##### Table of Contents





United States

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, 2007

OR



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

FOR THE TRANSITION PERIOD FROM  TO

Commission file number: 0-20828





DANKA BUSINESS SYSTEMS PLC

(EXACT
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)







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



|                                                        |  |     |  |                                                          
|------------------------------------------------------- |  | --- |  | ---------------------------------------------------------
|11101 ROOSEVELT BOULEVARD ST. PETERSBURG, FLORIDA 33716 |  | AND |  | MASTERS HOUSE 107 HAMMERSMITH ROAD LONDON W14 0QH ENGLAND
|(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)               

(727) 622-2100 in the United States

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





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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ̈    Accelerated filer  x    Non-accelerated filer   ̈

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

Indicate the
number of shares outstanding of each of the issuers classes of common stock, as of February 1, 2008: The registrant had 259,148,748 ordinary shares outstanding with par value of 1.25 pence, including 230,300,552 shares represented by
57,575,138 American Depositary Shares (ADSs). Each ADS represents four ordinary shares. The ADSs are evidenced by American Depositary Receipts.









---

##### Table of Contents

INDEX



|                               |  |                                                                                                                |  |   
|------------------------------ |  | -------------------------------------------------------------------------------------------------------------- |  | --
|RISK FACTORS                   |  | 4                                                                                                             
|                               | 
|PART I  FINANCIAL INFORMATION |  | 9                                                                                                             
|                               |  |                                                                                                               
|ITEM 1.                        |  | CONSOLIDATED CONDENSED FINANCIAL STATEMENTS                                                                    |  | 9 
|                               |  |                                                                                                               
|                               |  | Consolidated Condensed Statements of Operations for the Three and Nine Months Ended December 31, 2007 and 2006 |  | 9 
|                               |  | Consolidated Condensed Balance Sheets as of December 31, 2007 and March 31, 2007                               |  | 10
|                               |  | Consolidated Condensed Statements of Cash Flows for the Nine Months Ended December 31, 2007 and 2006           |  | 11
|                               |  | Notes to Consolidated Condensed Financial Statements                                                           |  | 12
|                               |  |                                                                                                               
|ITEM 2.                        |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
 CONDITION AND RESULTS OF OPERATIONS                         |  | 20
|ITEM 3.                        |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                     |  | 38
|ITEM 4.                        |  | CONTROLS AND PROCEDURES                                                                                        |  | 38
|                               | 
|PART II  OTHER INFORMATION    |  | 39                                                                                                            
|                               |  |                                                                                                               
|ITEM 1.                        |  | LEGAL PROCEEDINGS                                                                                              |  | 39
|ITEM 2.                        |  | CHANGES IN SECURITIES AND USE OF PROCEEDS                                                                      |  | 39
|ITEM 3.                        |  | DEFAULTS UPON SENIOR SECURITIES                                                                                |  | 39
|ITEM 4.                        |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                            |  | 39
|ITEM 5.                        |  | OTHER INFORMATION                                                                                              |  | 39
|ITEM 6.                        |  | EXHIBITS                                                                                                       |  | 39
|                               | 
|SIGNATURE                      |  | 40                                                                                                            



2



---

##### Table of Contents

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain statements contained herein, or otherwise made by our officers, including statements related to our future performance and our outlook for our
businesses and respective markets, projections, statements of our plans or objectives, forecasts of market trends and other matters, are forward-looking statements, and contain information relating to us that is based on our beliefs as well as
assumptions, made by, and information currently available to us. The words goal, anticipate, expect, believe, could, should, intend and similar expressions as they
relate to us are intended to identify forward-looking statements, although not all forward looking statements contain such identifying words. No assurance can be given that the results in any forward-looking statement will be achieved. For the
forward-looking statements, we claim the protection of the safe harbor for forward-looking statements provided for in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions that could cause actual results to
differ materially from those reflected in the forward-looking statements. Factors that might cause such actual results to differ materially from those reflected in any forward-looking statements include, but are not limited to, the following:
(i) any inability to successfully implement our strategy; (ii) any inability to successfully implement our cost restructuring plans to achieve and maintain cost savings; (iii) any inability to comply with the Sarbanes-Oxley Act of
2002; (iv) any material adverse change in financial markets, the economy or in our financial position; (v) increased competition in our industry and the discounting of products by our competitors; (vi) new competition from
non-traditional competitors as the result of evolving and converging technology; (vii) any inability by us to procure, or any inability by us to continue to gain access to and successfully distribute current and new products, including digital
products, color products, multi-function products and high-volume copiers, or to continue to bring current products to the marketplace at competitive costs and prices; (viii) any inability to arrange financing for our customers purchases
of equipment from us; (ix) any inability to successfully enhance, unify and effectively utilize our management information systems; (x) any inability to access vendor or bank lines of credit, which could adversely affect our liquidity;
(xi) any inability to record and process key data due to ineffective implementation of business processes and policies; (xii) any negative impact from the loss of a key vendor or customer; (xiii) any negative impact from the loss of
any of our senior or key management personnel; (xiv) any change in economic conditions in markets where we operate or have material investments which may affect demand for our products or services; (xv) any incurrence of tax liabilities or
tax payments beyond our current expectations, which could adversely affect our liquidity and profitability; (xvi) any inability to continue to comply with our new senior secured credit facility covenants or the financial or other
representations, warranties, covenants or maturities in our debt instruments; (xvii) any delayed or lost sales or other impacts related to the commercial and economic disruption caused by natural disasters, including hurricanes;
(xviii) any delayed or lost sales and other impacts related to the commercial and economic disruption caused by terrorist attacks, the related war on terrorism, and the fear of additional terrorist attacks; (xix) any negative impact of the
accreted value of our outstanding preferred stock and its continued accretion; (xx) any negative impact from our continued organization as an England and Wales registered Company following the sale of our European businesses; and
(xxi) other risks including those risks identified in any of our filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect our analysis only as of
the date they are made. Except as required by applicable law, we undertake no obligation, and do not intend, to update these forward-looking statements to reflect events or circumstances that arise after the date they are made. Furthermore, as a
matter of policy, we do not generally make any specific projections as to future earnings, nor do we endorse any projections regarding future performance, which may be made by others outside our company.



3



---

##### Table of Contents

RISK FACTORS

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

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



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



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



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



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

Failure to implement one or more of our
strategies and related initiatives could materially and adversely affect our business, financial condition or results of operations.

Loss from Continuing OperationsWe generated losses from continuing operations of $0.9 million and $18.5 million during the three and nine months ended December 31, 2007, respectively, primarily as a result of lower gross
margins and the loss on the early extinguishment of debt. If we are not able to improve our gross margins and continue to reduce our operating costs, losses may result in the future. As we continue to evaluate our business and strategies, we could
incur future losses and/or restructuring charges which may materially and adversely affect our operations, financial position, liquidity and results of operations. If we incur losses or do not generate sufficient profitability in the future, our
growth potential and our ability to execute our business strategy may be limited. In addition, our ability to service our indebtedness may be impaired because we may not meet the financial ratios and other covenants contained in our senior secured
credit facility.

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

IndebtednessAt December 31,
2007, we had consolidated indebtedness of $126.5 million, including current maturities of long-term debt and notes payable of $22.3 million. Our indebtedness includes $125.5 million of indebtedness under our credit facilities with General Electric
Capital Corporation (GECC) as more fully described in Note 6. Debt to the consolidated condensed financial statements.

