographical area during fiscal years 2000, 1999 and 1998.

The MultiComputer market is very competitive. The MultiComputer Division believes its products to be among the leaders in the use of open and standard technologies, elegance in packaging and price/performance. All the markets are characterized by rapid technological change, and the introduction of new products with superior capabilities or lower pricing could adversely affect the Company's business.

The future growth of the MultiComputer Division's markets depends upon providing high density and scalability in a compact low power and inexpensive package that can be easily integrated into original equipment manufacturers (OEM) design for high performance computation. Since the majority of sales are to OEMs, the principal barrier to competition is the reluctance of established users to redesign their product once it is in production.

The Company's direct competitors for the MultiComputer Division in the defense market are Mercury Computer Inc. and Sky Computers, Inc. DSP board manufacturers including DY4, Pentek, SBS, Spectrum Signal and Alacron that specialize in the DSP segment of this market are indirect competitors. In the low performance segment of the market general-purpose computer and single board computer manufacturers such as Motorola, Force and Hewlett Packard may compete. New companies enter the field periodically, and larger companies with greater technical resources and marketing organizations could decide to compete in the future.

Companies manufacturing general-purpose computer systems incorporating multiple processors will be the principal competitors for the MultiComputer Division's FastCluster products. FastCluster products are distinguished by their elegant packaging providing the highest density and lowest power consumption, high-speed node-to-node communications - providing true scalability and optimum performance and a completely integrated architecture - combining Linux, MPI, Myrinet and fault tolerance features. CSPI believes that its FastCluster products offer the best value in combined performance, features and price. FastCluster is a newly introduced product line and these distinguishing characteristics may not over come the capabilities of much larger companies competing in this segment of the high-performance computer market.

In the Digital Microscopy market, Scanalytics' major competitors are Media Cybernetics, Universal Imaging, and ImproVision. Other competitors include Compix, Carl Zeiss, Intelligent Imaging, and QED Imaging. In the Genomics market, major competitors include Genomic Solutions, Media Cybernetics, BioRad, and Alpha Innotech. In the High Throughput Screening market, the only other software company that competes directly with Scanalytics is BioDiscovery. Competitors in all of these markets range from small, single product companies to large, multinational instrument companies. Scanalytics maintains its competitive advantage by offering high-value solutions.

MODCOMP's competition in its Process Control and Data Acquisition business crosses product line boundaries. Competition in its proprietary product line is with third party companies that have developed technical expertise with the CLASSIC computer system family. Direct competitors include Accurate Computers, Queue Systems, Protostar, and Electronic Visions.

Competitors for both MODCOMP's proprietary and open systems product lines also include systems integrators with process control skills in markets such as primary metals, oil and gas, power, rubber and plastics, pharmaceuticals, chemicals, pulp and paper, and food and beverages. These competitors offer alternative open systems hardware platforms and industry-specific tailored application software packages.

MODCOMP's direct competition with its real-time UNIX operating system includes VxWorks, HP-UX, PowerMAX, Windows NT, Lynx, QNX, and Linux. As performance in microprocessor technology rapidly advances, real-time capabilities of competing operating systems narrows. Competing products are differentiated by hardware platform support and operating system robustness.

The Company's principal direct competitors to ViewMax in the Legacy Extension market space are Clientsoft, Sterling Software, Mozart, CST, Simware, Intelligent Environments, and Enterprise Link. New companies with backgrounds in emulation have begun to enter this market space. These companies such as WallData, Attachmate, and IBM have greater technical resources and marketing organizations, but are currently behind in technology. Substantial development efforts on their part could adversely affect our position.

Competitors for MODCOMP's WAP66 portal server software, in this new wireless market segment, range from small, single product companies to large multinational companies with much greater resources like Oracle, IBM, and Nokia.

In the system integration service business MODCOMP competitors are extensive and are different in each of the geographical markets but they include such competitors as EDS, IBM, Sun Microsystems, and Compaq.

All of the CSPI MultiComputer Division's manufacturing is performed at its plant in Billerica, Massachusetts. The primary manufacturing process is the assembly and test of printed circuit boards and systems, designed by the Company and fabricated by other vendors. The Company endeavors to build for inventory and offers products in a variety of standard formats. A small percentage of sales reflect products customized to a particular customer's specification, and even these products are easily reconfigurable should the customer cancel the order for any reason.

