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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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(Mark One)

|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ---------------------------------------------------------------------------------------



FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003



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



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DANKA BUSINESS SYSTEMS PLC

(Exact name of registrant as specified in its charter)



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|ENGLAND & WALES                                                |  | 98-0052869                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|11201 DANKA CIRCLE NORTH                 |  |     |  | MASTERS HOUSE                              
|---------------------------------------- |  | --- |  | -------------------------------------------
|ST. PETERSBURG, FLORIDA 33716            |  | AND |  | 107 HAMMERSMITH ROAD LONDON W14 0QH ENGLAND
|(Address of principal executive offices)



Registrants
telephone number, including area code:



(727) 576-6003
in the United States

011-44-207-605-0150 in the United Kingdom



NOT APPLICABLE

(Former name or former address, if changed since last report)



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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 ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act).    Yes  x    No ̈



The registrant had 249,921,082 Ordinary Shares outstanding as of August 1, 2003.



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INDEX



|RISK FACTORS                                                                                                                                 |  | 3 
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|                                                                                                                                             | 
|PART IFINANCIAL INFORMATION                                                                                                                 |  | 9 
|                                                                                                                                             | 
|Item 1.    Consolidated Financial Statements                                                                                                 |  | 9 
|                                                                                                                                             | 
|Consolidated Statements of Operations for the three months ended June 30, 2003 and 2002                                                      |  | 9 
|                                                                                                                                             | 
|Condensed Consolidated Balance Sheets as of June 30, 2003 and March 31, 2003                                                                 |  | 10
|                                                                                                                                             | 
|Consolidated Statements of Cash Flows for the three months ended June 30, 2003 and 2002                                                      |  | 11
|                                                                                                                                             | 
|Consolidated Statements of Shareholders Equity and Accumulated Other Comprehensive Losses for the three months ended June 30, 2003 and 2002 |  | 12
|                                                                                                                                             | 
|Notes to Consolidated Financial Statements                                                                                                   |  | 13
|                                                                                                                                             | 
|Item 2.    Managements Discussion and Analysis of Financial Condition and Results of Operations                                             |  | 32
|                                                                                                                                             | 
|Critical Accounting Policies and Estimates                                                                                                   |  | 32
|                                                                                                                                             | 
|Three Months Ended June 30, 2003 compared to the Three Months Ended June 30, 2002                                                            |  | 36
|                                                                                                                                             | 
|Exchange Rates                                                                                                                               |  | 38
|                                                                                                                                             | 
|Liquidity and Capital Resources                                                                                                              |  | 39
|                                                                                                                                             | 
|Other Financing Arrangements                                                                                                                 |  | 40
|                                                                                                                                             | 
|Market Risk Management                                                                                                                       |  | 41
|                                                                                                                                             | 
|New Accounting Pronouncements                                                                                                                |  | 42
|                                                                                                                                             | 
|Item 3. Quantitative and Qualitative Analysis About Market Risk                                                                              |  | 42
|                                                                                                                                             | 
|Item 4. Controls and Procedures                                                                                                              |  | 43
|                                                                                                                                             | 
|PART IIOTHER INFORMATION                                                                                                                    |  | 44
|                                                                                                                                             | 
|Item 1.    Legal Proceedings                                                                                                                 |  | 44
|                                                                                                                                             | 
|Item 2.    Changes in Securities                                                                                                             |  | 44
|                                                                                                                                             | 
|Item 3.    Defaults Upon Senior Securities                                                                                                   |  | 44
|                                                                                                                                             | 
|Item 4.    Submission of Matters to a Vote of Security Holders                                                                               |  | 44
|                                                                                                                                             | 
|Item 5.    Other Information                                                                                                                 |  | 44
|                                                                                                                                             | 
|Item 6.    Exhibits and Reports on Form 8-K                                                                                                  |  | 44
|                                                                                                                                             | 
|SIGNATURE                                                                                                                                    |  | 45



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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS



Certain statements contained herein, or otherwise made by our officers, including statements related to our future performance and our
outlook for our businesses and respective markets, projections, statements of our plans or objectives, forecasts of market trends and other matters, are forward-looking statements, and contain information relating to us that is based on our beliefs
as well as assumptions, made by, and information currently available to us. The words goal, anticipate, expect, believe and similar expressions as they relate to us are intended to identify
forward-looking statements, although not all forward looking statements contain such identifying words. 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 Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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, the following: (i) any inability to successfully implement our strategy; (ii) any inability to comply with the
financial or other covenants in our debt instruments; (iii) any material adverse change in financial markets, the economy or in our financial position; (iv) increased competition in our industry and the discounting of products by our competitors;
(v) new competition as the result of evolving technology; (vi) any inability by us to procure, or any inability by us to continue to gain access to and successfully distribute, new products, including digital products, color products, multi-function
products and high-volume copiers, or to continue to bring current products to the marketplace at competitive costs and prices; (vii) any inability to arrange financing for our customers purchases of equipment from us; (viii) any inability to
successfully enhance and unify our management information systems; (ix) any inability to record and process key data due to ineffective implementation of business processes and policies; (x) any negative impact from the loss of a key vendor or
customer; (xi) any negative impact from the loss of any of our senior or key management personnel; (xii) any change in economic conditions in domestic or international markets where we operate or have material investments which may affect demand for
our products or services; (xiii) any negative impact from the international scope of our operations; (xiv) fluctuations in foreign currencies; (xv) any inability to achieve or maintain cost savings; (xvi) any incurrence of tax liabilities beyond our
current expectations, which could adversely affect our liquidity; and (xvii) any delayed or lost sales and other impacts related to the commercial and economic disruption caused by past or future terrorist attacks, the related war on terrorism, the
fear of additional terrorist attacks or any outbreak of the Severe Acute Respiratory Syndrome (SARS); and (xviii) 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. Except as required by applicable law, we undertake no obligation, and do not intend, to update these forward-looking
statements to reflect events or circumstances that arise after the date they are made.



RISK FACTORS



Business StrategyWe
believe that in order to stay competitive and generate positive earnings and cash flow, we must successfully implement the strategies discussed elsewhere in this quarterly report.



In connection with the implementation of our strategies, we have launched, and expect to continue to launch, several initiatives. However,
the success of any these initiatives may not be achieved if:



| |  |  | they are not accepted by our customers;
| | - |  | ---------------------------------------



| |  |  | they do not generate additional revenue and cash flow, reduce operating costs or reduce our working capital investments; or
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | we are unable to provide the software, hardware, solutions or services necessary to successfully implement these initiatives.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



Failure to implement one or more of our strategies and related initiatives could materially
and adversely affect our business, financial condition or results of operations.



ProfitabilityWe generated a net loss from continuing operations for the quarter ended June 30, 2003 of $0.8 million compared to net earnings of $5.8 million in the year-ago quarter and have incurred losses in prior years.



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We believe that our results for the first quarter of fiscal year 2004 and fiscal years 2003 and 2002 were impacted in
large part by:



| |  |  | the transition in our industry from analog to digital products and the resulting lower retail equipment placements and reduced machines in field or MIF;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increased competition as a result of technology convergence, such as the advent of multi-function peripherals or MFPs and, an increase in the migration of copy volume from
traditional stand-alone copiers to network printers resulting in lower service and supplies revenue, and manufacturers selling on a direct basis;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our decision to reduce our sales force and the number of geographic locations and markets that we operate in;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | reduced new retail equipment and related sales revenue as a result of our focus on higher margin transactions;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | a weakening of global economic conditions which resulted in reduced or delayed capital spending by customers;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | the delay in the implementation of and significant investment in our Vision 21 program and the ancillary costs related to the program.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the costs associated with the disposal of certain under-performing business units; and
| | - |  | --------------------------------------------------------------------------------------



| |  |  | investments in our growth initiatives, such as Professional Services, Danka @ the Desktop and TechSource.
| | - |  | ---------------------------------------------------------------------------------------------------------



If we incur losses in the future, our growth potential and our ability to execute our business strategy may be limited. In addition, we may
not generate sufficient cash flow from operations to pay our indebted principal or interest when due or fund our required capital expenditures.



Economic DownturnThe profitability of our business is susceptible to downturns in the global economy. Overall demand for our products and services and their
profit margins may decline as a direct result of an economic recession, inflation, interest rates or governmental fiscal policy. As a result, our customers may reduce or delay capital expenditures for our products and services.



CompetitionThe industry in which we operate is highly competitive. We have
competitors in all markets in which we operate, and our competitors include a number of companies worldwide with significant technological, distribution and financial resources. Competition in our industry is based largely upon technology,
performance, pricing, quality, reliability, distribution, customer service and support and lease and rental financing. In addition, our equipment suppliers continue to establish themselves as direct competitors in many of the areas in which we do
business. Besides competition from within the office imaging industry, we are also experiencing competition from other sources as a result of evolving technology, including the development of alternative means of document processing, retention,
storage and printing. Our retail operations are in direct competition with local and regional equipment suppliers and dealers, manufacturers, mass merchandisers and wholesale clubs. We have suffered, and may continue to suffer, a reduction of our
market share because of the high level of competition in our industry. The intense competition in our industry may result in pressure on the prices and margins that we can obtain for our products and may affect our ability to retain customers, both
of which could materially and adversely affect our business, financial condition or results of operations.



Technological ChangesThe industry in which we operate is characterized by rapidly changing technology. Technological changes have contributed to declines in our revenues in the past and may continue to do
so in the future. For example, the office imaging industry continues to change from analog to digital copiers, MFPs and printers. Most of our digital products replace or compete with analog products. Digital copiers and MFPs are more efficient than
analog copiers, meaning that our customers may require fewer of them to provide the same level of output. Digital copiers and MFPs are also increasingly more reliable than analog copiers and require less maintenance. This has contributed, in part,
to a decline in our service contract revenue, which has traditionally formed a significant portion of our revenues. Moreover, color printing and copying represents an important and growing part of our industry. We must improve our execution of color
sales and meet the demand for color products if we are to maintain and improve our operating performance and our ability to compete.



Another industry change that has been fueled by technological changes, such as the advent of e-mail and the Internet, is the migration of copy volume from traditional
stand-alone copiers to network printers as end users print distributed documents on printers linked directly to their personal computers as opposed to receiving copies of such documents that were copied on a traditional stand-alone copier. We will
need to provide comprehensive solutions to our customers, such as offering digital copiers, MFPs and printers that are directly linked to their networks, in order to remain competitive. Finally, the speed of technological changes has caused us in
the past, and may cause us in the future, to accelerate the write down of our inventory, including, but not limited to, showroom, rental and other equipment and related supplies and parts, as a result of obsolescence. In order to remain competitive,
we must quickly and effectively respond to changing technology. The development of technologies in our industry, including digital and color products and the further development of MFPs, may impair our business, financial condition, results of
operations or competitive position if we are not able to procure or gain access to products, bring them to the marketplace, maintain connectivity or make the investments necessary to maintain a technologically competitive workforce.



Third Party Financing Arrangements A large majority of our retail equipment and
related sales are financed by third party finance or leasing companies. With respect to our U.S. customers, we have an agreement with General Electric Capital Corporation, or GECC, under which GECC has agreed to provide financing to our U.S.
customers to purchase equipment from us. Although we have other financing arrangements in place, GECC finances a significant part of our U.S. business. With respect to our customers outside the



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United States, we have country by country arrangements with various third party finance and leasing companies. If we were
to breach the covenants or other restrictions in our agreements with one or more of our financing sources, including GECC, then such source might refuse to provide financing to our customers. For example, our agreement with GECC requires us to
maintain a consolidated net worth at or above specified levels during specified time periods, and a failure by us to maintain such consolidated net worth as provided under the GECC agreement may result in a termination event under the GECC
agreement. If one or more of our financing sources were to fail to provide financing to our customers, those customers might be unable to purchase equipment from us if we were unable to provide alternative financing arrangements on similar terms. In
addition, if we were unable to provide financing, we would lose sales, which could negatively affect our operating results. See Managements Discussion and Analysis of Financial Condition and Results of OperationsOther Financing
ArrangementsGECC Arrangement.



Information
SystemsCurrently, our management information systems run on numerous disparate legacy IT systems that are outdated and incompatible. The operation and coordination of our management information systems and billing systems is thus
labor-intensive and expensive. We must manually collect, compile and consolidate certain information due to systems limitations. These manual procedures are more difficult and costly than automated processes and are more prone to error. As a result,
our ability to obtain, manage and access important information, such as customer and contract data, in an effective and timely manner is limited. Failure to solve our management information and billing systems problems could materially and adversely
affect our business, financial position or results of operations.



We currently
use three separate billing systems to bill our customers in the United States, which is comprised of two legacy systems and the Oracle ERP System. We have experienced problems with these billing systems, including delays in updating and processing
customer information, which has often resulted in the inaccurate billing of our customers and the untimely crediting of their accounts. We must also obtain an accurate measure of usage on each of our customers machines in order to properly
bill them for usage. We have been unable to establish a uniform, non-manual process for obtaining this information and must estimate usage in many cases where we cannot obtain a timely and accurate read of the usage on each of our customers
machines. This requires us to reconcile the actual usage at a later date and often causes confusion for our customers which can, in turn, delay payment for our services. Accordingly, we have experienced delays in collecting certain of our accounts
receivable on a timely basis, resulting in higher than industry-average days outstanding for our accounts receivable. Although we are now in the process of implementing the Oracle ERP System that will replace the two legacy systems, we cannot
guarantee that the new billing system will be successfully implemented or, even if implemented, will operate to effectively address the existing problems with our billing operations.



We are in the process of implementing the Oracle ERP System, which we expect to cost approximately $50 million, excluding ancillary
expenses, to enhance and unify our U.S. management information systems. This project has proved more expensive and time-consuming than we originally anticipated, in part because of the lack of prior investment in our IT infrastructure, systems
performance issues and software deficiencies. It is possible that the costs of completing the project may still exceed our current expectations. Currently, we have converted approximately 35% of our U.S. business to the Oracle ERP System. We began
the conversion of an additional 15% of our U.S. business on or about August 1, 2003 and anticipate that the U.S. project will be completed during the third quarter of fiscal year 2004, although we cannot give any assurance that this will be the
case. We believe that the primary risks in completing the remainder of the U.S. project may be issues encountered in connection with the rapid data conversion and functionality required from our current systems to the Oracle ERP System. If there is
any further delay in the completion of the project, we will incur additional costs and we will be delayed in achieving expected cost savings. Additionally, if we are not able to successfully implement our Oracle ERP System, then we will continue to
incur substantial costs using manual procedures to process information, in addition to the write-off of capitalized costs associated with the project.



For the same reasons as in the United States, we are evaluating what information system investments we should make for the countries within our European and International
operations. We are evaluating the costs to implement new systems and are analyzing the systems requirements of our businesses in those countries. Any implementation of new or improved information systems in such countries may take considerable time
and could require a substantial investment.



Business Processes and
PoliciesOur rapid expansion through acquisitions, past financial difficulties and a historical lack of focus on and investment in our information systems have impeded our ability to implement internal controls and business processes
consistently and enforce policies effectively. We have identified instances where our business processes and policies have not been properly implemented or followed in the past, which have resulted in, among other things, poor billing and credit
practices, excessive and undisciplined issuances of customer credits, inaccurate customer data, inconsistent customer contract terms and conditions, inadequate document retention and lack of centralized purchasing. If these matters worsen, they
could adversely affect our ability to record, process, summarize and report key data consistent with the assertions of management. If we determine that our internal controls require additional improvements, or if the changes we are implementing are
inadequate, we will need to commit substantial additional resources, including the time of our management team, to implement new systems and controls, which could materially and adversely affect our business, financial condition or results of
operations.



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Vendor RelationshipsWe primarily have relationships with Canon, Ricoh, Toshiba, Heidelberg/Nexpress and
Konica. These companies manufacture equipment, parts, supplies and software for resale by us in the markets in which we operate. We also rely on our equipment suppliers for related parts and supplies and for financial support in certain competitive
transactions and markets which may include vendor rebates and market development functions. An inability to obtain equipment, parts, supplies or software in the volumes required and at competitive prices from our major vendors, or the loss of any
major vendor, or the lack of vendor support may seriously harm our business because we may not be able to supply those vendors products to our customers on a timely basis in sufficient quantities or at all. In addition, we rely on our vendors
to effectively respond to changing technology and manufacture new products to meet the demands of evolving customer needs. There is no guarantee that these vendors or any of our other vendors will effectively respond to changing technology, continue
to sell their products and services to us, or that they will do so at competitive prices. Other factors, including reduced access to credit by our vendors resulting from economic conditions, may impair our vendors ability to effectively
respond to changing technology or provide products in a timely manner or at competitive prices.



Senior Management and Key PersonnelOur success depends on the efforts and ability of our senior management and key personnel. These executive officers have many years of experience in the office
technology and related industries. If members of our senior management team or other key personnel were to resign, our business could suffer because of the loss of their expertise and knowledge of Danka and the loss of their relationships with our
major customers and suppliers. In addition, it may be difficult for us to find suitable replacements.