The amount of our indebtedness could have important consequences to us, including the following:



| |  |  | use of a portion of our cash flow to pay interest on our indebtedness will reduce the availability of our cash flow and liquidity to fund working capital, capital
expenditures, strategic initiatives, restructuring and other business activities, including our ability to keep pace with the technological, competitive and other changes currently affecting our industry;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increase our vulnerability to general adverse economic and industry conditions;
| | - |  | -------------------------------------------------------------------------------



| |  |  | limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | limit our ability in making strategic acquisitions or exploiting business opportunities; and
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | limit our operational flexibility, including our ability to borrow additional funds, access our vendor credit lines, or dispose of assets.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



4



---

##### Table of Contents

The credit agreements governing our financing agreements contain customary financial covenants that we
must comply with on a quarterly basis relating to our leverage ratios, fixed charge coverage ratio, cumulative earnings before interest, taxes, depreciation and amortization (EBITDA) and an annual capital expenditure threshold, all as
more fully described in Exhibit 10.66. First Lien Credit Agreement and Exhibit 10.67. Second Lien Credit Agreement attached to the Companys Annual Report on Form 10-K filed June 27, 2007.

Our liquidity is dependent upon cash on hand, cash generated from operations and the availability of funding under our credit agreements with GECC. The
borrowing base under our GECC credit agreements is limited to certain multiples of our adjusted EBITDA, as described in the agreements. Our availability of financing under the credit agreements is also dependent upon the satisfaction of a number of
other conditions including meeting leverage and other financial covenants. If we are unable to continue meeting these covenants, GECC could declare us in default, among other possible courses of action. We are in compliance with these covenants at
December 31, 2007. In the event of default, in order to fund our cash requirements in fiscal year 2009 we may be required to negotiate changes to our financial covenants with, or to obtain waivers of certain of these covenants from, GECC or to
negotiate replacement financing arrangements with one or more other financial institutions. If such actions become necessary, we believe that we will be able to negotiate such changes, waivers and/or replacement financings, but no assurance can be
given that we will be successful or as to the terms of any such arrangements.

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

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

Besides
competition from within the office imaging industry, we are also experiencing competition from other sources as a result of evolving technology, including the development of alternative means of document processing, retention, storage and printing.
Our retail equipment operations are in direct competition with local and regional equipment suppliers and dealers, manufacturers, mass merchandisers and wholesale clubs. We have suffered, and may continue to suffer, a reduction of our market share
because of the high level of competition in our industry. The intense competition in our industry may result in pressure on the prices and margins for our products and may affect our ability to retain customers, both of which could materially and
adversely affect our business, financial condition or results of operations.

As our suppliers develop new products, there is no guarantee
that they will permit us to distribute such products or that such products will meet our customers needs and demands. In addition, some of our principal competitors are designing and manufacturing new technology, which may give them a
competitive advantage over us.

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

Vendor
RelationshipsWe primarily have relationships with Canon, Toshiba, Konica Minolta, Kodak and Hewlett-Packard. These companies manufacture equipment, parts, supplies and software for resale by us in the markets in which we operate. We also
rely on our equipment suppliers for related parts and supplies, vendor rebates and significant levels of vendor trade creditor financing for our purchases of products from them. Any inability to obtain equipment, parts, supplies or software in the
volumes required and at competitive prices from our major vendors, or the loss of any major vendor, or the discontinuation of vendor rebate programs or adequate levels of vendor financing may seriously harm our business because we may not be able to
supply those vendors products to our customers on a timely basis in sufficient quantities or at all. In addition, we rely on our vendors to effectively respond to changing technology and manufacture new products to meet the demands of evolving
customer needs. There is no guarantee that these vendors, or any of our other vendors, will effectively respond to changing technology, continue to sell their products and services to us, or that they will do so at competitive



5



---

##### Table of Contents

prices. Other factors, including reduced access to credit by our vendors resulting from economic conditions, may impair our vendors ability to
effectively respond to changing technology or provide products in a timely manner or at competitive prices. We also rely on non-equipment vendors for critical services such as transportation, supply chain and professional services. Any negative
impacts to our business or liquidity could adversely impact our ability to establish or maintain these relationships.

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

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

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

If we were to breach the covenants or other restrictions in our agreements with one or more of our financing sources, including GECC or our financial
condition were to deteriorate, such sources might refuse to provide financing to our customers, require additional security or protection, or exercise other remedies of default. If one or more of our financing sources were to fail to provide
financing to our customers, and we were unable to arrange alternative financing on similar terms or provide financing ourselves, those customers might be unable to purchase equipment from us. In addition, if we were unable to arrange financing, we
would lose sales, which could negatively affect our operating results. See Managements Discussion and Analysis of Financial Condition and Results of OperationsOther Financing ArrangementsGeneral Electric Capital
Corporation.

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

Business Processes and PoliciesWe have identified instances in the past where we did not have
adequate processes in place or our business processes and policies had not been properly implemented or followed, which resulted in, among



6



---

##### Table of Contents

other things, poor billing and credit practices, weak customer contract management, excessive and undisciplined issuances of customer credits, inaccurate
customer data and inadequate document retention. In fiscal year 2007, we implemented improvements that remediated a previously-disclosed material weakness in this area. Although we no longer have a material weakness in this area, we continue to
address these issues and implement further improvements to ensure that adequate processes are in place related to customer billing.

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

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

Disclosure Controls and Procedures and Internal
ControlsWe maintain disclosure controls and procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms and that such information is accumulated and communicated to our Audit Committee and management, including our Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure. Our objective is to maintain internal controls that are designed to provide reasonable assurance that (1) our transactions are properly authorized; (2) our assets are safeguarded
against unauthorized or improper use; and (3) our transactions are properly recorded and reported, in order to permit the preparation of our consolidated financial statements in conformity with generally accepted accounting principles and to
comply with Sections 302, 906 and 404 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act or Sarbanes-Oxley).

A
control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances
of errors or fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally,
controls can be circumvented by the individual acts of one or more individuals, by collusion of two or more individuals, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the
degree of compliance with the policies or procedures may deteriorate. Further, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Share PriceThe market price of our ordinary shares and American Depositary Shares (or ADSs) could be subject to significant
fluctuations as a result of many factors. In addition, global stock markets have from time to time experienced significant price and volume fluctuations. These fluctuations may lead to a drop in the market price of our ordinary shares and ADSs.
Factors which may add to the volatility of the price of our ordinary shares and ADSs include many of the factors set out above, and may also include changes in liquidity in the market for our ordinary shares and ADSs, sales of our ordinary shares
and ADSs, investor sentiment towards the business sector in which we operate and overall conditions in the capital markets. Many of these factors are beyond our control. These factors may change the market price of our ordinary shares and ADSs,
regardless of our operating performance.

Dividends on Ordinary SharesWe have not paid any cash or other dividends on our
ordinary shares since 1998 and we do not expect to do so for the foreseeable future. We are an English company and, under English law, we are allowed to pay dividends to shareholders only if, as determined by reference to our financial statements
prepared in accordance with International Financial Reporting Standards;



| |  |  | we have accumulated, realized profits that have not been previously distributed or capitalized, in excess of our accumulated, realized losses that have not
previously been written off in a reduction or reorganization of capital; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our net assets are not less than the aggregate of our share capital and our non-distributable reserves, either before or as a result of the dividend.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



7



---

##### Table of Contents

As of the date of filing of this quarterly report, we have insufficient accumulated, realized profits to
pay dividends on our ordinary shares. In addition, the credit agreements with GECC restrict our ability to pay dividends. Also, we may pay dividends on our ordinary shares only if we have paid all dividends due on our 6.50% senior convertible
participating shares.

