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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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(Mark One)

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



FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2003



OR



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



FOR THE TRANSITION PERIOD FROM
 TO



Commission file number: 0-20828



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DANKA BUSINESS SYSTEMS PLC

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



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



|                                                        |  |     |  |                                                          
|------------------------------------------------------- |  | --- |  | ---------------------------------------------------------
|11101 ROOSEVELT BOULEVARD ST. PETERSBURG, FLORIDA 33716 |  | AND |  | MASTERS HOUSE 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)



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



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



The registrant had 250,585,359 Ordinary Shares outstanding as of February 2,
2003.



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INDEX



|                                                                                                                                              |  |    |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | -- |  | 
|RISK FACTORS                                                                                                                                  |  | 3 
|                                                                                                                                              | 
|PART I 
FINANCIAL INFORMATION                                                                                                                |  | 10
|                                                                                                                                              | 
|ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS                                                                                                     |  | 10
|Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2003 and 2002                                          |  | 10
|Condensed Consolidated Balance Sheets as of December 31, 2003 and March 31, 2003                                                              |  | 11
|Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2003 and 2002                                                    |  | 12
|Consolidated Statements of Shareholders Equity and Accumulated Other Comprehensive Loss for the Nine Months Ended December 31, 2003 and 2002 |  | 13
|Notes to Consolidated Financial Statements                                                                                                    |  | 14
|ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS                                                 |  | 30
|Critical Accounting Policies and Estimates                                                                                                    |  | 30
|Three Months Ended December 31, 2003 compared to the Three Months Ended December 31, 2002                                                     |  | 35
|Nine Months Ended December 31, 2003 compared to the Nine Months Ended December 31, 2002                                                       |  | 37
|Exchange Rates                                                                                                                                |  | 39
|Liquidity and Capital Resources                                                                                                               |  | 40
|Other Financing Arrangements                                                                                                                  |  | 42
|Market Risk Management                                                                                                                        |  | 43
|New Accounting Pronouncements                                                                                                                 |  | 44
|ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                            |  | 44
|ITEM 4.
CONTROLS AND PROCEDURES                                                                                                               |  | 45
|                                                                                                                                              | 
|PART II 
OTHER INFORMATION                                                                                                                   |  | 46
|                                                                                                                                              | 
|ITEM 1.        
LEGAL PROCEEDINGS                                                                                                             |  | 46
|ITEM 2.        
CHANGES IN SECURITIES AND USE OF PROCEEDS                                                                                     |  | 46
|ITEM 3.        
DEFAULTS UPON SENIOR SECURITIES                                                                                               |  | 46
|ITEM 4.        
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                           |  | 46
|ITEM 5.        
OTHER INFORMATION                                                                                                             |  | 47
|ITEM 6.        
EXHIBITS AND REPORTS ON FORM 8-K                                                                                              |  | 47
|                                                                                                                                              | 
|SIGNATURE                                                                                                                                     |  | 48



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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
successfully implement our cost restructuring plan to achieve and maintain cost savings; (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 comply with the financial or other covenants
in our debt instruments (xvi) any incurrence of tax liabilities beyond our current expectations, which could adversely affect our liquidity; (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 of 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 nine months ended December 31, 2003 of $35.0 million compared to net earnings of $10.8 million in the year-ago period and have incurred losses in
prior years. The net loss from continuing operations for the first nine months ended December 31, 2003 included a $20.6 million pre-tax write-off of debt issuance costs or $14.4 million on an after-tax basis and a $20.0 million pre-tax cost
restructuring charge or $14.0 million on an after-tax basis.



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We believe that our results for the first nine 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 serve;
| | - | --------------------------------------------------------------------------------------------------------



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



| |  | lower rental revenues resulting from a reduction in the investment of our rental activities;
| | - | --------------------------------------------------------------------------------------------



| |  | 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 United States Vision 21/Oracle ERP Phase I program (which was completed in October 2003) and the ancillary costs
related to the program;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  | the costs to restructure our organization and
| | - | ---------------------------------------------



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



If we continue to 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.



At December 31, 2003, we had deferred tax assets in excess of deferred tax liabilities of $139.5 million and had determined that it is more
likely than not that $103.7 million of such net assets will be realized, resulting in a valuation allowance of $35.8 million. Approximately $228 million of future United States taxable income and approximately $43 million of future United Kingdom
taxable income is ultimately needed to realize the net deferred tax assets at December 31, 2003. It is possible that we may have to record a non-cash write-off in future quarters of all or a portion of the deferred tax assets recorded at December
31, 2003, which could materially affect our financial condition, total shareholders equity and results of operations.



Restructuring of Operations  We have implemented a plan to reduce costs in order to stay competitive within our industry. This cost reduction plan involves,
among other things, significant headcount reductions, the exit of certain non-strategic facility locations and the consolidation of many back-office functions into more centralized locations. If we fail to successfully implement our cost
restructuring plan and achieve our other long-term cost reduction goals, then we may not reduce costs quickly enough to remain competitive within our industry, may lose valuable institutional knowledge and incur a breakdown in our business and
operational functions, including certain critical back-office operations, any of which could result in negative consequences to our customer service and operating results.



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.



As our suppliers develop new products, there is no
guarantee that they will permit us to distribute such products or that such products will meet our customers needs and demands. Furthermore, some of our principal competitors design and manufacture new technology, which may give them a
competitive advantage over us.



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



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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 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 including parts and supplies for our TechSource initiative,
as a result of obsolescence. In order to remain competitive, we must quickly and effectively respond to changing technology. The development of technologies in our industry, including digital and color products and the further development of MFPs,
may impair our business, financial condition, results of operations or competitive position if we are not able to procure or gain access to products, bring them to the marketplace, maintain connectivity or make the investments necessary to maintain
a technologically competitive workforce.



Third Party Financing
Arrangements - A large majority of our retail equipment and related sales are financed by third party finance or leasing companies. With respect to our qualified United States customers, we have an agreement with General Electric Capital
Corporation, or GECC, under which GECC has agreed to provide financing to our United States customers to purchase equipment from us. Although we have other financing arrangements in place, GECC finances a significant part of our United States
business. GECC has current and prospective lease financing agreements with our competitors. If these agreements result in more favorable terms to our competitiors than our current agreement with GECC, we may be placed at a competitive disadvantage
within the industry in arranging third party financing to our customers, which could negatively affect our operating results. 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 arrange financing to our customers, those customers might be unable to purchase equipment from us if we were unable to arrange alternative financing arrangements on similar terms or provide financing ourself. In addition, if
we were unable to arrange 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. During October 2003, we completed the geographic rollout of the new Oracle ERP System in the United States. Although it is still early, we believe that this system should, in large part, postively 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 are continuing 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.



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We must also obtain an accurate measure of usage on each of our United States 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. In the past, we estimated the usage of our customers machines. We 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 required
expenditures of approximately $48 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 have determined that we need to upgrade our information systems in Italy, Germany, the United
Kingdom and other countries and will spend approximately $6 million for such upgrades. Any implementation of new or improved information systems in such countries may take considerable time and could require a substantial investment.



Due to the delayed investment in our information systems, we have not properly invested in
world-wide disaster recovery systems. In the event that one or more of our business systems were to fail, we would be at risk of losing valuable business knowledge.



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 develop and 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, weak customer contract management, excessive and undisciplined issuances of customer credits,
inaccurate customer data, inconsistent customer contract terms and conditions, inadequate document retention and inconsistent lease classification. While we believe that some of these issues that relate to the United States 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.



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 51% of our revenue outside the United States during the first nine 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;
| | - | -----------------------------------------------------



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| |  | 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 and European 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. We disposed of our Hungary operations in the third quarter of fiscal year 2004.



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 United States 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-United States operations when reported in United States dollars in our United States 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 51% of our revenues outside the United States during the first nine months of
fiscal year 2004, with the majority of these revenues denominated in either the euro or United Kingdom pound. During the first nine months of fiscal year 2004, the euro strengthened 18.9% against the United States dollar and the United Kingdom pound
strengthened 7.6% against the United States dollar with significant positive effects on our reported revenue and income.



Further, our intercompany loans are subject to fluctuations in exchange rates between the United States 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 December 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 gain of approximately $0.2 million.



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



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



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



Indebtedness - At December 31, 2003, we had consolidated long-term indebtedness, including current maturities of long-term debt, of $244.5 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 paid 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, which commenced 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;
| | - | -------------------------------------------------------------------------------



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| |  | 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; 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, the $50 million senior secured revolving credit facility
with Fleet Capital Corporation or Fleet credit facility and the 10 million ABN Amro Bank credit facility or ABN 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 payment 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 a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system
of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may
become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Further, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected.



Share Price - The market price of our
ordinary shares and American depositary shares could be subject to significant fluctuations as a result of many factors. In addition, global stock markets have from time to time experienced significant price and volume fluctuations. These
fluctuations may lead to a drop in the market price of our ordinary shares and American depositary shares. Factors which may add to the volatility of the price of our ordinary shares and American depositary shares include many of the factors set out
above, and may also include changes in liquidity in the market for our ordinary shares and American depositary shares, sales of our ordinary shares and American depositary shares, investor sentiment towards the business sector in which we operate
and conditions in the capital markets generally. Many of these factors are beyond our control. These factors may 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 Fleet 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. Also, we may only pay dividends on our ordinary shares if we have paid all dividends due on our 6.50% senior convertible participating shares.



8



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##### Table of Contents

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.



9



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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 Nine Months Ended December 31, 2003 and
2002

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

(Unaudited)



|                                                                                 |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |           |  
|-------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------------------- | - | ------- | ---------------- |  | - | ---------------- | - |  | - | --------- | -
|                                                                                 |  | For the Three Months Ended |         |   | For the Nine Months Ended |  
|                                                                                 |  | December 31,2003           |         |   | December 31,2002          |   |         | December 31,2003 |  |   | December 31,2002 |  
|Revenue:                                                                         |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |           |  
|Retail equipment and related sales                                               |  | $                          | 114,607 |   |                           | $ | 121,768 |                  |  | $ | 342,608          |   |  | $ | 349,913   |  
|Retail service                                                                   |  |                            | 156,493 |   |                           |   | 174,098 |                  |  |   | 477,717          |   |  |   | 525,972   |  
|Retail supplies and rentals                                                      |  |                            | 35,012  |   |                           |   | 35,113  |                  |  |   | 97,176           |   |  |   | 106,642   |  
|Wholesale                                                                        |  |                            | 24,969  |   |                           |   | 22,136  |                  |  |   | 70,328           |   |  |   | 61,399    |  
|                                                                                 |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |           |  
|Total revenue                                                                    |  |                            | 331,081 |   |                           |   | 353,115 |                  |  |   | 987,829          |   |  |   | 1,043,926 |  
|                                                                                 |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |           |  
|Costs and operating expenses:                                                    |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |           |  
|Cost of retail equipment sales                                                   |  |                            | 74,373  |   |                           |   | 80,427  |                  |  |   | 226,260          |   |  |   | 231,124   |  
|Retail service costs                                                             |  |                            | 95,940  |   |                           |   | 104,142 |                  |  |   | 284,344          |   |  |   | 313,298   |  
|Retail supplies and rental costs                                                 |  |                            | 20,614  |   |                           |   | 19,245  |                  |  |   | 57,622           |   |  |   | 60,719    |  
|Wholesale costs of revenue                                                       |  |                            | 20,132  |   |                           |   | 18,048  |                  |  |   | 56,832           |   |  |   | 49,703    |  
|Selling, general and administrative expenses                                     |  |                            | 108,720 |   |                           |   | 119,926 |                  |  |   | 346,322          |   |  |   | 357,643   |  
|Restructuring charges (credits)                                                  |  |                            | 20,046  |   |                           |   |        |                  |  |   | 19,452           |   |  |   | (556      | )
|Other (income) expense                                                           |  |                            | 1,861   |   |                           |   | (1,491  | )                |  |   | 1,651            |   |  |   | (5,085    | )
|                                                                                 |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |           |  
|Total costs and operating expenses                                               |  |                            | 341,686 |   |                           |   | 340,297 |                  |  |   | 992,483          |   |  |   | 1,006,846 |  
|                                                                                 |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |           |  
|Operating earnings (loss)                                                        |  |                            | (10,605 | ) |                           |   | 12,818  |                  |  |   | (4,654           | ) |  |   | 37,080    |  
|                                                                                 |  |                            |         |  
|Interest expense                                                                 |  |                            | (7,931  | ) |                           |   | (8,734  | )                |  |   | (25,753          | ) |  |   | (23,038   | )
|Interest income                                                                  |  |                            | 429     |   |                           |   | 419     |                  |  |   | 978              |   |  |   | 739       |  
|Writeoff of debt issuance costs                                                  |  |                            |        |   |                           |   |        |                  |  |   | (20,562          | ) |  |   |          |  
|                                                                                 |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |           |  
|Earnings (loss) before income taxes                                              |  |                            | (18,107 | ) |                           |   | 4,503   |                  |  |   | (49,991          | ) |  |   | 14,781    |  
|Provision (benefit) for income taxes                                             |  |                            | (1,166  | ) |                           |   | 1,219   |                  |  |   | (14,995          | ) |  |   | 3,990     |  
|                                                                                 |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |           |  
|Net earnings (loss)                                                              |  | $                          | (16,941 | ) |                           | $ | 3,284   |                  |  | $ | (34,996          | ) |  | $ | 10,791    |  
|                                                                                 |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |           |  
|Calculation of (loss) earnings per ADS                                           |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |           |  
|Earnings (loss)                                                                  |  | $                          | (16,941 | ) |                           | $ | 3,284   |                  |  | $ | (34,996          | ) |  | $ | 10,791    |  
|Dividends and accretion on participating shares                                  |  |                            | (4,811  | ) |                           |   | (4,528  | )                |  |   | (14,216          | ) |  |   | (13,384   | )
|                                                                                 |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |           |  
|Income (loss) available/(attributable) to common shareholders                    |  | $                          | (21,752 | ) |                           | $ | (1,244  | )                |  | $ | (49,212          | ) |  | $ | (2,593    | )
|                                                                                 |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |           |  
|Basic (loss) earnings available/(attributable) to common shareholders per ADS:   |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |           |  
|Net earnings (loss) per ADS                                                      |  | $                          | (0.35   | ) |                           | $ | (0.02   | )                |  | $ | (0.79            | ) |  | $ | (0.04     | )
|                                                                                 |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |           |  
|Weighted average ADSs                                                            |  |                            | 62,531  |   |                           |   | 62,194  |                  |  |   | 62,474           |   |  |   | 62,078    |  
|                                                                                 |  |                            |         |  
|Diluted (loss) earnings available/(attributable) to common shareholders per ADS: |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |           |  
|Net earnings (loss) per ADS                                                      |  | $                          | (0.35   | ) |                           | $ | (0.02   | )                |  | $ | (0.79            | ) |  | $ | (0.04     | )
|                                                                                 |  |                            |         |   |                           |   |         |                  |  |   |                  |   |  |   |           |  
|Weighted average ADSs                                                            |  |                            | 62,531  |   |                           |   | 62,194  |                  |  |   | 62,474           |   |  |   | 62,078    |  



See accompanying
notes to the consolidated financial statements



10



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##### Table of Contents

Danka Business Systems PLC

Condensed Consolidated Balance Sheets as of December 31, 2003 and March 31, 2003

(In Thousands)



|                                                                 |  |                  |          |   |               |   |          |  
|---------------------------------------------------------------- |  | ---------------- | -------- | - | ------------- | - | -------- | -
|                                                                 |  | December 31,2003 |          |   | March 31,2003 |  
|                                                                 |  | (Unaudited)      |          |   |               |  
|Assets                                                           |  |                  |          |   |               |   |          |  
|Current assets:                                                  |  |                  |          |   |               |   |          |  
|Cash and cash equivalents                                        |  | $                | 105,055  |   |               | $ | 81,493   |  
|Accounts receivable, net                                         |  |                  | 241,227  |   |               |   | 257,329  |  
|Inventories                                                      |  |                  | 106,571  |   |               |   | 111,471  |  
|Prepaid expenses, deferred income taxes and other current assets |  |                  | 31,471   |   |               |   | 45,879   |  
|                                                                 |  |                  |          |   |               |   |          |  
|Total current assets                                             |  |                  | 484,324  |   |               |   | 496,172  |  
|                                                                 |  |                 
|Equipment on operating leases, net                               |  |                  | 32,804   |   |               |   | 39,829   |  
|Property and equipment, net                                      |  |                  | 73,547   |   |               |   | 67,782   |  
|Goodwill, net                                                    |  |                  | 280,156  |   |               |   | 256,990  |  
|Noncompete agreements, net                                       |  |                  | 2,281    |   |               |   | 799      |  
|Deferred income taxes                                            |  |                  | 92,958   |   |               |   | 78,480   |  
|Other assets                                                     |  |                  | 26,636   |   |               |   | 41,568   |  
|                                                                 |  |                  |          |   |               |   |          |  
|Total assets                                                     |  | $                | 992,706  |   |               | $ | 981,620  |  
|                                                                 |  |                  |          |   |               |   |          |  
|Liabilities and shareholders equity                             |  |                  |          |   |               |   |          |  
|Current liabilities:                                             |  |                  |          |   |               |   |          |  
|Current maturities of long-term debt and notes payable           |  | $                | 2,405    |   |               | $ | 58,443   |  
|Accounts payable                                                 |  |                  | 122,722  |   |               |   | 140,207  |  
|Accrued expenses and other current liabilities                   |  |                  | 116,196  |   |               |   | 101,749  |  
|Taxes payable                                                    |  |                  | 117,962  |   |               |   | 112,311  |  
|Deferred revenue                                                 |  |                  | 43,334   |   |               |   | 40,628   |  
|                                                                 |  |                  |          |   |               |   |          |  
|Total current liabilities                                        |  |                  | 402,619  |   |               |   | 453,338  |  
|                                                                 |  |                 
|Long-term debt and notes payable, less current maturities        |  |                  | 242,093  |   |               |   | 174,412  |  
|Deferred income taxes and other long-term liabilities            |  |                  | 32,033   |   |               |   | 29,785   |  
|                                                                 |  |                  |          |   |               |   |          |  
|Total liabilities                                                |  |                  | 676,745  |   |               |   | 657,535  |  
|                                                                 |  |                  |          |   |               |   |          |  
|6.5% senior convertible participating shares                     |  |                  | 272,493  |   |               |   | 258,376  |  
|                                                                 |  |                  |          |   |               |   |          |  
|Shareholders equity:                                            |  |                  |          |   |               |   |          |  
|Ordinary shares, 1.25 pence stated value                         |  |                  | 5,182    |   |               |   | 5,167    |  
|Additional paid-in capital                                       |  |                  | 327,768  |   |               |   | 327,173  |  
|Accumulated deficit                                              |  |                  | (239,104 | ) |               |   | (189,995 | )
|Accumulated other comprehensive loss                             |  |                  | (50,378  | ) |               |   | (76,636  | )
|                                                                 |  |                  |          |   |               |   |          |  
|Total shareholders equity                                       |  |                  | 43,468   |   |               |   | 65,709   |  
|                                                                 |  |                  |          |   |               |   |          |  
|Total liabilities & shareholders equity                         |  | $                | 992,706  |   |               | $ | 981,620  |  
|                                                                 |  |                  |          |   |               |   |          |  



