<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 DECEMBER 31, 1997
         OR

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

         Commission file number:  0-20828

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

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

11201 DANKA CIRCLE NORTH
ST. PETERSBURG, FLORIDA                   33716
________________________________________  _____________________________________
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)  (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  813-576-6003

                                 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 227,428,365 Ordinary Shares outstanding as of December 31,
1997.
<PAGE>   2
                                      INDEX





<TABLE>
<CAPTION>
     PART I - FINANCIAL

     INFORMATION                                                                      Page
                                                                                      ----

<S>                                                                                   <C>
         Item 1 - Consolidated Financial Statements

               Consolidated Statements of Earnings for the three months ended
               December 31,1997 and 1996 (Unaudited)                                    3

               Consolidated Statements of Earnings for the nine months ended
               December 31, 1997 and 1996 (Unaudited)                                   4

               Condensed Consolidated Balance Sheets as of December 31, 1997
               (Unaudited) and March 31, 1997                                           5

               Condensed Consolidated Statements of Cash Flows for the nine months
               ended December 31, 1997 and 1996 (Unaudited)                             6


               Consolidated Statement of Shareholders' Equity for the nine months
               ended December 31, 1997 (Unaudited)                                      7

               Notes to Consolidated Financial Statements (Unaudited)
                                                                                        8


         Item 2 -  Management's Discussion and Analysis of Financial Condition
                     and Results of Operations
                                                                                       10




     PART II - OTHER INFORMATION

         Item 1 - Legal Proceedings                                                    20
                                                                                       
         Item 2 - Changes in Securities                                                20 

         Item 3 - Defaults upon Senior Securities                                      20
                                                                                       
         Item 4 - Submission of Matters to a Vote of Security Holders                  20

         Item 5 - Other Information                                                    20
                                                                                       
         Item 6 - Exhibits and Reports on Form 8-K                                     21

     Signature                                                                         23
</TABLE>


                                       2
<PAGE>   3
PART I - FINANCIAL INFORMATION
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER AMERICAN DEPOSITARY SHARE ("ADS") AMOUNTS)
<TABLE>
<CAPTION>

                                                                   FOR THE THREE MONTHS ENDED
                                                            -----------------------------------------
                                                               DECEMBER 31,          DECEMBER 31,
                                                                   1997                  1996
--------------------------------------------------------    -------------------   -------------------
                                                               (UNAUDITED)           (UNAUDITED)
<S>                                                         <C>                   <C>                 
REVENUE:
Retail equipment sales                                      $          247,320    $          159,313
Retail service, supplies and rentals                                   523,864               217,177
Wholesale                                                               71,792                64,656
--------------------------------------------------------    -------------------   -------------------
Total revenue                                                          842,976               441,146
--------------------------------------------------------    -------------------   -------------------
COSTS AND OPERATING EXPENSES:
Cost of retail equipment sales                                         169,804                99,360
Retail service, supplies and rental costs                              308,416               115,835
Wholesale costs of revenue                                              58,648                53,129
Selling, general and administrative expenses                           261,242               134,233
Amortization of intangible assets                                        6,791                 5,165
Research and development costs                                          12,501                    --
Restructuring charges                                                   11,000                35,000
--------------------------------------------------------    -------------------   -------------------
Total costs and operating expenses                                     828,402               442,722
--------------------------------------------------------    -------------------   -------------------
EARNINGS (LOSS) FROM OPERATIONS                                         14,574                (1,576)
Interest expense and other, net                                         15,168                 6,978
--------------------------------------------------------    -------------------   -------------------
LOSS BEFORE INCOME TAXES                                                  (594)               (8,554)
Provision for income taxes                                                (221)               (3,216)
--------------------------------------------------------    -------------------   -------------------
LOSS BEFORE EXTRAORDINARY ITEM                                            (373)               (5,338)
Extraordinary item - loss on early extinguishment
  of debt, net of income tax benefit (1996: $349)                           --                   578
--------------------------------------------------------    -------------------   -------------------
NET LOSS                                                    $              (373)  $            (5,916)
--------------------------------------------------------    ===================   ===================

BASIC LOSS PER ADS:
   Loss before extraordinary item                           $             (0.01)  $             (0.09)
   Extraordinary item                                                       --                  (0.01)
--------------------------------------------------------    -------------------   -------------------
   Net loss per ADS                                         $             (0.01)  $             (0.10)
--------------------------------------------------------    -------------------   -------------------
Weighted average ADSs                                                    56,847                56,555

DILUTED LOSS PER ADS:
   Loss before extraordinary item                           $            (0.01)  $              (0.09)
   Extraordinary item                                                       --                  (0.01)
--------------------------------------------------------    -------------------   -------------------
   Net loss per ADS                                         $            (0.01)  $             (0.10)
--------------------------------------------------------    -------------------   -------------------
Weighted average ADSs                                                   56,847                56,555
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


