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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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



DANKA BUSINESS SYSTEMS PLC

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



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



|11101 ROOSEVELT BOULEVARD                |  |     |  | 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) 622-2100 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)



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 Exchange Act). Yes  x        No ̈



The registrant had 250,036,591 Ordinary Shares outstanding as of November 3,
2003.





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INDEX



|RISK FACTORS                                                                                                                                    |  | 3 
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|                                                                                                                                                | 
|PART I  FINANCIAL INFORMATION                                                                                                                  |  | 9 
|                                                                                                                                                | 
|ITEM1.    CONSOLIDATED FINANCIAL STATEMENTS                                                                                                     |  | 9 
|Consolidated Statements of Operations for the three and six months ended September 30, 2003 and 2002                                            |  | 9 
|Condensed Consolidated Balance Sheets as of September 30, 2003 and March 31, 2003                                                               |  | 10
|Consolidated Statements of Cash Flows for the six months ended September 30, 2003 and 2002                                                      |  | 11
|Consolidated Statements of Shareholders Equity and Accumulated Other Comprehensive Losses for the six months ended September 30, 2003 and 2002 |  | 13
|Notes to Consolidated Financial Statements                                                                                                      |  | 14
|ITEM2.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS                                                 |  | 29
|Critical Accounting Policies and Estimates                                                                                                      |  | 29
|Three Months Ended September 30, 2003 compared to the Three Months Ended September 30, 2002                                                     |  | 34
|Six months Ended September 30, 2003 compared to the Six months Ended September 30, 2002                                                         |  | 36
|Exchange Rates                                                                                                                                  |  | 38
|Liquidity and Capital Resources                                                                                                                 |  | 39
|Other Financing Arrangements                                                                                                                    |  | 40
|Market Risk Management                                                                                                                          |  | 42
|New Accounting Pronouncements                                                                                                                   |  | 42
|ITEM3.    QUANTITATIVE AND QUALITATIVE ANALYSIS ABOUT MARKET
RISK                                                                               |  | 43
|ITEM4.    CONTROLS AND PROCEDURES                                                                                                               |  | 43
|                                                                                                                                                | 
|PART II  OTHER INFORMATION                                                                                                                     |  | 44
|ITEM1.     LEGAL PROCEEDINGS                                                                                                                    |  | 44
|ITEM2.     CHANGES IN SECURITIES                                                                                                                |  | 44
|ITEM3.     DEFAULTS UPON SENIOR SECURITIES                                                                                                      |  | 44
|ITEM4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS                                                                                  |  | 44
|ITEM5.     OTHER INFORMATION                                                                                                                    |  | 44
|ITEM6.     EXHIBITS AND REPORTS ON FORM 8-K                                                                                                     |  | 45
|                                                                                                                                                | 
|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, or the Exchange Act.
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, and the fear of additional terrorist attacks; and (xviii) other risks including those risks identified in any of our filings with the Securities and Exchange Commission, or the SEC. 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.



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 first six months ended September 30, 2003 of $18.1 million compared to net earnings of $7.5 million in the year-ago period and have incurred losses in
prior years. The net loss from continuing operations for the first six months ended September 30, 2003 included a $20.6 million pre-tax write-off of debt issuance costs or $14.4 million on an after-tax basis.



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We believe that our results for the first six months 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, lower MIF, 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/Oracle ERP Phase I program (which was completed in September 2003) 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, our
ability to service our indebtedness may be impaired because we may not generate sufficient cash flow from operations to pay principal or interest when due.



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.



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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 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  Prior to October 2003, our United States management information systems had run on numerous disparate legacy IT systems that were outdated and incompatible. The operation and coordination of these legacy
management information systems and billing systems was labor-intensive and expensive. On or about October 2003, we completed the geographic rollout of the new Oracle ERP System in the United States. Although it is too early to know, we believe that
this system should, in large part, positively address the prior system limitations, which required us to manually collect, compile and consolidate certain information. However, due to data conversion and other issues, we expect to continue to
experience problems in updating and processing certain customer information, which results in some inaccurate billing of our customers and the untimely crediting of their accounts. While we do expect improvements in these areas as the required
adjustments are made to the Oracle system, it is too early to tell when such improvements will be actually achieved.



We must also obtain an accurate measure of usage on each of our U.S. 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. We do not expect to continue our past practice of estimating usage for customers machines and instead intend to implement processes to get an actual reading of the customers
meter to bill them for any usage in excess of the standard contract minimum. We cannot guarantee that these processes will be timely implemented or that they will operate to effectively address this problem with our billing operations.



The implementation of the Oracle ERP System will cost approximately $50 million, excluding
ancillary expenses of approximately $13 million. If we are not able to successfully leverage the benefits of our Oracle ERP System, then we will continue to incur substantial costs using manual procedures to process information.



For many of the same deficiencies 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 and inadequate document retention. While we believe that some of these issues within the U.S. will be addressed with the implementation of new manual internal control procedures and the implementation of the Oracle ERP system, which is
configured with better system internal controls, there is no assurance that all of these issues will be completely corrected by such changes. If these matters worsen, they could adversely affect our ability to record, process, summarize and report
key data consistent with the assertions of management.



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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 funds. 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 certain 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 us 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 (also referred to herein as Danka or the Company) is incorporated under the laws of England and Wales, and we conduct a significant portion
of our business outside of the United States. We generated 50.8% of our revenue outside the United States during the first six months of fiscal year 2004. We market office imaging equipment, document solutions and related services and supplies
directly to customers in 24 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 to fund operations 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.



We generated 50.8% of our revenues
outside the United States during the first six months of fiscal year 2004, with the majority of these revenues denominated in either the euro or United Kingdom pound. During the first six months of fiscal year 2004, the euro strengthened 18.9%
against the U.S. dollar and the United Kingdom pound strengthened 7.3% against the U.S. dollar with significant positive effects on our revenue and income.



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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 September 30, 2003, a change of 1% in the exchange rate for the euro and United Kingdom
pound, would cause a change 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 in euros but we pay our suppliers in U.S. dollars.



We generally do not currently 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  At September 30, 2003, we had consolidated long-term indebtedness, including current maturities of long-term debt, of $245.1 million which
included $64.5 million in principal amount of 10% subordinated notes due April 1, 2008, or the subordinated notes and $175.0 million in principal amount of senior notes, or the senior notes. The subordinated notes have interest which is payable
every six months on April 1 and October 1 while the senior notes have interest payable every six months on June 15 and December 15, commencing December 15, 2003.



The amount of our 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 relatively 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 our 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 (as defined in the indenture) to repay other senior indebtedness or offer to
repurchase the senior notes.



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 Exchange Act 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 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 a 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



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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 change
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 report on 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.



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PART I  FINANCIAL INFORMATION



|Item 1. |  | Consolidated Financial Statements
|------- |  | ---------------------------------



Danka Business Systems PLC

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

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

(Unaudited)



|                                                                  |  | For the Three Months Ended |         |   |                    |   | For the Six Months Ended |  
|----------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------------ | - | ------------------------ | -
|                                                                  |  | September 30, 2003         |         |   | September 30, 2002 |   |                          |  
|Revenue:                                                          |  |                            |         |   |                    |   |                          |  
|Retail equipment and related sales                                |  | $                          | 115,223 |   |                    | $ | 118,063                  |  
|Retail service                                                    |  |                            | 155,300 |   |                    |   | 172,684                  |  
|Retail supplies and rentals                                       |  |                            | 30,325  |   |                    |   | 34,477                   |  
|Wholesale                                                         |  |                            | 22,115  |   |                    |   | 18,526                   |  
|                                                                  |  |                            |         |   |                    |   |                          |  
|Total revenue                                                     |  |                            | 322,963 |   |                    |   | 343,750                  |  
|                                                                  |  |                            |         |   |                    |   |                          |  
|Costs and operating expenses:                                     |  |                            |         |   |                    |   |                          |  
|Cost of retail equipment sales                                    |  |                            | 73,679  |   |                    |   | 79,533                   |  
|Retail service costs                                              |  |                            | 91,948  |   |                    |   | 105,153                  |  
|Retail supplies and rental costs                                  |  |                            | 18,998  |   |                    |   | 20,523                   |  
|Wholesale costs of revenue                                        |  |                            | 18,107  |   |                    |   | 14,714                   |  
|Selling, general and administrative expenses                      |  |                            | 119,127 |   |                    |   | 118,188                  |  
|Restructuring charges (credits)                                   |  |                            |        |   |                    |   | (555                     | )
|Other (income) expense                                            |  |                            | 152     |   |                    |   | (3,067                   | )
|                                                                  |  |                            |         |   |                    |   |                          |  
|Total costs and operating expenses                                |  |                            | 322,011 |   |                    |   | 334,489                  |  
|                                                                  |  |                            |         |   |                    |   |                          |  
|Operating earnings                                                |  |                            | 952     |   |                    |   | 9,261                    |  
|                                                                  |  |                            |         |   |                   
|Interest expense                                                  |  |                            | (8,069  | ) |                    |   | (6,881                   | )
|Interest income                                                   |  |                            | 317     |   |                    |   | 20                       |  
|Writeoff of debt issuance costs                                   |  |                            | (20,562 | ) |                    |   |                         |  
|                                                                  |  |                            |         |   |                    |   |                          |  
|Earnings (loss) before income taxes                               |  |                            | (27,362 | ) |                    |   | 2,400                    |  
|                                                                  |  |                            |         |   |                   
|Provision (benefit) for income taxes                              |  |                            | (10,103 | ) |                    |   | 644                      |  
|                                                                  |  |                            |         |   |                    |   |                          |  
|Net earnings (loss)                                               |  | $                          | (17,259 | ) |                    | $ | 1,756                    |  
|                                                                  |  |                            |         |   |                    |   |                          |  
|Calculation of (loss) earnings per ADS                            |  |                            |         |   |                    |   |                          |  
|Earnings (loss)                                                   |  | $                          | (17,259 | ) |                    | $ | 1,756                    |  
|Dividends and accretion on participating shares                   |  |                            | (4,740  | ) |                    |   | (4,463                   | )
|                                                                  |  |                            |         |   |                    |   |                          |  
|Income (loss) available to common shareholders                    |  | $                          | (21,999 | ) |                    | $ | (2,707                   | )
|                                                                  |  |                            |         |   |                    |   |                          |  
|Basic (loss) earnings available to common shareholders per ADS:   |  |                            |         |   |                    |   |                          |  
|Net earnings (loss) per ADS, continuing operations                |  | $                          | (0.35   | ) |                    | $ | (0.04                    | )
|                                                                  |  |                            |         |   |                    |   |                          |  
|Weighted average ADSs                                             |  |                            | 62,586  |   |                    |   | 62,026                   |  
|                                                                  |  |                            |         |   |                   
|Diluted (loss) earnings available to common shareholders per ADS: |  |                            |         |   |                    |   |                          |  
|Net earnings (loss) per ADS                                       |  | $                          | (0.35   | ) |                    | $ | (0.04                    | )
|                                                                  |  |                            |         |   |                    |   |                          |  
|Weighted average ADSs                                             |  |                            | 62,586  |   |                    |   | 62,026                   |  





