<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549




                                    FORM 10-Q



(Mark One)
|X|      QUARTERLY  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934 FOR THE  QUARTERLY  PERIOD ENDED
         SEPTEMBER 30, 1998 OR

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


         Commission file number:  0-20828

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

<TABLE>
<S>                                                    <C>       
ENGLAND                                                98-0052869        
------------------------------------------------       ------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR       (I.R.S. EMPLOYER 
ORGANIZATION)                                          IDENTIFICATION NO.)
11201 DANKA CIRCLE NORTH                        
ST. PETERSBURG, FLORIDA                                33716              
------------------------------------------------       ------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)               (ZIP CODE)
</TABLE>

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

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


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

The registrant had 227,495,865 Ordinary shares outstanding as of September 30,
1998.



<PAGE>   2



                                      INDEX



<TABLE>
<CAPTION>
                                                                                     Page
<S>                                                                                  <C>    
PART I - FINANCIAL INFORMATION

    Item 1 - Consolidated Financial Statements

          Consolidated Statements of Operations for the three months ended           
          September 30, 1998 and 1997 (Unaudited)                                     3

          Consolidated Statements of Operations for the six months ended
          September 30, 1998 and 1997 (Unaudited)                                     4

          Condensed Consolidated Balance Sheets as of September 30, 1998
          (Unaudited) and March 31, 1998 (Audited)                                    5

          Consolidated Statements of Cash Flows for the six months
          ended September 30, 1998 and 1997 (Unaudited)                               6

          Consolidated Statements of Shareholders' Equity for the six months
          ended September 30, 1998 and 1997 (Unaudited)                               7

          Notes to Consolidated Financial Statements (Unaudited)                      8


    Item 2 -  Management's Discussion and Analysis of Financial Condition
                and Results of Operations                                             14




PART II - OTHER INFORMATION

    Item 1 - Legal Proceedings                                                        28
    Item 2 - Changes in Securities                                                    28
    Item 3 - Defaults upon Senior Securities                                          28
    Item 4 - Submission of Matters to a Vote of Security Holders                      28
    Item 5 - Other Information                                                        30
    Item 6 - Exhibits and Reports on Form 8-K                                         30

Signature                                                                             33
</TABLE>


                                       2
<PAGE>   3






PART I - FINANCIAL INFORMATION
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER AMERICAN DEPOSITARY SHARE ("ADS") AMOUNTS)


<TABLE>
<CAPTION>
                                                         FOR THE THREE MONTHS ENDED
                                                  ------------------------------------------
                                                    SEPTEMBER 30,            SEPTEMBER 30,
                                                       1998                     1997        
                                                  ----------------         -----------------
                                                     (UNAUDITED)              (UNAUDITED)
<S>                                              <C>                    <C>    
REVENUE:
Retail equipment sales                            $          203,997     $          238,214
Retail service, supplies and rentals                         476,318                514,538
Wholesale                                                     53,529                 62,011
-----------------------------------------------   ------------------     ------------------
Total revenue                                                733,844                814,763
-----------------------------------------------   ------------------     ------------------
COSTS AND OPERATING EXPENSES:
Cost of retail equipment sales                               143,116                154,837
Retail service, supplies and rental costs                    297,087                310,996
Wholesale costs of revenue                                    43,919                 49,902
Selling, general and administrative expenses                 234,962                235,306
Amortization of intangible assets                              5,007                  4,688
Research & development costs                                  12,500                 12,502
-----------------------------------------------   ------------------     ------------------
Total costs and operating expenses                           736,591                768,231
-----------------------------------------------   ------------------     ------------------
(LOSS) EARNINGS FROM OPERATIONS                               (2,747)                46,532
Interest expense and other, net                               18,520                 15,084
-----------------------------------------------   ------------------     ------------------
(LOSS) EARNINGS BEFORE INCOME TAXES                          (21,267)                31,448
Provision for income taxes                                    (7,912)                11,723
-----------------------------------------------   ------------------     ------------------
NET (LOSS) EARNINGS                               $          (13,355)    $           19,725
===============================================   ==================     ==================

BASIC (LOSS) EARNINGS PER ADS:
  Net (loss) earnings per ADS                     $            (0.23)    $             0.35
  Weighted average ADSs                                       56,874                 56,771

DILUTED (LOSS) EARNINGS PER ADS:
  Net (loss) earnings per ADS                     $           (0.23)     $             0.34
  Weighted average ADSs                                      56,874                  58,029
</TABLE>


SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                                       3

<PAGE>   4



DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER AMERICAN DEPOSITARY SHARE ("ADS") AMOUNTS)

<TABLE>
<CAPTION>
                                                                 FOR THE SIX MONTHS ENDED
                                                         -----------------------------------------
                                                           SEPTEMBER 30,          SEPTEMBER 30,
                                                                1998                   1997
------------------------------------------------------   -------------------    ------------------
                                                            (UNAUDITED)            (UNAUDITED)
<S>                                                    <C>                    <C>    
REVENUE:
Retail equipment sales                                   $          398,665     $          485,454
Retail service, supplies and rentals                                978,865              1,037,963
Wholesale                                                           121,713                125,434
------------------------------------------------------   ------------------     ------------------
Total revenue                                                     1,499,243              1,648,851
------------------------------------------------------   ------------------     ------------------
COSTS AND OPERATING EXPENSES:                                                
Cost of retail equipment sales                                      278,505                314,524
Retail service, supplies and rental costs                           590,276                625,002
Wholesale costs of revenue                                          101,669                101,135
Selling, general and administrative expenses                        472,758                481,179
Amortization of intangible assets                                    10,379                  9,352
Research & development costs                                         25,000                 25,002
------------------------------------------------------   ------------------     ------------------
Total costs and operating expenses                                1,478,587              1,556,194
------------------------------------------------------   ------------------     ------------------
EARNINGS FROM OPERATIONS                                             20,656                 92,657
Interest expense and other, net                                      33,944                 31,843
------------------------------------------------------   ------------------     ------------------
(LOSS) EARNINGS BEFORE INCOME TAXES                                 (13,288)                60,814
Provision for income taxes                                           (4,944)                22,623
------------------------------------------------------   ------------------     ------------------
NET (LOSS) EARNINGS                                      $           (8,344)    $           38,191
======================================================   ==================     ==================

BASIC (LOSS) EARNINGS PER ADS:
  Net (loss) earnings per ADS                            $            (0.15)     $            0.67
  Weighted average ADSs                                              56,874                 56,741

DILUTED (LOSS) EARNINGS PER ADS:
  Net (loss) earnings per ADS                            $            (0.15)     $            0.66
  Weighted average ADSs                                              56,874                 57,866
</TABLE>


SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


                                       4

<PAGE>   5






DANKA BUSINESS SYSTEMS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                             SEPTEMBER 30,               MARCH 31,
                                                                  1998                     1998
--------------------------------------------------------   ------------------       ------------------  
                                                              (UNAUDITED)               (AUDITED)       
<S>                                                      <C>                      <C>                   
ASSETS                                                                                                  
CURRENT ASSETS:                                                                                         
Cash and cash equivalents                                  $           15,376       $           34,653  
Accounts receivable, net                                              615,053                  628,052  
Inventories                                                           540,088                  482,656  
Prepaid expenses and other current assets                              34,931                   35,414  
--------------------------------------------------------   ------------------       ------------------  
TOTAL CURRENT ASSETS                                                1,205,448                1,180,775  
                                                                                                        
Equipment on operating leases, net                                    308,282                  294,348  
Property and equipment, net                                           103,319                   87,916  
Intangible assets, net                                                487,427                  485,032  
Other assets                                                          130,698                  130,870  
--------------------------------------------------------   ------------------       ------------------
TOTAL ASSETS                                               $        2,235,174       $        2,178,941  
========================================================   ==================       ==================  
LIABILITIES AND SHAREHOLDERS' EQUITY                                                                    
CURRENT LIABILITIES:                                                                                    
Current maturities of long-term debt and notes payable     $          102,987       $           84,490 
Accounts payable                                                      311,953                  297,464  
Accrued expenses and other current liabilities                        297,172                  338,237
Deferred revenue                                                       68,465                   70,476   
--------------------------------------------------------   ------------------       ------------------   
TOTAL CURRENT LIABILITIES                                             780,577                  790,667   
Convertible subordinated notes                                        200,000                  200,000   
Other long-term debt                                                  744,474                  658,892   
Deferred income taxes and other long-term liabilities                  39,301                   49,075   
--------------------------------------------------------   ------------------       ------------------   
TOTAL LIABILITIES                                                   1,764,352                1,698,634   
--------------------------------------------------------   ------------------       ------------------   
SHAREHOLDERS' EQUITY:                                                                                    
Ordinary shares, 1.25 pence stated value; 500,000,000
authorized; 227,495,865 issued and outstanding                          4,746                    4,746
Additional paid-in capital                                            304,197                  304,197
Retained earnings                                                     213,621                  227,917
Accumulated other comprehensive income                                (51,742)                 (56,553)
--------------------------------------------------------   ------------------       ------------------
TOTAL SHAREHOLDERS' EQUITY                                            470,822                  480,307  
--------------------------------------------------------   ------------------       ------------------  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                 $        2,235,174       $        2,178,941  
========================================================   ==================       ==================  
</TABLE>


SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                                       5

<PAGE>   6



DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                     FOR THE SIX MONTHS ENDED
                                                                               ------------------------------------
                                                                                 SEPTEMBER 30,       SEPTEMBER 30,
                                                                                     1998                1997
--------------------------------------------------------------------------     ------------------   ---------------
                                                                                  (UNAUDITED)         (UNAUDITED)
<S>                                                                           <C>                  <C>    
OPERATING ACTIVITIES
Net (loss) earnings                                                            $       (8,344)     $        38,191
Adjustments to reconcile net (loss) earnings to net cash
provided by operating activities:
   Depreciation and amortization                                                       82,695               82,982
   Loss on sale of property and equipment                                               7,309                  757
   Proceeds from sale of rental equipment                                              17,482                7,165
   Changes in assets and liabilities, net of effects from the purchase of
   subsidiaries:
      Accounts  receivable                                                             11,211               (6,411)
      Inventories                                                                     (52,738)             (60,239)
      Prepaid expenses and other current assets                                         4,689              (12,117)
      Other noncurrent assets                                                             785                4,891
      Accounts payable                                                                 11,790               12,850
      Accrued expenses                                                                (35,658)             (38,635)
      Deferred revenue                                                                 (1,844)                (705)
      Deferred income taxes and other long-term liabilities                            (9,635)               1,093 
--------------------------------------------------------------------------     --------------      --------------- 
NET CASH PROVIDED BY OPERATING ACTIVITIES                                              27,742               29,822 
--------------------------------------------------------------------------     --------------      --------------- 
INVESTING ACTIVITIES                                                                                               
Capital expenditures                                                                 (117,374)             (79,749)
Proceeds from sale of property and equipment                                            2,475                7,020 
Purchase of subsidiaries, net and proceeds                                                                         
     from settlement of fiscal year 1997 acquisition                                   (1,341)             106,568 
--------------------------------------------------------------------------     --------------      --------------- 
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES                                  (116,240)              33,839
--------------------------------------------------------------------------     --------------      --------------- 
FINANCING ACTIVITIES
Net borrowings (payments) under line of credit agreements                              68,278              (97,444)
Principal payments on debt                                                               (679)              (1,831)
Proceeds from stock options exercised                                                      --                1,885 
Dividends                                                                              (5,952)              (4,847)
--------------------------------------------------------------------------     --------------      --------------- 
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                    61,647            (102,237) 
--------------------------------------------------------------------------     --------------      --------------- 
EFFECT OF EXCHANGE RATES                                                                7,574               10,612 
--------------------------------------------------------------------------                                         
                                                                               --------------      --------------- 
NET DECREASE IN CASH AND CASH EQUIVALENTS                                             (19,277)             (27,964)
Cash and cash equivalents, beginning of period                                         34,653               73,875
--------------------------------------------------------------------------                                         
                                                                               --------------      --------------- 
CASH AND CASH EQUIVALENTS, END OF PERIOD                                       $       15,376      $        45,911 
==========================================================================     ==============      =============== 