                                       3
<PAGE>   4

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

<TABLE>
<CAPTION>

                                                                   FOR THE NINE MONTHS ENDED
                                                            -----------------------------------------
                                                               DECEMBER 31,          DECEMBER 31,
                                                                   1997                  1996
--------------------------------------------------------    -------------------   -------------------
                                                               (UNAUDITED)           (UNAUDITED)
<S>                                                         <C>                   <C>                 
REVENUE:
Retail equipment sales                                      $          732,774    $          464,555
Retail service, supplies and rentals                                 1,579,327               622,450
Wholesale                                                              197,226               176,624
--------------------------------------------------------    -------------------   -------------------
Total revenue                                                        2,509,327             1,263,629
--------------------------------------------------------    -------------------   -------------------
COSTS AND OPERATING EXPENSES:
Cost of retail equipment sales                                         484,328               287,332
Retail service, supplies and rental costs                              933,418               331,067
Wholesale costs of revenue                                             159,783               145,291
Selling, general and administrative expenses                           759,921               393,849
Amortization of intangible assets                                       16,143                14,466
Research and development costs                                          37,503                    --
Restructuring charges                                                   11,000                35,000
--------------------------------------------------------    -------------------   -------------------
Total costs and operating expenses                                   2,402,096             1,207,005
--------------------------------------------------------    -------------------   -------------------
EARNINGS FROM OPERATIONS                                               107,231                56,624
Interest expense and other, net                                         47,011                18,843
--------------------------------------------------------    -------------------   -------------------
EARNINGS BEFORE INCOME TAXES                                            60,220                37,781
Provision for income taxes                                              22,402                14,391
--------------------------------------------------------    -------------------   -------------------
EARNINGS BEFORE EXTRAORDINARY ITEM                                      37,818                23,390
Extraordinary item - loss on early extinguishment
  of debt, net of income tax benefit (1996: $349)                           --                   578
--------------------------------------------------------    -------------------   -------------------
NET EARNINGS                                                $            37,818   $            22,812
========================================================    ===================   ===================

BASIC EARNINGS PER ADS:
   Earnings before extraordinary item                       $              0.67   $              0.42
   Extraordinary item                                                        --                 (0.01)
--------------------------------------------------------    -------------------   -------------------
   Net earnings per ADS                                     $              0.67   $              0.41
--------------------------------------------------------    -------------------   -------------------
Weighted average ADSs                                                    56,777                56,144

DILUTED EARNINGS PER ADS:
   Earnings before extraordinary item                       $              0.65   $              0.41
   Extraordinary item                                                        --                 (0.01)
--------------------------------------------------------    -------------------   -------------------
   Net earnings per ADS                                     $              0.65   $              0.40
--------------------------------------------------------    -------------------   -------------------
Weighted average ADSs                                                    57,897                57,706
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


                                       4
<PAGE>   5
DANKA BUSINESS SYSTEMS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                DECEMBER 31,                MARCH 31,
                                                                                    1997                      1997
----------------------------------------------------------------------       --------------------      --------------------
                                                                                 (UNAUDITED)                (AUDITED)
<S>                                                                         <C>                       <C>                  
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                                                    $            49,860       $            73,875
Accounts receivable, net                                                                 650,524                   758,903
Inventories                                                                              563,804                   488,931
Prepaid expenses and other current assets                                                 41,737                    39,534
----------------------------------------------------------------------       --------------------      --------------------
TOTAL CURRENT ASSETS                                                                   1,305,925                 1,361,243
Equipment on operating leases, net                                                       280,612                   311,069
Property and equipment, net                                                               95,722                    87,768
Intangible assets, net                                                                   490,373                   467,362
Other assets                                                                             110,849                   125,262
----------------------------------------------------------------------       --------------------      --------------------
TOTAL ASSETS                                                                 $         2,283,481       $         2,352,704
----------------------------------------------------------------------       ====================      ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and notes payable                       $           105,192       $            41,385
Accounts payable                                                                         358,650                   358,257
Accrued expenses and other current liabilities                                           309,159                   305,296
Deferred revenue                                                                          64,395                    69,149
----------------------------------------------------------------------       --------------------      --------------------
TOTAL CURRENT LIABILITIES                                                                837,396                   774,087
Convertible subordinated notes                                                           200,000                   200,000
Other long-term debt                                                                     703,981                   859,823
Deferred income taxes and other long-term liabilities                                     59,343                    53,063
----------------------------------------------------------------------       --------------------      --------------------
TOTAL LIABILITIES                                                                      1,800,720                 1,886,973
----------------------------------------------------------------------       ====================      ====================
SHAREHOLDERS' EQUITY:
Ordinary shares, 1.25 pence stated value; 500,000,000
authorized; 227,428,365 and 226,827,049 issued
and outstanding                                                                            4,744                     4,734
Additional paid-in capital                                                               304,152                   301,623
Retained earnings                                                                        213,501                   186,306
Currency translation adjustment                                                          (39,636)                  (26,932)
----------------------------------------------------------------------       --------------------      --------------------

TOTAL SHAREHOLDERS' EQUITY                                                               482,761                   465,731
----------------------------------------------------------------------       --------------------      --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                   $         2,283,481       $         2,352,704
----------------------------------------------------------------------       ====================      ====================
</TABLE>


SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


                                       5
<PAGE>   6
DANKA BUSINESS SYSTEMS PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                      FOR THE NINE MONTHS ENDED
                                                                            ----------------------------------------------
                                                                              DECEMBER 31,                DECEMBER 31,
                                                                                  1997                        1996
--------------------------------------------------------------------------  ------------------          ------------------
                                                                               (UNAUDITED)                 (UNAUDITED)
<S>                                                                         <C>                         <C>   
OPERATING ACTIVITIES
Net earnings                                                                $          37,818           $          22,812
Adjustments to reconcile net earnings to net cash
provided by operating activities:
   Depreciation and amortization                                                      139,942                      57,513
   Loss (gain) on sale of property and equipment                                        1,293                     (1,372)
   Proceeds from sale of rental equipment                                              13,403                       8,948
   Extraordinary item                                                                      --                         927
   Changes in assets and liabilities, net of effects from the purchase of
   subsidiaries:
      Accounts receivable                                                             (21,509)                    (11,483)
      Inventories                                                                     (81,775)                    (46,004)
      Prepaid expenses and other current assets                                        (2,982)                     (2,670)
      Other noncurrent assets                                                          15,390                     (12,653)
      Accounts payable                                                                  4,305                     (19,868)
      Accrued expenses                                                                (43,407)                     17,660
      Deferred revenue                                                                 (2,455)                     (9,511)
      Deferred income taxes and other long-term liabilities                            (3,126)                      4,090
--------------------------------------------------------------------------  ------------------          ------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                              56,897                       8,389
--------------------------------------------------------------------------  ------------------          ------------------
INVESTING ACTIVITIES
Capital expenditures                                                                 (129,694)                    (58,621)
Proceeds from sale of property and equipment                                            7,999                       3,859
Proceeds from settlement of prior year acquisition,
     net of (payments) for purchases of subsidiaries                                  104,024                    (795,230)
--------------------------------------------------------------------------  ------------------          ------------------
NET CASH USED IN INVESTING ACTIVITIES                                                 (17,671)                   (849,992)
--------------------------------------------------------------------------  ------------------          ------------------
FINANCING ACTIVITIES
Net (payments) borrowings under line of credit agreements                             (65,761)                    908,261
Principal payments on debt                                                             (2,478)                    (18,040)
Proceeds from stock options exercised                                                   2,539                         285
Dividends                                                                              (4,847)                     (4,075)
--------------------------------------------------------------------------  ------------------          ------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                                   (70,547)                    886,431
--------------------------------------------------------------------------  ------------------          ------------------
EFFECT OF EXCHANGE RATES                                                                7,306                      (9,044)
--------------------------------------------------------------------------  ------------------          ------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                  (24,015)                     35,784
Cash and cash equivalents, beginning of period                                         73,875                      38,217