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Danka Business Systems PLC

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

(In Thousands)

(Unaudited)



|                                                                 |  | September 30,2003 |          |   | March 31,2003 |  
|---------------------------------------------------------------- |  | ----------------- | -------- | - | ------------- | -
|Assets                                                           |  |                   |          |   |               |  
|Current assets:                                                  |  |                   |          |   |               |  
|Cash and cash equivalents                                        |  | $                 | 98,300   |   |               | $
|Accounts receivable, net                                         |  |                   | 235,910  |   |               |  
|Inventories                                                      |  |                   | 106,619  |   |               |  
|Prepaid expenses, deferred income taxes and other current assets |  |                   | 35,676   |   |               |  
|                                                                 |  |                   |          |   |               |  
|Total current assets                                             |  |                   | 476,505  |   |               |  
|                                                                 |  |                  
|Equipment on operating leases, net                               |  |                   | 35,129   |   |               |  
|Property and equipment, net                                      |  |                   | 76,370   |   |               |  
|Goodwill, net                                                    |  |                   | 266,992  |   |               |  
|Noncompete agreements, net                                       |  |                   | 718      |   |               |  
|Deferred income taxes                                            |  |                   | 90,819   |   |               |  
|Other assets                                                     |  |                   | 32,357   |   |               |  
|                                                                 |  |                   |          |   |               |  
|Total assets                                                     |  | $                 | 978,890  |   |               | $
|                                                                 |  |                   |          |   |               |  
|Liabilities and shareholders equity                             |  |                   |          |   |               |  
|Current liabilities:                                             |  |                   |          |   |               |  
|Current maturities of long-term debt and notes payable           |  | $                 | 4,034    |   |               | $
|Accounts payable                                                 |  |                   | 125,481  |   |               |  
|Accrued expenses and other current liabilities                   |  |                   | 100,540  |   |               |  
|Taxes payable                                                    |  |                   | 114,880  |   |               |  
|Deferred revenue                                                 |  |                   | 42,331   |   |               |  
|                                                                 |  |                   |          |   |               |  
|Total current liabilities                                        |  |                   | 387,266  |   |               |  
|                                                                 |  |                  
|Long-term debt and notes payable, less current maturities        |  |                   | 241,088  |   |               |  
|Deferred income taxes and other long-term liabilities            |  |                   | 31,252   |   |               |  
|                                                                 |  |                   |          |   |               |  
|Total liabilities                                                |  |                   | 659,606  |   |               |  
|                                                                 |  |                   |          |   |               |  
|6.5% convertible participating shares                            |  |                   | 267,715  |   |               |  
|                                                                 |  |                   |          |   |               |  
|                                                                 |  |                  
|Shareholders equity:                                            |  |                   |          |   |               |  
|Ordinary shares, 1.25 pence stated value                         |  |                   | 5,176    |   |               |  
|Additional paid-in capital                                       |  |                   | 327,586  |   |               |  
|Accumulated deficit                                              |  |                   | (217,389 | ) |               |  
|Accumulated other comprehensive loss                             |  |                   | (63,804  | ) |               |  
|                                                                 |  |                   |          |   |               |  
|Total shareholders equity                                       |  |                   | 51,569   |   |               |  
|                                                                 |  |                   |          |   |               |  
|Total liabilities & shareholders equity                         |  | $                 | 978,890  |   |               | $
|                                                                 |  |                   |          |   |               |  



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Danka Business Systems PLC

Consolidated Statements of Cashflows for the six months ended September 30, 2003 and 2002

(In Thousands)

(Unaudited)



|                                                                         |  | September 30, 2003 |          |   | September 30, 2002 |  
|------------------------------------------------------------------------ |  | ------------------ | -------- | - | ------------------ | -
|Operating activities:                                                    |  |                    |          |   |                    |  
|Net earnings (loss)                                                      |  | $                  | (18,055  | ) |                    | $
|Adjustments to reconcile net earnings (loss) to net cash provided:       |  |                    |          |   |                    |  
|Depreciation and amortization                                            |  |                    | 24,696   |   |                    |  
|Deferred income taxes                                                    |  |                    | (12,346  | ) |                    |  
|Amortization of debt issuance costs                                      |  |                    | 4,485    |   |                    |  
|Writeoff of debt issuance costs                                          |  |                    | 20,562   |   |                    |  
|Loss on sale of property and equipment and equipment on operating leases |  |                    | 2,249    |   |                    |  
|Proceeds from sale of equipment on operating leases                      |  |                    | 1,756    |   |                    |  
|Restructuring and other special charges (credits)                        |  |                    | (594     | ) |                    |  
|Changes in net assets and liabilities:                                   |  |                    |          |   |                    |  
|Accounts receivable                                                      |  |                    | 21,419   |   |                    |  
|Inventories                                                              |  |                    | 4,852    |   |                    |  
|Prepaid expenses and other current assets                                |  |                    | 982      |   |                    |  
|Other non-current assets                                                 |  |                    | 3,126    |   |                    |  
|Accounts payable                                                         |  |                    | (14,727  | ) |                    |  
|Accrued expenses and other current liabilities                           |  |                    | 2,377    |   |                    |  
|Deferred revenue                                                         |  |                    | 1,702    |   |                    |  
|Other long-term liabilities                                              |  |                    | 1,468    |   |                    |  
|                                                                         |  |                    |          |   |                    |  
|Net cash provided by operating activities                                |  |                    | 43,952   |   |                    |  
|                                                                         |  |                    |          |   |                    |  
|Investing activities:                                                    |  |                    |          |   |                    |  
|Capital expenditures                                                     |  |                    | (31,087  | ) |                    |  
|Proceeds from the sale of property and equipment                         |  |                    | 702      |   |                    |  
|                                                                         |  |                    |          |   |                    |  
|Net cash used in investing activities                                    |  |                    | (30,385  | ) |                    |  
|                                                                         |  |                    |          |   |                    |  
|Financing activities:                                                    |  |                    |          |   |                    |  
|Net payments under line of credit agreements                             |  |                    | (112,941 | ) |                    |  
|Net payments under capital lease arrangements                            |  |                    | (1,115   | ) |                    |  
|Payments of debt                                                         |  |                    | (44,853  | ) |                    |  
|Proceeds from debt                                                       |  |                    | 170,905  |   |                    |  
|Payment of debt issue costs                                              |  |                    | (10,767  | ) |                    |  
|                                                                         |  |                    |          |   |                    |  
|Net cash provided by (used) in financing activities                      |  |                    | 1,229    |   |                    |  
|                                                                         |  |                    |          |   |                    |  
|Effect of exchange rates                                                 |  |                    | 2,011    |   |                    |  
|                                                                         |  |                    |          |   |                    |  
|Net increase (decrease) in cash and cash equivalents                     |  |                    | 16,807   |   |                    |  
|Cash and cash equivalents, beginning of period                           |  |                    | 81,493   |   |                    |  
|                                                                         |  |                    |          |   |                    |  
|Cash and cash equivalents, end of period                                 |  | $                  | 98,300   |   |                    | $
|                                                                         |  |                    |          |   |                    |  



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Danka Business Systems PLC

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

(In Thousands)

(Unaudited)



|                                                |  | Number ofOrdinaryShares(4 OrdinarySharesEqual 1ADS) |  | 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                                        |  |                                                    |  |                |      |                          |   |                   |  |   | (18,055                                     | ) |  |       |        
|Currency translation adjustment                 |  |                                                    |  |                |      |                          |   |                   |  |   |                                            |   |  |       | 12,832  
|                                                |  |                                                     |  |                |       |                          |   |                    |  |   |                                             |   |  |       |         
|Comprehensive income                            |  |                                                     |  |                |       |                          |   |                    |  |   |                                             |   |  |       |         
|Dividends and accretion on participating shares |  |                                                    |  |                |      |                          |   |                   |  |   | (9,339                                      | ) |  |       |        
|Shares issued under employee stock plans        |  | 463                                                 |  |                | 9     |                          |   | 413                |  |   |                                            |   |  |       |        
|                                                |  |                                                     |  |                |       |                          |   |                    |  |   |                                             |   |  |       |         
|Balances at September 30, 2003                  |  | 249,995                                             |  | $              | 5,176 |                          | $ | 327,586            |  | $ | (217,389                                    | ) |  | $     | (63,804 
|                                                |  |                                                     |  |                |       |                          |   |                    |  |   |                                             |   |  |       |         
|                                                |  |                                                     |  |                |       |                         
|Balances at March 31, 2002                      |  | 248,085                                             |  | $              | 5,139 |                          | $ | 325,880            |  | $ | (181,872                                    | ) |  | $     | (101,098
|Net earnings                                    |  |                                                    |  |                |      |                          |   |                   |  |   | 7,508                                       |   |  |       |        
|Currency translation adjustment                 |  |                                                    |  |                |      |                          |   |                   |  |   |                                            |   |  |       | 18,291  
|                                                |  |                                                     |  |                |       |                          |   |                    |  |   |                                             |   |  |       |         
|Comprehensive income                            |  |                                                     |  |                |       |                          |   |                    |  |   |                                             |   |  |       |         
|Dividends and accretion on participating shares |  | 28                                                  |  |                |      |                          |   | 16                 |  |   | (8,810                                      | ) |  |       |        
|                                                |  |                                                     |  |                |       |                          |   |                    |  |   |                                             |   |  |       |         
|Balances at September 30, 2002                  |  | 248,113                                             |  | $              | 5,139 |                          | $ | 325,896            |  | $ | (183,174                                    | ) |  | $     | (82,807 
|                                                |  |                                                     |  |                |       |                          |   |                    |  |   |                                             |   |  |       |         



See accompanying
notes to the consolidated financial statements



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Danka Business Systems PLC

Notes to Consolidated Financial Statements

(Unaudited)



Note 1. Basis of Presentation



The accompanying financial statements are unaudited as of September 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 Annual Report on Form 10-K for the year ended March 31, 2003 and the
Registration Statement on Form S-4 filed on September 26, 2003. Certain prior year amounts have been reclassified to conform to current year presentations.



