<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2001 OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO
    ________________

Commission file number: 0-20828

                          DANKA BUSINESS SYSTEMS PLC
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


        ENGLAND & WALES                                  98-0052869
        ---------------                                  ----------
    (STATE OR OTHER JURISDICTION OF         (I.R.S. EMPLOYER IDENTIFICATION NO.)
     INCORPORATION OR ORGANIZATION)

11201 DANKA CIRCLE NORTH                      MASTERS HOUSE
 ST. PETERSBURG, FLORIDA       AND        107 HAMMERSMITH ROAD
           33716                         LONDON, ENGLAND W14 0QH
           -----
        (ZIP CODE)
                   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)


REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:    727-576-6003

                                NOT APPLICABLE
--------------------------------------------------------------------------------
         (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)

Indicate by check mark whether the 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[_]

The registrant had 248,084,622 Ordinary Shares outstanding as of February 1,
2001

                                       1
<PAGE>

<TABLE>
                                                              INDEX
<S>                                                                                                                             <C>
PART I - FINANCIAL INFORMATION................................................................................................... 3
 Item 1. Consolidated Financial Statements....................................................................................... 3
    Consolidated Statement of Operations for the three months and nine months ended December 31, 2001 and 2000................... 3
    Condensed Consolidated Balance Sheet as of December 31, 2001 and March 31, 2001.............................................. 4
    Consolidated Statements of Cash Flows for the nine months ended December 31, 2001 and 2000................................... 5
    Consolidated Statements of Shareholders' Equity (Deficit) for the nine months ended December 31, 2001 and 2000............... 6
    Notes to Consolidated Financial Statements................................................................................... 7

 Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 20
PART II - OTHER INFORMATION..................................................................................................... 28
 Item 1. Legal Proceedings...................................................................................................... 28
 Item 2. Changes in Securities.................................................................................................. 28
 Item 3. Defaults Upon Senior Securities........................................................................................ 28
 Item 4. Submission of Matters to a Vote of Security Holders.................................................................... 28
 Item 5. Other Information...................................................................................................... 28
 Item 6. Exhibits and Reports on Form 8-K....................................................................................... 28
SIGNATURE....................................................................................................................... 29
</TABLE>

                                       2
<PAGE>

PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements

Danka Business Systems PLC

Consolidated Statement of Operations for the three months and nine months ended
December 31, 2001 and 2000  (In thousands, except per American Depositary Share
("ADS") amounts) (Unaudited)

<TABLE>
<CAPTION>
                                                               For the Three Months Ended        For the Nine Months Ended
                                                            ---------------------------------  ------------------------------
                                                             December 31,        December 31,   December 31,     December 31,
                                                                2001                2000           2001             2000
                                                            -------------       -------------  ------------   ----------------
<S>                                                         <C>                 <C>            <C>            <C>
Revenue:
Retail equipment sales                                       $   143,370        $    150,192    $    408,484    $    468,983
Retail service, supplies and rentals                             236,792             249,064         716,618         807,033
Wholesale                                                         20,392              25,747          58,430          72,717
--------------------------------------------------------    ------------      --------------    ------------    ------------
Total revenue                                                    400,554             425,003       1,183,532       1,348,733
--------------------------------------------------------    ------------      --------------    ------------    ------------

Costs and operating expenses:
Cost of retail equipment sales                                   107,478             114,266         310,260         365,644
Retail service, supplies and rental costs                        135,705             146,968         415,535         488,882
Wholesale costs of revenue                                        16,562              21,510          47,498          60,740
Selling, general and administrative expenses                     130,983             147,983         394,115         463,314
Amortization of intangible assets                                  2,699               3,319           8,063          28,893
Restructuring charges (credits)                                        -              27,469          (1,992)         19,309
Other (income) expense                                            (1,970)                510          (2,070)          6,541
--------------------------------------------------------    ------------      --------------    ------------    ------------
Total costs and operating expenses                               391,457             462,025       1,171,409       1,433,323
--------------------------------------------------------    ------------      --------------    ------------    ------------

Operating earnings (loss) from continuing operations               9,097             (37,022)         12,123         (84,590)

Interest expense                                                  (7,867)            (18,871)        (34,791)        (64,409)

Interest income                                                      199                 789           1,357           2,343
--------------------------------------------------------    ------------      --------------    ------------    ------------
Earnings (loss) from continuing operations before
income taxes                                                       1,429             (55,104)        (21,311)       (146,656)

Provision (benefit) for income taxes                                 869             (20,155)         (6,840)        (40,915)
--------------------------------------------------------    ------------      --------------    ------------    ------------
Earnings (loss) from continuing operations before                    560             (34,949)        (14,471)       (105,741)
Extraordinary items
Discontinued operations, net of tax                               (2,901)              3,192         108,859          12,565

Extraordinary gain on early retirement of debt, net of tax         1,415                   -          27,936               -
--------------------------------------------------------    ------------      --------------    ------------    ------------
Net (loss) earnings                                          $      (926)       $    (31,757)     $  122,324      $  (93,176)
========================================================    ============      ==============    ============    ============

Basic (loss) earnings available to common shareholders
per ADS:
Net loss per ADS, continuing operations                      $     (0.06)       $      (0.63)     $    (0.44)     $    (1.96)
Net earnings (loss) per ADS, discontinued operations               (0.04)               0.05            1.76            0.21
Net earnings per ADS, extraordinary item                            0.02                   -            0.45               -
                                                           -------------      --------------    ------------    ------------
Net (loss) earnings per ADS                                  $     (0.08)       $      (0.58)     $     1.77      $    (1.75)
                                                           =============       =============     ===========     ===========
Weighted average ADSs                                             62,021              61,372          61,950          59,961

Diluted (loss) earnings available to common
shareholders per ADS:
Net loss per ADS, continuing operations                      $     (0.06)       $      (0.63)     $    (0.44)     $    (1.96)
Net earnings (loss) per ADS, discontinued operations               (0.04)               0.05            1.76            0.21
Net earnings per ADS, extraordinary item                            0.02                   -            0.45               -
                                                           -------------      --------------    ------------    ------------
Net (loss) earnings per ADS                                  $     (0.08)       $      (0.58)     $     1.77      $    (1.75)
                                                           =============       =============     ===========     ===========
Weighted average ADSs                                             62,021              61,372          61,950          59,961
</TABLE>

        See accompanying notes to the consolidated financial statements

                                       3
<PAGE>

Danka Business Systems PLC
Condensed Consolidated Balance Sheet as of December 31, 2001 and March 31, 2001
(In Thousands)
(Unaudited)

<TABLE>
<CAPTION>
                                                                             December 31,               March 31,
                                                                                2001                       2001
                                                                            -------------           ---------------
<S>                                                                         <C>                     <C>
Assets
Current assets:
Cash and cash equivalents                                                    $     47,221            $      69,085
Accounts receivable, net                                                          309,037                  346,398
Inventories                                                                       151,827                  199,523
Prepaid expenses, deferred income taxes and other current assets                   47,048                   81,025
Assets of discontinued operations                                                       -                  113,405
------------------------------------------------------------------------    -------------           --------------
Total current assets                                                              555,133                  809,436

Equipment on operating leases, net                                                 63,116                   94,085
Property and equipment, net                                                        66,789                   66,470
Intangible assets, net                                                            236,871                  244,170
Other assets                                                                       48,471                   68,782
------------------------------------------------------------------------    -------------           --------------
Total assets                                                                 $    970,380            $   1,282,943
========================================================================    =============           ==============

Liabilities and shareholders' equity (deficit)
Current liabilities:
Current maturities of long-term debt and notes payable                       $     36,840            $     517,447
Accounts payable                                                                  100,072                  136,604
Accrued expenses and other current liabilities                                    182,751                  182,460
Deferred revenue                                                                   38,355                   34,969
Liabilities of discontinued operations                                                  -                   22,230
------------------------------------------------------------------------    -------------           --------------
Total current liabilities                                                         358,018                  893,710

Convertible subordinated notes                                                          -                  200,000
Long-term debt and notes payables, less current maturities                        305,410                    1,731
Deferred income taxes and other long-term liabilities                              28,384                   29,431
------------------------------------------------------------------------    -------------           --------------
Total liabilities                                                                 691,812                1,124,872
------------------------------------------------------------------------    -------------           --------------

6.5% convertible participating shares                                             236,273                  223,713
------------------------------------------------------------------------    -------------           --------------

Shareholders' equity (deficit):
Ordinary shares, 1.25 pence stated value                                            5,138                    5,130
Additional paid-in capital                                                        325,880                  325,399
Retained earnings (accumulated deficit)                                          (192,851)                (302,619)
Accumulated other comprehensive (loss) income                                     (95,872)                 (93,552)
------------------------------------------------------------------------    -------------           --------------
Total shareholders' equity (deficit)                                               42,295                  (65,642)
------------------------------------------------------------------------    -------------           --------------
Total liabilities & shareholders' equity (deficit)                           $    970,380            $   1,282,943
========================================================================    =============           ==============
</TABLE>

        See accompanying notes to the consolidated financial statements

                                       4
<PAGE>

Danka Business Systems PLC
Consolidated Statements of Cash Flows for the nine months ended December 31,
2001 and 2000
(In Thousands)
(Unaudited)

<TABLE>
<CAPTION>
                                                             December 31,   December 31,
                                                                 2001           2000
                                                             ------------   ------------
<S>                                                          <C>            <C>
Operating Activities:
Net earnings (loss)                                          $    122,324   $    (93,176)
Adjustments to reconcile net earnings (loss) to net cash

provided by operating activities of continuing operations:
 Extraordinary gain on debt retirement                            (27,936)             -
 Net earnings and gain from sale of discontinued operations      (108,859)       (12,565)
 Depreciation and amortization                                     63,460        105,029
 Deferred income taxes                                             (9,529)       (40,399)
 Loss on sale of property and equipment and equipment on
  operating leases                                                  9,606          7,680
 Proceeds from sale of equipment on operating leases                4,057          4,241
 Restructuring and other special charges (credits)                 (1,992)        19,309
 Changes in net assets and liabilities:
    Changes in net assets of discontinued operations                    -         22,522
    Accounts receivable                                            37,361         71,134
    Inventories                                                    47,696         65,796
    Prepaid expenses and other current assets                       4,347         (9,991)
    Other non-current assets                                       (6,614)        11,530
    Accounts payable                                              (36,532)       (29,504)
    Accrued expenses and other current liabilities                 (9,564)       (38,765)
    Deferred revenue                                                3,386         (6,779)
    Other long-term liabilities                                    (1,044)            (2)
-----------------------------------------------------------  ------------   ------------
Net cash provided by operating activities                          90,167         76,060
-----------------------------------------------------------  ------------   ------------

Investing Activities:
  Capital expenditures                                            (33,981)       (49,469)
  Proceeds from the sale of property and equipment                    193            732
  Net proceeds from the sale of business                          273,218              -
-----------------------------------------------------------  ------------   ------------
Net cash provided by (used in) investing activities               239,430        (48,737)
-----------------------------------------------------------  ------------   ------------