ADDITIONAL INFORMATION AVAILABLE ON COMPANY WEB-SITE

Our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports may be viewed or
downloaded electronically, free of charge, from our website: http://www.danka.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our recent press releases are also available to be
viewed or downloaded electronically at http://www.danka.com. We will also provide electronic or paper copies of our SEC filings free of charge on request. Any information on or linked from our website is not incorporated by reference into
this Quarterly Report on Form 10-Q.



8



---

##### Table of Contents

PART I  FINANCIAL INFORMATION



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

Danka Business Systems PLC

Consolidated Condensed Statements of Operations for the Three and Nine Months
Ended December 31, 2007 and

2006

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

(Unaudited)



|                                                                     |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|-------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ----------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                     |  | Three months endedDecember 31, |         |   | Nine months endedDecember 31, |  
|                                                                     |  | 2007                           |         |   | 2006                          |   |         | 2007 |  |   | 2006    |  
|Revenue:                                                             |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Retail equipment, supplies and related sales                         |  | $                              | 51,321  |   |                               | $ | 45,292  |      |  | $ | 145,010 |   |  | $ | 147,401 |  
|Retail service                                                       |  |                                | 54,078  |   |                               |   | 57,460  |      |  |   | 165,892 |   |  |   | 178,362 |  
|Rentals                                                              |  |                                | 2,766   |   |                               |   | 2,876   |      |  |   | 8,782   |   |  |   | 10,935  |  
|                                                                     |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total revenue                                                        |  |                                | 108,165 |   |                               |   | 105,628 |      |  |   | 319,684 |   |  |   | 336,698 |  
|                                                                     |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Cost of sales:                                                       |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Retail equipment, supplies and related sales costs                   |  |                                | 37,976  |   |                               |   | 32,538  |      |  |   | 103,598 |   |  |   | 105,480 |  
|Retail service costs                                                 |  |                                | 33,443  |   |                               |   | 35,966  |      |  |   | 101,276 |   |  |   | 109,558 |  
|Rental costs, including depreciation on rental assets                |  |                                | 1,224   |   |                               |   | 1,281   |      |  |   | 4,076   |   |  |   | 3,113   |  
|                                                                     |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total cost of sales                                                  |  |                                | 72,643  |   |                               |   | 69,785  |      |  |   | 208,950 |   |  |   | 218,151 |  
|                                                                     |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Gross profit                                                         |  |                                | 35,522  |   |                               |   | 35,843  |      |  |   | 110,734 |   |  |   | 118,547 |  
|Operating expenses:                                                  |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Selling, general and administrative expenses                         |  |                                | 33,185  |   |                               |   | 38,482  |      |  |   | 106,683 |   |  |   | 115,523 |  
|Restructuring charges (credits)                                      |  |                                | 1,750   |   |                               |   | (551    | )    |  |   | 1,975   |   |  |   | 5,757   |  
|Loss on sale of subsidiary                                           |  |                                |        |   |                               |   |        |      |  |   |        |   |  |   | 2,512   |  
|Other expense (income)                                               |  |                                | 25      |   |                               |   | (1,063  | )    |  |   | (1,097  | ) |  |   | (1,128  | )
|                                                                     |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total operating expenses                                             |  |                                | 34,960  |   |                               |   | 36,868  |      |  |   | 107,561 |   |  |   | 122,664 |  
|                                                                     |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Operating earnings (loss) from continuing operations                 |  |                                | 562     |   |                               |   | (1,025  | )    |  |   | 3,173   |   |  |   | (4,117  | )
|Interest expense                                                     |  |                                | (3,685  | ) |                               |   | (7,398  | )    |  |   | (16,152 | ) |  |   | (22,308 | )
|Interest income                                                      |  |                                | 44      |   |                               |   | 59      |      |  |   | 3,109   |   |  |   | 131     |  
|Loss on early extinguishment of debt                                 |  |                                | (21     | ) |                               |   |        |      |  |   | (9,711  | ) |  |   |        |  
|                                                                     |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Loss from continuing operations before income taxes                  |  |                                | (3,100  | ) |                               |   | (8,364  | )    |  |   | (19,581 | ) |  |   | (26,294 | )
|(Benefit) provision for income taxes                                 |  |                                | (2,223  | ) |                               |   | 561     |      |  |   | (1,128  | ) |  |   | 1,496   |  
|                                                                     |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net loss from continuing operations                                  |  |                                | (877    | ) |                               |   | (8,925  | )    |  |   | (18,453 | ) |  |   | (27,790 | )
|Earnings from discontinued operations, net of tax                    |  |                                | 720     |   |                               |   | 8,401   |      |  |   | 384     |   |  |   | 11,819  |  
|(Loss) gain on sale of discontinued operations, net of tax           |  |                                | (642    | ) |                               |   | (5,007  | )    |  |   | (2,071  | ) |  |   | 3,839   |  
|                                                                     |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net loss                                                             |  | $                              | (799    | ) |                               | $ | (5,531  | )    |  | $ | (20,140 | ) |  | $ | (12,132 | )
|                                                                     |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net loss available to common shareholders:                           |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net loss from continuing operations                                  |  | $                              | (877    | ) |                               | $ | (8,925  | )    |  | $ | (18,453 | ) |  | $ | (27,790 | )
|Dividends and accretion on participating shares                      |  |                                | (6,148  | ) |                               |   | (5,778  | )    |  |   | (18,158 | ) |  |   | (17,077 | )
|                                                                     |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net loss from continuing operations available to common shareholders |  | $                              | (7,025  | ) |                               | $ | (14,703 | )    |  | $ | (36,611 | ) |  | $ | (44,867 | )
|                                                                     |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Basic and diluted net loss available to common shareholders per ADS: |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net loss from continuing operations per ADS                          |  | $                              | (0.11   | ) |                               | $ | (0.23   | )    |  | $ | (0.57   | ) |  | $ | (0.69   | )
|Net (loss) earnings from discontinued operations per ADS             |  |                                | 0.00    |   |                               |   | 0.05    |      |  |   | (0.03   | ) |  |   | 0.24    |  
|                                                                     |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net loss per ADS                                                     |  | $                              | (0.11   | ) |                               | $ | (0.18   | )    |  | $ | (0.60   | ) |  | $ | (0.45   | )
|                                                                     |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Weighted average basic ADSs                                          |  |                                | 64,786  |   |                               |   | 64,472  |      |  |   | 64,778  |   |  |   | 64,246  |  
|                                                                     |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  