International Scope of OperationsDanka Business Systems PLC is incorporated under the laws of England and Wales, and we conduct a significant portion of our business outside of the United States.
Approximately 50.7% of our revenue was generated outside the United States during the first quarter of fiscal year 2004. We market office imaging equipment, document solutions and related services and supplies directly to customers in 25 countries.
The international scope of our operations may lead to volatile financial results and difficulties in managing our operations because of, but not limited to, the following:



| |  |  | difficulties and costs of staffing, social responsibility and managing international operations;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | currency restrictions and exchange rate fluctuations;
| | - |  | -----------------------------------------------------



| |  |  | unexpected changes in regulatory requirements;
| | - |  | ----------------------------------------------



| |  |  | potentially adverse tax and tariff consequences;
| | - |  | ------------------------------------------------



| |  |  | the burden of complying with multiple and potentially conflicting laws;
| | - |  | -----------------------------------------------------------------------



| |  |  | the impact of business cycles, including potentially longer payment cycles, in any particular region;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | the geographic, time zone, language and cultural differences between personnel in different areas of the world;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | greater difficulty in collecting accounts receivables in and moving cash out of certain geographic regions;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | the need for a significant amount of available cash from operations to fund our business in a number of geographic and economically diverse locations; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | political, social and economic instability in any particular region, including Central America and South America.
| | - |  | -----------------------------------------------------------------------------------------------------------------





With respect to
our operations in South American countries that are experiencing difficulties as described above, we continue to evaluate the viability and future prospects of these businesses. Further, should we decide to downsize or exit any of these businesses,
we could incur costs in respect of severance and closure of facilities, and we may also be required to recognize cumulative translation losses that would reduce our earnings.



Any of these factors could materially and adversely affect our business, financial condition or results of operations.



Currency FluctuationsAs a multinational company, changes in currency exchange
rates affect our revenues, cost of sales and operating expenses. In addition, fluctuations in exchange rates between the U.S. dollar and the currencies in each of the countries in which we operate affect the results of our operations and the value
of the net assets of our non-U.S. operations when reported in U.S. dollars in our U.S. financial statements. These fluctuations may negatively impact our results of operations or financial condition or, in some circumstances, may positively impact
our results of operations disproportionately to underlying levels of actual growth or improvement in our businesses.



Approximately 50.7% of our revenues were generated outside the United States during the first quarter of fiscal year 2004, with the majority of these revenues denominated
in either the Euro or United Kingdom pound. During the first quarter of fiscal year 2004, the Euro strengthened approximately 23.9% against the U.S. dollar and the United Kingdom pound strengthened approximately 10.9% against the U.S. dollar with
significant positive effects on our revenue and income. There was also a strengthening of other currencies, including the Canadian dollar.



Further, our intercompany loans are subject to fluctuations in exchanges rates between the U.S. dollar and the currencies in each of the countries in which we operate,
primarily the euro and the United Kingdom pound. Based on the outstanding balance of our intercompany loans at June 30, 2003, a change of 1% in the exchange rate for the euro and United Kingdom pound, would cause an increase/decrease in our foreign
exchange gain of approximately $0.1 million.



Moreover, we pay for some assets
in euro countries in U.S. dollars, but we generally invoice our customers in such countries in euros. If the euro weakens against the U.S. dollar, our operating margins and cash flow may be negatively impacted when we receive payment



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in euros but we pay our suppliers in U.S. dollars.



We generally do not hedge our exposure to changes in foreign currency.



Tax PaymentsWe are either currently under audit or may be audited in the key jurisdictions in which we operate. While we believe we have adequately reserved
for such liabilities, should revenue agencies require payments in excess of those we currently expect to pay, our liquidity could be adversely affected based upon the size and timing of such payments.



IndebtednessWe have a significant amount of indebtedness. At June 30, 2003, we
had consolidated bank and long-term indebtedness, including current maturities of long-term debt, of approximately $224.9 million which included $47.6 million in principal amount of zero coupon senior subordinated notes due April 1, 2004, or the
zero coupon notes, and $64.5 million in principal amount of 10% subordinated notes due April 1, 2008, or the subordinated notes.



On July 1, 2003, we repaid our then-existing credit facility with the net proceeds from the offering of $175 million aggregate principal amount of senior notes that were
sold at a price of 97.6% of the aggregate principal amount. The senior notes have a fixed annual interest rate of 11.0%, which will be paid every six months on June 15 and December 15, commencing December 15, 2003. The senior notes will mature on
June 15, 2010. On July 18, 2003, we issued a notice of redemption to all of the holders of our zero coupon notes specifying a redemption price of par value of the zero coupon notes and a redemption date of August 18, 2003. In connection with the
redemption we have placed $47.6 million in escrow.



Concurrently with the
issuance of the senior notes, we entered into a three year credit facility with Fleet Capital Corporation to provide a $50.0 million, senior secured revolver, which includes a $30.0 million sublimit for standby and documentary letters of credit.
Subject to borrowing base and availability reserve criteria, the total amount of indebtedness that we will be able to incur under the new credit facility will be $50.0 million. Borrowings under the new credit facility will be subject to a borrowing
base calculation. In addition, under the terms of the new credit facility, extensions of credit to the borrowers will be further limited to the lesser of the commitment and the borrowing base, in each case subject to an availability reserve equal to
$20.0 million. Accordingly, unless the lender otherwise agrees, at no time can credit available under the new credit facility exceed $30.0 million.



Our high level of indebtedness could have important consequences, including the following:



| |  |  | use of a portion of our cash flow to pay interest on our indebtedness will reduce the availability of our cash flow to fund working capital, capital expenditures, initiatives and
other business activities, including keeping pace with the technological, competitive and other changes currently affecting our industry;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increase our vulnerability to general adverse economic and industry conditions;
| | - |  | -------------------------------------------------------------------------------



| |  |  | limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | limit our ability in making strategic acquisitions or exploiting business opportunities;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | place us at a competitive disadvantage compared to our competitors that have less indebtedness; and
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | limit our operational flexibility, including our ability to borrow additional funds or dispose of assets.
| | - |  | ---------------------------------------------------------------------------------------------------------



Senior Notes and Other CovenantsThe indenture governing our senior notes and the new credit facility contain, covenants that,
among other things, limit our ability to: incur additional indebtedness or, in the case of our restricted subsidiaries, issue preferred stock; create liens; pay dividends or make other restricted payments; make certain investments; sell or make
certain dispositions of assets or engage in sale and leaseback transactions; engage in transactions with affiliates; place restrictions on the ability of our restricted subsidiaries to pay dividends, or make other payments, to us; engage in certain
business activities; and engage in mergers or consolidations. In addition, the indenture governing the senior notes will require us to use a portion of our excess cash flow to repay other senior indebtedness or offer to repurchase the senior notes.



These covenants could materially and adversely affect our ability to finance
our future operations or capital needs and to engage in other business activities that may be in our best interest. Furthermore, they may restrict our ability to expand or to pursue our business strategies. Our ability to comply with these covenants
may be affected by events beyond our control, such as prevailing economic, industry or market conditions and changes in regulations, and if such events occur, we cannot be sure that we will be able to comply. A breach of these covenants could result
in a default under the indenture governing the senior notes and/or the new credit facility. If there were an event of default under the indenture for the senior notes and/or the new credit facility, holders of such defaulted debt could cause all
amounts borrowed under these instruments to be due and payable. Additionally, if we fail to repay the debt under the new credit facility or the subordinated notes when they become due, the lenders under the new credit facility or the holders of the
subordinated notes could cause all amounts borrowed under those instruments to be due and payable and the lenders under the new credit facility could proceed against certain of our assets which we have pledged to them as security. We cannot make any
assurances that our assets or cash flow will be sufficient to repay borrowings under the outstanding debt instruments in the event of a default thereunder.



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Disclosure Controls and Procedures and Internal ControlsWe maintain disclosure controls and procedures that
are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and
Exchange Commissions rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required
disclosure. We also maintain internal controls that are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized; (2) our assets are safeguarded against unauthorized or improper use; and (3) our
transactions are properly recorded and reported, in order to permit the preparation of our financial statements in conformity with generally accepted accounting principles.



A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the
control system will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Further, because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.



Share
PriceThe market price of our ordinary shares and American depositary shares could be subject to significant fluctuations as a result of many factors. In addition, global stock markets have from time to time experienced significant price
and volume fluctuations. These fluctuations may lead to a drop in the market price of our ordinary shares and American depositary shares. Factors which may add to the volatility of the price of our ordinary shares and American depositary shares
include many of the factors set out above, and may also include changes in liquidity in the market for our ordinary shares and American depositary shares, sales of our ordinary shares and American depositary shares, investor sentiment towards the
business sector in which we operate and conditions in the capital markets generally. Many of these factors are beyond our control. These factors may decrease the market price of our ordinary shares and American depositary shares, regardless of our
operating performance.



Dividends on Ordinary SharesWe have not
paid any cash or other dividends on our ordinary shares since 1998 and we do not expect to do so for the foreseeable future. We are an English company and, under English law, we are allowed to pay dividends to shareholders only if, as determined by
reference to our financial statements prepared in accordance with UK GAAP:



| |  |  | 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 the dividend.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



As of the date of filing of this quarterly report we have insufficient, accumulated realized
profits to pay dividends on our ordinary shares. In addition, our new credit facility prohibits us from paying dividends on our ordinary shares without our lenders consent, and the indenture governing the senior notes restricts our ability to
pay such dividends. We may only pay dividends on our ordinary shares if we have paid all dividends due on our 6.50% senior convertible participating shares.



ADDITIONAL INFORMATION AVAILABLE ON COMPANY WEB-SITE



Our most recent annual Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports may be viewed or downloaded electronically
or as paper copies from our website: http://www.danka.com. Our recent press releases are also available to be viewed or downloaded electronically at http://www.danka.com. We will also provide electronic or paper copies of our SEC filings free
of charge on request. Any information on or linked from our website is not incorporated by reference into this quarterly report.



8



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##### Table of Contents

PART IFINANCIAL INFORMATION



Item 1.    Consolidated Financial Statements



Danka Business Systems PLC



Consolidated Statements of Operations for the three months ended June 30, 2003 and 2002

(In thousands, except per American
Depositary Share (ADS) amounts)

(Unaudited)



|                                                                  |  | For the Three Months Ended |        
|----------------------------------------------------------------- |  | -------------------------- | -------
|                                                                  |  | June 30,2003               |        
|Revenue:                                                          |  |                            |        
|Retail equipment and related sales                                |  | $                          | 112,777
|Retail service                                                    |  |                            | 165,923
|Retail supplies and rentals                                       |  |                            | 31,840 
|Wholesale                                                         |  |                            | 23,244 
|                                                                  |  |                            |        
|Total revenue                                                     |  |                            | 333,784
|                                                                  |  |                            |        
|Costs and operating expenses:                                     |  |                            |        
|Cost of retail equipment sales                                    |  |                            | 78,208 
|Retail service costs                                              |  |                            | 96,455 
|Retail supplies and rental costs                                  |  |                            | 18,010 
|Wholesale costs of revenue                                        |  |                            | 18,593 
|Selling, general and administrative expenses                      |  |                            | 118,475
|Restructuring charges (credits)                                   |  |                            | (594   
|Other (income) expense                                            |  |                            | (362   
|                                                                  |  |                            |        
|Total costs and operating expenses                                |  |                            | 328,785
|                                                                  |  |                            |        
|Operating earnings                                                |  |                            | 4,999  
|Interest expense                                                  |  |                            | (9,753 
|Interest income                                                   |  |                            | 232    
|                                                                  |  |                            |        
|Earnings (loss) before income taxes                               |  |                            | (4,522 
|Provision (benefit) for income taxes                              |  |                            | (3,726 
|                                                                  |  |                            |        
|Net earnings (loss)                                               |  | $                          | (796   
|                                                                  |  |                            |        
|Calculation of (loss) earnings per ADS                            |  |                            |        
|Earnings (loss)                                                   |  | $                          | (796   
|Dividends and accretion on participating shares                   |  |                            | (4,665 
|                                                                  |  |                            |        
|Income (loss) available to common shareholders                    |  | $                          | (5,461 
|                                                                  |  |                            |        
|Basic (loss) earnings available to common shareholders per ADS:   |  |                            |        
|Net earnings (loss) per ADS                                       |  | $                          | (0.09  
|                                                                  |  |                            |        
|Weighted average ADSs                                             |  |                            | 62,401 
|                                                                  |  |                           
|Diluted (loss) earnings available to common shareholders per ADS: |  |                            |        
|Net earnings (loss) per ADS                                       |  | $                          | (0.09  
|                                                                  |  |                            |        
|Weighted average ADSs                                             |  |                            | 62,401 



See accompanying notes to the
consolidated financial statements



9



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##### Table of Contents

Danka Business Systems PLC



Condensed Consolidated Balance Sheets as of June 30, 2003 and March 31, 2003

(In Thousands)

(Unaudited)



|                                                                 |  | June 30,2003 |          |   | March 31,2003 |  
|---------------------------------------------------------------- |  | ------------ | -------- | - | ------------- | -
|Assets                                                           |  |              |          |   |               |  
|Current assets:                                                  |  |              |          |   |               |  
|Cash and cash equivalents                                        |  | $            | 60,322   |   |               | $
|Accounts receivable, net                                         |  |              | 253,131  |   |               |  
|Inventories                                                      |  |              | 114,425  |   |               |  
|Prepaid expenses, deferred income taxes and other current assets |  |              | 45,450   |   |               |  
|                                                                 |  |              |          |   |               |  
|Total current assets                                             |  |              | 473,328  |   |               |  
|                                                                 |  |             
|Equipment on operating leases, net                               |  |              | 36,349   |   |               |  
|Property and equipment, net                                      |  |              | 73,302   |   |               |  
|Goodwill, net                                                    |  |              | 266,308  |   |               |  
|Noncompete agreements, net                                       |  |              | 758      |   |               |  
|Deferred income taxes                                            |  |              | 79,095   |   |               |  
|Other assets                                                     |  |              | 36,709   |   |               |  
|                                                                 |  |              |          |   |               |  
|Total assets                                                     |  | $            | 965,849  |   |               | $
|                                                                 |  |              |          |   |               |  
|Liabilities and shareholders equity                             |  |              |          |   |               |  
|Current liabilities:                                             |  |              |          |   |               |  
|Current maturities of long-term debt and notes payable           |  | $            | 82,803   |   |               | $
|Accounts payable                                                 |  |              | 122,700  |   |               |  
|Accrued expenses and other current liabilities                   |  |              | 98,131   |   |               |  
|Taxes payable                                                    |  |              | 111,555  |   |               |  
|Deferred revenue                                                 |  |              | 41,894   |   |               |  
|                                                                 |  |              |          |   |               |  
|Total current liabilities                                        |  |              | 457,083  |   |               |  
|                                                                 |  |             
|Long-term debt and notes payable, less current maturities        |  |              | 142,114  |   |               |  
|Deferred income taxes and other long-term liabilities            |  |              | 30,996   |   |               |  
|                                                                 |  |              |          |   |               |  
|Total liabilities                                                |  |              | 630,193  |   |               |  
|                                                                 |  |              |          |   |               |  
|6.5% convertible participating shares                            |  |              | 263,010  |   |               |  
|                                                                 |  |              |          |   |               |  
|Shareholders equity:                                            |  |              |          |   |               |  
|Ordinary shares, 1.25 pence stated value                         |  |              | 5,175    |   |               |  
|Additional paid-in capital                                       |  |              | 327,306  |   |               |  
|Accumulated deficit                                              |  |              | (195,425 | ) |               |  
|Accumulated other comprehensive loss                             |  |              | (64,410  | ) |               |  
|                                                                 |  |              |          |   |               |  
|Total shareholders equity                                       |  |              | 72,646   |   |               |  
|                                                                 |  |              |          |   |               |  
|Total liabilities & shareholders equity                         |  | $            | 965,849  |   |               | $
|                                                                 |  |              |          |   |               |  



See accompanying notes to the
consolidated financial statements



10



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##### Table of Contents

Danka Business Systems PLC



Consolidated Statements of Cash Flows for the three months ended June 30, 2003 and 2002

(In Thousands)

(Unaudited)



|                                                                         |  | June 30,2003 |         |   | June 30,2002 |  
|------------------------------------------------------------------------ |  | ------------ | ------- | - | ------------ | -
|Operating activities:                                                    |  |              |         |   |              |  
|Net earnings (loss)                                                      |  | $            | (796    | ) |              | $
|Adjustments to reconcile net earnings (loss) to net cash provided:       |  |              |         |   |              |  
|Depreciation and amortization                                            |  |              | 12,037  |   |              |  
|Deferred income taxes                                                    |  |              | (528    | ) |              |  
|Amortization of debt issuance costs                                      |  |              | 4,117   |   |              |  
|Loss on sale of property and equipment and equipment on operating leases |  |              | 2,028   |   |              |  
|Proceeds from sale of equipment on operating leases                      |  |              | 662     |   |              |  
|Restructuring and other special charges (credits)                        |  |              | (594    | ) |              |  
|Changes in net assets and liabilities:                                   |  |              |         |   |              |  
|Accounts receivable                                                      |  |              | 4,198   |   |              |  
|Inventories                                                              |  |              | (2,954  | ) |              |  
|Prepaid expenses and other current assets                                |  |              | (939    | ) |              |  
|Other non-current assets                                                 |  |              | 2,381   |   |              |  
|Accounts payable                                                         |  |              | (17,507 | ) |              |  
|Accrued expenses and other current liabilities                           |  |              | (3,639  | ) |              |  
|Deferred revenue                                                         |  |              | 1,265   |   |              |  
|Other long-term liabilities                                              |  |              | 1,124   |   |              |  
|                                                                         |  |              |         |   |              |  
|Net cash provided by operating activities                                |  |              | 855     |   |              |  
|                                                                         |  |              |         |   |              |  
|Investing activities:                                                    |  |              |         |   |              |  
|Capital expenditures                                                     |  |              | (14,810 | ) |              |  
|Proceeds from the sale of property and equipment                         |  |              | 261     |   |              |  
|                                                                         |  |              |         |   |              |  
|Net cash used in investing activities                                    |  |              | (14,549 | ) |              |  
|                                                                         |  |              |         |   |              |  
|Financing activities:                                                    |  |              |         |   |              |  
|Net payments under line of credit agreements                             |  |              | (6,687  | ) |              |  
|Principal payments of debt                                               |  |              | (1,489  | ) |              |  
|Payment of debt issue costs                                              |  |              | (2,749  | ) |              |  
|                                                                         |  |              |         |   |              |  
|Net cash used in financing activities                                    |  |              | (10,925 | ) |              |  
|                                                                         |  |              |         |   |              |  
|Effect of exchange rates                                                 |  |              | 3,448   |   |              |  
|                                                                         |  |              |         |   |              |  
|Net increase (decrease) in cash and cash equivalents                     |  |              | (21,171 | ) |              |  
|Cash and cash equivalents, beginning of period                           |  |              | 81,493  |   |              |  
|                                                                         |  |              |         |   |              |  
|Cash and cash equivalents, end of period                                 |  | $            | 60,322  |   |              | $
|                                                                         |  |              |         |   |              |  