See accompanying
notes to the consolidated financial statements



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##### Table of Contents

Danka Business Systems PLC

Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2003 and 2002

(In Thousands)

(Unaudited)



|                                                                         |  |                  |          |   |                  |   |         |  
|------------------------------------------------------------------------ |  | ---------------- | -------- | - | ---------------- | - | ------- | -
|                                                                         |  | December 31,2003 |          |   | December 31,2002 |  
|Operating activities:                                                    |  |                  |          |   |                  |   |         |  
|Net earnings (loss)                                                      |  | $                | (34,996  | ) |                  | $ | 10,791  |  
|Adjustments to reconcile net earnings (loss) to net cash provided:       |  |                  |          |   |                  |   |         |  
|Depreciation and amortization                                            |  |                  | 39,274   |   |                  |   | 43,112  |  
|Deferred income taxes                                                    |  |                  | (14,352  | ) |                  |   | (5,455  | )
|Amortization of debt issuance costs                                      |  |                  | 4,993    |   |                  |   | 7,090   |  
|Writeoff of debt issuance costs                                          |  |                  | 20,562   |   |                  |   |        |  
|Loss on sale of property and equipment and equipment on operating leases |  |                  | 1,959    |   |                  |   | 3,589   |  
|Proceeds from sale of equipment on operating leases                      |  |                  | 2,790    |   |                  |   | 1,922   |  
|Restructuring and other special charges (credits)                        |  |                  | 19,452   |   |                  |   | (556    | )
|Changes in net assets and liabilities:                                   |  |                  |          |   |                  |   |         |  
|Accounts receivable                                                      |  |                  | 16,440   |   |                  |   | 40,358  |  
|Inventories                                                              |  |                  | 4,900    |   |                  |   | 22,020  |  
|Prepaid expenses and other current assets                                |  |                  | 3,345    |   |                  |   | 5,280   |  
|Other non-current assets and other items                                 |  |                  | 2,412    |   |                  |   | 5,938   |  
|Accounts payable                                                         |  |                  | (19,696  | ) |                  |   | 3,149   |  
|Accrued expenses and other current liabilities                           |  |                  | 1,230    |   |                  |   | (15,073 | )
|Deferred revenue                                                         |  |                  | 2,706    |   |                  |   | (2,329  | )
|Other long-term liabilities                                              |  |                  | 1,254    |   |                  |   | 2,013   |  
|                                                                         |  |                  |          |   |                  |   |         |  
|Net cash provided by operating activities                                |  |                  | 52,273   |   |                  |   | 121,849 |  
|                                                                         |  |                  |          |   |                  |   |         |  
|Investing activities:                                                    |  |                  |          |   |                  |   |         |  
|Capital expenditures                                                     |  |                  | (35,872  | ) |                  |   | (32,054 | )
|Proceeds from the sale of property and equipment                         |  |                  | 706      |   |                  |   | 463     |  
|                                                                         |  |                  |          |   |                  |   |         |  
|Net cash provided by/(used in) investing activities                      |  |                  | (35,166  | ) |                  |   | (31,591 | )
|                                                                         |  |                  |          |   |                  |   |         |  
|Financing activities:                                                    |  |                  |          |   |                  |   |         |  
|Net payments under line of credit agreements                             |  |                  | (112,960 | ) |                  |   | (53,000 | )
|Net proceeds/(payments) under capital lease arrangements                 |  |                  | 2,436    |   |                  |   | 2,777   |  
|Payments of debt                                                         |  |                  | (48,867  | ) |                  |   | (14,490 | )
|Proceeds from debt issuance                                              |  |                  | 170,905  |   |                  |   |        |  
|Payment of debt issue costs                                              |  |                  | (10,767  | ) |                  |   | (17,162 | )
|                                                                         |  |                  |          |   |                  |   |         |  
|Net cash provided by/(used in) financing activities                      |  |                  | 747      |   |                  |   | (81,875 | )
|                                                                         |  |                  |          |   |                  |   |         |  
|Effect of exchange rates                                                 |  |                  | 5,708    |   |                  |   | 3,789   |  
|                                                                         |  |                  |          |   |                  |   |         |  
|Net increase (decrease) in cash and cash equivalents                     |  |                  | 23,562   |   |                  |   | 12,172  |  
|Cash and cash equivalents, beginning of period                           |  |                  | 81,493   |   |                  |   | 59,470  |  
|                                                                         |  |                  |          |   |                  |   |         |  
|Cash and cash equivalents, end of period                                 |  | $                | 105,055  |   |                  | $ | 71,642  |  
|                                                                         |  |                  |          |   |                  |   |         |  



See accompanying
notes to the consolidated financial statements



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Danka Business Systems PLC

Consolidated Statements of Shareholders Equity and Accumulated Other Comprehensive Loss for
the Nine Months Ended December 31, 2003 and 2002

(In Thousands)

(Unaudited)



|                                                |  |                                                       |  |                |       |                          |   |                    |  |   |                                     |   |  |       |          |   |  |   |         |  
|----------------------------------------------- |  | ----------------------------------------------------- |  | -------------- | ----- | ------------------------ | - | ------------------ |  | - | ----------------------------------- | - |  | ----- | -------- | - |  | - | ------- | -
|                                                |  | Number ofOrdinaryShares (4 OrdinarySharesEqual 1 ADS) |  | OrdinaryShares |       | AdditionalPaid-InCapital |   | AccumulatedDeficit |  |   | AccumulatedOtherCompre-hensive Loss |   |  | Total |         
|Balances at March 31, 2003                      |  | 249,532                                               |  | $              | 5,167 |                          | $ | 327,173            |  | $ | (189,995                            | ) |  | $     | (76,636  | ) |  | $ | 65,709  |  
|                                                |  |                                                       |  |                |       |                         
|Net loss                                        |  |                                                      |  |                |      |                          |   |                   |  |   | (34,996                             | ) |  |       |         |   |  |   | (34,996 | )
|Minimum pension liability adjustment            |  |                                                       |  |                |       |                          |   |                    |  |   |                                    |   |  |       | (2,260   | ) |  |   | (2,260  | )
|Currency translation adjustment                 |  |                                                      |  |                |      |                          |   |                   |  |   |                                    |   |  |       | 28,518   |   |  |   | 28,518  |  
|                                                |  |                                                       |  |                |       |                          |   |                    |  |   |                                     |   |  |       |          |   |  |   |         |  
|Comprehensive loss                              |  |                                                       |  |                |       |                          |   |                    |  |   |                                     |   |  |       |          |   |  |   | (6,478  | )
|Dividends and accretion on participating shares |  |                                                      |  |                |      |                          |   |                   |  |   | (14,113                             | ) |  |       |         |   |  |   | (14,113 | )
|Shares issued under employee stock plans        |  | 772                                                   |  |                | 15    |                          |   | 595                |  |   |                                    |   |  |       |         |   |  |   | 610     |  
|                                                |  |                                                       |  |                |       |                          |   |                    |  |   |                                     |   |  |       |          |   |  |   |         |  
|Balances at December 31, 2003                   |  | 250,304                                               |  | $              | 5,182 |                          | $ | 327,768            |  | $ | (239,104                            | ) |  | $     | (50,378  | ) |  | $ | 43,468  |  
|                                                |  |                                                       |  |                |       |                          |   |                    |  |   |                                     |   |  |       |          |   |  |   |         |  
|Balances at March 31, 2002                      |  | 248,085                                               |  | $              | 5,139 |                          | $ | 325,880            |  | $ | (181,872                            | ) |  | $     | (101,098 | ) |  | $ | 48,049  |  
|Net earnings                                    |  |                                                      |  |                |      |                          |   |                   |  |   | 10,791                              |   |  |       |         |   |  |   | 10,791  |  
|Currency translation adjustment                 |  |                                                      |  |                |      |                          |   |                   |  |   |                                    |   |  |       | 29,557   |   |  |   | 29,557  |  
|                                                |  |                                                       |  |                |       |                          |   |                    |  |   |                                     |   |  |       |          |   |  |   |         |  
|Comprehensive income                            |  |                                                       |  |                |       |                          |   |                    |  |   |                                     |   |  |       |          |   |  |   | 40,348  |  
|Dividends and accretion on participating shares |  |                                                       |  |                |       |                          |   |                    |  |   | (13,291                             | ) |  |       |          |   |  |   | (13,291 | )
|Shares issued under employee stock plans        |  | 1,109                                                 |  |                | 21    |                          |   | 1,007              |  |   |                                    |   |  |       |         |   |  |   | 1,028   |  
|                                                |  |                                                       |  |                |       |                          |   |                    |  |   |                                     |   |  |       |          |   |  |   |         |  
|Balances at December 31, 2002                   |  | 249,194                                               |  | $              | 5,160 |                          | $ | 326,887            |  | $ | (184,372                            | ) |  | $     | (71,541  | ) |  | $ | 76,134  |  
|                                                |  |                                                       |  |                |       |                          |   |                    |  |   |                                     |   |  |       |          |   |  |   |         |  



See accompanying
notes to the consolidated financial statements



13



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##### Table of Contents

Danka Business Systems PLC

Notes to Consolidated Financial Statements

(Unaudited)



Note 1. Basis of Presentation



The
accompanying financial statements are unaudited as of December 31, 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 nine months ended December 31, 2003 and December 31, 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 were 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/(loss) available/(attributable) and earnings/(loss) available/(attributable) per ADS shareholder 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 threemonths ended |         |   | For the nine months ended |  
|                                                                                                                 |  | December 31,              |         |   | December 31,              |  
|(In thousands except per ADS data)                                                                               |  | 2003                      |         |   | 2002                      |   |        | 2003 |  |   | 2002    |  
|Net earnings (loss), as reported                                                                                 |  | $                         | (16,941 | ) |                           | $ | 3,284  |      |  | $ | (34,996 | ) |  | $ | 10,791  |  
|Less: total stock-based employee compensation expense determined under the fair value for all awards, net of tax |  |                           | (1,035  | ) |                           |   | (790   | )    |  |   | (2,869  | ) |  |   | (1,796  | )
|                                                                                                                 |  |                           |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Pro forma net earnings (loss)                                                                                    |  |                           | (17,976 | ) |                           |   | 2,494  |      |  |   | (37,865 | ) |  |   | 8,995   |  
|Participating share dividend                                                                                     |  |                           | (4,811  | ) |                           |   | (4,528 | )    |  |   | (14,216 | ) |  |   | (13,384 | )
|                                                                                                                 |  |                           |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Loss attributable to common shareholders                                                                         |  | $                         | (22,787 | ) |                           | $ | (2,034 | )    |  | $ | (52,081 | ) |  | $ | (4,389  | )
|                                                                                                                 |  |                           |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Loss attributable to common shareholders per ADS                                                                 |  |                           |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|As reported                                                                                                      |  | $                         | (0.35   | ) |                           | $ | (0.02  | )    |  | $ | (0.79   | ) |  | $ | (0.04   | )
|Pro forma                                                                                                        |  |                           | (0.36   | ) |                           | $ | (0.03  | )    |  | $ | (0.83   | ) |  | $ | (0.07   | )
|Weighted average ADSs                                                                                            |  |                           | 62,531  |   |                           |   | 62,194 |      |  |   | 62,474  |   |  |   | 62,078  |  
|                                                                                                                 |  |                           |         |  
|Diluted loss attributable to common shareholders per ADS                                                         |  |                           |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|As reported                                                                                                      |  | $                         | (0.35   | ) |                           | $ | (0.02  | )    |  | $ | (0.79   | ) |  | $ | (0.04   | )
|Pro forma                                                                                                        |  |                           | (0.36   | ) |                           | $ | (0.03  | )    |  | $ | (0.83   | ) |  | $ | (0.07   | )
|Weighted average ADSs                                                                                            |  |                           | 62,531  |   |                           |   | 62,194 |      |  |   | 62,474  |   |  |   | 62,078  |  





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##### Table of Contents

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 nine 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 months ended December 31, |   |  | For the ninemonths endedDecember 31, |  
|                        |  | 2003                                    |   |  | 2002                                 |   |  | 2003    |   |  | 2002    |  
|Dividend yield          |  | 0                                       | % |  | 0                                    | % |  | 0       | % |  | 0       | %
|Expected volatility     |  | 577.01                                  | % |  | 668.21                               | % |  | 577.01  | % |  | 668.21  | %
|Risk-free interest rate |  | 3.19                                    | % |  | 3.05                                 | % |  | 2.91    | % |  | 3.34    | %
|Expected life           |  | 5 years                                 |   |  | 5 years                              |   |  | 5 years |   |  | 5 years |  



Note 2. Intangible Assets



Financial Accounting Standard 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 during
the fourth quarter of our fiscal year.



As of December 31, 2003, goodwill
amounted to $280.2 million. Changes to goodwill for the nine months ended December 31, 2003 resulted primarily from fluctuations in foreign currency exchange rates. Non-compete agreements, trademarks and other intangible assets, net amounted to $2.3
million, after $1.3 million of accumulated amortization.



Aggregate
amortization expense of other intangible assets, including non-compete agreements, tradenames and customer lists for the nine 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 December 31, 2003 (in thousands) was:



|              |  |          |        
|------------- |  | -------- | -------
|              |  | Goodwill
|United States |  | $        | 77,778 
|Europe        |  |          | 196,668
|International |  |          | 5,710  
|              |  |          |        
|Total         |  | $        | 280,156
|              |  |          |        



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.



15



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##### Table of Contents

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 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 can only
require the company to redeem the shares for cash upon events not certain to occur, such shares are not currently required to be classified as a liability.



Note 4. Restructuring and Other Special Charges



Fiscal Year 2004 Charge:In the third quarter of fiscal year 2004, we formulated a plan to significantly reduce our operating costs by consolidating our
back-office functions in the United States, exiting non-strategic real estate facilities and reducing headcount in the United States, Europe and International businesses. As part of that plan, we recorded a $20.0 million restructuring charge in the
third quarter of fiscal year 2004 that included $8.9 million related to severance for employees and $11.1 million related to future lease obligations for facilities that were vacated by December 31, 2003. Cash outlays for the employee severance
during fiscal year 2004 were $0.9 million. Substantially all of these employee reductions were completed by December 31, 2003 but approximately $8.1 million of severance payments will be made over the next two years. Cash outlays for the remaining
term of the facility leases during fiscal year 2004 were $0.1 million. The remaining liability of the 2004 restructuring charge is categorized within Accrued expenses and other current liabilities. The following table summarizes the
fiscal year 2004 restructuring charge:



2004 Restructuring Charge:



|                                              |  |                    |        |             |   |        |                      |  |                            |   |  |   |       
|--------------------------------------------- |  | ------------------ | ------ | ----------- | - | ------ | -------------------- |  | -------------------------- | - |  | - | ------
|(In thousands)                                |  | Fiscal 2004Expense |        | CashOutlays |   |        | OtherNon-CashChanges |  | Reserve atDecember 31,2003
|Severance                                     |  | $                  | 8,895  |             | $ | (840   | )                    |  | $                          |  |  | $ | 8,055 
|Future lease obligations on facility closures |  |                    | 11,151 |             |   | (205   | )                    |  |                            |  |  |   | 10,946
|                                              |  |                    |        |             |   |        |                      |  |                            |   |  |   |       
|Total                                         |  | $                  | 20,046 |             | $ | (1,045 | )                    |  | $                          |  |  | $ | 19,001
|                                              |  |                    |        |             |   |        |                      |  |                            |   |  |   |       



2004 Restructuring Severance Charge
by Operating Segment:



|               |  |                     |       |              |   |      |                        |  |                              |   |  |   |      
|-------------- |  | ------------------- | ----- | ------------ | - | ---- | ---------------------- |  | ---------------------------- | - |  | - | -----
|(In thousands) |  | Fiscal 2004 Expense |       | Cash Outlays |   |      | Other Non-Cash Changes |  | Reserve at December 31, 2003
|United States  |  | $                   | 4,853 |              | $ | (495 | )                      |  | $                            |  |  | $ | 4,358
|Europe         |  |                     | 3,287 |              |   | (254 | )                      |  |                              |  |  |   | 3,033
|International  |  |                     | 611   |              |   | (91  | )                      |  |                              |  |  |   | 520  
|Other          |  |                     | 144   |              |   |     |                        |  |                              |  |  |   | 144  
|               |  |                     |       |              |   |      |                        |  |                              |   |  |   |      
|Total          |  | $                   | 8,895 |              | $ | (840 | )                      |  | $                            |  |  | $ | 8,055
|               |  |                     |       |              |   |      |                        |  |                              |   |  |   |      



2004 Restructuring Facility Charge
by Operating Segment:



|               |  |                     |        |              |   |      |                        |  |                              |   |  |   |       
|-------------- |  | ------------------- | ------ | ------------ | - | ---- | ---------------------- |  | ---------------------------- | - |  | - | ------
|(In thousands) |  | Fiscal 2004 Expense |        | Cash Outlays |   |      | Other Non-Cash Changes |  | Reserve at December 31, 2003
|United States  |  | $                   | 2,293  |              | $ | (87  | )                      |  | $                            |  |  | $ | 2,836 
|Europe         |  |                     | 4,253  |              |   | (41  | )                      |  |                              |  |  |   | 4,212 
|International  |  |                     | 58     |              |   |     |                        |  |                              |  |  |   | 58    
|Other          |  |                     | 3,917  |              |   | (77  | )                      |  |                              |  |  |   | 3,840 
|               |  |                     |        |              |   |      |                        |  |                              |   |  |   |       
|Total          |  | $                   | 10,521 |              | $ | (205 | )                      |  | $                            |  |  | $ | 10,946
|               |  |                     |        |              |   |      |                        |  |                              |   |  |   |       



Fiscal Year 2002 Charge:Our
fiscal year 2002 restructuring charge included $5.0 million related to severance for employees in the United States, Canada and Europe. Cash outlays for the employee severance during fiscal year 2004 were less than $0.1 million. Substantially all of
these reductions were completed by March 31, 2003 but approximately $0.2 million of severance payments will be made over the next two years ending March 31, 2005. The restructuring charge also included $6.1 million for future lease obligations on
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 atDecember 31,2003
|Severance                                     |  | $                  | 4,967  |                         | $ | 345         |  | $ | (6                   | ) |  | $                          | (204 | ) |  | $ | 135
|Future lease obligations on facility closures |  |                    | 6,074  |                         |   | 595         |  |   | (96                  | ) |  |                            | (262 | ) |  |   | 237
|                                              |  |                    |        |                         |   |             |  |   |                      |   |  |                            |      |   |  |   |    
|Total                                         |  | $                  | 11,041 |                         | $ | 940         |  | $ | (102                 | ) |  | $                          | (466 | ) |  | $ | 372
|                                              |  |                    |        |                         |   |             |  |   |                      |   |  |                            |      |   |  |   |    



The remaining balance of the 2002
restructuring charge is for our European operating segment.



