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United States

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007

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) |  |                                                          

(727) 622-2100 in the United States

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



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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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act.

Large accelerated filer ̈Accelerated filer  x    Non-accelerated filer ̈

Indicate by a check mark whether the registrant is a shell company as defined in Rule
12b-2 of the Exchange Act. ̈Yes    x  No

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of July 30, 2007: The registrant had 259,133,748
ordinary shares outstanding with par value of 1.25 pence, including 59,196,079 shares represented by American Depositary Shares (ADSs). Each ADS represents four ordinary shares. The ADSs are evidenced by American Depositary Receipts.



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INDEX



|                               |  |                                                                                                   |  |   
|------------------------------ |  | ------------------------------------------------------------------------------------------------- |  | --
|RISK FACTORS                   |  | 4                                                                                                
|                               | 
|PART I  FINANCIAL INFORMATION |  | 9                                                                                                
|                               |  |                                                                                                  
|ITEM1.                         |  | CONSOLIDATED CONDENSED FINANCIAL STATEMENTS                                                       |  | 9 
|                               |  |                                                                                                  
|                               |  | Consolidated Condensed Statements of Operations for the Three Months Ended June 30, 2007 and 2006 |  | 9 
|                               |  |                                                                                                  
|                               |  | Consolidated Condensed Balance Sheets as of June 30, 2007 and March 31, 2007                      |  | 10
|                               |  |                                                                                                  
|                               |  | Consolidated Condensed Statements of Cash Flows for the Three Months Ended June 30, 2007 and 2006 |  | 11
|                               |  |                                                                                                  
|                               |  | Notes to Consolidated Condensed Financial Statements                                              |  | 12
|                               |  |                                                                                                  
|ITEM2.                         |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS             |  | 20
|                               |  |                                                                                                  
|ITEM3.                         |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                        |  | 34
|                               |  |                                                                                                  
|ITEM4.                         |  | CONTROLS AND PROCEDURES                                                                           |  | 34
|                               | 
|PART II  OTHER INFORMATION    |  | 35                                                                                               
|                               |  |                                                                                                  
|ITEM1.                         |  | LEGAL PROCEEDINGS                                                                                 |  | 35
|                               |  |                                                                                                  
|ITEM2.                         |  | CHANGES IN SECURITIES AND USE OF PROCEEDS                                                         |  | 35
|                               |  |                                                                                                  
|ITEM3.                         |  | DEFAULTS UPON SENIOR SECURITIES                                                                   |  | 35
|                               |  |                                                                                                  
|ITEM4.                         |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                               |  | 35
|                               |  |                                                                                                  
|ITEM5.                         |  | OTHER INFORMATION                                                                                 |  | 35
|                               |  |                                                                                                  
|ITEM6.                         |  | EXHIBITS                                                                                          |  | 35
|                               | 
|SIGNATURE                      |  | 37                                                                                               



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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, could, should, intend 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, as amended, 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 plans to achieve and maintain cost savings; (iii) any inability to comply with the Sarbanes-Oxley Act of
2002; (iv) any material adverse change in financial markets, the economy or in our financial position; (v) increased competition in our industry and the discounting of products by our competitors; (vi) new competition from
non-traditional competitors as the result of evolving and converging technology; (vii) any inability by us to procure, or any inability by us to continue to gain access to and successfully distribute current and 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; (viii) any inability to arrange financing for our customers purchases
of equipment from us; (ix) any inability to successfully enhance, unify and effectively utilize our management information systems; (x) any inability to access vendor or bank lines of credit, which could adversely affect our liquidity;
(xi) any inability to record and process key data due to ineffective implementation of business processes and policies; (xii) any negative impact from the loss of a key vendor or customer; (xiii) any negative impact from the loss of
any of our senior or key management personnel; (xiv) any change in economic conditions in markets where we operate or have material investments which may affect demand for our products or services; (xv) any incurrence of tax liabilities or
tax payments beyond our current expectations, which could adversely affect our liquidity and profitability; (xvi) any inability to continue to comply with our new senior secured credit facility covenants or the financial or other
representations, warranties, covenants or maturities in our debt instruments; (xvii) any delayed or lost sales or other impacts related to the commercial and economic disruption caused by natural disasters, including hurricanes;
(xviii) any delayed or lost sales and other impacts related to the commercial and economic disruption caused by terrorist attacks, the related war on terrorism, and the fear of additional terrorist attacks; (xix) any negative impact of the
accreted value of our outstanding preferred stock and its continued accretion; (xx) any negative impact from our continued organization as an England and Wales registered Company following the sale of our European businesses; and
(xxi) other risks including those risks identified in any of our filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect our analysis only as of
the date they are made. Except as required by applicable law, we undertake no obligation, and do not intend, to update these forward-looking statements to reflect events or circumstances that arise after the date they are made. Furthermore, as a
matter of policy, we do not generally make any specific projections as to future earnings, nor do we endorse any projections regarding future performance, which may be made by others outside our company.



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RISK FACTORS

Business StrategyDanka Business Systems PLC (also referred to herein as
Danka, the Company, we, us or our) believes that in order to stay competitive and generate positive earnings and cash flow, we must successfully implement our strategies.

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



| |  |  | we do not maintain adequate levels of liquidity to finance such initiatives or are unable to meet the financial ratios and other covenants contained in our senior
secured credit facility;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | we are unable to provide the hardware, software, solutions or services necessary to successfully implement these initiatives or other products are introduced to the
marketplace which result in our strategies being of less value to customers.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

Operating EarningsWe generated operating earnings from continuing operations during the first three months of fiscal year 2008 of $1.8 million due to increased margins and decreased operating expenses. If we are not able to
increase our revenue and continue to improve our gross margins or reduce our operating costs, operating losses may result in the future. As we continue to evaluate our business and strategies, we could incur future operating losses and/or
restructuring charges which may materially and adversely affect our operations, financial position, liquidity and results of operations. If we incur operating losses or do not generate sufficient profitability 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 meet the financial ratios and other covenants contained in our senior secured credit facility.

Restructuring of OperationsWe have implemented plans to reduce costs in order to become more competitive within our industry.
These cost reduction plans involve, among other things, the outlay of cash for significant headcount reductions, the exit of certain non-strategic and non-core facilities, markets and products, the consolidation of many back-office functions into
more centralized locations and the outsourcing of resource management functions and business process changes. If we fail to successfully implement our cost restructuring plans, including the timely buyout or sublease of vacant facilities, and fail
to achieve our other long-term cost reduction goals, we may not reduce costs quickly enough to become more competitive within our industry or obtain necessary return on our cash investments. Additionally, we may lose valuable institutional
knowledge, bear the risk of additional costs and expenses 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,
our current internal control environment and operating results.

IndebtednessAt June 30, 2007, we had consolidated
indebtedness of $360.7 million, including current maturities of long-term debt and notes payable of $255.6 million. Our indebtedness includes $64.5 million in principal amount of 10.0% subordinated notes due April 1, 2008, $175.0 million in
principal amount of 11.0% senior notes due June 15, 2010 and $119.5 million of indebtedness under our credit facilities with General Electric Capital Corporation (GECC) as more fully described in Note 6. Debt to the
consolidated condensed financial statements. We initiated Notices of Redemption on June 25, 2007 to the holders of the senior notes at 105.5% of par plus accrued and unpaid interest and to the holders of the subordinated notes at 100% of par
plus accrued and unpaid interest. On July 27, 2007, the senior notes and the subordinated notes were redeemed and paid. During the second quarter of fiscal year 2008, the Company will record a charge of approximately $9.4 million for the call
premium on the redemption of the senior notes as more fully described in Note 9. Subsequent Events to the consolidated condensed financial statements. After redemption of the notes, our indebtedness will be approximately $121.2 million,
including current maturities of long-term debt and notes payable of $16.1 million.

The amount of our indebtedness could have important
consequences to us, 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 and liquidity to fund working capital, capital
expenditures, strategic initiatives, restructuring and other business activities, including our ability to keep 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, access our vendor credit lines, or dispose of assets.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------

During fiscal year 2007, we sold our European operations to Ricoh in a sale of all the outstanding capital stock of
those European subsidiaries set forth in the Share Purchase Agreement for a purchase price of U.S. $215 million in cash, after an upward adjustment of U.S. $5 million as more fully described in Note 4. Discontinued Operations to the
consolidated condensed financial statements. Under the indenture governing our 11% senior notes, we were obligated to make a tender offer within 365 days of the sale for the notes at par, utilizing the balance of the asset sale proceeds that had not
been used under the permitted expenditures defined in the indenture. In compliance with this requirement, we initiated a tender offer at par to the holders of the senior notes on June 25, 2007, which expired on July 24, 2007.

On June 18, 2007, Danka Office Imaging Company (DOIC), a subsidiary of the Company, entered into new financing agreements with GECC
pursuant to which DOIC may borrow up to $145.0 million, including $40.0 million in revolving loans as more fully described in Note 6. Debt to the consolidated condensed financial statements. Proceeds from this financing will be used in
conjunction with the proceeds of the previously completed sale of our European businesses to redeem the senior notes and the subordinated notes, to reduce and refinance the Companys existing debt, to pay fees and expenses in connection
therewith and for working capital and general corporate purposes.

Credit FacilitiesThe credit agreements governing
DOICs financing agreements with GECC, contains representations, warranties and covenants that, among other things, limit DOICs ability to: (1) incur additional indebtedness; (2) incur liens; (3) pay dividends or make other
restricted payments; (4) make certain investments; (5) sell or make certain dispositions of assets or engage in sale and leaseback transactions; (6) engage in transactions with affiliates; (7) engage in certain business
activities; (8) engage in mergers, acquisitions or consolidations; (9) prepay subordinated debt; (10) enter into certain contractual obligations; and (11) modify certain agreements governing its indebtedness. They also restrict
the ability of our restricted subsidiaries to pay dividends, or make other payments to us. In addition, the credit agreements contain customary financial covenants that we must comply with on a quarterly basis.

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 with significant technological, distribution and financial resources. Competition in our industry is based upon many factors, including technology, performance, pricing, quality, reliability, distribution,
market coverage, customer service and support and lease and rental financing. In addition, our equipment suppliers have established themselves as direct competitors in many of the areas in which we do business, and non-traditional competitors,
primarily printer manufacturers, are developing technologies designed to lower prices.

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 equipment operations are in
direct competition with local and regional equipment suppliers and dealers, manufacturers, mass merchandisers and wholesale clubs. We have suffered, and may continue to suffer, a reduction of our market share because of the high level of competition
in our industry. The intense competition in our industry may result in pressure on the prices and margins 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.

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 customers needs and demands. In addition, some of our principal competitors are designing and manufacturing new technology, which may give them a competitive advantage over us.

Furthermore, there is a trend within our industry to offer on-demand pricing where the customer does not buy or lease the equipment. Rather, the customer
is only charged for the number of images produced by the equipment. This trend could require us to increase our rental equipment investments in order to remain competitive and we may not have the capital available to do so.

Additionally, the competitive environment hinders employee retention, especially in the sales and service areas, which leads to higher turnover of
employees, increased compensation expense and lower employee productivity.

Vendor RelationshipsWe primarily have
relationships with Canon, Toshiba, Kodak and Hewlett-Packard. 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, vendor rebates and significant levels of vendor trade creditor financing for our purchases of products from them. Any inability to obtain equipment, parts, supplies or software in the



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volumes required and at competitive prices from our major vendors, or the loss of any major vendor, or the discontinuation of vendor rebate programs or
adequate levels of vendor financing 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. We also rely on non-equipment vendors for critical services such as transportation, supply chain and professional services. Any negative impacts to our
business or liquidity could adversely impact our ability to establish or maintain these relationships.

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 has changed from analog to digital copiers, multi-function peripherals (MFPs) and printers. Most of our digital products replaced analog products, which have historically been a significant percentage of our machines in
field (MIF). Digital copiers and MFPs are more reliable than analog copiers and require less maintenance. Moreover, color printing and copying represents an important and growing part of our industry. We must improve our execution of
color equipment sales and meet the demand for color products if we are to maintain and improve our operating performance and our ability to compete. To meet these trends, manufacturers are accelerating the introduction of products and new technology
to address the growing need for color. These products include both cartridge based laser imaging systems, and newer inkjet based systems. Partially as a result of these technology trends, the industry and we are seeing increased downward pressure on
average selling prices for both equipment and the accompanying service and supply contracts. Furthermore, the success of the cartridge based systems may put further pressure on the willingness of our traditional customers to enter into long-term
service contracts, or service contracts at all.

Another industry change that has been fueled by technological changes is the migration of
copy volume from traditional stand-alone copiers to network printers. This change allows end users to 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 increasingly provide comprehensive solutions to our customers, such as offering digital copiers, MFPs, software solutions and printers that are directly linked to their networks, in order
to remain competitive. Finally, the speed of technological changes may cause us in the future to write down our inventory, including, but not limited to, showroom, rental and other equipment and related supplies and parts, including parts and
supplies for third party initiatives, as a result of obsolescence. In order to remain competitive, we must quickly and effectively respond to changing technology. Otherwise, such developments of technologies in our industry may impair our business,
financial condition, results of operations or competitive position.

Third Party Financing ArrangementsA large majority of our
retail equipment, supplies and related sales are financed by third party finance or leasing companies. We have an agreement with GECC, under which GECC has agreed to provide financing to our qualified customers to purchase equipment from us.
Although we have other financing arrangements in place, GECC finances a significant part of our business. GECC has current and prospective lease financing agreements with our competitors. If these agreements result in more favorable terms to our
competitors 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.

If we were to breach the covenants or other restrictions in our agreements with one or more of our financing sources, including GECC or our financial
condition were to deteriorate, such sources might refuse to provide financing to our customers, require additional security or protection, or exercise other remedies of default. If one or more of our financing sources were to fail to provide
financing to our customers, and we were unable to arrange alternative financing on similar terms or provide financing ourselves, those customers might be unable to purchase equipment from us. 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General Electric Capital
Corporation.