The financial statements contained herein for the three and six months ended September 30, 2003 and September 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.



|                                                                                                                 |  | For the three months endedSeptember 30, |         |   | For the six months ended September 30, |  
|---------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ------- | - | -------------------------------------- | -
|(In thousands except per ADS data)                                                                               |  | 2003                                    |         |   | 2002                                   |  
|                                                                                                                 |  |                                         |         |   |                                        |  
|Net earnings (loss), as reported                                                                                 |  | $                                       | (17,259 | ) |                                        | $
|Less: total stock-based employee compensation expense determined under the fair value for all awards, net of tax |  |                                         | (1,465  | ) |                                        |  
|                                                                                                                 |  |                                         |         |   |                                        |  
|Pro forma net earnings (loss)                                                                                    |  |                                         | (18,724 | ) |                                        |  
|Participating share dividend                                                                                     |  |                                         | (4,740  | ) |                                        |  
|                                                                                                                 |  |                                         |         |   |                                        |  
|Income (loss) available to common shareholders                                                                   |  | $                                       | (23,464 | ) |                                        | $
|                                                                                                                 |  |                                         |         |   |                                        |  
|Basic (loss) earnings available to common shareholders per ADS                                                   |  |                                         |         |   |                                        |  
|As reported                                                                                                      |  | $                                       | (0.35   | ) |                                        | $
|Pro forma                                                                                                        |  |                                         | (0.37   | ) |                                        | $
|Diluted (loss) earnings available to common shareholders per ADS                                                 |  |                                         |         |   |                                        |  
|As reported                                                                                                      |  | $                                       | (0.35   | ) |                                        | $
|Pro forma                                                                                                        |  |                                         | (0.37   | ) |                                        | $





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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.



The fair value of options granted for the first three and six months 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:



|                        |  | For the three monthsended September 30, |  | For the six monthsended September 30,
|----------------------- |  | --------------------------------------- |  | -------------------------------------
|                        |  | 2004                                    |  | 2003                                 
|Dividend yield          |  | 0%                                      |  | 0%                                   
|Expected volatility     |  | 688.2%                                  |  | 329.4%                               
|Risk-free interest rate |  | 3.14%                                   |  | 3.35%                                
|Expected life           |  | 5 years                                 |  | 5 years                              



Note 2. 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.



As of September 30, 2003, goodwill amounted to $267.0 million.
Changes to goodwill for the six months ended September 30, 2003 resulted primarily from fluctuations in foreign currency exchange rates. Non-compete agreements, net amounted to $0.7 million, which included $1.3 million of accumulated amortization.



Aggregate amortization expense of non-compete agreements for the six 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 September 30, 2003 (in thousands) was:



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



Note 3. 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.





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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 adopted the provisions of Statement 150 in 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 4. 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.
Cash outlays for the reductions during fiscal year 2004 were less than $0.1 million. Substantially all of these reductions were completed by March 31, 2003 but with payments being made over the next two years. 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 the first quarter of fiscal year 2004. The remaining liability of the 2002 restructuring charge is categorized within Accrued expenses 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 atSeptember 30,2003
|--------------------------------------------- |  | ------------------ | ------ | ----------------------- | - | ----------- |  | - | -------------------- | - |  | ---------------------------
|                                              |  |                    |        |                         |   |             |  |   |                      |   |  |                            
|Severance                                     |  | $                  | 4,967  |                         | $ | 345         |  | $ | (4                   | ) |  | $                          
|Future lease obligations on facility closures |  |                    | 6,074  |                         |   | 595         |  |   | (77                  | ) |  |                            
|                                              |  |                    |        |                         |   |             |  |   |                      |   |  |                            
|Total                                         |  | $                  | 11,041 |                         | $ | 940         |  | $ | (81                  | ) |  | $                          
|                                              |  |                    |        |                         |   |             |  |   |                      |   |  |                            



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. Cash outlays for these reductions during fiscal year 2004 were less than $0.1
million. Substantially all of these reductions were completed by March 31, 2002 but with payments being made over the next two years. 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 the first quarter of 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
remaining liability of the 2001 restructuring charge is categorized within Accrued expenses 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 atSeptember 30,2003
|------------------------------------------------------------------ |  | ------------------ | ------ | ----------------------- | - | ----------- |  | - | -------------------- | - |  | ---------------------------
|                                                                   |  |                    |        |                         |   |             |  |   |                      |   |  |                            
|Severance                                                          |  | $                  | 21,766 |                         | $ | 214         |  | $ | (12                  | ) |  | $                          
|Future lease obligations on facility closures and other exit costs |  |                    | 4,295  |                         |   | 131         |  |   | (3                   | ) |  |                            
|                                                                   |  |                    |        |                         |   |             |  |   |                      |   |  |                            
|Total                                                              |  | $                  | 26,061 |                         | $ | 345         |  | $ | (15                  | ) |  | $                          
|                                                                   |  |                    |        |                         |   |             |  |   |                      |   |  |                            



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Note 5. 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 and six months ended September 30, 2003 and 2002:



|                                                                  |  | For the three months ended September 30, 2003 |         |   | For three months ended September 30, 2002   |       
|----------------------------------------------------------------- |  | --------------------------------------------- | ------- | - | ------------------------------------------- | ------
|(In thousands except per ADS amounts)                             |  | Earnings(loss)(Numerator)                     |         |   | Shares(Denominator)                         |       
|                                                                  |  |                                               |         |   |                                             |       
|Basic earnings (loss) available to common shareholders per ADS:   |  |                                               |         |   |                                             |       
|Earnings (loss)                                                   |  | $                                             | (17,259 | ) |                                             |       
|Dividends and accretion on participating shares                   |  |                                               | (4,740  | ) |                                             |       
|                                                                  |  |                                               |         |   |                                             |       
|Earnings (loss)                                                   |  |                                               | (21,999 | ) |                                             | 62,586
|                                                                  |  |                                               |         |   |                                             |       
|Effect of dilutive securities:                                    |  |                                               |         |   |                                             |       
|Stock options                                                     |  |                                               |        |   |                                             |      
|                                                                  |  |                                               |         |   |                                             |       
|Diluted earnings (loss) available to common shareholders per ADS: |  |                                               |         |   |                                             |       
|Earnings (loss)                                                   |  | $                                             | (21,999 | ) |                                             | 62,586
|                                                                  |  |                                               |         |   |                                             |       
|                                                                  |  |                                              
|                                                                  |  | For the six months ended September 30, 2003   |         |   | For the six months ended September 30, 2002 |       
|(In thousands except per ADS amounts)                             |  | Earnings(loss)(Numerator)                     |         |   | Shares(Denominator)                         |       
|                                                                  |  |                                               |         |   |                                             |       
|Basic earnings (loss) available to common shareholders per ADS:   |  |                                               |         |   |                                             |       
|Earnings (loss)                                                   |  | $                                             | (18,055 | ) |                                             |       
|Dividends and accretion on participating shares                   |  |                                               | (9,405  | ) |                                             |       
|                                                                  |  |                                               |         |   |                                             |       
|Earnings (loss)                                                   |  |                                               | (27,460 | ) |                                             | 62,445
|                                                                  |  |                                               |         |   |                                             |       
|Effect of dilutive securities:                                    |  |                                               |         |   |                                             |       
|Stock options                                                     |  |                                               |        |   |                                             |      
|                                                                  |  |                                               |         |   |                                             |       
|Diluted earnings (loss) available to common shareholders per ADS: |  |                                               |         |   |                                             |       
|Earnings (loss)                                                   |  | $                                             | (27,460 | ) |                                             | 62,445
|                                                                  |  |                                               |         |   |                                             |       



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



Note 6. 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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Danka Business Systems PLC

Segmented Statement of Operations for the three and six months ended September 30, 2003 and 2002