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



9



---

##### Table of Contents

Danka Business Systems PLC

Consolidated Condensed Balance Sheets as of December 31, 2007 and
March 31, 2007

(In thousands, except per share data)



|                                                                 |  |                  |          |   |               |   |          |  
|---------------------------------------------------------------- |  | ---------------- | -------- | - | ------------- | - | -------- | -
|                                                                 |  | December 31,2007 |          |   | March 31,2007 |  
|                                                                 |  | (Unaudited)      |          |   |               |  
|Assets                                                           |  |                  |          |   |               |   |          |  
|Current assets:                                                  |  |                  |          |   |               |   |          |  
|Cash and cash equivalents                                        |  | $                | 16,986   |   |               | $ | 17,594   |  
|Restricted cash                                                  |  |                  | 2,091    |   |               |   | 163,979  |  
|Accounts receivable, net of allowances                           |  |                  | 37,178   |   |               |   | 44,180   |  
|Inventories                                                      |  |                  | 30,320   |   |               |   | 31,681   |  
|Prepaid expenses, deferred income taxes and other current assets |  |                  | 6,722    |   |               |   | 17,607   |  
|                                                                 |  |                  |          |   |               |   |          |  
|Total current assets                                             |  |                  | 93,297   |   |               |   | 275,041  |  
|Equipment on operating leases, net                               |  |                  | 7,278    |   |               |   | 9,241    |  
|Property and equipment, net                                      |  |                  | 18,731   |   |               |   | 22,637   |  
|Goodwill                                                         |  |                  | 93,489   |   |               |   | 93,489   |  
|Other intangible assets, net of accumulated amortization         |  |                  | 479      |   |               |   | 554      |  
|Other assets                                                     |  |                  | 20,273   |   |               |   | 16,086   |  
|                                                                 |  |                  |          |   |               |   |          |  
|Total assets                                                     |  | $                | 233,547  |   |               | $ | 417,048  |  
|                                                                 |  |                  |          |   |               |   |          |  
|Liabilities and shareholders equity (deficit)                   |  |                  |          |   |               |   |          |  
|Current liabilities:                                             |  |                  |          |   |               |   |          |  
|Current maturities of long-term debt and notes payable           |  | $                | 22,338   |   |               | $ | 186,078  |  
|Accounts payable                                                 |  |                  | 53,200   |   |               |   | 66,231   |  
|Accrued expenses and other current liabilities                   |  |                  | 22,885   |   |               |   | 45,830   |  
|Taxes payable                                                    |  |                  | 5,317    |   |               |   | 8,468    |  
|Deferred revenue                                                 |  |                  | 5,483    |   |               |   | 5,875    |  
|                                                                 |  |                  |          |   |               |   |          |  
|Total current liabilities                                        |  |                  | 109,223  |   |               |   | 312,482  |  
|Long-term debt and notes payable, less current maturities        |  |                  | 104,122  |   |               |   | 65,215   |  
|Deferred income taxes and other long-term liabilities            |  |                  | 11,716   |   |               |   | 11,271   |  
|                                                                 |  |                  |          |   |               |   |          |  
|Total liabilities                                                |  |                  | 225,061  |   |               |   | 388,968  |  
|                                                                 |  |                  |          |   |               |   |          |  
|6.5% senior convertible participating shares                     |  |                  | 362,645  |   |               |   | 344,487  |  
|Shareholders equity (deficit):                                  |  |                  |          |   |               |   |          |  
|Ordinary shares, 1.25 pence stated value                         |  |                  | 5,393    |   |               |   | 5,386    |  
|Additional paid-in capital                                       |  |                  | 331,157  |   |               |   | 330,587  |  
|Accumulated deficit                                              |  |                  | (690,709 | ) |               |   | (652,380 | )
|                                                                 |  |                  |          |   |               |   |          |  
|Total shareholders equity (deficit)                             |  |                  | (354,159 | ) |               |   | (316,407 | )
|                                                                 |  |                  |          |   |               |   |          |  
|Total liabilities and shareholders equity (deficit)             |  | $                | 233,547  |   |               | $ | 417,048  |  
|                                                                 |  |                  |          |   |               |   |          |  

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



10



---

##### Table of Contents

Danka Business Systems PLC

Consolidated Condensed Statements of Cash Flows for the Nine Months Ended
December 31, 2007 and 2006

(In thousands)

(Unaudited)



|                                                                            |  |                               |          |   |      |   |         |  
|--------------------------------------------------------------------------- |  | ----------------------------- | -------- | - | ---- | - | ------- | -
|                                                                            |  | Nine Months EndedDecember 31, |         
|                                                                            |  | 2007                          |          |   | 2006 |  
|Operating activities:                                                       |  |                               |          |   |      |   |         |  
|Net loss                                                                    |  | $                             | (20,140  | ) |      | $ | (12,132 | )
|Loss (earnings) from discontinued operations                                |  |                               | 1,687    |   |      |   | (15,658 | )
|                                                                            |  |                               |          |   |      |   |         |  
|Loss from continuing operations                                             |  |                               | (18,453  | ) |      |   | (27,790 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                               |          |   |      |   |         |  
|Depreciation and amortization                                               |  |                               | 9,986    |   |      |   | 11,372  |  
|Deferred income taxes                                                       |  |                               | 1,093    |   |      |   | (1,664  | )
|Amortization of debt issuance costs                                         |  |                               | 1,008    |   |      |   | 1,397   |  
|Loss on early extinguishment of debt                                        |  |                               | 9,711    |   |      |   |        |  
|Non-cash stock-based compensation                                           |  |                               | 546      |   |      |   |        |  
|Gain on sale of property & equipment and equipment on operating leases      |  |                               | (762     | ) |      |   | (260    | )
|Proceeds from sale of equipment on operating leases                         |  |                               | 257      |   |      |   | 233     |  
|Loss on sale of subsidiary, net                                             |  |                               |         |   |      |   | 2,103   |  
|Restructuring charges                                                       |  |                               | 1,975    |   |      |   | 5,757   |  
|Changes in net assets and liabilities:                                      |  |                               |          |   |      |   |         |  
|Accounts receivable                                                         |  |                               | 7,002    |   |      |   | 17,960  |  
|Inventories                                                                 |  |                               | 1,361    |   |      |   | (1,203  | )
|Prepaid expenses and other current assets                                   |  |                               | 124      |   |      |   | 251     |  
|Other non-current assets                                                    |  |                               | (524     | ) |      |   | (14,339 | )
|Accounts payable                                                            |  |                               | (13,031  | ) |      |   | (7,654  | )
|Accrued expenses and other current liabilities                              |  |                               | (27,562  | ) |      |   | (12,731 | )
|Deferred revenue                                                            |  |                               | (392     | ) |      |   | (5,207  | )
|Other long-term liabilities                                                 |  |                               | (1,353   | ) |      |   | 1,704   |  
|                                                                            |  |                               |          |   |      |   |         |  
|Net cash used in continuing operating activities                            |  |                               | (29,014  | ) |      |   | (30,071 | )
|Net cash used in discontinued operating activities                          |  |                               | (1,687   | ) |      |   | (3,500  | )
|                                                                            |  |                               |          |   |      |   |         |  
|Net cash used in operating activities                                       |  |                               | (30,701  | ) |      |   | (33,571 | )
|                                                                            |  |                               |          |   |      |   |         |  
|Investing activities:                                                       |  |                               |          |   |      |   |         |  
|Capital expenditures                                                        |  |                               | (5,053   | ) |      |   | (9,577  | )
|Proceeds from the sale of property and equipment                            |  |                               | 1,517    |   |      |   | 203     |  
|                                                                            |  |                               |          |   |      |   |         |  
|Net cash used in continuing investing activities                            |  |                               | (3,536   | ) |      |   | (9,374  | )
|Net cash provided by discontinued investing activities                      |  |                               | 174,750  |   |      |   | 7,238   |  
|                                                                            |  |                               |          |   |      |   |         |  
|Net cash provided by (used in) investing activities                         |  |                               | 171,214  |   |      |   | (2,136  | )
|Financing activities:                                                       |  |                               |          |   |      |   |         |  
|Borrowings under line of credit agreements                                  |  |                               | 25,780   |   |      |   | 37,162  |  
|Payments under line of credit agreements                                    |  |                               | (15,345  | ) |      |   | (30,796 | )
|Payments under capital lease arrangements                                   |  |                               | (449     | ) |      |   | (1,153  | )
|Payment of long term debt                                                   |  |                               | (249,208 | ) |      |   |        |  
|Proceeds from debt issuance                                                 |  |                               | 105,000  |   |      |   |        |  
|Payment of debt issue costs                                                 |  |                               | (6,899   | ) |      |   |        |  
|Restricted cash                                                             |  |                               |         |   |      |   | 5,000   |  
|Proceeds from stock options exercised                                       |  |                               |         |   |      |   | 712     |  
|                                                                            |  |                               |          |   |      |   |         |  
|Net cash (used in) provided by continuing financing activities              |  |                               | (141,121 | ) |      |   | 10,925  |  
|Net cash used in discontinued financing activities                          |  |                               |         |   |      |   | (239    | )
|                                                                            |  |                               |          |   |      |   |         |  
|Net cash (used in) provided by financing activities                         |  |                               | (141,121 | ) |      |   | 10,686  |  
|                                                                            |  |                               |          |   |      |   |         |  
|Effect of exchange rates                                                    |  |                               |         |   |      |   | 4,204   |  
|                                                                            |  |                               |          |   |      |   |         |  
|Net decrease in cash and cash equivalents                                   |  |                               | (608     | ) |      |   | (20,817 | )
|Cash and cash equivalents from continuing operations, beginning of period   |  |                               | 17,594   |   |      |   | 24,467  |  
|Cash and cash equivalents from discontinued operations, beginning of period |  |                               |         |   |      |   | 30,087  |  
|Cash and cash equivalents from discontinued operations, end of period       |  |                               |         |   |      |   | (27,517 | )
|                                                                            |  |                               |          |   |      |   |         |  
|Cash and cash equivalents from continuing operations, end of period         |  | $                             | 16,986   |   |      | $ | 6,220   |  
|                                                                            |  |                               |          |   |      |   |         |  
|Supplemental disclosures-cash flow information                              |  |                               |          |   |      |   |         |  
|Interest paid                                                               |  |                               | 22,380   |   |      |   | 29,043  |  
|Income taxes paid                                                           |  |                               | 2,599    |   |      |   | 1,183   |  