Upon receipt of material by the Company from outside suppliers, products and components are inspected by the Company's QC/QA technicians. During manufacture and assembly, both subassemblies and completed systems are subjected to extensive testing, including burn-in and vibration procedures designed to minimize equipment failure. The Company also uses diagnostic programs to detect and isolate potential component failures. A comprehensive log is maintained of all past failures to monitor quality procedures and improve design standards.

The Company is solely dependent upon Myricom Inc., Arcadia, CA for the networking technology integrated circuit devices used in 2000 SERIES MultiComputer products. The Company has sufficient quantities of these components on hand to satisfy anticipated demand. Myricom has assured the Company that supplies will continue to be available for reasonable quantities required.

SuperCard products were designed using the Intel i860 RISC microprocessor. CSPI was notified that Intel would be discontinuing production of the i860 at the end of the 1998 calendar year. CSPI has made provisions to accommodate the future needs of all its SuperCard customers for this product. No new application development programs will be initiated incorporating SuperCard products. However, SuperCard products will continue to be shipped into existing programs that have committed to the SuperCard end-of-life plan.

The CSPI MultiComputer Division does not consider the risk of interruption of supply to be significant to meet its projected revenue requirements for the immediate future.

The CSPI MultiComputer Division provides a warranty covering defects arising from products sold and service performed, which varies from 90 days to one year depending upon the particular unit. However, warranties of substantially greater scope have been extended to certain major customers for financial and other considerations. The CSPI MultiComputer Division maintains a reserve for warranty repairs equal to approximately 2% of product sales for the last 90 days.

The CSPI MultiComputer Division is approved for registration to ANSI/ASQC-Q9001 under RAB and RvC accreditation. The ISO9001 category is the most comprehensive, and incorporates every aspect of business from design, through sales, to manufacturing and customer support.

Scanalytics ships all of its software products and manuals from the Fairfax Virginia facility. Scanalytics performs system integration of computer equipment with various image capture devices, such as microscopes or digital cameras, at their facilities in Virginia before installation at the customer site.

MODCOMP's computer system production starts with the procurement of raw materials, components, pcb's, cables, and prefabricated sheet metal. System configurations can include a wide selection of peripheral subsystems built or purchased under the original equipment manufacturer agreements. MODCOMP's manufacturing facility is located in Fort Lauderdale, Florida. The process is controlled by various quality steps throughout the manufacturing process. The production cycle of an individual system generally takes between 30 and 45 days, depending on its complexity.

MODCOMP's manufacturing operations require a wide variety of mechanical and electronic components, raw materials and other supplies. MODCOMP has more than one commercial source of supply for most of the components and raw materials that it uses, but is dependent on certain single-source suppliers for a certain number of items. The supply situation is cyclical and shortages or extended lead times for delivery have developed from time to time. Although to date the Company has had no significant problems in procuring its material requirements as needed, MODCOMP's operations could be seriously affected should shortages become acute.

The MultiComputer Division and Scanalytics support its customers with telephone assistance, on-site service, system installation, and training and education. Product support service is provided by CSPI during the warranty period. Customers may purchase extended software and hardware maintenance and on-site service contracts for support beyond the warranty period. Each problem reported by a customer is reviewed by an analyst who researches the issue and assists the customer to resolve the problem.

The MultiComputer Division offers training courses at either corporate headquarters or the customer site. Field and customer service support is provided through its headquarters in Billerica, Massachusetts. Scanalytics provides support service through its Fairfax, Virginia headquarters.

MODCOMP supports its customers in a number of ways including telephone assistance, on-site service, installation of systems, training and education. Service and parts warranty, generally of 90 days duration, is provided on all products. In addition, MODCOMP sells maintenance service contracts to customers. MODCOMP also conducts customer training courses of one to three weeks' duration on a fee basis either at their or the customer's location.

Field and customer service support is provided through offices strategically located throughout the world.