Financing activities:
  Net payments under line of credit agreements                   (304,247)       (34,135)
  Principal payments of debt                                      (25,299)        (1,250)
  Payment of debt issue costs                                     (26,037)             -
-----------------------------------------------------------  ------------   ------------
Net cash used in financing activities                            (355,583)       (35,385)
-----------------------------------------------------------  ------------   ------------
Effect of exchange rates                                            4,122           (959)
-----------------------------------------------------------  ------------   ------------
Net decrease in cash                                              (21,864)        (9,021)
Cash and cash equivalents, beginning of period                     69,085         64,861
-----------------------------------------------------------  ------------   ------------
Cash and cash equivalents, end of period                     $     47,221   $     55,840
===========================================================  ============   ============
</TABLE>

        See accompanying notes to the consolidated financial statement

                                       5
<PAGE>

Danka Business Systems PLC
Consolidated Statements of Shareholders' Equity (Deficit) for the nine months
ended December 31, 2001 and 2000
(In Thousands)
(Unaudited)

<TABLE>
<CAPTION>
                                       Number of
                                        Ordinary                                                  Accumulated
                                         Shares                                                      Other
                                      (4 Ordinary                                  Retained         Compre-
                                         Shares                    Additional      Earnings         hensive
                                         Equal         Ordinary     Paid-In      (Accumulated        (Loss)
                                         1 ADS)         Shares      Capital        Deficit)          Income         Total
                                  --------------------------------------------------------------- ---------------  --------
<S>                                   <C>              <C>         <C>           <C>              <C>             <C>
Balances at March 31, 2001                 247,571       $5,130     $325,399       $(302,619)        $(93,552)     $ (65,642)

Net earnings                                    --           --           --         122,324               --        122,324
Currency translation adjustment                 --           --           --              --           (2,320)        (2,320)
                                                                                                                   ---------
   Comprehensive income (loss)                                                                                       120,004
Dividends and accretion
   of participating shares                      --           --           --         (12,556)              --        (12,556)
Shares issued under
   employee stock plans                        514            8          481              --               --            489
--------------------------------           -------       ------     --------       ---------         --------      ---------
Balances at December 31, 2001              248,085       $5,138     $325,880       $(192,851)        $(95,872)     $  42,295
================================           =======       ======     ========       =========         ========      =========

<CAPTION>
                                       Number of
                                       Ordinary                                                   Accumulated
                                        Shares                                                       Other
                                      (4 Ordinary                                  Retained         Compre-
                                        Shares                     Additional      Earnings         hensive
                                         Equal         Ordinary     Paid-In      (Accumulated       (Loss)
                                        1 ADS)          Shares      Capital        Deficit)         Income          Total
                                  --------------------------------------------------------------- --------------  ---------
<S>                                   <C>              <C>         <C>           <C>              <C>             <C>
Balances at March 31, 2000                234,574        $4,892     $317,056       $ (66,226)        $(74,722)    $ 181,000

Net loss                                       --            --           --         (93,176)              --       (93,176)
Currency translation adjustment                --            --           --              --           (9,461)       (9,461)
                                                                                                                  ---------
   Comprehensive income (loss)                                                                                     (102,637)
Dividends and accretion
   of participating shares                     --            --           --         (11,752)              --       (11,752)
Shares issued under
   employee stock plans                    12,997           195        8,389              --               --         8,584
--------------------------------          -------        ------     --------       ---------         --------     ---------
Balances at December 31, 2000             247,571        $5,087     $325,445       $(171,154)        $(84,183)    $  75,195
================================          =======        ======     ========       =========         ========     =========
</TABLE>



        See accompanying notes to the consolidated financial statements

                                       6
<PAGE>

Danka Business Systems PLC
Notes to Consolidated Financial Statements
(Unaudited)

Note 1.  Basis of Presentation

The accompanying condensed consolidated balance sheet as of December 31, 2001,
the consolidated statements of operations for the three months and nine months
ended December 31, 2001 and 2000, the consolidated statements of cash flows for
the nine months ended December 31, 2001 and 2000, and the consolidated statement
of shareholders' equity (deficit) for the nine months ended December 31, 2001
and 2000, are unaudited. In the opinion of management, all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
the results of operations for the interim periods presented have been reflected
herein. The results of operations for the interim periods are not necessarily
indicative of the results which may be expected for the entire fiscal year. The
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in our Annual
Report contained in Form 10-K/A for the year ended March 31, 2001. Certain prior
year amounts have been reclassified to conform to current year presentations.

Note 2.  Restructuring Charges (Credits)

In the fourth quarter of fiscal year 2001, we proceeded with a series of changes
to our senior management team. The hiring of a new Chief Executive Officer in
March of 2001 was the first in a series of changes. Upon completion of the
financial restructuring plan at the end of the first quarter of fiscal year
2002, we made additional significant changes to our senior management team
including the hiring of a new Chief Operating Officer of Danka International, a
new Chief Operating Officer of our Canadian, Latin American and Asian Pacific
region and a new Chief Operating Officer of our U.S. Office Imaging business
unit. Our new management team reviewed the existing restructuring plan and, as a
result of changing business conditions in the U.S. and Europe and revisions to
our business strategies, we decided to modify our 2001 restructuring plan in the
second and third quarters of fiscal year 2002 and implement a new restructuring
plan for 2002. Additionally, higher than anticipated employee attrition reduced
cash outlay requirements for severance. As a result, we reversed severance and
facility restructuring reserves of $3.2 million in the third quarter of fiscal
year 2002 and $9.4 million in the second quarter of fiscal year 2002, while
recording a pre-tax restructuring charge of $3.2 million during the third
quarter of fiscal year 2002 and $7.4 million during the second quarter of fiscal
year 2002.

Fiscal 2002 Charge:

We recorded pre-tax restructuring charges of $3.2 million during the third
quarter of fiscal year 2002 and $7.4 million during the second quarter of fiscal
year 2002. The restructuring charges included $4.6 million related to severance
for 134 employees in the U.S., Canada and Europe. We expect substantially all of
these reductions to be completed by the fourth quarter of fiscal year 2002. Cash
outlays for the reductions during the nine months ended December 31, 2001
totaled $2.4 million. The restructuring charges also included $6.1 million for
future lease obligations on 39 facilities that we expect will be vacated by
fiscal year end. Cash outlays for the remaining facilities during the nine
months ended December 31, 2001 totaled $1.5 million. The following table
summarizes the fiscal 2002 restructuring charges:

2002 Restructuring Charge:

<TABLE>
<CAPTION>
                                                      Total Fiscal                           Other          Reserve at
                                                          2002              Cash           Non-Cash        December 31,
(in 000's)                                               Expense          Outlays           Changes            2001
                                                   ---------------------------------------------------------------------
<S>                                                  <C>              <C>               <C>              <C>
Severance                                              $ 4,554          $(2,435)              --            $ 2,119
Future lease obligations on facility closures            6,074           (1,520)              --              4,554
                                                   ---------------------------------------------------------------------
Total                                                  $10,628          $(3,955)              --            $ 6,673
                                                   =====================================================================
</TABLE>

Fiscal 2001 Charge:

The fiscal 2001 restructuring charge included $21.8 million related to
severance, which represented the anticipated reduction of approximately 1,200
positions worldwide. However, as a result of the changes in senior management
and higher than anticipated employee attrition discussed above, we determined
that $9.7 million of the original severance reserve would not be required. Cash
outlays related to these reductions during the nine months ended December 31,
2001 totaled $5.4 million for the termination of employees. We expect cash
outlays for the workforce reductions to be completed by March 31, 2002.

                                       7
<PAGE>

The 2001 restructuring charge also included $5.7 million for future lease
obligations on facility closures and exit costs. We identified 50 facilities to
be closed and/or consolidated with other Danka facilities. In the fourth quarter
of fiscal year 2001 we determined that 10 of the facilities previously
identified for closure would remain open because of changes in our business plan
and accordingly reversed $1.4 million of reserves. Cash outlays for facilities
during the nine months ended December 31, 2001 totaled $0.8 million. The
remaining lease obligations related to these facility closures are expected to
be substantially completed by March 31, 2002. The following table summarizes the
fiscal 2001 restructuring charge:

2001 Restructuring Charge:

<TABLE>
<CAPTION>
                                                       Reserves at                            Other           Reserve at
                                                        March 31,            Cash           Non-Cash         December 31,
(in 000's)                                                2001             Outlays           Changes             2001
                                                   ----------------------------------------------------------------------
<S>                                                  <C>               <C>               <C>               <C>
Severance                                              $16,743            $(5,337)         $ (9,658)            $1,748
Future lease obligations on facility closures
  and other exit costs                                   4,172               (829)           (2,972)               371
                                                   ----------------------------------------------------------------------
Total                                                  $20,915            $(6,166)         $(12,630)            $2,119
                                                   ======================================================================
</TABLE>

Note 3.    Discontinued Operation

On June 29, 2001, we completed the sale of Danka Services International ("DSI")
to Pitney Bowes Inc. for $290 million in cash, pursuant to an asset purchase
agreement dated April 9, 2001. DSI was our facilities management and outsourcing
business. Our shareholders approved the sale at an extraordinary general meeting
on June 29, 2001. We also entered into agreements to provide services and
supplies to Pitney Bowes, Inc. on a worldwide basis for an initial term of two
years.

An escrow account of $5 million of the DSI purchase price has been set aside.
The purchase price is subject to an adjustment depending on the value of DSI's
net assets as of the closing of the sale. If the value of DSI's net assets as of
the closing date (as determined by reference to an audited balance sheet for DSI
that we must prepare and provide to Pitney Bowes, Inc.) exceeds $81.7 million,
Pitney Bowes, Inc. will pay us an amount equal to the excess on a dollar-for-
dollar basis and the $5 million in escrow will be released to us. If the value
of DSI's net assets as of the closing date is less than $81.7 million, an amount
equal to the shortfall will be paid to Pitney Bowes, Inc. on a dollar-for-dollar
basis from the escrow account and, if the amount of the escrow account is
insufficient to meet the shortfall, we will pay the difference to Pitney Bowes,
Inc. Any money remaining in the escrow account following payment of any
shortfall to Pitney Bowes, Inc. will be released to us.