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 the employee severance during fiscal
year 2004 were less than $0.1 million. Substantially all of these reductions were completed by March 31, 2002, but approximately $0.1 million of severance payments will be made over the next two years ending March 31, 2005. 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 2001 Expense |        | Reserve atMarch 31,2003 |   | CashOutlays |  |   | OtherNon-CashChanges |   |  | Reserve atDecember 31,2003
|Severance                                                          |  | $                   | 21,766 |                         | $ | 214         |  | $ | (12                  | ) |  | $                          |     |   |  | $ | 202
|Future lease obligations on facility closures and other exit costs |  |                     | 4,295  |                         |   | 131         |  |   | (3                   | ) |  |                            | (128 | ) |  |   |   
|                                                                   |  |                     |        |                         |   |             |  |   |                      |   |  |                            |      |   |  |   |    
|Total                                                              |  | $                   | 26,061 |                         | $ | 345         |  | $ | (15                  | ) |  | $                          | (128 | ) |  | $ | 202
|                                                                   |  |                     |        |                         |   |             |  |   |                      |   |  |                            |      |   |  |   |    



The remaining balance of the 2001
restructuring change is for our European operating segments.



16



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##### Table of Contents

Note 5. Earnings (Loss) 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 nine months ended December 31, 2003 and 2002:



|                                                                                |  |                                              |         |   |                                          |        |                 |   |       |                           |  |   |                     |   |                 |        |  |   |       |  
|------------------------------------------------------------------------------- |  | -------------------------------------------- | ------- | - | ---------------------------------------- | ------ | --------------- | - | ----- | ------------------------- |  | - | ------------------- | - | --------------- | ------ |  | - | ----- | -
|                                                                                |  | For the three months ended December 31, 2003 |         |   | For three months ended December 31, 2002 |       
|(In thousands except per ADS amounts)                                           |  | Earnings(loss)(Numerator)                    |         |   | Shares(Denominator)                      |        | Per-shareAmount |   |       | Earnings(loss)(Numerator) |  |   | Shares(Denominator) |   | Per-shareAmount |       
|Basic earnings (loss) available/ (attributable) to common shareholders per ADS: |  |                                              |         |   |                                          |        |                 |   |       |                           |  |   |                     |   |                 |        |  |   |       |  
|Earnings (loss)                                                                 |  | $                                            | (16,941 | ) |                                          |        |                 |   |       |                           |  | $ | 3,284               |   |                 |        |  |   |       |  
|                                                                                |  |                                              |         |   |                                          |       
|Dividends and accretion on participating shares                                 |  |                                              | (4,811  | ) |                                          |        |                 |   |       |                           |  |   | (4,528              | ) |                 |        |  |   |       |  
|                                                                                |  |                                              |         |   |                                          |        |                 |   |       |                           |  |   |                     |   |                 |        |  |   |       |  
|Earnings (loss)                                                                 |  |                                              | (21,752 | ) |                                          | 62,531 |                 | $ | (0.35 | )                         |  |   | (1,244              | ) |                 | 62,194 |  | $ | (0.02 | )
|                                                                                |  |                                              |         |   |                                          |        |                 |   |       |                           |  |   |                     |   |                 |        |  |   |       |  
|Effect of dilutive securities:                                                  |  |                                              |         |   |                                          |        |                 |   |       |                           |  |   |                     |   |                 |        |  |   |       |  
|Stock options                                                                   |  |                                              |        |   |                                          |       |                 |   |       |                           |  |   |                    |   |                 |       |  |   |       |  
|                                                                                |  |                                              |         |   |                                          |        |                 |   |       |                           |  |   |                     |   |                 |        |  |   |       |  
|Diluted loss attributable to common shareholders per ADS:                       |  |                                              |         |   |                                          |        |                 |   |       |                           |  |   |                     |   |                 |        |  |   |       |  
|Loss                                                                            |  | $                                            | (21,752 | ) |                                          | 62,531 |                 | $ | (0.35 | )                         |  | $ | (1,244              | ) |                 | 62,194 |  | $ | (0.02 | )
|                                                                                |  |                                              |         |   |                                          |        |                 |   |       |                           |  |   |                     |   |                 |        |  |   |       |  



|                                                                                |  |                                             |         |   |                                         |        |                 |   |       |                           |  |   |                     |   |                 |        |  |   |       |  
|------------------------------------------------------------------------------- |  | ------------------------------------------- | ------- | - | --------------------------------------- | ------ | --------------- | - | ----- | ------------------------- |  | - | ------------------- | - | --------------- | ------ |  | - | ----- | -
|                                                                                |  | For the nine months ended December 31, 2003 |         |   | For nine months ended December 31, 2002 |       
|(In thousands except per ADS amounts)                                           |  | Earnings(loss)(Numerator)                   |         |   | Shares(Denominator)                     |        | Per-shareAmount |   |       | Earnings(loss)(Numerator) |  |   | Shares(Denominator) |   | Per-shareAmount |       
|Basic earnings (loss) available/ (attributable) to common shareholders per ADS: |  |                                             |         |   |                                         |        |                 |   |       |                           |  |   |                     |   |                 |        |  |   |       |  
|Earnings (loss)                                                                 |  | $                                           | (34,996 | ) |                                         |        |                 |   |       |                           |  | $ | 10,791              |   |                 |        |  |   |       |  
|                                                                                |  |                                             |         |   |                                         |       
|Dividends and accretion on participating shares                                 |  |                                             | (14,216 | ) |                                         |        |                 |   |       |                           |  |   | (13,384             | ) |                 |        |  |   |       |  
|                                                                                |  |                                             |         |   |                                         |        |                 |   |       |                           |  |   |                     |   |                 |        |  |   |       |  
|Earnings (loss)                                                                 |  |                                             | (49,212 | ) |                                         | 62,474 |                 | $ | (0.79 | )                         |  |   | (2,593              | ) |                 | 62,078 |  | $ | (0.04 | )
|                                                                                |  |                                             |         |   |                                         |        |                 |   |       |                           |  |   |                     |   |                 |        |  |   |       |  
|Effect of dilutive securities:                                                  |  |                                             |         |   |                                         |        |                 |   |       |                           |  |   |                     |   |                 |        |  |   |       |  
|Stock options                                                                   |  |                                             |        |   |                                         |       |                 |   |       |                           |  |   |                    |   |                 |       |  |   |       |  
|                                                                                |  |                                             |         |   |                                         |        |                 |   |       |                           |  |   |                     |   |                 |        |  |   |       |  
|Diluted loss attributable to common shareholders per ADS:                       |  |                                             |         |   |                                         |        |                 |   |       |                           |  |   |                     |   |                 |        |  |   |       |  
|Loss                                                                            |  | $                                           | (49,212 | ) |                                         | 62,474 |                 | $ | (0.79 | )                         |  | $ | (2,593              | ) |                 | 62,078 |  | $ | (0.04 | )
|                                                                                |  |                                             |         |   |                                         |        |                 |   |       |                           |  |   |                     |   |                 |        |  |   |       |  



The effect of our 6.5% senior
convertible participating shares, which represent the ADSs shown in the table below are not included in the computation of diluted earnings per share for the three and nine months ended December 31, 2003 and 2002 because they are anti-dilutive.
Stock options representing the ADSs shown in the table below are not included in the computation of diluted earnings per share for the three and nine months ended December 31, 2003 and 2002 because they are anti-dilutive.



Potential ADSs issuance from:



|                                             |  |                                         |  |                                        |  |        |  |       
|-------------------------------------------- |  | --------------------------------------- |  | -------------------------------------- |  | ------ |  | ------
|                                             |  | For the three months ended December 31, |  | For the nine months ended December 31,
|(In thousands)                               |  | 2003                                    |  | 2002                                   |  | 2003   |  | 2002  
|6.5% senior convertible participating shares |  | 22,466                                  |  | 21,064                                 |  | 22,114 |  | 20,734
|Stock options                                |  | 1,507                                   |  | 1,814                                  |  | 1,709  |  | 1,809 



17



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##### Table of Contents

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.



|                                    |  |                                         |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|----------------------------------- |  | --------------------------------------- | ------- | - | ------------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | --------- | -
|                                    |  | For the Three Months Ended December 31, |         |   | For the Nine MonthsEnded December 31, |  
|(In thousands)                      |  | 2003                                    |         |   | 2002                                  |   |         | 2003 |  |   | 2002    |  
|Revenues                            |  |                                         |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|United States                       |  | $                                       | 160,256 |   |                                       | $ | 185,143 |      |  | $ | 483,816 |   |  | $ | 560,637   |  
|Europe                              |  |                                         | 138,519 |   |                                       |   | 138,135 |      |  |   | 411,291 |   |  |   | 391,263   |  
|International                       |  |                                         | 32,306  |   |                                       |   | 29,837  |      |  |   | 92,722  |   |  |   | 92,026    |  
|Other (1)                           |  |                                         |        |   |                                       |   |        |      |  |   |        |   |  |   |          |  
|                                    |  |                                         |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Total Revenues                      |  | $                                       | 331,081 |   |                                       | $ | 353,115 |      |  | $ | 987,829 |   |  | $ | 1,043,926 |  
|                                    |  |                                         |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Gross Profit                        |  |                                         |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|United States                       |  | $                                       | 63,516  |   |                                       | $ | 78,150  |      |  | $ | 196,426 |   |  | $ | 237,844   |  
|Europe                              |  |                                         | 44,161  |   |                                       |   | 43,722  |      |  |   | 132,382 |   |  |   | 125,561   |  
|International                       |  |                                         | 11,828  |   |                                       |   | 9,381   |      |  |   | 33,447  |   |  |   | 25,677    |  
|Other (1)                           |  |                                         | 517     |   |                                       |   |        |      |  |   | 516     |   |  |   |          |  
|                                    |  |                                         |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Total Gross Profit                  |  | $                                       | 120,022 |   |                                       | $ | 131,253 |      |  | $ | 362,771 |   |  | $ | 389,082   |  
|                                    |  |                                         |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Operating Earnings (Loss)           |  |                                         |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|United States                       |  | $                                       | 1,146   |   |                                       | $ | 9,668   |      |  | $ | 9,703   |   |  | $ | 32,225    |  
|Europe                              |  |                                         | (3,392  | ) |                                       |   | 7,529   |      |  |   | 6,481   |   |  |   | 20,490    |  
|International                       |  |                                         | (414    | ) |                                       |   | (1,204  | )    |  |   | (2,960  | ) |  |   | (9,561    | )
|Other                               |  |                                         | (7,945  | ) |                                       |   | (3,175  | )    |  |   | (17,878 | ) |  |   | (6,074    | )
|                                    |  |                                         |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Total Operating Earnings (Loss)     |  | $                                       | (10,605 | ) |                                       | $ | 12,818  |      |  | $ | (4,654  | ) |  | $ | 37,080    |  
|                                    |  |                                         |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Capital Expenditures                |  |                                         |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|United States                       |  | $                                       | 1,386   |   |                                       | $ | 9,735   |      |  | $ | 18,882  |   |  | $ | 20,248    |  
|Europe                              |  |                                         | 119     |   |                                       |   | 3,074   |      |  |   | 5,442   |   |  |   | 6,729     |  
|International                       |  |                                         | 1,454   |   |                                       |   | 1,779   |      |  |   | 5,206   |   |  |   | 4,617     |  
|Other (1)                           |  |                                         | 1,826   |   |                                       |   | 25      |      |  |   | 6,342   |   |  |   | 460       |  
|                                    |  |                                         |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Total Capital Expenditures          |  | $                                       | 4,785   |   |                                       | $ | 14,613  |      |  | $ | 35,872  |   |  | $ | 32,054    |  
|                                    |  |                                         |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Depreciation and Amortization       |  |                                         |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|United States                       |  | $                                       | 7,341   |   |                                       | $ | 8,275   |      |  | $ | 21,448  |   |  | $ | 26,326    |  
|Europe                              |  |                                         | 4,593   |   |                                       |   | 3,129   |      |  |   | 10,239  |   |  |   | 9,999     |  
|International                       |  |                                         | 2,187   |   |                                       |   | 2,525   |      |  |   | 6,462   |   |  |   | 6,627     |  
|Other (1)                           |  |                                         | 457     |   |                                       |   | 62      |      |  |   | 1,125   |   |  |   | 160       |  
|                                    |  |                                         |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Total Depreciation and Amortization |  | $                                       | 14,578  |   |                                       | $ | 13,991  |      |  | $ | 39,274  |   |  | $ | 43,112    |  
|                                    |  |                                         |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  

---

|(1) | Other includes corporate expenses and foreign exchange gains/losses. The restructuring charge/(credit) is being recognized by the applicable business segment.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



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|                      |  |                       |         |                    |   |        
|--------------------- |  | --------------------- | ------- | ------------------ | - | -------
|(In thousands)        |  | As ofDecember 31,2003 |         | As ofMarch 31,2003
|Assets                |  |                       |         |                    |   |        
|United States         |  | $                     | 304,755 |                    | $ | 305,284
|Europe                |  |                       | 469,522 |                    |   | 429,685
|International         |  |                       | 64,419  |                    |   | 57,495 
|Other (2)             |  |                       | 154,010 |                    |   | 189,156
|                      |  |                       |         |                    |   |        
|Total Assets          |  | $                     | 992,706 |                    | $ | 981,620
|                      |  |                       |         |                    |   |        
|Long-lived Assets (3) |  |                       |         |                    |   |        
|United States         |  | $                     | 148,103 |                    | $ | 151,364
|Europe                |  |                       | 214,519 |                    |   | 192,224
|International         |  |                       | 16,508  |                    |   | 18,066 
|Other (2)             |  |                       | 9,658   |                    |   | 3,746  
|                      |  |                       |         |                    |   |        
|Total                 |  | $                     | 388,788 |                    | $ | 365,400
|                      |  |                       |         |                    |   |        

---

|(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 and 2003, goodwill has been allocated pursuant to footnote 2.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Note 7. Debt



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



|                                                                                                      |  |                  |         |               |   |        
|----------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ------------- | - | -------
|(In thousands)                                                                                        |  | December 31,2003 |         | March 31,2003
|10% subordinated notes due April 2008                                                                 |  | $                | 64,520  |               | $ | 64,520 
|11% senior notes due June 2010                                                                        |  |                  | 175,000 |               |   |       
|Credit facility interest at LIBOR plus an applicable margin                                           |  |                  |        |               |   | 112,889
|Zero coupon senior subordinated notes due April 2004                                                  |  |                  |        |               |   | 47,594 
|Various notes payable bearing interest from prime to 12.0% maturing principally over the next 5 years |  |                  | 8,781   |               |   | 7,852  
|                                                                                                      |  |                  |         |               |   |        
|Total long-term debt and notes payable                                                                |  |                  | 248,301 |               |   | 232,855
|Less unamortized discount                                                                             |  |                  | 3,803   |               |   |       
|                                                                                                      |  |                  |         |               |   |        
|Total long-term debt and notes payable less unamortized discount                                      |  |                  | 244,498 |               |   | 232,855
|Less current maturities of long-term debt and notes payable                                           |  |                  | 2,405   |               |   | 58,443 
|                                                                                                      |  |                  |         |               |   |        
|Long-term debt and notes payable, less current maturities                                             |  | $                | 242,093 |               | $ | 174,412
|                                                                                                      |  |                  |         |               |   |        



The 10% subordinated notes due April
1, 2008 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 11% 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 old credit facility with a portion of 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.



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The senior notes have a fixed annual interest rate of 11.0% and interest payments for the senior notes will be paid every
six months on June 15 and December 15, which commenced December 15, 2003. The senior notes 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 United States 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 accreted 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. In addition, under the terms of the
Fleet 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 a minimum availability reserve equal to $20.0 million. Accordingly, unless the
lenders otherwise agree, at no time can credit available under the Fleet credit facility exceed $30.0 million. As of December 31, 2003, the borrowing base for the credit facility was $14.9 million and we had no borrowings under the Fleet credit
facility.



The Fleet 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 Fleet credit facility plus cash.



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



The Fleet 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 Fleet credit facility includes certain events of default including defaults resulting from non-payment of the obligations under the Fleet
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.



On December 31, 2003, we entered into a one year letter of credit facility with ABN for
€15 million (US $18.7 million) and an open term €10 million (US $12.5 million) credit facility available for general working capital uses including overdrafts. These facilities are secured by certain of our Netherlands and Belgium
subsidiaries assets. The availability of the credit facilities are subject to a borrowing base, which totaled approximately €12 million as of December 31, 2003. The €15 million (US $18.7 million) letter of credit facility bears a fee
of 1.25% per annum while the €10 million (US $12.5 million) credit facility bears interest at ABNs euro base rate plus 1.25% per annum. ABNs euro base rate as of December 31, 2003 was 4.5%.



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As of December 31, 2003, we had approximately $13.4 million in letters of credit outstanding. In connection with the
issuance of the senior notes and the establishment of the Fleet credit facility, we were required to post $14.1 million in cash collateral with Bank of America to secure such letters of credit under the Fleet credit facility. The $14.1 million of
cash collateral is included in Cash and cash equivalents on the Condensed Consolidated Balance Sheets as of December 31, 2003. In January 2004, we subsequently reduced the cash collateral to $4.8 million by issuing a letter of credit
under the ABN facility.



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.



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 December 31, 2003, the participating
shares have voting rights on an as converted basis, currently corresponding to approximately 26.7% of the total voting power of our capital stock, which includes an additional 62,585 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 exceeds the liquidation value of the participating shares.



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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 United States subsidiaries
other than certain dormant entities (collectively, the Subsidiary Guarantors). The Subsidiary Guarantors generated 63.8% of our total revenue in fiscal year 2004 and represented 74.6% of our total assets as of December 31, 2003.