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



11



---

##### Table of Contents

Danka Business Systems PLC

Notes to Consolidated Condensed Financial Statements

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

(Unaudited)

Note 1. Basis of Presentation

The accompanying consolidated condensed financial statements of Danka Business Systems PLC (the Company) are unaudited as of and for the three
and nine months ended December 31, 2007 and 2006. In the opinion of management, all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the interim periods presented have been
reflected herein.

The Company has historically experienced lower revenue during the second quarter of its fiscal year, which is the three
month period ended September 30. This is primarily due to lower levels of service revenue from governmental agencies, such as school districts. This has historically resulted in reduced sales activity and reduced usage of photocopiers,
facsimiles and other office imaging equipment during the second quarter. Accordingly, the results of operations for the interim periods are not necessarily indicative of the results which may be expected for the entire fiscal year. The consolidated
condensed financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Companys Annual Report on Form 10-K for the year ended March 31, 2007.

The consolidated condensed financial statements contained herein as of and for the three and nine months ended December 31, 2007 and
December 31, 2006 do not comprise statutory accounts within the meaning of Section 240 of the United Kingdom Companies Act 1985. Statutory accounts for the year ended March 31, 2007 were delivered to the Registrar of Companies for
England and Wales on October 15, 2007. The independent auditors report on those statutory accounts was unqualified and did not contain a statement under Section 237(2) or 237(3) of the United Kingdom Companies Act 1985.

Segment information:The Company consists of one operating segment, the sale of office imaging equipment and related supplies and
services in the United States.

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

Note 2. Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), which clarifies the accounting for uncertainty in income taxes
recognized in a companys financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods,
disclosure, and transition. The Company adopted FIN 48 effective April 1, 2007. As a result of the adoption of FIN 48, the Company has $12.9 million of unrecognized tax benefits. Of this, $3.0 million would affect the Companys effective
tax rate, if recognized. Of this amount, less than $0.1 million was recorded as a reduction to the April 1, 2007 retained earnings balance.

The Company files numerous income tax returns in the U.S. at the federal, state and local levels, and in certain foreign jurisdictions. The Company has analyzed filing positions in all of the federal, state and foreign jurisdictions where
it is required to file income tax returns, as well as all open tax years in these jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state, local, or foreign income tax examinations by taxing authorities for years
prior to the fiscal year ended March 31, 2005. The Company is not currently under audit by the Internal Revenue Service but is currently under audit in certain state and local jurisdictions, and in certain foreign jurisdictions. Returns filed
in the United Kingdom for tax years ended March 31, 2006, are currently under review.

As a result of the implementation of FIN 48,
the Company recognized a $2.1 million decrease in assets for unrecognized tax benefits associated with federal net operating losses, a $0.6 million decrease in assets for unrecognized tax benefits associated with state net operating losses and a
$3.8 million decrease in assets for unrecognized tax benefits associated with foreign net operating losses. Included in the balance of unrecognized tax benefits at April 1, 2007 is $7.4 million related to tax positions for which it is
reasonably possible that the total amounts could materially change within the next twelve months. This amount represents a decrease in unrecognized tax benefits from prior periods comprised of items related to the expiration of statutes in various
jurisdictions and amended returns in the U.K.

During the current period, the Company adjusted its unrecognized tax benefits by $7.0
million consisting of $4.6 million related to the expiration of the applicable statute of limitations and $2.4 million related to a tax refund claim in the UK (the effect of which directly impacted the Companys effective tax rate as a benefit
in the current period). Also during



12



---

##### Table of Contents

the current period, the Company adjusted its unrecognized tax benefits associated with federal net operating losses by $1.2 million, its unrecognized tax
benefits associated with state net operating losses by $0.6 million and its unrecognized tax benefits associated with foreign net operating losses by $3.8 million. This total adjustment of $5.6 million of unrecognized tax benefits was due to the
expiration of the applicable statute of limitations. Included in the balance of unrecognized tax benefits at December 31, 2007 is less than $0.1 million related to tax positions for which it is reasonably possible that the total amounts could
change within the next twelve months.

The Companys policy is to recognize interest and penalties related to unrecognized tax
benefits as part of its provision for federal and state income tax expense. As of December 31, 2007, the Company has accrued $0.1 million of interest and penalties related to unrecognized tax benefits.

In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements (FAS 157) which provides enhanced
guidance for using fair value to measure assets and liabilities. FAS 157 clarifies the principle that fair value should be based on assumptions market participants would use when pricing an asset or liability. Under FAS 157, fair value measurements
would be separately disclosed by level within a fair value hierarchy. FAS 157 is effective for Danka beginning April 1, 2008 although early adoption is permitted. The Company is currently evaluating the requirements of FAS 157 and has not yet
determined the impact of adoption, if any, on its financial position, results of operations or cash flows.