</TABLE>                                                           

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                                       6
<PAGE>   7



DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                ADDITIONAL                           CURRENCY
                                               ORDINARY          PAID-IN          RETAINED         TRANSLATION       
                                               SHARES           CAPITAL          EARNINGS           ADJUSTMENT         TOTAL
----------------------------------------    ---------------   -------------   ---------------    ---------------   ------------
                                             (Unaudited)       (Unaudited)      (Unaudited)        (Unaudited)     (Unaudited)
<S>               <C> <C>                  <C>              <C>             <C>               <C>               <C>             
BALANCES AT MARCH 31, 1998                  $        4,746  $      304,197  $      227,917    $      (56,553)   $       480,307
                                                                            
Net loss                                                                            (8,344)                              (8,344)
                                                                            
Dividends                                                                           (5,952)                              (5,952)
                                                                          
Currency translation adjustment                                                                        4,811              4,811
                                                                          
----------------------------------------    --------------  --------------  --------------    --------------     --------------
BALANCES AT SEPTEMBER 30, 1998              $        4,746  $      304,197  $      213,621    $      (51,742)    $      470,822
========================================    ==============  ==============  ==============    ==============     ==============

BALANCES AT MARCH 31, 1997                  $        4,734  $      301,623  $      186,306    $      (26,932)    $      465,731

Net earnings                                                                        38,191                               38,191

Dividends                                                                           (4,847)                              (4,847)

Shares issued under employee
  option plans                                           7           1,878                                                1,885

Currency Translation                                                                                 (11,734)           (11,734)

----------------------------------------    --------------  --------------  --------------    --------------    ---------------
BALANCES AT SEPTEMBER 30, 1997              $        4,741  $      303,501  $      219,650    $      (38,666)   $       469,226
========================================    ==============  ==============  ==============    ==============    ===============
</TABLE>



SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS









                                       7







<PAGE>   8

     DANKA BUSINESS SYSTEMS PLC
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     (UNAUDITED)



     NOTE 1.  BASIS OF PRESENTATION

          The accompanying condensed consolidated balance sheet as of September
     30, 1998, consolidated statements of operations for the three months and
     six months ended September 30, 1998 and 1997, the consolidated statements
     of shareholders' equity for the six months ended September 30, 1998 and
     1997, and the consolidated statements of cash flows for the six months
     ended September 30, 1998 and 1997 are unaudited. In the opinion of
     management, all adjustments, consisting of normal recurring accruals,
     necessary for a fair presentation of the results of operations for the
     interim periods presented have been reflected herein. The results of
     operations for the interim periods are not necessarily indicative of the
     results which may be expected for the entire fiscal year. The consolidated
     financial statements should be read in conjunction with the consolidated
     financial statements and the notes thereto included in Danka Business
     Systems PLC's (the "Company") Annual Report for the year ended March 31,
     1998. Certain prior year amounts have been reclassified to conform with the
     current year presentation.


     NOTE 2.  RESTRUCTURING CHARGES

     FISCAL 1998 RESTRUCTURING CHARGE:
          In December 1997, the Company recorded an $11.0 million pre-tax
     restructuring charge, related to the integration of the Office Imaging
     division acquired from Eastman Kodak Company ("Kodak") with Danka's
     existing sales and service network. The restructuring charge principally
     consisted of severance and other employee termination benefits, and will
     ultimately result in the separation of over 1,000 employees worldwide. As
     of September 30, 1998, approximately $2.4 million remained in accrued
     liabilities for these separations. The reductions related to this charge,
     are expected to be substantially completed on a worldwide basis by December
     1998.

     FISCAL 1997 RESTRUCTURING CHARGE:
          In December 1996, the Company recorded a $35.0 million pre-tax
     restructuring charge, related to the integration of the Office Imaging
     division acquired from Kodak and the related transition to the Company's
     Market Based Approach in North America. As of September 30, 1998,
     approximately $11.5 million remained in accrued liabilities, primarily for
     the closing of duplicate facilities. The closure of the facilities related
     to this charge is expected to be substantially completed on a worldwide
     basis by the end of fiscal 1999.


     NOTE 3.  CREDIT AGREEMENT BANK WAIVER AND OTHER CONTINGENCIES

          As a result of the Company's profitability shortfall for the three
     months ended September 30, 1998, the Company requested and the Lenders
     granted a waiver of certain financial covenants and the consequences of
     failing to comply with such covenants for the period beginning on September
     30, 1998 and ending February 28, 1999. Terms of the waiver included
     limitation of new loans to be made under the Credit Agreement during the
     waiver period to a total of $75 million, a 70 basis point increase in the
     interest rate on certain borrowings under the Credit Agreement during the
     waiver period, the granting of security interests in substantially all of
     the Company's U.S. subsidiaries' assets to secure up to $225 million of the
     borrowings under the Credit Agreement and a $50 million reduction in the
     total commitment by the Lenders. The Company also agreed to use its best
     efforts to maintain, during the waiver period, at least $30 million of
     lines of credit outside the U.S. Furthermore, the Company agreed that it
     shall not incur additional Indebtedness (as defined in the Credit
     Agreement) except Indebtedness under the Credit Agreement and indebtedness
     under the lines required to be maintained outside the U.S. During the term
     of the waiver, the Company may not pay dividends and the Lenders' consent
     is required for any acquisition or investments by the Company. A copy of
     the waiver is available as exhibit 4.11 to the Company's Current Report on
     Form 8-K filed October 21, 1998.

                                       8
<PAGE>   9
         Since granting the waiver, the Lenders have advanced $40 million in new
     loans to the Company. The Company expects to receive the remaining $35
     million in loans which is to be available during the waiver period on or
     about November 30, 1998, subject to the Company's providing on or before
     November 30, 1998 a business plan demonstrating a process for reducing
     outstanding indebtedness and achieving results of operations necessary to
     permit performance under and satisfactory compliance with the Credit
     Agreement, review by the Lenders' consultant and the Lenders of the
     business plan and the Company's providing cash flow projections
     demonstrating the need for the additional loans. There can be no assurance
     that the business plan will be deemed satisfactory or that such loans will
     be made. Furthermore, there can be no assurance that such funding will be
     sufficient for the Company's operations through the waiver period if the
     loans are made.

         On October 14, 1998 Kodak purported to exercise provisions of the
     Supply Agreements between the Company terminating the Supply Agreements on
     60 days notice based on Kodak's claim that the Company had failed to pay
     undisputed invoices, subject to payment or notice to the contrary prior to
     the date of termination. At that time, Kodak had ceased to ship parts and
     supplies to the Company and had also informed the Company that it would no
     longer ship equipment to the Company. On October 30, 1998 Kodak purported
     to terminate the exclusivity rights with respect to new products on 30 days
     notice, stating that the basis for such termination was failure of the
     Company to make a scheduled payment under the research and development
     agreement between the Company and Kodak. The Company has reached an interim
     agreement with Kodak under which Kodak has agreed to provide parts and
     supplies to the Company in both its International and America's divisions
     on a cash basis through November 30, 1998. Under this agreement, the
     Company must make payments of 125% of the purchase price with the excess to
     be applied to outstanding invoices from Kodak for parts and supplies
     previously shipped. In addition, the Company agreed to pay to Kodak $5
     million on November 10, 1998 and $2.5 million on November 16, 1998 in each
     case to be applied to invoices from Kodak for parts and supplies previously
     shipped. Because of current high levels of Kodak equipment in inventory,
     the Company does not believe that failure by Kodak to ship equipment will
     present a material problem in the short term. The Company is in discussions
     with Kodak with respect to a longer term agreement to address the overall
     relationship on a going forward basis. The Company believes that there
     should be a mutually satisfactory basis for reaching a longer term
     agreement with Kodak and is endeavoring to obtain Kodak's agreement to
     continue the relationship on terms reasonably satisfactory to both parties.
     However, there can be no assurance that Kodak will agree to any agreement
     beyond November 30, 1998 or that such a mutually satisfactory agreement can
     be reached. Nevertheless, the Company believes that Kodak is obligated
     under contract and antitrust law to ship parts and supplies to the Company
     so long as the Company pays cash on order. At times during the second
     quarter, other suppliers suspended shipments to the Company. The Company's
     major suppliers other than Kodak have resumed shipment of equipment, parts
     and supplies, although, in some cases they are only shipping on a cash
     basis.

         The Supply Agreements with Kodak state that the Company is to make
     minimum purchases of equipment and related parts and supplies and to fund
     certain research and development activities of Kodak. As a result of these
     agreements, significant payments were made to Kodak during the six months
     ended September 30, 1998 for (i) research and development of a digital
     high-volume copier and (ii) for certain Kodak equipment which significantly
     exceeded the Company's inventory needs. Based upon currently anticipated
     demand for such products, cash flows and availability of financing, the
     Company does not believe it will have sufficient funds to make the minimum
     payments set forth in the agreements with Kodak. In addition, Kodak has
     claimed that certain payments on account of such minimums are due as to
     prior periods. The Company intends to address prior excess purchases,
     stated minimums for future periods and Kodak's claims as to prior periods
     as part of the discussions of the overall relationship with Kodak.








                                       9


<PAGE>   10
          If the Company is unable to reach a satisfactory resolution with Kodak
     regarding the matters discussed above, litigation could ensue as to one or
     more such matters. As the outcome of any litigation is inherently
     uncertain, there can be no assurance that the Company will achieve a
     successful result in any such litigation.