The sale of DSI resulted in a gain, subject to final post-closing adjustments,
for the nine months ended December 31, 2001 of $104.8 million after income taxes
of $67.8 million. During the three months ended December 31, 2001, we adjusted
the purchase price by $2.9 million, after taxes of $1.9 million, to reflect
changes in estimates related to a two year service and supply contract with
Pitney Bowes, Inc. Assets and liabilities of DSI at March 31, 2001, have been
segregated in the condensed consolidated balance sheets. A summary of the
operating results of discontinued operations is as follows:

<TABLE>
<CAPTION>
                                                  For the three months ended             For the nine months ended
(in 000's)                                   December 31, 2001   December 31, 2000    December 31, 2001  December 31, 2000
                                             -----------------------------------------------------------------------------
<S>                                          <C>                 <C>                <C>                <C>
Revenue                                          $     --            $73,094            $ 74,234            $218,216

Earnings before income taxes                     $     --            $ 5,355            $  6,664            $ 21,081
Provision for income taxes                             --              2,163               2,559               8,516
                                                 --------            -------            --------            --------

Net earnings (loss) from discontinued                  --              3,192               4,105              12,565
 operations
Gain (loss) from sale of discontinued
 operations after income taxes (benefits)
 of ($1.9) and $67.9 million, respectively         (2,901)                --             104,754                  --
                                                 --------            -------            --------            --------

Discontinued operations, net of tax              $ (2,901)           $ 3,192            $108,859            $ 12,565
                                                 ========            =======            ========            ========
</TABLE>

                                       8
<PAGE>

Note 4.  Debt

On June 29, 2001, we completed an exchange offer for our 6.75% convertible
subordinated notes due April 1, 2002. We accepted tenders from holders of a
total of $184,012,000 in aggregate principal amount (92%) of the 6.75%
convertible subordinated notes. Of the notes tendered pursuant to the exchange
offer, $118,484,000 in principal amount was tendered for a limited cash option,
$1,008,000 in principal amount was tendered for a new zero coupon senior
subordinated note option and $64,520,000 in principal amount was tendered for a
new 10% note option. In aggregate, we paid $24,000,000 in cash and issued
$47,593,000 in principal amount of new zero coupon senior subordinated notes due
April 1, 2004 and $64,520,000 in principal amount of 10% subordinated notes due
April 1, 2008 as consideration under the exchange offer. Noteholders who
accepted the exchange offer did not receive payment of the interest accruing on
the 6.75% convertible subordinated notes for the period from April 1, 2001 to
June 29, 2001. However, interest was deemed to accrue for the 10% subordinated
notes issued in the exchange offer from April 1, 2001. The senior subordinated
notes are guaranteed by Danka Holding Company and Danka Office Imaging Company,
which are both 100% owned U.S. subsidiaries.

The exchange offer was accounted for as a troubled debt restructuring and
resulted in an extraordinary gain of $27.9 million after income taxes of $12.0
million. During the quarter ended December 31, 2001, we adjusted the
extraordinary gain on the early retirement of debt upwards by $1.4 million,
after tax, to reflect the forgiveness of interest due to noteholders.

In addition, on June 29, 2001, we entered into an amended and restated senior
credit facility with our existing senior bank lenders to provide us with
financing through March 31, 2004. The facility, which consists of a $100 million
revolver, a $190 million term loan and $30 million letters of credit
commitments, is an amendment and restatement of our previous credit agreement.
The term component of the facility requires principal installments aggregating
$5.0 million in fiscal year 2002, $16.0 million in fiscal year 2003 and $24.0
million in fiscal year 2004, with payment due in full on March 31, 2004.
Interest on the revolver and term loan components of the new facility are at
LIBOR plus 5.5%. The interest rate increased by 0.5% on December 29, 2001 and
will increase by 0.5% on June 29, 2002 and quarterly thereafter.

Our indebtedness under the credit facility is secured by substantially all of
our assets in the United States, Canada, United Kingdom, Netherlands, and
Germany.  The credit facility contains negative and affirmative covenants which
place restrictions on us regarding, among other things, the disposition of
assets, capital expenditures, additional indebtedness and permitted liens, and
prohibit the payment of dividends (other than payment-in-kind dividends on our
participating shares). The credit facility requires that we maintain minimum
levels of adjusted consolidated net worth and cumulative consolidated EBITDA, a
minimum ratio of consolidated EBITDA to interest expense and contains
limitations on the amounts of capital expenditures, each as defined in the
credit facility. We were in compliance with all of the applicable covenants at
December 31, 2001.

We incurred $11.2 million in bank fees and $4.8 million in third party fees
relating to the new facility.  These fees will be amortized over the term of the
new facility.  We are also required to pay our banks a fee equal to 1.5% of the
total commitments on June 29, 2002 and a fee equal to 4.0% of the total
commitments on June 29, 2003.

Note 5.  Earnings Per Share

The following table reconciles the numerator and denominator of the basic and
diluted earnings (loss) from continuing operations available to common
shareholders per ADS computations for the three and nine months ended December
31, 2001 and 2000:

                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                       For the three months ended               For the three months ended
                                                            December 31, 2001                        December 31, 2000
                                                 -------------------------------------------------------------------------------
                                                   Earnings                                 Earnings
                                                 (loss) from                              (loss) from
                                                  Continuing                               Continuing
                                                  Operations      Shares      Per-share    Operations      Shares      Per-share
    (In 000's except per share amounts)          (Numerator)   (Denominator)    Amount    (Numerator)   (Denominator)    Amount
                                                 -------------------------------------------------------------------------------
<S>                                             <C>            <C>           <C>          <C>           <C>            <C>
Basic loss available to common
shareholders per ADS:
    Earnings (loss) from continuing
      operations before extraordinary items      $     560                                $ (34,949)

    Dividends and accretion on
      participating shares                          (4,266)                                  (4,019)
                                                 ---------                                ---------
    Loss                                            (3,706)        62,021     $ (0.06)      (38,968)        61,372      $(0.63)
                                                                              =======                                   ======

Effect of dilutive securities:
    Stock options                                       --             --                        --             --
                                                 ---------     ----------                 ---------     ----------

Diluted loss available to common
shareholders per ADS:
    Loss                                         $  (3,706)        62,021     $ (0.06)    $ (38,968)        61,372      $(0.63)
                                                 =========     ==========     =======     =========     ==========      ======

<CAPTION>
                                                       For the nine months ended                For the nine months ended
                                                           December 31, 2001                        December 31, 2000
                                                 -------------------------------------------------------------------------------
                                                  Earnings                                 Earnings
                                                 (loss) from                              (loss) from
                                                 Continuing                               Continuing
                                                 Operations       Shares      Per-share   Operations       Shares      Per-share
(In 000's except per share amounts)              (Numerator)   (Denominator)   Amount     (Numerator)   (Denominator)   Amount
                                                 -------------------------------------------------------------------------------
<S>                                             <C>            <C>           <C>          <C>           <C>            <C>
Basic loss available to common
    shareholders per ADS:
    Loss from continuing operations
      before extraordinary items                 $ (14,471)                               $(105,741)

    Dividends and accretion on
      participating shares                         (12,602)                                 (11,878)
                                                 ---------                                ---------
    Loss                                           (27,073)        61,950     $ (0.44)     (117,619)        59,961      $(1.96)
                                                                              =======                                   ======

Effect of dilutive securities:
    Stock options                                       --             --                        --             --
                                                 ---------     ----------                 ---------     ----------

Diluted loss available to common
shareholders per ADS:

    Loss                                         $ (27,073)        61,950     $ (0.44)    $(117,619)        59,961      $(1.96)
                                                 =========     ==========     =======     =========     ==========      ======
</TABLE>

The effect of our 6.75% convertible subordinated notes and our 6.5% senior
convertible participating shares are not included in the computation of diluted
earnings per share for the three and nine months ended December 31, 2001 and
2000 because they are not dilutive.

Note 6.    Segment Reporting

Our reportable segments are Danka Americas and Danka International.  Our
reportable segments do not include the discontinued operations of DSI.  Danka
Americas distributes photocopiers, facsimiles and other related office imaging
equipment together with related parts, supplies and services on a direct basis
to retail customers. The geographical areas covered by Danka Americas include
the United States, Canada and Latin America. Danka International distributes
photocopiers, facsimiles and other related office imaging equipment. These
products, together with related services, parts and supplies, are marketed
primarily on a direct basis to retail customers. Danka International also
provides photocopiers, facsimiles and other related office imaging equipment and
supplies on a wholesale basis to independent dealers. Danka International has an
extensive sales and service network throughout Europe and additional operations
in Australia.  We measure segment performance as earnings from operations, which
is defined as earnings before interest income (expense) and income taxes, as
shown on our consolidated statements of operations. Other items, which includes
Corporate Headquarters expenses and eliminations, are shown for purposes of
reconciling to our total consolidated amounts as shown in the following tables

                                       10
<PAGE>

(which have been restated to reflect our reportable segments) for the three
months and nine months ended December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                             Danka              Danka
                                                            Americas         International          Other               Total
Three Months Ended December 31                                $000               $000               $000                $000
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>              <C>                    <C>                <C>
2001
Total revenue                                                  $252,660           $147,394            $    500         $  400,554

Operating earnings (loss) from continuing operations              7,542              2,264                (709)             9,097
Interest expense                                                     --                 --               7,867              7,867
Provision (benefit) for income taxes                                 --                 --                 869                869
Earnings (loss) from continuing operations, before
  discontinued operations and extraordinary items                                                                             560

2000
Total revenue                                                   275,616            152,577              (3,190)           425,003

Operating earnings (loss) from continuing operations            (11,978)           (16,138)             (8,906)           (37,022)
Interest expense                                                     --                 --              18,871             18,871
Provision (benefit) for income taxes                                 --                 --             (20,155)           (20,155)
Earnings (loss) from continuing operations, before
  discontinued operations and extraordinary items                                                                         (34,949)

<CAPTION>
                                                             Danka              Danka
                                                            Americas         International          Other               Total
Nine Months Ended December 31                                 $000               $000               $000                $000
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>              <C>                    <C>                <C>
2001
Total revenue                                                  $748,280           $441,470              (6,218)        $1,183,532

Operating earnings (loss) from continuing operations             14,004              7,054              (8,935)            12,123
Interest expense                                                     --                 --              34,791             34,791
Provision (benefit) for income taxes                                 --                 --              (6,840)            (6,840)
Earnings (loss) from continuing operations, before
  discontinued operations and extraordinary items                                                                         (14,471)

2000
Total revenue                                                   871,038            490,506             (12,811)         1,348,733

Operating earnings (loss) from continuing operations            (10,659)            (9,576)            (64,355)           (84,590)
Interest expense                                                     --                 --              64,409             64,409
Provision (benefit) for income taxes                                 --                 --             (40,915)           (40,915)
Earnings (loss) from continuing operations, before
  discontinued operations and extraordinary items                                                                        (105,741)
</TABLE>

Note 7.    New Accounting Pronouncements

Goodwill and Other Intangible Assets:

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets",
which will be effective for the first quarter of our fiscal year 2003. Statement
No. 142 establishes accounting and reporting requirements for goodwill and other
intangible assets, and modifies disclosures previously required under other
accounting standards. We have not yet evaluated what impact the adoption of this
new statement may have on our results of operation, financial position, or
liquidity.

Other New Accounting Standards

SFAS No. 143, "Accounting for Asset Retirement Obligations", requires
recognition of the fair value of liabilities associated with the retirement of
long-lived assets when a legal obligation to incur such costs arises as a result
of the acquisition, construction, development and/or the normal operation of a
long-lived asset. Upon recognition of the liability, a corresponding

                                       11
<PAGE>

asset is recorded and depreciated over the remaining life of the long-lived
asset. The Statement defines a legal obligation as one that a party is required
to settle as a result of an existing or enacted law, statute, ordinance, or
written or oral contract or by legal construction of a contract under the
doctrine of promissory estoppel. SFAS 143 is effective for fiscal years
beginning after December 15, 2002. We do not expect a material impact from this
Statement on our consolidated financial statements.

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
requires long-lived assets be measured at the lower of carrying amount or fair
value less cost to sell, whether reported in continuing operations or in
discontinued operations. Therefore, discontinued operations will no longer be
measured at net realizable value or include amounts for operating losses that
have not yet occurred. Statement 144 also broadens the reporting of discontinued
operations to include all components of an entity with operations that can be
distinguished from the rest of the entity and that will be eliminated from the
ongoing operations of the entity in a disposal transaction. The provisions of
Statement 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001 and, generally are to be applied
prospectively. We do not expect a material impact from this Statement on our
consolidated financial statements.