See accompanying notes to the
consolidated financial statements



11



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##### Table of Contents

Danka Business Systems PLC



Consolidated Statements of Shareholders Equity and Accumulated Other Comprehensive Losses for the three months ended June 30, 2003 and 2002

(In Thousands)

(Unaudited)



|                                                |  | Number ofOrdinaryShares(4 OrdinarySharesEqual1 ADS) |  | OrdinaryShares |       | AdditionalPaid-InCapital |   | AccumulatedDeficit |  |   | AccumulatedOtherCompre-hensive(Loss)/Income |   |  | Total |         
|----------------------------------------------- |  | --------------------------------------------------- |  | -------------- | ----- | ------------------------ | - | ------------------ |  | - | ------------------------------------------- | - |  | ----- | --------
|Balances at March 31, 2003                      |  | 249,532                                             |  | $              | 5,167 |                          | $ | 327,173            |  | $ | (189,995                                    | ) |  | $     | (76,636 
|Net loss                                        |  |                                                    |  |                |      |                          |   |                   |  |   | (796                                        | ) |  |       |        
|Currency translation adjustment                 |  |                                                    |  |                |      |                          |   |                   |  |   |                                            |   |  |       | 12,226  
|                                                |  |                                                     |  |                |       |                          |   |                    |  |   |                                             |   |  |       |         
|Comprehensive income                            |  |                                                     |  |                |       |                          |   |                    |  |   |                                             |   |  |       |         
|Dividends and accretion on participating shares |  |                                                    |  |                |      |                          |   |                   |  |   | (4,634                                      | ) |  |       |        
|Shares issued under employee stock plans        |  | 389                                                 |  |                | 8     |                          |   | 133                |  |   |                                            |   |  |       |        
|                                                |  |                                                     |  |                |       |                          |   |                    |  |   |                                             |   |  |       |         
|Balances at June 30, 2003                       |  | 249,921                                             |  | $              | 5,175 |                          | $ | 327,306            |  | $ | (195,425                                    | ) |  | $     | (64,410 
|                                                |  |                                                     |  |                |       |                          |   |                    |  |   |                                             |   |  |       |         
|Balances at March 31, 2002                      |  | 248,085                                             |  | $              | 5,139 |                          | $ | 325,880            |  | $ | (181,872                                    | ) |  | $     | (101,098
|Net earnings                                    |  |                                                    |  |                |      |                          |   |                   |  |   | 5,752                                       |   |  |       |        
|Currency translation adjustment                 |  |                                                    |  |                |      |                          |   |                   |  |   |                                            |   |  |       | 22,880  
|                                                |  |                                                     |  |                |       |                          |   |                    |  |   |                                             |   |  |       |         
|Comprehensive income                            |  |                                                     |  |                |       |                          |   |                    |  |   |                                             |   |  |       |         
|Dividends and accretion on participating shares |  |                                                    |  |                |      |                          |   |                   |  |   | (4,364                                      | ) |  |       |        
|                                                |  |                                                     |  |                |       |                          |   |                    |  |   |                                             |   |  |       |         
|Balances at June 30, 2002                       |  | 248,085                                             |  | $              | 5,139 |                          | $ | 325,880            |  | $ | (180,484                                    | ) |  | $     | (78,218 
|                                                |  |                                                     |  |                |       |                          |   |                    |  |   |                                             |   |  |       |         



See accompanying notes to the
consolidated financial statements



12



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##### Table of Contents

Danka Business Systems PLC



Notes to Consolidated Financial Statements

(Unaudited)



Note 1.    Basis of Presentation



The accompanying financial statements are unaudited as of June 30, 2003. 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 Form 10-K for the year ended March 31, 2003. Certain
prior year amounts have been reclassified to conform to current year presentations.



The financial statements contained herein for the three months ended June 30, 2003 and June 30, 2002 do not comprise statutory accounts within the meaning of Section 240 of the United Kingdom Companies Act 1985. Statutory accounts for the
year ended March 31, 2003 will be delivered to the Registrar of Companies for England and Wales following our 2003 annual general meeting. The independent auditors report on those statutory accounts was unqualified and did not contain a
statement under Section 237(2) or 237(3) of the United Kingdom Companies Act 1985.



On December 31, 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 148 Accounting for Stock-Based Compensation- Transition and Disclosure - an amendment to SFAS
123 (SFAS 148). SFAS 148 requires additional disclosures that are incremental to those required by SFAS 123 and requires the following disclosures in the Companys interim financial statements.



As permitted by SFAS 123, Accounting for Stock-Based Compensation (SFAS
123) we continue to account for our stock option plans under the intrinsic value recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. As the exercise
price of all options granted under these plans was equal to the market price of the underlying common stock on the grant date, no stock-based employee compensation cost is recognized in net income. In general, these options expire in ten years and
vest over three years. The proceeds from options exercised are credited to shareholders equity.



The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to employee
stock benefits, including shares issued under the stock option plans. For purposes of this pro-forma disclosure, the estimated fair value of the options is assumed to be amortized to expense over the options vesting periods.



|(In thousands except per ADS data)                                                                              |  | June 30,2003 |        |   | June 30,2002 |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------ | ------ | - | ------------ | -
|Net earnings (loss), as reported                                                                                |  | $            | (796   | ) |              | $
|Less: total stock-based employee compensation expense determined underthe fair value for all awards, net of tax |  |              | (89    | ) |              |  
|                                                                                                                |  |              |        |   |              |  
|Pro forma net earnings (loss)                                                                                   |  |              | (885   | ) |              |  
|Participating share dividend                                                                                    |  |              | (4,665 | ) |              |  
|                                                                                                                |  |              |        |   |              |  
|Income (loss) available to common shareholders                                                                  |  | $            | (5,550 | ) |              | $
|                                                                                                                |  |              |        |   |              |  
|Basic (loss) earnings available to common shareholders per ADS                                                  |  |              |        |   |              |  
|As reported                                                                                                     |  | $            | (0.09  | ) |              | $
|Pro forma                                                                                                       |  |              | (0.09  | ) |              |  
|Diluted (loss) earnings available to common shareholders per ADS                                                |  |              |        |   |              |  
|As reported                                                                                                     |  | $            | (0.09  | ) |              | $
|Pro forma                                                                                                       |  |              | (0.09  | ) |              |  



SFAS No. 123 requires the use of
option pricing models that were not developed for use in valuing employee stock options. The Black-Scholes option pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting
restrictions and are fully transferable. In addition, option pricing models require the input of highly subjective assumptions, including the options expected life and price volatility of the underlying stock. Because our stock options have
characteristics significantly different from those traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing model does not necessarily provide a
reliable single measure of the fair value of employee stock options.



13



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##### Table of Contents

The fair value of options granted in fiscal year 2004 and 2003 reported above was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average assumptions:



|                        |  | 2004    |   |  | 2003    |  
|----------------------- |  | ------- | - |  | ------- | -
|Dividend yield          |  | 0       | % |  | 0       | %
|Expected volatility     |  | 211.76  | % |  | 328.2   | %
|Risk-free interest rate |  | 2.53    | % |  | 4.49    | %
|Expected life           |  | 5 years |   |  | 5 years |  



Note
2.    Subsequent Event



On July 1, 2003, we repaid our
then-existing credit facility with the net proceeds from the offering of $175 million aggregate principal amount of senior notes that were sold at a price of 97.6% of the aggregate principal amount. The senior notes have a fixed annual interest rate
of 11.0%, which will be paid every six months on June 15 and December 15, commencing December 15, 2003. The senior notes will mature on June 15, 2010. Our indebtedness under the senior notes is guaranteed by certain of our subsidiaries in the United
States, Canada, United Kingdom, Australia and Luxembourg. The indenture governing the senior notes includes negative covenants that will restrict our ability to, among other things, incur additional indebtedness, create liens, pay dividends (other
than payment-in-kind dividends on our participating shares) and sell or make certain dispositions of assets.



On July 18, 2003, we issued a notice of redemption to all of the holders of our zero coupon senior subordinated notes due April 1, 2004 specifying a redemption price of par value of the zero coupon notes and a
redemption date of August 18, 2003. In connection with the redemption we have placed $47.6 million in escrow.



Concurrently with the issuance of the senior notes, we entered into a three year credit facility with Fleet Capital Corporation to provide a $50.0 million, senior secured revolver, which includes a $30.0 million
sublimit for standby and documentary letters of credit. Subject to borrowing base and availability reserve criteria, the total amount of indebtedness that we will be able to incur under the new credit facility will be $50.0 million. Borrowings under
the new credit facility will be subject to a borrowing base calculation. In addition, under the terms of the new credit facility, extensions of credit to the borrowers will be further limited to the lesser of the commitment and the borrowing base,
in each case subject to an availability reserve equal to $20.0 million. Accordingly, unless the lender otherwise agrees, at no time can credit available under the new credit facility exceed $30.0 million.



The new credit facility will bear interest at an annual rate equal to, at our option (a) the
sum of the rate of interest publicly announced from time to time by Fleet National Bank as its prime or base rate of interest plus the applicable margin thereon or (b) the sum of LIBOR for interest periods at our option of one, two, three or six
months plus the applicable margin thereon. The applicable interest rate margin on loans for which interest is calculated by reference to the base or prime rate, or base rate loans, will range from 0% to 0.50% per annum, and the applicable interest
rate margin on loans for which interest is calculated by reference to the LIBOR rate, or LIBOR rate loans, will range from 1.75% to 2.50% per annum, in each case based on average adjusted availability, or availability under the new credit facility
plus cash, under the new credit facility.



On July 1, 2003, we had
approximately $29.1 million in letters of credit outstanding. In connection with the closing of the senior notes offering and the new credit facility, we were required to post $30.6 million in cash collateral with Bank of America to secure such
letters of credit under the new credit facility. On or about July 25, 2003, one of our major vendors agreed to release its letters of credit, which resulted in $15.8 million of cash being released that we had previously posted as collateral for such
letters of credit. As of August 1, 2003, we had $14.8 million of cash collateral with the Bank of America to secure letters of credit under the new credit facility. We are attempting to release some of this cash by securing such letters of credit by
other means, including a pledge of some of our foreign assets.



The obligations
under the new credit facility will be guaranteed by Danka Business Systems PLC and its subsidiaries that are guarantors of the senior notes. The new credit facility will be secured by a first priority lien on and security interest in substantially
all of the assets of Danka Holding Company and Danka Office Imaging Company and the new credit facility guarantors organized in the United States and by a pledge of the capital stock of such guarantors organized in the United States.



The new credit facility includes negative covenants that place restrictions on our ability
to, among other things, incur indebtedness, create or incur liens, make loans and declare or pay dividends. The new credit facility includes certain events of default including defaults resulting from non-payment of the obligations under the new
credit facility when due, material misrepresentations, breach of covenants, insolvency, bankruptcy, entry of certain judgments, change of control and cross defaults with respect to other debt for borrowed money.



At June 30, 2003, we had unamortized debt issuance costs, anniversary fees and amendment fees
of $20.6 million relating to the refinanced credit facility. The amount will be charged to pre-tax earnings in the quarter ending September 30, 2003.



Note 3.    Intangible Assets



Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142) requires goodwill and indefinite-lived intangible assets
to be reviewed annually for possible impairment or more frequently if impairment indicators arise. We perform our annual impairment test as of December 31.



14



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##### Table of Contents

As of June 30, 2003, goodwill amounted to $266.3 million. Changes to goodwill for the three months ended June 30, 2003
resulted primarily from fluctuations in foreign currency exchange rates. Non-compete agreements, net amounted to $0.8 million, which included $1.4 million of accumulated amortization.



Aggregate amortization expense of non-compete agreements for the first three months of fiscal 2004 amounted to less than $0.1 million.
Estimated amortization expense for the current fiscal year is $0.2 million and the succeeding five fiscal years are between $0.1 million and $0.2 million per year.



Goodwill by operating segment as of June 30, 2003 (in thousands) was:



|              |  | Goodwill
|------------- |  | --------
|United States |  | $       
|Europe        |  |         
|International |  |         
|              |  |         
|Total         |  | $       
|              |  |         



Note
4.    Recent Accounting Pronouncements



In April 2002,
the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS 145) which is effective for fiscal years beginning after May 15, 2002. This
Statement rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, as well as SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. As a result, the gains or losses from debt
extinguishments will no longer be classified as extraordinary items unless they meet the requirements in APB 30 of being unusual and infrequently occurring. Additionally, this Statement amends SFAS No. 13, Accounting for Leases, to
eliminate any inconsistency between the reporting requirements for sale-leaseback transactions and certain lease modifications that have similar economic effects. We adopted the provisions of Statement 145 in the first quarter of our fiscal year
2004 and reclassified the fiscal year 2002 gains from debt extinguishment to continuing operations.



SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the
date of a commitment to an exit or disposal plan. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002.



SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity requires mandatorily redeemable instruments
to be classified as liabilities if they embody an obligation outside the control of the issuer and the holder to redeem the instrument by transferring cash or other assets and if the obligation is required to be redeemed at a specified or
determinable date or upon an event certain to occur. We will adopt the provisions of Statement 150 no later than the second quarter of our fiscal year 2004. Since the holders of our 6.5% convertible participating shares have the option to convert
the instrument into ordinary shares, they are not currently required to be classified as a liability.



Note 5.    Restructuring and Other Special Charges



Fiscal Year 2002 Charge:Our fiscal year 2002 restructuring charge included $5.0 million related to severance for 355 employees in the U.S., Canada and Europe. Substantially all of these reductions were
completed by March 31, 2003 but with payments being made over the next two years. Cash outlays for the reductions during fiscal year 2004 were less than $0.1 million. The restructuring charge also included $6.1 million for future lease obligations
on 39 facilities that were vacated by March 31, 2002. Cash outlays for the facilities during fiscal year 2004 were less than $0.1 million. Due to a change in estimate, we reversed $0.5 million of fiscal year 2002 severance and facility charges
during fiscal year 2004. The 2002 restructuring charge is categorized within Accrued expense and other current liabilities. The following table summarizes the fiscal year 2002 restructuring charge:



2002 Restructuring Charge:



|(In thousands)                                |  | Fiscal 2002Expense |        | Reserve atMarch 31,2003 |   | CashOutlays |  |   | OtherNon-CashChanges |   |  | Reserve atJune 30,2003
|--------------------------------------------- |  | ------------------ | ------ | ----------------------- | - | ----------- |  | - | -------------------- | - |  | ----------------------
|Severance                                     |  | $                  | 4,967  |                         | $ | 345         |  | $ | (2                   | ) |  | $                     
|Future lease obligations on facility closures |  |                    | 6,074  |                         |   | 595         |  |   | (22                  | ) |  |                       
|                                              |  |                    |        |                         |   |             |  |   |                      |   |  |                       
|Total                                         |  | $                  | 11,041 |                         | $ | 940         |  | $ | (24                  | ) |  | $                     
|                                              |  |                    |        |                         |   |             |  |   |                      |   |  |                       



15



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##### Table of Contents

Fiscal Year 2001 Charge:Our fiscal year 2001 restructuring charge included $21.8 million related to severance,
which represented the anticipated reduction of approximately 1,200 positions worldwide. Substantially all of these reductions were completed by March 31, 2003 but with payments being made over the next two years. Cash outlays for these reductions
during fiscal year 2004 were less than $0.1 million. The fiscal year 2001 restructuring charge also included $4.3 million for future lease obligations on facility closures and exit costs. Cash outlays for facilities during fiscal year 2004 were less
than $0.01 million. Due to a change in estimate, we reversed $0.1 million of fiscal year 2001 facility charges during fiscal year 2004. The 2001 restructuring charge is categorized within Accrued expense and other current liabilities.
The following table summarizes the fiscal year 2001 restructuring charge:



2001 Restructuring Charge:



|(In thousands)                                                     |  | Fiscal 2001Expense |        | Reserve atMarch 31,2003 |   | CashOutlays |  |   | OtherNon-CashChanges |   |  | Reserve atJune 30,2003
|------------------------------------------------------------------ |  | ------------------ | ------ | ----------------------- | - | ----------- |  | - | -------------------- | - |  | ----------------------
|Severance                                                          |  | $                  | 21,766 |                         | $ | 214         |  | $ | (6                   | ) |  | $                     
|Future lease obligations on facility closures and other exit costs |  |                    | 4,295  |                         |   | 131         |  |   | (3                   | ) |  |                       
|                                                                   |  |                    |        |                         |   |             |  |   |                      |   |  |                       
|Total                                                              |  | $                  | 26,061 |                         | $ | 345         |  | $ | (9                   | ) |  | $                     
|                                                                   |  |                    |        |                         |   |             |  |   |                      |   |  |                       



Note
6.    Earnings Per Share



The following table
reconciles the numerator and denominator of the basic and diluted earnings (loss) available to common shareholders per ADS computations for the three months ended June 30, 2003 and 2002:



|                                                                  |  | For the three months ended |        |   | For the three months ended
|----------------------------------------------------------------- |  | -------------------------- | ------ | - | --------------------------
|                                                                  |  | June 30, 2003              |        |   | June 30, 2002             
|(In thousands except per ADS amounts)                             |  | Earnings(loss)(Numerator)  |        |   | Shares(Denominator)       
|Basic earnings (loss) available to common shareholders per ADS:   |  |                            |        |   |                           
|Earnings (loss)                                                   |  | $                          | (796   | ) |                           
|Dividends and accretion on participating shares                   |  |                            | (4,665 | ) |                           
|                                                                  |  |                            |        |   |                           
|Earnings (loss)                                                   |  |                            | (5,461 | ) |                           
|                                                                  |  |                            |        |   |                           
|Effect of dilutive securities:                                    |  |                            |        |   |                           
|Stock options                                                     |  |                            |       |   |                           
|                                                                  |  |                            |        |   |                           
|Diluted earnings (loss) available to common shareholders per ADS: |  |                            |        |   |                           
|Earnings (loss)                                                   |  | $                          | (5,461 | ) |                           
|                                                                  |  |                            |        |   |                           



The effect of our 6.5% convertible
participating shares are not included in the computation of diluted earnings per share for the three months ended June 30, 2003 and 2002 because they are not dilutive. Stock options are not included in the computation of diluted earnings per share
for the three months ended June 30, 2003 because they are not dilutive.