--------------------------------------------------------------------------  ------------------          ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                    $          49,860           $          74,001
--------------------------------------------------------------------------  ==================          ==================
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


                                       6
<PAGE>   7
DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 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>             
BALANCES AT MARCH 31, 1997             $     4,734    $    301,623    $     186,306    $     (26,932)     $      465,731

Net earnings                                                                 37,818                               37,818

Dividends                                                                   (10,623)                             (10,623)

Shares issued under employee
       option plan                              10           2,529                                                 2,539

Currency translation adjustment                                                               (12,704)           (12,704)

------------------------------------   ------------   -------------   --------------   ---------------    ---------------
BALANCES AT DECEMBER 31, 1997          $     4,744    $    304,152    $     213,501    $      (39,636)     $     482,761
------------------------------------   ============   =============   ==============   ===============    ===============
</TABLE>


                                       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 December 31, 1997,
consolidated statements of earnings for the three months and nine months ended
December 31, 1997 and 1996, the consolidated statement of shareholders' equity
for the nine months ended December 31, 1997, and the consolidated statements of
cash flows for the nine months ended December 31, 1997 and 1996 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. Certain amounts in the condensed
consolidated balance sheet as of March 31, 1997 have been reclassified to
conform to the current year presentation. 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 Annual Report for the
year ended March 31, 1997.


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 consists of severance and other employee
termination benefits, and will result in the separation of over 1,000 employees
worldwide. These reductions are principally coming from sales support,
administration and management, and are expected to be 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 December 31, 1997, approximately $14.4 million remained in
accrued liabilities, primarily for the closing of duplicate facilities. The
closure of these facilities is expected to continue through calendar year 1998.


NOTE 3. PENDING LITIGATION

Following the Company's December 16, 1997 announcement regarding the expected
shortfall in revenue and earnings for the third fiscal quarter and 1998 fiscal
year, purported class action lawsuits were filed in federal court in Florida
against the Company and certain of its directors and officers, alleging
violations of the federal securities laws. The cases are 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 lawsuits.


NOTE 4. EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is effective for annual and interim periods
ending after December 15, 1997. Statement No. 128 requires the dual presentation
of basic and diluted earnings per share ("EPS") for complex capital structures
on the Consolidated Statement of Earnings. Basic EPS is computed by dividing net
earnings by the weighted average number of shares outstanding for the period.
Diluted EPS reflects the potential dilution from the


                                       8
<PAGE>   9
exercise of stock options or the conversion of securities into stock. The
Company has implemented Statement No. 128 for the three months and the nine
months ended December 31, 1997 and December 31, 1996.

The following tables reconcile the numerators and denominators of the basic and
diluted EPS computations:

<TABLE>
<CAPTION>

                                                     FOR THE THREE MONTHS ENDED
                                                          DECEMBER 31, 1997
                                          --------------------------------------------------
(In thousands except per share amounts)      INCOME             SHARES          PER-SHARE
                                           (NUMERATOR)       (DENOMINATOR)        AMOUNT
                                          --------------  ------------------   -------------

<S>                                       <C>               <C>                <C>           
Net loss                                  $        (373)

BASIC LOSS PER ADS:
  Income available to shareholders        $        (373)            56,847    $       (0.01)
                                          ==============  ==================   =============
</TABLE>

Note:    Basic loss per ADS equals diluted loss per ADS due to the net loss
         incurred by the Company for the three months ended December 31, 1997.


<TABLE>
<CAPTION>

                                                   FOR THE NINE MONTHS ENDED
                                                        DECEMBER 31, 1997
                                       ---------------------------------------------------
(In thousands except per share             INCOME            SHARES           PER-SHARE
amounts)                                (NUMERATOR)       (DENOMINATOR)        AMOUNT
                                       ---------------   ----------------   --------------
<S>                                    <C>               <C>                <C>            
Net earnings                           $      37,818

BASIC EARNINGS PER ADS:
  Income available to shareholders            37,818              56,777    $        0.67
                                                                            ==============
                                       
EFFECT OF DILUTIVE SECURITIES:
  Stock options                                                   1,120
                                                         ---------------

DILUTED EARNINGS PER ADS:
  Income available to shareholders
        plus assumed conversion        $      37,818             57,897     $       0.65
                                       ===============   ================   ==============
</TABLE>


The effect of the Company's $200.0 million of Convertible Subordinated Notes are
not included in the computation of diluted EPS for the three months and the nine
months ended December 31, 1997 because they are anti-dilutive.


                                       9
<PAGE>   10

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

         Danka Business Systems PLC and its Subsidiaries (the "Company") is one
     of the world's largest independent suppliers of photocopiers, facsimiles
     and other related automated office 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. The Company 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 and outsourcing business. The businesses
     are now known as Danka Office Imaging and Danka Services International
     (formerly Danka Imaging Services).