          The Company has historically financed a substantial portion of its
     leasing business using various funding sources. One of the largest programs
     to obtain such funding is one under which General Electric Capital
     Corporation ("GE Capital") provides funding used by a master trust to
     acquire customer leases from a subsidiary of the Company. On November 12,
     1998 GE Capital served a notice demanding various actions and assurances in
     connection with this program, including confirmation from the Company's
     bank Lenders that assets transferred to the master trust will be free and
     clear of the Lender's liens and making certain assertions which, under the
     terms of the program, could have a material adverse effect on the Company.
     The Company is currently in discussions with GE Capital and attempting to
     satisfy the requirements imposed by GE Capital. It is essential to the
     Company's continued operations that the GE Capital funding or an adequate
     substitute is available. The Company believes that there should be a
     mutually satisfactory basis for reaching an agreement with GE Capital.
     However, there can be no assurance that such a mutually satisfactory
     agreement can be reached. Therefore, there can be no assurance that such
     funding will be available or, if available, will be available on terms
     reasonably satisfactory to the Company. Notwithstanding the November 12,
     1998 notice, the Company has been in discussions with GE Capital with
     respect to a new, more extensive lease financing arrangement and has
     received from GE Capital a term sheet dated November 13, 1998 for such an
     arrangement and expects to reach a satisfactory agreement with GE Capital
     with respect to a renegotiation of the existing financing arrangements.
     However, the GE Capital term sheet expressly provided that it will be
     necessary to address the issues raised by GE Capital's November 12, 1998
     notice to reach a more extensive agreement. There can no assurance the
     Company will be able to reach such an agreement.

          As a result of the amendments to the Credit Agreement effective June
     30, 1998 and the terms of the waiver discussed above, the Company's tiered
     margin spread has increased, and therefore, the Company could experience
     increases in its interest expense depending on both the level of borrowings
     and the applicable interest rate. As of September 30, 1998 the Credit
     Agreement had an outstanding balance of approximately $328.0 million under
     the revolving component and $484.5 million under the term loan, all of
     which was incurring interest at a weighted average rate of 7.4% per annum.

          Additional investments in facilities and computer equipment may
     continue to be necessary to support the Company's operations, including the
     transition of the Office Imaging business from Kodak's computer system. As
     discussed above, in the absence of a restructuring of the Company's
     indebtedness and businesses there can be no assurance that cash flow from
     operations together with the borrowing capacity under the Credit Agreement
     (which is limited to an additional $35 million through the balance of the
     waiver period), will be adequate to finance the Company's operating cash
     requirements and capital expenditures. On a long term basis it will be
     necessary for the Company to obtain additional or replacement financing.
     There can be no assurance that such financing will be available or, if
     available, will be available on terms reasonably satisfactory to the
     Company.

                                       10
<PAGE>   11
          In light of the Company's current financial situation, it engaged the
     investment banking firm of Wasserstein, Perella & Co. to aid it in an
     examination of its businesses and advise the Company concerning a possible
     restructuring. The Company currently anticipates that it is likely that a
     future restructuring of its businesses will be necessary to address these
     difficulties. A key element of any such restructuring is anticipated to
     involve the Company's relationship with Kodak. However, there can be no
     assurance that Kodak will agree to a renegotiation of its agreements, or,
     if it does, will agree to a restructuring that resolves difficulties
     arising from the agreements between the Company and Kodak on a basis which
     will give the Company reasonable assurance of long term viability. Another
     likely part of any restructuring would involve the Company's consideration
     of the sale of one or more of its divisions or operating units to pay down
     debt and raise funds for operation of the remaining businesses. Another key
     element of a restructuring is anticipated to be an effort to bring the SG&A
     expenditures of the Company's U.S. division in line with anticipated sales.
     A restructuring would also likely include a renegotiation of the Credit
     Agreement in an effort to provide additional financial flexibility to the
     Company. There can be no assurance that the Company will be able to
     successfully address the relationship with Kodak, that the Company will be
     able to bring SG&A expenditures into line with actual sales levels of the
     Company's U.S. division, that the sale of one or more of the Company's
     divisions or operating units can be accomplished, or if accomplished, can
     be accomplished on terms reasonably satisfactory to the Company or that the
     Company can obtain the Lenders' agreement to amend the Credit Agreement or
     to amend it in a manner reasonably satisfactory to the Company.

          As stated above, management believes that the Company's fundamental
     businesses are sound. Nevertheless, as outlined above, the Company is
     facing many challenges and there are material risks that the Company will
     be unable to manage all of the issues it is facing. Based upon the business
     plan being developed, the Company believes that there should be a
     reasonable basis for meeting the challenges faced by the Company and
     managing the issues it is facing in a manner reasonably satisfactory to the
     Company. However, the Company is unable to predict the outcome of the
     issues outlined above. If the Company is unable to address one or more of
     these issues and reach resolutions reasonably satisfactory to the Company,
     the outcome may have a material adverse effect on the Company and its
     operations, including the recoverability of recorded asset amounts. If this
     occurs one alternative that the Company might choose, either in the
     immediate future or in the longer term, would be to seek protection under
     Chapter 11 of the U.S. Bankruptcy Code and, to the extent appropriate, the
     laws of the United Kingdom and other non-U.S. jurisdictions providing
     protection from creditors.

          The Internal Revenue Service is conducting an examination of the
     Company's federal income tax returns for the fiscal years ended March 31,
     1995 and 1996. The Company has received various notices of proposed
     adjustments; the principal adjustment relates to the timing of certain
     deductions associated with leased equipment financing. While the ultimate
     result can not be determined with certainty, the Company intends to
     vigorously contest the proposed adjustments and believes that the ultimate
     resolution will not materially impact the Company's consolidated results of
     operations or financial position.

                                       11
<PAGE>   12



     NOTE 4.  EARNINGS PER SHARE

     The following table reconciles the numerator and denominator of the basic
     and diluted earnings per ADS computations:

<TABLE>
<CAPTION>
                                            FOR THE THREE MONTHS ENDED                   FOR THE SIX MONTHS ENDED
                                                SEPTEMBER 30, 1998                          SEPTEMBER 30, 1998
                                      ---------------------------------------    ----------------------------------------
      (In 000's except per share        INCOME        SHARES      PER-SHARE        INCOME         SHARES       PER-SHARE
      amounts)                        (NUMERATOR)  (DENOMINATOR)   AMOUNT        (NUMERATOR)   (DENOMINATOR)     AMOUNT
                                      ------------ ------------- ------------    ----------------------------------------
      <S>                             <C>           <C>           <C>            <C>           <C>             <C>    
      Net loss                          ($13,355)                                   ($8,344)

      BASIC LOSS PER ADS (1):
        Income available to              
        shareholders                     (13,355)      56,874         ($0.23)        (8,344)        56,874        ($0.15)
                                                                      ======                                      ======
</TABLE>


     (1) Basic loss per ADS equals diluted loss per ADS due to the net loss
     incurred by the Company for the three and six months ended September 30,
     1998.


     NOTE 5.  COMPREHENSIVE (LOSS) INCOME

     The following table presents comprehensive (loss) income for the three and
six months ended September 30, 1998 and 1997.


<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED            SIX MONTHS ENDED
                                                 SEPTEMBER 30,               SEPTEMBER 30,

                                               1998         1997           1998          1997
                                            ----------     --------     ----------    ----------
      <S>                                   <C>            <C>          <C>           <C>    
      Net (loss) earnings                     ($13,355)     $19,725        ($8,344)      $38,191
      Foreign currency translation               6,358       (6,717)         4,811       (11,734)
                                            ----------   ----------     ----------    ----------
                                                                                      
      Total comprehensive (loss) income        ($6,997)     $13,009        ($3,533)      $26,457
                                            ==========   ==========     ==========    ==========
</TABLE>

     NOTE 6.  NEW ACCOUNTING PRONOUNCEMENTS

     ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:

          In June 1998, the Financial Accounting Standards Board issued
     Statement of Financial Accounting Standards No. 133, "Accounting for
     Derivative Instruments and Hedging Activities", which is effective for the
     first quarter of the fiscal year beginning after June 15, 1999. Statement
     No. 133 establishes accounting and reporting requirements for derivative
     instruments and hedging activities, and modifies disclosures previously
     required under other accounting standards. Implementation of Statement No.
     133 may be complex. The Company has not yet analyzed the impact to the
     financial statements of adopting Statement No. 133.


                                       12


<PAGE>   13




     NOTE 7.  PENDING LITIGATION

         Following the Company's December 16, 1997 announcement regarding the
     expected shortfall in revenue and earnings for the third fiscal quarter of
     1998 and the 1998 fiscal year, purported class action lawsuits were filed
     in federal court against the Company and certain of its directors and
     officers, alleging violations of the federal securities laws. The lawsuits
     were consolidated and a consolidated class action complaint was filed on or
     about June 18, 1998. The case is in the early stage and while it is
     impossible to predict the outcome or impact of such litigation, management
     believes this litigation is without merit and intends to vigorously defend
     the lawsuit.





                                       13


<PAGE>   14


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

           Danka Business Systems PLC and its Subsidiaries ("Danka" or the
      "Company") is one of the world's largest independent suppliers of
      photocopiers, facsimiles and other related office imaging equipment. The
      Company primarily markets these products and related services, parts and
      supplies on a direct basis to retail customers. The Company also markets
      photocopiers, facsimiles, and related parts and supplies on a wholesale
      basis to independent dealers. The Company principally distributes the
      products of Canon, Kodak, Konica, Minolta, Ricoh, Sharp and Toshiba. In
      addition, the Company markets private label photocopiers and facsimiles
      and related supplies on a direct basis under the Company's Infotec
      trademark, and facsimile equipment under its dex and Omnifax trademarks.
      Danka became the exclusive distributor of Kodak branded photocopiers and
      printers in December 1996, after completing the acquisition of the sales,
      marketing, and equipment service operations of Kodak's Office Imaging
      division. The Company also purchased Kodak's outsourcing business, now
      known as Danka Services International ("DSI").

         On June 26, 1998 the Company announced that its revenue for the first
      quarter of fiscal 1999 would be approximately 10% below market
      expectations primarily due to lower equipment sales in the U.S., and as a
      result, earnings would be adversely impacted for the quarter and current
      fiscal year. The Company reported actual revenue of $765.4 million for the
      first quarter, an 8% decline over last year. The Company believes this
      shortfall was primarily related to internal issues, including the
      integration of the sales force, changes in the compensation plan
      introduced April 1 and sales order entry issues related to the integration
      of the product portfolios. Additionally, the Company is experiencing a
      recent increase in competition among equipment sales and this is impacting
      margins. See - "Gross Profit."

         In September, Danka announced a new strategic alliance with Canon that
      allows the Company to offer a complete line of color copiers to
      customers of all sizes throughout North America, Europe and select Latin
      American countries. The Company is also in negotiations with its vendors
      in efforts to broaden its black and white digital product portfolio.