(Unaudited)



|                                    |  | For the Three Months Ended September 30, |         |   | For the Six Months Ended September 30, |  
|----------------------------------- |  | ---------------------------------------- | ------- | - | -------------------------------------- | -
|(In thousands)                      |  | 2003                                     |         |   | 2002                                   |  
|Revenues                            |  |                                          |         |   |                                        |  
|United States                       |  | $                                        | 159,089 |   |                                        | $
|Europe                              |  |                                          | 133,971 |   |                                        |  
|International                       |  |                                          | 29,903  |   |                                        |  
|Other (1)                           |  |                                          |        |   |                                        |  
|                                    |  |                                          |         |   |                                        |  
|Total Revenues                      |  | $                                        | 322,963 |   |                                        | $
|                                    |  |                                          |         |   |                                        |  
|                                    |  |                                          |         |  
|Gross Profit                        |  |                                          |         |   |                                        |  
|United States                       |  | $                                        | 66,658  |   |                                        | $
|Europe                              |  |                                          | 43,390  |   |                                        |  
|International                       |  |                                          | 10,183  |   |                                        |  
|Other (1)                           |  |                                          |        |   |                                        |  
|                                    |  |                                          |         |   |                                        |  
|Total Gross Profit                  |  | $                                        | 120,231 |   |                                        | $
|                                    |  |                                          |         |   |                                        |  
|                                    |  |                                          |         |  
|Operating earnings (loss)           |  |                                          |         |   |                                        |  
|United States                       |  | $                                        | 4,841   |   |                                        | $
|Europe                              |  |                                          | 4,448   |   |                                        |  
|International                       |  |                                          | (1,570  | ) |                                        |  
|Other (1)                           |  |                                          | (6,767  | ) |                                        |  
|                                    |  |                                          |         |   |                                        |  
|Total operating earnings (loss)     |  | $                                        | 952     |   |                                        | $
|                                    |  |                                          |         |   |                                        |  
|                                    |  |                                          |         |  
|Capital Expenditures                |  |                                          |         |   |                                        |  
|United States                       |  | $                                        | 6,858   |   |                                        | $
|Europe                              |  |                                          | 2,666   |   |                                        |  
|International                       |  |                                          | 2,409   |   |                                        |  
|Other (1)                           |  |                                          | 4,344   |   |                                        |  
|                                    |  |                                          |         |   |                                        |  
|Total Capital Expenditures          |  | $                                        | 16,277  |   |                                        | $
|                                    |  |                                          |         |   |                                        |  
|                                    |  |                                          |         |  
|Depreciation and Amortization       |  |                                          |         |   |                                        |  
|United States                       |  | $                                        | 7,462   |   |                                        | $
|Europe                              |  |                                          | 2,853   |   |                                        |  
|International                       |  |                                          | 2,083   |   |                                        |  
|Other (1)                           |  |                                          | 261     |   |                                        |  
|                                    |  |                                          |         |   |                                        |  
|Total Depreciation and Amortization |  | $                                        | 12,659  |   |                                        | $
|                                    |  |                                          |         |   |                                        |  
|                                    |  |                                          |         |  
|(In thousands)                      |  |                                          |         |   |                                        |  
|Assets                              |  |                                          |         |   |                                        |  
|United States                       |  |                                          |         |   |                                        |  
|Europe                              |  |                                          |         |   |                                        |  
|International                       |  |                                          |         |   |                                        |  
|Other (2)                           |  |                                          |         |   |                                        |  
|                                    |  |                                          |         |   |                                        |  
|Total Assets                        |  |                                          |         |   |                                        |  
|                                    |  |                                          |         |   |                                        |  
|                                    |  |                                          |         |  
|Long-lived Assets (3)               |  |                                          |         |   |                                        |  
|United States                       |  |                                          |         |   |                                        |  
|Europe                              |  |                                          |         |   |                                        |  
|International                       |  |                                          |         |   |                                        |  
|Other (2)                           |  |                                          |         |   |                                        |  
|                                    |  |                                          |         |   |                                        |  
|Total Long-lived Assets (3)         |  |                                          |         |   |                                        |  
|                                    |  |                                          |         |   |                                        |  



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

| | (2) | Other includes corporate assets and deferred tax assets.
| | --- | --------------------------------------------------------

| | (3) | 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 2.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Note 7. Debt



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



|(In thousands)                                                          |  | September 30,2003 |         | March 31,2003
|----------------------------------------------------------------------- |  | ----------------- | ------- | -------------
|                                                                        |  |                   |         |              
|10% subordinated notes due April 2008                                   |  | $                 | 64,520  |              
|Credit facility interest at LIBOR plus an applicable margin  see below |  |                   |        |              
|Zero coupon senior subordinated notes due April 2004                    |  |                   |        |              
|11% senior notes due June 2010                                          |  |                   | 175,000 |              
|Various notes payable bearing interest from prime to 12.0%              |  |                   |         |              
|maturing principally over the next 5 years                              |  |                   | 9,599   |              
|                                                                        |  |                   |         |              
|Total long-term debt and notes payable                                  |  |                   | 249,119 |              
|Less unamortized discount                                               |  |                   | 3,997   |              
|                                                                        |  |                   |         |              
|Total long-term debt and notes payable less unamortized discount        |  |                   | 245,122 |              
|Less current maturities of long-term debt and notes payable             |  |                   | 4,034   |              
|                                                                        |  |                   |         |              
|Long-term debt and notes payable, less current maturities               |  | $                 | 241,088 |              
|                                                                        |  |                   |         |              



We have outstanding $64.5 million in
principal amount of 10% subordinated notes due April 1, 2008 which have interest payable every six months on April 1 and October 1.



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. The entire balance of the old credit facility was repaid on July 1, 2003 upon the issuance of our senior notes. The interest rate for each interest period, as defined in the old credit facility, was LIBOR plus
8.25%.



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. In June 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 were charged to earnings in the quarter ended September 30, 2003 as the related debt was paid off in full.



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 our senior notes that
were sold at a price of 97.6% of the aggregate principal amount, generating a $4.1 million discount. 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. We redeemed all of the outstanding zero coupon notes on August 18, 2003.



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



18



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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.



We incurred $8.5 million in debt issuance costs in fiscal year 2004 relating to the senior notes. We are amortizing these costs over the term of the senior notes. The
$4.1 million discount related to the senior notes is being amortized to interest expense using the effective interest method over the life of the related debt.



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. 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 lenders otherwise agree, at no time can credit available under the new credit facility exceed $30.0 million. As of September 30, 2003, we had no borrowings under the 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 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.



The obligations under the new credit facility
are guaranteed by Danka Business Systems PLC and its subsidiaries that are guarantors of the senior notes. The new credit facility is 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, the borrowers under the new credit facility, and the new credit facility guarantors organized in the United States and by a pledge of the capital stock of such guarantors.



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.



As of September 30, 2003, we had approximately $14.1 million in letters of credit
outstanding. In connection with the issuance of the senior notes and the establishment of the new credit facility, we were required to post $14.8 million in cash collateral with Bank of America to secure such letters of credit under the new credit
facility. The $14.8 million of cash collateral is included in Cash and cash equivalents on the Condensed Consolidated Balance Sheets as of September 30, 2003. 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.



Note 8. 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.





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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 September 30, 2003, the participating shares have voting rights on an as converted basis, currently
corresponding to approximately 26.4% of the total voting power of our capital stock, which includes an additional 58,097 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.



Note 9. 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
Subsidiary Guarantors). The Subsidiary Guarantors generated 64.3% of our total revenue in fiscal year 2004 and represented 74.2% of our total assets as of September 30, 2003.



20



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|                                             |  | Supplemental Consolidating Statement of Operations For the Three Months Ended September
30, 2003 |        
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------------ | -------
|Unaudited                                    |  | 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 |  |                                                                                                  | 1,065  
|Restructuring charges (credits)              |  |                                                                                                  |       
|Equity (income) loss                         |  |                                                                                                  | 9,346  
|Other (income) expense                       |  |                                                                                                  | (18,887
|                                             |  |                                                                                                  |        
|Total costs and operating expenses           |  |                                                                                                  | (8,476 
|                                             |  |                                                                                                  |        
|Operating earnings (loss)                    |  |                                                                                                  | 8,476  
|Interest expense                             |  |                                                                                                  | (27,210
|Interest income                              |  |                                                                                                  | 15,553 
|Writeoff of debt issuance costs              |  |                                                                                                  | (20,562
|                                             |  |                                                                                                  |        
|Earnings (loss) before income taxes          |  |                                                                                                  | (23,743
|Provision (benefit) for income taxes         |  |                                                                                                  | (6,484 
|                                             |  |                                                                                                  |        
|Net earnings (loss)                          |  | $                                                                                                | (17,259
|                                             |  |                                                                                                  |        



See page 27 for reference to (1),
(2) and (3)



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##### Table of Contents

|                                                     |  | Supplemental Consolidating Statement of Operations For the Three Months Ended September
30, 2002 |       
|---------------------------------------------------- |  | ------------------------------------------------------------------------------------------------ | ------
|Unaudited                                            |  | 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         |  |                                                                                                  | 1,123 
|Restructuring charges (credits)                      |  |                                                                                                  |      
|Equity (income) loss                                 |  |                                                                                                  | 4,504 
|Other (income) expense                               |  |                                                                                                  | (3,385
|                                                     |  |                                                                                                  |       
|Total costs and operating expenses                   |  |                                                                                                  | 2,242 
|                                                     |  |                                                                                                  |       
|Operating earnings (loss) from continuing operations |  |                                                                                                  | (2,242
|Interest expense                                     |  |                                                                                                  | (6,864
|Interest income                                      |  |                                                                                                  | 13,500
|Write-off of debt issuance costs                     |  |                                                                                                  |      
|                                                     |  |                                                                                                  |       
|Earnings (loss) before income taxes                  |  |                                                                                                  | 4,394 
|Provision (benefit) for income taxes                 |  |                                                                                                  | 2,638 
|                                                     |  |                                                                                                  |       
|Net (loss) earnings                                  |  | $                                                                                                | 1,756 
|                                                     |  |                                                                                                  |       



See page 27 for reference to (1),
(2) and (3)





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|                                             |  | Supplemental Consolidating Statement of Operations For the Six Months Ended September
30, 2003 |        
|-------------------------------------------- |  | ---------------------------------------------------------------------------------------------- | -------
|Unaudited                                    |  | 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 |  |                                                                                                | 2,066  
|Restructuring charges (credits)              |  |                                                                                                |       
|Equity (income) loss                         |  |                                                                                                | 18,733 
|Other (income) expense                       |  |                                                                                                | (31,118
|                                             |  |                                                                                                |        
|Total costs and operating expenses           |  |                                                                                                | (10,319
|                                             |  |                                                                                                |        
|Operating earnings (loss)                    |  |                                                                                                | 10,319 
|Interest expense                             |  |                                                                                                | (36,147
|Interest income                              |  |                                                                                                | 30,616 
|Writeoff of debt issuance costs              |  |                                                                                                | (20,562
|                                             |  |                                                                                                |        
|Earnings (loss) before income taxes          |  |                                                                                                | (15,774
|Provision (benefit) for income taxes         |  |                                                                                                | 2,281  
|                                             |  |                                                                                                |        
|Net earnings (loss)                          |  | $                                                                                              | (18,055
|                                             |  |                                                                                                |        



See page 27 for reference to (1),
(2) and (3)