Note 7.    Segment Reporting



We manage
our business geographically and our primary areas of management and decision-making are the United States, Europe and International. Our United States, Europe and International segments provide office imaging equipment, document solutions and
related service and supplies on a direct basis to retail customers. The geographical areas covered by our International segment include Canada, Central America, South America and Australia. Our European segment also provides office imaging equipment
and supplies on a wholesale basis to independent dealers. Our management relies on an internal management reporting process that provides segment revenue and earnings from operations, which is defined as earnings before interest expense, interest
income and income taxes as shown on our consolidated statements of operations less restructuring charges and foreign exchange gains and losses. Management believes that this is an appropriate measure of evaluating the operating performance of our
segments. The following tables present information about our segments.



16



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##### Table of Contents

|                                    |  | For the Three Months Ended |        
|----------------------------------- |  | -------------------------- | -------
|(In thousands)                      |  | June 30,2003               |        
|Revenues                            |  |                            |        
|United States                       |  | $                          | 164,470
|Europe                              |  |                            | 138,801
|International                       |  |                            | 30,513 
|Other (1)                           |  |                            |       
|                                    |  |                            |        
|Total Revenues                      |  | $                          | 333,784
|                                    |  |                            |        
|Gross Profit                        |  |                            |        
|United States                       |  | $                          | 66,251 
|Europe                              |  |                            | 44,832 
|International                       |  |                            | 11,435 
|Other (1)                           |  |                            |       
|                                    |  |                            |        
|Total Gross Profit                  |  | $                          | 122,518
|                                    |  |                            |        
|Operating earnings (loss)           |  |                            |        
|United States                       |  | $                          | 3,716  
|Europe                              |  |                            | 5,425  
|International                       |  |                            | (759   
|Other (1)                           |  |                            | (3,384 
|                                    |  |                            |        
|Total operating earnings (loss)     |  | $                          | 4,999  
|                                    |  |                            |        
|Capital Expenditures                |  |                            |        
|United States                       |  | $                          | 10,638 
|Europe                              |  |                            | 2,657  
|International                       |  |                            | 1,343  
|Other (1)                           |  |                            | 172    
|                                    |  |                            |        
|Total Capital Expenditures          |  | $                          | 14,810 
|                                    |  |                            |        
|Depreciation and Amortization       |  |                            |        
|United States                       |  | $                          | 6,645  
|Europe                              |  |                            | 2,792  
|International                       |  |                            | 2,192  
|Other (1)                           |  |                            | 408    
|                                    |  |                            |        
|Total Depreciation and Amortization |  | $                          | 12,037 
|                                    |  |                            |        

---

|(1) |  | Other includes the elimination of inter-segment revenues, corporate expenses, restructuring charges (credits), foreign exchange gains/losses, corporate assets and deferred tax
assets.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



17



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##### Table of Contents

|(In thousands)              |  | As of June 30,2003 |         | As ofMarch 31,2003
|--------------------------- |  | ------------------ | ------- | ------------------
|Assets                      |  |                    |         |                   
|United States               |  | $                  | 293,134 |                   
|Europe                      |  |                    | 451,404 |                   
|International               |  |                    | 61,841  |                   
|Other (1)                   |  |                    | 159,470 |                   
|                            |  |                    |         |                   
|Total Assets                |  | $                  | 965,849 |                   
|                            |  |                    |         |                   
|Long-lived Assets (2)       |  |                    |         |                   
|United States               |  | $                  | 153,842 |                   
|Europe                      |  |                    | 200,814 |                   
|International               |  |                    | 18,144  |                   
|Other (1)                   |  |                    | 3,917   |                   
|                            |  |                    |         |                   
|Total Long-lived Assets (2) |  | $                  | 376,717 |                   
|                            |  |                    |         |                   

---

|(1) |  | Other includes the elimination of inter-segment revenues, corporate expenses, restructuring charges (credits), foreign exchange gains/losses, corporate assets and deferred tax
assets.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Long-lived assets are defined as equipment on operating leases, property and equipment, goodwill and noncompete agreements, all of which are net of their related depreciation and
amortization. For fiscal year 2004, goodwill has been allocated pursuant to footnote 3.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Note 8.    Debt



Debt consisted of the following at June 30, 2003 and March 31, 2003:



|(In thousands)                                                                                                                                            |  | June 30,2003 |         | March 31,2003
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | -------------
|Credit facility (limited to $168.1 million) interest at LIBOR plus an applicable margin (9.57% average interest rate for 2004) due
March 2006  see below |  | $            | 107,100 |              
|10% subordinated notes due April 2008                                                                                                                     |  |              | 64,520  |              
|Zero coupon senior subordinated notes due April 2004                                                                                                      |  |              | 47,594  |              
|Various notes payable bearing interest from prime to 12.0% maturing principally over the next 5 years                                                     |  |              | 5,703   |              
|                                                                                                                                                          |  |              |         |              
|Total long-term debt and notes payable                                                                                                                    |  |              | 224,917 |              
|Less current maturities of long-term debt and notes payable                                                                                               |  |              | 82,803  |              
|                                                                                                                                                          |  |              |         |              
|Long-term debt and notes payable, less current maturities                                                                                                 |  | $            | 142,114 |              
|                                                                                                                                                          |  |              |         |              



On June 14, 2002, we entered into an
amended and restated credit facility, or our old credit facility, with our then-existing senior bank lenders to provide us with financing through March 31, 2006. At June 30, 2003, we had an outstanding balance of $107.1 million under the old credit
facility, with $29.0 million due under the revolver and $78.1 million due under the term loan. The entire balance of the old credit facility was repaid on July 1, 2003 upon the issuance of our senior notes as described in Note 2.



The term loan component of the old credit facility required principal repayments in
installments of $32 million in fiscal years 2004 and 2005 ($8 million at the end of each quarter), and $24 million in fiscal year 2006 ($8 million at the end of the first three quarters), with the balance due March 31, 2006. In addition, we were
required to make additional repayments of our indebtedness under the old credit facility in amounts equal to 50% of our excess cash flow (as defined in the old credit facility) for each of our fiscal years, which was $21.3 million for fiscal year
2003 and was paid in the first quarter of fiscal year 2004.



The interest rate
for each interest period, as defined in the old credit facility, was LIBOR plus 8.25%, subject to a downward reduction to 7.5% if we receive a credit rating from Moodys for our indebtedness under the old credit facility of at least B2 during
any such interest period.



18



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##### Table of Contents

We paid $11.2 million in bank fees and $6.6 million in third party fees in our 2002 fiscal year relating to the old
credit facility. We also paid $20.4 million in bank fees related to the old credit facility during fiscal year 2003. On June 30, 2003, we paid our banks $1.7 million as our commitment fee under the old credit facility which was equal to 1.0% of
the total commitments on June 30, 2003. These fees were being amortized over the term of the old credit facility and at June 30, 2003, we had $20.6 million of unamortized debt issuance costs, anniversary fees and amendment fees. These fees will be
charged to earnings in the quarter ending September 30, 2003.



We have $47.6
million in principal amount of zero coupon senior subordinated notes due April 1, 2004 and $64.5 million in principal amount of 10% subordinated notes due April 1, 2008. The zero coupon notes are guaranteed by Danka Holding Company and Danka Office
Imaging Company, which are both wholly-owned U.S. subsidiaries. On July 18, 2003, we issued a notice of redemption to all of the holders of our zero coupon notes specifying a redemption price of par value of the zero coupon notes and a redemption
date of August 18, 2003. In connection with the redemption we have placed $47.6 million in escrow.



Note 9.    6.50% Senior Convertible Participating Shares



On December 17, 1999, we issued 218,000 6.50% senior convertible participating shares of Danka Business Systems PLC for $218.0 million. The net proceeds of the share
subscription totaled approximately $204.6 million, after deducting transaction expenses.



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 will be paid in the form of additional
participating shares through December 2004. At that time, we will be obliged to pay the participating share dividends in cash. However, the terms of the participating shares permit us to continue to pay payment-in-kind dividends following December
17, 2004 if our then existing principal indebtedness, which would include our new credit facility and debt securities issued in an aggregate principal amount in excess of $50.0 million in a bona fide underwritten public or private offering,
prohibits us from paying cash dividends. Further, if we are not permitted by the terms of the participating shares to pay payment-in-kind dividends following December 17, 2004 and we have insufficient distributable reserves under English law to pay
cash dividends the amount of any unpaid dividend will be added to the liquidation return of each participating share.



The participating shares are currently convertible into ordinary shares at a conversion price of $3.11 per ordinary share (equal to $12.44 per ADS), subject to adjustment
in certain circumstances to avoid dilution of the interests of participating shareholders. As of June 30, 2003, the participating shares have voting rights on an as converted basis, currently corresponding to approximately 25.9% of the total voting
power of our capital stock, which includes an additional 53,682 participating shares in satisfaction of the payment-in-kind dividends.



On or after December 17, 2003, and prior to December 17, 2010, we have the option to redeem the participating shares, in whole but not in part, and subject to compliance
with applicable laws and the instruments governing our indebtedness, for cash at the greater of (a) the redemption price per share as set out in the table below (based on the liquidation return per participating share described below) or (b) the
then market value of the ordinary shares into which the participating shares are convertible, in each case plus accumulated and unpaid dividends from the most recent dividend payment date. Instead of redemption in cash at the price set out in (b)
above, we may decide to convert the participating shares into the number of ordinary shares into which they are convertible if the market value of those shares exceed the redemption price set out below.



|Year                |  | Percentage ofliquidation return |  
|------------------- |  | ------------------------------- | -
|20032004           |  | 103.250                         | %
|20042005           |  | 102.167                         | %
|20052006           |  | 101.083                         | %
|2006 and thereafter |  | 100.000                         | %



If by December 17, 2010, we have not
converted or otherwise redeemed the participating shares, we are required, subject to compliance with applicable laws, to redeem the participating shares for cash at the greater of (a) the then liquidation value or (b) the then market value of the
ordinary shares into which the participating shares are convertible, in each case plus accumulated and unpaid dividends from the most recent dividend payment date. If the price set out in (b) above is applicable, we are permitted to convert the
participating shares into the number of ordinary shares into which they are convertible instead of making the cash payment.



In the event of liquidation of Danka, participating shareholders will be entitled to receive a distribution equal to the greater of (a) the liquidation return per share
(initially $1,000 and subject to upward adjustment on certain default events by us) plus any accumulated and unpaid dividends accumulating from the most recent dividend date or b) the amount that would have been payable on each participating share
if it had been converted into ordinary shares if the market value of those shares exceed the liquidation value of the participating shares.



19



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##### Table of Contents

Note 10.    Supplemental Consolidating Financial Data for Subsidiary Guarantors  Zero Coupon
Notes



On June 29, 2001, we issued approximately $47.6 million in
principal amount of our zero coupon senior subordinated notes due April 1, 2004. The zero coupon notes are fully and unconditionally guaranteed on a joint and several basis by our wholly-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 zero coupon notes and the
guarantees are subordinated to all our existing and future senior indebtedness. The indenture governing the zero coupon 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.



On July 18, 2003,
we issued a notice of redemption to all of the holders of our zero coupon notes specifying a redemption price of par value of the zero coupon notes and a redemption date of August 18, 2003. In connection with the redemption we have placed $47.6
million in escrow.



20



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##### Table of Contents

|                                             |  | Supplemental Consolidating Statement of Operations For the Three Months Ended June 30,
2003 |        
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------- | -------
|                                             |  | Parent Company(1)                                                                           |        
|                                             |  | $000                                                                                        |        
|Revenue:                                     |  |                                                                                             |        
|Retail equipment and related sales           |  | $                                                                                           |       
|Retail service                               |  |                                                                                             |       
|Retail supplies and rentals                  |  |                                                                                             |       
|Wholesale                                    |  |                                                                                             |       
|                                             |  |                                                                                             |        
|Total revenue                                |  |                                                                                             |       
|                                             |  |                                                                                             |        
|                                             |  |                                                                                             |        
|Costs and operating expenses:                |  |                                                                                             |        
|Cost of retail equipment and related sales   |  |                                                                                             |       
|Retail service costs                         |  |                                                                                             |       
|Retail supplies and rental costs             |  |                                                                                             |       
|Wholesale costs of revenue                   |  |                                                                                             |       
|Selling, general and administrative expenses |  |                                                                                             | 1,001  
|Restructuring charges (credits)              |  |                                                                                             |       
|Equity (income) loss                         |  |                                                                                             | 9,355  
|Other (income) expense                       |  |                                                                                             | (12,231
|                                             |  |                                                                                             |        
|Total costs and operating expenses           |  |                                                                                             | (1,875 
|                                             |  |                                                                                             |        
|Operating earnings (loss)                    |  |                                                                                             | 1,875  
|Interest expense                             |  |                                                                                             | (8,937 
|Interest income                              |  |                                                                                             | 15,063 
|                                             |  |                                                                                             |        
|Earnings (loss) before income taxes          |  |                                                                                             | 8,001  
|Provision (benefit) for income taxes         |  |                                                                                             | 8,797  
|                                             |  |                                                                                             |        
|Net (loss) earnings                          |  | $                                                                                           | (796   
|                                             |  |                                                                                             |        

---

|(1) |  | Danka Business Systems PLC
|--- |  | --------------------------

|(2) |  | Danka Holding Company and Danka Office Imaging Company
|--- |  | ------------------------------------------------------

|(3) |  | Subsidiaries of Danka Business Systems PLC other than Danka Holding Company and Danka Office Imaging Company
|--- |  | ------------------------------------------------------------------------------------------------------------



21



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|                                             |  | Supplemental Consolidating Statement of Operations For the Three Months EndedJune 30, 2002 |        
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------ | -------
|                                             |  | ParentCompany (1)                                                                          |        
|                                             |  | $000                                                                                       |        
|Revenue:                                     |  |                                                                                            |        
|Retail equipment and related sales           |  | $                                                                                          |       
|Retail service                               |  |                                                                                            |       
|Retail supplies and rentals                  |  |                                                                                            |       
|Wholesale                                    |  |                                                                                            |       
|                                             |  |                                                                                            |        
|Total revenue                                |  |                                                                                            |       
|                                             |  |                                                                                            |        
|                                             |  |                                                                                            |        
|Costs and operating expenses:                |  |                                                                                            |        
|Cost of retail equipment and related sales   |  |                                                                                            |       
|Retail service costs                         |  |                                                                                            |       
|Retail supplies and rental costs             |  |                                                                                            |       
|Wholesale costs of revenue                   |  |                                                                                            |       
|Selling, general and administrative expenses |  |                                                                                            | 1,059  
|Restructuring charges (credits)              |  |                                                                                            |       
|Equity (income) loss                         |  |                                                                                            | (2,640 
|Other (income) expense                       |  |                                                                                            | (11,842
|                                             |  |                                                                                            |        
|Total costs and operating expenses           |  |                                                                                            | (13,423
|                                             |  |                                                                                            |        
|Operating earnings (loss)                    |  |                                                                                            | 13,423 
|Interest expense                             |  |                                                                                            | (6,778 
|Interest income                              |  |                                                                                            | 13,598 
|                                             |  |                                                                                            |        
|Earnings (loss) before income taxes          |  |                                                                                            | 20,243 
|Provision (benefit) for income taxes         |  |                                                                                            | 14,491 
|                                             |  |                                                                                            |        
|Net (loss) earnings                          |  |                                                                                            | 5,752  
|                                             |  |                                                                                            |        