Note 8.  Supplemental Consolidating Financial Data for Subsidiary Guarantors

On June 29, 2001, we completed an exchange offer for our 6.75% convertible
subordinated notes due April 1, 2002. We issued new zero coupon senior
subordinated notes due April 1, 2004 as partial consideration. The new zero
coupon senior subordinated notes are fully and unconditionally guaranteed on a
joint and several basis by our 100% owned subsidiaries, Danka Holding Company
and Danka Office Imaging Company (collectively, the "Subsidiary Guarantors").
The Subsidiary Guarantors represent substantially all of our operations
conducted in the United States of America.

The following supplemental consolidating financial data includes the combined
Subsidiary Guarantors. Management believes separate complete financial
statements of the respective Subsidiary Guarantors would not provide additional
material information that would be useful in assessing the financial composition
of the Subsidiary Guarantors. No single Subsidiary Guarantor has any significant
legal restriction on the ability of investors or creditors to obtain access to
its assets in the event of default on the guarantee other than subordination of
the guarantee to our senior indebtedness. The indenture governing the new zero
coupon senior subordinated notes contains limitations on the amount of
additional indebtedness, including senior indebtedness, that we may incur.

We account for investment in subsidiaries on the equity method for purposes of
the supplemental consolidating presentation. Earnings of the subsidiaries are
therefore reflected in Danka Business Systems PLC's ("Parent Company")
investment in subsidiaries. The principal elimination entries eliminate
investments in subsidiaries and intercompany balances and transactions.

                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                                  Supplemental Consolidating Statement of Operation
                                                                              For the Three Months Ended
                                                                                  December 31, 2001
                                                      -------------------------------------------------------------------------
                                                                                  Subsidiary
                                                       Parent      Subsidiary        Non-                          Consolidated
                                                      Company      Guarantors     Guarantors      Eliminations         Total
                                                      -------      ----------     ----------      ------------     ------------
<S>                                                   <C>          <C>            <C>             <C>              <C>
Revenue:
Retail equipment sales                                $     -       $ 85,307       $ 58,063         $      -         $143,370
Retail service, supplies and rentals                        -        141,094         95,698                -          236,792
Wholesale                                                   -              -         20,392                -           20,392
---------------------------------------------         -------       --------       --------         --------         --------
Total revenue                                               -        226,401        174,153                -          400,554
---------------------------------------------         -------       --------       --------         --------         --------

Costs and operating expenses
Cost of retail equipment sales                              -         66,831         40,647                -          107,478
Retail service, supplies and rental costs                   -         73,962         61,743                -          135,705
Wholesale costs of revenue                                  -              -         16,562                -           16,562
Selling, general and administrative expenses            1,065         81,692         48,226                -          130,983
Amortization of intangible assets                           -            945          1,754                -            2,699
Restructuring charges (credits)                             -              -              -                -                -
Equity (income) loss                                   11,133              -              -          (11,133)               -
Other (income) expense                                 (7,266)        (1,635)         7,393             (462)          (1,970)
---------------------------------------------         -------       --------       --------         --------         --------
Total costs and operating expenses                      4,932        221,795        176,325          (11,595)         391,457
---------------------------------------------         -------       --------       --------         --------         --------
Operating earnings (loss) from continuing
operations                                             (4,932)         4,606         (2,172)          11,595            9,097
Interest expense                                       (6,228)       (18,001)       (40,456)          56,818           (7,867)
Interest income                                        13,229            (70)        43,857          (56,817)             199
---------------------------------------------         -------       --------       --------         --------         --------
Earnings (loss) from continuing operations
before income taxes                                     2,069        (13,465)         1,229           11,596            1,429
Provision (benefit) for income taxes                    4,410         (4,320)           611              168              869
---------------------------------------------         -------       --------       --------         --------         --------
Earnings (loss) from continuing operations
before extraordinary items                             (2,341)        (9,145)           618           11,428              560
Discontinued operations, net of tax                         -         (2,901)             -                -           (2,901)
Extraordinary gain early retirement of debt,
net of tax                                              1,415              -              -                -            1,415
---------------------------------------------         -------       --------       --------         --------         --------
Net (loss) earnings                                   $  (926)      $(12,046)      $    618         $ 11,428         $   (926)
=============================================         =======       ========       ========         ========         ========
</TABLE>

                                       13
<PAGE>

<TABLE>
<CAPTION>
                                                          Supplemental Consolidating Statement of Operation
                                                                      For the Three Months Ended
                                                                          December 31, 2000
                                             --------------------------------------------------------------------------
                                                                           Subsidiary
                                                Parent      Subsidiary        Non-                         Consolidated
                                               Company      Guarantors     Guarantors     Eliminations         Total
                                              ---------     ----------     ----------     ------------     ------------
<S>                                          <C>           <C>            <C>           <C>               <C>
Revenue:
Retail equipment sales                        $       -     $   82,756     $   67,436     $          -     $    150,192
Retail service, supplies and rentals                  -        158,196         90,868                -          249,064
Wholesale                                             -              1         25,746                -           25,747
------------------------------------------    ---------     ----------     ----------     ------------     ------------
Total revenue                                         -        240,953        184,050                -          425,003
------------------------------------------    ---------     ----------     ----------     ------------     ------------
Costs and operating expenses
Cost of retail equipment sales                        -         64,951         49,315                -          114,266
Retail service, supplies and rental costs             -         82,321         64,647                -          146,968
Wholesale costs of revenue                            -              -         21,510                -           21,510
Selling, general and administrative expenses      2,534         91,187         54,262                -          147,983
Amortization of intangible assets                     -          1,085          2,234                -            3,319
Restructuring charges (credits)                       -              2         27,467                -           27,469
Equity (income) loss                             35,472              -              -          (35,472)               -
Other (income) expense                            4,517         (1,769)        (2,239)               1              510
------------------------------------------    ---------     ----------     ----------     ------------     ------------
Total costs and operating expenses               42,523        237,777        217,196          (35,471)         462,025
------------------------------------------    ---------     ----------     ----------     ------------     ------------
Operating earnings (loss) from continuing
operations                                      (42,523)         3,176        (33,146)          35,471          (37,022)
Interest expense                                (35,332)       (20,475)        13,220           23,716          (18,871)
Interest income                                  46,016            551        (22,062)         (23,716)             789
------------------------------------------    ---------     ----------     ----------     ------------     ------------
Earnings (loss) from continuing
operations before income taxes                  (31,839)       (16,748)       (41,988)          35,471          (55,104)
Provision (benefit) for income taxes                (82)        (6,001)       (14,174)             101          (20,155)
------------------------------------------    ---------     ----------     ----------     ------------     ------------
Earnings (loss) from continuing
operations before extraordinary items           (31,757)       (10,747)       (27,814)          35,370          (34,949)
Discontinued operations, net of tax                   -          3,487           (295)               -            3,192
Extraordinary gain early retirement of
debt, net of tax                                      -              -              -                -                -
------------------------------------------    ---------     ----------     ----------     ------------     ------------
Net (loss) earnings                           $ (31,757)    $   (7,260)    $  (28,109)    $     35,370     $    (31,757)
==========================================    =========     ==========     ==========     ============     ============
</TABLE>

                                       14
<PAGE>

<TABLE>
<CAPTION>
                                                                  Supplemental Consolidating Statement of Operation
                                                                              For the Nine Months Ended
                                                                                  December 31, 2001
                                                      -------------------------------------------------------------------------
                                                                                   Subsidiary
                                                        Parent      Subsidiary        Non-                        Consolidated
                                                       Company      Guarantors     Guarantors     Eliminations        Total
                                                      ---------    ------------   ------------   --------------   -------------
<S>                                                   <C>          <C>            <C>            <C>              <C>
Revenue:
Retail equipment sales                                 $      -     $  230,854     $  177,630     $          -       $  408,484
Retail service, supplies and rentals                          -        430,361        286,257                -          716,618
Wholesale                                                                              58,430                            58,430
--------------------------------------------------    ---------    -----------    -----------    -------------      -----------
Total revenue                                                 -        661,215        522,317                -        1,183,532
--------------------------------------------------    ---------    -----------    -----------    -------------      -----------
Costs and operating expenses
Cost of retail equipment sales                                -        185,543        124,717                -          310,260
Retail service, supplies and rental costs                     -        228,198        187,337                -          415,535
Wholesale costs of revenue                                    -              -         47,498                -           47,498
Selling, general and administrative expenses              3,132        246,278        144,705                -          394,115
Amortization of intangible assets                             -          2,836          5,227                -            8,063
Restructuring charges (credits)                               -         (1,992)             -                -           (1,992)
Equity (income) loss                                    (89,109)             -              -           89,109                -
Other (income) expense                                  (12,256)             -          9,537              649           (2,070)
--------------------------------------------------    ---------    -----------    -----------    -------------      -----------
Total costs and operating expenses                      (98,233)       660,863        519,021           89,758        1,171,409
--------------------------------------------------    ---------    -----------    -----------    -------------      -----------
Operating earnings (loss) from continuing
operations                                               98,233            352          3,296          (89,758)          12,123
Interest expense                                        (29,138)       (57,149)       (50,218)         101,714          (34,791)
Interest income                                          40,616            690         61,765         (101,714)           1,357
--------------------------------------------------    ---------    -----------    -----------    -------------      -----------
Earnings (loss) from continuing operations before
income taxes                                            109,711        (56,107)        14,843          (89,758)         (21,311)
Provision (benefit) for income taxes                      6,615        (18,011)         4,765             (209)          (6,840)
--------------------------------------------------    ---------    -----------    -----------    -------------      -----------
Earnings (loss) from continuing operations before
extraordinary items                                     103,096        (38,096)        10,078          (89,549)         (14,471)
Discontinued operations, net of tax                      (8,708)        80,883         36,684                -          108,859
Extraordinary gain early retirement of debt, net
of tax                                                   27,936              -              -                -           27,936
--------------------------------------------------    ---------    -----------    -----------    -------------      -----------
Net (loss) earnings                                    $122,324     $   42,787     $   46,762     $    (89,549)      $  122,324
==================================================    =========    ===========    ===========    =============      ===========
</TABLE>

                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                               Supplemental Consolidating Statement of Operation
                                                                           For the Nine Months Ended
                                                                               December 31, 2000
                                                    -------------------------------------------------------------------------
                                                                                  Subsidiary
                                                     Parent       Subsidiary         Non-                         Consolidated
                                                     Company      Guarantors      Guarantors      Eliminations        Total
                                                    ---------     ----------      ----------      ------------    ------------
<S>                                                 <C>           <C>             <C>             <C>             <C>
Revenue:
Retail equipment sales                              $       -      $ 274,379      $ 194,604        $       -      $   468,983
Retail service, supplies and rentals                        -        489,679        317,354                -          807,033
Wholesale                                                                            72,717                            72,717
---------------------------------------------       ---------      ---------      ---------        ---------      -----------
Total revenue                                               -        764,058        584,675                -        1,348,733
---------------------------------------------       ---------      ---------      ---------        ---------      -----------

