[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended            March 31, 2003      

[  ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                        to                     

                             Massachusetts                                                          04-2441294
                  (State or other jurisdiction of                                              (I.R.S. Employer
                  incorporation or organization)                                             Identification No.)

                 43 Manning Road, Billerica, Massachusetts                              01821-3901
                (Address of principal executive offices)                                        (Zip Code)

                                                                (978) 663-7598 
                                      (Registrant's telephone number, including area code)

                                                               September 31, 2002                                                                     
                      (Former name, former address, former fiscal year, if changed since last report)

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 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.        [X]  Yes           [  ]  No

The registrant is an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act of 1934.

Yes [ ] No [X ]

                                    APPLICABLE ONLY TO CORPORATE ISSUERS:
     Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

                                Class                                                             Outstanding April 28, 2003
           Common Stock, $.01 par value                                                3,529, 575 shares

The accompanying financial statements have been prepared by the Company, without audit, and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. All adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in the annual financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America , have been condensed or omitted. Accordingly, the Company believes that although the disclosures are adequate to make the information presented not misleading, the financial statements should be read in conjunction with the footnotes contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2002.

Certain reclassifications were made to the 2002 financial statements to conform to the 2003 presentation.

In June 2001, FASB issued SFAS 143, Accounting for Asset Retirement Obligations ("SFAS 143") which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 requires an enterprise to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of a tangible long-lived asset. SFAS 143 also requires the enterprise to record the contra to the initial obligation as an increase to the carrying amount of the related long-lived asset and to depreciate that cost over the remaining useful life of the asset. The liability is changed at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the initial fair value measurement. SFAS 143 is effective for fiscal years beginning after June 15, 2002. The Company has adopted this prono uncement which did not materially effect the results of operations and financial position of the Company.

In August 2001, FASB issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS 144 retains many of the fundamental provisions of that Statement. SFAS 144 also supersedes the accounting and reporting provisions of Accounting Principle Board Opinion 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions ("ABP 30"), for the disposal of a segment of a business. However, it retains the requirement in APB 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a d istribution to owners) or is classified as held for sale. SFAS 144 is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The Company has currently adopted the pronouncement on January 1, 2003 and it did not materially effects the results of operations and financial position of the Company.

On July 30, 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. Statement No. 146 is based on the fundamental principle that a liability for a cost associated with an exit or disposal activity should be recorded when it (1) is incurred, that is, when it meets the definition of a liability in FASB Concepts Statement No. 6, Elements of Financial Statements, and (2) can be measured at fair value. Statement 146 nullifies EITF Issue 94-3, thus, it will have a significant effect on practice because commitment to an exit or disposal plan no longer will be a sufficient basis for recording a liability for costs related to those activities. Statement No.146 is effective for exit and disposal activities initiated after December 31, 2002. Early application is encouraged; however, previously issued financial statements may not be restated. An entity would continue to apply the provisions of Issue 94-3 to an exit activity that it initiated under an exit plan that met the criteria of Issue 94-3 before the entity initially applied Statement 146. The Company has adopted the pronouncement on January 1, 2003 and it did not materially effects the results of operations and financial position of the Company.

In December 2002, the FASB issued SFAS No. 148 , "Accounting for Stock-Based Compensation - Transition and Disclosure". SFAS No. 148 amends SFAS No. 123, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. As the Company did not make a voluntary change to the fair value based method of accounting for stock-based employee c ompensation in 2002, the adoption of SFAS No. 148 did not have a material impact on the Company's financial position and results of operations.

The Company accounts for stock based compensation using the intrinsic value method prescribed in ABP opinion No. 25 whereby the stock options are granted at market price and therefore no compensation costs are recognized. The Company has elected to retain its current method of accounting as described above and has adopted disclosure requirements of FAS nos. 123 and 148. If compensation expense for the Company's stock option plans have been determined based upon fair value at the grant dates for awards under those plans in accordance with FAS No. 123, the Company's pro forma net earnings, basic and diluted earnings per common share would have been as follows:

guarantees. The disclosure requirements are effective for financial statements issued after December 15, 2002 and the recognition/measurement requirements are effective on a prospective basis for guarantees issued or modified after December 31, 2002. The application of the requirements of FIN 45 did not have a material impact on the Company's financial position or results of operations.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in interim periods beginning after June 15, 2003. Certain of the disclos ure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. Because the Company currently has no investments in variable interest entities, it expects that the adoption of the provisions of FIN No. 46 will not have a material impact on the consolidated results of operations or financial position.

Inventories consist of the following (amounts 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 outstanding stock at market price. At March 31, 2003, the Company has repurchased 572,475 or 77% of the total shares authorized to be purchased.

Options to purchase 448,524 and 435,339 shares of common stock at March 31, 2003 and March 31, 2002, respectively, were outstanding but were not included in the year-to-date calculation of diluted net loss per share because the effect would have been antidilutive.