---

|(1) |  | Danka Business Systems PLC
|--- |  | --------------------------

|(2) |  | Danka Holding Company and Danka Office Imaging Company
|--- |  | ------------------------------------------------------

|(3) |  | Subsidiaries of Danka Business Systems PLC other than Danka Holding Company and Danka Office Imaging Company
|--- |  | ------------------------------------------------------------------------------------------------------------



22



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|                                                                 |  | Supplemental Condensed Consolidating Balance Sheet Information |         
|---------------------------------------------------------------- |  | -------------------------------------------------------------- | --------
|                                                                 |  | ParentCompany (1)                                              |         
|                                                                 |  | $000                                                           |         
|Assets                                                           |  |                                                                |         
|Current assets:                                                  |  |                                                                |         
|Cash and cash equivalents                                        |  | $                                                              | 22,604  
|Accounts receivable, net                                         |  |                                                                |        
|Inventories                                                      |  |                                                                |        
|Prepaid expenses, deferred income taxes and other current assets |  |                                                                | 7,565   
|                                                                 |  |                                                                |         
|Total current assets                                             |  |                                                                | 30,169  
|Equipment on operating leases, net                               |  |                                                                |        
|Property and equipment, net                                      |  |                                                                | 20      
|Goodwill, net                                                    |  |                                                                |        
|Non-compete agreements, net                                      |  |                                                                |        
|Investment in subsidiaries                                       |  |                                                                | 83,537  
|Deferred income taxes                                            |  |                                                                |        
|Other assets                                                     |  |                                                                | 13,017  
|                                                                 |  |                                                                |         
|Total assets                                                     |  | $                                                              | 126,743 
|                                                                 |  |                                                                |         
|Liabilities and shareholders equity (deficit)                   |  |                                                                |         
|Current liabilities:                                             |  |                                                                |         
|Current maturities of long-term debt and notes payable           |  | $                                                              | 81,236  
|Accounts payable                                                 |  |                                                                | 117     
|Accrued expenses and other current liabilities                   |  |                                                                | 3       
|Taxes Payable                                                    |  |                                                                | (5,502  
|Deferred revenue                                                 |  |                                                                |        
|Due to/(from) affiliate                                          |  |                                                                | (422,745
|                                                                 |  |                                                                |         
|Total current liabilities                                        |  |                                                                | (346,891
|Due to/(from) affiliateslong-term                               |  |                                                                |        
|Long-term debt and notes payables, less current maturities       |  |                                                                | 137,978 
|Deferred income taxes and other long-term liabilities            |  |                                                                |        
|                                                                 |  |                                                                |         
|Total liabilities                                                |  |                                                                | (208,913
|                                                                 |  |                                                                |         
|6.5% convertible participating shares                            |  |                                                                | 263,010 
|                                                                 |  |                                                                |         
|Shareholders equity (deficit):                                  |  |                                                                |         
|Ordinary shares, 1.25 pence stated value                         |  |                                                                | 5,175   
|Additional paid-in capital                                       |  |                                                                | 327,306 
|Retained earnings (accumulated deficit)                          |  |                                                                | (195,425
|Accumulated other comprehensive (loss) income                    |  |                                                                | (64,410 
|                                                                 |  |                                                                |         
|Total shareholders equity (deficit)                             |  |                                                                | 72,646  
|                                                                 |  |                                                                |         
|Total liabilities & shareholders' equity (deficit)               |  | $                                                              | 126,743 
|                                                                 |  |                                                                |         

---

|(1) |  | Danka Business Systems PLC
|--- |  | --------------------------

|(2) |  | Danka Holding Company and Danka Office Imaging Company
|--- |  | ------------------------------------------------------

|(3) |  | Subsidiaries of Danka Business Systems PLC other than Danka Holding Company and Danka Office Imaging Company
|--- |  | ------------------------------------------------------------------------------------------------------------



23



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|                                                                 |  | Supplemental Condensed Consolidating Balance Sheet Information March 31, 2003 |         
|---------------------------------------------------------------- |  | ----------------------------------------------------------------------------- | --------
|                                                                 |  | Parent Company(1)                                                             |         
|                                                                 |  | $000                                                                          |         
|Assets                                                           |  |                                                                               |         
|Current assets:                                                  |  |                                                                               |         
|Cash and cash equivalents                                        |  | $                                                                             | 42,709  
|Accounts receivable, net                                         |  |                                                                               |        
|Inventories                                                      |  |                                                                               |        
|Investments                                                      |  |                                                                               |        
|Prepaid expenses, deferred income taxes and other current assets |  |                                                                               | 19,262  
|                                                                 |  |                                                                               |         
|Total current assets                                             |  |                                                                               | 61,971  
|Equipment on operating leases, net                               |  |                                                                               |        
|Property and equipment, net                                      |  |                                                                               |        
|Goodwill, net                                                    |  |                                                                               |        
|Non-compete agreements, net                                      |  |                                                                               |        
|Investment in subsidiaries                                       |  |                                                                               | 89,039  
|Deferred income taxes                                            |  |                                                                               |        
|Other assets                                                     |  |                                                                               | 8,784   
|                                                                 |  |                                                                               |         
|Total assets                                                     |  | $                                                                             | 159,794 
|                                                                 |  |                                                                               |         
|Liabilities and shareholders equity (deficit)                   |  |                                                                               |         
|Current liabilities:                                             |  |                                                                               |         
|Current maturities of long-term debt and notes payable           |  | $                                                                             | 56,071  
|Accounts payable                                                 |  |                                                                               | 253     
|Accrued expenses and other current liabilities                   |  |                                                                               | (3,909  
|Taxes Payable                                                    |  |                                                                               |        
|Deferred revenue                                                 |  |                                                                               |        
|Due to/(from) affiliate                                          |  |                                                                               | (385,639
|                                                                 |  |                                                                               |         
|Total current liabilities                                        |  |                                                                               | (333,224
|Due to/(from) affiliateslong-term                               |  |                                                                               |        
|Long-term debt and notes payables, less current maturities       |  |                                                                               | 168,932 
|Deferred income taxes and other long-term liabilities            |  |                                                                               | 1       
|                                                                 |  |                                                                               |         
|Total liabilities                                                |  |                                                                               | (164,291
|                                                                 |  |                                                                               |         
|6.5% convertible participating shares                            |  |                                                                               | 258,376 
|                                                                 |  |                                                                               |         
|Shareholders equity (deficit):                                  |  |                                                                               |         
|Ordinary shares, 1.25 pence stated value                         |  |                                                                               | 5,167   
|Additional paid-in capital                                       |  |                                                                               | 327,173 
|Retained earnings (accumulated deficit)                          |  |                                                                               | (189,995
|Accumulated other comprehensive (loss) income                    |  |                                                                               | (76,636 
|                                                                 |  |                                                                               |         
|Total shareholders equity (deficit)                             |  |                                                                               | 65,709  
|                                                                 |  |                                                                               |         
|Total liabilities & shareholders equity (deficit)               |  | $                                                                             | 159,794 
|                                                                 |  |                                                                               |         

---

|(1) |  | Danka Business Systems PLC
|--- |  | --------------------------

|(2) |  | Danka Holding Company and Danka Office Imaging Company
|--- |  | ------------------------------------------------------

|(3) |  | Subsidiaries of Danka Business Systems PLC other than Danka Holding Company and Danka Office Imaging Company
|--- |  | ------------------------------------------------------------------------------------------------------------



24



---

##### Table of Contents

|                                                     |  | Supplemental Condensed Consolidating Statement of Cash Flows For the Three Months Ended June 30,
2003 |        
|---------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- | -------
|                                                     |  | Parent Company(1)                                                                                     |        
|                                                     |  | $000                                                                                                  |        
|Net cash provided by (used in) operating activities  |  | $                                                                                                     | (11,329
|                                                     |  |                                                                                                       |        
|Investing activities                                 |  |                                                                                                       |        
|Capital expenditures                                 |  |                                                                                                       |       
|Proceeds from the sale of property and equipment     |  |                                                                                                       |       
|                                                     |  |                                                                                                       |        
|Net cash provided by (used in) investing activities  |  |                                                                                                       |       
|                                                     |  |                                                                                                       |        
|                                                     |  |                                                                                                       |        
|Financing activities                                 |  |                                                                                                       |        
|Net (payment) borrowing of debt                      |  |                                                                                                       | (6,027 
|Payment of debt issue costs                          |  |                                                                                                       | (2,749 
|                                                     |  |                                                                                                       |        
|Net cash provided by (used in) financing activities  |  |                                                                                                       | (8,776 
|                                                     |  |                                                                                                       |        
|Effect of exchange rates                             |  |                                                                                                       |        
|                                                     |  |                                                                                                       |        
|Net increase (decrease) in cash and cash equivalents |  |                                                                                                       | (20,105
|Cash and cash equivalents, beginning of period       |  |                                                                                                       | 42,709 
|                                                     |  |                                                                                                       |        
|Cash and cash equivalents, end of period             |  | $                                                                                                     | 22,604 
|                                                     |  |                                                                                                       |        



|                                                     |  | Supplemental Condensed Consolidating Statement of Cash Flows For the Three Months Ended June 30,
2002 |        
|---------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- | -------
|                                                     |  | Parent Company(1)                                                                                     |        
|                                                     |  | $000                                                                                                  |        
|Net cash provided by (used in) operating activities  |  | $                                                                                                     | 46,351 
|                                                     |  |                                                                                                       |        
|Investing activities                                 |  |                                                                                                       |        
|Capital expenditures                                 |  |                                                                                                       |       
|Proceeds from the sale of property and equipment     |  |                                                                                                       |       
|                                                     |  |                                                                                                       |        
|Net cash provided by (used in) investing activities  |  |                                                                                                       |       
|                                                     |  |                                                                                                       |        
|Financing activities                                 |  |                                                                                                       |        
|Net (payment) borrowing of debt                      |  |                                                                                                       | (45,804
|Payment of debt issue costs                          |  |                                                                                                       | (4,072 
|                                                     |  |                                                                                                       |        
|Net cash provided by (used in) financing activities  |  |                                                                                                       | (49,876
|                                                     |  |                                                                                                       |        
|Effect of exchange rates                             |  |                                                                                                       |       
|                                                     |  |                                                                                                       |        
|Net increase (decrease) in cash and cash equivalents |  |                                                                                                       | (3,525 
|Cash and cash equivalents, beginning of period       |  |                                                                                                       | 8,420  
|                                                     |  |                                                                                                       |        
|Cash and cash equivalents, end of period             |  | $                                                                                                     | 4,895  
|                                                     |  |                                                                                                       |        

---

|(1) |  | Danka Business Systems PLC
|--- |  | --------------------------

|(2) |  | Danka Holding Company and Danka Office Imaging Company
|--- |  | ------------------------------------------------------

|(3) |  | Subsidiaries of Danka Business Systems PLC other than Danka Holding Company and Danka Office Imaging Company
|--- |  | ------------------------------------------------------------------------------------------------------------



25



---

##### Table of Contents

Note 11.    Supplemental Consolidating Financial Data for Subsidiary Guarantors of 11.0% Senior
Notes



On July 1, 2003, we issued our 11% senior notes. The senior notes
are fully and unconditionally guaranteed on a joint and several basis by all of our Australian and Canadian subsidiaries, a Luxembourg subsidiary, two UK subsidiaries, one of which is our primary UK operating subsidiary, and all of our U.S.
subsidiaries other than certain dormant entities (collectively, the  Guarantors). The Guarantors generated 63.7% of our total revenue in fiscal year 2003 and represented 57.7% of our total assets as of June 30, 2003.



|                                             |  | Supplemental Consolidating Statement of Operations For the Three Months Ended June 30,
2003 |        
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------- | -------
|                                             |  | Parent Company(1)                                                                           |        
|                                             |  | $000                                                                                        |        
|Revenue:                                     |  |                                                                                             |        
|Retail equipment and related sales           |  | $                                                                                           |       
|Retail service                               |  |                                                                                             |       
|Retail supplies and rentals                  |  |                                                                                             |       
|Wholesale                                    |  |                                                                                             |       
|                                             |  |                                                                                             |        
|Total revenue                                |  |                                                                                             |       
|                                             |  |                                                                                             |        
|Costs and operating expenses:                |  |                                                                                             |        
|Cost of retail equipment sales               |  |                                                                                             |       
|Retail service costs                         |  |                                                                                             |       
|Retail supplies and rental costs             |  |                                                                                             |       
|Wholesale costs of revenue                   |  |                                                                                             |       
|Selling, general and administrative expenses |  |                                                                                             | 1,001  
|Restructuring charges (credits)              |  |                                                                                             |       
|Equity (income) loss                         |  |                                                                                             | 9,387  
|Other (income) expense                       |  |                                                                                             | (12,231
|                                             |  |                                                                                             |        
|Total costs and operating expenses           |  |                                                                                             | (1,843 
|                                             |  |                                                                                             |        
|Operating earnings (loss)                    |  |                                                                                             | 1,843  
|Interest expense                             |  |                                                                                             | (8,937 
|Interest income                              |  |                                                                                             | 15,063 
|                                             |  |                                                                                             |        
|Earnings (loss) before income taxes          |  |                                                                                             | 7,969  
|Provision (benefit) for income taxes         |  |                                                                                             | 8,765  
|                                             |  |                                                                                             |        
|Net (loss) earnings                          |  | $                                                                                           | (796   
|                                             |  |                                                                                             |        



See page 31 for reference to (1), (2)
and (3)





26



---

##### Table of Contents

|                                                               |  | Supplemental Consolidating Statement of Operations For the Three Months Ended June 30,
2002 |        
|-------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- | -------
|                                                               |  | Parent Company(1)                                                                           |        
|                                                               |  | $000                                                                                        |        
|Revenue:                                                       |  |                                                                                             |        
|Retail equipment and related sales                             |  | $                                                                                           |       
|Retail service                                                 |  |                                                                                             |       
|Retail supplies and rentals                                    |  |                                                                                             |       
|Wholesale                                                      |  |                                                                                             |       
|                                                               |  |                                                                                             |        
|Total revenue                                                  |  |                                                                                             |       
|                                                               |  |                                                                                             |        
|                                                               |  |                                                                                             |        
|Costs and operating expenses:                                  |  |                                                                                             |        
|Cost of retail equipment and related sales                     |  |                                                                                             |       
|Cost of retail service                                         |  |                                                                                             |       
|Cost of retail supplies and rentals                            |  |                                                                                             |       
|Wholesale costs of revenue                                     |  |                                                                                             |       
|Selling, general and administrative expenses                   |  |                                                                                             | 1,059  
|Restructuring charges (credits)                                |  |                                                                                             |       
|Equity (income) loss                                           |  |                                                                                             | (2,640 
|Other (income) expense                                         |  |                                                                                             | (11,842
|                                                               |  |                                                                                             |        
|Total costs and operating expenses                             |  |                                                                                             | (13,423
|                                                               |  |                                                                                             |        
|Operating earnings (loss) from continuing operations           |  |                                                                                             | 13,423 
|Interest expense                                               |  |                                                                                             | (6,778 
|Interest income                                                |  |                                                                                             | 13,598 
|                                                               |  |                                                                                             |        
|Earnings (loss) from continuing operations before income taxes |  |                                                                                             | 20,243 
|Provision (benefit) for income taxes                           |  |                                                                                             | 14,491 
|                                                               |  |                                                                                             |        
|Net (loss) earnings                                            |  |                                                                                             | 5,752  
|                                                               |  |                                                                                             |        



See page 31 for reference to (1),
(2) and (3)