Costs and operating expenses
Cost of retail equipment sales                              -        205,630        160,014                -          365,644
Retail service, supplies and rental costs                   -        270,063        218,819                -          488,882
Wholesale costs of revenue                                                           60,740                            60,740
Selling, general and administrative expenses            3,607        289,671        170,036                -          463,314
Amortization of intangible assets                           -          3,365         25,528                -           28,893
Restructuring charges (credits)                             -         (4,520)        23,829                -           19,309
Equity (income) loss                                   79,956              -              -          (79,956)               -
Other (income) expense                                  6,439         (1,766)         3,789           (1,921)           6,541
---------------------------------------------       ---------      ---------      ---------        ---------      -----------
Total costs and operating expenses                     90,002        762,443        662,755          (81,877)       1,433,323
---------------------------------------------       ---------      ---------      ---------        ---------      -----------
Operating earnings (loss) from continuing
operations                                            (90,002)         1,615        (78,080)          81,877          (84,590)
Interest expense                                      (58,607)       (63,970)       (16,633)          74,801          (64,409)
Interest income                                        49,628          1,564         25,952          (74,801)           2,343
---------------------------------------------       ---------      ---------      ---------        ---------      -----------
Earnings (loss) from continuing
operations before income taxes                        (98,981)       (60,791)       (68,761)          81,877         (146,656)
Provision (benefit) for income taxes                   (5,805)       (15,409)       (20,287)             586          (40,915)
---------------------------------------------       ---------      ---------      ---------        ---------      -----------
Earnings (loss) from continuing
operations before extraordinary items                 (93,176)       (45,382)       (48,474)          81,291         (105,741)
Discontinued operations, net of tax                         -         10,290          2,275                -           12,565
Extraordinary gain early retirement of
debt, net of tax                                            -              -              -                -                -
---------------------------------------------       ---------      ---------      ---------        ---------      -----------
Net (loss) earnings                                 $ (93,176)     $ (35,092)     $ (46,199)       $  81,291      $   (93,176)
=============================================       =========      =========      =========        =========      ===========
</TABLE>

                                       16
<PAGE>

<TABLE>
<CAPTION>
                                                             Supplemental Consolidating Balance Sheet Information
                                                                              December 31, 2001
                                                   ----------------------------------------------------------------------------
                                                                              Subsidiary
                                                   Parent       Subsidiary        Non-                         Consolidated
                                                  Company       Guarantors     Guarantors     Eliminations         Total
                                                -----------    ------------  --------------  --------------   -----------------
<S>                                             <C>            <C>           <C>             <C>              <C>
Assets
Current assets:
Cash and cash equivalents                         $   4,732      $   5,461      $  37,028        $                $  47,221
Accounts receivable, net                                  -        150,044        158,993                -          309,037
Inventories                                               -         53,789         98,038                -          151,827
Prepaid expenses, deferred income taxes and
other current assets                                  5,703         28,895         12,450                -           47,048
----------------------------------------------  -----------     ----------      ---------       ----------      -----------
Total current assets                                 10,435        238,189        306,509                -          555,133


Equipment on operating leases, net                        -         31,028         32,088                -           63,116
Property and equipment, net                               -         55,843         10,946                -           66,789
Intangible assets, net                                    -         95,767        141,104                -          236,871
Investment in subsidiaries                          571,047          1,014              -         (572,061)               -
Other assets                                         13,843         62,661        (28,033)               -           48,471
----------------------------------------------  -----------     ----------      ---------       ----------      -----------
Total assets                                      $ 595,325      $ 484,502      $ 462,614        $(572,061)       $ 970,380
==============================================  ===========     ==========      =========       ==========      ===========

Liabilities and shareholders' equity (deficit)
Current liabilities:
Current maturities of long-term debt and
notes payable                                     $  30,988      $     161      $   1,691        $   4,000        $  36,840
Accounts payable                                        (87)        55,169         44,990                -          100,072
Accrued expenses and other current liabilities          704         86,621         91,382            4,044          182,751
Deferred revenue                                          -         17,079         21,276                -           38,355
Due to/(from) affiliate                             (17,962)       360,177       (338,170)          (4,045)               -
----------------------------------------------  -----------     ----------      ---------       ----------      -----------
Total current liabilities                            13,643        519,207       (178,831)           3,999          358,018

Due to/(from) affiliates - long-term                               200,000       (200,000)               -                -
Long-term debt and notes payables, less
current maturities                                  303,114            925          5,371           (4,000)         305,410
Deferred income taxes and other long-term
liabilities                                               -         13,082         15,302                -           28,384
----------------------------------------------  -----------     ----------      ---------       ----------      -----------
Total liabilities                                   316,757        733,214       (358,158)              (1)         691,812
----------------------------------------------  -----------     ----------      ---------       ----------      -----------

6.5% convertible participating shares               236,273              -              -                -          236,273
----------------------------------------------  -----------     ----------      ---------       ----------      -----------

Shareholders' equity (deficit):
Ordinary shares, 1.25 pence stated value              5,138            258        565,483         (565,741)           5,138
Additional paid-in capital                          325,880        106,644        103,297         (209,941)         325,880
Retained earnings (accumulated deficit)            (192,851)      (365,232)       425,405          (60,173)        (192,851)
Accumulated other comprehensive (loss) income       (95,872)         9,618       (273,413)         263,795          (95,872)
----------------------------------------------  -----------     ----------      ---------       ----------      -----------
Total shareholders' equity (deficit)                 42,295       (248,712)       820,772         (572,060)          42,295
----------------------------------------------  -----------     ----------      ---------       ----------      -----------
Total liabilities & shareholders' equity
(deficit)                                         $ 595,325      $ 484,502      $ 462,614        $(572,061)       $ 970,380
==============================================  ===========     ==========      =========       ==========      ===========
</TABLE>

                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                        Supplemental Consolidating Balance Sheet Information
                                                                          March 31, 2001
                                                   ------------------------------------------------------------------------------
                                                      Parent      Subsidiary       Subsidiary                        Consolidated
                                                     Company      Guarantors     Non-Guarantors     Eliminations         Total
                                                   ----------     ----------     --------------     ------------     ------------
<S>                                                    <C>           <C>            <C>                <C>              <C>
Assets
Current assets:
Cash and cash equivalents                         $   5,471      $  27,723          $  35,891        $       -       $   69,085
Accounts receivable, net                                  -        171,429            174,969                -          346,398
Inventories                                               -         88,287            111,236                -          199,523
Prepaid expenses, deferred income
taxes and other current assets                        3,350         68,284              9,391                -           81,025
Assets of discontinued operations                         -         64,928             48,477                -          113,405
-------------------------------------             ---------      ---------          ---------        ---------       ----------
Total current assets                                  8,821        420,651            379,964                -          809,436

Equipment on operating leases, net                        -         39,737             54,348                -           94,085
Property and equipment, net                               -         58,563              7,907                -           66,470
Intangible assets, net                                    -         76,664            167,506                -          244,170
Investment in subsidiaries                          483,410          1,014                  -         (484,424)               -
Other assets                                             78         51,658             91,479          (74,433)          68,782
-------------------------------------             ---------      ---------          ---------        ---------       ----------
Total Assets                                      $ 492,309      $ 648,287          $ 701,204        $(558,857)      $1,282,943
=====================================             =========      =========          =========        =========       ==========

Liabilities and shareholders' equity
(deficit)
Current Liabilities:
Current maturities of long-term debt
and notes payable                                 $ 464,967      $  44,199          $   8,281        $       -       $  517,447
Accounts payable                                          -         83,094             53,510                -          136,604
Accrued expenses and other current
liabilities                                           8,793         68,061            105,606                -          182,460
Deferred revenue                                          -         19,810             15,159                -           34,969
Due to/(from) affiliates                           (339,522)       518,928           (179,406)               -                -
Liabilities of discontinued assets                        -         10,088             12,142                -           22,230
-------------------------------------             ---------      ---------          ---------        ---------       ----------
Total current liabilities                           134,238        744,180             15,292                -          893,710
                                                                                                             -
Due to/(from) affiliates - long-term                      -        200,000           (200,000)               -                -
Convertible subordinated notes                      200,000                                 -                -          200,000
Long-term debt and notes payables,
less current maturities                                   -            780                951                -            1,731
Deferred income taxes and other
long-term liabilities                                     -          4,445             48,043          (23,057)          29,431
-------------------------------------             ---------      ---------          ---------        ---------       ----------
Total liabilities                                   334,238        949,405           (135,714)         (23,057)       1,124,872
-------------------------------------             ---------      ---------          ---------        ---------       ----------

6.5% convertible participating shares               223,713              -                  -                -          223,713
------------------------------------              ---------      ---------          ---------        ---------       ----------

Shareholders' equity (deficit):
Ordinary shares, 1.25 pence stated
value                                                 5,130            258            565,480         (565,738)           5,130
Additional paid-in capital                          325,399        106,644            103,297         (209,941)         325,399
Retained earnings (accumulated
deficit)                                           (302,619)      (408,020)           378,644           29,376         (302,619)
Accumulated other comprehensive
(loss) income                                       (93,552)             -           (210,503)         210,503          (93,552)
------------------------------------              ---------      ---------          ---------        ---------       ----------
Total shareholders' equity (deficit)                (65,642)      (301,118)           836,918         (535,800)         (65,642)
------------------------------------              ---------      ---------          ---------        ---------       ----------
Total liabilities & shareholders'
equity (deficit)                                  $ 492,309      $ 648,287          $ 701,204        $(558,857)      $1,282,943
=====================================             =========      =========          =========        =========       ==========
</TABLE>

                                       18
<PAGE>

<TABLE>
<CAPTION>

                                                                   Supplemental Consolidating Statement of Cash Flows
                                                                                For the Nine Months Ended
                                                                                    December 31, 2001
                                                    --------------------------------------------------------------------------------
                                                                                     Subsidiary
                                                       Parent        Subsidiary         Non-                        Consolidated
                                                      Company        Guarantors      Guarantors     Eliminations        Total
                                                    ------------    ------------   -------------   -------------    -----------
<S>                                                 <C>             <C>            <C>             <C>              <C>
 Net cash provided by (used in) operating
 activities                                         $    308,688     $ (133,190)    $ (85,331)     $          -      $   90,167

 Investing activities
 Capital expenditures                                          -        (23,944)       (10,037)               -         (33,981)
 Proceeds from sale of property and equipment                  -            174             19                -             193
 Proceeds from sale of business                                -        178,591         94,627                -         273,218
--------------------------------------------------  ------------    -----------    -----------     ------------     -----------
 Net cash provided by (used in) investing
 activities                                                    -        154,821         84,609                -         239,430
--------------------------------------------------  ------------    -----------    -----------     ------------     -----------