During fiscal 2000, CSPI's expenses (including depreciation) for engineering and development were approximately $4,031,000 (6% of sales) compared to approximately $4,199,000 (8% of sales) and $4,072,000 (6% of sales) in fiscal years 1999 and 1998, respectively. Expenditures for engineering and development are expensed as they are incurred. The CSPI MultiComputer Division expects to continue substantial expenditures, both in additional applications software development and development of hardware and software for multicomputers. Scanalytics Inc. will continue to expand its product offering in software with its various products in gel and cell analysis for life sciences and complete new releases of the PC version of the IP Lab software product. CSPI MultiComputer Division's products and development currently in process are intended to extend the usefulness and marketability of existing products and introduce new products into existing market segments. MODCOMP will continue development of the ViewMax and WAP66 products, Real/IX PX and AccessPoint for SCADA solutions.

During 2000, Scanalytics finalized its IPLab software to work under the Windows operating systems, bringing it to parity with the Macintosh product. Scanalytics also worked on three other major projects: improvements to the MicroArray Suite product line for Macintosh; updates to the Macintosh products to maintain their competitiveness; and development of the Elispot Imager.

Of CSPI MultiComputer's Division and Scanalytics 58 employees, 16 professional and staff employees were engaged in software and hardware engineering and development activities as of August 31, 2000.

MODCOMP's Engineering and Development staff has developed various computers, computer peripherals and software since 1970, which it continues to maintain and enhance.

MODCOMP's principal products are the CLASSIC hardware and software line, REAL/IX PX and special one-of-a-kind products requested by customers.

The CLASSIC hardware and software line is a proprietary line of mini-computers and related software especially designed for the hard real-time market and has been in existence since 1970.

REAL/IX PX is a modified version of the AT&T System V UNIX. It has been modified to add determinism, fast interrupt handling, and fast contact switching required by the hard real-time market. REAL/IX PX runs on the Intel 486 and Pentium line of computers.

Of MODCOMP's 130 employees, 8 professional and staff employees are engaged in software and hardware engineering and development.

The Company does not have any patents that are material to its business.

The Company's backlog of customer orders and contracts was approximately $11,770,000 at August 31, 2000 as compared to $6,100,000 at August 27, 1999. The backlog of the Company can fluctuate greatly. These fluctuations can be due to the timing of receiving large orders for integration services and OEM purchases.

On August 31, 2000, the Company had 188 employees. None of the Company's employees is represented by a labor union and the Company had no work stoppages. The Company considers relations with its employees to be good.

A summary of net sales, attributable to CSPI's foreign and domestic operations for the fiscal years ended August 2000, 1999 and 1998 is presented at Note 13 to the Consolidated Financial Statements of the Registrant included in item 8.

Listed below are CSPI's principal facilities as of August 31, 2000. Management considers all facilities listed below to be suitable for the purpose(s) for which they are used, including manufacturing, research and development, sales, marketing, service, and administration.

In addition to the facilities listed above, CSPI also leases space in various domestic and international industrial centers for use as sales and service offices.

The Company owns approximately 2.8 acres of land adjacent to the Company's corporate headquarters in Billerica, Massachusetts. The Company has signed a Purchase and Sale agreement dated October 20, 2000 to sell the corporate headquarters and adjacent land. The selling price is approximately $3.3 million. The Company has also signed a lease for 21,500 square feet of space located at 43 Manning Road, Billerica, Massachusetts for its corporate headquarters. The lease will commence on December 1, 2000 for five years with an option to renew for an additional five years thereafter.

MODCOMP is currently the defendant in certain lawsuits, which arose, in the ordinary course of business. Based in part on the opinion of legal counsel representing the Company in these lawsuits, management is of the opinion that the outcome of such litigation will not have a material adverse effect on the Company's financial position.

No matters were submitted for a vote of security holders.

The Common Stock of the Company is traded in the over-the-counter market and is quoted on the NASDAQ System under the symbol "CSPI". The following table sets forth the range of closing high and low selling prices for the Common Stock as reported by NASDAQ. This data reflects the effect of the stock dividends of April 1999 and October 1998.

As of November 24, 2000, there were 3,562,659 shares of Common Stock outstanding, held of record by approximately 116 stockholders. The Company believes the number of beneficial owners of shares (including shares held in street name) at that date were approximately 2,300.

The Company has never paid any cash dividends on its Common Stock. The Company's present policy is to retain earnings to finance expansion and growth, and no change in the policy is anticipated.

This information is set forth in the Selected Financial Data section of Item 8 (page 45).