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|                                             |  |                                                                                                 |         |   |                          |   |         |                              |  |   |              |   |  |                   |         |   |  |   |         |  
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------------- | ------- | - | ------------------------ | - | ------- | ---------------------------- |  | - | ------------ | - |  | ----------------- | ------- | - |  | - | ------- | -
|                                             |  | Supplemental Consolidating Statement of Operations For the Three Months Ended December
31, 2003 |        
|                                             |  | ParentCompany(1)                                                                                |         |   | Subsidiary Guarantors(2) |   |         | Subsidiary Non-Guarantors(3) |  |   | Eliminations |   |  | ConsolidatedTotal |        
|                                             |  | $000                                                                                            |         |   | $000                     |   |         | $000                         |  |   | $000         |   |  | $000              |        
|Revenue:                                     |  |                                                                                                 |         |   |                          |   |         |                              |  |   |              |   |  |                   |         |   |  |   |         |  
|Retail equipment and related sales           |  | $                                                                                               |        |   |                          | $ | 81,092  |                              |  | $ | 33,515       |   |  | $                 |        |   |  | $ | 114,607 |  
|Retail service                               |  |                                                                                                 |        |   |                          |   | 101,283 |                              |  |   | 55,210       |   |  |                   |        |   |  |   | 156,493 |  
|Retail supplies and rentals                  |  |                                                                                                 |        |   |                          |   | 25,195  |                              |  |   | 9,817        |   |  |                   |        |   |  |   | 35,012  |  
|Wholesale                                    |  |                                                                                                 |        |   |                          |   |        |                              |  |   | 24,969       |   |  |                   |        |   |  |   | 24,969  |  
|                                             |  |                                                                                                 |         |   |                          |   |         |                              |  |   |              |   |  |                   |         |   |  |   |         |  
|Total revenue                                |  |                                                                                                 |        |   |                          |   | 207,570 |                              |  |   | 123,511      |   |  |                   |        |   |  |   | 331,081 |  
|                                             |  |                                                                                                 |         |   |                          |   |         |                              |  |   |              |   |  |                   |         |   |  |   |         |  
|Costs and operating expenses:                |  |                                                                                                 |         |   |                          |   |         |                              |  |   |              |   |  |                   |         |   |  |   |         |  
|Cost of retail equipment sales               |  |                                                                                                 |        |   |                          |   | 52,628  |                              |  |   | 21,745       |   |  |                   |        |   |  |   | 74,373  |  
|Retail service costs                         |  |                                                                                                 |        |   |                          |   | 59,893  |                              |  |   | 36,047       |   |  |                   |        |   |  |   | 95,940  |  
|Retail supplies and rental costs             |  |                                                                                                 |        |   |                          |   | 15,178  |                              |  |   | 5,436        |   |  |                   |        |   |  |   | 20,614  |  
|Wholesale costs of revenue                   |  |                                                                                                 |        |   |                          |   |        |                              |  |   | 20,132       |   |  |                   |        |   |  |   | 20,132  |  
|Selling, general and administrative expenses |  |                                                                                                 | 1,218   |   |                          |   | 71,701  |                              |  |   | 35,801       |   |  |                   |        |   |  |   | 108,720 |  
|Restructuring charges (credits)              |  |                                                                                                 |        |   |                          |   | 11,914  |                              |  |   | 8,132        |   |  |                   |        |   |  |   | 20,046  |  
|Equity (income) loss                         |  |                                                                                                 | 29,242  |   |                          |   |        |                              |  |   |             |   |  |                   | (29,242 | ) |  |   |        |  
|Other (income) expense                       |  |                                                                                                 | (12,323 | ) |                          |   | 7,602   |                              |  |   | 11,357       |   |  |                   | (4,775  | ) |  |   | 1,861   |  
|                                             |  |                                                                                                 |         |   |                          |   |         |                              |  |   |              |   |  |                   |         |   |  |   |         |  
|Total costs and operating expenses           |  |                                                                                                 | 18,137  |   |                          |   | 218,916 |                              |  |   | 138,650      |   |  |                   | (34,017 | ) |  |   | 341,686 |  
|                                             |  |                                                                                                 |         |   |                          |   |         |                              |  |   |              |   |  |                   |         |   |  |   |         |  
|Operating earnings (loss)                    |  |                                                                                                 | (18,137 | ) |                          |   | (11,346 | )                            |  |   | (15,139      | ) |  |                   | 34,017  |   |  |   | (10,605 | )
|Interest expense                             |  |                                                                                                 | (6,747  | ) |                          |   | (671    | )                            |  |   | (16,830      | ) |  |                   | 16,317  |   |  |   | (7,931  | )
|Interest income                              |  |                                                                                                 | 16,195  |   |                          |   | 558     |                              |  |   | (129         | ) |  |                   | (16,195 | ) |  |   | 429     |  
|Writeoff of debt issuance costs              |  |                                                                                                 |        |   |                          |   |        |                              |  |   |             |   |  |                   |        |   |  |   |        |  
|                                             |  |                                                                                                 |         |   |                          |   |         |                              |  |   |              |   |  |                   |         |   |  |   |         |  
|Earnings (loss) before income taxes          |  |                                                                                                 | (8,689  | ) |                          |   | (11,459 | )                            |  |   | (32,098      | ) |  |                   | 34,139  |   |  |   | (18,107 | )
|Provision (benefit) for income taxes         |  |                                                                                                 | 8,252   |   |                          |   | (1,204  | )                            |  |   | (8,214       | ) |  |                   |        |   |  |   | (1,166  | )
|                                             |  |                                                                                                 |         |   |                          |   |         |                              |  |   |              |   |  |                   |         |   |  |   |         |  
|Net earnings (loss)                          |  | $                                                                                               | (16,941 | ) |                          | $ | (10,255 | )                            |  | $ | (23,884      | ) |  | $                 | 34,139  |   |  | $ | (16,941 | )
|                                             |  |                                                                                                 |         |   |                          |   |         |                              |  |   |              |   |  |                   |         |   |  |   |         |  



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



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|                                                     |  |                                                                                                 |        |   |                           |   |         |                               |  |   |              |   |  |                   |         |   |  |   |         |  
|---------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- | ------ | - | ------------------------- | - | ------- | ----------------------------- |  | - | ------------ | - |  | ----------------- | ------- | - |  | - | ------- | -
|                                                     |  | Supplemental Consolidating Statement of Operations For the Three Months Ended December
31, 2002 |       
|                                                     |  | ParentCompany (1)                                                                               |        |   | Subsidiary Guarantors (2) |   |         | Subsidiary Non-Guarantors (3) |  |   | Eliminations |   |  | ConsolidatedTotal |        
|                                                     |  | $000                                                                                            |        |   | $000                      |   |         | $000                          |  |   | $000         |   |  | $000              |        
|Revenue:                                             |  |                                                                                                 |        |   |                           |   |         |                               |  |   |              |   |  |                   |         |   |  |   |         |  
|Retail equipment and related sales                   |  | $                                                                                               |       |   |                           | $ | 88,145  |                               |  | $ | 33,623       |   |  | $                 |        |   |  | $ | 121,768 |  
|Retail service                                       |  |                                                                                                 |       |   |                           |   | 120,250 |                               |  |   | 53,848       |   |  |                   |        |   |  |   | 174,098 |  
|Retail supplies and rentals                          |  |                                                                                                 |       |   |                           |   | 25,629  |                               |  |   | 9.484        |   |  |                   |        |   |  |   | 35,113  |  
|Wholesale                                            |  |                                                                                                 |       |   |                           |   |        |                               |  |   | 22,136       |   |  |                   |        |   |  |   | 22,136  |  
|                                                     |  |                                                                                                 |        |   |                           |   |         |                               |  |   |              |   |  |                   |         |   |  |   |         |  
|Total revenue                                        |  |                                                                                                 |       |   |                           |   | 234,024 |                               |  |   | 119,091      |   |  |                   |        |   |  |   | 353,115 |  
|                                                     |  |                                                                                                 |        |   |                           |   |         |                               |  |   |              |   |  |                   |         |   |  |   |         |  
|Costs and operating expenses:                        |  |                                                                                                 |        |   |                           |   |         |                               |  |   |              |   |  |                   |         |   |  |   |         |  
|Cost of retail equipment sales                       |  |                                                                                                 |       |   |                           |   | 56,369  |                               |  |   | 24,058       |   |  |                   |        |   |  |   | 80,427  |  
|Retail service costs                                 |  |                                                                                                 |       |   |                           |   | 67,730  |                               |  |   | 36,412       |   |  |                   |        |   |  |   | 104,142 |  
|Retail supplies and rentals costs                    |  |                                                                                                 |       |   |                           |   | 15,751  |                               |  |   | 3,494        |   |  |                   |        |   |  |   | 19,245  |  
|Wholesale costs of revenue                           |  |                                                                                                 |       |   |                           |   |        |                               |  |   | 18,048       |   |  |                   |        |   |  |   | 18,048  |  
|Selling, general and administrative expenses         |  |                                                                                                 | 768    |   |                           |   | 86,960  |                               |  |   | 32,198       |   |  |                   |        |   |  |   | 119,926 |  
|Restructuring charges (credits)                      |  |                                                                                                 |       |   |                           |   | (555    | )                             |  |   | 555          |   |  |                   |        |   |  |   |        |  
|Equity (income) loss                                 |  |                                                                                                 | 6,043  |   |                           |   |        |                               |  |   |             |   |  |                   | (6,043  | ) |  |   |        |  
|Other (income) expense                               |  |                                                                                                 | (3,224 | ) |                           |   | (8,712  | )                             |  |   | 1,587        |   |  |                   | 8,858   |   |  |   | (1,491  | )
|                                                     |  |                                                                                                 |        |   |                           |   |         |                               |  |   |              |   |  |                   |         |   |  |   |         |  
|Total costs and operating expenses                   |  |                                                                                                 | 3,587  |   |                           |   | 217,543 |                               |  |   | 116,352      |   |  |                   | 2,815   |   |  |   | 340,297 |  
|                                                     |  |                                                                                                 |        |   |                           |   |         |                               |  |   |              |   |  |                   |         |   |  |   |         |  
|Operating earnings (loss) from continuing operations |  |                                                                                                 | (3,587 | ) |                           |   | 16,481  |                               |  |   | 2,739        |   |  |                   | (2,815  | ) |  |   | 12,818  |  
|Interest expense                                     |  |                                                                                                 | (8,384 | ) |                           |   | 2,693   |                               |  |   | (17,152      | ) |  |                   | 14,109  |   |  |   | (8,734  | )
|Interest income                                      |  |                                                                                                 | 14,109 |   |                           |   | 1,253   |                               |  |   | (834         | ) |  |                   | (14,109 | ) |  |   | 419     |  
|Writeoff of debt issuance costs                      |  |                                                                                                 |       |   |                           |   |        |                               |  |   |             |   |  |                   |        |   |  |   |        |  
|                                                     |  |                                                                                                 |        |   |                           |   |         |                               |  |   |              |   |  |                   |         |   |  |   |         |  
|Earnings (loss) before income taxes                  |  |                                                                                                 | 2,138  |   |                           |   | 20,427  |                               |  |   | (15,247      | ) |  |                   | (2,815  | ) |  |   | 4,503   |  
|Provision (benefit) for income taxes                 |  |                                                                                                 | (1,146 | ) |                           |   | 345     |                               |  |   | 2,020        |   |  |                   |        |   |  |   | 1,219   |  
|                                                     |  |                                                                                                 |        |   |                           |   |         |                               |  |   |              |   |  |                   |         |   |  |   |         |  
|Net (loss) earnings                                  |  | $                                                                                               | 3,284  |   |                           | $ | 20,082  |                               |  | $ | 17,267       |   |  | $                 | (2,815  | ) |  | $ | 3,284   |  
|                                                     |  |                                                                                                 |        |   |                           |   |         |                               |  |   |              |   |  |                   |         |   |  |   |         |  



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(2) and (3)



24



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##### Table of Contents

|                                             |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |   |         |  
|-------------------------------------------- |  | ---------------------------------------------------------------------------------------------- | ------- | - | ------------------------ | - | ------- | ----------------------------- |  | - | ------------ | - |  | ------------------ | ------- | - |  | - | ------- | -
|                                             | 
|                                             |  | Supplemental Consolidating Statement of Operations For the Nine Months Ended December
31, 2003 |        
|                                             |  | Parent Company(1)                                                                              |         |   | Subsidiary Guarantors(2) |   |         | Subsidiary Non- Guarantors(3) |  |   | Eliminations |   |  | Consolidated Total |        
|                                             |  | $000                                                                                           |         |   | $000                     |   |         | $000                          |  |   | $000         |   |  | $000               |        
|Revenue:                                     |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |   |         |  
|Retail equipment and related sales           |  | $                                                                                              |        |   |                          | $ | 241,345 |                               |  | $ | 101,263      |   |  | $                  |        |   |  | $ | 342,608 |  
|Retail service                               |  |                                                                                                |        |   |                          |   | 316,500 |                               |  |   | 161,217      |   |  |                    |        |   |  |   | 477,717 |  
|Retail supplies and rentals                  |  |                                                                                                |        |   |                          |   | 72,137  |                               |  |   | 25,039       |   |  |                    |        |   |  |   | 97,176  |  
|Wholesale                                    |  |                                                                                                |        |   |                          |   |        |                               |  |   | 70,328       |   |  |                    |        |   |  |   | 70,328  |  
|                                             |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |   |         |  
|Total revenue                                |  |                                                                                                |        |   |                          |   | 629,982 |                               |  |   | 357,847      |   |  |                    |        |   |  |   | 987,829 |  
|                                             |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |   |         |  
|Costs and operating expenses:                |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |   |         |  
|Cost of retail equipment sales               |  |                                                                                                |        |   |                          |   | 160,533 |                               |  |   | 65,727       |   |  |                    |        |   |  |   | 226,260 |  
|Retail service costs                         |  |                                                                                                |        |   |                          |   | 181,871 |                               |  |   | 102,473      |   |  |                    |        |   |  |   | 284,344 |  
|Retail supplies and rental costs             |  |                                                                                                |        |   |                          |   | 43,005  |                               |  |   | 14,617       |   |  |                    |        |   |  |   | 57,622  |  
|Wholesale costs of revenue                   |  |                                                                                                |        |   |                          |   |        |                               |  |   | 56,832       |   |  |                    |        |   |  |   | 56,832  |  
|Selling, general and administrative expenses |  |                                                                                                | 3,284   |   |                          |   | 239,274 |                               |  |   | 103,764      |   |  |                    |        |   |  |   | 346,322 |  
|Restructuring charges (credits)              |  |                                                                                                |        |   |                          |   | 11,914  |                               |  |   | 7,538        |   |  |                    |        |   |  |   | 19,452  |  
|Equity (income) loss                         |  |                                                                                                | 47,975  |   |                          |   |        |                               |  |   |             |   |  |                    | (47,975 | ) |  |   |        |  
|Other (income) expense                       |  |                                                                                                | (22,879 | ) |                          |   | 528     |                               |  |   | 28,898       |   |  |                    | (4,896  | ) |  |   | 1,651   |  
|                                             |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |   |         |  
|Total costs and operating expenses           |  |                                                                                                | 28,380  |   |                          |   | 637,125 |                               |  |   | 379,849      |   |  |                    | (52,871 | ) |  |   | 992,483 |  
|                                             |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |   |         |  
|Operating earnings (loss)                    |  |                                                                                                | (28,380 | ) |                          |   | (7,143  | )                             |  |   | (22,002      | ) |  |                    | 52,871  |   |  |   | (4,654  | )
|Interest expense                             |  |                                                                                                | (22,332 | ) |                          |   | (1,821  | )                             |  |   | (48,412      | ) |  |                    | 46,812  |   |  |   | (25,753 | )
|Interest income                              |  |                                                                                                | 46,811  |   |                          |   | 873     |                               |  |   | 105          |   |  |                    | (46,811 | ) |  |   | 978     |  
|Writeoff of debt issuance costs              |  |                                                                                                | (20,562 | ) |                          |   |        |                               |  |   |             |   |  |                    |        |   |  |   | (20,562 | )
|                                             |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |   |         |  
|Earnings (loss) before income taxes          |  |                                                                                                | (24,463 | ) |                          |   | (8,091  | )                             |  |   | (70,309      | ) |  |                    | 52,872  |   |  |   | (49,991 | )
|Provision (benefit) for income taxes         |  |                                                                                                | 10,533  |   |                          |   | (11,512 | )                             |  |   | (14,016      | ) |  |                    |        |   |  |   | (14,995 | )
|                                             |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |   |         |  
|Net earnings (loss)                          |  |                                                                                                | (34,996 | ) |                          |   | 3,421   |                               |  |   | (56,293      | ) |  |                    | 52,872  |   |  |   | (34,996 | )
|                                             |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |   |         |  