         On October 5, 1998 the Company announced that its revenue for the
      second quarter of fiscal 1999 would be approximately 5% below the first
      quarter, or about 10% below the same quarter a year ago, and that the
      Company would likely report a loss for the quarter. The Company reported
      actual revenue of $733.8 million for the second quarter, a 4% decline over
      the first quarter and a 10% decline over the same quarter a year ago. On a
      sequential basis, the Company's equipment sales improved by 5%, in both
      the U.S. and International markets, while retail service, supplies and
      rentals revenue as well as wholesale sales were down. See - "Revenue."

         On October 16, 1998, the Company announced the appointment of
      Wasserstein Perella & Co. as financial advisor to the Company. In
      conjunction with Wasserstein, the Company is evaluating its strategic and
      financial options, including the possible sale of certain divisions.

         Upon the resignation of Daniel M. Doyle, Chief Executive, on October
      23, 1998, Larry K. Switzer, the Company's Chief Financial Officer was
      appointed as interim Chief Executive. On the same date, David W.  
      Kendall, a non-executive Director was appointed Chairman of the 
      Company, following the

                                       14
<PAGE>   15


      resignation of Mark A. Vaughan-Lee. The Company has retained Spencer
      Stuart, an executive recruiting firm to review both internal and 
      external candidates for the position of Chief Executive.

               The following table sets forth for the periods indicated the
      percentage of total revenue represented by certain items in the Company's
      Consolidated Statements of Operations:

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED             SIX MONTHS ENDED
                                                              SEPTEMBER 30,                  SEPTEMBER 30,
                                                           1998          1997              1998          1997
                                                           ----          ----              ----          ----
       <S>                                                <C>            <C>              <C>            <C> 
       Revenue:
         Retail equipment sales.....................       27.8  %          29.2  %        26.6  %        29.4  %
         Retail service, supplies and rentals.......       64.9             63.2           65.3           63.0
         Wholesale..................................        7.3              7.6            8.1            7.6
                                                            ---              ---            ---            ---
             Total revenue..........................      100.0            100.0          100.0          100.0
       Cost of revenue..............................       66.0             63.3           64.7           63.1
                                                           ----             ----           ----           ----
       Gross profit.................................       34.0             36.7           35.3           36.9
       Selling, general and administrative expenses.       32.0             28.9           31.5           29.2
       Amortization of intangible assets............        0.7              0.6            0.7            0.6
       Research and development costs...............        1.7              1.5            1.7            1.5
                                                            ---              ---            ---            ---
             (Loss) earnings from operations........       (0.4)             5.7            1.4            5.6
       Interest expense and other, net..............        2.5              1.9            2.3            1.9
                                                            ---              ---            ---            ---
             (Loss) earnings before income taxes....       (2.9)             3.8           (0.9)           3.7
       Provision for income taxes...................       (1.1)             1.4           (0.3)           1.4
                                                          -----              ---          -----            ---
             Net (loss) earnings....................       (1.8) %           2.4  %        (0.6) %         2.3  %
                                                          =====              ===          =====            ===
</TABLE>


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

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED              SIX MONTHS ENDED
                                                              SEPTEMBER 30,                  SEPTEMBER 30,
                                                           1998          1997             1998          1997
                                                           ----          ----             ----          ----
       <S>                                                <C>            <C>              <C>           <C>    
       Retail equipment sales.......................       29.8  %       35.0  %          30.1  %       35.2  %
       Retail service, supplies and rentals.........       37.6          39.6             39.7          39.8
       Wholesale....................................       18.0          19.5             16.5          19.4
</TABLE>



                                       15


<PAGE>   16


      QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO QUARTER ENDED SEPTEMBER 30, 
      1997:

      Revenue

               Revenue declined 10% to $733.8 million for the three months ended
      September 30, 1998 ("second quarter of fiscal 1999") compared to $814.8
      million for the three months ended September 30, 1997 ("second quarter of
      fiscal 1998"), primarily due to lower equipment sales and reduced retail
      service, supplies and rentals revenue in both the U.S. and international
      markets. The Company believes the shortfall in equipment sales is related
      to a number of factors, which include the integration of the sales force
      in the U.S., and an accelerated shift to digital products in the U.S. and
      Australasia. The Company is taking steps to improve its digital product
      availability in these regions to meet customer demand. In September 1998,
      the Company announced a strategic alliance with Canon allowing Danka to
      sell a complete line of color copiers throughout North America, Europe and
      select Latin American countries. The Company is also in negotiations with
      its vendors in efforts to broaden its black and white digital product
      portfolio. Equipment sales were also impacted in the International
      division, primarily in the UK and Australasia. As a result of the economic
      malaise in the Far East, competitive pressures from Japanese manufacturers
      selling directly to customers impacted equipment sales. Despite the
      revenue shortfall, the Company did benefit from stronger color copier and
      digital equipment sales in the U.S. for the second quarter of fiscal 1999,
      which grew 8% and 34% from the second quarter of fiscal 1998,
      respectively.

               The Company's retail service, supplies and rentals revenue
      declined to $476.3 million in the second quarter of fiscal 1999 from
      $514.5 million in the second quarter of fiscal 1998. The decline is
      primarily due to two factors. First, the erosion of the U.S. installed
      machine base, specifically within its named accounts, has resulted in a
      decline in service and supply revenue. Second, supply sales in the
      Company's International division have weakened due to competitive
      pressures from Japanese manufacturers selling directly to customers.

               Wholesale sales declined 14% to $53.5 million in the second
      quarter of fiscal 1999 from $62.0 million in the second quarter of fiscal
      1998 primarily due to lower sales in the U.S. in both equipment and
      supplies.

               Approximately 40% of the Company's revenue is generated in
      countries outside of the United States. As in prior periods, foreign
      exchange rate fluctuations have negatively impacted the Company's
      comparable financial results. Excluding the effect of foreign currency
      fluctuations, total revenue would have been approximately $5.0 million
      higher during the second quarter of fiscal 1999.


      Gross Profit

               Gross profit declined 16% to $249.7 million for the second
      quarter of fiscal 1999 from $299.0 million for the second quarter of
      fiscal 1998. The gross profit margin as a percentage of total revenue
      decreased to 34.0% for the second quarter of fiscal 1999 from 36.7% for
      the second quarter of fiscal 1998. The decline in the Company's combined
      gross profit margin was primarily due to lower retail margins in equipment
      and service, supplies and rentals.

               Gross profit as a percentage of retail equipment sales decreased
      to 29.8% for the second quarter of fiscal 1999 from 35.0% for the second
      quarter of fiscal 1998. The decline in the retail equipment margin is
      attributable to several factors. First, the International division is
      experiencing pressure on its equipment margins due to competitive
      pressures, some of which is coming from Japanese manufacturers

                                       16
<PAGE>   17


      selling directly to customers. Second, the impact of competitive pressures
      on equipment sales has also increased in the U.S. The Company believes
      that these competitive pressures in the U.S. and international markets
      will continue. Third, the Company's equipment margin was also affected by
      the Company's continued efforts to reduce inventory levels which were
      accompanied with lower pricing.

               As a percentage of revenue, the gross profit margin on retail
      service, supplies and rentals decreased to 37.6% for the second quarter of
      fiscal 1999 from 39.6% for the second quarter of fiscal 1998. The decline
      is due to several factors. First, the margin was affected by the loss of
      the installed machine base and related service revenue in the U.S., while
      costs remained relatively constant. Although a reduction in the installed
      machine base has affected the gross margin, pricing has remained stable.
      Second, the direct selling by Japanese manufacturers of copier supplies in
      the International division has impacted the Company's retail service,
      supplies and rentals margin. Excluding the Company's outsourcing business
      (DSI), the retail service, supply and rentals margin was 40.2% compared to
      41.6% for the second quarter of fiscal 1998. DSI has a lower gross profit
      margin due to the nature of the business. Although DSI has a lower gross
      profit margin than the Company's core copier business, its operating
      profit margin was approximately 10% of revenue for the second quarter of
      fiscal 1999.

               As a percentage of revenue, the gross profit margin on wholesale
      sales declined to 18.0% for the second quarter of fiscal 1999 from 19.5%
      for the second quarter of fiscal 1998. The comparable wholesale margin for
      the second quarter of fiscal 1998 was particularly strong last year due to
      solid private label sales last year.


      Selling, General and Administrative Expenses

               Selling, general and administrative ("SG&A") expenses remained 
      relatively flat at $235.0 million for the second quarter of fiscal 1999
      compared to $235.3 million for the second quarter of fiscal 1998. The
      Company's reduction in selling expenses was offset by higher general and
      administrative expenses due to increased advertising costs and
      administrative expenses related to IT. The Company's U.S. advertising
      expenses increased by $4.2 million as a result of a campaign that ran
      during the second quarter. As a percentage of revenue, selling, general
      and administrative expenses increased to 32.0% for the second quarter of
      fiscal 1999 from 28.9% for the second quarter of fiscal 1998. The increase
      was primarily due to the lower revenue for the second quarter of fiscal
      1999.


      Amortization of Intangible Assets

               Amortization  of  intangible  assets  increased to $5.0 million 
      for the second  quarter of fiscal 1999 from $4.7 million for the second 
      quarter of fiscal 1998.


      Research and Development Costs

               In connection with the acquisition of the Office Imaging and
      outsourcing businesses, the Company is providing funding to Kodak for
      ongoing research and development through December 31, 2002. For the second
      quarter of fiscal 1999, research and development costs totaled $12.5
      million.


                                       17
<PAGE>   18




      Earnings from Operations

               The Company reported an operating loss of $2.7 million for the
      second quarter of fiscal 1999 compared to earnings from operations of
      $46.5 million for the second quarter of fiscal 1998. Earnings from
      operations were primarily impacted by the shortfall in revenue, lower
      combined gross profit and higher SG&A expenses in the U.S. As a
      percentage of revenue, the Company incurred a loss from operations of 0.4%
      for the second quarter of fiscal 1999 as compared to earnings from
      operations of 5.7% for the second quarter of fiscal 1998.


      Interest Expense and Other, Net

               Interest expense and other, net increased to $18.5 million for
      the second quarter of fiscal 1999 compared to $15.1 million for the second
      quarter of fiscal 1998. The increase primarily related to higher levels of
      borrowings and a higher interest rate during the second quarter of fiscal
      1999. The interest rate increase was due to the amendments to the
      Company's Credit Agreement effective June 30, 1998. (Refer to "Liquidity
      and Capital Resources").


      Income Taxes

               The Company recorded a tax benefit of $7.9 million for the second
      quarter of fiscal 1999 compared to income taxes of $11.7 million for the
      second quarter of fiscal 1998. The tax benefit was due to the loss before
      income taxes, which resulted from the factors discussed above. The
      combined effective income tax rate remained constant at 37.2% for the
      second quarter of fiscal 1998 and fiscal 1999.