This information is set forth in the Management's Discussion and Analysis of Financial Conditions and Results of Operations section of Item 8.

The Company, in the normal course of doing business, is exposed to the risks associated with foreign currency exchange rates. The Company does not hold any market risk sensitive instruments, and minimizes its exposure through judicious management of its international assets and liabilities.

The Company minimizes its foreign inventory levels, and enters into foreign currency transactions only in those countries where it has foreign operations, and is therefore able to offset resultant assets with local liabilities.

The following Consolidated Financial Statements and supplementary data for CSP Inc. are included herein.

None

Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Election of Directors" in Registrant's Proxy Statement to be dated November 30, 2000 in connection with its Annual Meeting of Stockholders to be held on January 9, 2001 ("Registrant's 2000 Proxy Statement").

Information about the executive officers of the Company is set forth below.

None

There is no family relationship between any director and executive officer of the Company.

The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Election of Directors" in registrant's 2000 Proxy Statement with respect to the business experience of Registrant's directors. The information called for by this Item 10 with respect to executive officers of Registrant is included in Part III Item 10 (b) of this Form 10-K.

The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Election of Directors" in Registrant's 2000 Proxy Statement.

The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in Registrant's 2000 Proxy Statement.

The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Executive Compensation" in Registrant's 2000 Proxy Statement.

The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Security Ownership of Certain Beneficial Owners and Management" in Registrant's 2000 Proxy Statement.

The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the caption "Security Ownership of Certain Beneficial Owners and Management" in Registrant's 2000 Proxy Statement.

The Registrant knows of no contractual arrangements, including any pledge by any person of securities of the Registrant, the operation of which may at a subsequent date result in a change in control of the Registrant.

The Registrant hereby incorporates by reference in this Form 10-K certain information contained under the captions "Security Ownership of Certain Beneficial Owners and Management," "Election of Directors" and "Executive Compensation" in Registrant's 2000 Proxy Statement.

Independent Auditors' Report

Schedule II Valuation and Qualifying Accounts

All other financial statements and schedules not listed have been omitted since the required information is included in the Consolidated Financial Statements or the Notes thereto of the Registrant included in Item 8, or is not applicable, material or required.

Certain of the Exhibits listed hereunder have previously been filed with the Commission and are hereby incorporated by reference pursuant to Rule 12b-32 under the Securities Exchange Act of 1934 and Rule 24 of the Commissions Rules of Practice. The location of each document so incorporated by reference is noted parenthetically.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CSP INC.

By: /s/ ALEXANDER R. LUPINETTI

Alexander R. Lupinetti

Chief Executive Officer,

President and Chairman

Date: November 27, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of Registrant and in the capacities and on the date indicated.

Board of Directors and Shareholders of CSP Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of CSP Inc. and subsidiaries as of August 31, 2000 and August 27, 1999 and the related statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended August 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards.generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CSP Inc. and subsidiaries as of August 31, 2000 and August 27, 1999 and the results of their operations and their cash flows for each of the years in the three year period ended August 31, 2000, in conformity with accounting principles generally accepted in the United States of America.

KPMG LLP

October 23, 2000

Boston, Massachusetts

The Company designs, manufactures and markets high-performance multiprocessing systems for real-time applications, which are small, low-power special-purpose computers that enhance a system's ability to perform high-speed arithmetic. The Company also sells Internet software solutions, real-time process control systems, systems integration and services as well as develops and markets hardware and software for scientific imaging.

The Company has changed its fiscal year end from the last Friday in August to the last day in August for Fiscal 2000. In Fiscal 1999 each quarter was 13 weeks in length ending on the last Friday of the quarter. In Fiscal 2000 each quarter ended on the last day of the last month of the quarter. Fiscal Year 2000 was 53 weeks in length compared to 52 weeks in Fiscal 1999. The effect of the change, which was spread over each quarter, did not have a material effect on the Company's financial statements for Fiscal 2000.

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated.

Assets and liabilities of the Company's foreign operations are translated into US dollars at the exchange rate in effect at the balance sheet date. Revenue and expenses are translated at average rates in effect during the period. The resultant translation adjustment is reflected as Accumulated other comprehensive income, a separate component of shareholders' equity on the consolidated balance sheets.