Disaster RecoveryOur systems are designed for security and reliability. We regularly back up our
information systems and subject them to a virus scan. These efforts are intended to buttress the integrity and security of our information systems and the data stored in them, and to minimize the potential for loss in the event of a disaster,
including, but not limited to, natural disasters or terrorist attacks. During fiscal year 2005, we entered into a hosting agreement with IBM for the management of our U.S. information systems infrastructure. This arrangement has relocated our data
center out of Florida to a secure location in Atlanta, Georgia, which we believe provides an additional disaster recovery capability. Our facilities have reserve power generating systems to prevent the loss of power and minimize downtime in the
event of shortages; however, should a natural disaster impact our critical facilities, which are primarily located in St. Petersburg, Florida, we may suffer disruption of certain critical support functions for such time as is necessary to replicate
such functions elsewhere.



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Business Processes and PoliciesWe have identified instances in the past where we did not
have adequate processes in place or our business processes and policies had not been properly implemented or followed, which resulted in, among other things, poor billing and credit practices, weak customer contract management, excessive and
undisciplined issuances of customer credits, inaccurate customer data and inadequate document retention. In fiscal year 2007 we implemented improvements that remediated a previously-disclosed material weakness in this area. Although we no longer
have a material weakness in this area, we continue to address these issues and implement further improvements to ensure that adequate processes are in place related to customer billing.

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

Economic UncertaintyThe profitability
of our business is susceptible to uncertainties in the economy. Overall demand for our products and services and our profit margins may decline as a direct result of an economic recession, inflation, changes in interest rates or governmental fiscal
policy, or other macroeconomic factors which are out of our control. As a result, our customers may reduce or delay expenditures for our products and services.

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 Audit Committee and management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our objective is to maintain internal controls that are designed to provide 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 consolidated
financial statements in conformity with generally accepted accounting principles and to comply with Sections 302, 906 and 404 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act or Sarbanes-Oxley).

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 errors or 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 one or more individuals, by collusion of two or more individuals, 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 (or ADSs) 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 ADSs. Factors which may add to the volatility of the price of our ordinary shares and ADSs include many of the factors set out above, and may also
include changes in liquidity in the market for our ordinary shares and ADSs, sales of our ordinary shares and ADSs, investor sentiment towards the business sector in which we operate and overall conditions in the capital markets. Many of these
factors are beyond our control. These factors may change the market price of our ordinary shares and ADSs, regardless of our operating performance.



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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 International Financial Reporting Standards;



| |  |  | 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, the credit agreements with GECC restrict our ability to pay dividends. Also, we may pay dividends on our ordinary shares only if we have paid all dividends due on our 6.50% senior convertible participating
shares.

ADDITIONAL INFORMATION AVAILABLE ON COMPANY WEB-SITE

Our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports may be viewed or
downloaded electronically, free of charge, from our website: http://www.danka.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. 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 on Form 10-Q.



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PART I  FINANCIAL INFORMATION



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

Danka Business Systems PLC

Consolidated Condensed Statements of Operations for the Three Months Ended
June 30, 2007 and 2006

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

(Unaudited)



|                                                                     |  |                            |         |   |      |   |         |  
|-------------------------------------------------------------------- |  | -------------------------- | ------- | - | ---- | - | ------- | -
|                                                                     |  | Three months endedJune 30, |        
|                                                                     |  | 2007                       |         |   | 2006 |  
|Revenue:                                                             |  |                            |         |   |      |   |         |  
|Retail equipment, supplies and related sales                         |  | $                          | 46,162  |   |      | $ | 54,077  |  
|Retail service                                                       |  |                            | 57,229  |   |      |   | 62,941  |  
|Rentals                                                              |  |                            | 2,883   |   |      |   | 5,031   |  
|                                                                     |  |                            |         |   |      |   |         |  
|Total revenue                                                        |  |                            | 106,274 |   |      |   | 122,049 |  
|                                                                     |  |                            |         |   |      |   |         |  
|                                                                     |  |                           
|Cost of sales:                                                       |  |                            |         |   |      |   |         |  
|Retail equipment, supplies and related sales costs                   |  |                            | 32,207  |   |      |   | 38,389  |  
|Retail service costs                                                 |  |                            | 34,301  |   |      |   | 37,243  |  
|Rental costs                                                         |  |                            | 1,319   |   |      |   | 1,184   |  
|                                                                     |  |                            |         |   |      |   |         |  
|Total cost of sales                                                  |  |                            | 67,827  |   |      |   | 76,816  |  
|                                                                     |  |                            |         |   |      |   |         |  
|Gross profit                                                         |  |                            | 38,447  |   |      |   | 45,233  |  
|                                                                     |  |                           
|Operating expenses:                                                  |  |                            |         |   |      |   |         |  
|Selling, general and administrative expenses                         |  |                            | 36,284  |   |      |   | 40,193  |  
|Restructuring charges                                                |  |                            | 1,258   |   |      |   | 6,061   |  
|Loss on sale of non discontinued operation business                  |  |                            |        |   |      |   | 2,507   |  
|Other (income) expense                                               |  |                            | (895    | ) |      |   | 416     |  
|                                                                     |  |                            |         |   |      |   |         |  
|Total operating expenses                                             |  |                            | 36,647  |   |      |   | 49,177  |  
|                                                                     |  |                            |         |   |      |   |         |  
|Operating earnings (loss) from continuing operations                 |  |                            | 1,800   |   |      |   | (3,944  | )
|Interest expense                                                     |  |                            | (6,880  | ) |      |   | (7,359  | )
|Interest income                                                      |  |                            | 1,851   |   |      |   | 25      |  
|                                                                     |  |                            |         |   |      |   |         |  
|Loss from continuing operations before income taxes                  |  |                            | (3,229  | ) |      |   | (11,278 | )
|Provision for income taxes                                           |  |                            | 722     |   |      |   | 467     |  
|                                                                     |  |                            |         |   |      |   |         |  
|Net loss from continuing operations                                  |  |                            | (3,951  | ) |      |   | (11,745 | )
|Loss from discontinued operations, net of tax                        |  |                            | (286    | ) |      |   | (242    | )
|Loss on sale of discontinued operations, net of tax                  |  |                            | (719    | ) |      |   | (215    | )
|                                                                     |  |                            |         |   |      |   |         |  
|Net loss                                                             |  | $                          | (4,956  | ) |      | $ | (12,202 | )
|                                                                     |  |                            |         |   |      |   |         |  
|                                                                     |  |                           
|Net loss available to common shareholders:                           |  |                            |         |   |      |   |         |  
|Net loss from continuing operations                                  |  | $                          | (3,951  | ) |      | $ | (11,745 | )
|Dividends and accretion on participating shares                      |  |                            | (5,961  | ) |      |   | (5,606  | )
|                                                                     |  |                            |         |   |      |   |         |  
|Net loss from continuing operations available to common shareholders |  | $                          | (9,912  | ) |      | $ | (17,351 | )
|                                                                     |  |                            |         |   |      |   |         |  
|                                                                     |  |                           
|Basic and diluted net loss available to common shareholders per ADS: |  |                            |         |   |      |   |         |  
|Net loss from continuing operations                                  |  | $                          | (0.15   | ) |      | $ | (0.27   | )
|Net loss from discontinued operations                                |  |                            | (0.02   | ) |      |   | (0.01   | )
|                                                                     |  |                            |         |   |      |   |         |  
|Basic and diluted net loss                                           |  | $                          | (0.17   | ) |      | $ | (0.28   | )
|                                                                     |  |                            |         |   |      |   |         |  
|Weighted average basic ADSs                                          |  |                            | 64,767  |   |      |   | 64,132  |  
|                                                                     |  |                            |         |   |      |   |         |  

The accompanying notes are an integral part of these consolidated condensed financial statements



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##### Table of Contents

Danka Business Systems PLC

Consolidated Condensed Balance Sheets as of June 30, 2007 and March 31,
2007

(In thousands except per share data)



|                                                                 |  |              |          |   |               |   |          |  
|---------------------------------------------------------------- |  | ------------ | -------- | - | ------------- | - | -------- | -
|                                                                 |  | June 30,2007 |          |   | March 31,2007 |  
|                                                                 |  | (Unaudited)  |          |   |               |  
|Assets                                                           |  |              |          |   |               |   |          |  
|Current assets:                                                  |  |              |          |   |               |   |          |  
|Cash and cash equivalents                                        |  | $            | 8,112    |   |               | $ | 17,594   |  
|Restricted cash                                                  |  |              | 266,586  |   |               |   | 163,979  |  
|Accounts receivable, net of allowances                           |  |              | 40,003   |   |               |   | 44,180   |  
|Inventories                                                      |  |              | 32,851   |   |               |   | 31,681   |  
|Prepaid expenses, deferred income taxes and other current assets |  |              | 11,184   |   |               |   | 17,607   |  
|                                                                 |  |              |          |   |               |   |          |  
|Total current assets                                             |  |              | 358,736  |   |               |   | 275,041  |  
|Equipment on operating leases, net                               |  |              | 8,834    |   |               |   | 9,241    |  
|Property and equipment, net                                      |  |              | 20,683   |   |               |   | 22,637   |  
|Goodwill                                                         |  |              | 93,489   |   |               |   | 93,489   |  
|Other intangible assets, net of accumulated amortization         |  |              | 529      |   |               |   | 554      |  
|Other assets                                                     |  |              | 20,103   |   |               |   | 16,086   |  
|                                                                 |  |              |          |   |               |   |          |  
|Total assets                                                     |  | $            | 502,374  |   |               | $ | 417,048  |  
|                                                                 |  |              |          |   |               |   |          |  
|                                                                 |  |             
|Liabilities and shareholders equity (deficit)                   |  |              |          |   |               |   |          |  
|Current liabilities:                                             |  |              |          |   |               |   |          |  
|Current maturities of long-term debt and notes payable           |  | $            | 255,641  |   |               | $ | 186,078  |  
|Accounts payable                                                 |  |              | 59,372   |   |               |   | 66,231   |  
|Accrued expenses and other current liabilities                   |  |              | 32,618   |   |               |   | 45,830   |  
|Taxes payable                                                    |  |              | 12,301   |   |               |   | 8,468    |  
|Deferred revenue                                                 |  |              | 4,967    |   |               |   | 5,875    |  
|                                                                 |  |              |          |   |               |   |          |  
|Total current liabilities                                        |  |              | 364,899  |   |               |   | 312,482  |  
|Long-term debt and notes payable, less current maturities        |  |              | 105,049  |   |               |   | 65,215   |  
|Deferred income taxes and other long-term liabilities            |  |              | 9,159    |   |               |   | 11,271   |  
|                                                                 |  |              |          |   |               |   |          |  
|Total liabilities                                                |  |              | 479,107  |   |               |   | 388,968  |  
|                                                                 |  |              |          |   |               |   |          |  
|6.5% senior convertible participating shares                     |  |              | 350,448  |   |               |   | 344,487  |  
|                                                                 |  |             
|Shareholders equity (deficit):                                  |  |              |          |   |               |   |          |  
|Ordinary shares, 1.25 pence stated value                         |  |              | 5,386    |   |               |   | 5,386    |  
|Additional paid-in capital                                       |  |              | 330,762  |   |               |   | 330,587  |  
|Accumulated deficit                                              |  |              | (663,329 | ) |               |   | (652,380 | )
|                                                                 |  |              |          |   |               |   |          |  
|Total shareholders equity (deficit)                             |  |              | (327,181 | ) |               |   | (316,407 | )
|                                                                 |  |              |          |   |               |   |          |  
|Total liabilities and shareholders equity (deficit)             |  | $            | 502,374  |   |               | $ | 417,048  |  
|                                                                 |  |              |          |   |               |   |          |  

The accompanying notes are an integral part of these consolidated condensed financial statements



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##### Table of Contents

Danka Business Systems PLC

Consolidated Condensed Statements of Cash Flows for the Three Months Ended
June 30, 2007 and 2006

(In thousands)

(Unaudited)