        The Company's goal is to increase its net margins through certain cost
     efficiencies and synergies it expects to achieve by integrating Danka
     Office Imaging with the Company's core operations, currently known as Danka
     Office Products ("OP"). In September 1997, the Company announced its global
     integration project (the "Uniting Danka Project"), with a goal of
     accelerating the unification of Danka Office Imaging with Danka Office
     Products. The Company chose to accelerate the integration process after
     careful consideration of the responses by customers and employees.
     Management having received advice from independent consultants, based their
     decision to immediately combine the two organizations upon their belief
     that an accelerated integration plan was in the long-term best interest of
     the Company.

        During the second quarter, the Company completed the realignment of its
     geographical reporting responsibilities. The organization was split into
     two regions: Danka Americas and Danka International. Danka Americas
     includes the United States, Canada and Latin America. Danka International
     includes Europe, Asia/Pacific and Australia. These geographic regions are
     supported by the Company's areas of specialization which operate worldwide,
     including Finance & Planning and Markets & Strategy. Management of the
     Company was realigned to conform with the organizational changes.

        On December 16, 1997 the Company announced that the Uniting Danka
     Project was progressing slower than anticipated and that the Company's
     accelerated integration plan was impacting its operations and financial
     results, and therefore resulting in a shortfall in expected revenue and
     earnings. Although the benefits of the combined organization are being
     realized slower than initially expected in September 1997, and while there
     can be no assurances that such benefits will ultimately be achieved to the
     extent that the Company strives to attain them, the Company remains
     committed to the complete integration of the two organizations.

        The Company is implementing several key projects which are designed with
     the goal of maximizing the future benefits of the integration. The first is
     the development and transition to a common, global information technology
     ("IT") system. The Company has been making significant investments in its
     information technology and operations infrastructures, including the use of
     various independent computer and process improvement consulting groups. The
     Company believes that these investments are an important element in its
     efforts to successfully integrate the businesses and to provide a solid
     foundation for future growth. The Company's goal is to link the sales,
     service, billing and finance efforts electronically, with the goal of
     providing better service to its customers as well as improving
     communication to and support of its employees. As previously announced, the
     Company expects to incur an additional $4-5 million during the fourth
     quarter related to the acceleration of its move to a single IT system. The
     final stages of the transition of Danka OP to the Foresight system was
     completed in December 1997, and the transition of the Office Imaging
     business is expected to be complete by the end of calendar 1998. The second
     project is the consolidation of real estate. The Company expects to
     generate savings through the closure of duplicate


                                       10
<PAGE>   11
     facilities and is currently in the process of consolidating and
     centralizing its U.S. dispatch call centers. The closure of real estate
     throughout the Company is expected to be completed by the end of calendar
     1998. Finally, as announced in December 1997, the Company estimates it will
     eliminate more than 1,000 positions to improve efficiencies and maximize
     productivity. By the end of January 1998, the Company had reduced the
     workforce by approximately one third of these positions, and expects the
     balance of the 1,000 plus reductions to be completed by December 1998. The
     reductions in the workforce are principally coming from sales support,
     administration and management. The Company believes these projects are
     essential to the future success of the Company's integration plan and
     remains confident that the Company can successfully meet the challenges
     currently facing it.

        Following the Company's December 16, 1997 announcement regarding the
     expected shortfall in revenue and earnings for the third quarter and 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 cases are in the early
     stages and while it is impossible to predict the outcome and impact of such
     litigation, management believes this litigation is without merit and
     intends to vigorously defend the lawsuits.

        The Company has completed numerous acquisitions throughout its history.
     The acquisition of the Office Imaging business and Danka Services
     International, which is expected to add over $1.5 billion in annual
     revenue, was the Company's largest to date. The acquisition was completed
     on December 31, 1996 and added over 300 new locations in more than 15 new
     countries, and approximately 10,000 employees. The Company's historical
     level of acquisition activity is expected to be limited in the near future
     as the Company concentrates on the integration of Danka Office Imaging with
     Danka OP.


                                       11
<PAGE>   12
            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 Earnings:

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED            NINE MONTHS ENDED
                                               ------------------            -----------------
                                                   DECEMBER 31,                DECEMBER 31,
                                                   ------------                ------------
                                                1997         1996             1997        1996
                                                ----         ----             ----        ----
<S>                                           <C>          <C>              <C>         <C>
     Revenue:
       Retail equipment sales..............     29.4%        36.1%            29.2%       36.8%
       Retail service, supplies and rentals     62.1         49.2             62.9        49.2
       Wholesale...........................      8.5         14.7              7.9        14.0
                                                ----         ----              ---         ---
           Total revenue...................    100.0        100.0            100.0       100.0
     Cost of revenue.......................     63.7         60.8             62.9        60.4
                                                ----         ----              ---         ---
     Gross profit..........................     36.3         39.2             37.1        39.6
     Selling, general and administrative        
       expenses............................     31.0         30.4             30.3        31.2
     Amortization of intangible assets.....      0.8          1.2              0.6         1.1
     Research and development costs........      1.5           --              1.5          --
     Restructuring charges.................      1.3          7.9              0.4         2.8
                                                ----         ----              ---         ---
           Earnings (loss) from operations.      1.7         (0.3)             4.3         4.5
     Interest expense and other, net.......      1.8          1.6              1.9         1.5
                                                ----         ----              ---         ---
           Earnings (loss) before income        
             taxes.........................     (0.1)        (1.9)             2.4         3.0
     Provision for income taxes............      --          (0.7)             0.9         1.2
                                                ----         ----              ---         ---
           Earnings (loss) before
             extraordinary item............     (0.1)        (1.2)             1.5         1.8
     Extraordinary item - loss on early
             extinguishment of debt, net of      
             tax benefit...................      --           0.1               --          --
                                                ----         ----              ---         ---
          Net earnings (loss)..............     (0.1)%       (1.3)%            1.5%        1.8%
                                               =====        =====              ===         ===
</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              NINE MONTHS ENDED
                                              ------------------              -----------------
                                                  DECEMBER 31,                  DECEMBER 31,
                                                  ------------                  ------------
                                                1997        1996              1997        1996
                                                ----        ----              ----        ----