5. Accumulated Other Comprehensive Income

The components of Accumulated Other Comprehensive Income are as follows:

In accordance with SFAS No. 142, prior period earnings were not restated. A reconciliation of the previously reported net income during the quarter ended December 30, 2001 to the amounts adjusted for the reduction of goodwill amortization expense, net of related income tax effect, is as follows (in thousands, except per share amounts):

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. The Company has four major segments: systems, which includes company manufactured hardware products; service and system integration, which includes maintenance of the Company and other systems sold and integration and sale of third party hardware products and services; E-business software, includes ViewMax products and services, internet security consulting and implementation services, WAP66 product and services and messaging software and other software products which are developed by the Company.

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 foreign exchange gain (loss) in investment income and interest expense for the three and six months ended March 31, 2003 and 2002. In calculating profit from operations for individual operating segments, sales and administrative expenses incurred at the operating level for the CSP and Scanalytics subsidiaries are allocated to Systems and Other software segments, respectively. Sales and administrative expenses incurred at the operating level for the MODCOMP subsidiaries are allocated to the E-business software segment based upon employee headcount and the remaining balance is allocated to the Systems and Service and system integration segments based upon sales revenue.

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.

        FORWARD-LOOKING STATEMENTS

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE GENERALLY IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS AND PHRASES, SUCH AS "INTENDED," "EXPECTS," "ANTICIPATES" AND "IS (OR ARE) EXPECTED (OR ANTICIPATED)." THESE FORWARD-LOOKING STATEMENTS INCLUDE BUT ARE NOT LIMITED TO THOSE IDENTIFIED BELOW ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS, AND STOCKHOLDERS OF CSP INC. ("CSPI" OR THE "COMPANY") SHOULD CAREFULLY REVIEW THE CAUTIONARY STATEMENTS SET FORTH IN THIS FORM 10-Q, INCLUDING THOSE SET FORTH UNDER THE CAPTION "FACTORS THAT MAY AFFECT FUTURE RESULTS". CSPI DOES NOT UNDERTAKE TO UPDATE ANY OF SUCH FORWARD-LOOKING STATEMENTS.

        Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, uncollectible receivables, inventory valuation, goodwill impairment, income taxes, and deferred compensation and retirement plans. We base our estimates on historical performance and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other so urces. Actual results may differ from these estimates under different assumptions or conditions.

        We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements: revenue recognition; valuation allowances, specifically the allowance for doubtful accounts and deferred tax assets valuation allowance; inventory valuation and goodwill impairment.

Our revenues are primarily generated from the sale of e-business solutions and image processing software, network management and storage systems integration services and high-performance cluster computer systems. In accordance with accounting principles generally accepted in the United States of America, CSPI recognizes revenue as follows:

Revenue from the sale of hardware products is recognized upon shipment and customer acceptance.

The Company recognizes revenue from the sale of software products in accordance with the AICPA Statement of Position ("SOP") 97-2, as amended by SOP 98-9. The Company recognizes revenue from software licenses when persuasive evidence of an arrangement exists, delivery of the product has occurred, no significant Company obligations with regard to customization or implementation remain, the fee is fixed or determinable, and collectiblity is probable. If collectibility is not considered probable, revenue is recognized when cash is collected.

For multi-element software arrangements, the Company has established vendor specific evidence (VSOE) of the fair value of its maintenance and training elements. Therefore, revenue for software sales is recognized upon shipment of the license and delivery of customization and installation services.

Revenue from training is recognized when the service has been delivered and all other revenue recognition criteria have been met.

Revenue for software and hardware maintenance contracts is recognized ratably over the term of the contract.

Revenue derived from consulting services rendered in connection with the integration of third-party hardware and third-party software is recognized when the services are completed.

For software licenses sold separately without modification and training, revenue is recognized upon delivery.

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in impairment of their ability to make payments, additional allowances may be required.

We record a valuation allowance to reduce the balance of deferred tax assets due to the lack of significant orders and US losses over the last two years. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the associated temporary differences become deductible. We consider the scheduled reversals of deferred tax liabilities and projected taxable income in making this assessment. Based on the lack of taxable income over the past several years and lack of significant orders, we have established a valuation allowance for the entire deferred tax assets. Based upon the level of historical taxable income and projections for the future taxable income over the period in which the deferred tax assets are deductible, management does not believe that it is more likely than not that the Company will realize the benefits of these deductible differences

In assessing the realizability of our deferred tax assets, we consider and rely upon projections of future income. The key assumptions in our projections include sales trend rates, including potential contract wins, and expected levels of operating expenditures in addition to factors discussed in the section "Factors That May Affect Future Performance". These assumptions are subject to variation based upon both internal and external factors, many of which are beyond the control of the Company. To the extent that actual experience deviates from our assumptions, our projections would be affected and hence our assessment of realizability of our deferred tax asset may change.

The recoverability of inventories is based upon the types and levels of inventories held, forecasted demand, pricing, competition and changes in technology. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-down may be required.