|                                                                              |  |                            |         |   |      |   |         |  
|----------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ---- | - | ------- | -
|                                                                              |  | Three Months EndedJune 30, |        
|                                                                              |  | 2007                       |         |   | 2006 |  
|Operating activities:                                                         |  |                            |         |   |      |   |         |  
|Net loss                                                                      |  | $                          | (4,956  | ) |      | $ | (12,202 | )
|Loss from discontinued operations                                             |  |                            | 1,005   |   |      |   | 457     |  
|Loss from continuing operations                                               |  |                            | (3,951  | ) |      |   | (11,745 | )
|Adjustments to reconcile net loss to net cash used in operating activities:   |  |                            |         |   |      |   |         |  
|Depreciation and amortization                                                 |  |                            | 3,489   |   |      |   | 4,041   |  
|Deferred income taxes                                                         |  |                            | 364     |   |      |   | (647    | )
|Amortization of debt issuance costs                                           |  |                            | 1       |   |      |   | 476     |  
|Non-cash stock-based compensation                                             |  |                            | 176     |   |      |   |        |  
|(Gain) loss on sale of property & equipment and equipment on operating leases |  |                            | (916    | ) |      |   | 6       |  
|Proceeds from sale of equipment on operating leases                           |  |                            | 29      |   |      |   |        |  
|Loss on sale of subsidiary, net                                               |  |                            |        |   |      |   | 2,103   |  
|Restructuring charges                                                         |  |                            | 1,258   |   |      |   | 6,061   |  
|Changes in net assets and liabilities:                                        |  |                            |         |   |      |   |         |  
|Accounts receivable                                                           |  |                            | 4,177   |   |      |   | 7,246   |  
|Inventories                                                                   |  |                            | (1,170  | ) |      |   | 1,685   |  
|Prepaid expenses and other current assets                                     |  |                            | (3,429  | ) |      |   | (964    | )
|Other non-current assets                                                      |  |                            | 206     |   |      |   | (1,024  | )
|Accounts payable                                                              |  |                            | (6,859  | ) |      |   | (7,875  | )
|Accrued expenses and other current liabilities                                |  |                            | (17,831 | ) |      |   | (3,826  | )
|Deferred revenue                                                              |  |                            | (908    | ) |      |   | (330    | )
|Other long-term liabilities                                                   |  |                            | 534     |   |      |   | (865    | )
|                                                                              |  |                            |         |   |      |   |         |  
|Net cash used in continuing operating activities                              |  |                            | (24,830 | ) |      |   | (5,658  | )
|Net cash used in discontinued operating activities                            |  |                            | (1,005  | ) |      |   | (8,568  | )
|                                                                              |  |                            |         |   |      |   |         |  
|Net cash used in operating activities                                         |  |                            | (25,835 | ) |      |   | (14,226 | )
|                                                                              |  |                            |         |   |      |   |         |  
|                                                                              |  |                           
|Investing activities:                                                         |  |                            |         |   |      |   |         |  
|Capital expenditures                                                          |  |                            | (1,724  | ) |      |   | (1,456  | )
|Proceeds from sale of discontinued operations                                 |  |                            | 12,500  |   |      |   |        |  
|Restricted cash                                                               |  |                            | (12,500 | ) |      |   |        |  
|Proceeds from the sale of property and equipment                              |  |                            | 1,508   |   |      |   |        |  
|                                                                              |  |                            |         |   |      |   |         |  
|Net cash used in continuing investing activities                              |  |                            | (216    | ) |      |   | (1,456  | )
|Net cash used in discontinued investing activities                            |  |                            |        |   |      |   | (1,706  | )
|                                                                              |  |                            |         |   |      |   |         |  
|Net cash used in investing activities                                         |  |                            | (216    | ) |      |   | (3,162  | )
|                                                                              |  |                           
|Financing activities:                                                         |  |                            |         |   |      |   |         |  
|Borrowings under line of credit agreements                                    |  |                            | 19,580  |   |      |   | 17,000  |  
|Payments under line of credit agreements                                      |  |                            | (15,036 | ) |      |   | (15,922 | )
|Payments under capital lease arrangements                                     |  |                            | (147    | ) |      |   | (430    | )
|Proceeds from debt issuance                                                   |  |                            | 105,000 |   |      |   |        |  
|Payment of debt issue costs                                                   |  |                            | (3,333  | ) |      |   |        |  
|Restricted cash                                                               |  |                            | (89,495 | ) |      |   |        |  
|                                                                              |  |                            |         |   |      |   |         |  
|Net cash provided by continuing financing activities                          |  |                            | 16,569  |   |      |   | 648     |  
|Net cash used in discontinued financing activities                            |  |                            |        |   |      |   | (85     | )
|                                                                              |  |                            |         |   |      |   |         |  
|Net cash provided by financing activities                                     |  |                            | 16,569  |   |      |   | 563     |  
|                                                                              |  |                            |         |   |      |   |         |  
|Effect of exchange rates                                                      |  |                            |        |   |      |   | 2,737   |  
|                                                                              |  |                            |         |   |      |   |         |  
|Net decrease in cash and cash equivalents                                     |  |                            | (9,482  | ) |      |   | (14,088 | )
|Cash and cash equivalents from continuing operations, beginning of period     |  |                            | 17,594  |   |      |   | 24,467  |  
|Cash and cash equivalents from discontinued operations, beginning of period   |  |                            |        |   |      |   | 30,087  |  
|Cash and cash equivalents from discontinued operations, end of period         |  |                            |        |   |      |   | (19,675 | )
|                                                                              |  |                            |         |   |      |   |         |  
|Cash and cash equivalents from continuing operations, end of period           |  | $                          | 8,112   |   |      | $ | 20,791  |  
|                                                                              |  |                            |         |   |      |   |         |  
|                                                                              |  |                           
|Supplemental disclosures-cash flow information                                |  |                            |         |   |      |   |         |  
|Interest paid                                                                 |  |                            | 13,277  |   |      |   | 13,312  |  
|Income taxes paid                                                             |  |                            | 1,706   |   |      |   | 333     |  

The accompanying notes are an integral part of these consolidated condensed financial statements



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##### Table of Contents

Danka Business Systems PLC

Notes to Consolidated Condensed Financial Statements

(All tables in thousands, except per American Depositary (ADS) amounts)

(Unaudited)

Note 1. Basis of Presentation

The accompanying consolidated condensed financial statements of Danka Business Systems PLC (the Company) are unaudited as of and for the three
months ended June 30, 2007 and 2006. 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 condensed financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the Companys Annual Report on Form 10-K for the year ended March 31, 2007. Accordingly, 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 condensed financial statements contained herein as of
and for the three months ended June 30, 2007 and June 30, 2006 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, 2007
will be delivered to the Registrar of Companies for England and Wales following the Companys 2007 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.

Certain prior year amounts have been reclassified to conform to
current year presentations.

Note 2. Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), which clarifies the accounting for
uncertainty in income taxes recognized in a companys financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition of tax benefits, classification on the balance sheet, interest and penalties,
accounting in interim periods, disclosure, and transition. The Company adopted FIN 48 effective April 1, 2007. As a result of the adoption of FIN 48, the Company has $10.5 million of unrecognized tax benefits recorded. Of this, $0.6 million
would affect the Companys effective tax rate, if recognized. Of this amount, less than $0.1 million was recorded as a reduction to the April 1, 2007 retained earnings balance.

The Company files numerous income tax returns in the U.S. at the federal, state and local levels, and in certain foreign jurisdictions. The Company has
analyzed filing positions in all of the federal, state and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. With few exceptions, the Company is no longer subject to U.S.
federal, state, local, or foreign income tax examinations by taxing authorities for years prior to the fiscal year ended March 31, 2004. The Company is not currently under audit by the Internal Revenue Service but is currently under audit in
certain state and local jurisdictions. Returns filed in the United Kingdom for tax years ended March 31, 2005 and 2006, are currently under review. We have filed claims in certain jurisdictions to assert our position should the law be clarified
by judicial means. At this point in time, we believe it is unlikely that we will receive any benefit from these claims, but we will continue to monitor developments until the issues are fully resolved. Accordingly, we have not included any benefit
for these claims in the amount of unrecognized tax benefits.

As a result of the implementation of FIN 48, the Company recognized a $2.1
million decrease in assets for unrecognized tax benefits associated with federal net operating losses, a $0.6 million decrease in assets for unrecognized tax benefits associated with state net operating losses and a $3.8 million decrease in assets
for unrecognized tax benefits associated with foreign net operating losses. Included in the balance of unrecognized tax benefits at April 1, 2007 is $5.0 million related to tax positions for which it is reasonably possible that the total
amounts could materially change within the next twelve months. This amount represents a decrease in unrecognized tax benefits from prior periods comprised of items related to the expiration of statues in various jurisdictions.

The Companys policy is to recognize interest and penalties related to unrecognized tax benefits as part of its provision for federal and state
income tax expense. As of the date of adoption, the Company has accrued $0.2 million of interest and penalties related to unrecognized tax benefits.



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##### Table of Contents

In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements
(FAS 157) which provides enhanced guidance for using fair value to measure assets and liabilities. FAS 157 clarifies the principle that fair value should be based on assumptions market participants would use when pricing an asset or
liability. Under FAS 157, fair value measurements would be separately disclosed by level within a fair value hierarchy. FAS 157 is effective for Danka beginning April 1, 2008 although early adoption is permitted. The Company does not expect FAS
157 to have a material impact on its historical consolidated financial position and results of operations, but could have an impact on the measurement of assets and liabilities acquired following the effective date of the new standard.

Note 3. Restructuring Charges

Fiscal Year 2007
Plan:In fiscal year 2007, the Company formulated plans to continue to eliminate inefficiencies in its field operations and to reduce its selling, general and administrative costs by eliminating and consolidating back office functions, reducing
sales and service personnel and exiting certain facilities. These charges were accounted for under the provisions of FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146).

As part of these plans, the Company recorded a $5.5 million restructuring charge in fiscal year 2007 consisting of $2.0 million relating
to severance charges due to additional cost reduction efforts and $3.5 million in facility costs primarily related to the Companys Field Support Office in St. Petersburg, Florida.

During the three months ended June 30, 2007, the Company recorded an additional $1.1 million restructuring charge primarily related to the Field
Support Office. Cash outlays for severance and facilities during the period were $0.2 million and $0.3 million, respectively.

The
remaining liability of the fiscal year 2007 Plan restructuring charge of $1.0 million and $1.8 million is categorized within Accrued expenses and other current liabilities and Deferred income taxes and other long-term
liabilities, respectively.

The following table summarizes the fiscal year 2007 Plan restructuring charge:

2007 Plan Restructuring Charge:



|                                              |  |                                       |       |                         |   |                |  |             |       |  |                        |      |   |  |   |      
|--------------------------------------------- |  | ------------------------------------- | ----- | ----------------------- | - | -------------- |  | ----------- | ----- |  | ---------------------- | ---- | - |  | - | -----
|                                              |  | CumulativeExpensethroughMarch 31,2007 |       | Reserve atMarch 31,2007 |   | Charge(Credit) |  | CashOutlays |       |  | Reserve atJune 30,2007
|Severance                                     |  | $                                     | 2,032 |                         | $ | 662            |  | $           |      |  | $                      | (209 | ) |  | $ | 453  
|Future lease obligations on facility closures |  |                                       | 3,495 |                         |   | 1,656          |  |             | 1,075 |  |                        | (345 | ) |  |   | 2,386
|                                              |  |                                       |       |                         |   |                |  |             |       |  |                        |      |   |  |   |      
|Total                                         |  | $                                     | 5,527 |                         | $ | 2,318          |  | $           | 1,075 |  | $                      | (554 | ) |  | $ | 2,839
|                                              |  |                                       |       |                         |   |                |  |             |       |  |                        |      |   |  |   |      

Fiscal Year 2005 Plan:In fiscal year 2005, the Company formulated plans to continue to
eliminate inefficiencies in its field operations and to reduce its selling, general and administrative costs by eliminating and consolidating back office functions and exiting certain facilities. These charges were accounted for under the provisions
of SFAS 146.

As part of these plans, the Company recorded $2.6 million in restructuring charges related to severance in fiscal year 2005.
During fiscal year 2006, the Company recorded an additional charge of $3.9 million and $1.0 million relating to severance and facilities, respectively, due to continued reduction efforts. During fiscal year 2007, the Company recorded an additional
$0.1 million primarily relating to facilities.

During fiscal year 2008, the Company recorded $0.1 million of restructuring charge related
to facilities. Cash outlays for facilities during the period were $0.1.

The remaining liability of the 2005 Plan restructuring charge of
$0.2 million is categorized within Accrued expenses and other current liabilities.



13



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##### Table of Contents

The following table summarizes the fiscal year 2005 Plan restructuring charge:

2005 Plan Restructuring Charge:



|                                              |  |                                       |       |                         |   |                |  |             |    |  |                         |      |   |  |   |    
|--------------------------------------------- |  | ------------------------------------- | ----- | ----------------------- | - | -------------- |  | ----------- | -- |  | ----------------------- | ---- | - |  | - | ---
|                                              |  | CumulativeExpensethroughMarch 31,2007 |       | Reserve atMarch 31,2007 |   | Charge(Credit) |  | CashOutlays |    |  | Reserve atJune 30, 2007
|Severance                                     |  | $                                     | 6,562 |                         | $ |               |  | $           |   |  | $                       |     |   |  | $ |   
|Future lease obligations on facility closures |  |                                       | 960   |                         |   | 214            |  |             | 52 |  |                         | (109 | ) |  |   | 157
|                                              |  |                                       |       |                         |   |                |  |             |    |  |                         |      |   |  |   |    
|Total                                         |  | $                                     | 7,522 |                         | $ | 214            |  | $           | 52 |  | $                       | (109 | ) |  | $ | 157
|                                              |  |                                       |       |                         |   |                |  |             |    |  |                         |      |   |  |   |    

Fiscal Year 2004 Plan:In fiscal year 2004, the Company formulated plans to significantly
reduce its selling, general and administrative costs by consolidating the back-office functions, exiting non-strategic real estate facilities and reducing headcount. These charges were accounted for under the provisions of SFAS 146.

As part of these plans, the Company recorded a $25.3 million restructuring charge in fiscal year 2004 that included $5.7 million related to severance for
employees and $19.6 million related to future lease obligations for facilities that were vacated by March 31, 2004. During fiscal year 2006, the Company incurred $0.4 million of facility charges as a result of broker commissions paid due to the
sublease of certain facilities. During fiscal year 2007, the Company recorded an additional $0.4 million charge related to facilities due to longer sublease negotiations.

During fiscal year 2008, the Company recorded $0.1 million of fiscal year 2004 Plan facility charges. Cash outlays for facilities during fiscal year 2008 were $0.3 million.

The remaining liability of the 2004 Plan restructuring charge of $1.7 million is categorized within Accrued expenses and other current
liabilities.