      Net (Loss) Earnings

               As a result of the above factors, the Company reported a net loss
      of $13.4 million for the second quarter of fiscal 1999 compared to net
      earnings of $19.7 million for the second quarter of fiscal 1998. As a
      percentage of revenue, the Company reported a net loss of 1.8% for the
      second quarter of fiscal 1999 as compared to net earnings of 2.4% for the
      second quarter of fiscal 1998.


      SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO SIX MONTHS ENDED 
      SEPTEMBER 30, 1997:

      Revenue

               Revenue declined 9% to $1.5 billion for the six months ended
      September 30, 1998 compared to $1.6 billion for the six months ended
      September 30, 1997, primarily due to lower equipment sales and reduced
      retail service, supplies and rentals revenue in both the U.S. and
      international markets. The Company believes the shortfall in equipment
      sales is related to a number of factors which include the integration of
      the sales force in the U.S., and an accelerated shift to digital products
      in the U.S. and Australasia. The Company is taking steps to improve its
      digital product availability in these regions to meet customer demand.
      (Refer to the revenue comparison for quarter ended September 30, 1998 for
      further discussion.) Equipment sales were also impacted in the

                                       18
<PAGE>   19



      International division, primarily in the UK and Australasia. As a result
      of the economic malaise in the Far East, competitive pressures from
      Japanese manufacturers selling directly to customers impacted equipment
      sales.

               The Company's retail service, supplies and rentals revenue
      declined to $978.9 million for the six months ended September 30, 1998
      from $1.0 billion for the six months ended September 30, 1997. The decline
      is primarily due to two factors. First, the erosion of the U.S.
      installed machine base, specifically within the Company's named accounts,
      has resulted in a decline in service and supply revenue. Second, supply
      sales in the Company's international division have weakened due to the
      competitive pressures from Japanese manufacturers selling directly to
      customers.

               Wholesale  revenue  remained  relatively  constant at $121.7 
      million and $125.4 million for the six months ended September 30, 1998 
      and 1997, respectively.

               Approximately 40% of the Company's revenue is generated in
      countries outside of the United States. As in prior periods, foreign
      exchange rate fluctuations have negatively impacted the Company's
      comparable financial results. Excluding the effect of foreign currency
      fluctuations, total revenue would have been approximately $14.0 million
      higher during the six months ended September 30, 1998.


      Gross Profit

               Gross profit declined 13% to $528.8 million for the six months
      ended September 30, 1998 from $608.2 million for the six months ended
      September 30, 1997. The gross profit margin as a percentage of total
      revenue decreased to 35.3% for the six months ended September 30, 1998
      from 36.9% for the six months ended September 30, 1997. The decline in the
      Company's combined gross profit margin was primarily due to lower retail
      equipment margins.

               Gross profit as a percentage of retail equipment sales decreased
      to 30.1% for the six months ended September 30, 1998 from 35.2% for the
      six months ended September 30, 1997. The decline in the retail equipment
      margin is attributable to several factors. First, the International
      division is experiencing pressure on its equipment margins due to
      competitive pressures, some of which is coming from Japanese
      manufacturers selling directly to customers. Second, the impact of
      competitive pressures on equipment sales has also increased in the U.S.
      The Company believes that these competitive pressures in the U.S. and
      international markets will continue. Third, the Company's equipment
      margin was also affected by the Company's continued efforts to reduce
      inventory levels which were accompanied with lower pricing.

               As a percentage of revenue, the gross profit margin on retail
      service, supplies and rentals remained stable at 39.7% and 39.8% for the
      six months ended September 30, 1998 and 1997, respectively. Excluding the
      Company's outsourcing business (DSI), the retail service, supply and
      rentals margin was higher at 42.5% compared to 42.0% for the six months
      ended September 30, 1998 and 1997, respectively.

               As a percentage of revenue, the gross profit margin on wholesale
      sales declined to 16.5% for the six months ended September 30, 1998
      compared to 19.4% for the six months ended September 30, 1997. The
      wholesale margin was primarily affected by lower equipment and supply
      margins in the U.S. during the first quarter of fiscal 1999. In addition,
      the comparable wholesale margin for the six months ended September 30,
      1997 was particularly strong due to solid private label sales last year.


                                       19
<PAGE>   20



      Selling, General and Administrative Expenses

               Selling, general and administrative expenses decreased 2% to
      $472.8 million for the six months ended September 30, 1998 from $481.2
      million for the six months ended September 30, 1997. The decrease was
      primarily due to lower selling expenses as a result of lower equipment
      sales during the first six months of fiscal 1999. The Company's reduction
      in selling expenses was offset by higher general and administrative
      expenses due to increased advertising costs and administrative expenses
      related to IT during the second quarter of fiscal 1999. The Company's U.S.
      advertising expenses increased by $4.2 million as a result of a campaign
      that ran during the second quarter. As a percentage of revenue, selling,
      general and administrative expenses increased to 31.5% for the six months
      ended September 30, 1998 from 29.2% for the six months ended September 30,
      1997. The increase was primarily due to the lower revenue for the six
      months ended September 30, 1998.


      Amortization of Intangible Assets

               Amortization of intangible assets increased to $10.4 million for
      the six months ended September 30, 1998 from $9.3 million for the six
      months ended September 30, 1997.


      Research and Development Costs

               In connection with the acquisition of the Office Imaging and
      outsourcing businesses, the Company is providing funding to Kodak for
      ongoing research and development through December 31, 2002. For the six
      months ended September 30, 1998, research and development costs totaled
      $25.0 million.


      Earnings from Operations

               Earnings from operations decreased 78% to $20.6 million for the
      six months ended September 30, 1998 from $92.6 million for the six months
      ended September 30, 1997. The decrease is primarily due to the shortfall
      in revenue, lower combined gross profit and higher SG&A expenses in the
      U.S. As a percentage of revenue, earnings from operations decreased to
      1.4% for the six months ended September 30, 1998 from 5.6% for the six
      months ended September 30, 1997.


      Interest Expense and Other, Net

           Interest expense and other, net increased to $33.9 million for the
      six months ended September 30, 1998 compared to $31.8 million for the six
      months ended September 30, 1997. The increase primarily related to higher
      levels of borrowings and a higher interest rate during the six months
      ended September 30, 1998. The interest rate increase was due to the
      amendments to the Company's Credit Agreement effective June 30, 1998.
      (Refer to "Liquidity and Capital Resources").


      Income Taxes

               The Company recorded a tax benefit of $4.9 million for the six
      months ended September 30, 1998 compared to income taxes of $22.6 million
      for the six months ended September 30, 1997. The tax


                                       20
<PAGE>   21


      benefit was due to the loss before income taxes, which resulted from the
      factors discussed above. The combined effective income tax rate remained
      constant at 37.2% for the six months ended September 30, 1998 and fiscal
      1997.


      Net (Loss) Earnings

               As a result of the above factors, the Company reported a net loss
      of $8.3 million for the six months ended September 30, 1998 compared to
      net earnings of $38.2 million for the six months ended September 30, 1997.
      As a percentage of revenue, the Company reported a net loss of 0.6% for
      the six months ended September 30, 1998 as compared to net earnings of
      2.3% for the six months ended September 30, 1997.


      EXCHANGE RATES

               Fluctuations in the exchange rate between the pound sterling and
      the U.S. dollar affect the dollar equivalent of the pound sterling of the
      Ordinary Shares of the Company on the London Stock Exchange and, as a
      result, are likely to affect the market price of the ADSs. Additionally,
      the Company has declared its dividends in pounds sterling. Fluctuations in
      exchange rates will affect dividend income measured in U.S. dollars
      because the Depositary is required to convert pounds sterling into U.S.
      dollars at the prevailing exchange rates at the time of making any
      dividend payments or other distributions. The Company operates in over 30
      countries worldwide, and therefore, fluctuations in exchange rates between
      the U.S. dollar and the currencies in each of the countries in which the
      Company operates, will affect the results of the Company's international
      operations reported in U.S. dollars and the value of such operations' net
      assets reported in U.S. dollars. The results of operations, financial
      condition and competitive position of the Company's business are affected
      by the relative strength of its currencies in countries where its products
      are currently sold. The Company's results of operations and financial
      condition can be adversely affected by fluctuations in foreign currencies
      and by translations of the financial statements of the Company's foreign
      subsidiaries from local currencies into U.S. dollars.

               The Company purchases a significant amount of its office imaging
      equipment, related parts and supplies from Japanese manufacturers. The
      purchase price for most of these products is denominated in local
      currencies and therefore, short term fluctuations in the local currencies
      relative to the Japanese yen do not impact the Company's purchase price.
      However, if the yen were to strengthen significantly against the U.S.
      dollar, this would impact the yen amounts received by the Company's
      Japanese manufacturers as they converted the U.S. dollars received from
      the Company and other dealers into yen. As a result, these Japanese
      manufacturers could raise prices. The Company has historically been
      successful in passing price increases on to its customers. However, there
      can be no assurances that it can continue to do so in the future. Also,
      most of the Company's service contracts are for one year periods and
      accordingly, pricing for parts and supplies are not adjusted until the
      contract is renewed. Conversely, the purchase price of equipment and
      supplies by the Company could be impacted if the value of the Japanese yen
      were to decline against the U.S. dollar. As a result, Japanese
      manufacturers could lower prices or in some cases provide discounts.


      LIQUIDITY AND CAPITAL RESOURCES

               The Company's net cash flow provided by operating activities was
      $27.7 million and $29.8 million for the six months ended September 30,
      1998 and 1997, respectively. The Company's inventory


                                       21

<PAGE>   22


     has increased during the six months ended September 30, 1998 as a result of
     a slowdown in U.S. equipment sales and the Company's requirements to
     purchase various levels of equipment pursuant to supply agreements with
     Kodak (the "Supply Agreements"). Cash flow (used in) provided by investing
     activities was ($116.2) million and $33.8 million for the six months ended
     September 30, 1998 and 1997, respectively. The decrease in cash from
     investing activities for the six months ended September 30, 1998 is due to
     the refund of approximately $100.0 million the Company received from Kodak
     during the second quarter of fiscal 1998 related to the purchase price
     adjustment provision. In addition, the Company's capital expenditures
     increased during the six months ended September 30, 1998 due to higher
     spending in the first quarter of fiscal 1999, which has now been reduced.
     Net cash provided by (used in) financing activities was $61.6 million and
     ($102.2) million for the six months ended September 30, 1998 and 1997,
     respectively. Cash provided by financing activities was higher for the six
     months ended September 30, 1998 primarily due to the increase in the
     Company's borrowings.