27



---

##### Table of Contents

|                                                                 |  | Supplemental Condensed Consolidating Balance Sheet InformationJune 30, 2003 |         
|---------------------------------------------------------------- |  | --------------------------------------------------------------------------- | --------
|                                                                 |  | Parent Company(1)                                                           |         
|                                                                 |  |                                                                             |         
|                                                                 |  | $000                                                                        |         
|Assets                                                           |  |                                                                             |         
|Current assets:                                                  |  |                                                                             |         
|Cash and cash equivalents                                        |  | $                                                                           | 22,604  
|Accounts receivable, net                                         |  |                                                                             |        
|Inventories                                                      |  |                                                                             |        
|Prepaid expenses, deferred income taxes and other current assets |  |                                                                             | 7,565   
|                                                                 |  |                                                                             |         
|Total current assets                                             |  |                                                                             | 30,169  
|                                                                 |  |                                                                             |         
|Equipment on operating leases, net                               |  |                                                                             |        
|Property and equipment, net                                      |  |                                                                             | 20      
|Goodwill, net                                                    |  |                                                                             |        
|Non-compete agreements, net                                      |  |                                                                             |        
|Investment in subsidiaries                                       |  |                                                                             | 83,505  
|Deferred income taxes                                            |  |                                                                             |        
|Other assets                                                     |  |                                                                             | 13,017  
|                                                                 |  |                                                                             |         
|Total assets                                                     |  | $                                                                           | 126,711 
|                                                                 |  |                                                                             |         
|                                                                 |  |                                                                             |         
|Liabilities and shareholders equity (deficit)                   |  |                                                                             |         
|Current liabilities:                                             |  |                                                                             |         
|Current maturities of long-term debt and notes payable           |  | $                                                                           | 81,236  
|Accounts payable                                                 |  |                                                                             | 117     
|Accrued expenses and other current liabilities                   |  |                                                                             | 3       
|Taxes Payable                                                    |  |                                                                             | (5,534  
|Deferred revenue                                                 |  |                                                                             |        
|Due to/(from) affiliate                                          |  |                                                                             | (422,745
|                                                                 |  |                                                                             |         
|Total current liabilities                                        |  |                                                                             | (346,923
|                                                                 |  |                                                                             |         
|Long-term debt and notes payables, less current maturities       |  |                                                                             | 137,978 
|Deferred income taxes and other long-term liabilities            |  |                                                                             |        
|                                                                 |  |                                                                             |         
|Total liabilities                                                |  |                                                                             | (208,945
|                                                                 |  |                                                                             |         
|6.5% convertible participating shares                            |  |                                                                             | 263,010 
|                                                                 |  |                                                                             |         
|Shareholders equity (deficit):                                  |  |                                                                             |        
|Ordinary shares, 1.25 pence stated value                         |  |                                                                             | 5,175   
|Additional paid-in capital                                       |  |                                                                             | 327,306 
|Retained earnings (accumulated deficit)                          |  |                                                                             | (195,425
|Accumulated other comprehensive (loss) income                    |  |                                                                             | (64,410 
|                                                                 |  |                                                                             |         
|Total shareholders equity (deficit)                             |  |                                                                             | 72,646  
|                                                                 |  |                                                                             |         
|Total liabilities & shareholders equity (deficit)               |  | $                                                                           | 126,711 
|                                                                 |  |                                                                             |         



See page 31 for reference to (1),
(2) and (3)



28



---

##### Table of Contents



|                                                                 |  | Supplemental Condensed Consolidating Balance Sheet Information March 31, 2003 |         
|---------------------------------------------------------------- |  | ----------------------------------------------------------------------------- | --------
|                                                                 |  | ParentCompany (1)                                                             |         
|                                                                 |  | $000                                                                          |         
|Assets                                                           |  |                                                                               |         
|Current assets:                                                  |  |                                                                               |         
|Cash and cash equivalents                                        |  | $                                                                             | 42,709  
|Accounts receivable, net                                         |  |                                                                               |        
|Inventories                                                      |  |                                                                               |        
|Prepaid expenses, deferred income taxes and other current assets |  |                                                                               | 19,262  
|                                                                 |  |                                                                               |         
|Total current assets                                             |  |                                                                               | 61,971  
|                                                                 |  |                                                                               |         
|Equipment on operating leases, net                               |  |                                                                               |        
|Property and equipment, net                                      |  |                                                                               |        
|Goodwill, net                                                    |  |                                                                               |        
|Non-compete agreements, net                                      |  |                                                                               |        
|Investment in subsidiaries                                       |  |                                                                               | 89,039  
|Deferred income taxes                                            |  |                                                                               |        
|Other assets                                                     |  |                                                                               | 8,784   
|                                                                 |  |                                                                               |         
|Total assets                                                     |  | $                                                                             | 159,794 
|                                                                 |  |                                                                               |         
|Liabilities and shareholders equity (deficit)                   |  |                                                                               |         
|Current liabilities:                                             |  |                                                                               |         
|Current maturities of long-term debt and notes payable           |  | $                                                                             | 56,071  
|Accounts payable                                                 |  |                                                                               | 253     
|Accrued expenses and other current liabilities                   |  |                                                                               | (3,909  
|Taxes Payable                                                    |  |                                                                               |        
|Deferred revenue                                                 |  |                                                                               |        
|Due to/(from) affiliate                                          |  |                                                                               | (385,639
|                                                                 |  |                                                                               |         
|Total current liabilities                                        |  |                                                                               | (333,224
|                                                                 |  |                                                                               |         
|Long-term debt and notes payables, less current maturities       |  |                                                                               | 168,932 
|Deferred income taxes and other long-term liabilities            |  |                                                                               | 1       
|                                                                 |  |                                                                               |         
|Total liabilities                                                |  |                                                                               | (164,291
|                                                                 |  |                                                                               |         
|6.5% convertible participating shares                            |  |                                                                               | 258,376 
|                                                                 |  |                                                                               |         
|                                                                 |  |                                                                               |         
|Shareholders equity (deficit):                                  |  |                                                                               |        
|Ordinary shares, 1.25 pence stated value                         |  |                                                                               | 5,167   
|Additional paid-in capital                                       |  |                                                                               | 327,173 
|Retained earnings (accumulated deficit)                          |  |                                                                               | (189,995
|Accumulated other comprehensive (loss) income                    |  |                                                                               | (76,636 
|                                                                 |  |                                                                               |         
|Total shareholders equity (deficit)                             |  |                                                                               | 65,709  
|                                                                 |  |                                                                               |         
|Total liabilities & shareholders equity (deficit)               |  | $                                                                             | 159,794 
|                                                                 |  |                                                                               |         



See page 31 for reference to (1),
(2) and (3)



29



---

##### Table of Contents

|                                                     |  | Supplemental Condensed Consolidating Statement of Cash Flows For the Three Months Ended June 30,
2003 |        
|---------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- | -------
|                                                     |  | Parent Company(1)                                                                                     |        
|                                                     |  | $000                                                                                                  |        
|Net cash provided by (used in) operating activities  |  | $                                                                                                     | (11,329
|                                                     |  |                                                                                                       |        
|Investing activities                                 |  |                                                                                                       |       
|Capital expenditures                                 |  |                                                                                                       |       
|Proceeds from the sale of property and equipment     |  |                                                                                                       |       
|                                                     |  |                                                                                                       |        
|Net cash provided by (used in) investing activities  |  |                                                                                                       |       
|                                                     |  |                                                                                                       |        
|                                                     |  |                                                                                                       |        
|Financing activities                                 |  |                                                                                                       |        
|Net (payment) borrowing of debt                      |  |                                                                                                       | (6,027 
|Payment of debt issue costs                          |  |                                                                                                       | (2,749 
|                                                     |  |                                                                                                       |        
|Net cash provided by (used in) financing activities  |  |                                                                                                       | (8,776 
|                                                     |  |                                                                                                       |        
|Effect of exchange rates                             |  |                                                                                                       |       
|                                                     |  |                                                                                                       |        
|Net increase (decrease) in cash and cash equivalents |  |                                                                                                       | (20,105
|Cash and cash equivalents, beginning of period       |  |                                                                                                       | 42,709 
|                                                     |  |                                                                                                       |        
|Cash and cash equivalents, end of period             |  | $                                                                                                     | 22,604 
|                                                     |  |                                                                                                       |        





|                                                     |  | Supplemental Condensed Consolidating Statement of Cash Flows For the Three Months Ended June 30,
2002 |        
|---------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- | -------
|                                                     |  | Parent Company(1)                                                                                     |        
|                                                     |  | $000                                                                                                  |        
|Net cash provided by (used in) operating activities  |  | $                                                                                                     | 46,351 
|                                                     |  |                                                                                                       |        
|Investing activities                                 |  |                                                                                                       |        
|Capital expenditures                                 |  |                                                                                                       |       
|Proceeds from the sale of property and equipment     |  |                                                                                                       |       
|                                                     |  |                                                                                                       |        
|Net cash provided by (used in) investing activities  |  |                                                                                                       |       
|                                                     |  |                                                                                                       |        
|                                                     |  |                                                                                                       |        
|Financing activities                                 |  |                                                                                                       |        
|Net (payment) borrowing of debt                      |  |                                                                                                       | (45,804
|Payment of debt issue costs                          |  |                                                                                                       | (4,072 
|                                                     |  |                                                                                                       |        
|Net cash provided by (used in) financing activities  |  |                                                                                                       | (49,876
|                                                     |  |                                                                                                       |        
|Effect of exchange rates                             |  |                                                                                                       |       
|                                                     |  |                                                                                                       |        
|Net increase (decrease) in cash and cash equivalents |  |                                                                                                       | (3,525 
|Cash and cash equivalents, beginning of period       |  |                                                                                                       | 8,420  
|                                                     |  |                                                                                                       |        
|Cash and cash equivalents, end of period             |  | $                                                                                                     | 4,895  
|                                                     |  |                                                                                                       |        





See page 31 for reference to (1), (2) and (3)



30



---

##### Table of Contents

|(1) |  | Danka Business Systems PLC
|--- |  | --------------------------



|(2) |  | Subsidiary guarantors include the following subsidiaries:
|--- |  | ---------------------------------------------------------



| |  |  | Danka Australasia Pty Limited, Danka Australia Pty Limited, Danka Tower Pty Ltd, Danka Distributors Pty Ltd., Danka Datakey Pty Ltd, Datakey Alcatel Pty Ltd. and Danka Systems Pty
Limited, representing all of our Australian Subsidiaries;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Danka Business Finance Ltd., Danka Canada Inc. and Kalmara Inc., representing all of our Canadian subsidiaries;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | Dankalux S.à.r.L., a Luxembourg subsidiary;
| | - |  | -------------------------------------------



| |  |  | Danka UK Plc, our primary UK operating subsidiary, and Danka Services International Ltd., a UK subsidiary; and
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | Danka Holding Company, American Business Credit Corporation, Danka Management II Company, Inc., Herman Enterprises, Inc. of South Florida, D.I. Investment Management, Inc., Quality
Business, Inc., Danka Management Company, Inc., Corporate Consulting Group, Inc., Danka Imaging Distribution, Inc. and Danka Office Imaging Company, which represent all of our U.S. Subsidiaries other than certain dormant entities.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Subsidiary guarantors for fiscal year 2002 and
fiscal year 2001 includes the results of our New Zealand subsidiary which was sold during fiscal 2002.



|(3) |  | Subsidiaries of Danka Business Systems PLC other than subsidiary guarantors.
|--- |  | ----------------------------------------------------------------------------



31



---

##### Table of Contents

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



Based on revenue, we are the second largest independent provider of office imaging equipment, document solutions and related services and supplies in the United States
and the largest independent provider of such products and services in Europe. We offer a wide range of state of the art office imaging products, peripherals and solutions that primarily include digital and color copiers, digital and color
multi-function peripherals or MFPs, facsimile machines and software. We also provide a wide range of contract services, including professional and consulting services, maintenance, supplies, leasing arrangements, technical support and training on
the installed base of equipment created primarily by our retail equipment and related sales.



We operate in 25 countries and our reportable segments are United States, Europe and International. Our International segment includes operations in several South American countries that are experiencing political,
social and economic upheaval. We continue to evaluate the viability and future prospects of these businesses in those countries in light of uncertain conditions. Should we decide to downsize or exit any of these businesses, we could incur costs in
respect of severance and closure of facilities and we may also be required to recognize cumulative translation losses that would reduce our earnings, all or any of which may be material.



Critical Accounting Policies and Estimates



Our
management strives to report our financial results in a clear and understandable manner, even though in some cases accounting and disclosure rules are complex and require technical terminology. We follow accounting principles generally accepted in
the United States in preparing our consolidated financial statements contained elsewhere and incorporated by reference herein, which require us to make certain estimates and apply judgments that affect our financial position and results of
operations. Our management continually reviews our accounting policies, how they are applied and how they are reported and disclosed in our financial statements. Following is a summary of our critical accounting policies and how they are applied in
the preparation of our financial statements.



Allowances for Accounts
ReceivableWe provide allowances on our accounts receivable for estimated losses. Our estimates are based upon the aging of our receivable accounts and expected write-offs due to billing adjustments to our customers. If the financial
condition of any of our customers were to deteriorate and result in the impairment of their ability to make payments to us, additional allowances may be required. The collectibility of government receivables are evaluated on a country by country
basis. For the quarter ended June 30, 2003, retail service revenue was reduced by $2.9 million for estimated billing adjustments to our customers. The following table summarizes our net accounts receivable.



|                                                  |  | As of         |        
|------------------------------------------------- |  | ------------- | -------
|(In thousands)                                    |  | June 30, 2003 |        
|Accounts Receivable                               |  | $             | 295,176
|Allowance for Accounts Receivable                 |  |               | (42,045
|                                                  |  |               |        
|Net Accounts Receivable                           |  | $             | 253,131
|                                                  |  |               |        
|Allowance for Accounts Receivable as a % of Total |  |               | 14.2   



InventoriesOur inventory
levels are based on our projections of future demand and market conditions. Any unexpected decline in demand and/or rapid product improvements or technological changes may cause us to have excess and/or obsolete inventories. The transition of our
industry from analog to digital photocopiers has resulted in the obsolescence of some of our retail equipment, supplies and parts. Additional obsolescence could occur for some of our remaining retail equipment, supplies and parts, particularly as it
relates to our Kodak installed base, which is primarily analog. We have taken reserves against these items in current and prior periods. On an ongoing basis, we review for estimated obsolete or unmarketable inventories and write-down our inventories
to their estimated net realizable value based upon our forecasts of future demand and market conditions using historical trends and analysis. If actual market conditions are less favorable than our forecasts due, in part, to a greater acceleration
within the industry to digital office imaging equipment, additional inventory write-downs may be required. Our estimates are influenced by a number of considerations including, but not limited to, the following: decline in demand due to economic
downturns, rapid product improvements and technological changes, and our ability to return to vendors a certain percentage of our purchases.



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Revenue RecognitionRetail equipment and related sales are recognized upon acceptance of delivery by the
customer and, in the case of equipment sales financed by third party finance or leasing companies, at the time of credit acceptance by the finance or leasing company, if later. However, for the sale of certain digital equipment that requires
comprehensive setup by us before it can be used by a customer, such as a Heidelberg 9110/9150 or equivalent type of equipment, revenue is recognized upon acceptance of delivery by the customer and installation. Supply sales to customers are
recognized at the time of shipment unless supply sales are included in a service contract, in which case supply sales are recognized upon usage by the customer.



Rental operating lease income is recognized as earned over the lease term. Maintenance contract service revenues, net of billing adjustments, are recognized ratably
over the term of the underlying maintenance contracts. Deferred revenue consists of unearned maintenance contract revenue that is recognized using the straight-line method over the life of the related contract, generally three to twelve months.



Residual ValuesWe perform an annual review of the unguaranteed
residual values of leased equipment to verify that the recorded residual values do not exceed market valuations. If the residual value is below the market value, a reserve is charged to cost of goods sold. No residual value is recorded for used
equipment.



Deferred Income TaxesAs part of the process of
preparing our consolidated financial statements, we have to estimate our income and corporation taxes in each of the taxing jurisdictions in which we operate. This process involves estimating our actual current tax expense together with assessing
any temporary differences resulting from the different treatment of certain items, such as the timing for recognizing revenues and expenses for tax and accounting purposes. These differences may result in deferred tax assets and liabilities, which
are included in our consolidated balance sheet.



In accordance with Statement
of Financial Accounting Standards No. 109, we evaluate, quarterly, the likelihood that our deferred tax assets, which include net operating loss carryforwards and temporary differences that are expected to be deductible in future years, will be
recoverable from future taxable income or other tax planning strategies. If recovery is not likely, we have to provide a valuation allowance based on our estimates of future taxable income in the various taxing jurisdictions, and the amount of
deferred taxes that are ultimately realizable. The provision for current and deferred tax liabilities involves evaluations and judgments of uncertainties in the interpretation of complex tax regulations by various taxing authorities.



At June 30, 2003 and March 31, 2003, we had deferred tax assets in excess of deferred tax
liabilities of $123.7 million and $123.2 million respectively. Management determined that it is more likely than not that $89.8 million and $89.3 million, respectively, of such net assets will be realized, resulting in a valuation allowance of $33.9
million and $33.9 million, respectively.



Approximately $226.0 million of
future U.S. taxable income is ultimately needed to realize the net deferred tax assets at June 30, 2003. Failure to achieve forecasted taxable income might affect the ultimate realization of the net deferred tax assets which would require additional
valuation allowances that would impact our net earnings. Factors that may affect our ability to achieve sufficient forecasted taxable income include, but are not limited to, the following: increased competition, a decline in sales or margins, loss
of market share, delays in product availability or technological obsolescence.



In addition, the company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. In managements
opinion, adequate provisions for income and corporation taxes have been made for all years.



GoodwillAs described in Note 2 to the accompanying consolidated financial statements, we review our goodwill and indefinite-lived intangible assets annually for possible impairment, or more frequently if
impairment indicators arise. Separable intangible assets that have finite lives will continue to be amortized over their estimated useful lives.



We performed our annual impairment test as of December 31, 2002, under the requirements of Statement of Financial Accounting Standards No., or SFAS 142, which resulted in
no adjustment for impairment.



We had goodwill of $266.3 million as of June 30,
2003. If it was determined under SFAS 142 that our goodwill was impaired, we would be required to write-down the value of such goodwill in amounts that could be material.