In February 2007, the FASB
issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115 (FAS 159). FAS 159 expands the use of fair value accounting
but does not affect existing standards which require assets or liabilities to be carried at fair value. Under FAS 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity
securities, equity method investments, accounts payable, guarantees and issued debt. Other eligible items include firm commitments for financial instruments that otherwise would not be recognized at inception and non-cash warranty obligations where
a warrantor is permitted to pay a third party to provide the warranty goods or services. If the use of fair value is elected, any upfront costs and fees related to the item must be recognized in earnings and cannot be deferred, e.g., debt issue
costs. The fair value election is irrevocable and generally made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to measure based on fair value. At the adoption date, unrealized gains and losses on
existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings. Subsequent to the adoption of FAS 159, changes in fair value are recognized in earnings. FAS 159 is effective for Danka
beginning April 1, 2008. The Company is currently evaluating the requirements of FAS 159 and has not yet determined the impact of adoption, if any, on its financial position, results of operations or cash flows.

Note 3. Restructuring Charges (Credits)

Fiscal
Year 2008 Plan:In fiscal year 2008, the Company formulated plans to continue to eliminate inefficiencies in its field operations and to reduce its selling, general and administrative costs by eliminating and consolidating back office functions,
reducing sales and service personnel and exiting certain facilities. These charges were accounted for under the provisions of FASB Statement No. 112, Employers Accounting for Post Retirement Benefits (SFAS 112) and
FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146).

As part
of these plans, the Company recorded a $1.5 million restructuring charge in fiscal year 2008 consisting of severance charges due to additional cost reduction efforts. Cash outlays for severance during the period were $0.6 million. Payments for the
2008 plan are expected to continue until March 2008.

The remaining liability of the fiscal year 2008 Plan restructuring charge is
categorized within Accrued expenses and other current liabilities.

The following table summarizes the fiscal year 2008 Plan
restructuring charge:

2008 Plan Restructuring Charge:



|          |  |        |       |             |   |      |                            |  |   |    
|--------- |  | ------ | ----- | ----------- | - | ---- | -------------------------- |  | - | ---
|          |  | Charge |       | CashOutlays |   |      | Reserve atDecember 31,2007
|Severance |  | $      | 1,535 |             | $ | (560 | )                          |  | $ | 975
|          |  |        |       |             |   |      |                            |  |   |    

Fiscal Year 2007 Plan:In fiscal year 2007, the Company formulated plans to continue to
eliminate inefficiencies in its field operations and to reduce its selling, general and administrative costs by eliminating and consolidating back office functions, reducing sales and service personnel and exiting certain facilities. These charges
were accounted for under the provisions of FASB Statement No. 112, Employers Accounting for Post Retirement Benefits (SFAS 112) and FASB Statement No. 146, Accounting for Costs Associated with Exit or
Disposal Activities (SFAS 146).



13



---

##### Table of Contents

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

During the second quarter of fiscal year 2008, the Company eliminated the remaining reserve related to its Field Support office due to favorable sublease
negotiations. The remaining obligation relating to this facility consists of broker fees incurred as part of the sublease agreement. The obligation is expected to be paid by the end of fiscal year 2008. Cash outlays for severance and facilities
during the period were $0.4 million and $1.2 million, respectively. Payments for the 2007 plan are expected to continue until March 2008.

The remaining liability of the fiscal year 2007 Plan restructuring charge is categorized within Accrued expenses and other current liabilities.

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

2007 Plan Restructuring Charge:



|                                              |  |                                       |       |                         |   |                |  |   |             |   |  |                            |        |   |  |   |    
|--------------------------------------------- |  | ------------------------------------- | ----- | ----------------------- | - | -------------- |  | - | ----------- | - |  | -------------------------- | ------ | - |  | - | ---
|                                              |  | CumulativeExpensethroughMarch 31,2007 |       | Reserve atMarch 31,2007 |   | Charge(Credit) |  |   | CashOutlays |   |  | Reserve atDecember 31,2007
|Severance                                     |  | $                                     | 2,032 |                         | $ | 662            |  | $ |            |   |  | $                          | (417   | ) |  | $ | 245
|Future lease obligations on facility closures |  |                                       | 3,495 |                         |   | 1,656          |  |   | (116        | ) |  |                            | (1,158 | ) |  |   | 382
|                                              |  |                                       |       |                         |   |                |  |   |             |   |  |                            |        |   |  |   |    
|Total                                         |  | $                                     | 5,527 |                         | $ | 2,318          |  | $ | (116        | ) |  | $                          | (1,575 | ) |  | $ | 627
|                                              |  |                                       |       |                         |   |                |  |   |             |   |  |                            |        |   |  |   |    

Fiscal Year 2005 Plan:In fiscal year 2005, the Company formulated plans to continue to
eliminate inefficiencies in its field operations and to reduce its selling, general and administrative costs by eliminating and consolidating back office functions and exiting certain facilities. These charges were accounted for under the provisions
of SFAS 112 and SFAS 146.

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

During fiscal year 2008, the Company recorded $0.1 million of restructuring charge related to facilities. Cash outlays for facilities during the period
were $0.2 million. Payments for the remaining 2005 Plan obligations are expected to continue through July 2009.

The remaining liability of
the 2005 Plan restructuring charge of $0.1 million is categorized within Accrued expenses and other current liabilities.

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

2005 Plan Restructuring Charge:



|                                              |  |                                       |       |                         |   |                |  |             |     |  |                            |      |   |  |   |   
|--------------------------------------------- |  | ------------------------------------- | ----- | ----------------------- | - | -------------- |  | ----------- | --- |  | -------------------------- | ---- | - |  | - | --
|                                              |  | CumulativeExpensethroughMarch 31,2007 |       | Reserve atMarch 31,2007 |   | Charge(Credit) |  | CashOutlays |     |  | Reserve atDecember 31,2007
|Severance                                     |  | $                                     | 6,562 |                         | $ |               |  | $           |    |  | $                          |     |   |  | $ |  
|Future lease obligations on facility closures |  |                                       | 960   |                         |   | 214            |  |             | 125 |  |                            | (243 | ) |  |   | 96
|                                              |  |                                       |       |                         |   |                |  |             |     |  |                            |      |   |  |   |   
|Total                                         |  | $                                     | 7,522 |                         | $ | 214            |  | $           | 125 |  | $                          | (243 | ) |  | $ | 96
|                                              |  |                                       |       |                         |   |                |  |             |     |  |                            |      |   |  |   |   

Fiscal Year 2004 Plan:In fiscal year 2004, the Company formulated plans to significantly
reduce its selling, general and administrative costs by consolidating the back-office functions, exiting non-strategic real estate facilities and reducing headcount. These charges were accounted for under the provisions of SFAS 112 and SFAS 146.



14



---

##### Table of Contents

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

During fiscal year 2008, the Company recorded $0.4 million of fiscal year 2004 Plan facility charges. Cash outlays for facilities during fiscal year 2008
were $0.8 million. Payments for the remaining 2004 Plan obligations are expected to continue through November 2011.

The remaining
liabilities of the 2004 Plan restructuring charge of $0.5 million and $1.0 million is categorized within Accrued expenses and other current liabilities and Deferred income taxes and other long-term liabilities, respectively.