          In December 1996 the Company signed a six-year $1.275 billion
     multicurrency credit agreement (the "Credit Agreement") with a consortium
     of international banks (the "Lenders"). The proceeds from the Credit
     Agreement were utilized to purchase the Office Imaging and outsourcing
     businesses from Kodak, to repay the outstanding balance under the Company's
     previous credit facility, as well as for ongoing working capital and
     general corporate purposes. The Credit Agreement provided the Company with
     a revolving component in an aggregate amount of up to $725.0 million, and a
     term loan component of $550.0 million. In December 1997, the revolving
     component was reduced by $115.0 million to $610.0 million bringing the full
     capacity of the Credit Agreement to $1.160 billion. Furthermore, as of
     September 30, 1998, the term loan component had amortized to $505.0 million
     bringing the full capacity to $1.115 billion. The Credit Agreement is
     secured and guaranteed by certain of the Company's subsidiaries and a
     covenant that the Company will not pledge its assets except as specifically
     permitted under the terms of the Credit Agreement. The Credit Agreement
     contains negative and affirmative covenants and agreements which place
     restrictions on the Company regarding the disposition of assets, capital
     expenditures, additional indebtedness, permitted liens and payment of
     dividends, as well as requiring the maintenance of certain financial
     ratios. Effective June 30, 1998, certain of the covenants were amended. The
     amendments principally provided for a revision of certain definitions and
     an adjustment to certain financial ratios the Company is required to
     maintain.

          Management believes the Company's fundamental businesses are sound.
     Nevertheless, the Company faces significant challenges and risks as
     outlined below.

          As a result of the Company's profitability shortfall for the three
     months ended September 30, 1998, the Company requested and the Lenders
     granted a waiver of certain financial covenants and the consequences of
     failing to comply with such covenants for the period beginning on September
     30, 1998 and ending February 28, 1999. Terms of the waiver included
     limitation of new loans to be made under the Credit Agreement during the
     waiver period to a total of $75 million, a 70 basis point increase in the
     interest rate on certain borrowings under the Credit Agreement during the
     waiver period, the granting of security interests in substantially all of
     the Company's U.S. subsidiaries' assets to secure up to $225 million of the
     borrowings under the Credit Agreement and a $50 million reduction in the
     total commitment by the Lenders. The Company also agreed to use its best
     efforts to maintain, during the waiver period, at least $30 million of
     lines of credit outside the U.S. Furthermore, the Company agreed that it
     shall not incur additional Indebtedness (as defined in the Credit
     Agreement) except Indebtedness under the Credit Agreement and indebtedness
     under the lines required to be maintained outside the U.S. During the term
     of the waiver, the Company may not pay dividends and the Lenders' consent
     is required for any acquisition or investments by the Company. A copy of
     the waiver is available as exhibit 4.11 to the Company's Current Report on
     Form 8-K filed October 21, 1998.

          Since granting the waiver, the Lenders have advanced $40 million in
     new loans to the Company. The Company expects to receive the remaining $35
     million in loans which is to be available during the waiver period on or
     about November 30, 1998, subject to the Company's providing on or before
     November 30, 1998 a business plan demonstrating a process for reducing
     outstanding indebtedness and achieving results of operations necessary to
     permit performance under and satisfactory compliance with the Credit
     Agreement, review by the Lenders' consultant and the Lenders of the
     business plan and the Company's providing cash flow projections
     demonstrating the need for the additional loans. There can be no assurance
     that the business plan will be deemed satisfactory or that such loans will
     be made. Furthermore, there can be no assurance that such funding will be
     sufficient for the Company's operations through the waiver period if the
     loans are made.

                                       22
<PAGE>   23
          On October 14, 1998 Kodak purported to exercise provisions of the
     Supply Agreements between the Company terminating the Supply Agreements on
     60 days notice based on Kodak's claim that the Company had failed to pay
     undisputed invoices, subject to payment or notice to the contrary prior to
     the date of termination. At that time, Kodak had ceased to ship parts and
     supplies to the Company and had also informed the Company that it would no
     longer ship equipment to the Company. On October 30, 1998 Kodak purported
     to terminate the exclusivity rights with respect to new products on 30 days
     notice, stating that the basis for such termination was failure of the
     Company to make a scheduled payment under the research and development
     agreement between the Company and Kodak. The Company has reached an interim
     agreement with Kodak under which Kodak has agreed to provide parts and
     supplies to the Company in both its International and America's divisions
     on a cash basis through November 30, 1998. Under this agreement, the
     Company must make payments of 125% of the purchase price with the excess to
     be applied to outstanding invoices from Kodak for parts and supplies
     previously shipped. In addition, the Company agreed to pay to Kodak $5
     million on November 10, 1998 and $2.5 million on November 16, 1998 in each
     case to be applied to invoices from Kodak for parts and supplies previously
     shipped. Because of current high levels of Kodak equipment in inventory,
     the Company does not believe that failure by Kodak to ship equipment will
     present a material problem in the short term. The Company is in discussions
     with Kodak with respect to a longer term agreement to address the overall
     relationship on a going forward basis. The Company believes that there
     should be a mutually satisfactory basis for reaching a longer term
     agreement with Kodak and is endeavoring to obtain Kodak's agreement to
     continue the relationship on terms reasonably satisfactory to both parties.
     However, there can be no assurance that Kodak will agree to any agreement
     beyond November 30, 1998 or that such a mutually satisfactory agreement can
     be reached. Nevertheless, the Company believes that Kodak is obligated
     under contract and antitrust law to ship parts and supplies to the Company
     so long as the Company pays cash on order. At times during the second
     quarter, other suppliers suspended shipments to the Company. The Company's
     major suppliers other than Kodak have resumed shipment of equipment, parts
     and supplies, although, in some cases they are only shipping on a cash
     basis.

          The Supply Agreements with Kodak state that the Company is to make
     minimum purchases of equipment and related parts and supplies and to fund
     certain research and development activities of Kodak. As a result of these
     agreements, significant payments were made to Kodak during the six months
     ended September 30, 1998 for (i) research and development of a digital
     high-volume copier and (ii) for certain Kodak equipment which significantly
     exceeded the Company's inventory needs. Based upon currently anticipated
     demand for such products, cash flows and availability of financing, the
     Company does not believe it will have sufficient funds to make the minimum
     payments set forth in the agreements with Kodak. In addition, Kodak has
     claimed that certain payments on account of such minimums are due as to
     prior periods. The Company intends to address prior excess purchases,
     stated minimums for future periods and Kodak's claims as to prior periods
     as part of the discussions of the overall relationship with Kodak.





                                       23
<PAGE>   24
          If the Company is unable to reach a satisfactory resolution with Kodak
     regarding the matters discussed above, litigation could ensue as to one or
     more such matters. As the outcome of any litigation is inherently
     uncertain, there can be no assurance that the Company will achieve a
     successful result in any such litigation.

          The Company has historically financed a substantial portion of its
     leasing business using various funding sources. One of the largest programs
     to obtain such funding is one under which General Electric Capital
     Corporation ("GE Capital") provides funding used by a master trust to
     acquire customer leases from a subsidiary of the Company. On November 12,
     1998 GE Capital served a notice demanding various actions and assurances in
     connection with this program, including confirmation from the Company's
     bank Lenders that assets transferred to the master trust will be free and
     clear of the Lender's liens and making certain assertions which, under the
     terms of the program, could have a material adverse effect on the Company.
     The Company is currently in discussions with GE Capital and attempting to
     satisfy the requirements imposed by GE Capital. It is essential to the
     Company's continued operations that the GE Capital funding or an adequate
     substitute is available. The Company believes that there should be a
     mutually satisfactory basis for reaching an agreement with GE Capital.
     However, there can be no assurance that such a mutually satisfactory
     agreement can be reached. Therefore, there can be no assurance that such
     funding will be available or, if available, will be available on terms
     reasonably satisfactory to the Company. Notwithstanding the November 12,
     1998 notice, the Company has been in discussions with GE Capital with
     respect to a new, more extensive lease financing arrangement and has
     received from GE Capital a term sheet dated November 13, 1998 for such an
     arrangement and expects to reach a satisfactory agreement with GE Capital
     with respect to a renegotiation of the existing financing arrangements.
     However, the GE Capital term sheet expressly provided that it will be
     necessary to address the issues raised by GE Capital's November 12, 1998
     notice to reach a more extensive agreement. There can no assurance the
     Company will be able to reach such an agreement.

          As a result of the amendments to the Credit Agreement effective June
     30, 1998 and the terms of the waiver discussed above, the Company's tiered
     margin spread has increased, and therefore, the Company could experience
     increases in its interest expense depending on both the level of borrowings
     and the applicable interest rate. As of September 30, 1998 the Credit
     Agreement had an outstanding balance of approximately $328.0 million under
     the revolving component and $484.5 million under the term loan, all of
     which was incurring interest at a weighted average rate of 7.4% per annum.

          Additional investments in facilities and computer equipment may
     continue to be necessary to support the Company's operations, including the
     transition of the Office Imaging business from Kodak's computer system. As
     discussed above, in the absence of a restructuring of the Company's
     indebtedness and businesses there can be no assurance that cash flow from
     operations together with the borrowing capacity under the Credit Agreement
     (which is limited to an additional $35 million through the balance of the
     waiver period), will be adequate to finance the Company's operating cash
     requirements and capital expenditures. On a long term basis it will be
     necessary for the Company to obtain additional or replacement financing.
     There can be no assurance that such financing will be available or, if
     available, will be available on terms reasonably satisfactory to the
     Company.

                                       24
<PAGE>   25
          In light of the Company's current financial situation, it engaged the
     investment banking firm of Wasserstein, Perella & Co. to aid it in an
     examination of its businesses and advise the Company concerning a possible
     restructuring. The Company currently anticipates that it is likely that a
     future restructuring of its businesses will be necessary to address these
     difficulties. A key element of any such restructuring is anticipated to
     involve the Company's relationship with Kodak. However, there can be no
     assurance that Kodak will agree to a renegotiation of its agreements, or,
     if it does, will agree to a restructuring that resolves difficulties
     arising from the agreements between the Company and Kodak on a basis which
     will give the Company reasonable assurance of long term viability. Another
     likely part of any restructuring would involve the Company's consideration
     of the sale of one or more of its divisions or operating units to pay down
     debt and raise funds for operation of the remaining businesses. Another key
     element of a restructuring is anticipated to be an effort to bring the SG&A
     expenditures of the Company's U.S. division in line with anticipated sales.
     A restructuring would also likely include a renegotiation of the Credit
     Agreement in an effort to provide additional financial flexibility to the
     Company. There can be no assurance that the Company will be able to
     successfully address the relationship with Kodak, that the Company will be
     able to bring SG&A expenditures into line with actual sales levels of the
     Company's U.S. division, that the sale of one or more of the Company's
     divisions or operating units can be accomplished, or if accomplished, can
     be accomplished on terms reasonably satisfactory to the Company or that the
     Company can obtain the Lenders' agreement to amend the Credit Agreement or
     to amend it in a manner reasonably satisfactory to the Company.