 Financing activities
 Net (payment) borrowing of debt                        (283,483)       (43,893)        (2,170)               -        (329,546)
 Payment of debt issue costs                             (26,037)             -              -                -         (26,037)
--------------------------------------------------  ------------    -----------    -----------     ------------     -----------
 Net cash provided by (used in) financing
 activities                                             (309,520)       (43,893)        (2,170)               -        (355,583)
--------------------------------------------------  ------------    -----------    -----------     ------------     -----------
 Effect of exchange rates                                     93              -          4,029                -           4,122
--------------------------------------------------  ------------    -----------    -----------     ------------     -----------
 Net increase (decrease) in cash                            (739)       (22,262)         1,137                -         (21,864)
 Cash and cash equivalents, beginning of period            5,471         27,723         35,891                -          69,085
--------------------------------------------------  ------------    -----------    -----------     ------------     -----------
 Cash and cash equivalents, end of period           $      4,732     $    5,461     $   37,028     $          -      $   47,221
==================================================  ============    ===========    ===========     ============     ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                   Supplemental Consolidating Statement of Cash Flows
                                                                               For the Nine Months Ended
                                                                                   December 31, 2000
                                                    --------------------------------------------------------------------------------
                                                                                    Subsidiary
                                                      Parent         Subsidiary        Non-                         Consolidated
                                                      Company        Guarantors     Guarantors      Eliminations       Total
                                                    ------------    ------------   ------------    -------------    -----------
<S>                                                 <C>             <C>            <C>             <C>              <C>
 Net cash provided by (used in) operating
 activities                                           $  90,794        $ (37,015)     $  22,281     $          -       $  76,060

 Investing activities
 Capital expenditures                                         -          (18,428)       (31,041)               -         (49,469)
 Proceeds from sale of property and equipment                 -              164            568                -             732
 Proceeds from sale of business                               -                -              -                -
---------------------------------------------------   ---------      -----------    -----------    -------------   -------------
 Net cash provided by (used in) investing
 activities                                                   -          (18,264)       (30,473)               -         (48,737)
---------------------------------------------------   ---------      -----------    -----------    -------------   -------------

 Financing activities
 Net (payment) borrowing of debt                        (91,986)          46,103         10,498                -         (35,385)
---------------------------------------------------   ---------      -----------    -----------    -------------   -------------
 Net cash provided by (used in) financing
 activities                                             (91,986)          46,103         10,498                -         (35,385)
---------------------------------------------------   ---------      -----------    -----------    -------------   -------------
 Effect of exchange rates                                  (195)               -           (764)               -            (959)
---------------------------------------------------   ---------      -----------    -----------    -------------   -------------
 Net increase (decrease) in cash                         (1,387)          (9,176)         1,542                -          (9,021)
 Cash and cash equivalents, beginning of period           2,759           31,572         30,530                -          64,861
---------------------------------------------------   ---------      -----------    -----------    -------------   -------------
 Cash and cash equivalents, end of period              $  1,372        $  22,396      $  32,072     $          -       $  55,840
===================================================   =========      ===========    ===========    =============   =============
</TABLE>

                                       19
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

We are one of the world's leading providers of office imaging solutions and
related services and supplies. We primarily market photocopiers and office
imaging equipment and related services, parts and supplies directly to customers
in 27 countries. Canon, Heidelberg, NexPress, Ricoh and Toshiba manufacture most
of the products that we distribute. Throughout Europe, we also market private
label photocopiers, facsimile machines and related supplies directly to
customers under our Infotec trademark. In addition, we market photocopiers and
related parts and supplies on a wholesale basis to independent dealers through
our international operations.

On June 29, 2001 we completed a three part financial restructuring plan that
reduced and refinanced our indebtedness.  The three parts of the plan were:

     .    the sale of our Danka Services International ("DSI") business,
     .    an exchange offer for our 6.75% convertible subordinated notes due
          April 1, 2002, and
     .    the refinancing of our senior bank debt.

We sold DSI to Pitney Bowes Inc. for $290.0 million in cash, subject to
adjustment depending on the value of DSI's net assets on closing. We used the
net proceeds of DSI to repay part of our senior bank debt, to finance cash
payable under the exchange offer, to finance the costs of the exchange offer and
to finance costs associated with the refinancing of our senior bank debt.

We accepted tenders from holders of a total of $184.0 million in aggregate
principal amount (92%) of the 6.75% convertible subordinated notes pursuant to
the exchange offer for $24.0 million in cash and approximately $112.1 million in
new notes with extended maturities.

We refinanced the remaining balance of our senior bank debt through an amended
and restated credit facility with our existing senior bank lenders. The facility
consists of a $100.0 million revolver, a $190.0 million term loan and $30.0
million of letters of credit commitments.

Results of Continuing Operations

The following table sets forth, for the periods indicated, the percentage of
total revenue represented by certain items in the our consolidated statements of
operations:

<TABLE>
<CAPTION>
                                               Three Months Ended December 31,      Nine Months Ended December 31,
                                               -------------------------------      ------------------------------
                                                2001                     2000        2001                    2000
                                               ------                   ------      ------                  ------
<S>                                            <C>                      <C>         <C>                     <C>
Revenue:
 Retail equipment sales                           35.8 %                  35.3 %      34.5 %                  34.8 %
 Retail service, supplies and rentals             59.1                    58.6        60.5                    59.8
 Wholesale                                         5.1                     6.1         5.0                     5.4
---------------------------------------------  -------                  ------      ------                  ------
Total Revenue                                    100.0                   100.0       100.0                   100.0
---------------------------------------------  -------                  ------      ------                  ------
Cost of Revenue                                   64.8                    66.5        65.3                    67.9
Gross Profit                                      35.2                    33.5        34.7                    32.1
Selling, general and administrative expenses      32.7                    34.8        33.3                    34.4
Amortization of intangible assets                  0.7                     0.8         0.7                     2.1
Restructuring charges (credits)                      -                     6.5        (0.2)                    1.4
Other (income) expenses                           (0.5)                    0.1        (0.1)                    0.4
---------------------------------------------  -------                  ------      ------                  ------
Operating earnings (loss) from continuing
operations                                         2.3                    (8.7)        1.0                    (6.2)
Interest expense                                  (2.0)                   (4.4)       (2.9)                   (4.8)
Interest income                                      -                     0.2         0.1                     0.2
---------------------------------------------  -------                  ------      ------                  ------
Earnings (loss) from continuing operations
before income taxes                                0.3                   (12.9)       (1.8)                  (10.8)
Provision (benefit) for income taxes               0.2                    (4.7)       (0.6)                   (3.0)
---------------------------------------------  -------                  ------      ------                  ------
Earnings (loss) from continuing operations
before extraordinary items                         0.1                    (8.2)       (1.2)                   (7.8)
=============================================  =======                  ======      ======                  ======
</TABLE>

                                       20
<PAGE>

The following table sets forth for the periods indicated the gross profit margin
percentage for each of our revenue classifications:

<TABLE>
<CAPTION>
                                      Three Months Ended December 31,         Nine Months Ended December 31,
                                      -------------------------------         ------------------------------
                                       2001                     2000           2001                    2000
                                      ------                   ------         ------                  ------
<S>                                   <C>                      <C>            <C>                     <C>
Retail equipment sales                  25.0 %                   23.9 %         24.0 %                  22.0 %
Retail service, supplies and rentals    42.7                     41.0           42.0                    39.4
Wholesale                               18.8                     16.5           18.7                    16.5
</TABLE>

Three Months Ended December 31, 2001 compared to the Three Months Ended December
31, 2000:

The comparative information included in this section represents results from
continuing operations. In our consolidated statement of operations, the
operating results and the gain from the sale of DSI are presented as
discontinued operations and the gain resulting from the exchange offer of our
convertible subordinated notes is presented as an extraordinary item.

Revenue

Total revenue for the third quarter of fiscal 2002 declined by $24.4 million or
5.7% to $400.6 million from $425.0 million in the prior year third quarter. Our
total revenue in the current year third quarter was positively impacted by a
$1.9 million foreign currency movement. Retail equipment sales declined by $6.8
million, which was partially offset by a positive $0.5 million foreign currency
movement. This decline was primarily due to a decrease in retail equipment sales
in Europe that was the result of a slowing in certain European economies,
particularly Germany, United Kingdom and the Netherlands. Retail equipment sales
in the U.S. were flat compared to the prior year third quarter despite a
reduction in the number of sales representatives in the U.S. This revenue
decrease was partially offset by an increase in U.S. sales productivity (i.e.
hardware sales divided by the average number of sales representatives) and the
addition of a large national account. Retail service, supplies and rentals
revenue declined by $12.3 million, primarily due to a decrease in the U.S.
resulting from the continuing transition from analog to digital equipment,
negative market trends and a weakening of global economic conditions, offset by
a positive $0.8 million foreign currency movement. Wholesale revenue for the
third quarter of fiscal 2002 declined by $5.4 million, primarily due to our
decision to move away from lower margin transactions, offset by a positive $0.6
million foreign currency movement.

Gross Profit

Our total gross profit margin increased to 35.2% in the current year's third
quarter from 33.5% in the prior year third quarter. The increase in our profit
margin is primarily due to higher margin transactions and increased sales and
service productivity.

The retail equipment margin increased to 25.0% in the quarter ended December 31,
2001 from 23.9% in the prior year third quarter, primarily due to an emphasis on
higher margin transactions. Retail service, supplies and rental margins
increased to 42.7% in the quarter ended December 31, 2001 from 41.0% in the
prior year third quarter, primarily due to increased productivity in the current
year. Wholesale margins increased to 18.8% in the quarter ended December 31,
2001 from 16.5% in the prior year third quarter, primarily due to higher margin
transactions in the current year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") in the quarter ended
December 31, 2001 declined by $17.0 million to $131.0 million from $148.0
million in the prior year third quarter. As a percentage of total revenue, SG&A
expenses decreased to 32.7% from 34.8%. The reduction was primarily attributable
to lower selling expenses resulting from reduced sales, a decrease in the number
of people in our work force and increased productivity.

Amortization of Intangible Assets

Amortization of our intangible assets decreased to $2.7 million in the quarter
ended December 31, 2001 from $3.3 million in the prior year third quarter.  This
difference was primarily due to a prior year goodwill write-off.

                                       21
<PAGE>

Restructuring Charges

We recorded a pre-tax restructuring charge of $3.2 million in the third quarter
of fiscal year 2002 for severance obligations. Beginning at the end of the
fourth quarter of fiscal year 2001, we proceeded with a series of changes to our
senior management team. The hiring of a new Chief Executive Officer in March of
2001 was the first in a series of changes. Upon completion of the financial
restructuring plan at the end of the first quarter of fiscal year 2002, we made
additional significant changes to our senior management team, including the
hiring of a new Chief Operating Officer of Danka International, a new Chief
Operating Officer of our Canadian, Latin American and Asian Pacific region and a
new Chief Operating Officer of our U.S. Office Imaging business unit. Our new
management team reviewed the existing restructuring plan and as a result of
changing business conditions in the U.S. and Europe and revisions to our
business strategies, we decided to modify our 2001 and 2002 restructuring plans
in the current quarter. Additionally, higher than anticipated employee attrition
reduced cash outlay requirements for severance. As a result of these actions, we
reversed $3.2 million of fiscal year 2001 severance and facility restructuring
reserves in the third quarter of fiscal year 2002.

Other (Income) Expense

Other (income) expense for the quarter ended December 31, 2001 included foreign
currency gains of $1.6 million and a $0.4 million gain on the sale of our New
Zealand business. Other expense in the prior year third quarter included foreign
currency losses of $0.2 million.

Operating Earnings (Loss) from Continuing Operations

For the quarter ended December 31, 2001, operating earnings from continuing
operations were $9.1 million compared to an operating loss from continuing
operations of $37.0 million in the prior year third quarter. The prior year
third quarter included a restructuring charge of $27.5 million.