<S>                                           <C>         <C>                <C>         <C>
      Retail equipment sales...............     31.3%       37.6%             33.9%       38.1%
      Retail service, supplies and rentals.     41.1        46.7              40.9        46.8
      Wholesale............................     18.3        17.8              19.0        17.7
</TABLE>


     QUARTER ENDED DECEMBER 31, 1997 COMPARED TO QUARTER ENDED DECEMBER 31,
     1996:

     Revenue

            Revenue increased 91% to $843.0 million for the three months ended
     December 31, 1997 ("third quarter of fiscal 1998") compared to $441.1
     million for the three months ended December 31, 1996 ("third quarter of
     fiscal 1997"). The increase resulted from significant contributions from
     acquisitions, principally the Office Imaging and outsourcing businesses. In
     addition, the Company's revenue mix has significantly changed due to the
     acquisition of the Office Imaging and outsourcing businesses. The acquired
     businesses generate a higher percentage of revenue from service, supplies
     and rentals compared to the Company's core operations. As a percentage of
     total revenue, retail equipment and wholesale sales declined, as retail
     service, supplies and rentals have increased. The Company's current revenue
     mix is expected to continue in the future.


                                       12
<PAGE>   13
            An increasing amount of the Company's revenue is generated in
     countries outside of the United States. Due to the strength of the U.S.
     dollar against certain foreign currencies, the Company's revenue
     comparisons were negatively impacted by approximately $32.0 million during
     the third quarter of fiscal 1998.

     Gross Profit

            Gross profit increased 77% to $306.1 million for the third quarter
     of fiscal 1998 from $172.8 million for the third quarter of fiscal 1997.
     The gross profit margin as a percentage of total revenue decreased to 36.3%
     for the third quarter of fiscal 1998 from 39.2% for the third quarter of
     fiscal 1997. The decrease in the Company's gross profit margin was
     primarily due to two factors. First, the decrease was related to the
     acquisition of the Office Imaging and outsourcing businesses which have
     lower individual gross profit margins than the Company's traditional
     business. Second, the gross profit margin was affected by a $10.0 million
     provision taken for the anticipated shortfall in equipment purchases under
     the Kodak multi-year supply agreements. Gross profit as a percentage of
     retail equipment sales decreased to 31.3% for the third quarter of fiscal
     1998 from 37.6% for the third quarter of fiscal 1997. The decrease was due
     to the factors discussed above and to the higher mix of high-volume
     equipment being sold. The Company's high-volume equipment sales generate a
     lower gross profit margin than the Company's other equipment sales. As a
     percentage of revenue, the gross profit margin on retail service, supplies
     and rentals decreased to 41.1% for the third quarter of fiscal 1998 from
     46.7% for the third quarter of fiscal 1997 due to the acquisition of the
     Office Imaging and outsourcing businesses which have lower individual gross
     profit margins. Danka Services International, the Company's outsourcing
     operations, has significantly lower gross profit margins due to the nature
     of the business, and as it continues to grow, this business is expected to
     impact the Company's overall gross profit margin. The Company's wholesale
     gross profit margin increased to 18.3% for the third quarter of fiscal 1998
     from 17.8% for the third quarter of fiscal 1997 primarily due to stronger
     margins on the Company's private label sales.

     Selling, General and Administrative Expenses

            Selling, general and administrative expenses increased 95% to $261.2
     million for the third quarter of fiscal 1998. The increase is primarily
     related to acquisitions made last year, principally the acquisition of the
     Office Imaging and outsourcing businesses. As a percentage of revenue,
     selling, general and administrative expenses increased to 31.0% for the
     third quarter of fiscal 1998 from 30.4% for the third quarter of fiscal
     1997. This increase is principally related to investments and costs
     associated with the Company's Uniting Danka Project.

     Amortization of Intangible Assets

            Amortization of intangible assets increased to $6.8 million for the
     third quarter of fiscal 1998 from $5.2 million for the third quarter of
     fiscal 1997. The increase is principally related to goodwill associated
     with the acquisition of the Office Imaging and outsourcing businesses.

     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 third
     quarter of fiscal 1998, research and development costs totaled $12.5
     million.

     Restructuring Charges

            The Company recorded an $11.0 million pre-tax restructuring charge
     during the third quarter of fiscal 1998, principally related to the
     integration of the Office Imaging and outsourcing businesses. The
     restructuring charge principally consists of severance and other employee
     termination benefits. Similarly, in


                                       13
<PAGE>   14
     the third quarter of fiscal 1997, the Company recorded a $35.0 million
     pre-tax restructuring charge related to the integration of the Office
     Imaging and outsourcing businesses and to the transition to the Company's
     Market Based Approach in North America.

     Earnings from Operations

            Earnings from operations increased to $14.6 million for the third
     quarter of fiscal 1998 from a $1.6 million operating loss for the third
     quarter of fiscal 1997. Earnings from operations for the third quarter of
     fiscal 1998 were impacted by the $11.0 million pre-tax restructuring
     charge, the $10.0 million provision for the anticipated shortfall in
     equipment purchases, the $12.5 million in research and development costs
     and the higher levels of selling, general and administrative expenses. The
     operating loss for the third quarter of fiscal 1997 was principally related
     to the $35.0 million pre-tax restructuring charge related to the
     integration of the Office Imaging and outsourcing businesses and to the
     transition to the Company's Market Based Approach in North America. As a
     percentage of revenue, earnings from operations for the third quarter of
     fiscal 1998 were 1.7%.