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



25



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##### Table of Contents

|                                             |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |           |  
|-------------------------------------------- |  | ---------------------------------------------------------------------------------------------- | ------- | - | ------------------------ | - | ------- | ----------------------------- |  | - | ------------ | - |  | ------------------ | ------- | - |  | --------- | -
|                                             | 
|                                             |  | Supplemental Consolidating Statement of Operations For the Nine Months Ended December
31, 2002 |        
|                                             |  | Parent Company(1)                                                                              |         |   | Subsidiary Guarantors(2) |   |         | Subsidiary Non- Guarantors(3) |  |   | Eliminations |   |  | Consolidated Total |        
|                                             |  | $000                                                                                           |         |   | $000                     |   |         | $000                          |  |   | $000         |   |  | $000               |        
|Revenue:                                     |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |           |  
|Retail equipment sales                       |  | $                                                                                              |        |   |                          | $ | 258,946 |                               |  | $ | 90,967       |   |  | $                  |        |   |  | 349,913   |  
|Retail service                               |  |                                                                                                |        |   |                          |   | 370,021 |                               |  |   | 155,951      |   |  |                    |        |   |  | 525,972   |  
|Retail supplies and rentals                  |  |                                                                                                |        |   |                          |   | 78,372  |                               |  |   | 28,270       |   |  |                    |        |   |  | 106,642   |  
|Wholesale                                    |  |                                                                                                |        |   |                          |   |        |                               |  |   | 61,399       |   |  |                    |         |   |  | 61,399    |  
|Total revenue                                |  |                                                                                                |        |   |                          |   | 707,339 |                               |  |   | 336,587      |   |  |                    |        |   |  | 1,043,926 |  
|                                             |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |           |  
|Costs and operating expenses:                |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |           |  
|Cost of retail equipment sales               |  |                                                                                                |        |   |                          |   | 167,999 |                               |  |   | 63,125       |   |  |                    |        |   |  | 231,124   |  
|Retail service costs                         |  |                                                                                                |        |   |                          |   | 209,259 |                               |  |   | 104,039      |   |  |                    |        |   |  | 313,298   |  
|Retail supplies and rental costs             |  |                                                                                                |        |   |                          |   | 49,156  |                               |  |   | 11,563       |   |  |                    |        |   |  | 60,719    |  
|Wholesale costs of revenue                   |  |                                                                                                |        |   |                          |   |        |                               |  |   | 49,703       |   |  |                    |        |   |  | 49,703    |  
|Selling, general and administrative expenses |  |                                                                                                | 2,950   |   |                          |   | 263,068 |                               |  |   | 91,625       |   |  |                    |        |   |  | 357,643   |  
|Restructuring charges (credits)              |  |                                                                                                |        |   |                          |   | (555    | )                             |  |   | (1           | ) |  |                    |        |   |  | (556      | )
|Equity (income) loss                         |  |                                                                                                | 7,908   |   |                          |   |        |                               |  |   |             |   |  |                    | (7,908  | ) |  |          |  
|Other (income) expense                       |  |                                                                                                | (18,451 | ) |                          |   | (20,719 | )                             |  |   | 30,661       |   |  |                    | 3,424   |   |  | (5,085    | )
|                                             |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |           |  
|Total costs and operating expenses           |  |                                                                                                | (7,593  | ) |                          |   | 668,208 |                               |  |   | 350,715      |   |  |                    | (4,484  | ) |  | 1,006,846 |  
|                                             |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |           |  
|Operating earnings (loss)                    |  |                                                                                                | 7,593   |   |                          |   | 39,131  |                               |  |   | (14,128      | ) |  |                    | 4,484   |   |  | 37,080    |  
|Interest expense                             |  |                                                                                                | (22,026 | ) |                          |   | 5,415   |                               |  |   | (47,634      | ) |  |                    | 41,207  |   |  | (23,038   | )
|Interest income                              |  |                                                                                                | 41,207  |   |                          |   | 1,478   |                               |  |   | (739         | ) |  |                    | (41,207 | ) |  | 739       |  
|Writeoff of debt issuance costs              |  |                                                                                                |        |   |                          |   |        |                               |  |   |             |   |  |                    |        |   |  |          |  
|                                             |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |           |  
|Earnings (loss) before income taxes          |  |                                                                                                | 26,774  |   |                          |   | 46,024  |                               |  |   | (62,501      | ) |  |                    | 4,484   |   |  | 14,781    |  
|Provision (benefit) for income taxes         |  |                                                                                                | 15,983  |   |                          |   | 606     |                               |  |   | (12,599      | ) |  |                    |        |   |  | 3,990     |  
|                                             |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |           |  
|Net earnings (loss)                          |  |                                                                                                | 10,791  |   |                          |   | 45,418  |                               |  |   | (49,902      | ) |  |                    | 4,484   |   |  | 10,791    |  
|                                             |  |                                                                                                |         |   |                          |   |         |                               |  |   |              |   |  |                    |         |   |  |           |  



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



26



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##### Table of Contents

|                                                                 |  |                                                                             |          |   |                          |   |           |                    |  |   |              |   |  |                    |            |   |  |   |          |  
|---------------------------------------------------------------- |  | --------------------------------------------------------------------------- | -------- | - | ------------------------ | - | --------- | ------------------ |  | - | ------------ | - |  | ------------------ | ---------- | - |  | - | -------- | -
|                                                                 |  | Supplemental Consolidated Balance Sheet Information As of December 31,
2003 |         
|                                                                 |  | Parent Company(1)                                                           |          |   | Subsidiary Guarantors(2) |   |           | Non- Guarantors(3) |  |   | Eliminations |   |  | Consolidated Total |           
|                                                                 |  | $000                                                                        |          |   | $000                     |   |           | $000               |  |   | $000         |   |  | $000               |           
|Assets                                                           |  |                                                                             |          |   |                          |   |           |                    |  |   |              |   |  |                    |            |   |  |   |          |  
|Current assets:                                                  |  | $                                                                           | 26,307   |   |                          | $ | 29,008    |                    |  | $ | 49,740       |   |  | $                  |           |   |  | $ | 105,055  |  
|Cash and cash equivalents                                        |  |                                                                             |         |   |                          |   | 132,009   |                    |  |   | 109,218      |   |  |                    |           |   |  |   | 241,227  |  
|Accounts receivable, net                                         |  |                                                                             |         |   |                          |   | 55,972    |                    |  |   | 50,599       |   |  |                    |           |   |  |   | 106,571  |  
|Prepaid expenses, deferred income taxes and other current assets |  |                                                                             | 1,004    |   |                          |   | 22,755    |                    |  |   | 7,712        |   |  |                    |           |   |  |   | 31,471   |  
|                                                                 |  |                                                                             |          |   |                          |   |           |                    |  |   |              |   |  |                    |            |   |  |   |          |  
|Total current assets                                             |  |                                                                             | 27,311   |   |                          |   | 239,744   |                    |  |   | 217,269      |   |  |                    |           |   |  |   | 484,324  |  
|                                                                 |  |                                                                             |          |   |                         
|Equipment on operating leases, net                               |  |                                                                             |         |   |                          |   | 18,429    |                    |  |   | 14,375       |   |  |                    |           |   |  |   | 32,804   |  
|Property and equipment, net                                      |  |                                                                             | 17       |   |                          |   | 66,144    |                    |  |   | 7,386        |   |  |                    |           |   |  |   | 73,547   |  
|Goodwill, net                                                    |  |                                                                             |         |   |                          |   | 142,432   |                    |  |   | 137,724      |   |  |                    |           |   |  |   | 280,156  |  
|Non-complete agreements, net                                     |  |                                                                             |         |   |                          |   | 2,281     |                    |  |   |             |   |  |                    |           |   |  |   | 2,281    |  
|Investment in subsidiaries                                       |  |                                                                             | 70,250   |   |                          |   | 164,180   |                    |  |   | 1,895,950    |   |  |                    | (2,130,380 | ) |  |   |         |  
|Deferred Income taxes                                            |  |                                                                             |         |   |                          |   | 92,958    |                    |  |   |             |   |  |                    |           |   |  |   | 92,958   |  
|Other assets                                                     |  |                                                                             | 6,699    |   |                          |   | 14,182    |                    |  |   | 5,755        |   |  |                    |           |   |  |   | 26,636   |  
|                                                                 |  |                                                                             |          |   |                          |   |           |                    |  |   |              |   |  |                    |            |   |  |   |          |  
|Total assets                                                     |  | $                                                                           | 104,277  |   |                          | $ | 740,350   |                    |  | $ | 2,278,459    |   |  |                    | (2,130,380 | ) |  | $ | 992,706  |  
|                                                                 |  |                                                                             |          |   |                          |   |           |                    |  |   |              |   |  |                    |            |   |  |   |          |  
|                                                                 |  |                                                                             |          |   |                         
|Liabilities and shareholders equity (deficit)                   |  |                                                                             |          |   |                          |   |           |                    |  |   |              |   |  |                    |            |   |  |   |          |  
|Current liabilities:                                             |  |                                                                             |          |   |                          |   |           |                    |  |   |              |   |  |                    |            |   |  |   |          |  
|Current maturities of long-term debt and notes                   |  | $                                                                           |         |   |                          | $ | 858       |                    |  | $ | 1,547        |   |  | $                  |           |   |  | $ | 2,405    |  
|Accounts payable                                                 |  |                                                                             | 404      |   |                          |   | 79,628    |                    |  |   | 42,690       |   |  |                    |           |   |  |   | 122,722  |  
|Accrued expenses and other current liabilities                   |  |                                                                             | 3,799    |   |                          |   | 70,710    |                    |  |   | 41,687       |   |  |                    |           |   |  |   | 116,196  |  
|Taxes Payable                                                    |  |                                                                             | (216     | ) |                          |   | 47,500    |                    |  |   | 70,678       |   |  |                    |           |   |  |   | 117,962  |  
|Deferred revenue                                                 |  |                                                                             |         |   |                          |   | 23,039    |                    |  |   | 20,295       |   |  |                    |           |   |  |   | 43,334   |  
|Due to/(from) affiliate                                          |  |                                                                             | (451,389 | ) |                          |   | (518,303  | )                  |  |   | 973,738      |   |  |                    | (4,046     | ) |  |   |         |  
|                                                                 |  |                                                                             |          |   |                          |   |           |                    |  |   |              |   |  |                    |            |   |  |   |          |  
|Total current liabilities                                        |  |                                                                             | (447,402 | ) |                          |   | (296,568  | )                  |  |   | 1,150,635    |   |  |                    | (4,046     | ) |  |   | 402,619  |  
|                                                                 |  |                                                                             |          |   |                         
|Due to (from) affiliates  long-term                             |  |                                                                             |         |   |                          |   |          |                    |  |   |             |   |  |                    |           |   |  |   |         |  
|Long-term debt and notes payable, less current maturities        |  |                                                                             | 235,718  |   |                          |   | 4,331     |                    |  |   | 2,044        |   |  |                    |           |   |  |   | 242,093  |  
|Deferred income taxes and other long-term liabilities            |  |                                                                             |         |   |                          |   | 16,040    |                    |  |   | 15,993       |   |  |                    |           |   |  |   | 32,033   |  
|                                                                 |  |                                                                             |          |   |                          |   |           |                    |  |   |              |   |  |                    |            |   |  |   |          |  
|Total liabilities                                                |  |                                                                             | (211,684 | ) |                          |   | (276,197  | )                  |  |   | 1,168,672    |   |  |                    | (4,046     | ) |  |   | 676,745  |  
|                                                                 |  |                                                                             |          |   |                          |   |           |                    |  |   |              |   |  |                    |            |   |  |   |          |  
|6.5% convertible participating shares                            |  |                                                                             | 272,493  |   |                          |   |          |                    |  |   |             |   |  |                    |           |   |  |   | 272,493  |  
|                                                                 |  |                                                                             |          |   |                          |   |           |                    |  |   |              |   |  |                    |            |   |  |   |          |  
|                                                                 |  |                                                                             |          |   |                         
|Shareholders equity (deficit):                                  |  |                                                                             |          |   |                          |   |           |                    |  |   |              |   |  |                    |            |   |  |   |          |  
|Ordinary shares, 1.25 pence stated value                         |  |                                                                             | 5,182    |   |                          |   | 1,133,607 |                    |  |   | 292,361      |   |  |                    | (1,425,968 | ) |  |   | 5,182    |  
|Additional paid-in capital                                       |  |                                                                             | 327,768  |   |                          |   | 26,416    |                    |  |   | 442,392      |   |  |                    | (468,808   | ) |  |   | 327,768  |  
|Retained earnings (accumulated deficit)                          |  |                                                                             | (239,104 | ) |                          |   | (165,915  | )                  |  |   | 664,317      |   |  |                    | (498,402   | ) |  |   | (239,104 | )
|Accumulated other comprehensive (loss) income                    |  |                                                                             | (50,378  | ) |                          |   | 22,439    |                    |  |   | (289,283     | ) |  |                    | 266,844    |   |  |   | (50,378  | )
|                                                                 |  |                                                                             |          |   |                          |   |           |                    |  |   |              |   |  |                    |            |   |  |   |          |  
|Total shareholders equity (deficit)                             |  |                                                                             | 43,468   |   |                          |   | 1,016,547 |                    |  |   | 1,109,787    |   |  |                    | (2,126,334 | ) |  |   | 43,468   |  
|                                                                 |  |                                                                             |          |   |                          |   |           |                    |  |   |              |   |  |                    |            |   |  |   |          |  
|Total liabilities & shareholders equity (deficit)               |  | $                                                                           | 104,277  |   |                          | $ | 740,350   |                    |  | $ | 2,278,459    |   |  | $                  | (2,130,380 | ) |  | $ | 992,706  |  
|                                                                 |  |                                                                             |          |   |                          |   |           |                    |  |   |              |   |  |                    |            |   |  |   |          |  



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



27



---

##### Table of Contents

|                                                                 |  |                                                                               |          |   |                          |   |           |                     |  |   |              |   |  |                   |            |   |  |   |          |  
|---------------------------------------------------------------- |  | ----------------------------------------------------------------------------- | -------- | - | ------------------------ | - | --------- | ------------------- |  | - | ------------ | - |  | ----------------- | ---------- | - |  | - | -------- | -
|                                                                 |  | Supplemental Condensed Consolidating Balance Sheet Information March 31, 2003 |         
|                                                                 |  | ParentCompany (1)                                                             |          |   | SubsidiaryGuarantors (2) |   |           | Non- Guarantors (3) |  |   | Eliminations |   |  | ConsolidatedTotal |           
|                                                                 |  | $000                                                                          |          |   | $000                     |   |           | $000                |  |   | $000         |   |  | $000              |           
|Assets                                                           |  |                                                                               |          |   |                          |   |           |                     |  |   |              |   |  |                   |            |   |  |   |          |  
|Current assets:                                                  |  |                                                                               |          |   |                          |   |           |                     |  |   |              |   |  |                   |            |   |  |   |          |  
|Cash and cash equivalents                                        |  | $                                                                             | 42,709   |   |                          | $ | 13,898    |                     |  | $ | 24,886       |   |  | $                 |           |   |  | $ | 81,493   |  
|Accounts receivable, net                                         |  |                                                                               |         |   |                          |   | 144,511   |                     |  |   | 112,818      |   |  |                   |           |   |  |   | 257,329  |  
|Inventories                                                      |  |                                                                               |         |   |                          |   | 64,478    |                     |  |   | 46,993       |   |  |                   |           |   |  |   | 111,471  |  
|Prepaid expenses, deferred income taxes and other current assets |  |                                                                               | 19,262   |   |                          |   | 24,626    |                     |  |   | 1,991        |   |  |                   |           |   |  |   | 45,879   |  
|                                                                 |  |                                                                               |          |   |                          |   |           |                     |  |   |              |   |  |                   |            |   |  |   |          |  
|Total current assets                                             |  |                                                                               | 61,971   |   |                          |   | 247,513   |                     |  |   | 186,688      |   |  |                   |           |   |  |   | 496,172  |  
|                                                                 |  |                                                                               |          |   |                         
|Equipment on operating leases, net                               |  |                                                                               |         |   |                          |   | 24,799    |                     |  |   | 15,030       |   |  |                   |           |   |  |   | 39,829   |  
|Property and equipment, net                                      |  |                                                                               |         |   |                          |   | 59,784    |                     |  |   | 7,998        |   |  |                   |           |   |  |   | 67,782   |  
|Goodwill, net                                                    |  |                                                                               |         |   |                          |   | 136,991   |                     |  |   | 119,999      |   |  |                   |           |   |  |   | 256,990  |  
|Non-compete agreements, net                                      |  |                                                                               |         |   |                          |   | 799       |                     |  |   |             |   |  |                   |           |   |  |   | 799      |  
|Investment in subsidiaries                                       |  |                                                                               | 89,039   |   |                          |   | 150,232   |                     |  |   | 1,697,842    |   |  |                   | (1,937,113 | ) |  |   |         |  
|Deferred income taxes                                            |  |                                                                               |         |   |                          |   | 78,458    |                     |  |   | 22           |   |  |                   |           |   |  |   | 78,480   |  
|Other assets                                                     |  |                                                                               | 8,784    |   |                          |   | 16,219    |                     |  |   | 16,565       |   |  |                   |           |   |  |   | 41,568   |  
|                                                                 |  |                                                                               |          |   |                          |   |           |                     |  |   |              |   |  |                   |            |   |  |   |          |  
|Total assets                                                     |  | $                                                                             | 159,794  |   |                          | $ | 714,795   |                     |  | $ | 2,044,144    |   |  | $                 | (1,937,113 | ) |  | $ | 981,620  |  
|                                                                 |  |                                                                               |          |   |                          |   |           |                     |  |   |              |   |  |                   |            |   |  |   |          |  
|Liabilities and shareholders equity (deficit)                   |  |                                                                               |          |   |                          |   |           |                     |  |   |              |   |  |                   |            |   |  |   |          |  
|Current liabilities:                                             |  |                                                                               |          |   |                          |   |           |                     |  |   |              |   |  |                   |            |   |  |   |          |  
|Current maturities of long-term debt and notes payable           |  | $                                                                             | 56,071   |   |                          | $ | 2,381     |                     |  | $ | (9           | ) |  | $                 |           |   |  | $ | 58,443   |  
|Accounts payable                                                 |  |                                                                               | 253      |   |                          |   | 94,032    |                     |  |   | 45,922       |   |  |                   |           |   |  |   | 140,207  |  
|Accrued expenses and other current liabilities                   |  |                                                                               | (3,909   | ) |                          |   | 63,734    |                     |  |   | 41,924       |   |  |                   |           |   |  |   | 101,749  |  
|Taxes Payable                                                    |  |                                                                               |         |   |                          |   | 107,972   |                     |  |   | 4,339        |   |  |                   |           |   |  |   | 112,311  |  
|Deferred revenue                                                 |  |                                                                               |         |   |                          |   | 20,732    |                     |  |   | 19,896       |   |  |                   |           |   |  |   | 40,628   |  
|Due to/(from) affiliate                                          |  |                                                                               | (385,639 | ) |                          |   | (593,746  | )                   |  |   | 983,430      |   |  |                   | (4,045     | ) |  |   |         |  
|                                                                 |  |                                                                               |          |   |                          |   |           |                     |  |   |              |   |  |                   |            |   |  |   |          |  
|Total current liabilities                                        |  |                                                                               | (333,224 | ) |                          |   | (304,895  | )                   |  |   | 1,095,502    |   |  |                   | (4,045     | ) |  |   | 453,338  |  
|                                                                 |  |                                                                               |          |   |                         
|Long-term debt and notes payables, less current maturities       |  |                                                                               | 168,932  |   |                          |   | 738       |                     |  |   | 4,742        |   |  |                   |           |   |  |   | 174,412  |  
|Deferred income taxes and other long-term liabilities            |  |                                                                               | 1        |   |                          |   | 13,190    |                     |  |   | 16,595       |   |  |                   | (1         | ) |  |   | 29,785   |  
|                                                                 |  |                                                                               |          |   |                          |   |           |                     |  |   |              |   |  |                   |            |   |  |   |          |  
|Total liabilities                                                |  |                                                                               | (164,291 | ) |                          |   | (290,967  | )                   |  |   | 1,116,839    |   |  |                   | (4,046     | ) |  |   | 657,535  |  
|                                                                 |  |                                                                               |          |   |                          |   |           |                     |  |   |              |   |  |                   |            |   |  |   |          |  
|6.5% convertible participating shares                            |  |                                                                               | 258,376  |   |                          |   |          |                     |  |   |             |   |  |                   |           |   |  |   | 258,376  |  
|                                                                 |  |                                                                               |          |   |                          |   |           |                     |  |   |              |   |  |                   |            |   |  |   |          |  
|                                                                 |  |                                                                               |          |   |                         
|Shareholders equity (deficit):                                  |  |                                                                               |         |   |                          |   |           |                     |  |   |              |   |  |                   |            |   |  |   |          |  
|Ordinary shares, 1.25 pence stated value                         |  |                                                                               | 5,167    |   |                          |   | 1,135,612 |                     |  |   | 47,352       |   |  |                   | (1,182,964 | ) |  |   | 5,167    |  
|Additional paid-in capital                                       |  |                                                                               | 327,173  |   |                          |   | 29,781    |                     |  |   | 437,177      |   |  |                   | (466,958   | ) |  |   | 327,173  |  
|Retained earnings (accumulated deficit)                          |  |                                                                               | (189,995 | ) |                          |   | (169,339  | )                   |  |   | 720,613      |   |  |                   | (551,274   | ) |  |   | (189,995 | )
|Accumulated other comprehensive (loss) income                    |  |                                                                               | (76,636  | ) |                          |   | 9,708     |                     |  |   | (277,837     | ) |  |                   | 268,129    |   |  |   | (76,636  | )
|                                                                 |  |                                                                               |          |   |                          |   |           |                     |  |   |              |   |  |                   |            |   |  |   |          |  
|Total shareholders equity (deficit)                             |  |                                                                               | 65,709   |   |                          |   | 1,005,762 |                     |  |   | 927,305      |   |  |                   | (1,933,067 | ) |  |   | 65,709   |  
|                                                                 |  |                                                                               |          |   |                          |   |           |                     |  |   |              |   |  |                   |            |   |  |   |          |  
|Total liabilities & shareholders equity (deficit)               |  | $                                                                             | 159,794  |   |                          | $ | 714,795   |                     |  | $ | 2,044,144    |   |  | $                 | (1,937,113 | ) |  | $ | 981,620  |  
|                                                                 |  |                                                                               |          |   |                          |   |           |                     |  |   |              |   |  |                   |            |   |  |   |          |  