Interest Expense and Interest Income

Interest expense decreased by $11.0 million to $7.9 million in the quarter ended
December 31, 2001 from $18.9 million in the prior year third quarter. The
decrease was due to lower interest rates and reduced outstanding debt.

Income Taxes

We recorded income tax expense of $0.9 million in the quarter ended December 31,
2001 compared to a $20.2 million income tax benefit in the third quarter of
fiscal year 2001. The combined effective income tax rate was 60.8% for the third
quarter of fiscal year 2002 as compared to 36.6% for the third quarter of fiscal
year 2001. The increase in the tax rate is primarily due to changes in the mix
of earnings and losses from continuing operations before extraordinary items in
certain tax locales.

Earnings (Loss) from Continuing Operations, before Extraordinary Items

For the quarter ended December 31, 2001, we incurred earnings from continuing
operations of $0.6 million compared to a loss from continuing operations of
$35.0 million in the prior year third quarter for the above mentioned reasons.
After allowing for the dilutive effect of dividends on our participating shares,
we incurred a net loss from continuing operations available to common
shareholders of $0.06 per ADS in the current year third quarter compared to a
net loss from continuing operations available to common shareholders of $0.63
per ADS in the prior year comparable quarter.

Discontinued Operations, Net of Tax

During the quarter ended December 31, 2001, we adjusted the purchase price on
the sale of DSI by $2.9 million after tax to reflect changes in estimates
related a two year service and supply contract with Pitney Bowes, Inc.  Net loss
from discontinued operations were $0.04 per ADS in the third quarter of fiscal
year 2002.  Net earnings from discontinued operations were $0.05 per ADS in the
third quarter of fiscal year 2001.

                                       22
<PAGE>

Extraordinary Gain, Net of Tax

During the quarter ended December 31, 2001, we adjusted the extraordinary gain
on the early retirement of debt upwards by $1.4 million, after tax, to reflect
the forgiveness of interest due to noteholders. Net earnings from extraordinary
items were $0.02 per ADS in the third quarter of fiscal year 2002.

Nine Months Ended December 31, 2001 Compared to the Nine Months Ended December
31, 2000:

The comparative information included in this section represents results from
continuing operations. In our consolidated statement of operations, the
operating results and the gain from the sale of DSI are presented as
discontinued operations and the gain resulting from the exchange offer of our
convertible subordinated notes is presented as an extraordinary item.

Revenue

Total revenue for the nine months ended December 31, 2001 declined by $165.2
million or 12.2% to $1,183.5 million from $1,348.7 million in the comparable
prior year period. Total revenue in the current year was impacted by a negative
$15.0 million foreign currency movement. Retail equipment sales declined by
$60.5 million or 12.9% primarily due to negative market trends, a weakening of
the global economic conditions, a decline in the number of our U.S. sales
representatives and a negative $5.4 million foreign currency movement. This
revenue decrease was partially offset by an increase in U.S. sales productivity
(i.e. hardware sales divided by the average number of sales representatives) and
additional sales to a large national account. The reduction in sales
representatives is part of our strategic plan to improve sales productivity
while reducing operating costs. Retail service, supplies and rentals revenue
declined by $90.4 million or 11.2% primarily due to the continuing transition
from analog to digital equipment and a negative $8.6 million foreign currency
movement. Wholesale revenue for the nine months ended December 31, 2001 declined
by $14.3 million or 19.6% primarily due to a movement away from lower margin
transactions and a negative $1.0 million foreign currency movement.

Gross Profit

Our total gross profit margin increased to 34.7% for the nine months ended
December 31, 2001 from 32.1% for the comparable prior year period. The increase
in our profit margin in the current year as compared to the prior year was
primarily due to a $22.4 million write-down of analog inventory and a $10.5
write-down of rental equipment in the prior year. Absent this adjustment, our
gross profit margin for the prior year would have been 34.6%.

Retail equipment margins decreased to 24.0% during the nine months ended
December 31, 2001 from 26.8% in the comparable prior year period excluding the
$22.4 million inventory write-down, due to competitive market conditions within
the industry in the current year. Retail service, supplies and rental margins
increased to 42.0% for the nine months ended December 31, 2001 from 40.7% for
the comparable prior year period, excluding a $10.5 million write-down of rental
equipment in the prior year, due to increased productivity. Wholesale margins
increased to 18.7% for the nine months ended December 31, 2001 from 16.5% in the
comparable prior year period primarily due to higher margin transactions in the
current year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") declined by $69.2 million
or 14.9% to $394.1 million for the nine months ended December 31, 2001 from
$463.3 million for the comparable prior year period, while as a percentage of
total revenue, SG&A expenses decreased to 33.3% from 34.4%.  Excluding a charge
of $8.0 million related to the exit of certain facilities in the current year,
SG&A declined to 32.6% of total revenue. The reduction was primarily
attributable to lower selling expenses resulting from reduced sales, a decrease
in our work force and increased productivity.

Amortization of Intangible Assets

Amortization of our intangible assets decreased by $20.8 million to $8.1 million
for the nine months ended December 31, 2001 from $28.9 million for the
comparable prior year period. This difference was primarily due to an $18.8
million write-off of goodwill for our Australian subsidiary in the prior year
second quarter and a $6.9 million write-off of goodwill related to one of our
United States subsidiaries in the prior year fourth quarter.

                                       23
<PAGE>

Restructuring Charges

We recorded a pre-tax restructuring charge of $10.6 during the first nine months
of fiscal year 2002, which included a $4.5 million charge for severance and a
$6.1 million charge for the exit of facilities. As described above, beginning at
the end of the fourth quarter of fiscal year 2001, we proceeded with a series of
changes to our senior management team. Our new management team reviewed the
existing restructuring plan and as a result of changing business conditions in
the U.S. and Europe and revisions to our business strategies, we decided to
modify the fiscal 2001 and fiscal 2002 restructuring plans. Additionally, higher
than anticipated employee attrition reduced cash outlay requirements for
severance. As a result of these actions, we reversed $12.6 million of severance
and facility restructuring reserves for fiscal 2001 in fiscal year 2002.

Other (Income) Expense

Other (income) expense for the nine months ended December 31, 2001 included a
foreign currency gain of $2.8 million, a $0.4 million gain on the sale of our
New Zealand business and a $1.1 million provision relating to the sale of our
Ameritrend business.  Other expense for the comparable prior period included
foreign currency losses of $5.4 million.

Operating Earnings (Loss) from Continuing Operations

For the nine months ended December 31, 2001, operating earnings from continuing
operations increased by $96.7 million to $12.1 million, compared to a loss of
$84.6 million in the comparable prior year period.  Earnings for the nine months
ended December 31, 2001 include an $8.0 million charge for the exit of
facilities and a $2.0 million net credit for the reversal of restructuring
reserves.  Earnings for the comparable prior year nine month period included a
$19.3 million restructuring charge, a $32.9 million write-down for analog
inventory and rental equipment and an $18.8 million write-off of goodwill.

Interest Expense and Interest Income

Interest expense decreased by $29.6 million to $34.8 million for the nine months
ended December 31, 2001 from $64.4 million in the comparable prior year period.
The decrease was the result of reduced outstanding debt, lower interest rates
and reduced bank waiver fees.  Interest income decreased by $1.0 million from
the comparable prior year period due to lower cash balances.

Income Taxes

We recorded an income tax benefit of $6.8 million for the nine months ended
December 31, 2001 compared to a $40.9 million tax benefit for the comparable
prior year period.  The combined effective income tax rate was 32.1% for fiscal
year 2002 as compared to 27.9% for the comparable prior year period. The
increase in the tax rate is primarily due to changes in the mix of earnings and
losses from continuing operations before extraordinary items in certain tax
locales.

Earnings (Loss) from Continuing Operations, before Extraordinary Items

For the nine months ended December 31, 2001, we incurred a net loss from
continuing operations of $14.5 million compared to a net loss from continuing
operations of $105.7 million in the comparable prior year period for the above
mentioned reasons. After allowing for the dilutive effect of dividends on our
participating shares, we incurred a net loss from continuing operations
available to common shareholders of $0.44 per ADS in the current year fiscal
year compared to, a net loss from continuing operations available to common
shareholders of $1.96 per ADS in the comparable prior year period.

Exchange Rates

Fluctuations in the exchange rates between the pound sterling and the United
States dollar affect the dollar equivalent of the pound sterling market price of
our ordinary shares on the London Stock Exchange and, as a result, are likely to
affect the market price of our American depositary shares.

We operate in 27 countries worldwide. Fluctuations in exchange rates between the
United States dollar and the currencies in each of the countries in which we
operate affect:

 .    the results of our international operations reported in United States
     dollars; and
 .    the value of the net assets of our international operations reported in
     United States dollars.

                                       24
<PAGE>

The results of operations are affected by the relative strength of currencies in
the countries where our products are sold. Approximately 43.5% of our revenue
for the three months ended December 31, 2001 was generated outside the United
States. For the three months ended December 31, 2001, approximately 27.4% of our
revenue was generated in Euro countries, 6.8% in the United Kingdom, and 9.3% in
other foreign locations. Approximately 43.9% of our revenue for the nine months
ended December 31, 2001 was generated outside the United States. For the nine
months ended December 31, 2001, approximately 27.3% of our revenue was generated
in Euro countries, 7.1% in the United Kingdom, and 9.5% in other foreign
locations.

During the nine months ended December 31, 2001, both the Euro currency and the
United Kingdom pound weakened against the dollar by approximately 1.7% and 3.4%,
respectively. This change negatively impacted revenue by approximately $15.0
million.

Our results of operations and financial condition have been, and may continue to
be, adversely affected by the fluctuations in foreign currencies and by
translation of the financial statements of our non-United States subsidiaries,
including our European and Latin American subsidiaries, from local currencies to
the dollar. Generally, we do not hedge our exposure to changes in foreign
currency.

Liquidity and Capital Resources

We have a $318.0 million credit facility with a consortium of international
lenders through March 31, 2004. The facility consists of a $100.0 million
revolver, a $188.0 million term loan and $30.0 million of letters of credit
commitments. On December 31, 2001, we repaid $2.0 million of principal under the
term loan. The credit facility requires that we maintain minimum levels of
adjusted consolidated net worth and cumulative consolidated EBITDA, a minimum
ratio of consolidated EBITDA to interest expense and contains limitations on the
amounts of our capital expenditures. Danka was in compliance with these
covenants as of December 31, 2001.

As of December 31, 2001, we owed $206 million under the credit facility. The
available unused commitment as of December 31, 2001 was $76.0 million under the
revolving credit facility. We were incurring interest on our indebtedness under
the credit facility during the three months ended December 31, 2001 at a
weighted average rate of approximately 8.0% per annum. Effective interest rates
under the credit facility are LIBOR, plus 5.5 percent. The interest rate will
increase by 0.5% on June 29, 2002 and by 0.5% quarterly thereafter. On June 30,
2002, we are required to pay our banks a fee equal to 1.5% of the total
commitment under the credit facility and on June 30, 2003 a fee equal to 4.0% of
the total commitment. The term component of the facility requires repayment of
principal in installments of $3.0 million by March 31, 2002, $16.0 million in
fiscal year 2003 ($4 million at the end of each quarter), and $187.0 million in
fiscal year 2004 ($8 million at the end of each of the first three quarters,
with payment due in full on March 31, 2004). In addition, we are required to
make additional repayments of our indebtedness under the credit facility in
amounts equal to 50% of our excess cash flow (as defined in the credit facility)
for each of our fiscal years.