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Results of Continuing Operations



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



|                                             |  | For the Three Months Ended |  
|-------------------------------------------- |  | -------------------------- | -
|                                             |  | June 30, 2003              |  
|Revenue:                                     |  |                            |  
|Retail equipment and related sales           |  | 33.8                       | %
|Retail service                               |  | 49.7                       |  
|Retail supplies and rentals                  |  | 9.5                        |  
|Wholesale                                    |  | 7.0                        |  
|                                             |  |                            |  
|Total revenue                                |  | 100.0                      |  
|Cost of revenue                              |  | 63.3                       |  
|                                             |  |                            |  
|Gross profit                                 |  | 36.7                       |  
|                                             |  |                            |  
|Selling, general and administrative expenses |  | 35.5                       |  
|Amortization of intangible assets            |  |                           |  
|Restructuring charges (credits)              |  | (0.2                       | )
|Other (income) expense                       |  | (0.1                       | )
|                                             |  |                            |  
|Operating earnings (loss)                    |  | 1.5                        |  
|Interest expense                             |  | (2.9                       | )
|Interest income                              |  | 0.1                        |  
|                                             |  |                            |  
|Earnings (loss) before income taxes          |  | (1.3                       | )
|Provision (benefit) for income taxes         |  | (1.1                       | )
|                                             |  |                            |  
|Net Earnings (loss)                          |  | (0.2                       | )
|                                             |  |                            |  



Note: Certain prior year amounts have
been reclassified to conform with the current year presentation.



The following
table sets forth for the periods indicated the percentage of revenue growth from the prior year:



|                                   |  | For the Three Months Ended |  
|---------------------------------- |  | -------------------------- | -
|                                   |  | June 30, 2003              |  
|Retail equipment and related sales |  | 2.4                        | %
|Retail service                     |  | -7.4                       |  
|Retail supplies and rentals        |  | -14.1                      |  
|Wholesale                          |  | 12.1                       |  
|                                   |  |                           
|Total Revenue                      |  | -3.8                       |  



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



|                                   |  | For the Three Months Ended |  
|---------------------------------- |  | -------------------------- | -
|                                   |  | June 30, 2003              |  
|Retail equipment and related sales |  | 30.7                       | %
|Retail service                     |  | 41.9                       |  
|Retail supplies and rentals        |  | 43.4                       |  
|Wholesale                          |  | 20.0                       |  



The following tables set forth for the
periods indicated the revenue, gross profit, operating earnings (loss), capital expenditures and depreciation-amortization for each of our operating segments:



|                                    |  | For the Three Months Ended |        
|----------------------------------- |  | -------------------------- | -------
|(In thousands)                      |  | June 30, 2003              |        
|Revenues                            |  |                            |        
|United States                       |  | $                          | 164,470
|Europe                              |  |                            | 138,801
|International                       |  |                            | 30,513 
|Other (1)                           |  |                            |       
|                                    |  |                            |        
|Total Revenues                      |  | $                          | 333,784
|                                    |  |                            |        
|Gross Profit                        |  |                            |        
|United States                       |  | $                          | 66,251 
|Europe                              |  |                            | 44,832 
|International                       |  |                            | 11,435 
|Other (1)                           |  |                            |       
|                                    |  |                            |        
|Total Gross Profit                  |  | $                          | 122,518
|                                    |  |                            |        
|Operating earnings (loss)           |  |                            |        
|United States                       |  | $                          | 3,716  
|Europe                              |  |                            | 5,425  
|International                       |  |                            | (759   
|Other (1)                           |  |                            | (3,384 
|                                    |  |                            |        
|Total operating earnings (loss)     |  | $                          | 4,999  
|                                    |  |                            |        
|Capital Expenditures                |  |                            |        
|United States                       |  | $                          | 10,638 
|Europe                              |  |                            | 2,657  
|International                       |  |                            | 1,343  
|Other (1)                           |  |                            | 172    
|                                    |  |                            |        
|Total Capital Expenditures          |  | $                          | 14,810 
|                                    |  |                            |        
|Depreciation and Amortization       |  |                            |        
|United States                       |  | $                          | 6,645  
|Europe                              |  |                            | 2,792  
|International                       |  |                            | 2,192  
|Other (1)                           |  |                            | 408    
|                                    |  |                            |        
|Total Depreciation and Amortization |  | $                          | 12,037 
|                                    |  |                            |        

---

|(1) |  | Other includes corporate expenses, restructuring charges (credits), foreign exchange gains/losses, corporate assets and deferred tax.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------



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The following tables set forth for the periods indicated the gross profit margin percentage and operating earnings (loss)
margin percentages for each of our operating segments:



|                                 |  | For the Three Months Ended |  
|-------------------------------- |  | -------------------------- | -
|                                 |  | June 30,2003               |  
|Gross profit margin              |  |                            |  
|United States                    |  | 40.3                       | %
|Europe                           |  | 32.3                       |  
|International                    |  | 37.5                       |  
|                                 |  |                           
|Operating earnings (loss) margin |  |                            |  
|United States                    |  | 2.3                        | %
|Europe                           |  | 3.9                        |  
|International                    |  | -2.5                       |  



The following table sets forth for the
periods indicated the percentage of revenue growth for each of our operating segments:



|              |  | For the Three Months Ended |  
|------------- |  | -------------------------- | -
|              |  | June 30,2003               |  
|United States |  | -12.5                      | %
|Europe        |  | 9.6                        |  
|International |  | -5.6                       |  



Three Months Ended June 30, 2003 compared to the Three Months Ended June 30, 2002



Revenue



Total revenue for the first quarter of fiscal 2004 declined by $13.3 million or 3.8% to $333.8 million from $347.1 million in the year-ago quarter with the United States segment down 12.5%, the European segment up
9.6% and the International segment down 5.6%. During the first quarter of fiscal year 2004, approximately 49.3% of our revenue was generated by our United States segment, 41.6% by our European segment and 9.1% by our International segment. Our total
revenue in the current year first quarter was positively impacted by a $26.5 million foreign currency movement of which Europe had $24.4 million and International had $2.1 million. Absent the positive foreign currency movement, Europes and
Internationals total revenues for the quarter would have decreased by 9.7% and 12.0%, respectively.



Retail equipment sales increased by $2.7 million or 2.4% with the United States segment down 1.6%, the European segment up 13.2% and the International segment down 8.8%. This overall increase was primarily due to a
positive $8.3 million foreign currency movement offset in part by competitive economic and market conditions, especially in the United States, technology convergence and a global slowdown in capital spending. Absent the positive foreign currency
movement, Europes retail equipment sales for the quarter would have decreased by 6.5%.



Retail service revenue declined by $13.3 million or 7.4%, with the United States segment down 15.6%, the European segment up 7.8% and the International segment down 10.7%. This decrease was due to the continuing
industry-wide conversion from analog-to-digital equipment and a $2.9 million charge for billing adjustments, which was partially offset by a positive $12.0 million foreign currency movement. Absent the positive foreign currency movement,
Europes retail service revenue for the quarter would have decreased by 11.1%.



Retail supplies and rental revenues declined by $5.2 million or 14.1%, with the United States segment down 30.2%, the European segment up 1.3% and the International segment up 7.6%. These decreases were primarily due to a downsizing of the
United States rental business. These decreases were partially offset by a positive $1.7 million foreign currency movement. Absent the positive foreign currency movement, Europes retail supplies and rentals revenue for the quarter would have



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decreased by 13.6%.



Wholesale revenue for the first quarter of fiscal 2004 increased by $2.5 million or 12.1%, primarily due to a positive $4.5 million foreign currency movement offset by
decreased sales activity as Europe was adversely affected by the continued business slowdown throughout the region.



Gross Profit



Our total gross profit margin decreased to 36.7% in the first quarter ended June 30, 2003 from 38.6 % in the year-ago quarter. The decrease in our profit margin is primarily due to a shift in the mix of our sales
toward lower margin, large enterprise accounts in the United States and changing market conditions, which appear to be dictating lower average sales prices in certain segments of our equipment portfolio. There was also a decrease in U.S. equipment
leasing income of approximately $3.5 million related to lease and residual equipment payments from a diminishing external lease funding program offset by a positive foreign currency movement. The gross profit margin for the United States segment
decreased to 40.3% from 44.1%, while the European segment decreased slightly to 32.3% from 32.4% and the International segment increased to 37.5% from 30.7%.



The retail equipment margin decreased to 30.7% in the first quarter from 35.4% in the year-ago quarter, primarily due to the generation of lower margin transactions and
lower leasing income in the United States. Retail service margins were relatively flat at 41.9% in the first quarter from 42.0% in the year-ago quarter primarily due to higher costs, as a percentage of revenue, in the United States. Retail supplies
and rental margins decreased slightly from 43.4% in the first quarter from 43.5% in the year-ago quarter. Wholesale margins increased to 20.0% in the first quarter from 18.3% in the year-ago quarter, primarily due to tighter cost controls in the
current quarter.



Selling, General and Administrative Expenses



Selling, general and administrative expenses (SG&A) in
the first quarter of fiscal 2004 declined by $1.1 million or 0.9% to $118.5 million from $119.5 million in the year-ago quarter. As a percentage of total revenue, SG&A expenses increased to 35.5% from 34.4% due to increased facility costs
related to the new corporate headquarters building and increased insurance expenses, offset in part, by lower bad debt expense. SG&A expenses decreased in the first quarter as compared to the year-ago quarter primarily due to the previously
mentioned issues and lower employee costs resulting from a reduction in commissions and bonuses offset, in part, by a positive foreign currency movement of $7.2 million.



Restructuring Charges



We reversed $0.6 million of restructuring charges for facilities and severance during the first quarter of fiscal year 2004 due to employee attrition and a lower estimate
of facility charges. This reversal included $0.2 million for facilities within the 2002 plan, $0.3 million for facilities within the 2001 plan and $0.1 million for severance within the 2002 plan.



Other (Income) Expense



Other income decreased to $0.4 million for the first quarter of fiscal 2004 from $0.5 million in the year-ago quarter. Other income included
a foreign currency gain of $0.4 million for the current quarter and $0.3 million for the year-ago quarter.



Operating Earnings (Loss)



For the
first quarter of fiscal 2004, operating earnings decreased by $10.0 million to $5.0 million, compared to earnings of $15.0 million in the year-ago quarter.



Interest Expense and Interest Income



Interest expense increased by $2.3 million to $9.8 million for the first quarter of fiscal 2004 from $7.4 million in the year-ago quarter. The increase was the result of
higher interest rates offset, in part, by reduced debt. Interest income decreased by $0.1 million from the year-ago quarter.



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Income Taxes



We recorded an income tax benefit of $3.7 million for the first quarter of fiscal 2004 compared to a $2.1 million income tax provision for the year-ago quarter. The
combined effective income tax rate was 82.4% for the current quarter as compared to 27.0% for the year-ago quarter. The increase in the tax rate is primarily due to the reversal of $3.2 million of foreign tax accruals.



Earnings (Loss)



For the first quarter of fiscal 2004, we generated a net loss of $0.8 million compared to net earnings of $5.8 million in the year-ago
quarter. After allowing for the dilutive effect of dividends on our participating shares, we generated a net loss available to common shareholders of $0.09 per ADS in the first quarter of fiscal 2004 compared to net earnings available to common
shareholders of $0.02 per ADS in the year-ago quarter.



Exchange Rates



Fluctuations in the exchange
rates between the pound sterling and the United States dollar affect the pound sterling market price of our ordinary shares on the London Stock Exchange and, the dollar market price of our American depositary shares.



We operate in 25 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.
|- |  | ----------------------------------------------------------------------------------------------



The results of operations are affected by the relative strength of currencies in the countries where our products are sold. During the first
quarter of fiscal 2004, approximately 50.7% of our revenue was generated outside the United States with 34.2% of our revenue generated in Euro countries, 7.4% in the United Kingdom, and 9.1% in other foreign locations. Approximately 45.8% of our
revenue for the first quarter of fiscal 2003 was generated outside the United States with 29.3% generated in Euro countries, 7.2% in the United Kingdom, and 9.3% in other foreign locations including Canada, Mexico, Australia and South America.



In comparing the average exchange rates between the first quarter of fiscal
2004, and the year-ago quarter, the Euro currency and the United Kingdom pound strengthened against the dollar by approximately 23.9% and 10.9%, respectively. The change to exchange rate positively impacted revenue by approximately $26.5 million.
The strengthening of the Euro and the United Kingdom pound since March 31, 2003 was the primary reason for the $12.2 million decrease in cumulative currency translation losses in shareholders equity for the first three months of fiscal year
2004.



Our inter-company loans are subject to fluctuations in exchanges rates
between the U.S. dollar and the currencies in each of the countries in which we operate, primarily the Euro and the United Kingdom pound. Based on the outstanding balance of our inter-company loans at March 31, 2003, a change of 1% in the exchange
rate for the euro and United Kingdom pound would cause an increase/decrease in our foreign exchange result of approximately $0.1 million.



Our results of operations and financial condition have been, and in the future may 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, South American and Central American subsidiaries, from local currencies to the dollar. Generally, we do not hedge our exposure to changes in foreign currency.
Gains and losses included in the consolidated statements of operations from foreign currency transactions included a $0.4 million gain in the first three months of fiscal 2004 and a $0.3 million gain in the first three months of fiscal 2003.



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Liquidity and Capital Resources



The following
summarizes our cash flows for the first three months of fiscal year 2004 and 2003 as reported in our Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements:



|(In Thousands)                                       |  | June 30,2003 |         |   | June 30, 2002 |  
|---------------------------------------------------- |  | ------------ | ------- | - | ------------- | -
|Net cash provided by operating activities            |  | $            | 855     |   |               | $
|Net cash used in investing activities                |  |              | (14,549 | ) |               |  
|Net cash used in financing activities                |  |              | (10,925 | ) |               |  
|Effect of exchange rates                             |  |              | 3,448   |   |               |  
|                                                     |  |              |         |   |               |  
|Net increase/(decrease) in cash and cash equivalents |  |              | (21,171 | ) |               |  
|Cash and cash equivalents, beginning of period       |  |              | 81,493  |   |               |  
|                                                     |  |              |         |   |               |  
|Cash and cash equivalents, end of period             |  | $            | 60,322  |   |               | $
|                                                     |  |              |         |   |               |  



Cash provided by operations continues
to be our primary source of funds to finance operating needs and capital expenditures. Our net cash flow provided by operating activities was $0.9 million and $34.2 million for the first three months of fiscal year 2004 and 2003, respectively. The
$33.4 million decrease in fiscal 2004 operating cash flow was primarily due to the reduction in net income, the timing of payments to our vendors and less cash collected from our receivables this year versus the prior year.



Net cash flow used in investing activities was $14.5 million and $8.6 million for the first
three months of fiscal year 2004 and 2003, respectively. The increase in fiscal 2004 cash outlays from investing activities was primarily due to increased spending for property and plant related to the Vision 21 project and the new corporate
headquarters.



Net cash flow used in financing activities was $10.9 million and
$50.7 million for the first three months of fiscal year 2004 and 2003, respectively. The decrease in fiscal 2004 cash usage from financing activities was due to a conscious effort to only make the required debt payments during the quarter since we
were in the process of refinancing our debt and the payment last year of $16 million of our outstanding 6.75% convertible subordinated notes.



The following table sets out our future payments for the following contractual obligations:



|Contractual Obligations                        |  | Total |         | Payments due inLess Than 1 Year |   | Payments due inMore Than 1 Year
|---------------------------------------------- |  | ----- | ------- | ------------------------------- | - | -------------------------------
|(in 000s)                                     |  |       |         |                                 |   |                                
|Credit Facility                                |  | $     | 107,100 |                                 | $ | 32,000                         
|Notes Payable                                  |  |       | 112,114 |                                 |   | 47,594                         
|Capital Leases and other Long-Term Obligations |  |       | 5,703   |                                 |   | 3,209                          
|                                               |  |       |         |                                 |   |                                
|Total Contractual Obligations                  |  | $     | 224,917 |                                 | $ | 82,803                         
|                                               |  |       |         |                                 |   |                                



We had a credit facility, or the old
credit facility, with a consortium of international lenders through March 31, 2006. Total commitments under the old credit facility were $212.0 million, consisting of a $65.0 million revolver commitment, a $117.0 million term loan and a $30.0
million letter of credit commitment. At June 30, 2003, we had an outstanding balance of $107.1 million under the old credit facility, with $29.0 million due under the revolver and $78.1 million due under the term.



We paid $11.2 million in bank fees and $6.6 million in third party fees in our 2002 fiscal
year relating to the old credit facility. We also paid $20.4 million in bank fees related to the old credit facility during fiscal year 2003. On July 1, 2003, we paid our banks a fee of $1.7 million, which was equal to 1.0% of the total commitment
under the old credit facility as of June 30, 2003. These fees were being amortized over the term of the old credit facility and at June 30, 2003, we had $20.6 million of unamortized debt issuance costs, anniversary fees and amendment fees. These
fees will be charged to earnings in the quarter ending September 30, 2003.



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On July 1, 2003, we repaid our then-existing credit facility with the net proceeds from the offering of $175 million
aggregate principal amount of senior notes that were sold at a price of 97.6% of the aggregate principal amount. The senior notes have a fixed annual interest rate of 11.0%, which will be paid every six months on June 15 and December 15, commencing
December 15, 2003. The senior notes will mature on June 15, 2010. The senior notes are fully and unconditionally guaranteed on a joint and several basis by all of our Australian and Canadian subsidiaries, a Luxembourg subsidiary, two UK
subsidiaries, one of which is our primary UK operating subsidiary, and all of our U.S. subsidiaries other than certain dormant entities. Under the terms of the indenture governing the senior notes, if we sell certain assets or experience specific
kinds of changes of control, we may be required to offer to repurchase the senior notes at the prices and as provided in the indenture plus accrued and unpaid interest, and additional amounts, if any, to the date of repurchase. The indenture
governing the senior notes includes negative covenants that will restrict our ability to, among other things, incur additional indebtedness, create liens, pay dividends (other than payment-in-kind dividends on our participating shares) and sell or
make certain dispositions of assets.