          As stated above, management believes that the Company's fundamental
     businesses are sound. Nevertheless, as outlined above, the Company is
     facing many challenges and there are material risks that the Company will
     be unable to manage all of the issues it is facing. Based upon the business
     plan being developed, the Company believes that there should be a
     reasonable basis for meeting the challenges faced by the Company and
     managing the issues it is facing in a manner reasonably satisfactory to the
     Company. However, the Company is unable to predict the outcome of the
     issues outlined above. If the Company is unable to address one or more of
     these issues and reach resolutions reasonably satisfactory to the Company,
     the outcome may have a material adverse effect on the Company and its
     operations, including the recoverability of recorded asset amounts. If this
     occurs one alternative that the Company might choose, either in the
     immediate future or in the longer term, would be to seek protection under
     Chapter 11 of the U.S. Bankruptcy Code and, to the extent appropriate, the
     laws of the United Kingdom and other non-U.S. jurisdictions providing
     protection from creditors.

          The Internal Revenue Service is conducting an examination of the
     Company's federal income tax returns for the fiscal years ended March 31,
     1995 and 1996. The Company has received various notices of proposed
     adjustments; the principal adjustment relates to the timing of certain
     deductions associated with leased equipment financing. While the ultimate
     result can not be determined with certainty, the Company intends to
     vigorously contest the proposed adjustments and believes that the ultimate
     resolution will not materially impact the Company's consolidated results of
     operations or financial position.

                                       25

<PAGE>   26


      YEAR 2000 READINESS DISCLOSURE

               Many computer systems, including several used by the Company,
      could experience problems processing information beyond the Year 1999. As
      a result, certain computer systems, including the hardware, software and
      embedded technologies, need to be modified prior to the Year 2000, in
      order to remain functional. The Company has a Year 2000 worldwide program
      office that has developed an overall Year 2000 plan to address the
      possible impact of Year 2000 on the processing of date sensitive
      information by computer systems. The Company's Year 2000 worldwide program
      office is comprised of senior executives, legal counsel and program
      managers. The progress of the overall Year 2000 program plan is being
      monitored and reported to a Worldwide Steering Committee and to the Board
      of Directors on a regular basis.

               The Company's Year 2000 program plan contains program
      administration and a six phased remediation approach. The six phases are:
      1) Inventory - comprehensive lists of hardware, software and embedded
      technologies with assigned compliance status, 2) Assessment and Analysis -
      remediation solutions and options are researched, selected and detailed
      plans with target completion dates are developed, 3) Remediation
      Development - includes hardware and software upgrades, vendor and supplier
      certification and other related changes, 4) Test and Validate - testing,
      conversion and integration of business applications and systems, including
      compliance demonstration and user acceptance, 5) Deployment Implementation
      of solutions into the operating environment and 6) Contingency Planning
      and Post-Year 2000 Support - the development of alternative actions to
      limit any adverse impact on the Company's operations. The Company's Year
      2000 worldwide program office meets regularly to review plan progress,
      issues and issues resolution.

               The Company's Year 2000 plans include identification and
      assessment of operational systems, including without limitation, business
      applications, infrastructure hardware and software applications. To
      prepare for the Year 2000, where appropriate, the Company is performing
      testing, remediation, and validation of operational systems. The Company
      is in the process of implementing a new corporate wide IT infrastructure
      thereby enabling it to operate independently from Kodak's computer
      systems, when implemented. It is possible that the Year 2000 may have an
      impact on the operations of the Company in the event certain remaining IT
      systems, primarily related to the U.S. and Latin American applications
      separation, and Canadian application conversions are not implemented as
      planned. The Company will also perform comprehensive integration testing
      and validation of its major operational systems during the last phases of
      the Year 2000 program.

               The Company is currently evaluating its products and service
      offerings, supplier relationships and vendor manufacturing relationships
      to assess the potential impact on operations if third parties are not
      successful in having their systems Year 2000 compliant in a timely manner.
      The Company's Year 2000 plans include working with its suppliers, vendors
      and customers to identify and assess any Year 2000 issues associated with
      its products, services and facilities (including non-IT/embedded systems).
      If the Company believes that a supplier will not be able to continue to
      provide an adequate level of service, the Company intends to take
      appropriate actions to minimize the impact of the Year 2000 changeover on
      its operations.


                                       26
<PAGE>   27



               The Company believes it is taking reasonable steps to avoid
      interruption in the business, which may be caused by the Year 2000
      changeover. The Company believes that its efforts will enable the Company
      to operate without significant interruption caused by the Year 2000
      changeover. Presently, the Company is unable to quantify the costs of any
      such modifications or other activities required to address the Year 2000
      issue, and therefore, is unable to determine if such costs and expenses
      will be material to the Company.

               The Company is currently evaluating its products and service
      offerings, supplier relationships and vendor manufacturing relationships
      to assess the potential impact on operations if third parties are not
      successful in having their systems year 2000 compliant in a timely manner.
      The Company believes it is taking reasonable steps to avoid interruption
      in the business caused by year 2000 problems. Presently, the Company is
      unable to quantify the costs of any such modifications or other activities
      required to address the year 2000 issue, and therefore, is unable to
      determine if such costs and expenses will be material to the Company.


      EURO

               On January 1, 1999, eleven of the fifteen member countries of the
      European Monetary Union ("EMU") are scheduled to establish fixed
      conversion rates between their existing currencies and one common currency
      - the Euro. The Euro will then trade on currency exchanges and may be used
      in business transactions. Countries in which the Company operates that are
      converting to the Euro include Austria, Belgium, France, Germany, Ireland,
      Italy, Luxembourg, the Netherlands, Portugal and Spain. The Company's
      operating subsidiaries affected by the Euro conversion have established
      plans to address the systems and business issues raised by the Euro
      currency conversion including information technology systems, the
      processes of preparing accounting records, financial instruments and the
      continuity of contracts. Where necessary, systems are being updated to
      allow "dual currency" functionality to enable the Company to invoice and
      be invoiced in either local currencies or the Euro. The conversion to the
      Euro is also expected to eliminate exchange risks among the EMU countries
      and reduce the need for forward contracts. Those countries not converting
      to the Euro on January 1, 1999 (e.g., the U.K.) are preparing for the
      conversion as well, to enable a switch to the Euro, should the local
      government of these countries decide to convert at some later date. All
      existing contracts will still be legally enforceable despite the Euro
      conversion. While there can be no assurances that external factors
      associated with the conversion will not impact the Company, based upon
      steps taken to date, the Company anticipates that the Euro conversion will
      not have a material impact on its financial condition or results of
      operations.


      SEASONALITY

               The Company has experienced some seasonality in its business. The
      Company's revenue during the fourth quarter has historically been higher
      than other quarters of its fiscal year. The Company believes that this has
      been due to year-end sales contests and a focus on the finalization of
      transactions before year-end. There can be no assurance that fourth
      quarter results will continue to be higher this fiscal year or in future
      years. The Company's European and Canadian operations have historically
      experienced lower revenue for the three month period ended September 30
      due to increased vacation time by Europeans and Canadians during July and
      August. This has resulted in reduced sales activity and reduced usage of
      photocopiers, facsimiles and other office imaging equipment during such
      period.



                                       27
<PAGE>   28


      SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

           Certain statements contained in this Form 10-Q, or otherwise made by
      officers of the Company, including statements related to the progress of
      and anticipated benefits from the Uniting Danka Project, the Company's
      ability to meet challenges it faces, the Company's future performance and
      the Company's outlook for its businesses and respective markets,
      projections, statements of management's plans or objectives, forecasts of
      market trends and other matters, are forward-looking statements, and
      contain information relating to the Company that is based on the beliefs
      of management as well as assumptions, made by, and information currently
      available to, management. The words "goal", "expect", "believe" and
      similar expressions as they relate to the Company or the Company's
      management, are intended to identify forward-looking statements. Such
      statements reflect the current views of the Company 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. No assurance can be given that the
      results in any forward-looking statement will be achieved. For the
      forward-looking statements, the Company claims the protection of the safe
      harbor for forward-looking statements provided for in the Private
      Securities Litigation Act of 1995. Factors that might cause such
      differences include, but are not limited to (i) the potential increased
      costs resulting from technological developments, revisions to existing
      information technology systems, year 2000 issues and the separation of the
      Office Imaging business off of Kodak's computer system, (ii) business
      disruption resulting from year 2000 issues including unidentified
      noncompliance of technology, delays or difficulties in implementing new IT
      infrastructure, delays or difficulties in converting remaining systems and
      applications, and untimely third party completion of year 2000 compliance,
      (iii) increased competition resulting from other high volume and digital
      copier distributors and the discounting of such copiers by competitors,
      (iv) any inability by the Company to manage and reduce its outstanding
      debt, meet its working capital needs, maintain compliance with the
      covenants of the Credit Agreement or the Company's inability to satisfy
      the requirements for the additional $35.0 million under the waiver
      agreement with its bank lenders in effect through February 28, 1999 and
      whether such additional funding will be sufficient to meet the Company's
      liquidity needs, (v) any inability by the Company to procure longer term
      financing beyond the waiver period to meet its liquidity needs, (vi) any
      inability by the Company to continue to gain access to and successfully
      distribute new, including digital products, and current products brought
      to the marketplace at competitive costs and prices, (vii) any inability by
      the Company to comply with the purchasing requirements under its supply
      agreements with its vendors, including Kodak, and the impact thereof,
      (viii) any inability by the Company to successfully close facilities
      without negative impact on the Company's operations, (ix) the ultimate
      outcome and impact of the pending class action lawsuit, (x) any negative
      impact from the loss of any key upper management personnel, (xi) any
      inability by the Company to adequately address its liquidity challenges,
      (xii) the refusal by any vendor to provide equipment, parts and supplies
      as a result of the Company's financial condition, (xiii) any negative
      impact on the Company's financial condition or results of operations
      caused by the Euro conversion, (xiv) any significant assessment, pursuant
      to the review by the Internal Revenue Service, (xv) any inability by the
      Company to obtain adequate funding for its leasing business, (xvi) any
      inability by the Company to bring SG&A expenditures of the Company's U.S.
      division in line with anticipated sales, (xvii) any inability by the
      Company to reach a mutually satisfactory agreement with Kodak, with terms
      reasonably satisfactory to both parties, (xviii) any inability by the
      Company to sell one or more of its divisions or operating units, (xix)
      fluctuations in foreign currencies and (xx) other risks including those
      risks identified in any of the Company's filings with the Securities and
      Exchange Commission. Readers are cautioned not to place undue reliance on
      these forward-looking statements, which reflect management's analysis only
      as of the date hereof. The Company undertakes no obligation and does not
      intend to update these forward-looking statements to reflect events or
      circumstances that arise after the date hereof. Furthermore, as a matter
      of policy, the Company does not generally make any specific projections as
      to future earnings nor does it endorse any projections regarding future
      performance, which may be made by others outside the Company.



                                       28
<PAGE>   29


      PART II - OTHER INFORMATION


      ITEM 1.     LEGAL PROCEEDINGS.