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

2004 Plan Restructuring Charge:



|                                              |  |                                       |        |                         |   |                |  |             |     |  |                            |      |   |  |   |      
|--------------------------------------------- |  | ------------------------------------- | ------ | ----------------------- | - | -------------- |  | ----------- | --- |  | -------------------------- | ---- | - |  | - | -----
|                                              |  | CumulativeExpensethroughMarch 31,2007 |        | Reserve atMarch 31,2007 |   | Charge(Credit) |  | CashOutlays |     |  | Reserve atDecember 31,2007
|Severance                                     |  | $                                     | 5,747  |                         | $ |               |  | $           |    |  | $                          |     |   |  |   |     
|Future lease obligations on facility closures |  |                                       | 20,382 |                         |   | 1,875          |  |             | 431 |  |                            | (816 | ) |  |   | 1,490
|                                              |  |                                       |        |                         |   |                |  |             |     |  |                            |      |   |  |   |      
|Total                                         |  | $                                     | 26,129 |                         | $ | 1,875          |  | $           | 431 |  | $                          | (816 | ) |  | $ | 1,490
|                                              |  |                                       |        |                         |   |                |  |             |     |  |                            |      |   |  |   |      

Note 4. Discontinued Operations

European operations

During fiscal year 2007, the Company completed the sale of its European
businesses. Pursuant to a share purchase agreement (the Share Purchase Agreement) dated as of October 12, 2006 among Danka Business Systems PLC, certain of its subsidiaries (Danka Business Systems PLC and such subsidiaries
collectively referred to hereinafter as Danka, or the Company) and Ricoh Europe B.V. (Ricoh), the Company sold its European businesses to Ricoh in a sale of all the outstanding capital stock of those European
subsidiaries set forth in the Share Purchase Agreement for a purchase price of U.S. $215 million in cash, including an upward purchase price adjustment of U.S. $5.0 million and a holdback of $7.5 million, both of which we received during fiscal year
2008. The operating activities of the Companys European operations (including several non-operating companies not purchased by Ricoh) have been reported as discontinued operations and the consolidated condensed financial statements have been
adjusted to reflect this presentation. Summarized information for the European operations is set forth below:



|                                                                |  |                                |      |   |                               |   |         |      |  |   |        |   |  |   |         |  
|--------------------------------------------------------------- |  | ------------------------------ | ---- | - | ----------------------------- | - | ------- | ---- |  | - | ------ | - |  | - | ------- | -
|                                                                |  | Three Months EndedDecember 31, |      |   | Nine Months EndedDecember 31, |  
|                                                                |  | 2007                           |      |   | 2006                          |   |         | 2007 |  |   | 2006   |  
|Revenues                                                        |  | $                              |     |   |                               | $ | 128,770 |      |  | $ |       |   |  | $ | 370,067 |  
|Net earnings (loss) from discontinued operations, net of tax    |  |                                | 720  |   |                               |   | 8,634   |      |  |   | (384   | ) |  |   | 11,656  |  
|Provision (benefit) for income taxes on discontinued operations |  |                                | (883 | ) |                               |   | (4,587  | )    |  |   | (755   | ) |  |   | (6,182  | )
|Gain (loss) on sale of discontinued operations, net of tax      |  |                                | (642 | ) |                               |   | (5,007  | )    |  |   | (2,051 | ) |  |   | (5,870  | )

The indenture governing the Companys 11.0% senior notes due June 15, 2010 restricted
the use of the net proceeds (as defined in the indenture) from the sale of the Companys European businesses as more fully describe in Note 6. Debt to the consolidated condensed financial statements.

In addition, per the terms of the sale agreement, the Company established an escrow in the amount of $15.8 million to cover various obligations in
respect of certain of the European operations property leases and banking and financing agreements. This escrow reduced the net proceeds from the sale of the European businesses. In December 2007, this escrow was reduced to $5.3 million and is
included as part of the Companys long-term restricted cash balance at December 31, 2007 included in Other assets.

The Company is subject to tax audits in certain jurisdictions that were sold during fiscal year 2007. Per the terms of the Share Purchase Agreement, the Company is liable for any adverse outcome of these audits up through the date of sale
of



15



---

##### Table of Contents

the operations. The tax audits are ongoing and as of December 31, 2007, the recorded liability is the Companys best estimate of the exposure from
these audits. The Company intends to vigorously defend any adverse findings which may or may not be material.

Australia

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



|                                          |  |                                |   |                               |   |      |  |      |   |  |   |       
|----------------------------------------- |  | ------------------------------ | - | ----------------------------- | - | ---- |  | ---- | - |  | - | ------
|                                          |  | Three Months EndedDecember 31, |   | Nine Months EndedDecember 31,
|                                          |  | 2007                           |   | 2006                          |   | 2007 |  | 2006
|Revenues                                  |  | $                              |  |                               | $ |     |  | $    |  |  | $ | 22,085
|Net earnings from discontinued operations |  |                                |  |                               |   |     |  |      |  |  |   | 561   
|Gain on sale of discontinued operations   |  |                                |  |                               |   |     |  |      |  |  |   | 9,709 

Other

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



|                                                 |  |                                |   |      |                               |      |      |  |   |      |   |  |   |      |  
|------------------------------------------------ |  | ------------------------------ | - | ---- | ----------------------------- | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                                 |  | Three Months EndedDecember 31, |   |      | Nine Months EndedDecember 31, |     
|                                                 |  | 2007                           |   | 2006 |                               |      | 2007 |  |   | 2006 |  
|Revenues                                         |  | $                              |  |      | $                             |     |      |  | $ |     |   |  | $ |     |  
|Net earnings (loss) from discontinued operations |  |                                |  |      |                               | (233 | )    |  |   |     |   |  |   | (398 | )
|Loss on sale of discontinued operations          |  |                                |  |      |                               |     |      |  |   | (20  | ) |  |   |     |  

Note 5. Earnings (Loss) Per Share

The effect of the Companys 6.5% senior convertible participating shares, which represent the number of ADSs shown in the table below are not
included in the computation of diluted earnings per share for the three and nine months ended December 31, 2007 and 2006, because their effect would be anti-dilutive. ADS equivalents from stock options shown in the table below are not included
in the computation of diluted earnings per share for the three and nine months ended December 31, 2007 and 2006, because their effect would be anti-dilutive.



|                                             |  |                                |  |                               |  |        |  |       
|-------------------------------------------- |  | ------------------------------ |  | ----------------------------- |  | ------ |  | ------
|                                             |  | Three months endedDecember 31, |  | Nine months endedDecember 31,
|                                             |  | 2007                           |  | 2006                          |  | 2007   |  | 2006  
|Potential ADSs issuance from:                |  |                                |  |                               |  |        |  |       
|6.5% senior convertible participating shares |  | 28,958                         |  | 27,150                        |  | 28,502 |  | 26,722
|Stock options                                |  | 4,127                          |  | 5,812                         |  | 4,127  |  | 5,840 