The following table summarizes the fiscal year 2004 Plan restructuring charge:

2004 Plan Restructuring Charge:



|                                              |  |                                       |        |                         |   |                |  |             |     |  |                        |      |   |  |   |      
|--------------------------------------------- |  | ------------------------------------- | ------ | ----------------------- | - | -------------- |  | ----------- | --- |  | ---------------------- | ---- | - |  | - | -----
|                                              |  | CumulativeExpensethroughMarch 31,2007 |        | Reserve atMarch 31,2007 |   | Charge(Credit) |  | CashOutlays |     |  | Reserve atJune 30,2007
|Severance                                     |  | $                                     | 5,747  |                         | $ |               |  | $           |    |  | $                      |     |   |  |   |     
|Future lease obligations on facility closures |  |                                       | 20,382 |                         |   | 1,875          |  |             | 131 |  |                        | (294 | ) |  |   | 1,712
|                                              |  |                                       |        |                         |   |                |  |             |     |  |                        |      |   |  |   |      
|Total                                         |  | $                                     | 26,129 |                         | $ | 1,875          |  | $           | 131 |  | $                      | (294 | ) |  | $ | 1,712
|                                              |  |                                       |        |                         |   |                |  |             |     |  |                        |      |   |  |   |      

Note 4. Discontinued Operations

European operations

During fiscal year 2007, the Company completed the sale of its European
businesses. Pursuant to a share purchase agreement (the Share Purchase Agreement) dated as of October 12, 2006 among Danka Business Systems PLC, certain of its subsidiaries (Danka Business Systems PLC and such subsidiaries
collectively referred to hereinafter as Danka, or the Company) and Ricoh Europe B.V. (Ricoh), the Company sold its European businesses to Ricoh in a sale of all the outstanding capital stock of those European
subsidiaries set forth in the Share Purchase Agreement for a purchase price of U.S. $215 million in cash, including an upward purchase price adjustment of U.S. $5 million. The operating activities of the Companys European operations (including
several non-operating companies not purchased by Ricoh) have been reported as discontinued operations and the consolidated condensed financial statements have been adjusted to reflect this presentation. Summarized information for the European
operations is set forth below:



|                                                                |  |                            |      |   |      |   |         |  
|--------------------------------------------------------------- |  | -------------------------- | ---- | - | ---- | - | ------- | -
|                                                                |  | Three Months EndedJune 30, |     
|                                                                |  | 2007                       |      |   | 2006 |  
|Revenues                                                        |  | $                          |     |   |      | $ | 125,548 |  
|Net earnings (loss) from discontinued operations, net of tax    |  |                            | (286 | ) |      |   | (262    | )
|Provision (benefit) for income taxes on discontinued operations |  |                            | 201  |   |      |   | (1,537  | )
|Gain (loss) on sale of discontinued operations, net of tax      |  |                            | (719 | ) |      |   | (215    | )



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The indenture governing the Companys 11.0% senior notes due June 15, 2010 restricts the use of
the net proceeds (as defined in the indenture) from the sale of the Companys European businesses. Per the terms of the indenture, the use of these net proceeds is restricted to the following:



| |  |  | Repayment of indebtedness under the Companys credit facility with a corresponding reduction in the amount available under the facility;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Acquisitions of other companies;
| | - |  | --------------------------------



| |  |  | Capital expenditures; and
| | - |  | -------------------------



| |  |  | Acquisitions of other long-term assets deemed useful by the Company.
| | - |  | --------------------------------------------------------------------

Within 365 days from the date of sale, the Company is obligated to make a tender offer at par for the outstanding 11.0% senior notes, using the balance
of the net proceeds that has not been used for any of the permitted expenditures listed above. In compliance with this requirement, the Company initiated a tender offer on June 25, 2007, which expired on July 24, 2007 as more fully
described in Note 9. Subsequent Events to the consolidated condensed financial statements.

As such, net proceeds of $164.3
million on the sale of the European businesses, has been classified as restricted cash in the Companys Balance Sheet at June 30, 2007.

In addition, per the terms of the sale agreement, the Company established an escrow in the amount of $15.8 million to cover various obligations in respect of certain of the European operations property leases and banking and financing
agreements. This escrow reduced the net proceeds from the sale of the European businesses and is included as part of the Companys restricted cash balance at June 30, 2007 of which $5.0 million has been classified as long-term.

Australia

In fiscal year 2007, the Company sold
its Australia business unit, Danka Australia Pty Limited (Danka Australia) to One Source Group Limited for a purchase price of $12.6 million in cash. The operating activities of Danka Australia have been reported as discontinued
operations and the consolidated condensed financial statements have been adjusted to reflect this presentation. Summarized information for Danka Australia is set forth below:



|                                                 |  |                            |   |      |   |       
|------------------------------------------------ |  | -------------------------- | - | ---- | - | ------
|                                                 |  | Three Months EndedJune 30,
|                                                 |  | 2007                       |   | 2006
|Revenues                                         |  | $                          |  |      | $ | 12,608
|Net earnings (loss) from discontinued operations |  |                            |  |      |   | 283   

Other

During fiscal year 2006, the Company sold its operations in Canada and Central and South America. Summarized information is set forth below:



|                                                 |  |                            |   |      |   |      |  
|------------------------------------------------ |  | -------------------------- | - | ---- | - | ---- | -
|                                                 |  | Three Months EndedJune 30, |  
|                                                 |  | 2007                       |   | 2006 |  
|Revenues                                         |  | $                          |  |      | $ |     |  
|Net earnings (loss) from discontinued operations |  |                            |  |      |   | (263 | )

Note 5. Earnings (Loss) Per Share

The effect of the Companys 6.5% senior convertible participating shares, which represent the number of ADSs shown in the table below are not
included in the computation of diluted earnings per share for the three months ended June 30, 2007



15



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##### Table of Contents

and 2006, because their effect would be anti-dilutive. ADS equivalents from stock options shown in the table below are not included in the computation of
diluted earnings per share for the three months ended June 30, 2007 and 2006, because their effect would be anti-dilutive.



|                                             |  |                            |  |       
|-------------------------------------------- |  | -------------------------- |  | ------
|                                             |  | Three months endedJune 30,
|                                             |  | 2007                       |  | 2006  
|Potential ADSs issuance from:                |  |                            |  |       
|                                             |  |                           
|6.5% senior convertible participating shares |  | 28,039                     |  | 26,288
|Stock options                                |  | 5,049                      |  | 5,568 

Note 6. Debt

Debt consists of the following as of June 30, 2007 and March 31, 2007:



|                                                                                                                                        |  |              |          |   |               |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ------------- | - | -------- | -
|                                                                                                                                        |  | June 30,2007 |          |   | March 31,2007 |  
|10.0% subordinated notes due April 2008                                                                                                 |  | $            | 64,520   |   |               | $ | 64,520   |  
|11.0% senior notes due June 2010                                                                                                        |  |              | 175,000  |   |               |   | 175,000  |  
|Senior secured credit facilities                                                                                                        |  |              | 105,000  |   |               |   |         |  
|Capital lease obligations                                                                                                               |  |              | 879      |   |               |   | 1,026    |  
|Borrowings on credit facility and various notes payable bearing interest from prime to 12.0% maturing principally over the next 5
years |  |              | 15,291   |   |               |   | 10,747   |  
|                                                                                                                                        |  |              |          |   |               |   |          |  
|Total debt and notes payable                                                                                                            |  |              | 360,690  |   |               |   | 251,293  |  
|                                                                                                                                        |  |              |          |   |               |   |          |  
|Less current maturities of long-term debt and notes payable                                                                             |  |              | (255,641 | ) |               |   | (186,078 | )
|                                                                                                                                        |  |              |          |   |               |   |          |  
|Long-term debt and notes payable, less current maturities                                                                               |  | $            | 105,049  |   |               | $ | 65,215   |  
|                                                                                                                                        |  |              |          |   |               |   |          |  

The indenture governing the senior notes restricts the use of the net proceeds (as defined in the
indenture) from the sale of the Companys European businesses. Per the terms of the indenture, the use of these net proceeds is restricted to the following:



| |  |  | Repayment of indebtedness under the Companys credit facility with a corresponding reduction in the amount available under the facility;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Acquisitions of other companies;
| | - |  | --------------------------------



| |  |  | Capital expenditures; and
| | - |  | -------------------------



| |  |  | Acquisitions of other long-term assets deemed useful by the Company.
| | - |  | --------------------------------------------------------------------

Within 365 days from the date of the sale, the Company is obligated to make a tender offer at par for the outstanding 11.0% senior notes, using the
balance of the net proceeds that has not been used for the permitted expenditures listed above. In compliance with this, the Company initiated a tender offer at par to the holders of the senior notes on June 25, 2007, which expired on
July 24, 2007 as more fully described in Note 9. Subsequent Events to the consolidated condensed financial statements.

In
connection with the tender offer on the senior notes described above and the reclassification of the senior notes from long-term to short-term at March 31, 2007, the unamortized balance of the debt issuance costs of $3.5 million and debt
discount of $2.4 million were written off during fiscal year 2007.

On or after June 15, 2007, the Company may, at its option, redeem
all or part of the senior notes at the redemption prices set forth below plus accrued and unpaid interest on the senior notes if redeemed during the twelve-month period beginning on June 15 of the years indicated below:



|                    |  |            |  
|------------------- |  | ---------- | -
|Year                |  | Percentage |  
|2007                |  | 105.500    | %
|2008                |  | 102.750    | %
|2009 and thereafter |  | 100.000    | %



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##### Table of Contents

The Company may, at its option, redeem all or part of the subordinated notes at 100.0% of par plus
accrued and unpaid interest on the subordinated notes.

Notices of Redemption were initiated by the Company on June 25, 2007 to the
holders of the 11.0% Senior Notes due 2010 at 105.5% of par plus accrued and unpaid interest and to the holders of the 10.0% Subordinated Notes due 2008 at 100.0% of par plus accrued and unpaid interest. On July 27, 2007, the senior notes and
subordinated notes were redeemed and paid. During the second quarter of fiscal year 2008, the Company will record a charge of approximately $9.4 million for the call premium on the redemption of the senior notes as more fully described in Note 9.
Subsequent Events to the consolidated condensed financial statements.

On June 18, 2007, DOIC entered into new financing
agreements with GECC pursuant to which DOIC may borrow up to $145.0 million including $40.0 million in revolving loans. Proceeds from this financing will be used in conjunction with the proceeds of the previously completed sale of our European
businesses to redeem the senior notes and the subordinated notes, to reduce and refinance the Companys existing debt, to pay fees and expenses in connection therewith and for working capital and general corporate purposes. The credit
agreements governing DOICs financing agreements contain customary financial covenants that the Company must comply with on a quarterly basis relating to its leverage ratios, fixed charge coverage ratio, cumulative EBITDA and an annual capital
expenditure threshold, all as more fully described in Exhibit 10.66. First Lien Credit Agreement and Exhibit 10.67. Second Lien Credit Agreement attached to the Companys Annual Report on Form 10-K filed June 27,
2007. The borrowings under DOICs financing agreements will accrue interest at one of the following rates, at the Companys option: (i) in the case of a base rate loan, at the base rate plus the applicable margin; (ii) if a
eurodollar rate loan, at the eurodollar rate plus the applicable margin; and (iii) in the case of swing line loans and all other obligations under the financing agreements, at the base rate plus the applicable margin. The applicable margin is
initially, with respect to each of base rate loans and eurodollar rate loans, a fixed percentage, per annum, and thereafter, with respect to the revolving loans, swing line loans and term loans, a percentage, per annum, determined by reference to
the leverage ratio in effect from time to time.

As of June 30, 2007, the borrowing base for the revolving credit facility was $30.3
million and DOIC had $14.6 million of borrowings under the revolver. In addition, the DOIC had $1.3 million of exposoure on the revolver for various letters of credit issued on its behalf. These amounts are included in Current maturities of
long-term debt and notes payable on the consolidated condensed balance sheet. The borrowing base fluctuates each month and is generally highest at the end of the quarter.

DOIC incurred $6.7 million in debt issuance costs relating to its new credit facilities with GECC and is amortizing these costs over the remaining terms
of the facilities.

In connection with the refinancing, on June 25, 2007, DOIC terminated the credit facility which was to originally
expire on January 4, 2008 with Bank of America (the BofA Credit Facility), which provided for a $50.0 million, senior secured revolving credit facility, including a $30.0 million sub-limit for standby and documentary letters of
credit. The BofA Credit Facility was amended on November 14, 2006 to extend the facility for one year to January 4, 2009. The BofA Credit Facility bore 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 Bank of America 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 nine months plus the
applicable margin thereon.

Note 7. Contingencies

Litigation:In June 2003, Danka was served with a 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 the Company has removed the claim to the United States District Court for Middle District of Tennessee for further proceedings. The plaintiffs have filed a motion to certify the class, which the Company has opposed. The Company had filed a
motion for summary judgment, which plaintiffs had opposed. On October 13, 2006, the United States District Court for the Middle District of Tennessee granted Dankas motion for summary judgment and dismissed the
Plaintiffs claims regarding shipping and handling charges, which served as the basis of the putative class claim. The U.S. District Court ruling effectively defeats the Plaintiffs ability to represent a class or serve
as a potential class member. The Plaintiffs remaining claim has not been resolved, but its resolution, even if adverse to the Company, is not expected to have a material impact on the Companys financial
condition. The Company does not know whether the Plaintiff will attempt to appeal the ruling dismissing the claim relating to shipping and handling charges. The Company will continue to vigorously defend the claims alleged by the
plaintiff in this action.



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##### Table of Contents

The Company is also subject to legal proceedings and claims which arise in the ordinary course of its
business. The Company does not expect these legal proceedings to have a material effect upon its financial position, results of operations or liquidity.

Note 8. Income Taxes

The Company recorded an income tax provision of $0.7 million in the first three months of fiscal year
2008 and a tax provision of $0.5 million in the first three months of fiscal year 2007. The tax provision for the current period resulted from a $0.4 million increase in the valuation allowance against deferred taxes and $0.3 million in minimum
taxes and other charges. The tax provision in the prior period resulted from a $0.4 million increase in the valuation allowance against deferred taxes and $0.1 million in minimum taxes and other charges.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Our past financial performance is a
significant factor which contributes to our limited use, pursuant to Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes of projections of future taxable income in assessing the realizability of deferred
tax assets in most jurisdictions. Additionally, management considered the scheduled reversal of deferred tax liabilities and tax planning strategies in making this assessment. Considering all relevant data, management concluded that it is not
more likely than not the Company will realize the benefits of the deferred tax assets at June 30, 2007 and 2006 in most jurisdictions and therefore a valuation allowance has been recorded to reserve a portion of its deferred tax
assets at June 30, 2007 and 2006 in these jurisdictions.

Note 9. Subsequent Event

The indenture governing the senior notes restricts the use of the net proceeds (as defined in the indenture) from the sale of the Companys European
businesses. Per the terms of the indenture, the use of these net proceeds is restricted to the following:



| |  |  | Repayment of indebtedness under the Companys credit facility with a corresponding reduction in the amount available under the facility;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Acquisitions of other companies;
| | - |  | --------------------------------



| |  |  | Capital expenditures; and
| | - |  | -------------------------



| |  |  | Acquisitions of other long-term assets deemed useful by the Company.
| | - |  | --------------------------------------------------------------------

Within 365 days from the date of the sale, the Company is obligated to make a tender offer at par for the outstanding 11.0% senior notes, using the
balance of the net proceeds that has not been used for the permitted expenditures listed above. In compliance with this, the Company initiated a tender offer at par to the holders of the senior notes on June 25, 2007 which expired on
July 24, 2007. Two holders of the senior notes accepted the tender offer and the Company redeemed and paid $4.4 million, which included an aggregate principal amount of $4.3 million plus accrued and unpaid interest, to the holders of the senior
notes that accepted the tender.