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|                                                     |  | Supplemental Consolidating Statement of Operations For the Six Months Ended September
30, 2002 |        
|---------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- | -------
|Unaudited                                            |  | 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         |  |                                                                                                | 2,182  
|Restructuring charges (credits)                      |  |                                                                                                |       
|Equity (income) loss                                 |  |                                                                                                | 1,864  
|Other (income) expense                               |  |                                                                                                | (15,227
|                                                     |  |                                                                                                |        
|Total costs and operating expenses                   |  |                                                                                                | (11,181
|                                                     |  |                                                                                                |        
|Operating earnings (loss) from continuing operations |  |                                                                                                | 11,181 
|Interest expense                                     |  |                                                                                                | (13,642
|Interest income                                      |  |                                                                                                | 27,098 
|Write-off of debt issuance costs                     |  |                                                                                                |       
|                                                     |  |                                                                                                |        
|Earnings (loss) before income taxes                  |  |                                                                                                | 24,637 
|Provision (benefit) for income taxes                 |  |                                                                                                | 17,129 
|                                                     |  |                                                                                                |        
|Net (loss) earnings                                  |  |                                                                                                | 7,508  
|                                                     |  |                                                                                                |        



See page 27 for reference to (1),
(2) and (3)



24



---

##### Table of Contents

|                                                                 |  | Supplemental Consolidating Balance Sheet Information Supplemental Condensed Consolidating Balance Sheet Information September 30, 2003 |         
|---------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------- | --------
|Unaudited                                                        |  | Parent Company (1)                                                                                                                     |         
|Assets                                                           |  |                                                                                                                                        |         
|                                                                 |  | $000                                                                                                                                   |         
|Current assets:                                                  |  |                                                                                                                                        |         
|Cash and cash equivalents                                        |  | $                                                                                                                                      | 50,372  
|Accounts receivable, net                                         |  |                                                                                                                                        |        
|Inventories                                                      |  |                                                                                                                                        |        
|Prepaid expenses, deferred income taxes and other current assets |  |                                                                                                                                        | 1,415   
|                                                                 |  |                                                                                                                                        |         
|Total current assets                                             |  |                                                                                                                                        | 51,787  
|                                                                 |  |                                                                                                                                        |         
|Equipment on operating leases, net                               |  |                                                                                                                                        |        
|Property and equipment, net                                      |  |                                                                                                                                        | 18      
|Goodwill, net                                                    |  |                                                                                                                                        |        
|Non-compete agreements, net                                      |  |                                                                                                                                        |        
|Investment in subsidiaries                                       |  |                                                                                                                                        | 92,390  
|Deferred income taxes                                            |  |                                                                                                                                        |        
|Other assets                                                     |  |                                                                                                                                        | 9,453   
|                                                                 |  |                                                                                                                                        |         
|Total assets                                                     |  | $                                                                                                                                      | 153,648 
|                                                                 |  |                                                                                                                                        |         
|                                                                 |  |                                                                                                                                        |         
|Liabilities and shareholders equity                             |  |                                                                                                                                        |         
|Current liabilities:                                             |  |                                                                                                                                        |         
|Current maturities of long-term debt and notes payable           |  | $                                                                                                                                      |        
|Accounts payable                                                 |  |                                                                                                                                        | 226     
|Accrued expenses and other current liabilities                   |  |                                                                                                                                        | 9,543   
|Taxes payable                                                    |  |                                                                                                                                        | (180    
|Deferred revenue                                                 |  |                                                                                                                                        |        
|Due to/(from) affiliate                                          |  |                                                                                                                                        | (414,745
|                                                                 |  |                                                                                                                                        |         
|Total current liabilities                                        |  |                                                                                                                                        | (405,156
|                                                                 |  |                                                                                                                                        |         
|Long-term debt and notes payables, less current maturities       |  |                                                                                                                                        | 239,520 
|                                                                 |  |                                                                                                                                        |         
|Deferred income taxes and other long-term liabilities            |  |                                                                                                                                        |        
|                                                                 |  |                                                                                                                                        |         
|Total liabilities                                                |  |                                                                                                                                        | (165,636
|                                                                 |  |                                                                                                                                        |         
|                                                                 |  |                                                                                                                                        |         
|6.5% convertible participating shares                            |  |                                                                                                                                        | 267,715 
|                                                                 |  |                                                                                                                                        |         
|                                                                 |  |                                                                                                                                        |         
|Shareholders equity:                                            |  |                                                                                                                                        |         
|Ordinary shares, 1.25 pence stated value                         |  |                                                                                                                                        | 5,176   
|Additional paid-in capital                                       |  |                                                                                                                                        | 327,586 
|Retained earnings (accumulated deficit)                          |  |                                                                                                                                        | (217,389
|Accumulated other comprehensive (loss) income                    |  |                                                                                                                                        | (63,804 
|                                                                 |  |                                                                                                                                        |         
|Total shareholders' equity                                       |  |                                                                                                                                        | 51,569  
|                                                                 |  |                                                                                                                                        |         
|Total liabilities & shareholders' equity (deficit)               |  | $                                                                                                                                      | 153,648 
|                                                                 |  |                                                                                                                                        |         



See page 17 for reference to (1),
(2) and (3)



25



---

##### Table of Contents

|                                                                 |  | Supplemental Condensed Consolidating Balance Sheet Information March 31, 2003 |         
|---------------------------------------------------------------- |  | ----------------------------------------------------------------------------- | --------
|                                                                 |  | Parent Company (1)                                                            |         
|Assets                                                           |  |                                                                               | $000    
|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
|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                         |  |                                                                               | 5,176   
|Additional paid-in capital                                       |  |                                                                               | 327,173 
|Retained earnings (accumulated deficit)                          |  |                                                                               | (189,995
|Accumulated other comprehensive (loss) income                    |  |                                                                               | (73,636 
|                                                                 |  |                                                                               |         
|Total shareholders equity (deficit)                             |  |                                                                               | 65,709  
|                                                                 |  |                                                                               |         
|Total liabilities & shareholders equity (deficit)               |  | $                                                                             | 159,794 
|                                                                 |  |                                                                               |         



See page 27 for reference to (1),
(2) and (3)



26



---

##### Table of Contents



|                                                     |  | Supplemental Condensed Consolidating Statement of Cash Flows For the Six Months Ended September
30, 2003 |        
|---------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------- | -------
|Unaudited                                            |  | ParentCompany(1)                                                                                         |        
|                                                     |  | $000                                                                                                     |        
|Net cash provided by (used in) operating activities  |  | $                                                                                                        | 4,184  
|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                      |  |                                                                                                          | 14,246 
|Payment of debt issue costs                          |  |                                                                                                          | (10,767
|                                                     |  |                                                                                                          |        
|Net cash provided by (used in) financing activities  |  |                                                                                                          | 3,479  
|                                                     |  |                                                                                                          |        
|Effect of exchange rates                             |  |                                                                                                          |       
|                                                     |  |                                                                                                          |        
|Net increase (decrease) in cash and cash equivalents |  |                                                                                                          | 7,663  
|Cash and cash equivalents, beginning of period       |  |                                                                                                          | 42,709 
|                                                     |  |                                                                                                          |        
|Cash and cash equivalents, end of period             |  | $                                                                                                        | 50,372 
|                                                     |  |                                                                                                          |        



|                                                     |  | Supplemental Condensed Consolidating Statement of Cash Flows For the Six Months Ended September
30, 2002 |        
|---------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------- | -------
|Unaudited                                            |  | ParentCompany(1)                                                                                         |        
|                                                     |  | $000                                                                                                     |        
|Net cash provided by (used in) operating activities  |  | $                                                                                                        | 68,261 
|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                      |  |                                                                                                          | (65,391
|Payment of debt issue costs                          |  |                                                                                                          | (6,938 
|                                                     |  |                                                                                                          |        
|Net cash provided by (used in) financing activities  |  |                                                                                                          | (72,329
|                                                     |  |                                                                                                          |        
|Effect of exchange rates                             |  |                                                                                                          | 3,035  
|                                                     |  |                                                                                                          |        
|Net increase (decrease) in cash and cash equivalents |  |                                                                                                          | (1,033 
|Cash and cash equivalents, beginning of period       |  |                                                                                                          | 8,420  
|                                                     |  |                                                                                                          |        
|Cash and cash equivalents, end of period             |  | $                                                                                                        | 7,387  
|                                                     |  |                                                                                                          |        



|(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
|--- | ---------------------------------------------------------------------------



27



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##### Table of Contents

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



Our mission is to deliver value to clients worldwide by using our expert technical and professional services to implement effective document information solutions. We
enable choice, convenience, and continuity. Our vision is to empower our customers to benefit fully from the convergence of image and document technologies in a connected environment. This approach will strengthen our client relationships and expand
Dankas strategic value.



Our strategy to accomplish our mission is to:



| | · | enhance customer relationships;
| | - | -------------------------------

| | · | grow revenues by providing value-added and cost-driven solutions;
| | - | -----------------------------------------------------------------

| | · | reengineer processes and systems;
| | - | ---------------------------------

| | · | maximize free cash flow generation and reduce net debt; and
| | - | -----------------------------------------------------------

| | · | develop an efficient and productive organization.
| | - | -------------------------------------------------



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 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 currently
operate in 24 countries, however we have decided to exit certain Eastern European countries during this fiscal year. Our reportable segments are the United States, Europe and International Our International segment includes operations that are
experiencing political, social and/or economic difficulty. 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 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 six months ended September 30, 2003, retail service revenue in the U.S. was reduced by $2.5 million for estimated billing adjustments to our customers. The following table
summarizes our net accounts receivable.



|                                                  |  | As of             |        
|------------------------------------------------- |  | ----------------- | -------
|(In thousands)                                    |  | September 30,2003 |        
|Accounts Receivable                               |  | $                 | 278,019
|Allowance for Accounts Receivable                 |  |                   | (42,109
|                                                  |  |                   |        
|Net Accounts Receivable                           |  | $                 | 235,910
|                                                  |  |                   |        
|                                                  |  |                  
|Allowance for Accounts Receivable as a % of Total |  |                   | 15.1   





28



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##### Table of Contents

InventoriesWe acquire inventory 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.