     Interest Expense and Other, Net

            Interest expense increased to $15.2 million for the third quarter of
     fiscal 1998 compared to $7.0 million for the third quarter of fiscal 1997.
     The increase primarily related to higher levels of borrowings used to
     finance the acquisition of the Office Imaging and outsourcing businesses.

     Income Taxes

            The Company recorded an income tax benefit of $0.2 million for the
     third quarter of fiscal 1998 compared to a benefit of $3.2 million for the
     third quarter of fiscal 1997. The combined effective income tax rate
     decreased to 37.2% for the third quarter of fiscal 1998 as compared with an
     effective income tax rate of 37.6% for the third quarter of fiscal 1997.
     The rate has decreased due to higher earnings outside of the U.S. for which
     the effective tax rates are lower.

     Net Loss

            As a result of the above factors, the Company incurred a net loss
     for the third quarter of fiscal 1998 of $0.4 million compared to a net loss
     of $5.9 million for the third quarter of fiscal 1997. The net loss for the
     third quarter of fiscal 1998 principally resulted from the $11.0 million
     pre-tax restructuring charge, the $10.0 million provision for the
     anticipated shortfall in equipment purchases, the $12.5 million in research
     and development costs and the higher levels of selling, general and
     administrative expenses. The Company also experienced higher levels of
     interest expense for the third quarter of fiscal 1998 compared to the third
     quarter of fiscal 1997. The third quarter of fiscal 1997 was impacted by
     the $35.0 million pre-tax restructuring charge and the extraordinary item.


     NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO NINE MONTHS ENDED DECEMBER
     31, 1996:

     Revenue

            Revenue increased 99% to $2.509 billion for the nine months ended
     December 31, 1997 compared to $1.264 billion for the nine months ended
     December 31, 1996. The increase resulted from significant contributions
     from acquisitions, principally the Office Imaging and outsourcing
     businesses. In addition, the Company's revenue mix has significantly
     changed due to the acquisition of the Office Imaging and outsourcing
     businesses. The acquired businesses generate a higher percentage of revenue
     from service, supplies and rentals compared to the Company's core
     operations. As a percentage of total revenue, retail equipment and
     wholesale sales declined, as retail service, supplies and rentals
     increased. The Company's current revenue mix is expected to continue in the
     future.


                                       14
<PAGE>   15
            As discussed above, the Company's results have been impacted by the
     strength of the U.S. dollar against certain foreign currencies. Had
     exchange rates remained unchanged from a year ago, the Company's revenue
     for the nine months ended December 31, 1997 would have been approximately
     $79.0 million higher.

     Gross Profit

            Gross profit increased 86% to $931.8 million for the nine months
     ended December 31, 1997 from $500.0 million for the nine months ended
     December 31, 1996. The gross profit margin as a percentage of total revenue
     decreased to 37.1% for the nine months ended December 31, 1997 from 39.6%
     for the nine months ended December 31, 1996. The decrease was primarily
     related to the acquisition of the Office Imaging and outsourcing businesses
     which have lower individual gross profit margins than the Company's
     traditional business. The gross profit margin was also affected by a $10.0
     million provision for the anticipated shortfall in equipment purchases
     under the Kodak multi-year supply agreements recorded during the third
     quarter of fiscal 1998. Gross profit as a percentage of retail equipment
     sales decreased to 33.9% for the nine months ended December 31, 1997 from
     38.1% for the nine months ended December 31, 1996. The decrease was due to
     the factors discussed above and to the higher mix of high-volume equipment
     being sold. The Company's high-volume equipment sales generate a lower
     gross profit margin than the Company's other equipment sales. As a
     percentage of revenue, the gross profit margin on retail service, supplies
     and rentals decreased to 40.9% for the nine months ended December 31, 1997
     from 46.8% for the nine months ended December 31, 1996 due to the
     acquisition of the Office Imaging and outsourcing businesses which have
     lower individual gross profit margins. Danka Services International, the
     Company's outsourcing operations, has significantly lower gross profit
     margins due to the nature of the business, and as it continues to grow,
     this business is expected to impact the Company's overall gross profit
     margin. The Company's wholesale gross profit margin increased to 19.0% for
     the nine months ended December 31, 1997 from 17.7% for the nine months
     ended December 31, 1996 primarily due to stronger margins on the Company's
     private label sales.

     Selling, General and Administrative Expenses

            Selling, general and administrative expenses increased 93% to $760.0
     million for the nine months ended December 31, 1997 from $393.8 million for
     the nine months ended December 31, 1996. The increase is primarily related
     to acquisitions made last year, principally the acquisition of the Office
     Imaging and outsourcing businesses. As a percentage of total revenue,
     selling, general and administrative expenses decreased to 30.3% for the
     nine months ended December 31, 1997 from 31.2% for the nine months ended
     December 31, 1996. The decrease is primarily related to the completion of
     the Company's transition to the Market Based Approach during the first
     quarter of fiscal 1998 which reduced certain duplicative administrative
     costs through the centralization of various management and administrative
     functions throughout North America.

     Amortization of Intangible Assets

            Amortization of intangible assets increased to $16.1 million for the
     nine months ended December 31, 1997 from $14.5 million for the nine months
     ended December 31, 1996. The increase is principally related to goodwill
     associated with the acquisition of the Office Imaging and outsourcing
     businesses.

     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 nine
     months ended December 31, 1997, research and development costs totaled
     $37.5 million.


                                       15
<PAGE>   16
     Restructuring Charges

            The Company recorded an $11.0 million pre-tax restructuring charge
     during the third quarter of fiscal 1998, principally related to the
     integration of the Office Imaging and outsourcing businesses. The
     restructuring charge principally consists of severance and other employee
     termination benefits. Similarly, in the third quarter of fiscal 1997, the
     Company recorded a $35.0 million pre-tax restructuring charge related to
     the integration of the Office Imaging and outsourcing businesses and to the
     transition to the Company's Market Based Approach in North America.