A Notice of Redemption was initiated by the Company on June 25, 2007 to the holders of the 11.0%
Senior Notes due 2010 at 105.5% of par plus accrued and unpaid interest. On July 27, 2007, the Company redeemed and paid $182.3 million, which included an aggregate principal amount of $170.7 million plus a 5.5% call premium and accrued and
unpaid interest, to the holders of the remaining senior notes. During the second quarter of fiscal year 2008, the Company will record a charge of approximately $9.4 million for the call premium on the redemption of the remaining senior notes.

A Notice of Redemption was initiated by the Company on June 25, 2007 to the holders of the 10.0% Subordinated Notes due 2008 at
100.0% of par plus accrued and unpaid interest. On July 27, 2007, the Company redeemed and paid $66.6 million, which included an aggregate principal amount of $64.5 million plus accrued and unpaid interest, to the holders of the subordinated
notes.



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##### Table of Contents

The following table sets forth the effect of the tender offer and redemption of the senior notes and the
redemption of the subordinated notes on the Companys indebtedness:



|                                 |  |                          |         |                      |   |        |              |  |                    |       |  |                          |          |   |  |   |        
|-------------------------------- |  | ------------------------ | ------- | -------------------- | - | ------ | ------------ |  | ------------------ | ----- |  | ------------------------ | -------- | - |  | - | -------
|                                 |  | Debt as of June 30, 2007 |         | Tender OfferPayments |   |        | Call Premium |  | RedemptionPayments |       |  | Debt as of July 27, 2007
|11% senior notes, due 2010       |  | $                        | 175,000 |                      | $ | (4,310 | )            |  | $                  | 9,388 |  | $                        | (180,078 | ) |  | $ |       
|10% subordinated notes, due 2008 |  |                          | 64,520  |                      |   |       |              |  |                    |      |  |                          | (64,520  | ) |  |   |       
|Senior secured credit facilities |  |                          | 105,000 |                      |   |       |              |  |                    |      |  |                          |         |   |  |   | 105,000
|Capital leases                   |  |                          | 879     |                      |   |       |              |  |                    |      |  |                          |         |   |  |   | 879    
|Other long-term obligations      |  |                          | 15,291  |                      |   |       |              |  |                    |      |  |                          |         |   |  |   | 15,291 
|                                 |  |                          |         |                      |   |        |              |  |                    |       |  |                          |          |   |  |   |        
|Total                            |  | $                        | 360,690 |                      | $ | (4,310 | )            |  | $                  | 9,388 |  | $                        | (244,598 | ) |  | $ | 121,170
|                                 |  |                          |         |                      |   |        |              |  |                    |       |  |                          |          |   |  |   |        



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Danka Business Systems PLC (also referred to herein as Danka, the Company, we, us or our) is
one of the leading independent providers of print products and services in the United States. We provide comprehensive document solutions that include office imaging equipment, document related software, related services and supplies that assist our
customers with the management of their output requirements. These solutions are designed to improve business processes, reduce costs and increase productivity. We offer a broad selection of digital office imaging products including copiers,
multi-function peripherals (MFPs), facsimile machines and printers that we integrate with an open architecture portfolio of software that has been carefully selected and rigorously tested for optimum performance. We also provide a wide
range of contract services, including professional and consulting services, equipment maintenance, supplies, leasing arrangements, technical support and training primarily on the installed base of equipment created by our retail equipment, supplies
and related sales.

Dankas mission is to deliver value to clients by using our expert sales, technical and professional services and
products to implement effective document information solutions and services. Our product portfolio is designed to provide our customers with choice, convenience, custom cost management 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 and make every customer a reference;
| | - |  | -------------------------------------------------------------------



| |  |  | grow revenues by providing value-added and cost-driven product solutions and services;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | optimize our internal processes and systems and reduce the opportunity for errors;
| | - |  | ----------------------------------------------------------------------------------



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



| |  |  | maximize return for our stakeholders.
| | - |  | -------------------------------------

All tables presented herein are in thousands unless otherwise noted.

Critical Accounting Policies and Estimates

In preparing our consolidated financial statements and accounting for the underlying transactions and balances, we apply various accounting policies. We
consider the policies discussed below as critical to understanding our consolidated financial statements, as their application places the most significant demands on managements judgment, since financial reporting results rely on estimates of
the effects of matters that are inherently uncertain. Specific risks associated with these critical accounting policies are discussed throughout this Managements Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) where such policies affect our reported and expected financial results.

Allowance for Doubtful
AccountsWe provide allowances for doubtful accounts and allowances for billing disputes and inaccuracies on our accounts receivable as follows:



| |  |  | Allowances for doubtful accounts: Generally credit is extended to customers based on an evaluation of the customers financial condition and collateral is
generally not required. Some of the factors that we consider in determining whether to record an allowance against accounts receivable include the age of the receivable, historical write-off experience and current economic conditions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Allowances for billing disputes and inaccuracies: Because of the difficulties we experience in accurately recording the number of copies made by customers, entering
contract information into our system and timely identifying and correcting billing errors, we reduce revenue for an estimate of future credits that will be issued for billing disputes and billing inaccuracies at the time of sale. These estimates are
established based on our historical experience of write-offs and credits issued for billing disputes and inaccuracies and are influenced by a number of considerations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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. We have provided an appropriate estimate of reserves against these inventory 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



20



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##### Table of Contents

analysis. If actual market conditions are less favorable than our forecasts, due in part to a greater acceleration within the industry to digital color
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We generally have agreements to provide product maintenance services for the equipment that we sell or lease to customers. We follow the guidance in the Emerging Issues Task Force (EITF) Issue 00-21, Revenue
Arrangements with Multiple Deliverables (EITF 00-21), as modified for the impact of higher level accounting literature, to allocate revenue received between the two deliverables in the arrangementthe equipment and the product
maintenance services. For arrangements in which the product maintenance services meet the definition in the Financial Accounting Standards Board (FASB) Technical Bulletin (TB) No. 90-1, Accounting for Separately
Priced Extended Warranty and Product Maintenance Contracts (TB 90-1), of a separately priced product maintenance contract, revenue equal to the amount paid by the customer to obtain the product maintenance services is allocated to
the separately priced maintenance agreement, with the remainder of the revenue allocated to the equipment (or operating lease payments for use of the equipment). For arrangements in which the product maintenance services do not meet the definition
in TB 90-1 of a separately priced product maintenance contract, but the revenue recognized related to the equipment is governed by FASB Statement No. 13, Accounting for Leases (SFAS 13), revenue is allocated between the
equipment (or operating lease payments for use of the equipment) and product maintenance services on a relative fair value basis using our best estimate of fair value of the equipment (or operating lease payments for use of the equipment) and of the
product maintenance services.

Revenue from retail equipment, supplies and related sales, including revenue allocated to equipment sales as
discussed above, is recognized upon acceptance of delivery by the customer. In the case of equipment sales financed by third party finance/leasing companies, revenue is recognized at the later of acceptance of delivery by the customer or credit
acceptance by the finance/leasing company. In addition, for the sale of certain digital equipment that requires a comprehensive setup by us before it can be used by a customer, revenue is recognized upon the customers written confirmation of
delivery and installation. Supply sales to customers are recognized at the time of shipment unless supply sales are included in a service contract, in which case supply sales are recognized upon equipment usage by the customer.

We sell equipment with embedded software to our customers. The embedded software is not sold separately, is not a significant focus of the marketing
effort, and we do not provide post contract customer support specific to the software or incur significant costs that are within the scope of FASB Statement No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed (SFAS 86). Additionally, the functionality that the software provides is marketed as part of the overall product. The software embedded in the equipment is incidental to the equipment as a whole such that FASB
Statement of Position No. 97-2, Software Revenue Recognition (SFAS 97-2), is not applicable. Revenue from the sales of equipment subject to an operating lease, or of equipment that is leased by or intended to be leased
by the purchaser to another party, and sales-type leases is recognized in accordance with SFAS 13. Revenue from all other sales of equipment is recognized in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition
in Financial Statements (SAB 104).

Rental operating lease income is recognized straight-line over the lease term. Retail
service revenues are generally recognized ratably over the term of the underlying product maintenance contracts. Under the terms of the product maintenance contract, the customer is billed a flat periodic charge and/or a usage-based fee. The typical
agreement includes an allowance for a minimum number of copies for a base service fee plus an overage charge for any copies in excess of the minimum. We record revenue each period for the flat periodic charge and for actual or estimated usage.

Taxes assessed by governmental authorities that are directly imposed on revenue-producing transactions between the Company and customers
(which may include, but are not limited to, sales, use, value added and some excise taxes) are excluded from revenues.

Cost of
SalesInbound freight charges are included in inventory. When the inventory is sold, the cost of the inventory, including the inbound freight charges, is relieved and charged to costs of sales. When the inventory is rented, the cost of the
inventory, including the inbound freight charges, is relieved and transferred to the rental equipment asset account. The cost of the rental equipment asset is then depreciated over the estimated useful life of the equipment. The depreciation of
rental equipment assets is included in rental costs.

Purchasing and receiving costs, inspection costs, warehousing costs and other
distribution costs are included in selling, general and administrative costs because no meaningful allocation of these expenses to equipment, supplies and rental costs of sales is practicable. Accordingly, our gross margins may not be comparable to
other companies, since some companies include all of the costs related to their distribution network in cost of sales, while others exclude a portion of them from gross margin, including them instead in operating expense line items. These costs
totaled $2.7 million and $3.2 million for the three months ended June 30, 2007 and 2006, respectively.



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We receive vendor rebates based on arrangements with certain equipment vendors. Those arrangements
typically require vendors to make incentive payments to the Company based on the volume of periodic purchases (dollar amounts, quantity of specific units, etc.). Such rebates are accrued when purchases are made and can be reasonably estimated,
recorded as reductions of inventory costs when accrued and recognized as a reduction to cost of sales when the related inventories are sold.

Deferred Income TaxesAs part of the process of preparing our consolidated financial statements, we have to determine our income and corporation taxes in each of the taxing jurisdictions in which we operate. This process
involves determining our actual current tax expense and 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 result in deferred tax assets and liabilities, which are included in our consolidated balance sheet.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Our past financial performance is a significant factor which contributes to our
inability, pursuant to FASB Statement No. 109, Accounting for Income Taxes (SFAS 109), to use projections of future taxable income in assessing the realizability of deferred tax assets. Management therefore is limited to
considering the scheduled reversal of deferred tax liabilities and tax planning strategies in making this assessment. Considering all relevant data, management concluded that it is not more likely than not we will realize the benefits of
the deferred tax assets at June 30, 2007. Consequently, we have a valuation allowance against net deferred tax assets in all jurisdictions at June 30, 2007.

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We had
goodwill of $93.5 million as of June 30, 2007. We review our goodwill and indefinite-lived intangible assets annually for possible impairment, or more frequently if impairment indicators arise in accordance with FASB Statement No. 142,
Goodwill and Other Intangible Assets (SFAS 142). Separable intangible assets that have finite lives are amortized over their estimated useful lives.

Goodwill was reviewed for possible impairment during fourth quarter of our fiscal year 2007, in accordance with SFAS 142. In performing our impairment
testing, the fair values of the reporting units were determined using a combination of a discounted cash flow model and multiple market approaches. The discounted cash flow model used estimates of future revenue and expenses for each reporting unit
as well as appropriate discount rates, and the estimates that were used are consistent with the plans and estimates the Company is using to manage the underlying business. Based on the analysis at January 1, 2007, management determined that the
fair value of the Company exceeded the carry amount and therefore, goodwill was not considered impaired.

Accounting for Stock Based
CompensationEffective April 1, 2006, we adopted FASB Statement No. 123R, Share-Based Payment (SFAS 123R), using the modified prospective transition method to account for our employee stock-options. Under
that transition method, compensation costs for the portion of awards for which the requisite service had not yet been rendered, and that were outstanding as of the adoption date, will be recognized as the service is rendered based on the grant date
fair value of those awards calculated under FASB Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123). Prior period results are not restated. Since all options were fully vested on April 1, 2006,
the adoption of SFAS 123R had no impact on net income or earnings per share.

The fair value of options granted prior to the implementation
of SFAS 123R are estimated at the date of grant using a Black-Scholes option pricing model, while those granted after the implementation of SFAS 123R use a multiple point binomial model.

Future compensation to be incurred through fiscal year 2010 related to nonvested options is approximately $0.7 million as of June 30, 2007.

Restructuring ChargesWe recognized restructuring charges for the consolidation of back office functions, exiting
non-strategic real estate facilities and reducing headcount. These charges are recorded pursuant to formal plans developed and approved by management. These charges are accounted for under the provisions of FASB Statement No. 146,



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Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146) and the recognition of restructuring charges requires
that we make certain judgments and estimates regarding the nature, timing and amount of costs associated with these plans. The estimates of future liabilities may change, requiring additional restructuring charges or the reduction of liabilities
already recorded. At the end of each reporting period, we evaluate the remaining accrued balances to ensure that no excess accruals are retained and the utilization of the provisions are for their intended purpose in accordance with the
restructuring programs. For further discussion of our restructuring programs, refer to Note 3. Restructuring Charges to the consolidated condensed financial statements and Managements Discussion and Analysis of Financial
Condition and Results of OperationsLiquidity and Capital Resources.

Financial Condition



|                                       |  |              |         |   |               |   |         |  
|-------------------------------------- |  | ------------ | ------- | - | ------------- | - | ------- | -
|                                       |  | June 30,2007 |         |   | March 31,2007 |  
|Total assets                           |  | $            | 502,374 |   |               | $ | 417,048 |  
|Total liabilities                      |  | $            | 479,107 |   |               | $ | 388,968 |  
|Working capital                        |  | $            | (6,163  | ) |               | $ | (37,441 | )
|Liabilities to liabilities and capital |  |              | 95      | % |               |   | 93      | %
|Inventory turnover ratio               |  |              | 4       | x |               |   | 5       | x

Total assets as of June 30, 2007 increased $85.3 million or $20.5% compared to March 31,
2007. This increase was primarily the result of increased cash due to our new financing arrangement with GECC that was funded during the quarter and the receipt of the holdback funds from Ricoh for the sale of our European businesses. This was
offset by decreases in our accounts receivable due to better collections and lower revenue and in other assets due to the receipt of the holdback funds from Ricoh for the sale of our European businesses in the last fiscal year.