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 and installation by the customer. 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. Under the terms of the maintenance service contract, the customer is billed
a flat periodic charge and/or a usage-based fee. Revenues related to these contracts are recognized as billed except for those contracts that provide for invoicing in arrears. Revenue on contracts billed in arrears is accrued and recognized in the
period in which it is earned. Deferred revenue generally 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 September 30, 2003 and March 31, 2003, we had deferred tax assets in excess of deferred
tax liabilities of $135.6 million and $123.2 million respectively. Management determined that it is more likely than not that $101.7 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 $249 million of
future U.S. taxable income and approximately $36 million of future United Kingdom taxable income is ultimately needed to realize the net deferred tax assets at September 30, 2003. Failure to achieve forecasted taxable income might affect the
ultimate realization of the net deferred tax assets. 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.



29



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##### Table of Contents

In addition, we operate within multiple taxing jurisdictions and are 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 are 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 $267.0 million as of September 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.



Results of
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 MonthsEnded September 30, |   |  |       |   |  |  | For the Six MonthsEnded September 30, | 
|-------------------------------------------- |  | --------------------------------------- | - |  | ----- | - |  |  | ------------------------------------- | 
|                                             |  | 2003                                    |   |  | 2002  |   |  |  |                                       | 
|Revenue:                                     |  |                                         |   |  |       |   |  |  |                                       | 
|Retail equipment and related sales           |  | 35.7                                    | % |  | 34.3  | % |  |  |                                       | 
|Retail service                               |  | 48.1                                    |   |  | 50.2  |   |  |  |                                       | 
|Retail supplies and rentals                  |  | 9.4                                     |   |  | 10.0  |   |  |  |                                       | 
|Wholesale                                    |  | 6.8                                     |   |  | 5.5   |   |  |  |                                       | 
|                                             |  |                                         |   |  |       |   |  |  |                                       | 
|Total revenue                                |  | 100.0                                   |   |  | 100.0 |   |  |  |                                       | 
|Cost of revenue                              |  | 62.8                                    |   |  | 64.0  |   |  |  |                                       | 
|                                             |  |                                         |   |  |       |   |  |  |                                       | 
|Gross profit                                 |  | 37.2                                    |   |  | 36.0  |   |  |  |                                       | 
|                                             |  |                                         |   |  |       |   |  |  |                                       | 
|Selling, general and administrative expenses |  | 36.9                                    |   |  | 34.4  |   |  |  |                                       | 
|Amortization of intangible assets            |  |                                        |   |  | 0.1   |   |  |  |                                       | 
|Restructuring charges (credits)              |  |                                        |   |  | (0.2  | ) |  |  |                                       | 
|Other (income) expense                       |  | (0.1                                    | ) |  | (1.0  | ) |  |  |                                       | 
|                                             |  |                                         |   |  |       |   |  |  |                                       | 
|Operating earnings (loss)                    |  | 0.4                                     |   |  | 2.7   |   |  |  |                                       | 
|Interest expense                             |  | (2.5                                    | ) |  | (2.0  | ) |  |  |                                       | 
|Interest income                              |  | 0.1                                     |   |  |      |   |  |  |                                       | 
|Writeoff of debt issuance costs              |  | (6.4                                    | ) |  |      |   |  |  |                                       | 
|                                             |  |                                         |   |  |       |   |  |  |                                       | 
|Earnings (loss) before income taxes          |  | (8.4                                    | ) |  | 0.7   |   |  |  |                                       | 
|Provision (benefit) for income taxes         |  | (3.1                                    | ) |  | 0.2   |   |  |  |                                       | 
|                                             |  |                                         |   |  |       |   |  |  |                                       | 
|Net Earnings (loss)                          |  | (5.3                                    | ) |  | 0.5   |   |  |  |                                       | 
|                                             |  |                                         |   |  |       |   |  |  |                                       | 



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





30



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##### Table of Contents

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



|                                   |  | For the Three Months Ended September 30, |   |  | For the Six Months Ended September 30, |  
|---------------------------------- |  | ---------------------------------------- | - |  | -------------------------------------- | -
|                                   |  | 2003                                     |   |  | 2002                                   |  
|Retail equipment and related sales |  | -2.4                                     | % |  | -10.6                                  | %
|Retail service                     |  | -10.1                                    |   |  | -12.3                                  |  
|Retail supplies and rentals        |  | -12.0                                    |   |  | -2.5                                   |  
|Wholesale                          |  | 19.4                                     |   |  | 9.1                                    |  
|                                   |  |                                          |   | 
|Total revenue                      |  | -6.0                                     |   |  | -9.9                                   |  



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



|                                   |  | For the Three Months Ended September 30, |   |  | For the Six Months Ended Septemberd 30, |  
|---------------------------------- |  | ---------------------------------------- | - |  | --------------------------------------- | -
|                                   |  | 2003                                     |   |  | 2002                                    |  
|Retail equipment and related sales |  | 36.1                                     | % |  | 32.6                                    | %
|Retail service                     |  | 40.8                                     |   |  | 39.1                                    |  
|Retail supplies and rentals        |  | 37.4                                     |   |  | 40.5                                    |  
|Wholesale                          |  | 18.1                                     |   |  | 20.6                                    |  
|                                   |  |                                          |   | 
|Total revenue                      |  | 37.2                                     |   |  | 36.0                                    |  



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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 EndedSeptember 30, |         |   | For the Six Months EndedSeptember 30, |  
|----------------------------------- |  | --------------------------------------- | ------- | - | ------------------------------------- | -
|(In thousands)                      |  | 2003                                    |         |   | 2002                                  |  
|Revenues                            |  |                                         |         |   |                                       |  
|United States                       |  | $                                       | 159,089 |   |                                       | $
|Europe                              |  |                                         | 133,971 |   |                                       |  
|International                       |  |                                         | 29,903  |   |                                       |  
|Other (1)                           |  |                                         |        |   |                                       |  
|                                    |  |                                         |         |   |                                       |  
|Total Revenues                      |  | $                                       | 322,963 |   |                                       | $
|                                    |  |                                         |         |   |                                       |  
|Gross Profit                        |  |                                         |         |   |                                       |  
|United States                       |  | $                                       | 66,658  |   |                                       | $
|Europe                              |  |                                         | 43,390  |   |                                       |  
|International                       |  |                                         | 10,183  |   |                                       |  
|Other (1)                           |  |                                         |        |   |                                       |  
|                                    |  |                                         |         |   |                                       |  
|Total Gross Profit                  |  | $                                       | 120,231 |   |                                       | $
|                                    |  |                                         |         |   |                                       |  
|Operating earnings (loss)           |  |                                         |         |   |                                       |  
|United States                       |  | $                                       | 4,841   |   |                                       | $
|Europe                              |  |                                         | 4,448   |   |                                       |  
|International                       |  |                                         | (1,570  | ) |                                       |  
|Other (1)                           |  |                                         | (6,767  | ) |                                       |  
|                                    |  |                                         |         |   |                                       |  
|Total operating earnings (loss)     |  | $                                       | 952     |   |                                       | $
|                                    |  |                                         |         |   |                                       |  
|Capital Expenditures                |  |                                         |         |   |                                       |  
|United States                       |  | $                                       | 6,858   |   |                                       | $
|Europe                              |  |                                         | 2,666   |   |                                       |  
|International                       |  |                                         | 2,409   |   |                                       |  
|Other (1)                           |  |                                         | 4,344   |   |                                       |  
|                                    |  |                                         |         |   |                                       |  
|Total Capital Expenditures          |  | $                                       | 16,277  |   |                                       | $
|                                    |  |                                         |         |   |                                       |  
|Depreciation and Amortization       |  |                                         |         |   |                                       |  
|United States                       |  | $                                       | 7,462   |   |                                       | $
|Europe                              |  |                                         | 2,853   |   |                                       |  
|International                       |  |                                         | 2,083   |   |                                       |  
|Other (1)                           |  |                                         | 261     |   |                                       |  
|                                    |  |                                         |         |   |                                       |  
|Total Depreciation and Amortization |  | $                                       | 12,659  |   |                                       | $
|                                    |  |                                         |         |   |                                       |  



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



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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 September 30, |   |  |       |   |  |  |  |  | For the Six Months Ended September 30, | 
|-------------------------------- |  | ---------------------------------------- | - |  | ----- | - |  |  |  |  | -------------------------------------- | 
|                                 |  | 2003                                     |   |  | 2002  |   |  |  |  |  |                                        | 
|Gross profit margin              |  |                                          |   |  |       |   |  |  |  |  |                                        | 
|United States                    |  | 41.9                                     | % |  | 40.9  | % |  |  |  |  |                                        | 
|Europe                           |  | 32.4                                     |   |  | 32.2  |   |  |  |  |  |                                        | 
|International                    |  | 34.1                                     |   |  | 21.4  |   |  |  |  |  |                                        | 
|                                 |  |                                          |   |  |       |   | 
|Operating earnings (loss) margin |  |                                          |   |  |       |   |  |  |  |  |                                        | 
|United States                    |  | 3.0                                      | % |  | 4.5   | % |  |  |  |  |                                        | 
|Europe                           |  | 3.3                                      |   |  | 4.4   |   |  |  |  |  |                                        | 
|International                    |  | -5.3                                     | % |  | -21.9 |   |  |  |  |  |                                        | 



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



|              |  | For the Three Months Ended September 30, |   |  |       |   | For the Six Months Ended September 30, | 
|------------- |  | ---------------------------------------- | - |  | ----- | - | -------------------------------------- | 
|              |  | 2003                                     |   |  | 2002  |   |                                        | 
|United States |  | -15.1                                    | % |  | -12.3 | % |                                        | 
|Europe        |  | 6.0                                      |   |  | -3.4  |   |                                        | 
|International |  | 0.2                                      |   |  | -16.6 |   |                                        | 
|              |  |                                          |   |  |      
|Total revenue |  | -6.0                                     |   |  | -9.9  |   |                                        | 



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



Revenue



Total revenue for the second quarter of fiscal 2004 declined by $20.8 million or 6.0% to $323.0 million from $343.8 million in the year-ago quarter with the United States segment down 15.1%, the European segment up
6.0% and the International segment up 0.2%. During the second quarter of fiscal year 2004, 49.2% of our revenue was generated by our United States segment, 41.5% by our European segment and 9.3% by our International segment. Our total revenue in the
current year second quarter was impacted by a $17.5 million foreign currency benefit of which Europe contributed $14.3 million and International contributed $3.2 million. Absent the foreign currency benefit, Europes and Internationals
total revenues for the quarter would have decreased by 5.3% and 10.7%, respectively.