The Company classifies its investments at the time of purchase as either held-to-maturity or available-for-sale. Held-to-maturity securities are those investments which the Company has the ability and intent to hold until maturity. Held-to-maturity securities are recorded at cost, adjusted for the amortization of premiums and discounts which approximates market value. Available-for-sale securities are recorded at fair value. Unrealized gains and losses net of the related tax effect on available-for-sale securities are reported in accumulated other comprehensive income, a component of stockholders' equity, until realized. The estimated fair market values of investments are based on quoted market prices as of the end of the reporting period.

Interest income is accrued as earned. Dividend income is recognized as income on the date the stock trades "ex-dividend". The cost of marketable securities sold is determined by the specific identification method and realized gains or losses are reflected in income.

The Company evaluates the recoverability of long-lived assets by measuring the carrying amount of the assets against the related estimated undiscounted future cash flows. When an evaluation indicates that the future undiscounted cash flows are not sufficient to recover the carrying value of the assets, the asset is adjusted to its estimated fair value.

The excess of fair value over net assets acquired (goodwill) is principally amortized over 15 years. Management assesses impairments of goodwill on a periodic basis by comparing discounted future cash flows to the carrying value of goodwill.

Inventories are stated at the lower of cost or market; with cost determined principally by the average-cost method, which approximates the first-in, first-out method.

The components of property, equipment and improvements are stated at cost. The Company provides for depreciation by use of the straight-line method over the estimated useful lives of the related assets.

The Company ordinarily provides a one-year warranty. In addition, certain major customers are granted extended warranties. The Company accrues estimated warranty costs at the time of sale.

Revenues from product sales are recognized at the time of shipment. Revenue from service contracts is recognized ratably over the period the service is performed. In the case of installation, consulting and support services, revenues are recognized upon completion of such products and services.

Engineering and development expenditures for company-sponsored projects are charged to expenses as incurred.

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

On April 12, 1999 the Company announced an eleven-for-ten stock split in the form of a common stock dividend distributed on May 7, 1999 to stockholders of record on April 21, 1999. On October 14, 1998 the Company announced an eleven-for-ten stock split in the form of a common stock dividend distributed on November 16, 1998 to stockholders of record on October 26, 1998.All per share data and number of common stock shares contained in the annual report reflect the stock dividends of April 12, 1999 and October 14, 1998.

Basic net income (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per common share reflects the maximum dilution that would have resulted from the assumed exercise and share repurchase related to dilutive stock options and is computed by dividing net income (loss) by the weighted average number of common shares outstanding.

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

Options to purchase 11,800 shares of common stock in 2000 and 27,618 shares in 1999 were outstanding during the years then ended but were not included in the year-to-date calculation of diluted net income per share because the options' exercise price was greater than the average market price of the common shares during those periods. There were no options to purchase common stock in 1998 for which the option price was greater than the average market price of the common shares during that period.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

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 Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No. 133, and SFAS No. 138, continues to be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. As the Company currently does not hold derivative instruments, management believes that there will be no impact on its results of operations or financial position resulting from the adoption of SFAS No. 133.

Certain reclassifications were made to the 1998 and 1999 financial statements to conform to the 2000 presentation.

At August 31, 2000 and August 27, 1999, investments consisted of the following:

Net unrealized gains (losses) on available-for-sale investments are reported as a separate component of stockholders' equity until realized. This change in unrealized gains amounted to ($33,000), $19,000 and ($76,000) for the years ended August 31, 2000, August 27, 1999, and August 28, 1998, respectively.

Assets of $925,000 and $804,000 at August 31, 2000 and August 27, 1999, respectively, which are held in a rabbi trust and generally are available only to pay certain retirement benefits of a former employee, are included in the above table.

During fiscal year 2000 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 cost method based on its current ownership percentage.

Inventories consist of the following:

The components of Accumulated Other Comprehensive Income are as follows:

Reconciliation of expected income tax expense (benefit) to actual income tax expense (benefit) is as follows:

For the years ended August 31, 2000 and August 27, 1999, temporary differences, which give rise to deferred tax assets (liabilities), are as follows:

The valuation allowance was $360,000 at August 31, 2000 and August 27, 1999. The valuation allowance was established due to the long-term nature of certain deferred compensation and retirement obligations for which the tax benefit may be realized over an extended period of time. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based upon the level of historical taxable income and projections for future taxable income over the period in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowance at August 31, 2000.