Total liabilities increased $90.1 million from March 31, 2007, or 23.2%. This increase was primarily the result of increased debt due to our new
financing arrangement offset by decreases in our accounts payable and accrued expenses in an effort to stay current with our vendors.

Working capital, defined as current assets less current liabilities, increased by $31.3 million or 83.5% at June 30, 2007 compared to March 31, 2007. This increase is a direct result of our new financing arrangement and the other
factors discussed above.

Liabilities to liabilities and capital increased 2.0% at June 30, 2007 compared to March 31, 2007, due
to our new financing arrangement.

For the period ending June 30, 2007, our annualized inventory turnover ratio decreased to 4x from
5x at March 31, 2007 due to increased inventory purchases at the end of the period and lower cost of sales due to decreased revenue.



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Results of Continuing Operations

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



|                                                               |  |                            |    |  |       |  
|-------------------------------------------------------------- |  | -------------------------- | -- |  | ----- | -
|                                                               |  | Three months endedJune 30, |   
|                                                               |  | 2007                       |    |  | 2006  |  
|Revenue:                                                       |  |                            |    |  |       |  
|Retail equipment and related sales                             |  | 43.4                       | %  |  | 44.3  | %
|Retail service                                                 |  | 53.9                       |    |  | 51.6  |  
|Retail supplies and rentals                                    |  | 2.7                        |    |  | 4.1   |  
|                                                               |  |                            |    |  |       |  
|Total revenue                                                  |  | 100.0                      |    |  | 100.0 |  
|Cost of sales                                                  |  | 63.8                       |    |  | 62.9  |  
|                                                               |  |                            |    |  |       |  
|Gross profit                                                   |  | 36.2                       |    |  | 37.1  |  
|                                                               |  |                            |    |  |       |  
|Selling, general and administrative expenses                   |  | 34.1                       |    |  | 32.9  |  
|Restructuring charges (credits)                                |  | 1.2                        |    |  | 5.0   |  
|Loss on sale of subsidiary                                     |  |                           |    |  | 2.1   |  
|Other expense (income)                                         |  | (0.8                       | )  |  | 0.3   |  
|                                                               |  |                            |    |  |       |  
|Operating earnings (loss) from continuing operations           |  | 1.7                        |    |  | (3.2  | )
|Interest expense                                               |  | (6.4                       | )  |  | (6.0  | )
|Interest income                                                |  | 1.7                        |    |  |      |  
|                                                               |  |                            |    |  |       |  
|Earnings (loss) from continuing operations before income taxes |  | (3.0                       | )  |  | (9.2  | )
|Provision (benefit) for income taxes                           |  | 0.7                        |    |  | 0.4   |  
|                                                               |  |                            |    |  |       |  
|Net earnings (loss) from continuing operations                 |  | (3.7                       | )% |  | 9.6   | %
|                                                               |  |                            |    |  |       |  

The following table sets forth for the periods indicated the percentage of revenue increase
(decrease) from continuing operations from the prior year:



|                                   |  |                            |    |  |       |   
|---------------------------------- |  | -------------------------- | -- |  | ----- | --
|                                   |  | Three months endedJune 30, |   
|                                   |  | 2007                       |    |  | 2006  |   
|Retail equipment and related sales |  | (14.6                      | )% |  | (16.2 | )%
|Retail service                     |  | (9.1                       | )  |  | (8.4  | ) 
|Retail supplies and rentals        |  | (42.7                      | )  |  | (0.8  | ) 
|Total revenue                      |  | (12.9                      | )% |  | (11.8 | )%

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



|                                   |  |                            |   |  |      |  
|---------------------------------- |  | -------------------------- | - |  | ---- | -
|                                   |  | Three months endedJune 30, |  
|                                   |  | 2007                       |   |  | 2006 |  
|Retail equipment and related sales |  | 30.2                       | % |  | 29.0 | %
|Retail service                     |  | 40.1                       |   |  | 40.8 |  
|Retail supplies and rentals        |  | 54.2                       |   |  | 76.5 |  
|Total gross margin                 |  | 36.2                       | % |  | 37.1 | %

Three Months Ended June 30, 2007 compared to the Three Months Ended June 30, 2006

Revenue

Revenue includes customer purchases of office
peripherals; professional, consulting and maintenance services; supplies; software and related support products; and leasing arrangements. For the three months ended June 30, 2007, our revenue decreased by $15.8 million or 12.9% from the three
months ended June 30, 2006. Our retail equipment, supplies and related sales declined due to increased pricing pressures and reduction in sales force that took place in prior periods. These



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issues combined with the advent of other competitive equipment from printer manufacturers may continue to hinder our progress in growing our retail equipment
and related sales revenue. Service revenues continued to decrease due in part to the continued conversion from analog devices to digital devices and a shift and decline in certain segments of our installed base. In addition, we are experiencing
decreases in our click rates (per copy charge) due to competitive pricing pressures.

Retail equipment, supplies and related sales for the
three months ended June 30, 2007 decreased by $7.9 million or 14.6% to $46.2 million compared to the year-ago period primarily due to continued pricing pressures and a decrease in sales headcount year over year due to a realignment of our sales
force towards a more market-based approach. Our intention is to add sales headcount in markets to strategically increase our retail equipment sales revenue during the remainder of the fiscal year. Our supplies revenue decreased quarter over quarter
due to the sale of Image One, our wholly owned subsidiary in fiscal year 2007.

Retail service revenue declined by $5.7 million or 9.1% to
$57.2 million due largely to the factors discussed above. This decrease was also a direct result of lower average per copy charges and lower machines in field. In addition, these pricing pressures are inhibiting price maintenance or increases on
renewals and new contracts entered into.

Rental revenue declined by $2.1 million or 42.7% to $2.9 million in the three months ended
June 30, 2007. During the year-ago period, revenue was recognized on rental equipment on contracts with certain governmental customers that had been delayed from fiscal year 2006.

Gross Profit

Our total gross profit margin after costs of goods sold, which primarily includes
inventory, service labor and overhead, management costs and depreciation of equipment, decreased to 36.2% in the three months ended June 30, 2007 from 37.1% in the year-ago period.

Retail equipment, supplies and related sales margins increased to 30.2% from 29.0% in the year-ago period. This increase was primarily related to better
revenue pricing and lower costs on equipment.

Retail service margins decreased to 40.1% from 40.8%. The decrease in retail service margins
was a direct result of the transition to all inclusive service contracts that contain provisions for service and consumables offset by a reduction in fixed costs related to our service organization.

Rental margins decreased to 54.2% from 76.5% in the year-ago period. This decrease was the result of revenue recognized in the prior year on rental
equipment with certain governmental customers as discussed above. Due to the delays in executing purchase orders with those customers, depreciation on the equipment was taken in prior periods.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (SG&A) in the current year quarter decreased by $3.9 million or 9.7% from the year-ago period to $36.3 million from $40.2 million. The decrease in SG&A for the quarter
resulted from headcount reductions and facility closures as a result of our restructuring activities in prior years. While we have lowered SG&A costs due to reduced headcount in our sales force, this has also contributed to our declines in
revenue, predominantly our retail equipment, supplies and related sales. As a percentage of total revenue, SG&A expenses increased to 34.1% in the current quarter from 32.9% in the three months ended June 30, 2006. This was a direct result
of our lower revenues.

Restructuring Charges (Credits)

In fiscal year 2007, we formulated plans to continue to eliminate inefficiencies in our field operations and to reduce our SG&A costs by eliminating and consolidating back office functions, reducing sales and
service personnel and exiting certain facilities. During the current quarter, we recorded facility charges of $1.3 million primarily in our fiscal year 2007 plan relating to our Field Support Office.

Other (Income) Expense

Other income for the current
fiscal year quarter primarily included a gain on the sale of a building during the quarter. The prior year expense included amortization on intangibles related to our Image One subsidiary and foreign exchange losses.

Operating Earnings (Loss) from Continuing Operations

Our operating earnings from continuing operations was $1.8 million for the three months ended June 30, 2007 compared to a loss of $3.9 million in the prior year period. The increase in operating earnings for the current quarter was due



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to lower SG&A expenses, lower restructuring charges and the gain on the sale of a building offset by lower revenues and gross margin. The operating loss
from continuing operations in the prior-year quarter was principally due to increased restructuring charges and the loss on the sale of our wholly owned subsidiary discussed above.

Interest Expense and Interest Income

Interest expense decreased by $0.5 million due to the write off
of debt issuance costs related to our senior notes in the prior fiscal year. Interest income increased $1.8 million due to increased cash balances as the result of the sale of our European businesses in the prior fiscal year.

Income Taxes

We recorded a tax provision of $0.7
million during the three months ended June 30, 2007 and a tax provision of $0.5 million in the prior year period. The income tax provision in the current period resulted from a $0.4 million increase in the valuation allowance against deferred
taxes and $0.3 million in minimum taxes and other charges. The income tax provision for the prior year period resulted from a $0.4 million increase in the valuation allowance against deferred taxes and $0.1 million in minimum taxes and other
charges.

Net Earnings (Loss) from Continuing Operations

Net loss from continuing operations was $4.0 million in the three months ended June 30, 2007 compared to a loss from continuing operations of $11.7 million in the year-ago period. We incurred a net loss from
continuing operations available to common shareholders of $0.15 per ADS during the current period compared to net loss from continuing operations of $0.27 per ADS in the year-ago period.



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Liquidity and Capital Resources

The following summarizes our cash flows from continuing operations for the first three months of fiscal years 2008 and 2007 as reported in our consolidated condensed statements of cash flows in the accompanying
consolidated condensed financial statements:



|                                                    |  |                            |         |   |      |   |        |  
|--------------------------------------------------- |  | -------------------------- | ------- | - | ---- | - | ------ | -
|                                                    |  | Three Months EndedJune 30, |        
|                                                    |  | 2007                       |         |   | 2006 |  
|Net cash used in operating activities               |  | $                          | (24,830 | ) |      | $ | (5,658 | )
|Net cash provided by (used in) investing activities |  |                            | (216    | ) |      |   | (1,456 | )
|Net cash provided by (used in) financing activities |  |                            | 16,569  |   |      |   | 648    |  
|Effect of discontinued operations                   |  |                            | (1,005  | ) |      |   | 53     |  
|Effect of exchange rates                            |  |                            |        |   |      |   | 2,737  |  
|                                                    |  |                            |         |   |      |   |        |  
|Net decrease in cash                                |  |                            | (9,482  | ) |      |   | (3,676 | )
|Cash and cash equivalents, beginning of period      |  |                            | 17,594  |   |      |   | 24,467 |  
|                                                    |  |                            |         |   |      |   |        |  
|Cash and cash equivalents, end of period            |  | $                          | 8,112   |   |      | $ | 20,791 |  
|                                                    |  |                            |         |   |      |   |        |  

Cash flows

Our generation and use of cash is cyclical within a quarter. Typically, we generate a significant portion of our cash toward the end of each quarter where we typically conclude a large percentage of our retail
equipment transactions while our use of cash is more evenly spread during the quarter after a greater use of cash toward the beginning of the quarter, when we typically pay vendors for products sold toward the end of the quarter and for other
services provided during the quarter.

Generally, cash provided by operations, cash on the balance sheet and the availability on our credit
facilities continue to be our primary source of funds to finance operating needs and capital expenditures. Our net cash flow used in operating activities for continuing operations during the first three months of fiscal years 2008 and 2007 was $24.8
million and $5.7 million, respectively. The cash flows from continuing operations during each period is a result of the continuing decline in our revenues and the resulting decline in our gross profit, payouts of restructuring, payouts of accrued
professional fees and reductions in other accrued expenses. These uses of cash were offset somewhat by improved collections of accounts receivable. The increase year over year was primarily the result of lower accrued expenses due to lower
restructuring charges.

Our net cash flow used in investing activities was $0.2 and $1.5 million for the first three months of fiscal years
2008 and 2007, respectively. This outflow for both periods was the result of capital expenditures. During fiscal year 2008, the Company generated $1.5 million on the sale of a building.

Our net cash flow provided by financing activities during fiscal years 2008 and 2007 was $16.6 million and $0.6 million, respectively. The increase in
cash flow during the current fiscal year was the result of borrowings on our new financing arrangement with GECC.

The Company also has
restricted cash at June 30, 2007 of $271.6 million (of which $5.0 million is classified as long-term) primarily related to the restrictions placed on the proceeds from the sale of our European operations as more fully described below and in
Note 4. Discontinued Operations to the consolidated condensed financial statements and the repayment of our senior and junior notes as more fully described in Note 9. Subsequent Events to our consolidated condensed financial
statements.

During fiscal year 2007, we sold our European operations to Ricoh in a sale of all the outstanding capital stock of those
European subsidiaries set forth in the Share Purchase Agreement for a purchase price of U.S. $215 million in cash, after an upward adjustment of U.S. $5 million as more fully described in Note 4. Discontinued Operations to the
consolidated condensed financial statements. Under the indenture governing our 11% senior notes, we are obligated to make a tender offer within 365 days of the sale for the notes at par, utilizing the balance of the asset sale proceeds that has not
been used under the permitted expenditures defined in the indenture. In compliance with this requirement, we initiated a tender offer at par to the holders of the senior notes on June 25, 2007, which expired on July 24, 2007 as more fully
described in Note 9. Subsequent Events to the consolidated condensed financial statements.

Also on June 25, 2007, DOIC
completed new financing agreements with GECC pursuant to which DOIC may borrow up to $145.0 million including $40.0 million in revolving loans as more fully described in Note 6. Debt to the consolidated condensed financial statements.
Proceeds from this financing will be used in conjunction with the proceeds of the previously



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completed sale of our European businesses to reduce and refinance our existing debt and enhance working capital. The credit agreements governing these new
financing arrangements contain customary financial covenants that we must comply with on a quarterly basis relating to our leverage ratios, fixed charge coverage ratio, cumulative EBITDA and an annual capital expenditure threshold, all as more fully
described in Exhibit 10.66. First Lien Credit Agreement and Exhibit 10.67. Second Lien Credit Agreement attached to the Companys Annual Report on Form 10-K filed of June 27, 2007.