Our indebtedness under the credit facility is secured by substantially all of
our assets in the United States, Canada, the United Kingdom., the Netherlands
and Germany. The credit facility contains negative and affirmative covenants
which restrict, among other things, our ability to incur additional indebtedness
and create liens beyond certain agreed limits, prohibit the payment of
dividends, other than payment-in-kind dividends on our participating shares, and
require us to maintain certain financial ratios as described above.

In June 2001, we issued approximately $47.6 million of zero coupon senior
subordinated notes due April 1, 2004 and approximately $64.5 million of 10%
subordinated notes due April 1, 2008 as consideration pursuant to an exchange
offer for our 6.75% convertible subordinated notes due April 1, 2004. The senior
subordinated notes are guaranteed by Danka Holding Company and Danka Office
Imaging Company, which are both 100% owned U.S. subsidiaries. The senior
subordinated notes and the 10% notes include covenants which restrict our
ability to dispose of assets or merge. The senior subordinated notes also
include covenants which restrict us from incurring additional indebtedness or
creating liens and limit the payment of dividends, other than payment-in-kind
dividends on our participating shares.

In March 1995, we issued $200 million in principal of 6.75% convertible
subordinated notes. Following completion of the exchange offer referred to
above, approximately $16 million of the 6.75% notes remain outstanding. The
outstanding notes are due for repayment in full on April 1, 2002.

                                       25
<PAGE>

The following table sets out Danka's future payments for the following
contractual obligations:

<TABLE>
<CAPTION>
                                                                    Payments due in        Payments due in
-------------------------------------------------------------------------------------------------------------
Contractual Obligations                             Total          Less Than 1 Year       More Than 1 Year
-------------------------------------------------------------------------------------------------------------
<S>                                            <C>               <C>                    <C>
(in 000's)
Credit Facility                                        $206,000                $15,000               $191,000
Notes Payable                                           128,102                 15,988                112,114
Capital Leases                                              742                    253                    489
Other Long-Term Obligations                               7,406                  5,599                  1,807
                                             ----------------------------------------------------------------
Total Contractual Obligations                          $342,250                $36,840               $305,410
                                             ================================================================
</TABLE>

Danka Holding Company ("DHC"), one of our subsidiaries, is party to tax
retention operating leases ("TROL") which expire on March 31, 2004. The lease
provides for DHC to lease certain real property in the United States. The TROL
generally requires DHC to pay property taxes, maintenance, insurance, and
certain other operating costs of the leased properties. DHC has given a residual
guarantee in respect of the fair market value of the properties at the
termination of the TROL. The residual guarantee has not been included in the
above table of our contractual obligations. DHC is obligated to pay the
difference between the maximum amount of the residual guarantee, which is equal
to 87% of the total cost of the properties and the fair market value of the
properties at the termination of the leases. DHC's maximum contingent liability
under the TROL was approximately $24.5 million as of December 31, 2001. DHC has
purchased renewal options over the leased properties at fair market value and
has the right to exercise purchase options for each property at the end of the
lease term. Alternatively, the properties can be sold to third parties. At
December 31, 2001, some properties were being offered for sale. We currently
have a $2.4 million reserve relating to DHC's expected liability under the
residual guarantee. We believe the reserve is adequate to cover any potential
shortfall between the sale price of the properties and DHC's liability under the
residual guarantee. The TROL incorporates the covenants from our credit
facility, including the financial covenants.

On December 17, 1999, we issued 218,000 new 6.50% senior convertible
participating shares for $218.0 million.  The participating shares are entitled
to dividends equal to the greater of 6.50% per annum or ordinary share dividends
on an as converted basis.  Dividends are cumulative and are paid in the form of
additional participating shares for the first five years. The participating
shares are currently convertible into ordinary shares at a conversion price of
$3.11 per ordinary share (equal to $12.44 per American depositary share),
subject to adjustment in certain circumstances to avoid dilution of the
interests of participating shareholders. The participating shares have voting
rights, on an as converted basis, currently corresponding to approximately 24.5%
of the total voting power of our capital stock. As of December 31, 2001, we had
issued an additional 28,639 participating shares in respect of payment-in-kind
dividends.

We are not permitted to pay dividends (other than payment-in-kind dividends on
our participating shares) under our credit facility and we do not anticipate the
payment of a dividend on our ordinary shares in the foreseeable future.

We are an English company and, under English law, we are allowed to pay
dividends to shareholders only if:

     .    we have accumulated, realized profits that have not been previously
          distributed or capitalized, in excess of our accumulated, realized
          losses that have not previously been written off in a reduction or
          reorganization of capital; and
     .    our net assets are not less than the aggregate of our share capital
          and our non-distributable reserves, either before, or as a result of,
          dividends or other distributions.

At this time, we have insufficient profits to pay dividends to shareholders.
Since December 2000, we have satisfied our obligation to make payment-in-kind
dividends on our participating shares by capitalizing part of our share premium
account, which is a reserve required by English company law and which consists
of premiums paid to us on the issuance of our shares.

We have an agreement with General Electric Capital Corporation ("GECC") under
which GECC agrees to provide financing to our customers to purchase equipment
until March 31, 2006.  The agreement specifies minimum levels of customer leases
that we are required to provide to GECC in our fiscal years 2002 through 2006.
We are required to make penalty payments to GECC if we fail to provide these
minimum levels of customer leases.

In addition, the GECC agreement requires us to maintain a specified minimum
consolidated net worth.  If we breach that covenant, GECC can refuse to provide
financing to our new customers and terminate the agreement as to any future
financings.  The net worth covenant is the same as the minimum net worth
covenant contained in our credit facility.

                                       26
<PAGE>

The Internal Revenue Service has completed its audits of our federal income tax
returns for the fiscal years ended March 31, 1995, 1996, 1997 and 1998.  We have
now resolved all outstanding issues with the Internal Revenue Service arising
out of those examinations.  We have agreed to certain adjustments with the
Internal Revenue Service to the tax returns, primarily relating to the timing of
deductions associated with leased equipment financing and costs associated with
our acquisition of Kodak's office imaging division. This result does not have a
material negative impact on our financial position, results of operations or
liquidity due to the availability of losses that we can carry back to the years
affected by the adjustments

Fiscal authorities in the Netherlands are engaged in an audit of our Dutch
operations.  We do not believe that this audit, or any result thereof, will have
a material impact on our financial position, results of operations or liquidity.

Our net cash flow provided by operating activities was $90.2 million, and $76.1
million for the nine months ended December 31 of fiscal year 2002 and 2001,
respectively. Net cash flow provided by (used in) investing activities was
$239.4 million and $(48.7) million for the first nine months of fiscal year 2002
and 2001, respectively. The increase in fiscal year 2001 cash flow from
investing activities was primarily due to the $273.2 million in net cash
proceeds received from the sale of DSI and a $15.5 million reduction in capital
expenditures. Net cash flow provided by (used in) financing activities was
$(355.6) million and $(35.4) million for fiscal year 2002 and 2001,
respectively. The decrease in fiscal year 2002 cash flow from financing
activities was due to repayment of borrowings primarily from the proceeds from
the sale of DSI.

Market Risk Management

Interest Rate Risk:

Our exposure to interest rate risk primarily relates to our variable rate bank
debt.  As outlined above in "Liquidity and Capital Resources," at December 31,
2001 we had an outstanding balance of $206.0 million under our new credit
facility. We incurred interest on our credit facility at a weighted average rate
of 8.0% per annum during the three months ended December 31, 2001.

Based on the outstanding balance under our credit agreement, a change of 100
basis points in the average interest rate, with all other variables remaining
constant, would cause an increase/decrease in our interest expense of
approximately $2.0 million on an annual basis.

Special Note Regarding Forward Looking Statements

Certain statements contained in this Form 10-Q, or otherwise made our officers,
including statements related to our future performance and our outlook for our
businesses and respective markets, projections, statements of management's plans
or objectives, forecasts of market trends and other matters, are forward looking
statements, and contain information relating to the us that is based on the
beliefs of management as well as assumptions, made by, and information currently
available to, management. The words "goal", "anticipate", "expect", "believe"
and similar expressions as they relate to us or our management, are intended to
identify forward- looking statements. No assurance can be given that the results
in any forward-looking statement will be achieved. For the forward looking
statements, we claim the protection of the safe harbor for forward looking
statements provided for in the Private Securities Litigation Act of 1995. Such
statements reflect our current views with respect to future events and are
subject to certain risks, uncertainties and assumptions that could cause actual
results to differ materially from those reflected in the forward looking
statements. Factors that might cause such actual results to differ materially
from those reflected in any forward looking statements include, but are not
limited to (i) any material adverse change in financial markets or our, (ii) any
inability to achieve or maintain cost savings, (iii) increased competition from
other high-volume and digital copier distributors and the discounting of such
copiers by competitors, (iv) any inability by Danka to procure, or any inability
by the us continue to gain access to and successfully distribute, new products,
including digital products and high-volume copiers, or to continue to bring
current products to the marketplace at competitive costs and prices, (v) any
negative impact from the loss of any of our key upper management personnel, (vi)
fluctuations in foreign currencies, (vii) any change in economic conditions in
domestic or international markets where we operate or have material investments
which may affect demand for our services and (viii) other risks including those
risks identified in any of our filings with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these forward-
looking statements, which reflect our analysis only as of the date they are
made. We undertake no obligation and do not intend to update these forward
looking statements to reflect events or circumstances that arise after the date
such statements are made. Furthermore, as a matter of policy, we do not
generally make any specific projections as to future earnings nor do we endorse
any projections regarding future performance, which may be made by others
outside Danka.

                                       27
<PAGE>

PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

We are subject to legal proceedings and claims, which arise in the ordinary
course of business and should not have a material adverse effect upon our
financial position, results of operation or liquidity.

Item 2.   Changes in Securities

Not applicable.

Item 3.   Defaults Upon Senior Securities

Not applicable.

Item 4.   Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5.   Other Information

Not applicable.

Item 6.   Exhibits and Reports on Form 8-K

     (a)  Exhibits.

     10.37   Amended and Restated Employment Agreement dated November 6, 2001
             between Danka and Brian L. Merriman
     10.38   Employment Agreement dated July 26, 2001 between Danka [Office
             Imaging Company] and Todd L. Mavis
     10.39   Employment Agreement dated July 26, 2001 between Danka [Office
             Imaging Company] and Peter Williams
     10.40   Employment Agreement dated July 23, 2001 between Danka [Office
             Imaging Company] and David P. Berg






     (b)   Reports on Form 8-K:

             None

                                       28
<PAGE>

                                   SIGNATURE

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.

                             Danka Business Systems PLC
                             --------------------------
                                       (Registrant)


Date:  February 13, 2001                    /s/ F. Mark Wolfinger
       -----------------    ----------------------------------------------------

                                              F. Mark Wolfinger
                            Executive Vice-President and Chief Financial Officer
                                   (Chief Financial Officer and Principal
                                             Accounting Officer)


                                       29