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



28



---

##### Table of Contents

|                                                     |  |                                                                                                 |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  
|---------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- | ------- | - | ------------------------- | - | ------- | ------------------------------ |  | - | ------------ | - | ----------------- | - | - |  | - | ------- | -
|                                                     |  | Supplemental Condensed Consolidating Statement of Cash Flows For
theNine Months Ended 12/3/2003 |        
|                                                     |  | ParentCompany (1)                                                                               |         |   | Subsidiary Guarantors (2) |   |         | Subsidiary Non- Guarantors (3) |  |   | Eliminations |   | ConsolidatedTotal |  
|                                                     |  | $000                                                                                            |         |   | $000                      |   |         | $000                           |  |   | $000         |   | $000              |  
|Net cash provided by (used in) operating activities  |  | $                                                                                               | (16,350 | ) |                           | $ | 37,746  |                                |  | $ | 30,877       |   |                   | $ |  |  | $ | 52,273  |  
|                                                     |  |                                                                                                 |         |   |                          
|Investing activities                                 |  |                                                                                                 |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  
|Capital expenditures                                 |  |                                                                                                 |        |   |                           |   | (26,226 | )                              |  |   | (9,646       | ) |                   |   |  |  |   | (35,872 | )
|Proceeds from the sale of property and equipment     |  |                                                                                                 |        |   |                           |   | 403     |                                |  |   | 303          |   |                   |   |  |  |   | 706     |  
|                                                     |  |                                                                                                 |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  
|Net cash provided by (used in) investing activities  |  |                                                                                                 |        |   |                           |   | (25,823 | )                              |  |   | (9,343       | ) |                   |   |  |  |   | (35,166 | )
|                                                     |  |                                                                                                 |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  
|                                                     |  |                                                                                                 |         |   |                          
|Financing activities                                 |  |                                                                                                 |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  
|Net (payment) borrowing of debt                      |  |                                                                                                 | 10,715  |   |                           |   | 2,070   |                                |  |   | (1,271       | ) |                   |   |  |  |   | 11,514  |  
|Payment of debt issue costs                          |  |                                                                                                 | (10,767 | ) |                           |   |         |                                |  |   |              |   |                   |   |   |  |   | (10,767 | )
|                                                     |  |                                                                                                 |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  
|Net cash provided by (used in) financing activities  |  |                                                                                                 | (52     | ) |                           |   | 2,070   |                                |  |   | (1,271       | ) |                   |   |  |  |   | 747     |  
|                                                     |  |                                                                                                 |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  
|Effect of exchange rates                             |  |                                                                                                 |        |   |                           |   | 1,117   |                                |  |   | 4,591        |   |                   |   |  |  |   | 5,708   |  
|                                                     |  |                                                                                                 |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  
|Net Increase (decrease) in cash and cash equivalents |  |                                                                                                 | (16,402 | ) |                           |   | 15,110  |                                |  |   | 24,854       |   |                   |   |  |  |   | 23,562  |  
|Cash and cash equivalents, beginning of period       |  |                                                                                                 | 42,709  |   |                           |   | 13,898  |                                |  |   | 24,886       |   |                   |   |  |  |   | 81,493  |  
|                                                     |  |                                                                                                 |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  
|Cash and cash equivalents, end of period             |  | $                                                                                               | 26,307  |   |                           | $ | 29,008  |                                |  | $ | 49,740       |   |                   | $ |  |  | $ | 105,055 |  
|                                                     |  |                                                                                                 |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  



|                                                     |  |                                                                                                          |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  
|---------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------- | ------- | - | ------------------------- | - | ------- | ------------------------------ |  | - | ------------ | - | ----------------- | - | - |  | - | ------- | -
|                                                     |  | Supplemental Condensed Consolidating Statement of Cash Flows For the Nine Months
Ended December 31, 2002 |        
|                                                     |  | ParentCompany (1)                                                                                        |         |   | Subsidiary Guarantors (2) |   |         | Subsidiary Non- Guarantors (3) |  |   | Eliminations |   | ConsolidatedTotal |  
|                                                     |  | $000                                                                                                     |         |   | $000                      |   |         | $000                           |  |   | $000         |   | $000              |  
|Net cash provided by (used in) operating activities  |  | $                                                                                                        | 89,810  |   |                           | $ | 19,751  |                                |  | $ | 12,288       |   |                   | $ |  |  | $ | 121,849 |  
|                                                     |  |                                                                                                          |         |   |                          
|Investing activities                                 |  |                                                                                                          |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  
|Capital expenditures                                 |  |                                                                                                          |        |   |                           |   | (22,949 | )                              |  |   | (9,105       | ) |                   |   |  |  |   | (32,054 | )
|Proceeds from the sale of property and equipment     |  |                                                                                                          |        |   |                           |   | 249     |                                |  |   | 214          |   |                   |   |  |  |   | 463     |  
|                                                     |  |                                                                                                          |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  
|Net cash provided by (used in) investing activities  |  |                                                                                                          |        |   |                           |   | (22,700 | )                              |  |   | (8,891       | ) |                   |   |  |  |   | (31,591 | )
|                                                     |  |                                                                                                          |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  
|                                                     |  |                                                                                                          |         |   |                          
|Financing activities                                 |  |                                                                                                          |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  
|Net (payment) borrowing of debt                      |  |                                                                                                          | (69,674 | ) |                           |   | 3,754   |                                |  |   | 1,207        |   |                   |   |  |  |   | (64,713 | )
|Payment of debt issue costs                          |  |                                                                                                          | (17,162 | ) |                           |   |         |                                |  |   |              |   |                   |   |   |  |   | (17,162 | )
|                                                     |  |                                                                                                          |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  
|Net cash provided by (used in) financing activities  |  |                                                                                                          | (86,836 | ) |                           |   | 3,754   |                                |  |   | 1,207        |   |                   |   |  |  |   | (81,875 | )
|                                                     |  |                                                                                                          |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  
|Effect of exchange rates                             |  |                                                                                                          |        |   |                           |   | (26     | )                              |  |   | 3,815        |   |                   |   |  |  |   | 3,789   |  
|Net Increase (decrease) in cash and cash equivalents |  |                                                                                                          | 2,974   |   |                           |   | 779     |                                |  |   | 8,419        |   |                   |   |  |  |   | 12,172  |  
|Cash and cash equivalents, beginning of period       |  |                                                                                                          | 8,420   |   |                           |   | 26,299  |                                |  |   | 24,751       |   |                   |   |  |  |   | 59,470  |  
|                                                     |  |                                                                                                          |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  
|Cash and cash equivalents, end of period             |  | $                                                                                                        | 11,394  |   |                           | $ | 27,078  |                                |  | $ | 33,170       |   |                   |   |  |  | $ | 71,642  |  
|                                                     |  |                                                                                                          |         |   |                           |   |         |                                |  |   |              |   |                   |   |   |  |   |         |  



|(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 United States 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
|--- | ---------------------------------------------------------------------------



Note 9. Contingencies



Litigation: 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.



We are also 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.



Note 10. Income Taxes



The decrease in
the tax rate is primarily due to an increase in the valuation allowance taken in the current quarter against our deferred tax assets.



29



---

##### 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 one of the largest independent providers 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 exited Hungary in fiscal year 2004. Our reportable segments are the United States, Europe and International. Our European and International segments include 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 Doubtful Accounts - 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. Subsequent to the implementation of our Vision 21/Oracle ERP system, we formulated a plan to validate the credits in our United
States customer accounts from the legacy systems in the fourth quarter. The credits that we will validate may be more or less than what we have reserved for in our financial statements and may be adjusted in the fourth quarter of fiscal year 2004.
The following table summarizes our net accounts receivable.



|                                                |  |                   |         |   |                |   |         |  
|----------------------------------------------- |  | ----------------- | ------- | - | -------------- | - | ------- | -
|                                                |  | As of             |        
|(In thousands)                                  |  | December 31, 2003 |         |   | March 31, 2003 |  
|Accounts Receivable                             |  | $                 | 284,321 |   |                | $ | 298,739 |  
|Allowance for Doubtful Accounts                 |  |                   | (43,094 | ) |                |   | (41,410 | )
|                                                |  |                   |         |   |                |   |         |  
|Accounts Receivable, net                        |  | $                 | 241,227 |   |                | $ | 257,329 |  
|                                                |  |                   |         |   |                |   |         |  
|Allowance for Doubtful Accounts as a % of Total |  |                   | 15.2    | % |                |   | 13.9    | %



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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. In the case of equipment sales financed by third party finance/leasing companies or financed by us, retail
equipment and related sales are recognized upon acceptance of delivery by the customer and credit acceptance by the finance/leasing company or us, if later. In addition, for the sale of certain digital equipment that requires a 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 acceptance of 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, which includes Tech Source service contract revenues,
net of billing adjustments, are generally 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 over time.



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/loss carryforwards 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 and loss carryforwards may result in deferred tax assets and liabilities, which are included in our consolidated balance sheet.



In accordance with Statement of Financial Accounting Standard No. 109 (SFAS 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. 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, the size and timing of charges related to our cost restructuring plans and the writeoff
of debt issuance costs and delays in product availability or technological obsolescence. If recovery is not likely, we have to provide a valuation allowance on our deferred tax assets based on the future recoverability from tax planning strategies
and our estimates of future taxable income in the various taxing jurisdictions, and the amount of deferred taxes that are ultimately realizable.



At December 31, 2003 and March 31, 2003, we had deferred tax assets in excess of deferred tax liabilities of $139.5 million and $123.2 million respectively. Management
determined that it is more likely than not that $103.7 million and $89.3 million, respectively, of such net assets will be realized, resulting in a valuation allowance of $35.8 million and $33.9 million, respectively.



Approximately $228 million of future United States taxable income and approximately $43
million of future United Kingdom taxable income is ultimately needed to realize the net deferred tax assets at December 31, 2003. It is possible that we may have to record a non-cash write-off in future quarters of all or a portion of the deferred
tax assets recorded at December 31, 2003.



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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 will perform our annual impairment test during the fourth
quarter of our fiscal year 2004, under the requirements of Statement of Financial Accounting Standard Number 142 Goodwill and Other Intangible Assets or (SFAS 142).



We had goodwill of $280.2 million as of December 31, 2003. If it is determined under SFAS 142 that our goodwill is impaired, we will 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 Months Ended December 31, |   |  | For the Nine Months EndedDecember 31, |  
|                                             |  | 2003                                    |   |  | 2002                                  |   |  | 2003  |   |  | 2002  |  
|Revenue:                                     |  |                                         |   |  |                                       |   |  |       |   |  |       |  
|Retail equipment and related sales           |  | 34.6                                    | % |  | 34.5                                  | % |  | 34.7  | % |  | 33.5  | %
|Retail service                               |  | 47.3                                    |   |  | 49.3                                  |   |  | 48.4  |   |  | 50.4  |  
|Retail supplies and rentals                  |  | 10.6                                    |   |  | 9.9                                   |   |  | 9.8   |   |  | 10.2  |  
|Wholesale                                    |  | 7.5                                     |   |  | 6.3                                   |   |  | 7.1   |   |  | 5.9   |  
|                                             |  |                                         |   |  |                                       |   |  |       |   |  |       |  
|Total revenue                                |  | 100.0                                   |   |  | 100.0                                 |   |  | 100.0 |   |  | 100.0 |  
|Cost of revenue                              |  | 63.7                                    |   |  | 62.8                                  |   |  | 63.3  |   |  | 62.7  |  
|                                             |  |                                         |   |  |                                       |   |  |       |   |  |       |  
|Gross profit                                 |  | 36.3                                    |   |  | 37.2                                  |   |  | 36.7  |   |  | 37.3  |  
|                                             |  |                                         |   |  |                                       |   |  |       |   |  |       |  
|Selling, general and administrative expenses |  | 32.8                                    |   |  | 34.0                                  |   |  | 35.1  |   |  | 34.3  |  
|Amortization of intangible assets            |  |                                        |   |  |                                      |   |  |      |   |  |      |  
|Restructuring charges (credits)              |  | 6.1                                     |   |  |                                      |   |  | 2.0   |   |  | (0.1  | )
|Other (income) expense                       |  | 0.6                                     |   |  | (0.4                                  | ) |  |      |   |  | (0.4  | )
|                                             |  |                                         |   |  |                                       |   |  |       |   |  |       |  
|Operating earnings (loss)                    |  | (3.2                                    | ) |  | 3.6                                   |   |  | (0.4  | ) |  | 3.5   |  
|Interest expense                             |  | (2.4                                    | ) |  | (2.5                                  | ) |  | (2.6  | ) |  | (2.2  | )
|Interest income                              |  | 0.1                                     |   |  | 0.1                                   |   |  | 0.1   |   |  | 0.1   |  
|Writeoff of debt issuance costs              |  |                                        |   |  |                                      |   |  | (2.1  | ) |  |      |  
|                                             |  |                                         |   |  |                                       |   |  |       |   |  |       |  
|Earnings (loss) before income taxes          |  | (5.5                                    | ) |  | 1.2                                   |   |  | (5.0  | ) |  | 1.4   |  
|Provision (benefit) for income taxes         |  | (0.4                                    | ) |  | 0.3                                   |   |  | (1.5  | ) |  | 0.4   |  
|                                             |  |                                         |   |  |                                       |   |  |       |   |  |       |  
|Net earnings (loss)                          |  | (5.1                                    | ) |  | 0.9                                   |   |  | (3.5  | ) |  | 1.0   |  
|                                             |  |                                         |   |  |                                       |   |  |       |   |  |       |  



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



32



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



|                                   |  |                                       |   |  |                                       |   |  |      |   |  |       |  
|---------------------------------- |  | ------------------------------------- | - |  | ------------------------------------- | - |  | ---- | - |  | ----- | -
|                                   |  | For the Three MonthsEndedDecember 31, |   |  | For the Nine Months EndedDecember 31, |  
|                                   |  | 2003                                  |   |  | 2002                                  |   |  | 2003 |   |  | 2002  |  
|Retail equipment and related sales |  | -5.9                                  | % |  | -15.1                                 | % |  | -2.1 | % |  | -14.3 | %
|Retail service                     |  | -10.1                                 |   |  | -12.0                                 |   |  | -9.2 |   |  | -11.7 |  
|Retail supplies and rentals        |  | -0.3                                  |   |  | -9.6                                  |   |  | -8.9 |   |  | -11.9 |  
|Wholesale                          |  | 12.8                                  |   |  | 8.6                                   |   |  | 14.5 |   |  | 5.1   |  
|                                   |  |                                       |   | 
|Total revenue                      |  | -6.2                                  |   |  | -11.8                                 |   |  | -5.4 |   |  | -11.8 |  



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



|                                   |  |                                       |   |  |                                      |   |  |      |   |  |      |  
|---------------------------------- |  | ------------------------------------- | - |  | ------------------------------------ | - |  | ---- | - |  | ---- | -
|                                   |  | For the Three MonthsEndedDecember 31, |   |  | For the Nine MonthsEndedDecember 31, |  
|                                   |  | 2003                                  |   |  | 2002                                 |   |  | 2003 |   |  | 2002 |  
|Retail equipment and related sales |  | 35.1                                  | % |  | 34.0                                 | % |  | 34.0 | % |  | 33.9 | %
|Retail service                     |  | 38.7                                  |   |  | 40.2                                 |   |  | 40.5 |   |  | 40.4 |  
|Retail supplies and rentals        |  | 41.1                                  |   |  | 45.2                                 |   |  | 40.7 |   |  | 43.1 |  
|Wholesale                          |  | 19.4                                  |   |  | 18.5                                 |   |  | 19.2 |   |  | 19.0 |  
|                                   |  |                                       |   | 
|Total                              |  | 36.3                                  |   |  | 37.2                                 |   |  | 36.7 |   |  | 37.3 |  