Notices of Redemption were initiated by the Company on June 25, 2007 to the holders of the 11.0% Senior Notes due 2010 at 105.5% of par plus accrued
and unpaid interest and to the holders of the 10.0% Subordinated Notes due 2008 at 100.0% of par plus accrued and unpaid interest. On July 27, 2007, the senior notes and subordinated notes were redeemed and paid and during the second quarter of
fiscal year 2008, the Company will record a charge of approximately $9.4 million for the call premium on the redemption of the senior notes as more fully described in Note 9. Subsequent Events to the consolidated condensed financial
statements.

The borrowing base related to the new financing arrangements with GECC are subject to certain multiples of EBITDA as more
fully described in the credit agreements and therefore, the cash availability that we have under the financing arrangements are reliant on the Company meeting these EBITDA multiples. We believe cash and cash equivalents on hand, together with
availability of our financing arrangement with GECC, based on our estimated EBITDA performance, is sufficient to fund our cash requirements for the next twelve months.

Restructuring Charges

Fiscal Year 2007 Plan:In fiscal year 2007, the Company formulated
plans to continue to eliminate inefficiencies in its field operations and to reduce its selling, general and administrative costs by eliminating and consolidating back office functions, reducing sales and service personnel and exiting certain
facilities. These charges were accounted for under the provisions of FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146).

As part of these plans, the Company recorded a $5.5 million restructuring charge in fiscal year 2007 consisting of $2.0 million relating to severance
charges due to additional cost reduction efforts and $3.5 million in facility costs primarily related to the Companys Field Support Office in St. Petersburg, Florida.

During the three months ended June 30, 2007, the Company recorded an additional $1.1 million restructuring charge primarily related to the Field
Support Office. Cash outlays for severance and facilities during the period were $0.2 million and $0.3 million, respectively.

The
remaining liability of the fiscal year 2007 Plan restructuring charge of $1.0 million and $1.8 million is categorized within Accrued expenses and other current liabilities and Deferred income taxes and other long-term
liabilities, respectively.

The following table summarizes the fiscal year 2007 Plan restructuring charge:

2007 Plan Restructuring Charge:



|                                              |  |                                       |       |                         |   |                |  |             |       |  |                        |      |   |  |   |      
|--------------------------------------------- |  | ------------------------------------- | ----- | ----------------------- | - | -------------- |  | ----------- | ----- |  | ---------------------- | ---- | - |  | - | -----
|                                              |  | CumulativeExpensethroughMarch 31,2007 |       | Reserve atMarch 31,2007 |   | Charge(Credit) |  | CashOutlays |       |  | Reserve atJune 30,2007
|Severance                                     |  | $                                     | 2,032 |                         | $ | 662            |  | $           |      |  | $                      | (209 | ) |  | $ | 453  
|Future lease obligations on facility closures |  |                                       | 3,495 |                         |   | 1,656          |  |             | 1,075 |  |                        | (345 | ) |  |   | 2,386
|                                              |  |                                       |       |                         |   |                |  |             |       |  |                        |      |   |  |   |      
|Total                                         |  | $                                     | 5,527 |                         | $ | 2,318          |  | $           | 1,075 |  | $                      | (554 | ) |  | $ | 2,839
|                                              |  |                                       |       |                         |   |                |  |             |       |  |                        |      |   |  |   |      

Fiscal Year 2005 Plan:In fiscal year 2005, the Company formulated plans to continue to
eliminate inefficiencies in its field operations and to reduce its selling, general and administrative costs by eliminating and consolidating back office functions and exiting certain facilities. These charges were accounted for under the provisions
of SFAS 146.

As part of these plans, the Company recorded $2.6 million in restructuring charges related to severance in fiscal year 2005.
During fiscal year 2006, the Company recorded an additional charge of $3.9 million and $1.0 million relating to severance and facilities, respectively, due to continued reduction efforts. During fiscal year 2007, the Company recorded an additional
$0.1 million primarily relating to facilities.



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During fiscal year 2008, the Company recorded $0.1 million of restructuring charge related to facilities.
Cash outlays for facilities during the period were $0.1.

The remaining liability of the 2005 Plan restructuring charge of $0.2 million is
categorized within Accrued expenses and other current liabilities.

The following table summarizes the fiscal year 2005 Plan
restructuring charge:

2005 Plan Restructuring Charge:



|                                              |  |                                       |       |                         |   |                |  |             |    |  |                        |      |   |  |   |    
|--------------------------------------------- |  | ------------------------------------- | ----- | ----------------------- | - | -------------- |  | ----------- | -- |  | ---------------------- | ---- | - |  | - | ---
|                                              |  | CumulativeExpensethroughMarch 31,2007 |       | Reserve atMarch 31,2007 |   | Charge(Credit) |  | CashOutlays |    |  | Reserve atJune 30,2007
|Severance                                     |  | $                                     | 6,562 |                         | $ |               |  | $           |   |  | $                      |     |   |  | $ |   
|Future lease obligations on facility closures |  |                                       | 960   |                         |   | 214            |  |             | 52 |  |                        | (109 | ) |  |   | 157
|                                              |  |                                       |       |                         |   |                |  |             |    |  |                        |      |   |  |   |    
|Total                                         |  | $                                     | 7,522 |                         | $ | 214            |  | $           | 52 |  | $                      | (109 | ) |  | $ | 157
|                                              |  |                                       |       |                         |   |                |  |             |    |  |                        |      |   |  |   |    

Fiscal Year 2004 Plan:In fiscal year 2004, the Company formulated plans to significantly
reduce its selling, general and administrative costs by consolidating the back-office functions, exiting non-strategic real estate facilities and reducing headcount. These charges were accounted for under the provisions of SFAS 146.

As part of these plans, the Company recorded a $25.3 million restructuring charge in fiscal year 2004 that included $5.7 million related to severance for
employees and $19.6 million related to future lease obligations for facilities that were vacated by March 31, 2004. During fiscal year 2006, the Company incurred $0.4 million of facility charges as a result of broker commissions paid due to the
sublease of certain facilities. During fiscal year 2007, the Company recorded an additional $0.4 million charge related to facilities doe to longer sublease negotiations.

During fiscal year 2008, the Company recorded $0.1 million of fiscal year 2004 Plan facility charges. Cash outlays for facilities during fiscal year 2008 were $0.3 million.

The remaining liability of the 2004 Plan restructuring charge of $1.7 million is categorized within Accrued expenses and other current
liabilities.

The following table summarizes the fiscal year 2004 Plan restructuring charge:

2004 Plan Restructuring Charge:



|                                              |  |                                       |        |                         |   |                |  |             |     |  |                        |      |   |  |   |      
|--------------------------------------------- |  | ------------------------------------- | ------ | ----------------------- | - | -------------- |  | ----------- | --- |  | ---------------------- | ---- | - |  | - | -----
|                                              |  | CumulativeExpensethroughMarch 31,2007 |        | Reserve atMarch 31,2007 |   | Charge(Credit) |  | CashOutlays |     |  | Reserve atJune 30,2007
|Severance                                     |  | $                                     | 5,747  |                         | $ |               |  | $           |    |  | $                      |     |   |  |   |     
|Future lease obligations on facility closures |  |                                       | 20,382 |                         |   | 1,875          |  |             | 131 |  |                        | (294 | ) |  |   | 1,712
|                                              |  |                                       |        |                         |   |                |  |             |     |  |                        |      |   |  |   |      
|Total                                         |  | $                                     | 26,129 |                         | $ | 1,875          |  | $           | 131 |  | $                      | (294 | ) |  | $ | 1,712
|                                              |  |                                       |        |                         |   |                |  |             |     |  |                        |      |   |  |   |      



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Long-Term Debt

The following table sets forth our future payments for our debt as of June 30, 2007:



|                                 |  |       |         |                                  |   |                                  |  |   |        
|-------------------------------- |  | ----- | ------- | -------------------------------- | - | -------------------------------- |  | - | -------
|                                 |  | Total |         | Payments due in Less Than 1 Year |   | Payments due in More Than 1 Year
|11% senior notes, due 2010       |  | $     | 175,000 |                                  | $ | 175,000                          |  | $ |       
|10% subordinated notes, due 2008 |  |       | 64,520  |                                  |   | 64,520                           |  |   |       
|Senior secured credit facilities |  |       | 105,000 |                                  |   | 600                              |  |   | 104,400
|Capital leases                   |  |       | 879     |                                  |   | 612                              |  |   | 267    
|Other long-term obligations      |  |       | 15,291  |                                  |   | 14,909                           |  |   | 382    
|                                 |  |       |         |                                  |   |                                  |  |   |        
|Total                            |  | $     | 360,690 |                                  | $ | 255,641                          |  | $ | 105,049
|                                 |  |       |         |                                  |   |                                  |  |   |        

During fiscal year 2007, we sold our European operations to Ricoh in a sale of all the outstanding
capital stock of those European subsidiaries set forth in the Share Purchase Agreement for a purchase price of U.S. $215 million in cash, after an upward adjustment of U.S. $5 million as more fully described in Note 4. Discontinued
Operations to the consolidated condensed financial statements. Under the indenture of the 11% senior notes, we are obligated to make a tender offer within 365 days of the sale for the notes at par, utilizing the balance of the asset sale
proceeds that has not been used under the permitted expenditures defined in the indenture. In compliance with this requirement, we initiated a tender offer at par to the holders of the senior notes on June 25, 2007, which expired on
July 24, 2007.

In connection with the tender offer on the senior notes described above and the reclassification of the senior notes
from long-term to short-term at March 31, 2007, the unamortized balance of the debt issuance costs of $3.5 million and the debt discount of $2.4 million were written off during fiscal year 2007.

On or after June 15, 2007, we may, at our option, redeem all or part of the senior notes at the redemption prices set forth below plus accrued and
unpaid interest on the senior notes if redeemed during the twelve-month period beginning on June 15 of the years indicated below:



|                    |  |            |  
|------------------- |  | ---------- | -
|Year                |  | Percentage |  
|2007                |  | 105.500    | %
|2008                |  | 102.750    | %
|2009 and thereafter |  | 100.000    | %

The Company may, at its option, redeem all or part of the subordinated notes at 100.0% of par plus
accrued and unpaid interest on the subordinated notes.

Notices of Redemption were initiated by the Company on June 25, 2007 to the
holders of the 11.0% Senior Notes due 2010 at 105.5% of par plus accrued and unpaid interest and to the holders of the 10.0% Subordinated Notes due 2008 at 100.0% of par plus accrued and unpaid interest. On July 27, 2007 the senior notes and
the subordinated notes were redeemed and paid. During the second quarter of fiscal year 2008, we will record a charge of approximately $9.4 million for the call premium on the redemption of the senior notes as more fully described in Note 9.
Subsequent Events to the consolidated condensed financial statements.

On June 18, 2007, DOIC entered into new financing
agreements with GECC pursuant to which DOIC may borrow up to $145.0 million including $40.0 million in revolving debt. Proceeds from this financing will be used in conjunction with the proceeds of the previously completed sale of our European
businesses to redeem the senior notes and the subordinated notes, to reduce and refinance the Companys existing debt, to pay fees and expenses in connection therewith and for working capital and general corporate purposes. The credit
agreements governing these new financing arrangements contain customary financial covenants that the Company must comply with on a quarterly basis relating to its leverage ratios, fixed charge coverage ratio, cumulative EBITDA and an annual capital
expenditure threshold, all as more fully described in Exhibit 10.66. First Lien Credit Agreement and Exhibit 10.67. Second Lien Credit Agreement attached to the Companys Annual Report on Form 10-K filed on June27, 2007.
The borrowings under the financing arrangements will accrue interest at one of the following rates, at the Companys option: (i) in the case of a base rate loan, at the base rate plus the applicable margin; (ii) if a eurodollar rate
loan, at the eurodollar rate plus the applicable margin; and (iii) in the case of swing line loans and all other obligations under the financing agreements, at the base rate plus the applicable margin. The applicable margin is initially, with
respect to each of base rate loans and eurodollar rate loans, a fixed percentage, per annum, and thereafter, with respect to the revolving loans, swing line loans and term loans, a percentage, per annum, determined by reference to the leverage ratio
in effect from time to time.



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DOIC incurred $6.7 million in debt issuance costs related to the new credit facilities with GECC are
amortizing these costs over the remaining terms of the facilities.

In connection with the refinancing, on June 25, 2007, DOIC
terminated its credit facility which would have expired on January 4, 2009, with Bank of America (the BofA Credit Facility) to provide for a $50.0 million, senior secured revolving credit facility, which includes a $30.0 million
sub-limit for standby and documentary letters of credit. The BofA Credit Facility bore 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 Bank of America 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 nine months plus the applicable margin thereon.

Off-Balance Sheet Arrangements

We have no
off-balance sheet arrangements as defined under Item 303(a)(4) of Regulation S-K.