If, for any fiscal year commencing
with the fiscal year ending March 31, 2004, there is excess cash flow, as such term is defined in the indenture governing the senior notes, in an amount in excess of $5.0 million, we will be required to make an offer in cash to holders of the senior
notes to use 50% of such excess cash flow to purchase their senior notes at 101% of the aggregate principal amount of the senior notes to be repurchased plus accrued and unpaid interest and additional amounts, if any.



Concurrently with the issuance of the senior notes, we entered into a three year credit
facility with Fleet Capital Corporation to provide a $50.0 million, senior secured revolver, which includes a $30.0 million sublimit for standby and documentary letters of credit. The new credit facility will bear interest at an annual rate equal
to, at our option (a) the sum of the rate of interest publicly announced from time to time by Fleet National Bank as its prime or base rate of interest plus the applicable margin thereon or (b) the sum of LIBOR for interest periods at our option of
one, two, three or six months plus the applicable margin thereon. The new credit facility includes negative covenants that place restrictions on our ability to, among other things, incur indebtedness, create or incur liens, make loans and declare or
pay dividends. Our obligations under the new credit facility will be guaranteed by Danka Business Systems PLC and its subsidiaries that are guarantors of the senior notes. The new credit facility will be secured by a first priority lien on and
security interest in substantially all of the assets of Danka Holding Company and Danka Office Imaging Company and the new credit facility guarantors organized in the United States and by a pledge of the capital stock of such guarantors organized in
the United States. See Footnote 2 (Subsequent Events) to the financial statements included in this quarterly report for more details.



On July 1, 2003, we had approximately $29.1 million in letters of credit outstanding. In connection with the closing of the senior notes offering and the new credit
facility, we were required to post $30.6 million in cash collateral with Bank of America to secure such letters of credit under the new credit facility. On or about July 25, 2003, one of our major vendors agreed to releases its letters of credit,
which resulted in $15.8 million of cash being released that we had previously posted as collateral for such letters of credit. As of August 1, 2003, we had $14.8 million of cash collateral with the Bank of America to secure letters of credit under
the new credit facility. We are attempting to release some of this cash by securing such letters of credit by other means, including a pledge of some of our foreign assets.



We have $47.6 million in principal amount of zero coupon senior subordinated notes due April 1, 2004 and $64.5 million in principal amount
of 10% subordinated notes due April 1, 2008. The zero coupon notes are guaranteed by Danka Holding Company and Danka Office Imaging Company, which are both wholly-owned U.S. subsidiaries. On July 18, 2003, we issued a notice of redemption to all of
the holders of our zero coupon notes specifying a redemption price of par value of the zero coupon notes and a redemption date of August 18, 2003. In connection with the redemption we have placed $47.6 million in escrow.



Other Financing Arrangements



Senior
Convertible Participating Shares



On December 17, 1999, we issued 218,000
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 through December 2004. At that time, we will be obliged to pay the participating share dividends in cash. However, the terms of the participating shares permit us to continue to pay payment-in-kind
dividends following December 17, 2004 if our then existing principal indebtedness, which would include our new credit facility and debt securities issued in an aggregate principal amount in excess of $50.0 million in a bona fide underwritten public
or private offering, prohibits us from paying cash dividends. Further, if we are not permitted by the terms of the participating shares to pay payment-in-kind dividends following December 17, 2004 and we have insufficient distributable reserves
under English law to pay cash dividends the amount of any unpaid dividend will be added to the liquidation return of each participating share.



The participating shares are currently convertible into ordinary shares at a conversion price of $3.11 per ordinary share (equal to $12.44 per ADS), subject to adjustment
in certain circumstances to avoid dilution of the interests of participating shareholders. As of June 30, 2003, the participating shares have voting rights, on an as converted basis, currently



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corresponding to approximately 25.9% of the total voting power of our capital stock which includes an additional 53,682 participating shares in respect of
payment-in-kind dividends.



If, by December 17, 2010, we have not converted or
otherwise redeemed the participating shares, we are required, subject to compliance with applicable laws and the instruments governing our indebtedness, to redeem the participating shares for cash at the greater of (a) the then liquidation value and
(b) the then market value of the ordinary shares into which the participating shares are convertible, in each case plus accumulated and unpaid dividends from the most recent dividend payment date. If the price set out in (b) above is applicable, we
are permitted to convert the participating shares into the number of ordinary shares into which they are convertible instead of making the cash payment.



In the event of liquidation of Danka, participating shareholders will be entitled to receive a distribution equal to the greater of (a) the liquidation return per share
(initially $1,000 and subject to upward adjustment on certain default events by us) plus any accumulated and unpaid dividends accumulating from the most recent dividend date and b) the amount that would have been payable on each participating share
if it had been converted into ordinary shares if the market value of those shares exceed the liquidation value of the participating shares.



We are not permitted to pay dividends, other than payment-in-kind dividends on our participating shares, under our new credit facility or the senior notes 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 as determined by reference to our financial statements prepared in accordance with U.K. GAAP:



| |  |  | 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, accumulated realized 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.



General Electric Capital Corporation



We have an agreement
with General Electric Capital Corporation (GECC) under which GECC agrees to provide financing to our United States customers to purchase equipment. The agreement expires March 31, 2009. In connection with this agreement, we are obligated
to provide a minimum level of customer leases to GECC. The minimum level of customer leases is equal to a specified percentage of U.S. retail equipment and related sales revenues. If we fail to provide a minimum level of customer leases under the
agreement, we are obligated to pay penalty payments to GECC. For the year ended March 31, 2002, we were obligated for penalty payments of approximately $0.2 million. We were not required to make any penalty payments for the year ended March 31,
2003. However, we may incur penalty payments for the year ended March 31, 2004 if our retail equipment sales do not increase to the specified levels.



Our agreement with GECC requires us to maintain a consolidated net worth at or above specified levels during specified time periods, and a failure by us to maintain such
consolidated networth as provided under the GECC agreement may result in a termination event under the GECC agreement.



We are contractually liable for payments under certain real estate operating leases. We have evaluated our worldwide facility needs and determined that we have excess
facility capacity under lease. While we are actively seeking to mitigate our obligations under these leases, we could incur additional liabilities or expense based upon the fair value of our obligations at the time we cease using our rights under
such leases.



Market Risk Management



Interest Rate Risk



Our exposure to interest rate risk primarily relates to our new credit
facility. The new credit facility will bear interest at an annual rate equal to, at our option (a) the sum of the rate of interest publicly announced from time to time by Fleet National Bank as its prime or base rate of interest plus the applicable
margin thereon or (b) the sum of LIBOR for interest periods at our option of one, two, three or six months plus the applicable margin thereon. The applicable interest rate margin on loans for which interest is calculated by reference to the base or
prime rate, or base rate loans, will range from 0% to 0.50% per



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annum, and the applicable interest rate margin on loans for which interest is calculated by reference to the LIBOR rate, or LIBOR rate loans, will range from
1.75% to 2.50% per annum, in each case based on average adjusted availability, or availability under the new credit facility plus cash, under the new credit facility.



As of August 1, 2003, we did not have a balance due under the new credit facility.



Currency exchange risk



We are a multinational corporation. Therefore, foreign exchange risk arises as a normal part of our business. We strive to reduce this risk
by transacting our international business in local currencies. In this manner, assets and liabilities are matched in the local currency, which reduces the need for dollar conversion. Any foreign currency impact on translating assets and liabilities
into dollars is included as a component of shareholders equity. Our results for the first three months of fiscal year 2004 were positively impacted by a $26.5 million foreign currency movement, in particular the strengthening of the Euro and
the United Kingdom pound against the dollar.



Generally, we do not enter into
forward and option contracts to manage our exposure to foreign currency fluctuations. At June 30, 2003, we had no outstanding forward contracts or option contracts to buy or sell foreign currency. For the two year period ended June 30, 2003, there
were no gains or losses included in our consolidated statements of operations on forward contracts and option contracts.



Seasonality



We have experienced some seasonality in our business. Our European and Canadian operations have historically experienced lower revenue for the second quarter of our fiscal year, which is the three month period ended
September 30. This is primarily due to increased vacation time by Europeans and Canadians during July and August. This has resulted in reduced sales activity and reduced usage of photocopiers, facsimiles and other office imaging equipment during
that period.



New Accounting Pronouncements



In April 2002, the
FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS 145) which is effective for fiscal years beginning after May 15, 2002. This
Statement rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, as well as SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. As a result, the gains or losses from debt
extinguishments will no longer be classified as extraordinary items unless they meet the requirements in APB 30 of being unusual and infrequently occurring. Additionally, this Statement amends SFAS No. 13, Accounting for Leases, to
eliminate any inconsistency between the reporting requirements for sale-leaseback transactions and certain lease modifications that have similar economic effects. We adopted the provisions of Statement 145 in the first quarter of our fiscal year
2004 and reclassified the fiscal year 2002 gains from debt extinguishment to continuing operations.



SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the
date of a commitment to an exit or disposal plan. Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002.



SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity requires mandatorily redeemable instruments
to be classified as liabilities if they embody an obligation outside the control of the issuer and the holder to redeem the instrument by transferring cash or other assets and if the obligation is required to be redeemed at a specified or
determinable date or upon an event certain to occur. We will adopt the provisions of Statement 150 no later than the second quarter of our fiscal year 2004. Since the holders of our 6.5% convertible participating shares have the option to convert
the instrument into ordinary shares, they are not currently required to be classified as a liability.



Item 3.    Quantitative and Qualitative Analysis About Market Risk



Our market risk is primarily limited to fluctuations in interest rates as it pertains to our borrowings under our new credit facility and the new senior notes that bear a
fixed rate. There have been no material changes, other than described below, to the information in Item 7A disclosure made in our Annual Report on Form 10-K for the fiscal year ended March 31, 2003.



On July 1, 2003, we repaid our then-existing credit facility with the net proceeds from the
offering of $175 million aggregate principal amount of senior notes that were sold at a price of 97.6% of the aggregate principal amount. The senior notes have a



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fixed annual interest rate of 11.0%, which will be paid every six months on June 15 and December 15, commencing December 15, 2003. The senior notes will
mature on June 15, 2010.



Concurrently with the issuance of the senior notes,
we entered into a three year credit facility with Fleet Capital Corporation to provide a $50.0 million, senior secured revolver, which includes a $30.0 million sublimit for standby and documentary letters of credit. The new credit facility will bear
interest at an annual rate equal to, at our option (a) the sum of the rate of interest publicly announced from time to time by Fleet National Bank as its prime or base rate of interest plus the applicable margin thereon or (b) the sum of LIBOR for
interest periods at our option of one, two, three or six months plus the applicable margin thereon.



Item 4.    Controls and Procedures



We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms, and that such information is accumulated and communicated to the management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding managements control objectives.



The Companys management, with the participation of the Companys Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by
this report. Based on such evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Companys disclosure controls and procedures provide reasonable assurance that
they are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.



There have not been any changes in the Companys internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting.



As of March 31, 2003, we were
advised by our independent public auditors of a reportable condition under standards established by the American Institute of Certified Public Accountants related to certain matters involving our internal control and operations. Such
condition relates to continuing deficiencies in the design and operation of internal controls as they relate to our U.S. billing and collection functions. We acknowledge this condition, which has been reported to our audit committee. We are in the
process of addressing this control issue concurrently with the implementation of our Oracle ERP System.



APPROVAL OF NON-AUDIT SERVICES



The
audit committee has approved KPMG Audit PLC and its affiliates to perform services regarding local statutory audits and assist in certain tax issues during the three months ended June 30, 2003.



SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS



Certain statements contained herein, or otherwise made by our officers, including statements
related to our future performance and our outlook for our businesses and respective markets, projections, statements of our plans or objectives, forecasts of market trends and other matters, are forward-looking statements, and contain information
relating to us that is based on our beliefs as well as assumptions, made by, and information currently available to us. The words goal, anticipate, expect, believe and similar expressions as they
relate to us are intended to identify forward-looking statements, although not all forward looking statements contain such identifying words. 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 Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. 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, the following: (i) any inability to successfully implement our
strategy; (ii) any inability to comply with the financial or other covenants in our debt instruments; (iii) any material adverse change in financial markets, the economy or in our financial position; (iv) increased competition in our



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industry and the discounting of products by our competitors; (v) new competition as the result of evolving technology; (vi) any inability by us to procure,
or any inability by us to continue to gain access to and successfully distribute, new products, including digital products, color products, multi-function products and high-volume copiers, or to continue to bring current products to the marketplace
at competitive costs and prices; (vii) any inability to arrange financing for our customers purchases of equipment from us; (viii) any inability to successfully enhance and unify our management information systems; (ix) any inability to record
and process key data due to ineffective implementation of business processes and policies; (x) any negative impact from the loss of a key vendor or customer; (xi) any negative impact from the loss of any of our senior or key management personnel;
(xii) any change in economic conditions in domestic or international markets where we operate or have material investments which may affect demand for our products or services; (xiii) any negative impact from the international scope of our
operations; (xiv) fluctuations in foreign currencies; (xv) any inability to achieve or maintain cost savings; (xvi) any incurrence of tax liabilities beyond our current expectations, which could adversely affect our liquidity; and (xvii) any delayed
or lost sales and other impacts related to the commercial and economic disruption caused by past or future terrorist attacks, the related war on terrorism, the fear of additional terrorist attacks or any outbreak of the Severe Acute Respiratory
Syndrome (SARS); and (xviii) 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. Except as required by applicable law, we undertake no obligation, and do not intend, to update these forward-looking statements to reflect events or circumstances that arise after the date they 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 our company.



PART IIOTHER INFORMATION



Item 1.    Legal Proceedings



On or about June 6, 2003, we were served with a putative class action complaint titled Stephen L. Edwards, et al., Plaintiffs vs Danka Industries, Inc., et al., including American Business Credit Corporation, Defendants, alleging claims of
breach of contract, fraud/intentional misrepresentation, unjust enrichment, violation of the Florida Deception and Unfair Trade Protection Act and injunctive relief. The claim was filed in the state court in Tennessee, and we have sought to remove
the claim to Federal court for further proceedings. We intend to vigorously defend all claims alleged by the plaintiff.



Also, we are subject to legal proceedings and claims which arise in the ordinary course of our business. We do not expect these legal proceedings to have a material
effect upon our financial position, results of operations 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.
| | --- |  | ---------



| | 4.1 |  | Registration Rights Agreement dated July 1, 2003, by and among Danka Business Systems PLC, the Guarantors listed on Schedule A thereto and Bear, Stearns & Co. Inc.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.2 |  | Indenture dated July 1, 2003, by and among Danka Business Systems PLC, each of the Guarantors named therein and HSBC Bank USA, as Trustee.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------



| | 4.3 |  | Form of 11% Senior Notes due 2010 (included in Exhibit 4.2).
| | --- |  | ------------------------------------------------------------



| | 10.1 |  | Loan and Security Agreement dated July 1, 2003, by and among Danka Office Imaging Company and Danka Holding Company as Borrowers, Danka Business Systems PLC as a guarantor, the
Lenders party thereto and Fleet Capital Corporation as collateral and administrative agent.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.2 |  | Guarantor Security Agreement dated July 1, 2003, by and among American Business Credit Corporation, Corporate Consulting Group, Inc., Danka Imaging Distribution, Inc., Danka
Management Company, Inc., Danka
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | Management II Company, Inc., D.I. Investment Management, Inc., Herman Enterprises, Inc. of South Florida and Quality Business, Inc., collectively as Debtors,
in favor of Fleet Capital Corporation, as collateral and administrative agent for the Lenders that are parties from time to time to the Loan Agreement.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.3 |  | Stock Pledge Agreement dated July 1, 2003, by and among Danka Office Imaging Company and Danka Holding Company as Pledgors and Fleet Capital Corporation as Agent for the Lenders
party to the Loan Agreement.
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.4 |  | Continuing Guaranty Agreement dated July 1, 2003, by and among Danka Business Systems PLC and the Subsidiaries of Danka Business Systems PLC signatories thereto, as the Guarantors,
in favor of Fleet Capital Corporation as administrative and collateral agent for the Lenders party to the Loan Agreement.
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 31.1 |  | Certification of P. Lang Lowrey, III pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- |  | -----------------------------------------------------------------------------------------------



| | 31.2 |  | Certification of F. Mark Wolfinger pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- |  | ---------------------------------------------------------------------------------------------



| | 32.1 |  | Certification of P. Lang Lowrey, III and F. Mark Wolfinger pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | Reports on Form 8-K:
| | --- |  | --------------------



Current Report on Form 8-K dated May 22, 2003 (Items 7 and 9);

Current Report on Form 8-K dated May 22, 2003 (Items 7 and 9);

Current Report on Form 8-K dated June 10, 2003 (Items 5 and 7);

Current Report on Form 8-K dated June 10, 2003 (Items 9); and

Current Report on Form 8-K dated July 2, 2003 (Items 5 and 7).





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:  August 14, 2003 |  |  |  | /S/    F. MARK
WOLFINGER                                  
|                       |  |  |  | F. Mark Wolfinger                                         
|                       |  |  |  | Executive Vice-President and Chief Financial Officer      
|                       |  |  |  | (Chief Financial Officer and Principal Accounting Officer)



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