Retail equipment sales decreased by $2.8 million or 2.4% to $115.2 million with the United States segment down 12.1%, the European segment up 14.1% and the International segment up 0.2%. This overall decrease was primarily due to decreased
revenues in the U.S. segment offset, in part, by increases in the European and International segments and a $5.9 million foreign currency benefit. Absent the foreign currency benefit, Europes retail equipment sales for the quarter would have
increased by 2.6% while Internationals would have decreased by 13.0%.



Retail service revenue declined by $17.4 million or 10.1% to $155.3 million with the United States segment down 15.3%, the European segment down 1.4% and the International segment down 8.8%. This decrease was due to the continuing
industry-wide conversion from analog-to-digital equipment and a $1.3 million charge for U.S. billing adjustments, which was partially offset by a $7.4 million foreign currency benefit. Absent the foreign currency benefit, Europes and
Internationals retail service revenue for the quarter would have decreased by 12.0% and 18.1%, respectively.



Retail supplies and rental revenues declined by $4.2 million or 12.0% to $30.3 million with the United States segment down 26.0%, the European segment down 6.6% and the
International segment up 14.4%. These decreases were primarily due to the past downsizing of the capital intensive U.S. and European rental business. This net decrease was partially offset by a $1.4 million foreign currency benefit. Absent the
foreign currency benefit, Europes retail supplies and rentals revenue for the



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quarter would have decreased by 13.9% while Internationals would have increased by 4.9%.



Wholesale revenue for the second quarter of fiscal 2004 increased by $3.6 million or 19.4% to
$22.1 million, primarily due to a $2.7 million foreign currency benefit and increased sales activity as Europe showed increased business activity.



Gross Profit



Our total gross profit margin increased to 37.2% in the second quarter ended September 30, 2003 from 36.0% in the year-ago quarter. The increase in our profit margin is primarily due to a shift in the mix of our sales
toward higher margin equipment sales, increased margins for our service activity and a foreign currency benefit of $5.8 million offset, in part, by a decrease in U.S. equipment leasing income of approximately $3.3 million related to lease and
residual equipment payments from a diminishing external lease funding program. The gross profit margin for the United States segment increased to 41.9% from 40.9%, while the European segment increased slightly to 32.4% from 32.2% and the
International segment increased to 34.1% from 21.4%. The total International gross profit percentage for the year-ago period was adversely affected by a $3.4 million charge that consisted primarily of inventory and residual write-downs in Canada.



The retail equipment margin increased to 36.1% in the second quarter from
32.6% in the year-ago quarter, primarily due to the shift in the mix of our sales toward higher margin equipment sales and the non-recurrence of a $1.9 million write-down of retail equipment inventory in our International segment in the year-ago
period offset in part by lower leasing income in the United States. Retail service margins increased to 40.8% in the second quarter from 39.1% in the year-ago quarter primarily due to favorability in the European and International segments and due
to the non-recurrence of a $0.9 million write-down of parts and supply inventory in our International segment in the year-ago period. Retail supplies and rental margins decreased to 37.4% in the second quarter from 40.5% in the year-ago quarter due
to unfavorability in our European and International segments. Wholesale margins decreased to 18.1% in the second quarter from 20.6% in the year-ago quarter.



Selling, General and Administrative Expenses



Selling, general and administrative expenses (SG&A) in the second quarter of fiscal 2004 increased by $0.9 million or 0.8% to $119.1 million from $118.2
million in the year-ago quarter due to a foreign currency movement of $4.8 million. As a percentage of total revenue, SG&A expenses increased to 36.9% from 34.4% due to increased facility costs related to the new corporate headquarters building,
additional depreciation as the result of increased capital spending for Vision 21 and increased fringe benefits, offset in part, by lower professional fees due to the completion of the Oracle ERP system. SG&A expenses increased slightly in the
second quarter as compared to the year-ago quarter primarily due to the previously mentioned issues offset, in part, by lower employee costs resulting from a reduction in commissions and bonuses.



Other (Income) Expense



Other expense was $0.2 million for the second quarter of fiscal 2004 compared to other income of $3.1 million in the year-ago quarter. Other
expense included a foreign currency loss of $0.1 million for the current quarter and other income included a foreign currency gain of $4.2 million for the year-ago quarter.



Operating Earnings (Loss)



For the second quarter of fiscal 2004, operating earnings decreased by $8.3 million to $1.0 million from earnings of $9.3 million in the year-ago quarter.



Interest Expense and Interest Income



Interest expense increased by $1.2 million to $8.1 million for the second quarter of fiscal
2004 from $6.9 million in the year-ago quarter. The increase was due to higher interest rates that were the result of the recent debt refinancing and a higher level of indebtedness. Interest income increased by $0.3 million from the year-ago quarter
due to higher cash balances.



Writeoff of Debt Issue Costs



In the second quarter of fiscal 2004, we wrote-off $20.6 million of debt issuance costs
relating to the early repayment of our old credit facility.



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Income Taxes



We recorded an income tax benefit of $10.1 million for the second quarter of fiscal 2004 compared to a $0.6 million income tax provision for the year-ago quarter. The
combined effective income tax rate was 36.9% for the current quarter as compared to 26.8% for the year-ago quarter. The increase in the tax rate is primarily due to a change in the mix of earnings generated in different countries in the current
fiscal year.



Earnings (Loss)



For the second quarter of fiscal 2004, we generated a net loss of $17.3 million compared to
net earnings of $1.8 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 $0.35 per ADS in the second quarter of fiscal 2004
compared to a net loss available to common shareholders of $0.04 per ADS in the year-ago quarter.



Six Months Ended September 30, 2003 compared to the Six Months Ended September 30, 2002



Revenue



Total revenue for the first six months of fiscal 2004 declined by $34.1 million or 4.9% to $656.7 million from $690.8 million in the year-ago period with the United States segment down 13.8%, the European segment up
7.8% and the International segment down 2.9%. During the first six months of fiscal year 2004, 49.2% of our revenue was generated by our United States segment, 41.6% by our European segment and 9.2% by our International segment. Our total revenue in
the first six months of the current year was impacted by a $43.8 million foreign currency benefit of which Europe contributed $38.5 million and International contributed $5.3 million. Absent the foreign currency benefit, Europes and
Internationals total revenues for the first six months would have decreased by 7.4% and 11.3%, respectively.



Retail equipment sales decreased by $0.1 million or 0.1% to $228.0 million with the United States segment down 7.1%, the European segment up 13.7% and the International
segment down 4.5%. This overall decrease was primarily due to decreased revenues in the U.S. segment offset, in part, by a $14.2 million foreign currency benefit. Absent the foreign currency benefit, Europes and Internationals retail
equipment sales for the first six months would have decreased by 1.9% and 15.5%, respectively.



Retail service revenue declined by $30.7 million or 8.7% to $321.2 million with the United States segment down 15.4%, the European segment up 3.2% and the International segment down 9.8%. This decrease was due to the
continuing industry-wide conversion from analog-to-digital equipment and a $2.5 million charge for billing adjustments, which was partially offset by a $19.2 million foreign currency benefit. Absent the foreign currency benefit, Europes and
Internationals retail service revenue for the first six months would have decreased by 11.4% and 17.0%, respectively.



Retail supplies and rental revenues declined by $9.4 million or 13.1% to $62.2 million with the United States segment down 28.2%, the European segment down 2.7% and the
International segment up 10.9%. These decreases were primarily due to the past downsizing of the capital intensive U.S. and European rental business. These decreases were partially offset by a $3.1 million foreign currency benefit. Absent the
foreign currency benefit, Europes retail supplies and rentals revenue for the first six months would have decreased by 13.7% while Internationals would have increased by 4.8%.



Wholesale revenue for the first six months of fiscal 2004 increased by $6.1 million or 15.5% to $45.4 million due to a $7.2 million foreign
currency benefit offset by decreased European sales activity.



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Gross Profit



Our total gross profit margin decreased to 37.0% in the first six months ended September 30, 2003 from 37.3% in the year-ago period. The decrease in our profit margin is
primarily due to a shift in the first quarter of the mix of our sales toward lower margin, large enterprise accounts in the United States, a decrease in U.S. equipment leasing income of approximately $6.9 million related to lease and residual
equipment payments from a diminishing external lease funding program offset by higher margin sales of equipment in the second quarter and a $14.6 million foreign currency benefit. The gross profit margin for the United States segment decreased to
41.1% from 42.5%, while the European segment was flat at 32.3% and the International segment increased to 35.8% from 26.2%. The total and International gross profit percentage for the year-ago period was adversely affected by a $3.4 million charge
that consisted primarily of inventory and residual write-downs in Canada.



The
retail equipment margin decreased to 33.4% in the first six months from 33.9% in the year-ago period even after taking into account the $1.9 million write-down of inventory in our International division in the year-ago period. This decrease was
primarily due to the generation of lower margin transactions in the first quarter and lower leasing income in the United States. Retail service margins increased to 41.3% in the first six months from 40.6% in the year-ago period primarily due to
favorability in the European and International segments and the non-recurrence of a $0.9 million write-down of inventory in our International segment in the year-ago period. Retail supplies and rental margins decreased to 40.5% in the first six
months from 42.0% in the year-ago period due to supply margin unfavorability in our European segment and rental margin unfavorability in the International segment offset in part rental margin favorability in the United States. Wholesale margins
decreased to 19.1% in the first six months from 19.4% in the year-ago period.