     Earnings from Operations

            Earnings from operations increased 89% to $107.2 million for the
     nine months ended December 31, 1997 from $56.6 million for the nine months
     ended December 31, 1996. As a percentage of total revenue, earnings from
     operations decreased to 4.3% for the nine months ended December 31, 1997
     from 4.5% for the nine months ended December 31, 1996. The Company's
     earnings from operations for the nine months ended December 31, 1997 were
     impacted by the $11.0 million pre-tax restructuring charge, the $10.0
     million provision for the anticipated shortfall in equipment purchases and
     the $37.5 million in research and development costs. The Company's earnings
     from operations for the nine months ended December 31, 1996 were impacted
     by the $35.0 million pre-tax restructuring charge taken during the third
     quarter of fiscal 1997.

     Interest Expense and Other, Net

            Interest expense increased to $47.0 million for the nine months
     ended December 31, 1997 from $18.8 million for the nine months ended
     December 31, 1996. The increase primarily related to higher levels of
     borrowings used to finance the acquisition of the Office Imaging and
     outsourcing businesses.

     Income Taxes

            Income taxes increased to $22.4 million for the nine months ended
     December 31, 1997 from $14.4 million for the nine months ended December 31,
     1996 due to higher levels of earnings before taxes. The combined effective
     income tax rate decreased to 37.2% for the nine months ended December 31,
     1997 compared with a combined effective income tax rate of 38.1% for the
     nine months ended December 31, 1996. The rate has decreased due to higher
     levels of earnings outside of the U.S. for which the effective tax rates
     are lower.

     Net Earnings

            Net earnings increased to $37.8 million for the nine months ended
     December 31, 1997 from $22.8 million for the nine months ended December 31,
     1996. As a percentage of total revenue, net earnings for the nine months
     ended December 31, 1997 were 1.5% compared to 1.8% for the nine months
     ended December 31, 1996. Net earnings for the nine months ended December
     31, 1997 were principally impacted by the $11.0 million pre-tax
     restructuring charge, the $10.0 million provision for the anticipated
     shortfall in equipment purchases, the $37.5 million in research and
     development costs and to higher levels of interest expense. Net earnings
     for the nine months ended December 31, 1996 were impacted by the $35.0
     million pre-tax restructuring charge and the extraordinary item.

     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 declares 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


                                       16
<PAGE>   17
     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 Company has
     significantly increased its international business over the last few years
     and most recently, with the acquisition of the Office Imaging and
     outsourcing businesses, the Company added 19 new countries. 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 automated office
     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.

     LIQUIDITY AND CAPITAL RESOURCES

            The Company's net cash flow provided by operating activities was
     $56.9 million and $8.4 million for the nine months ended December 31, 1997
     and 1996, respectively. The Company experiences increases in certain
     balance sheet accounts which result primarily from acquisitions as well as
     from normal working capital needs. More specifically, the acquisition of
     the Office Imaging and outsourcing businesses has impacted several of the
     items within the Company's operating cash flow. The Company's inventory
     levels increased as a result of requirements to purchase various levels of
     equipment pursuant to the multi-year supply agreements ("Supply
     Agreements") with Kodak. During the third quarter of fiscal 1998, the
     Company recorded a $10.0 million provision for the anticipated shortfall in
     equipment purchases under the Supply Agreements. The Company's goal is to
     build its high-volume salesforce and to improve the productivity of its
     salesforce in an effort to meet the purchasing requirements contained in
     the Supply Agreements with Kodak. Cash flow used in investing activities
     was $17.7 million and $850.0 million for the nine months ended December 31,
     1997 and 1996, respectively. The cash flow from investing activities was
     significantly higher for the nine months ended December 31, 1996 due to the
     purchase of the Office Imaging and outsourcing businesses. Net cash (used
     in) provided by financing activities was $(70.5) million and $886.4 million
     for the nine months ended December 31, 1997 and 1996, respectively. The
     cash flow provided by financing activities was significantly higher for the
     nine months ended December 31, 1996 due to the purchase of the Office
     Imaging and outsourcing businesses in which funds were received through the
     Company's credit agreement discussed below.

            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 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. The Company has not needed the full
     capacity of the Credit Agreement. 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 disposition of assets, capital expenditures, additional


                                       17
<PAGE>   18
     indebtedness, permitted liens and payment of dividends, as well as
     requiring the maintenance of certain financial ratios. As of December 31,
     1997 the Company was in compliance with the covenants of the Credit
     Agreement. The adjustable interest rate on the Credit Agreement is, at the
     option of the Company, either: (i) the applicable InterBank Offered Rate
     plus a tiered margin based on leverage for the periods of one, two, three
     or six months or (ii) an alternative base rate, consisting of the higher of
     the lead bank's prime rate or the Federal Funds Rate plus 0.5%. As of
     December 31, 1997 the Credit Agreement had an outstanding balance of
     approximately $240.9 million under the revolving component and $516.2
     million under the term loan, all of which was incurring interest at a
     weighted average rate of 5.7% per annum. Subject to availability under the
     covenants at December 31, 1997, the Company had $402.9 million available
     for future borrowings.

            In March 1995, the Company issued $200.0 million of 6.75%
     Convertible Subordinated Notes (the "Notes") at par, in a private placement
     offering, due April 2002. The Notes are convertible into the Company's ADSs
     at a conversion rate of $29.125 per ADS, or into the Company's Ordinary
     shares at a conversion rate of $7.281 per Ordinary share (equivalent to
     approximately 34.335 ADSs or 137.339 Ordinary shares for each $1,000
     principal amount of Notes). Interest is payable semi-annually commencing
     October 1995. The Notes are not subject to sinking fund requirements.