Contractual Obligations and Commitments

The following table summarizes our significant contractual obligations at June 30, 2007, and the effect such obligations are expected to have on our
liquidity and cash flows in future periods. This table excludes accounts payable, accrued expenses (except restructuring charges), taxes payable and deferred revenue already recorded on our balance sheet as current liabilities at June 30, 2007.



|                                      |  |                                              |         |                 |   |            |  |             |        |              |   |         |  |   |       
|------------------------------------- |  | -------------------------------------------- | ------- | --------------- | - | ---------- |  | ----------- | ------ | ------------ | - | ------- |  | - | ------
|                                      |  | Amount of contractual obligations per period
|                                      |  | Total                                        |         | Less than1 year |   | 1 3 years |  | 4  5 years |        | After 5years
|Long-term debt  11.0% Notes          |  | $                                            | 175,000 |                 | $ | 175,000    |  | $           |       |              | $ |        |  | $ |      
|Long-term debt  10.0% Notes          |  |                                              | 64,520  |                 |   | 64,520     |  |             |       |              |   |        |  |   |      
|Senior secured credit facility        |  |                                              | 105,000 |                 |   | 600        |  |             | 3,000  |              |   | 101,400 |  |   |      
|Capital lease obligations             |  |                                              | 879     |                 |   | 612        |  |             | 267    |              |   |        |  |   |      
|Other long-term obligations           |  |                                              | 15,291  |                 |   | 14,909     |  |             | 188    |              |   | 79      |  |   | 115   
|Restructuring payment obligations (1) |  |                                              | 4,708   |                 |   | 2,941      |  |             | 1,767  |              |   |        |  |   |      
|Operating lease obligations           |  |                                              | 49,876  |                 |   | 11,824     |  |             | 18,183 |              |   | 8,285   |  |   | 11,584
|Purchase obligations                  |  |                                              | 17,726  |                 |   | 17,726     |  |             |       |              |   |        |  |   |      
|                                      |  |                                              |         |                 |   |            |  |             |        |              |   |         |  |   |       
|Total contractual obligations         |  | $                                            | 433,000 |                 | $ | 288,132    |  | $           | 23,405 |              | $ | 109,764 |  | $ | 11,699
|                                      |  |                                              |         |                 |   |            |  |             |        |              |   |         |  |   |       

---

|(1) | Includes amounts as part of restructuring plans committed to by management.
|--- | ---------------------------------------------------------------------------

Other Financing Arrangements

Senior Convertible Participating Shares

On December 17, 1999, we issued 218,000 6.50% senior convertible participating shares, or the 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. In accordance with the terms of their issue, dividends were payable in the form of additional
participating shares in the period through to December 2004. The terms of DOICs financing agreements with GECC restrict the payment of cash dividends. Accordingly, dividends, which are cumulative, were paid in the form of additional
participating shares from issuance to December 2004. At that time, we were 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 includes our 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
holders of the participating shares are, in general, entitled to appoint two directors to the board. In the event that the Company does not pay dividends in cash for nine successive quarters following December 2004, they are entitled to appoint a
further two directors until the time the Company has paid cash dividends on the participating shares for four successive quarters. As of the date of this filing, the holders of the participating shares have appointed two directors to the
Companys Board of Directors.



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The participating shares are currently convertible into ordinary shares at a conversion price of $3.11
per ordinary share (equal to $12.44 per ADS), subject to adjustment in certain circumstances to avoid dilution of the interests of participating shareholders. As of June 30, 2007 the participating shares have voting rights, on an as converted
basis, currently corresponding to approximately 29.9% of the total voting power of our capital stock which includes an additional 133,619 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, and except as set out immediately following, to redeem all of the then outstanding participating shares. If we fail to do this, we must then redeem the maximum number of such shares
that can then lawfully be redeemed, assuming that the liquidation value per participating share is at that time greater than the market value of the ordinary shares into which the participating shares are convertible. The amount to be paid on the
redemption of each participating share in cash is 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.

English Company law (to which we are subject, as an English corporation) requires that the participating shares
may be redeemed only out of our accumulated, realized profits (as described below, and generally described under English law as distributable profits) or, subject to some restrictions, the proceeds of a new issuance of shares for the
purposes of financing the redemption.

We currently estimate that, as of December 17, 2010, the liquidation value of the then
outstanding participating shares will be approximately $419.8 million. To the extent that we are legally permitted to do so, and except where a majority of our board of directors decided bona fide that to do so would be materially prejudicial to the
business of the subsidiary undertaking, we are required to use our best efforts to ensure that our subsidiary undertakings distribute to us a sufficient amount of their profits, if any, to enable us to redeem the convertible participating shares. If
we have insufficient distributable profits on December 17, 2010 to redeem the participating shares in full, we will be required to use our best efforts to complete a fresh issue of shares and use the proceeds of that fresh issue to finance the
redemption. As of the date of this document, we have no distributable profits. However, in determining whether we are able to issue new shares, we may take into account then prevailing market conditions and other factors deemed reasonable by a
majority of our board of directors, and we will not be required to issue new shares to the extent prohibited by our then existing indebtedness, whether under our principal bank credit facilities or pursuant to debt securities issued in an aggregate
principal amount in excess of $50.0 million in a bona fide underwritten public offering or in a bona fide private offering.

In the event
that we are unable to redeem all of the then outstanding participating shares on December 10, 2010, we are required to redeem so many of the shares as we are able, pro rata among the holders of the participating shares. Any participating shares
that are not so redeemed shall remain outstanding, but shall thereafter be entitled to dividends at an increased rate of 8.5% per annum until redemption.

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

In order to manage our liquidity and
capital requirements beyond redemption dates, we are likely either to pursue alternative financing arrangements or modifications in relation to the relevant requirements in relation to the redemption of the participating shares.

General Electric Capital Corporation

We have an
agreement with 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 three months ended June 30, 2007 and 2006, we were not required to make any penalty payments to GECC.



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Tax Payments

We have not paid substantial amounts of income tax in the prior three years because of our net operating losses in most jurisdictions. We are subject to audits by multiple tax authorities with respect to prior years and certain of these
audits are in the latter stages. Where we disagree with any of these positions adopted by the tax authorities, we may formally protest them.

Recent
Accounting Pronouncements

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in a companys financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This interpretation
prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition of tax benefits,
classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted FIN 48 effective April 1, 2007. As a result of the adoption of FIN 48, the Company has $10.5 million of
unrecognized tax benefits recorded. Of this $0.6 million would affect the Companys effective tax rate, if recognized. Of this amount, less than $0.1 million was recorded as a reduction to the April 1, 2007 retained earnings balance.

The Company files numerous income tax returns in the U.S. at the federal, state and local levels, and in certain foreign jurisdictions.
The Company has analyzed filing positions in all of the federal, state and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. With few exceptions, the Company is no longer
subject to U.S. federal, state, local, or foreign income tax examinations by taxing authorities for years prior to the fiscal year ended March 31, 2004. The Company is not currently under audit by the Internal Revenue Service but is currently
under audit in certain state and local jurisdictions. Returns filed in the United Kingdom for tax years ended March 31, 2005 and 2006, are currently under review. We have filed claims in certain jurisdictions to assert our position should the
law be clarified by judicial means. At this point in time, we believe it is unlikely that we will receive any benefit from these claims, but we will continue to monitor developments until the issues are fully resolved. Accordingly, we have not
included any benefit for these claims in the amount of unrecognized tax benefits.

As a result of the implementation of FIN 48, the Company
recognized a $2.1 million decrease in assets for unrecognized tax benefits associated with federal net operating losses, a $0.6 million decrease in assets for unrecognized tax benefits associated with state net operating losses and a $3.8 million
decrease in assets for unrecognized tax benefits associated with foreign net operating losses. Included in the balance of unrecognized tax benefits at April 1, 2007 is $5.0 million related to tax positions for which it is reasonably possible
that the total amounts could materially change within the next twelve months. This amount represents a decrease in unrecognized tax benefits from prior periods comprised of items related to the expiration of statues in various jurisdictions.

The Companys policy is to recognize interest and penalties related to unrecognized tax benefits as part of its provision for federal
and state income tax expense. As of the date of adoption, the Company has accrued $0.2 million of interest and penalties related to unrecognized tax benefits.

In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements (FAS 157) which provides enhanced guidance for using fair value to measure assets and liabilities. FAS
157 clarifies the principle that fair value should be based on assumptions market participants would use when pricing an asset or liability. Under FAS 157, fair value measurements would be separately disclosed by level within a fair value hierarchy.
FAS 157 is effective for Danka beginning April 1, 2008 although early adoption is permitted. The Company does not expect FAS 157 to have a material impact on its historical consolidated financial position and results of operations, but could
have an impact on the measurement of assets and liabilities acquired following the effective date of the new standard.



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|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Interest Rate Risk

Our market risk is primarily limited to fluctuations in interest rates as they pertain to our borrowings
under our credit facility, while the 11.0% senior notes and the 10.0% subordinated notes bear a fixed rate.

We had outstanding $64.5
million of subordinated notes that have a fixed annual interest rate of 10.0% and interest payments of $3.2 million for the subordinated notes were to be paid every six months on April 1 and October 1. The subordinated notes mature on
April 1, 2008. The Company redeemed and paid the subordinated notes at par plus accrued and unpaid interest on July 27, 2007.

We
had outstanding $175.0 million aggregate principal amount of senior notes that had a fixed annual interest rate of 11.0% and interest payments of $9.6 million for the senior notes were to be paid every six months on June 15 and
December 15. The senior notes mature on June 15, 2010. The Company redeemed and paid the senior notes at 105.5% of par plus accrued and unpaid interest on July 27, 2007.

We also had a credit facility with Bank of America (the BofA Credit Facility) that was to expire on January 4, 2009, to provide a $50.0
million, senior secured revolving credit facility, which includes a $30.0 million sublimit for standby and documentary letters of credit. The BofA Credit Facility bore 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 Bank of America 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 nine months plus the
applicable margin thereon. The Company terminated this agreement on June 25, 2007.

We completed financing arrangements with GECC on
June 25, 2007 to provide for a $105 million term loan and a $40.0 million revolving credit facility. The borrowings under these financing arrangements will accrue interest at one of the following rates, at DOICs option: (i) in the
case of a base rate loan, at the base rate plus the applicable margin; (ii) if a eurodollar rate loan, at the eurodollar rate plus the applicable margin; and (iii) in the case of swing line loans, at the base rate plus the applicable
margin. The applicable margin is initially, with respect to each of base rate loans and eurodollar rate loans, a fixed percentage, per annum, and thereafter, with respect to the revolving loans, swing line loans and term loans, a percentage, per
annum, determined by reference to the leverage ratio in effect from time to time.

Market Risk

Our market risk is primarily limited to fluctuations in interest rates as it pertains to our borrowings under our credit facilities with GECC.



|Item 4. | Controls and Procedures
|------- | -----------------------

We maintain disclosure
controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal
financial officer), to allow timely decisions regarding required disclosure. We have established a Disclosure Committee, consisting of certain members of management, to assist in this evaluation. The Disclosure Committee meets on a regular quarterly
basis, and as needed.

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), at June 30, 2007. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, at
June 30, 2007, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended June 30, 2007 that have materially affected, or are
reasonably likely to materially affect our internal controls over financial reporting.



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APPROVAL OF NON-AUDIT SERVICES

The audit committee has approved Ernst & Young LLP and its affiliates to perform services relating to the Companys 401(k) plan during the three months ended June 30, 2007.

PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

Litigation:In June 2003,
Danka was served with a 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 the Company has removed the claim to the United States District
Court for Middle District of Tennessee for further proceedings. The plaintiffs have filed a motion to certify the class, which the Company has opposed. The Company had filed a motion for summary judgment, which plaintiffs had opposed. On
October 13, 2006, the United States District Court for the Middle District of Tennessee granted Dankas motion for summary judgment and dismissed the Plaintiffs claims regarding shipping and handling charges, which served as the
basis of the putative class claim. The U.S. District Court ruling effectively defeats the Plaintiffs ability to represent a class or serve as a potential class member. The Plaintiffs remaining claim has not been
resolved, but its resolution, even if adverse to the Company, is not expected to have a material impact on the Companys financial condition. The Company does not know whether the Plaintiff will attempt to appeal the ruling
dismissing the claim relating to shipping and handling charges. The Company will continue to vigorously defend the claims alleged by the plaintiff in this action.

The Company is also subject to legal proceedings and claims which arise in the ordinary course of its business. The Company does not expect these legal proceedings to have a material effect upon its financial
position, results of operations or liquidity.



|Item 2. | Changes in Securities and Use of Proceeds
|------- | -----------------------------------------

Not
applicable.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

Not applicable.



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

Not applicable.



|Item 5. | Other Information
|------- | -----------------

Notices of Redemption were
initiated by the Company on June 25, 2007 to the holders of the 11.0% Senior Notes due 2010 at 105.5% of par plus accrued and unpaid interest and to the holders of the 10.0% Subordinated Notes due 2008 at 100.0% of par plus accrued and unpaid.
On July 27, 2007, the senior notes and subordinated notes were redeemed and paid as more fully described in Note 9. Subsequent Events to the consolidated condensed financial statements.



|Item 6. | Exhibits
|------- | --------



| | (a) | Exhibits.
| | --- | ---------



|            |  |                                                                                                                                         
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                             
|10.69       |  | Employment Agreement dated September 15, 2006 between Danka Office Imaging Company and Rod Denzer.                                      
|            | 
|10.70       |  | Change of Control Agreement dated July 5, 2006 between Danka Business Systems PLC, Danka Office Imaging Company and Rod Denzer.         
|            | 
|10.71       |  | Employment Agreement dated September 15, 2006 between Danka Office Imaging Company and William Troxil.                                  
|            | 
|10.72       |  | Change of Control Agreement dated November 17, 1998 between Danka Business Systems PLC, Danka Office Imaging Company and William Troxil.



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|      |  |                                                                                                                                                     
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.73 |  | Employment Agreement dated June 30, 2002 between Danka Office Imaging Company, Danka Business Systems PLC, Danka Holding Company and Donald Thurman.
|      | 
|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.              



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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: August 2, 2007 |  |  |  | /s/ Edward K. Quibell     
|                     |  |  |  | Edward K. Quibell         
|                     |  |  |  | Chief Financial Officer   

Exhibit Index



|            |  |                                                                                                                                                     
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                         
|10.69       |  | Employment Agreement dated September 15, 2006 between Danka Office Imaging Company and Rod Denzer.                                                  
|            | 
|10.70       |  | Change of Control Agreement dated July 5, 2006 between Danka Business Systems PLC, Danka Office Imaging Company and Rod Denzer.                     
|            | 
|10.71       |  | Employment Agreement dated September 15, 2006 between Danka Office Imaging Company and William Troxil.                                              
|            | 
|10.72       |  | Change of Control Agreement dated November 17, 1998 between Danka Business Systems PLC, Danka Office Imaging Company and William Troxil.            
|            | 
|10.73       |  | Employment Agreement dated June 30, 2002 between Danka Office Imaging Company, Danka Business Systems PLC, Danka Holding Company and Donald Thurman.
|            | 
|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.              



37