Selling, General and Administrative Expenses



Selling, general
and administrative expenses (SG&A) in the first six months of fiscal 2004 decreased by $0.1 million to $237.6 million from $237.7 million in the year-ago period even after taking into account a foreign currency movement of $12.0
million. As a percentage of total revenue, SG&A expenses increased to 36.2% from 34.4% due to increased facility costs related to the new corporate headquarters building, additional depreciation as the result of increased capital spending for
Vision 21 and increased fringe benefits, offset in part, by a reduction in professional services and lower bad debt expense. SG&A expenses decreased in the first six months as compared to the year-ago period primarily due to the previously
mentioned issues and lower employee costs resulting from a reduction in commissions and bonuses.



Restructuring Charges



We reversed $0.6
million of restructuring charges for facilities and severance during the first six months of fiscal year 2004 due to employee attrition and a lower estimate of facility charges. This reversal included $0.2 million for severance within the 2002 plan,
$0.3 million for facilities within the 2002 plan and $0.1 million for facilities within the 2001 plan. We reversed $0.6 million of restructuring charges for facilities and severance during the first six months of fiscal year 2003 due to employee
attrition and a lower estimate of facility charges. This reversal included $0.1 million for severance/facilities within the 2002 plan, $0.3 million for facilities within the 2001 plan and $0.2 million for severance within the 1999 plan.



Other (Income) Expense



Other income decreased to $0.2 million for the first six months of fiscal 2004 from $3.6
million in the year-ago period. Other income included a foreign currency gain of $0.3 million for the current period and $4.4 million for the year-ago period.



Operating Earnings (Loss)



For the first six months of fiscal 2004, operating earnings decreased by $18.3 million to $6.0 million, compared to earnings of $24.3 million in the year-ago period.



Interest Expense and Interest Income



Interest expense increased by $3.5 million to $17.8 million for the first six months of
fiscal 2004 from $14.3 million in the year-ago period. The increase was due to higher interest rates resulting from the recent debt refinancing and a higher level of indebtedness. Interest income increased by $0.2 million from the year-ago period.



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Writeoff of Debt Issue Costs



In the first six months of fiscal 2004, we wrote-off $20.6 million of debt issuance costs relating to the early repayment of our old credit
facility.



Income Taxes



We recorded an income tax benefit of $13.8 million for the first six months of fiscal 2004
compared to a $2.8 million income tax provision for the year-ago period. The combined effective income tax rate was 43.4% for the first six months as compared to 27.0% for the year-ago period. The increase in the tax rate is primarily due to a
change in the mix of earnings generated in different countries in the current period and the reversal of $3.2 million of foreign tax accruals.



Earnings (Loss)



For the first six months of fiscal 2004, we generated a net loss of $18.1 million compared to net earnings of $7.5 million in the year-ago period. After allowing for the dilutive effect of dividends on our
participating shares, we generated a net loss available to common shareholders of $0.44 per ADS in the first six months of fiscal 2004 compared to a net loss available to common shareholders of $0.02 per ADS in the year-ago period.



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 24 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
second quarter of fiscal 2004, 50.8% of our revenue was generated outside the United States with 32.9% of our revenue generated in Euro countries, 8.6% in the United Kingdom, and 9.3% in other foreign locations. We generated 45.4% of our revenue for
the second quarter of fiscal 2003 outside the United States with 28.8% generated in Euro countries, 7.9% in the United Kingdom, and 8.7% in other foreign locations, including Canada, Mexico, Australia and South America.



During the first six months of fiscal 2004, approximately 50.8% of our revenue was generated
outside the United States with 33.6% of our revenue generated in Euro countries, 8.0% in the United Kingdom, and 9.2% in other foreign locations. We generated 45.7% of our revenue for the first six months of fiscal 2003 outside the United States
with 29.1% generated in Euro countries, 7.6% in the United Kingdom, and 9.0% in other foreign locations, including Canada, Mexico, Australia and South America.



In comparing the average exchange rates between the first six months of fiscal 2004 and the year-ago period, the Euro currency and the United Kingdom pound
strengthened against the dollar by approximately 18.9% and 7.3%, respectively. The change in exchange rates positively impacted revenue by approximately $43.8 million. The strengthening of the Euro and United Kingdom pound since March 31, 2003 was
the primary reason for the $12.8 million decrease in cumulative currency translation losses in shareholders equity for the first six 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 a change 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 $0.3 million gain in the first six months of fiscal 2004 and a $4.4 million gain in the



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first six months of fiscal 2003.



Liquidity and Capital Resources



Our generation
and use of cash is cyclical within a quarter. We generate a significant portion of our cash toward the end of each quarter while our use of cash is more evenly spread over the quarter with a greater use of cash toward the beginning of the quarter.
In the third quarter of fiscal year 2004, we will have to make interest payments of approximately $12 million.



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



|(In Thousands)                                       |  | September 30,2003 |         |   | September 30,2002 |  
|---------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | -
|Net cash provided by operating activities            |  | $                 | 43,952  |   |                   | $
|Net cash used in investing activities                |  |                   | (30,385 | ) |                   |  
|Net cash provided by/(used) in financing activities  |  |                   | 1,229   |   |                   |  
|Effect of exchange rates                             |  |                   | 2,011   |   |                   |  
|                                                     |  |                   |         |   |                   |  
|Net increase/(decrease) in cash and cash equivalents |  |                   | 16,807  |   |                   |  
|Cash and cash equivalents, beginning of period       |  |                   | 81,493  |   |                   |  
|                                                     |  |                   |         |   |                   |  
|Cash and cash equivalents, end of period             |  | $                 | 98,300  |   |                   | $
|                                                     |  |                   |         |   |                   |  



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 $44.0 million and $67.6 million for the first six months of fiscal year 2004 and 2003, respectively. The
$23.6 million decrease in fiscal 2004 operating cash flow was primarily due to the reduction in net income, the timing of payments to our vendors, less cash collected from our receivables and a reduction in inventory turns this year versus the prior
year.



Net cash flow used in investing activities was $30.4 million and $17.2
million for the first six 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, plant and equipment related, in part, to the Vision
21 project and the new corporate headquarters.



Net cash flow provided by
financing activities was $1.2 million compared to net cash flow used in financing activities of $74.1 million for the first six months of fiscal year 2004 and 2003, respectively. The change in fiscal 2004 cash provided from financing activities was
due to the net proceeds generated from refinancing our debt.



The Oracle ERP
implementation permits us to issue customer statements in the U.S. and more readily reconcile customer accounts. The implementation of the use of customer statements is expected to result in the reduction of certain accounts receivable or the
issuance of customer refunds over the next several quarters. Such refunds are not expected to be material.



The following table sets forth 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)                                     |  |       |         |                                 |   |                                
|Senior Notes                                   |  | $     | 175,000 |                                 | $ |                               
|Notes Payable                                  |  |       | 64,520  |                                 |   |                               
|Capital Leases and other Long-Term Obligations |  |       | 9,599   |                                 |   | 4,034                          
|                                               |  |       |         |                                 |   |                                
|Total Contractual Obligations                  |  | $     | 249,119 |                                 | $ | 4,034                          
|                                               |  |       |         |                                 |   |                                



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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. The entire balance of the old credit facility was repaid on July 1, 2003 upon the issuance of our senior notes. The interest rate for each interest period, as
defined in the old credit facility, was LIBOR plus 8.25%.



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. In June 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 were charged to earnings in the quarter ended September 30, 2003 as the related debt was paid off in full.



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 our senior notes that were sold at a price of 97.6% of the aggregate principal amount, generating a $4.1 million discount. 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. We redeemed all of the outstanding zero coupon notes on August 18, 2003.



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.



We incurred $8.5 million in debt issuance costs in fiscal
year 2004 relating to the senior notes. We are amortizing these costs over the term of the senior notes. The $4.1 million discount related to the senior notes is being amortized to interest expense using the effective interest method over the life
of the related debt.



As of September 30, 2003, we had $14.1 million in letters
of credit outstanding. In connection with the issuance of the senior notes and the establishment of the new credit facility, we were required to post 105% of the letter of credit or $14.8 million in cash collateral with Bank of America to secure
such letters of credit under the new credit facility. The $14.8 million of cash collateral is included in Cash and cash equivalents on the Condensed Consolidated Balance Sheets as of September 30, 2003. 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.



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



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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 September 30, 2003, the participating shares have voting rights, on an as converted basis, currently corresponding to approximately 26.4% of the total voting power of our capital stock which
includes an additional 58,097 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 have accrued $0.2 million in penalty payments for the six months ended September 30, 2003 since the total amount of customer leases provided to GECC have not achieved the specified minimum 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.



Real Estate Operating Leases



We are contractually liable for payments under certain real estate operating leases
including our former corporate headquarter facility, which contains minimum monthly lease payments of $70,000 until April 2010. We have evaluated our worldwide



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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 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.



As of September 30, 2003, we did not have a balance outstanding 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 six months of fiscal year 2004 were positively impacted by a $43.8 million foreign currency movement, primarily due to 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 September 30, 2003, we had no outstanding forward contracts or option contracts to buy or sell foreign currency. For the two year period ended September 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 30th. This is primarily due to increased vacation time by Europeans and Canadians during July and August. This has historically 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



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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 adopted the provisions of Statement 150 in 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 Disclosures 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. Other than as described below,
there have been no material changes to the information under Item 7A of 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 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 our 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) or 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 are effective to provide reasonable assurance
that such controls and procedures record, process, summarize and report, 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 issuance of credits against accounts receivable. We acknowledge this condition, which has been reported to our audit
committee. With the completion of the implementation of the Oracle ERP System, we believe that we have identified and substantially improved those internal control issues that generated the reportable condition.



APPROVAL OF NON-AUDIT SERVICES



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



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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 Exchange Act. 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, and the fear
of additional terrorist attacks; 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 and Use of Proceeds
|------- |  | -----------------------------------------

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.





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Item 6. Exhibits and Reports on Form 8-K



(a) Exhibits.



|     | 
|---- | 
|31.1 | 
|     | 
|31.1 | 
|     | 
|32.1 | 



(b) Reports on Form
8-K:



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

Current Report on Form 8-K dated August 8, 2003 (this item 12 Current Report was furnished to the SEC on  
     August 8, 2003).

Current Report on Form 8-K dated October 17, 2003 (Items 4 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: November 14, 2003 |  |  |  | By:                                    
|                        |  |  |  |                                        



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