            The Company has a number of other loans and credit facility
     arrangements with banks, financial institutions and certain individuals,
     which had an aggregate balance of $52.1 million at December 31, 1997. This
     balance is primarily comprised of various cash management lines of credit
     (the "Lines") in each of the countries in which the Company operates. The
     Lines provide for daily liquidity of local operations in each such country.
     These loans vary widely in terms and conditions.

            While the Company does not have any other significant contractual
     commitments other than for the purchase of products and the funding of
     Kodak's research and development efforts, additional investments in
     facilities and computer equipment will continue to be necessary to support
     the anticipated growth of the business, and the transition of the Office
     Imaging and outsourcing businesses off of Kodak's computer system. The
     Company's cash flow from operations together with the borrowing capacity
     under the Credit Agreement are expected to be adequate to finance its
     operating cash requirements and capital expenditures for the short-term. It
     is anticipated that future acquisitions and growth in the long-term will be
     funded primarily with cash flow from operations, borrowings available under
     the Credit Agreement, other credit sources and, where desirable, funding
     from the sale of additional debt or equity securities.

     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 automated office equipment during such
     period.



                                       18
<PAGE>   19
                SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain statements contained in this Form 10-Q under "Management's Discussion
and Analysis of Financial Condition and Results of Operations", 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, and the Company's future performance, are
forward-looking, 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.
Factors that might cause such differences include, but are not limited to (i)
the demands that the Office Imaging ("OI") acquisition (the "Acquisition") and
the unification thereof with Danka Office Products ("OP") will place on the
Company's resources, infrastructure, current operations and employees, (ii) the
Company's inability to achieve substantial operating cost reductions and
efficiencies in productivity from the Acquisition, the revised information
technology system, the revised management structure or other similar Company
wide initiatives associated with the unification, (iii) the potential for
unanticipated increases in expenditures for labor, equipment, materials and
supplies required to manage the increased size of the Company as a result of the
Acquisition, (iv) the Company's inability to effectively manage the increased
number of employees and retain current key management personnel and other key
employees added as a result of the Acquisition, who are accustomed to a
different corporate culture, compensation arrangements and benefits programs,
while the Company simultaneously reduces the overall size of its worldwide
workforce, (v) the potential increased costs resulting from technological
developments, revisions to existing information technology systems and the
integration of information technologies between OI and OP, (vi) increased
competition resulting from other high volume copier distributors and the
discounting of such copiers by competitors, (vii) the Company's ability to
manage and reduce its outstanding debt, meet its working capital needs and
maintain compliance with the covenants of its credit facility, (viii) the
inability of the Company to continue to gain access to and successfully
distribute new and current products brought to the marketplace at competitive
costs and prices, (ix) the ultimate amount of additional costs associated with
the accelerated unification and ultimate integration and the amount and timing
of the realization of the anticipated benefits from such unification and
complete integration, (x) the inability of the Company to effectively manage the
increased size of its inventory and product line, (xi) the Company's inability
to comply with the purchasing requirements under its supply agreements with its
vendors, including Kodak, and the impact thereof, (xii) the ultimate outcome and
impact of the pending class action lawsuits filed in December 1997 and January
1998, (xiii) fluctuations in foreign currencies and (xiv) other risks including
those risks identified in 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. The Company disclaims any duty to update in the future
any of the forward looking statements contained in this Form 10-Q.


                                       19
<PAGE>   20
PART II - OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS.

         Except as described below, the Company is not a party to any material
litigation and is not aware of any threatened material litigation:

         The Company, certain of its executive officers who are also directors,
a former director, a former officer and a current officer are defendants in
several purported class action lawsuits filed in the United States District
Court for the Middle District of Florida, Tampa Division.1 The complaints
allege, 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, 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 12, 1997 and
December 16, 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 is in the process of preparing its responses to the
complaints. The cases are 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 lawsuits.

--------------------

1The purported class action lawsuits are as follows: (i) Amy L. Ollendorf and
Anne Marie Davis on Behalf of Themselves and All Others Similarly Situated
against Danka Business Systems PLC et al, (filed on January 15, 1998); (ii)
Peter Devree on Behalf of Himself and All Others Similarly Situated against
Danka Business Systems PLC et al, (filed on January 22, 1998); (iii) Real J.
Audet, Michael and Nancy Hagen, Joint Tenants on Behalf of Themselves and All
Others Similarly Situated v. Danka Business Systems PLC et al, (filed on January
28, 1998); (iv) Gary Hughes, on Behalf of Himself and All Others Similarly
Situated v. Danka Business Systems PLC et al, (filed on December 23, 1997); (v)
Frederick H. Modlin and Joseph McGeary, on Behalf of Themselves and All Others
Similarly Situated against Danka Business Systems PLC et al, (filed on December
23, 1997); (vi) Robert L. Wenz and David I. Wise, on Behalf of Themselves and 
All Others Similarly Situated v. Danka Business Systems PLC et al, (filed on 
January 13, 1998).


ITEM 2. CHANGES IN SECURITIES.

         Not applicable.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

         Not applicable.


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

         Not applicable.

ITEM 5. OTHER INFORMATION.

         Not applicable.


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<PAGE>   21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

                  (a)      Exhibits.

EXHIBIT
NUMBER            EXHIBIT

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.


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).


                                       21
<PAGE>   22
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.

         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.

27       Financial Data Schedule (for SEC purposes only)

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



   (b)   Reports on Form 8-K:

On December 17, 1997, the Company filed a report on Form 8-K announcing its
estimated results for the third quarter of fiscal 1998.


                                       22
<PAGE>   23
                                    SIGNATURE

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


                                            DANKA BUSINESS SYSTEMS PLC
                                            (Registrant)



Date:    February 12, 1998                  /S/ DAVID C. SNELL, Finance Director
     -------------------------------        ------------------------------------
                                            David C. Snell, Finance Director
                                            (Executive Vice President and the
                                                   Principal Accounting Officer)


                                       23