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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 MonthsEnded December 31, |         |   | For the Nine MonthsEnded December 31, |  
|(In thousands)                      |  | 2003                                   |         |   | 2002                                  |   |         | 2003 |  |   | 2002    |  
|Revenues                            |  |                                        |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|United States                       |  | $                                      | 160,256 |   |                                       | $ | 185,143 |      |  | $ | 483,816 |   |  | $ | 560,637   |  
|Europe                              |  |                                        | 138,519 |   |                                       |   | 138,135 |      |  |   | 411,291 |   |  |   | 391,263   |  
|International                       |  |                                        | 32,306  |   |                                       |   | 29,837  |      |  |   | 92,722  |   |  |   | 92,026    |  
|Other (1)                           |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |          |  
|                                    |  |                                        |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Total Revenues                      |  | $                                      | 331,081 |   |                                       | $ | 353,115 |      |  | $ | 987,829 |   |  | $ | 1,043,926 |  
|                                    |  |                                        |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Gross Profit                        |  |                                        |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|United States                       |  | $                                      | 63,516  |   |                                       | $ | 78,150  |      |  | $ | 196,426 |   |  | $ | 237,844   |  
|Europe                              |  |                                        | 44,161  |   |                                       |   | 43,722  |      |  |   | 132,382 |   |  |   | 125,561   |  
|International                       |  |                                        | 11,828  |   |                                       |   | 9,381   |      |  |   | 33,447  |   |  |   | 25,677    |  
|Other (1)                           |  |                                        | 517     |   |                                       |   |        |      |  |   | 516     |   |  |   |          |  
|                                    |  |                                        |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Total Gross Profit                  |  | $                                      | 120,022 |   |                                       | $ | 131,253 |      |  | $ | 362,771 |   |  | $ | 389,082   |  
|                                    |  |                                        |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Operating Earnings (Loss)           |  |                                        |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|United States                       |  | $                                      | 1,146   |   |                                       | $ | 9,668   |      |  | $ | 9,703   |   |  | $ | 32,225    |  
|Europe                              |  |                                        | (3,392  | ) |                                       |   | 7,529   |      |  |   | 6,481   |   |  |   | 20,490    |  
|International                       |  |                                        | (414    | ) |                                       |   | (1,204  | )    |  |   | (2,960  | ) |  |   | (9,561    | )
|Other                               |  |                                        | (7,945  | ) |                                       |   | (3,175  | )    |  |   | (17,878 | ) |  |   | (6,074    | )
|                                    |  |                                        |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Total Operating Earnings (Loss)     |  | $                                      | (10,605 | ) |                                       | $ | 12,818  |      |  | $ | (4,654  | ) |  | $ | 37,080    |  
|                                    |  |                                        |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Capital Expenditures                |  |                                        |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|United States                       |  | $                                      | 1,386   |   |                                       | $ | 9,735   |      |  | $ | 18,882  |   |  | $ | 20,248    |  
|Europe                              |  |                                        | 119     |   |                                       |   | 3,074   |      |  |   | 5,442   |   |  |   | 6,729     |  
|International                       |  |                                        | 1,454   |   |                                       |   | 1,779   |      |  |   | 5,206   |   |  |   | 4,617     |  
|Other (1)                           |  |                                        | 1,826   |   |                                       |   | 25      |      |  |   | 6,342   |   |  |   | 460       |  
|                                    |  |                                        |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Total Capital Expenditures          |  | $                                      | 4,785   |   |                                       | $ | 14,613  |      |  | $ | 35,872  |   |  | $ | 32,054    |  
|                                    |  |                                        |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Depreciation and Amortization       |  |                                        |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|United States                       |  | $                                      | 7,341   |   |                                       | $ | 8,275   |      |  | $ | 21,448  |   |  | $ | 26,326    |  
|Europe                              |  |                                        | 4,593   |   |                                       |   | 3,129   |      |  |   | 10,239  |   |  |   | 9,999     |  
|International                       |  |                                        | 2,187   |   |                                       |   | 2,525   |      |  |   | 6,462   |   |  |   | 6,627     |  
|Other (1)                           |  |                                        | 457     |   |                                       |   | 62      |      |  |   | 1,125   |   |  |   | 160       |  
|                                    |  |                                        |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  
|Total Depreciation and Amortization |  | $                                      | 14,578  |   |                                       | $ | 13,991  |      |  | $ | 39,274  |   |  | $ | 43,112    |  
|                                    |  |                                        |         |   |                                       |   |         |      |  |   |         |   |  |   |           |  

---

|(1) | Other includes corporate expenses, foreign exchange gains/losses and corporate assets. The restructuring charge/(credit) is being recognized by the applicable business segment.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 December 31, |   |  | For the Nine Months EndedDecember 31, |  
|                                 |  | 2003                                    |   |  | 2002                                  |   |  | 2003 |   |  | 2002  |  
|Gross profit margin              |  |                                         |   |  |                                       |   |  |      |   |  |       |  
|United States                    |  | 39.6                                    | % |  | 42.2                                  | % |  | 40.6 | % |  | 42.4  | %
|Europe                           |  | 31.9                                    |   |  | 31.7                                  |   |  | 32.2 |   |  | 32.1  |  
|International                    |  | 36.6                                    |   |  | 31.4                                  |   |  | 36.1 |   |  | 27.9  |  
|                                 |  |                                         |   | 
|Operating earnings (loss) margin |  |                                         |   |  |                                       |   |  |      |   |  |       |  
|United States                    |  | 0.7                                     | % |  | 5.2                                   | % |  | 2.0  | % |  | 5.7   | %
|Europe                           |  | -2.4                                    |   |  | 5.5                                   |   |  | 1.6  |   |  | 5.2   |  
|International                    |  | -1.3                                    |   |  | -4.0                                  |   |  | -3.2 |   |  | -10.4 |  



The following table sets forth for the
periods indicated the percentage of revenue change over the year-ago period for each of our operating segments:



|              |  |                                         |   |  |                                        |   |  |       |   |  |       |  
|------------- |  | --------------------------------------- | - |  | -------------------------------------- | - |  | ----- | - |  | ----- | -
|              |  | For the Three Months Ended December 31, |   |  | For the Nine Months Ended December 31, |  
|              |  | 2003                                    |   |  | 2002                                   |   |  | 2003  |   |  | 2002  |  
|United States |  | -13.4                                   | % |  | -18.0                                  | % |  | -13.7 | % |  | -16.0 | %
|Europe        |  | 0.3                                     |   |  | 1.0                                    |   |  | 5.1   |   |  | -4.0  |  
|International |  | 8.3                                     |   |  | -20.1                                  |   |  | 0.8   |   |  | -18.1 |  
|              |  |                                         |   | 
|Total revenue |  | -6.2                                    |   |  | -11.8                                  |   |  | -5.4  |   |  | -11.8 |  



Three Months Ended December 31, 2003 compared to the Three Months Ended December 31, 2002



Revenue



Total revenue for the third quarter of fiscal 2004 declined by $22.0 million or 6.2% to $331.1 million from $353.1 million in the year-ago quarter with the United States segment down 13.4%, the European segment up
0.3% and the International segment up 8.3%. During the third quarter of fiscal year 2004, 48.4% of our revenue was generated by our United States segment, 41.8% by our European segment and 9.8% by our International segment. Our total revenue in the
current year third quarter was impacted by a $25.1 million foreign currency benefit of which Europe contributed $20.3 million and International contributed $4.8 million over the year-ago quarter. Partially offsetting the overall revenue decline was
a foreign currency benefit of 7.1 percentage points for Danka overall, 14.7 percentage points for Europe and 16.1 percentage points for International.



Retail equipment and related sales revenue decreased by $7.2 million or 5.9% to $114.6 million, which includes a currency benefit of 6.1 percentage points. The United
States segment was down 5.8%, the European segment down 11.8% and the International segment up 16.4%. The decrease in the United States and Europe was due to a competitive marketplace and the goal of achieving higher margins, which resulted in lower
sales for the quarter. Partially offsetting the revenue decline was a foreign currency benefit of 13.1 percentage points for Europe and 18.7 percentage points for International.



Retail service revenue declined by $17.6 million or 10.1% to $156.5 million, which includes a currency benefit of 6.3 percentage points. The
United States segment was down 18.4%, the European segment up 1.6% and the International segment down 4.4%. This decrease was due to the continuing industry-wide conversion from analog-to-digital equipments. Partially offsetting the revenue decline
was a foreign currency benefit of 14.6 percentage points for Europe and 14.1 percentage points for International.



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Retail supplies and rental revenues declined by $0.1 million or 0.3% to $35.0 million, which includes a currency benefit
of 7.5 percentage points. The United States segment was down 15.8%, the European segment up 13.3% and the International segment up 16.2%. These decreases were primarily due to the past downsizing of the capital intensive United States and European
rental business and a reduction in our United States supplies business. Partially offsetting the revenue decline was a foreign currency benefit of 14.1 percentage points for Europe and 15.2 percentage points for International.



Wholesale revenue for the third quarter of fiscal 2004 increased by $2.8 million or 12.8% to
$25.0 million attributable to a $4.0 million foreign currency benefit offset by reduced business activity.



Gross Profit



Our total gross profit
margin decreased to 36.3% in the third quarter ended December 31, 2003 from 37.2% in the year-ago quarter. The decrease in our profit margin is primarily due to lower margins for our service activity, a decrease in United States equipment leasing
income of approximately $2.0 million related to lease and residual equipment payments from a diminishing external lease funding program, which contributed $2.4 million to gross margins in the year-ago quarter offset, in part, by higher margin
equipment sales and a foreign currency benefit of $8.4 million. The gross profit margin for the United States segment decreased to 39.6% from 42.2%, while the European segment increased slightly to 31.9% from 31.7% and the International segment
increased to 36.6% from 31.4%. 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 and related sales margin increased to 35.1% in the third quarter from
34.0% in the year-ago quarter, primarily due to the shift in the mix of our sales toward higher margin equipment sales in our European and International segments and the non-recurrence of a $1.9 million write-down of retail equipment inventory in
our International segment in the year-ago period partially offset by lower leasing income in the United States. Retail service margins decreased to 38.7% in the third quarter from 40.2% in the year-ago quarter primarily due to the United States
segment offset, in part, by improved operational efficiency in the European segment. Retail supplies and rental margins decreased to 41.1% in the third quarter from 45.2% in the year-ago quarter due to unfavorability in our European segment.
Wholesale margins increased to 19.4% in the third quarter from 18.5% in the year-ago quarter.



Selling, General and Administrative Expenses



Selling, general and administrative expenses (SG&A) in the third quarter of fiscal 2004 decreased by $11.2 million or 9.3% to $108.7 million from $119.9 million in the year-ago quarter due to the ongoing cost reduction
efforts, the progress in the implementation of our worldwide cost reduction program and $3.0 million of one-time favorable pension adjustments in our European segment. The cost reduction program allowed us to reduce our compensation expense, lower
our professional fees, and lower our facility costs. The foreign currency movement increased SG&A by 6.0 percentage points or $7.2 million. As a percentage of total revenue, SG&A expenses decreased to 32.8% from 34.0% primarily due to our
revenue decreasing faster than our costs decreased.



Restructuring Charges



In the third quarter of fiscal year 2004, we formulated a plan to
significantly reduce our operating costs by consolidating our back-office functions in the United States, exiting non-strategic real estate facilities and reducing headcount in the United States, Europe and International businesses. As part of that
plan, we recorded a $20.0 million restructuring charge in the third quarter of fiscal year 2004 that included $8.9 million related to employee severance and $11.1 million related to future facility lease obligations that were vacated by December 31,
2003. The cash payments for the employee severance and real estate facilities will be made over the next two years.



Other (Income) Expense



Other expense was $1.9 million for the third quarter of fiscal 2004 compared to other income of $1.5 million in the year-ago quarter. Other expense consisted primarily of a $1.9 million write-off of trademark costs
associated with the Kodak acquisition while other income for the year-ago quarter included a foreign currency gain of $1.6 million.



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Operating Earnings (Loss)



For the third quarter of fiscal 2004, operating loss was $10.6 million compared to earnings of $12.8 million in the year-ago quarter. The
$20.0 million restructuring charge was the primary reason for the $23.4 million decrease in operating earnings.



Interest Expense



Interest expense decreased by $0.8 million to $7.9 million for the third quarter of fiscal 2004 from $8.7 million in the year-ago quarter. The decrease was due to a lower level of total indebtedness.



Income Taxes



We recorded an income tax benefit of $1.2 million for the third quarter of fiscal 2004 compared to a $1.2 million income tax provision for
the year-ago quarter. The combined effective income tax rate was 6.4% for the current quarter as compared to 27.1% for the year-ago quarter. The decrease in the tax rate is primarily due to an increase in the valuation allowance taken in the current
quarter against our deferred tax assets.



Earnings (Loss)



For the third quarter of fiscal 2004, we generated a net loss of $16.9 million compared to
net earnings of $3.3 million in the year-ago quarter. After allowing for the dilutive effect of dividends on our participating shares, we generated a net loss attributable to common shareholders of $0.35 per ADS in the third quarter of fiscal 2004
compared to a net loss available to common shareholders of $0.02 per ADS in the year-ago quarter.



Nine Months Ended December 31, 2003 compared to the Nine Months Ended December 31, 2002



Revenue



Total revenue for the first nine months of fiscal 2004 declined by $56.1 million or 5.4% to $987.8 million from $1,043.9 million in the year-ago period. The United States segment was down 13.7%, the European segment
up 5.1% and the International segment up 0.8%. During the first nine months of fiscal year 2004, 49.0% of our revenue was generated by our United States segment, 41.6% by our European segment and 9.4% by our International segment. Our total revenue
in the current period was impacted by a $68.9 million foreign currency benefit of which Europe contributed $58.8 million and International contributed $10.1 million over the year-ago quarter. Partially offsetting the overall revenue decline was a
foreign currency benefit of 6.6 percentage points for Danka overall, 15.0 percentage points for Europe and 11.0 percentage points for International.



Retail equipment and related sales revenue decreased by $7.3 million or 2.1% to $342.6 million, which includes a currency benefit of 6.2 percentage points. The United
States segment was down 6.7%, the European segment up 4.6% and the International segment up 2.2%. This overall decrease was primarily due to decreased revenues in the United States segment resulting from a competitive marketplace, and the goal of
achieving higher margins, which resulted in lower sales for the period. Partially offsetting the revenue decline was a foreign currency benefit of 14.8 percentage points for Europe and 13.6 percentage points for International.



Retail service revenue declined by $48.3 million or 9.2% to $477.7 million, which includes a
currency benefit of 5.7 percentage points. The United States segment was down 16.4%, the European segment up 2.7% and the International segment down 8.0%. This overall decrease was primarily due to the continuing industry-wide conversion from
analog-to-digital equipment. Partially offsetting the revenue decline was a foreign currency benefit of 14.7 percentage points for Europe and 9.5 percentage points for International.



Retail supplies and rental revenues declined by $9.5 million or 8.9% to $97.2 million, which includes a currency benefit of 5.3 percentage
points. The United States segment was down 24.3%, the European segment up 2.9% and the International segment up 12.7%. The overall decrease was primarily due to the past downsizing of the capital intensive United States and European rental business.
Partially offsetting the revenue decline was a foreign currency benefit of 12.1 percentage points for Europe and 9.2 percentage points for International.



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Wholesale revenue for the first nine months of fiscal 2004 increased by $8.9 million or 14.5% to $70.3 million due to a
$11.2 million foreign currency benefit offset by reduced business activity.



Gross Profit



Our total gross profit margin decreased to 36.7%
in the first nine months ended December 31, 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, lower margins for our retail supplies and rental activity and a decrease in United States equipment leasing income of approximately $8.8 million related to lease and residual equipment payments from a diminishing external lease
funding program, which contributed $10.6 million to gross margins in the year-ago period offset by higher margin sales of equipment in the second and third quarters and a $21.8 million foreign currency benefit. The gross profit margin for the United
States segment decreased to 40.6% from 42.4%, while the European segment increased to 32.2% from 32.1% and the International segment increased to 36.1% from 27.9%. 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 and related sales margin increased to 34.0% in the first nine months from 33.9% in the year-ago period due to a shift in the mix of our sales toward
lower margin equipment sales in the first quarter offset by higher margin sales in the second and third quarter and the non-recurrence of a $1.9 million write-down of inventory in our International division in the year-ago period. This increase was
partially offset by lower leasing income in the United States. Retail service margins increased slightly to 40.5% in the first nine months from 40.4% in the year-ago period primarily due to operational efficiencies in the European segment 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 40.7% in the first nine months from 43.1% in the year-ago period due to rental and supply
margin unfavorability in our European segment and rental margin unfavorability in the International segment offset in part by rental margin favorability in the United States. Wholesale margins decreased to 19.2% in the first nine months from 19.0%
in the year-ago period.



Selling, General and Administrative Expenses



Selling, general and administrative expenses (SG&A) in
the first nine months of fiscal 2004 decreased by $11.3 million to $346.3 million from $357.7 million in the year-ago period due to the ongoing cost reduction efforts, the progress in the implementation of our worldwide cost reduction program and
$3.0 million of one-time favorable pension adjustments in our European segment. The cost reduction program allowed us to reduce our compensation expense and lower our professional and facility fees. The foreign currency changes increased SG&A by
5.4 percentage points or $19.2 million. As a percentage of total revenue, SG&A expenses increased to 35.1% from 34.3% due to our revenue decreasing faster than our costs decreased.



Restructuring Charges



In the third quarter of fiscal year 2004, we formulated a plan to significantly reduce our operating costs by consolidating our back-office functions in the United
States, exiting non-strategic real estate facilities and reducing headcount in the United States, Europe and International businesses. As part of that plan, we recorded a $20.0 million restructuring charge in the third quarter of fiscal year 2004
that included $8.9 million related to employee severance for and $11.1 million related to future facility lease obligations that were vacated by December 31, 2003. The cash payments for the employee severance and real estate facilities will be made
over the next two years.



We reversed $0.6 million of restructuring charges for
facilities and severance during the first nine 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 nine 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.



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Other (Income) Expense



Other expense increased to $1.7 million for the first nine months of fiscal 2004 from income of $5.1 million in the year-ago period. Other expense for the current
fiscal year included a foreign currency gain of $0.4 million and the write-off of $1.9 million of trademark costs associated with the Kodak acquisition while other income for the year-ago period included a foreign currency gain of $6.0 million.



Operating Earnings (Loss)



For the first nine months of fiscal 2004, the operating loss was $4.7 million compared to
earnings of $37.1 million in the year-ago period. The $41.7 million decrease was partially due to the $20.0 million restructuring charge.



Interest Expense and Interest Income



Interest expense increased by $2.7 million to $25.8 million for the first nine months of fiscal 2004 from $23.0 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.



Writeoff of Debt Issuance 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.



Income Taxes



We recorded an income tax benefit of $15.0 million for the first nine months of fiscal 2004 compared to a $4.0 million income tax provision
for the year-ago period. The combined effective income tax rate was 30.0% for the first nine 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 nine
months of fiscal 2004, we generated a net loss of $35.0 million compared to net earnings of $10.8 million in the year-ago period. After allowing for the dilutive effect of dividends on our participating shares, we generated a net loss attributable
to common shareholders of $0.79 per ADS in the first nine months of fiscal 2004 compared to a net loss available to common shareholders of $0.04 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 third
quarter of fiscal 2004, 51.6% of our revenue was generated outside the United States with 35.0% of our revenue generated in Euro countries, 6.8% in the United Kingdom, and 9.8% in other foreign locations. We generated 47.6% of our revenue for the
third quarter of fiscal 2003 outside the United States with 31.7% generated in Euro countries, 7.5% in the United Kingdom, and 8.4% in other foreign locations.



During the first nine months of fiscal 2004, approximately 51.0% of our revenue was generated outside the United States with 34.0% of our revenue generated in Euro
countries, 7.6% in the United Kingdom, and 9.4% in other foreign locations. We generated 46.3% of our revenue for the first nine months of fiscal 2003 outside the United States with 30.0% generated in Euro countries, 7.5% in the United Kingdom, and
8.8% in other foreign locations.