In the United Kingdom and Germany, the Company provides defined benefit pension plans and defined contribution plans for the majority of its employees. In the U.S, the Company also provides benefits through supplementary retirement plans to employees. In addition, in the U.S., the Company provides for officer death benefits through the postretirement plans to certain officers. In calculating the deferred compensation and retirement plans, net liabilities, the Company establishes assumptions regarding discount rates, rates of return on assets and the compensation rates of increase. In calculation the deferred compensation and retirement plans net liabilities, the Company estimates assumptions regarding expected discount rates, rates of return on assets and compensation increase rates. The plan assumptions include a discount rate of 7% and 5.3% in the US and internationally, respectively. Both the US and Germany plans are unfunded while the UK plan assumptions provides for an expected rate of return of 6.9%. If activities differ from the assumptions, deferred compensation and retirement plans net liabilities may require significant adjustments. The Company funds the pension plans in amounts sufficient to meet the requirements set forth in applicable employee benefits laws and local tax laws. Liabilities for amounts in excess of these funding levels are accrued and reported in the consolidated balance sheet.

The following table details the Company's results of operations in dollars and as a percentage of sales for the three and six months ended March 31, 2003 and 2002:

The following table details the Company's sales by operating segment for the three and six months ended March 31, 2003 and March 31, 2002.

CSPI considers its products to be in four segment classifications. 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; Service and system integration which includes maintenance of the Company and other systems sold and integration and sale of third party hardware products and services; E-business software which includes WAP66™ and ViewMax®; and Other Software products which are developed by the Company primarily in the Scanalytics subsidiary.

 The Company reported net sales of $6.4 million and $14.6 million for the three and six-month periods ended March 31, 2003 compared to $6.2 million and $12.7 million for the three and six-month periods ended March 31, 2002. This represented an increase of 4% or $223 thousand for the three-month period and 15% or $1.9 million for the six-month period. The increased revenue was due to the increased service and system integration sales due to the increased revenue from our key European telecom customers, which offset the reductions in the other three segments systems. E-business and other software due to the current economic situation in the IT markets in the US and European markets.

The increase in revenue was mainly due to an increase in Service and system integration resulting from significant hardware and service sales made to our key European telecom customer for upgrade of their data storage system. We anticipate that we will continue to provide new systems and upgrades for the future needs of our customer. We continue to experience a decline in system sales mainly due to the lack of customer system deployments as a result of extended cycles in US defense procurements, and the continued weak global economy. Our legacy systems sales have been limited due to the EOL (end of life) strategy implemented in fiscal year 2002.

        Sales for Service and system integration were $4.1 million and $11 million or 64 and 75% of total sales for the three and six months ended March 31, 2003, compared to $3.5 million and $7.7 million or 57% and 60% for the comparable period ended March 31, 2002. This increase was due to the increased shipment of hardware and services for one telecom customer primarily who increased their replacement and system upgrade purchases in the previous quarter.

        System sales were $1.6 million and $2.2 million for the three and six months ended March 31, 2003, compared to $1.7 million and 3.4 million for the three and six month ended March 31, 2002. The quarter sales were down by $100,000 from the previous fiscal year and the six month decrease of approximately $1.2 million or 34%. This year to date decrease was due in part from delays and losses of funded defense programs, and the lack of legacy systems shipments due to the end of life of the classic systems in the last fiscal year. The Series 2000 product line accounted for 35% of system sales for the three-month period ended December 31, 2002 compared to 29% for the three months ended December 31, 2001. The SuperCard product line accounted for 28% of system sales for the three months ended December 31, 2002 compared to 33% for the three months ended December 31, 2001. The Classic systems product line represented 12% of the current quarter and year to date syst em sales compared to 14% for the prior comparable period.

        E-business Software sales were $315,000 and $653,000 for the three and six months ended March 31, 2003 compared to $576,000 and $887,000 for the three and six month comparable period ended March 31, 2002. The decrease was $261,000 and $234,000 for the comparable three and six month periods was due to the decline in business opportunity in both the US and Europe. The decline in the economic climate has effected situation

        Other Software sales were $339,000 and $680,000 for the three and six month periods ended March 31, 2003 compared to $383,000 and $763,000 for the three and six-month comparable periods ended March 31, 2002. This represents a decline of 11% for the three and six month period. This decline is mainly due to market conditions. The other software sales are primarily from sales of life sciences software licenses.

The following table details the Company's sales by geographic region for the three and six month periods ended March 31:

        European sales account for 62% and 72% of total sales for the three and six month period ended March 31, 2003 compared to 63% and 60% for the three-month period ended March 31, 2002. European sales were primarily from subsidiaries in Germany and the United Kingdom. The increased sales in Europe were due to the service and system upgrade of one customer in Germany.

         The following table details the Company's sales and gross margin by operating segment for the three and six months ended March 31, 2003 and March 31, 2002 (amounts in thousands):

    Total cost of sales as a percentage of revenue decreased to 66% for the three months ended March 31, 2003 compared to 75% for the comparable periods ended March 31, 2002. The decrease in cost of sales was due to the change in mix of revenue with the improvement in the systems segment due to the inventory write down last year during the quarter. The increase of 1% in the cost of sales for the six month period from the prior year is due to mix in revenue with the largest portion of revenue from service and systems integration business which has a higher cost of sales due to the third party product component have higher costs than services.