The provisions for income taxes are comprised of the following:

Property, equipment and improvements, net consist of the following:

The Company owns approximately 2.8 acres of land adjacent to the Company's corporate headquarters in Billerica, Massachusetts which is included in other assets. The Company has signed a Purchase and Sale agreement dated October 20, 2000 to sell the corporate headquarters and adjacent land. The selling price is approximately $3.3 million and will result in a pretax gain of approximately $1.3 million.

Accounts payable and accrued expenses consist of the following:

In 1997, the Company adopted the 1997 Stock Option Plan covering 199,650 shares, which was ratified by the shareholders in January 1998. In 1991, the Company adopted the 1991 Stock Option Plan covering 332,750 shares of common stock. Under the Plans, both incentive stock options and non-qualified stock options may be granted to officers, key employees and other persons providing services to the Company. The stock option plan provides for issuance of options at their fair market value on the date of grant. These options vest over a period of five years, do not vest in the first year, and expire ten years from the date of grant. In the 1991 plan, up to 26,624 shares are allocated for annual non-discretionary grants of 1,100 shares each to non-employee directors of the Company who are serving on the last business day of January each year.

The following is a summary of common stock option activity for the three years ended August 31, 2000:

The following table summarizes information about fixed stock options outstanding at August 31, 2000.

The Company applies Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock option plans. Following the guidance of APB No. 25, no compensation expenses have been recognized in the consolidated financial statements for such plans. Had compensation costs for the Company's stock option plans been determined based on the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, "Accounting for Stock based Compensation," the Company's net income (loss) would have been adjusted to the proforma amounts indicated below:

The grant date fair value of each stock option is estimated using the following assumptions: an expected life of 5 years, expected volatility of 18.4% and dividend yields of 0% and a weighted average risk-free interest rate of 6.30% in 2000, 5.20% in 1999 and 5.75% in 1998. The weighted average grant date fair values of options granted in 2000, 1999 and 1998 were $5.99, $5.23 and $6.46, respectively.

The effects of applying SFAS No. 123 as shown in the above pro forma disclosure is not representative of the pro forma effect on net income in future years because it does not take into consideration pro forma compensation expense related to grants made prior to fiscal 1996.

In October 1997 the Company adopted an Employee Stock Purchase Plan (the 1997 Purchase Plan), which was ratified by the shareholders. The 1997 Purchase Plan reserved 332,750 shares of Common Stock for issuance thereunder. Under the stock purchase plan, the Company's employees may purchase shares of Common Stock at a price per share that is 85% of the lesser of the fair market value as of the beginning or end of the semi-annual option period. Approximately 35,686 shares have been issued under the plan at August 31, 2000.

The Company has a 401(k) Retirement Plan under which the Company matches a portion of the employee's salary reduction contributions and may make discretionary contributions to the plan. All full-time employees with 90 days of continuous service are eligible for the plan. All Company contributions are fully vested. Contributions by the Company were $163,000, $170,000 and $136,000 for 2000, 1999, and 1998, respectively.

The Company has a Supplemental Retirement Plan for certain employees that provides for payments (generally over 15 years) upon retirement, death or disability. The annual benefit is based upon a percentage of salary at the inception of the plan, plus an annual percentage increase, plus interest. In addition, the Company adopted deferred compensation plans for former key executives that provide for payments, over a ten-year period, upon retirement, death or disability based upon a percentage of salary at that time. The charge to expense for the plans for 2000, 1999 and 1998 amounted to $436,000, $372,000 and $336,000, respectively.

The Company occupies office space under lease agreements expiring at various dates during the next five years. The leases are classified as operating leases, and provide for the payment of real estate taxes, insurance, utilities and maintenance.

The Company signed a lease agreement on October 18, 2000 to lease 21,500 square feet for the corporate headquarters and MultiComputer Division commencing on December 1, 2000. The lease term is five years with an option to renew for an additional five years thereafter.

The Company was obligated under non-cancelable operating leases as follows:

Occupancy costs under the operating leases approximated $1,024,000 in 2000, $1,564,000 in 1999, and $1,221,000 in 1998.

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 outstanding stock at market price. At August 31, 2000, the Company has repurchased 482,822 or 65% of the total shares authorized to be purchased.

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