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In comparing the average exchange rates between the first nine 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 7.6%, respectively. The change in exchange rates positively impacted revenue by approximately $68.9 million. The strengthening of the Euro and United
Kingdom pound since March 31, 2003 was the primary reason for the $28.5 million decrease in cumulative currency translation losses in shareholders equity for the first nine months of fiscal year 2004.



Our inter-company loans are subject to fluctuations in exchange rates between the United
States 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 $0.4 million gain in the first nine months of fiscal 2004 and a $6.0 million gain in the first nine 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 first and third quarter of every fiscal year, we must make interest payments of $12.9 million for our 10% subordinated notes and the 11% senior notes.



As of December 31, 2003, we had approximately $13.4 million in letters of credit outstanding. In connection with the issuance of the senior notes and the establishment of
the Fleet credit facility, we were required to post $14.1 million in cash collateral with Bank of America to secure such letters of credit under the Fleet credit facility. The $14.1 million of cash collateral is included in Cash and cash
equivalents on the Condensed Consolidated Balance Sheets as of December 31, 2003. In January 2004, we subsequently reduced the cash collateral to $4.8 million by issuing a letter of credit under our ABN facility.



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



|                                                     |  |                   |         |   |                   |   |         |  
|---------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|(In Thousands)                                       |  | December 31, 2003 |         |   | December 31, 2002 |  
|Net cash provided by operating activities            |  | $                 | 52,273  |   |                   | $ | 121,849 |  
|                                                     |  |                  
|Net cash used in investing activities                |  |                   | (35,166 | ) |                   |   | (31,591 | )
|                                                     |  |                  
|Net cash provided by/(used in) financing activities  |  |                   | 747     |   |                   |   | (81,875 | )
|                                                     |  |                  
|Effect of exchange rates                             |  |                   | 5,708   |   |                   |   | 3,789   |  
|                                                     |  |                   |         |   |                   |   |         |  
|Net increase/(decrease) in cash and cash equivalents |  |                   | 23,562  |   |                   |   | 12,172  |  
|                                                     |  |                  
|Cash and cash equivalents, beginning of period       |  |                   | 81,493  |   |                   |   | 59,470  |  
|                                                     |  |                   |         |   |                   |   |         |  
|Cash and cash equivalents, end of period             |  | $                 | 105,055 |   |                   | $ | 71,642  |  
|                                                     |  |                   |         |   |                   |   |         |  



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 $52.3 million and $121.8 million for the first nine months of fiscal year 2004 and 2003, respectively. The
$69.6 million decrease in fiscal 2004 operating cash flow was primarily due to the reduction in net income, the timing of payments to our vendors, and less cash collected from our working capital.



Net cash flow used in investing activities was $35.2 million and $31.6 million for the first
nine 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 United States headquarters.



Net cash flow provided by financing activities
was $0.8 million compared to net cash flow used in financing activities of $81.9 million for the first nine months of fiscal year 2004 and 2003, respectively. In fiscal 2004, we generated cash from financing activities due to net proceeds generated
from refinancing our debt and the use of capital leases to complete our new United States headquarters. In fiscal year 2003, we were focused on reducing our debt.



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The Oracle ERP implementation will permit us to issue customer statements in the United States and more readily reconcile
customer accounts. The reconciliation of our United States customer accounts is expected to result in the issuance of customer refunds or other payments over the next several quarters, which is not expected to be material.



Fiscal Year 2004 Charge:In the third quarter of fiscal year 2004, we formulated a
plan to significantly reduce our SG&A costs by consolidating our back-office functions in the United States, exiting non-strategic real estate facilities and reducing headcount in the United States, Europe and International businesses. As part
of that plan, we recorded a $20.0 million restructuring charge in the third quarter of fiscal year 2004 that included $8.9 million related to severance for employees and $11.1 million related to future lease obligations for facilities that were
vacated by December 31, 2003. We expect these costs to be paid over the next two years but with most of the costs to be paid over the next three quarters. As part of this cost reduction plan and other cost saving initiatives, the company expects to
generate total annual savings of approximately $40 to $45 million, primarily resulting from headcount and facility reductions. Cash outlays for the employee severance during fiscal year 2004 were $0.9 million. Substantially all of these employee
reductions were completed by December 31, 2003 but approximately $8.1 million of severance payments will be made over the next two years. Cash outlays for the remaining term of the facility leases during fiscal year 2004 were $0.1 million. The
remaining liability of the 2004 restructuring charge is categorized within Accrued expenses and other current liabilities. The following table summarizes the fiscal year 2004 restructuring charge:



2004 Restructuring Charge:



|                                              |  |                    |        |             |   |        |                      |  |                            |   |  |   |       
|--------------------------------------------- |  | ------------------ | ------ | ----------- | - | ------ | -------------------- |  | -------------------------- | - |  | - | ------
|(In thousands)                                |  | Fiscal 2004Expense |        | CashOutlays |   |        | OtherNon-CashChanges |  | Reserve atDecember 31,2003
|Severance                                     |  | $                  | 8,895  |             | $ | (840   | )                    |  | $                          |  |  | $ | 8,055 
|Future lease obligations on facility closures |  |                    | 11,151 |             |   | (205   | )                    |  |                            |  |  |   | 10,946
|                                              |  |                    |        |             |   |        |                      |  |                            |   |  |   |       
|Total                                         |  | $                  | 20,046 |             | $ | (1,045 | )                    |  | $                          |  |  | $ | 19,001
|                                              |  |                    |        |             |   |        |                      |  |                            |   |  |   |       



2004 Restructuring Severance Charge
by Operating Segment:



|               |  |                     |       |              |   |      |                        |  |                              |   |  |   |      
|-------------- |  | ------------------- | ----- | ------------ | - | ---- | ---------------------- |  | ---------------------------- | - |  | - | -----
|(In thousands) |  | Fiscal 2004 Expense |       | Cash Outlays |   |      | Other Non-Cash Changes |  | Reserve at December 31, 2003
|United States  |  | $                   | 4,853 |              | $ | (495 | )                      |  | $                            |  |  | $ | 4,358
|Europe         |  |                     | 3,287 |              |   | (254 | )                      |  |                              |  |  |   | 3,033
|International  |  |                     | 611   |              |   | (91  | )                      |  |                              |  |  |   | 520  
|Other          |  |                     | 144   |              |   |     |                        |  |                              |  |  |   | 144  
|               |  |                     |       |              |   |      |                        |  |                              |   |  |   |      
|Total          |  | $                   | 8,895 |              | $ | (840 | )                      |  | $                            |  |  | $ | 8,055
|               |  |                     |       |              |   |      |                        |  |                              |   |  |   |      



2004 Restructuring Facility Charge
by Operating Segment:



|               |  |                     |        |              |   |      |                        |  |                              |   |  |   |       
|-------------- |  | ------------------- | ------ | ------------ | - | ---- | ---------------------- |  | ---------------------------- | - |  | - | ------
|(In thousands) |  | Fiscal 2004 Expense |        | Cash Outlays |   |      | Other Non-Cash Changes |  | Reserve at December 31, 2003
|United States  |  | $                   | 2,293  |              | $ | (87  | )                      |  | $                            |  |  | $ | 2,836 
|Europe         |  |                     | 4,253  |              |   | (41  | )                      |  |                              |  |  |   | 4,212 
|International  |  |                     | 58     |              |   |     |                        |  |                              |  |  |   | 58    
|Other          |  |                     | 3,917  |              |   | (77  | )                      |  |                              |  |  |   | 3,840 
|               |  |                     |        |              |   |      |                        |  |                              |   |  |   |       
|Total          |  | $                   | 10,521 |              | $ | (205 | )                      |  | $                            |  |  | $ | 10,946
|               |  |                     |        |              |   |      |                        |  |                              |   |  |   |       



In addition to the cost reduction plan
announced in the third quarter of fiscal year 2004, we will take immediate additional steps designed to further reduce our SG&A costs. These further reductions will be focused in all segments of the business and are expected to result in an
additional restructuring charge in the fourth quarter of fiscal year 2004 ranging from $20 to $25 million. We expect these costs to be paid over the next two years, but with most of the costs to be paid within the next four quarters. These actions
are expected to provide additional annual savings of up to $11 million when fully implemented. These reductions primarily result from a decrease of approximately 375 employees or approximately 5% of the workforce. These additional steps will be
instrumental in Danka being in a position to achieve its longer-term goal of lowering SG&A to 30% of revenue.



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 |                                 | $ |                                |  | $ | 175,000
|Notes Payable                                  |  |       | 64,520  |                                 |   |                                |  |   | 64,520 
|Capital Leases and other Long-Term Obligations |  |       | 8,781   |                                 |   | 2,405                           |  |   | 6,376  
|                                               |  |       |         |                                 |   |                                 |  |   |        
|Total Contractual Obligations                  |  | $     | 248,301 |                                 | $ | 2,405                           |  | $ | 245,896
|                                               |  |       |         |                                 |   |                                 |  |   |        



On June 14, 2002, we entered into an
amended and restated credit facility, or the 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 as described below. 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 the old
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% and
interest payments for the senior notes will be paid every six months on June 15 and December 15, which commenced December 15, 2003. The senior notes 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 United States 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.



If we are not able to convert our participating shares into ordinary shares on December 17, 2010 and are required to pay the liquidation value for the participating shares on that date and are required to pay the $175
million of senior notes in June 2010, then it is likely we will pursue financing arrangements to satisfy such requirements or seek to modify such requirements.



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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 accreted 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. In addition, under the terms of the Fleet 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 a minimum availability reserve equal to $20.0 million. Accordingly, unless the lenders otherwise agree, at no time can
credit available under the Fleet credit facility exceed $30.0 million. As of December 31, 2003, the borrowing base for the credit facility was $14.9 million and we had no borrowings under the Fleet credit facility.



On December 31, 2003, we entered into a one year letter of credit facility with ABN for
15 million (US $18.7 million) and an open term 10 million (US $12.5 million) credit facility available for general working capital uses including overdrafts. These facilities are secured by certain of our Netherlands and Belgium
subsidiaries assets. The availability of the credit facilities are subject to a borrowing base, which totaled approximately 12 million as of December 31, 2003. The 15 million (US $18.7 million) letter of credit facility bears a
commission of 1.25% while the 10 million (US $12.5 million) general credit facility bears interest at ABNs Euro base rate plus 1.25%. ABNs Euro base rate as of December 31, 2003 was 4.5%.



Other Financing Arrangements



Senior
Convertible Participating Shares



On December 17, 1999, we issued 218,000
6.50% senior convertible participating shares for $218.0 million. The participating shares are entitled to dividends equal to the greater of 6.50% per annum or ordinary share dividends on an as converted basis. Dividends are cumulative and are paid
in the form of additional participating shares through December 2004. At that time, we will be obliged to pay the participating share dividends in cash. However, the terms of the participating shares permit us to continue to pay payment-in-kind
dividends following December 17, 2004 if our then existing principal indebtedness, which would include our new credit facility and debt securities issued in an aggregate principal amount in excess of $50.0 million in a bona fide underwritten public
or private offering, prohibits us from paying cash dividends. Further, if we are not permitted by the terms of the participating shares to pay payment-in-kind dividends following December 17, 2004 and we have insufficient distributable reserves
under English law to pay cash dividends, the amount of any unpaid dividend will be added to the liquidation return of each participating share.



The participating shares are currently convertible into ordinary shares at a conversion price of $3.11 per ordinary share (equal to $12.44 per ADS), subject to adjustment
in certain circumstances to avoid dilution of the interests of participating shareholders. As of December 31, 2003, the participating shares have voting rights, on an as converted basis, currently corresponding to approximately 26.7% of the total
voting power of our capital stock which includes an additional 62,585 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.



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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 cash 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 qualified 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 United States 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. We have not accrued any penalty payments for the nine months ended December 31, 2003.



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.



Market Risk Management



Interest Rate
Risk



Our exposure to interest rate risk primarily relates to our
Fleet and ABN credit facilities. The Fleet credit facility bears 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 Fleet credit facility plus cash. As of December 31, 2003, we did not have a balance outstanding under the Fleet credit facility. The ABN credit
facility bears interest at an annual rate equal to ABNs Euro base rate plus 1.25%. As of December 31, 2003, we did not have a balance outstanding under either of the credit facilities discussed above. ABNs Euro base rate as of December
31, 2003 was 4.5%.



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 revenue results for the first nine months of fiscal year 2004 were positively impacted by a $68.9 million foreign
currency movement, primarily due to the strengthening of the Euro and the United Kingdom pound against the dollar.



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Generally, we do not enter into forward and option contracts to manage our exposure to foreign currency fluctuations. At
December 31, 2003, we had no outstanding forward contracts or option contracts to buy or sell foreign currency. For the two year period ended December 31, 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 European and Canadian residents 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. 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 can only require the company to redeem the shares for cash upon events not certain to occur, such
shares 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 credit facilities while the senior notes and the 10% subordinated notes 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 old 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% and interest payments for the senior notes will be paid every six months on June 15 and December 15, which
commenced December 15, 2003. The senior notes 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 Fleet 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.



On December 31, 2003, we entered into a one year letter of credit facility with ABN for 15 million (US $18.7 million) and a open term
10 million (US $12.5 million) credit facility available for general working capital uses including overdrafts. These facilities are secured by certain of our Netherlands and Belgium subsidiaries assets. The availability of the credit
facilities are subject to a borrowing base, which totaled approximately 12 million as of December 31, 2003. The 15 million (US $18.7 million) letter of credit facility bears a commission of 1.25% while the 10 million (US $12.5
million) credit facility bears interest at ABNs Euro base rate plus 1.25%.



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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 United States 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 are in the process of identifying and correcting 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. In the third quarter of fiscal year 2004, Ernst & Young LLP was approved by the audit committee to perform local statutory audits and assist
in certain tax issues for the remainder of fiscal year 2004. Ernst & Young LLP has also provided us assistance in certain tax issues for the past several years.



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
successfully implement our cost restructuring plan to achieve and maintain cost savings; (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



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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 comply with the financial or other covenants of in our debt instruments (xvi) any incurrence of tax liabilities beyond our current expectations, which could adversely affect our liquidity; (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.



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.



We are also 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



The annual general meeting of the shareholders of Danka Business Systems PLC was held on December 12, 2003. At the meeting, the following actions were taken by the shareholders:



| | 1. | Jaime W. Ellertson was re-elected as Director of the Company. The voting on the resolution was as follows:
| | -- | ----------------------------------------------------------------------------------------------------------



|        |  |            
|------- |  | -----------
|FOR     |  | 143,912,305
|        |  |            
|AGAINST |  | 2,507,225  
|        |  |            
|ABSTAIN |  | 0          
|        |  |            



| | 2. | J. Ernest Riddle was re-elected as Director of the Company. The voting on the resolution was as follows:
| | -- | --------------------------------------------------------------------------------------------------------



|        |  |            
|------- |  | -----------
|FOR     |  | 141,940,032
|        |  |            
|AGAINST |  | 4,251,091  
|        |  |            
|ABSTAIN |  | 230,197    
|        |  |            



| | 3. | James L. Singleton was re-elected as Director of the Company. The voting on the resolution was as follows:
| | -- | ----------------------------------------------------------------------------------------------------------



|        |  |            
|------- |  | -----------
|FOR     |  | 138,648,816
|        |  |            
|AGAINST |  | 6,311,384  
|        |  |            
|ABSTAIN |  | 1,461,492  
|        |  |            



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The following directors continued their term of office after the meeting: Kevin C. Daly, Michael B. Gifford, Richard M.
Haddrill, Christopher B. Harned, W. Andrew McKenna, Jaime W. Ellertson, Ernest Riddle, and James L. Singleton.



| | 4. | Ernst & Young LLP was appointed as our auditor for fiscal year 2004, and the Board of Directors was authorized to fix the auditors remuneration. The voting on the
resolution was as follows:
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|        |  |            
|------- |  | -----------
|FOR     |  | 144,992,567
|        |  |            
|AGAINST |  | 1,565,209  
|        |  |            
|ABSTAIN |  | 0          
|        |  |            



| | 5. | The Board of Directors was granted the authority to allot securities up to an aggregate nominal amount of £851,299. The voting on the resolution was as follows:
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



|        |  |            
|------- |  | -----------
|FOR     |  | 143,582,598
|        |  |            
|AGAINST |  | 2,878,710  
|        |  |            
|ABSTAIN |  | 0          
|        |  |            



| | 6. | The Board of Directors was granted the authority to allot equity securities, subject to certain limitations, without providing certain pre-emptive rights. The voting on the
resolution was as follows:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|        |  |            
|------- |  | -----------
|FOR     |  | 131,574,800
|        |  |            
|AGAINST |  | 14,468,784 
|        |  |            
|ABSTAIN |  | 348,200    
|        |  |            



| | 7. | The Directors Remuneration report for fiscal year 2003 was approved. The voting on the resolution was as follows:
| | -- | ------------------------------------------------------------------------------------------------------------------



|        |  |            
|------- |  | -----------
|FOR     |  | 122,643,832
|        |  |            
|AGAINST |  | 22,405,785 
|        |  |            
|ABSTAIN |  | 1,359,447  
|        |  |            



|                |  |                                                                                                                                       
|--------------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|                | 
|Item 5.         |  | Other Information                                                                                                                     
|               
|Not applicable.
|                | 
|Item 6.         |  | Exhibits and Reports on Form 8-K                                                                                                      
|                | 
|(a)             |  | Exhibits.                                                                                                                             
|                | 
|31.1            |  | Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                       
|                | 
|31.2            |  | Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                       
|                | 
|32.1            |  | Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|                | 
|(b)             |  | Reports on Form 8-K:                                                                                                                  
|                | 
|                |  | Current Report on Form 8-K dated October 17, 2003 (Items 4 and 7).                                                                    
|                | 
|                |  | Current Report on Form 8-K dated November 12, 2003 (this Item 12 Current Report was furnished to the SEC).                            
|                | 
|                |  | Amendment to Current Report on Form 8-K/A dated November 19, 2003 (Items 4 and 7).                                                    
|                | 
|                |  | Current Report on Form 8-K dated December 19, 2003 (Items 5).                                                                         



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SIGNATURE



Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                        |  |                                                           
|----------------------- |  | ----------------------------------------------------------
|                        |  | Danka Business Systems PLC                                
|                        |  | (Registrant)                                              
|                        | 
|Date: February 16, 2004 |  | /s/    F. Mark Wolfinger                                  
|                        |  | F. Mark Wolfinger                                         
|                        |  | Executive Vice-President and Chief Financial Officer      
|                        |  | (Principal Financial Officer and Chief Accounting Officer)



48