         The Company, various directors, former officers and a former director
      are defendants in a purported class action lawsuit. A consolidated class
      action complaint (the "Complaint") was filed in the United States District
      Court for the Middle District of Florida, Tampa Division on or about June
      18, 1998. The Complaint alleges, principally, that the Company and the
      other defendants issued materially false and misleading statements related
      to the progress of the Company's integration of its acquisition of Kodak's
      Office Imaging and outsourcing businesses, engaged in improper accounting
      practices and that certain former officers utilized insider information,
      in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of
      1934 and Rule 10b-5 promulgated thereunder. The plaintiffs seek to certify
      their complaints as class actions on behalf of all purchasers of the
      Company's American Depositary Receipts in the period between May 13, 1997
      and December 15, 1997, and seek an award of an unspecified amount of
      monetary damages, including punitive damages, to all of the members of the
      purported class. The Company filed its motion to dismiss the Complaint on
      or about July 29, 1998 and all briefs have been submitted to the Court.
      The case is in the early stages and while it is impossible to predict the
      outcome or impact of such litigation, management believes this litigation
      is without merit and intends to vigorously defend the lawsuit.

         The Company is subject to other legal proceedings and claims, which
      arise in the ordinary course of its business. Management believes that the
      resolution of the above matters will not have a material effect upon the
      Company's financial position or results of operations or liquidity.


      ITEM 2.     CHANGES IN SECURITIES.

         Not applicable.


      ITEM 3.     DEFAULTS UPON SENIOR SECURITIES.

         Not applicable.


      ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         The Annual General Meeting of shareholders of Danka Business Systems
      PLC was held on July 24, 1998. At the meeting, the following actions were
      taken by the shareholders:

      1. The payment of a final dividend for fiscal year 1998 in the amount of
      1.56 pence per Ordinary Share (net) was authorized. The voting on the 
      resolution
      was as follows:

<TABLE>
                  <S>                         <C>       
                  FOR                         82,736,319
                  AGAINST                      1,551,514
                  ABSTAINED                       35,000
</TABLE>


                                       29

<PAGE>   30


         2. James F. White was re-elected to serve as a Director of the Company,
      in accordance with the Company's Articles of Association. The voting on
      the resolution was as follows:

<TABLE>
                  <S>                         <C>       
                  FOR                         82,129,541
                  AGAINST                      2,158,292
                  ABSTAINED                       35,000
</TABLE>

         3. J. Ernest Riddle, who was appointed during the course of the year,
      was re-elected to serve as a Director of the Company, in accordance with
      the Company's Articles of Association. The voting on the resolution was as
      follows:

<TABLE>
                  <S>                         <C>       
                  FOR                         82,490,006
                  AGAINST                      1,797,827
                  ABSTAINED                       35,000
</TABLE>

         4. KPMG Audit Plc was appointed as the Company's auditors for fiscal
      year 1999, and the Board of Directors was authorized to fix the auditor's
      remuneration. The voting on the resolution was as follows:

<TABLE>
                  <S>                         <C>       
                  FOR                         83,456,560
                  AGAINST                        831,273
                  ABSTAINED                       35,000
</TABLE>

         5. The Board of Directors of the Company was granted the authority to
      allot securities up to an aggregate nominal amount of (pound)947,898. The
      voting on the resolution was as follows:

<TABLE>
                  <S>                         <C>       
                  FOR                         76,741,331
                  AGAINST                      7,546,502
                  ABSTAINED                       35,000
</TABLE>

         6. The Board of Directors of the Company was granted the authority to
      allot equity securities up to an aggregate nominal amount of
      (pound)568,740 without providing certain pre-emptive rights. The voting on
      the resolution was as follows:

 <TABLE>
                  <S>                         <C>       
                  FOR                         70,379,551
                  AGAINST                     13,045,699
                  ABSTAINED                      897,583
</TABLE>

         7. The Company was granted the authority to buy back up to 15% of its
      outstanding share capital. The voting on the resolution was as follows:

<TABLE>
                  <S>                         <C>       
                  FOR                         83,589,495
                  AGAINST                        748,338
                  ABSTAINED                       35,000
</TABLE>

        8. Approval of the 1998 Executive Performance Plan was granted. The 
      voting on the resolution was as follows:

<TABLE>
                  <S>                         <C>       
                  FOR                         75,536,335
                  AGAINST                      8,701,498
                  ABSTAINED                       35,000
</TABLE>



                                       30
<PAGE>   31



        9. Approval of the Amendments to the Danka 1996 Share Option Plan 
      was granted. The voting on the resolution was as follows:

<TABLE>
                  <S>                         <C>       
                  FOR                         76,242,604
                  AGAINST                      7,182,646
                  ABSTAINED                      897,583
</TABLE>

         10. Approval of the Danka Business Systems PLC Savings Related Share
      Option Scheme was granted. The voting on the resolution was as follows:

<TABLE>
                  <S>                         <C>       
                  FOR                         79,559,238
                  AGAINST                      4,728,595
                  ABSTAINED                       35,000
</TABLE>


      ITEM 5.     OTHER INFORMATION.

         Not applicable.


      ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K.

                           (a)      Exhibits.
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER             EXHIBIT
  <S>                <C>       
  2.1*               Asset Purchase Agreement between Eastman Kodak Company and
                     Danka Business Systems PLC dated as of September 6, 1996,
                     including Exhibit 5.19 (a) which is the form of Amended and
                     Restated Supply Agreement by and between Eastman Kodak
                     Company and _______________________ dated as of
                     ____________________, 1996. (Exhibit 2.1 to the Company's
                     Form 8-K dated November 14, 1996.)

  2.2*               Amendment No. 1 to Asset Purchase Agreement between  
                     Eastman Kodak Company and Danka Business Systems PLC 
                     dated December 20, 1996 (Excluding schedules and
                     similar attachments). (Exhibit 2.2 to the Company's  
                     Form 8-K dated January 15, 1997).

  4.1*               Memorandum of Association of the Company, including
                     paragraphs 5 and 6. (Exhibit 2.1 of the Company's  
                     Registration Statement on Form 20-F, No. 0-20828, filed 
                     on November 10, 1992 (the "1992 Registration Statement").

  4.2*               Articles of Association of the Company, including  
                     sections relating to Shares, Variation of Rights and 
                     Votes of Members. (Exhibit 2.2 to the 1992 Registration
                     Statement).

  4.3*               Deposit Agreement dated June 25, 1992, Amendment No. 1
                     dated February 26, 1993 and Amendment No. 2 dated July 2,
                     1993 (Exhibit 4.9 of the Company's Form S-1 Registration
                     Statement No. 33-68278 (the "1993 Form S-1"), and
                     Amendment No. 3 dated August 16, 1994 between The Bank of
                     New York, the Company and Owners and Holders of American
                     Depositary Receipts.
</TABLE>



                                       31
<PAGE>   32



<TABLE>
  <S>                <C>    
  4.4*               Indenture dated March 13, 1995 between the Company and 
                     The Bank of New York as Depositary and the Company.  
                     (Exhibit 2 to the Company's Form 8-K dated March
                     21, 1995).

  4.5*               Deposit and Custody Agreement dated March 13, 1995,  
                     between The Bank of New York as Depositary and the 
                     Company. (Exhibit 3 to the Company's Form 8-K dated March
                     21, 1995).

  4.6*               Registration Rights Agreement dated as of March 13, 1995
                     relating to $175 million in Aggregate Principal Amount of
                     6.75% Convertible Subordinated Notes Due 2002 by and among
                     the Company and Prudential Securities Incorporated and
                     Smith Barney, Inc. and Robert W. Baird & Co. and Raymond
                     James & Associates, Inc. (Exhibit 4.12 to the Company's
                     Form 10-K dated June 16, 1995).

  4.8*               Credit Agreement dated December 5, 1996, by and among Danka
                     Business Systems PLC, Dankalux Sarl & Co. SCA, Danka
                     Holding Company, the several financial institutions from
                     time to time a party and NationsBank, N.A., as agent
                     (Exhibit 4 to the Company's Form 8-K December 16, 1996).

  4.9*               First Amendment to Credit Agreement dated December 5, 
                     1997 among Danka Business Systems PLC, Dankalux Sarl & 
                     Co., SCA, and Danka Holding  Company, Nationsbank,
                     National Association, each other Bank signatory  
                     thereto and Nationsbank, National Association, as agent.
                     (Exhibit 4.9 to the Company's Form 10-Q February 12, 1998).

  4.10*              Second Amendment to Credit Agreement dated July 28, 
                     1998 among Danka Business Systems PLC, Dankalux Sarl & 
                     Co., SCA, and Danka Holding  Company, Nationsbank,
                     National Association, each other Bank signatory  
                     thereto  and  Nationsbank, National Association, as agent.
                     (Exhibit 4.10 to the Company's Form 8-K July 28,
                     1998).

  4.11*              Waiver dated October 20, 1998, of certain financial  
                     covenants contained in the Credit Agreement among Danka 
                     Business Systems PLC, Dankalux Sarl & Co., SCA and
                     Danka Holding Company, NationsBank, N.A., each other 
                     Bank signatory to the Credit Agreement and  
                     NationsBank, N.A., as agent. (Exhibit 4.11 to the
                     Company's Form 8-K October 21, 1998).

                     No other instruments defining the rights of holders of
                     long-term debt of the Company and its subsidiary have been
                     included as exhibits because the total amount of
                     obligations authorized under any such agreement does not
                     exceed 10% of the total assets of the Company and its
                     subsidiaries on a consolidated basis. The Company hereby
                     agrees to furnish supplementally a copy of any omitted
                     long-term debt instrument to the Commission upon request.

  10.1               Employment Agreement dated August 28, 1998 among the 
                     Company, Danka Business Systems PLC and Larry K. Switzer.

  10.2               Employment Agreement dated August 1,1998 among the  
                     Company, Danka Business Systems PLC and Brian L. Merriman.

  27.1               Financial Data Schedule (for SEC purposes only)
</TABLE>


                                       32

<PAGE>   33



<TABLE>
  <S>                <C>       
  27.2               Restated Financial Data Schedule (September 30, 1997
                     Form 10-Q) (for SEC purposes only)

  *                  Document has heretofore been filed with the Commission  
                     and is incorporated by reference and made a part hereof.
</TABLE>


      (b)      Reports on Form 8-K:

               On July 28, 1998, the Company filed a report on Form 8-K
      announcing the second amendment to the Company's Credit Agreement.



                                       33
<PAGE>   34



                                    SIGNATURE

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


                                   DANKA BUSINESS SYSTEMS PLC
                                   --------------------------
                                          (Registrant)



      Date: November 19, 1998      /S/ LARRY K. SWITZER
            -----------------      ------------------------------
                                   Larry K. Switzer, Chief Executive
                                   (Finance Director, Chief Financial Officer,
                                   and Principal Accounting Officer)




                                       34