16



---

##### Table of Contents

Note 6. Debt

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



|                                                                                                                    |  |                  |         |   |               |   |          |  
|------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------- | - | -------- | -
|                                                                                                                    |  | December 31,2007 |         |   | March 31,2007 |  
|10.0% subordinated notes due April 2008                                                                             |  | $                |        |   |               | $ | 64,520   |  
|11.0% senior notes due June 2010                                                                                    |  |                  |        |   |               |   | 175,000  |  
|Senior secured credit facilities                                                                                    |  |                  | 104,700 |   |               |   |         |  
|Capital lease obligations                                                                                           |  |                  | 578     |   |               |   | 1,026    |  
|Borrowings on revolving credit lines bearing interest at prime plus 3.25%                                           |  |                  | 20,780  |   |               |   | 10,000   |  
|Borrowings on various notes payable bearing interest from prime to 12.0% maturing principally over the next 5 years |  |                  | 402     |   |               |   | 747      |  
|                                                                                                                    |  |                  |         |   |               |   |          |  
|Total debt and notes payable                                                                                        |  |                  | 126,460 |   |               |   | 251,293  |  
|Less current maturities of long-term debt and notes payable                                                         |  |                  | (22,338 | ) |               |   | (186,078 | )
|                                                                                                                    |  |                  |         |   |               |   |          |  
|Long-term debt and notes payable, less current maturities                                                           |  | $                | 104,122 |   |               | $ | 65,215   |  
|                                                                                                                    |  |                  |         |   |               |   |          |  

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



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



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



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



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

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

In connection with the tender offer on the 11.0% senior notes described
above and the reclassification of the 11.0% senior notes from long-term to short-term at March 31, 2007, the unamortized balance of the debt issuance costs of $3.5 million and debt discount of $2.4 million were written off during fiscal year
2007.

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



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

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

A Notice of Redemption was initiated by the Company on
June 25, 2007 to the holders of the 11.0% Senior Notes due 2010 at 105.5% of par plus accrued and unpaid interest. On July 27, 2007, the Company redeemed and paid $186.1 million, which included an aggregate principal amount of $170.7
million plus a 5.5% call premium and accrued and unpaid interest, to the holders of the remaining senior notes. During the second quarter of fiscal year 2008, the Company recorded a charge of approximately $9.4 million for the call premium on the
redemption of the remaining senior notes and $0.3 million of other costs relating to the remaining debt issues cost on the Companys terminated credit facility with Bank of America as discussed below.

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



17



---

##### Table of Contents

The following table sets forth the effect of the tender offer and redemption of the senior notes and the
redemption of the subordinated notes on the Companys indebtedness during the nine months ended December 31, 2007:



|                                 |  |                         |         |                     |   |        |              |  |                    |       |  |                            |          |   |  |   |  
|-------------------------------- |  | ----------------------- | ------- | ------------------- | - | ------ | ------------ |  | ------------------ | ----- |  | -------------------------- | -------- | - |  | - | -
|                                 |  | Debt as ofMarch 31,2007 |         | TenderOfferPayments |   |        | Call Premium |  | RedemptionPayments |       |  | Debt as ofDecember 31,2007
|11% senior notes, due 2010       |  | $                       | 175,000 |                     | $ | (4,310 | )            |  | $                  | 9,388 |  | $                          | (180,078 | ) |  | $ | 
|10% subordinated notes, due 2008 |  |                         | 64,520  |                     |   |       |              |  |                    |      |  |                            | (64,520  | ) |  |   | 
|                                 |  |                         |         |                     |   |        |              |  |                    |       |  |                            |          |   |  |   |  
|Total                            |  | $                       | 239,520 |                     | $ | (4,310 | )            |  | $                  | 9,388 |  | $                          | (244,598 | ) |  | $ | 
|                                 |  |                         |         |                     |   |        |              |  |                    |       |  |                            |          |   |  |   |  

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

On November 14, 2007, the First Lien Credit Agreement was amended to extend the Consolidated First Lien Leverage Ratio to 3.7 to 1
from 3.5 to 1 to December 15, 2007 and to increase the applicable interest rate margin on the term loan by one percent. The Second Lien Credit Agreements was amended to increase the applicable interest rate margin on the term loan by one
percent. On December 14, 2004 the First Lien Credit Agreement was further amended to extend the Consolidated First Lien Leverage Ratio of 3.7 to 1 to January 31, 2008.

As of December 31, 2007, the borrowing base for the revolving credit facility was $24.1 million and DOIC had $20.8 million of borrowings under the
revolver. In addition, DOIC had $1.3 million reserved on the revolver for various letters of credit issued on its behalf. The borrowings are included in Current maturities of long-term debt and notes payable on the consolidated condensed
balance sheet. The borrowing base fluctuates each month and is generally highest at the end of the quarter. The borrowing base is subject to certain multiples of adjusted EBITDA as more fully described in the credit agreements and therefore, the
cash availability that we have under the financing arrangements are reliant on the Company meeting these adjusted EBITDA multiples.

The
Companys liquidity is dependent upon cash on hand, cash generated from operations and the availability of funding under the credit agreements with GECC. The borrowing base under the GECC credit agreements is limited to certain multiples of the
Companys adjusted EBITDA, as described in the agreements. The Companys availability of financing under the credit agreements is also dependent upon the satisfaction of a number of other conditions including meeting leverage and other
financial covenants. If the Company is unable to continue meeting these covenants, GECC could declare it in default, among other possible courses of action. The Company is in compliance with these covenants at December 31, 2007. In the event of
default, in order to fund its cash requirements in fiscal year 2009, the Company may be required to negotiate changes to its financial covenants with, or to obtain waivers of certain of these covenants from, GECC or to negotiate replacement
financing arrangements with one or more other financial institutions. If such actions become necessary, the Company believe that it will be able to negotiate such changes, waivers and/or replacement financings, but no assurance can be given that it
will be successful or as to the terms of any such arrangements



18



---

##### Table of Contents

DOIC incurred $6.9 million in debt issuance costs relating to its new credit facilities with GECC and is
amortizing these costs over the remaining terms of the facilities. The remaining balance of the unamortized costs was $5.9 million at December 31, 2007.

In connection with the refinancing, on June 25, 2007, DOIC terminated the credit facility which was to expire on January 4, 2009 with Bank of America (the BofA Credit Facility), which provided
for a $50.0 million, senior secured revolving credit facility, including a $30.0 million sub-limit for standby and documentary letters of credit. The BofA Credit Facility bore interest at an annual rate equal to, at our option, (a) the sum of
the rate of interest publicly announced from time to time by Bank of America as its prime or base rate of interest plus the applicable margin thereon or (b) the sum of LIBOR for interest periods at our option of one, two, three or nine months
plus the applicable margin thereon.

Note 7. Contingencies

Litigation:In June 2003, Danka was served with a class action complaint titled Stephen L. Edwards, et al., Plaintiffs vs. Danka Industries, Inc., et al., including American Business Credit Corporation,
Defendants, alleging claims of breach of contract, fraud/intentional misrepresentation, unjust enrichment, violation of the Florida Deception and Unfair Trade Protection Act and injunctive relief. The claim was filed in the state court in Tennessee,
and the Company has removed the claim to the United States District Court for Middle District of Tennessee for further proceedings. The plaintiffs have filed a motion to certify the class, which the Company has opposed. The Company had filed a
motion for summary judgment, which plaintiffs had opposed. On October 13, 2006, the United States District Court for the Middle District of Tennessee granted Dankas motion for summary judgment and dismissed the
Plaintiffs claims regarding shipping and handling charges, which served as the basis of the putative class claim. The U.S. District Court ruling effectively defeats the Plaintiffs ability to represent a class or serve
as a potential class member. The Plaintiffs remaining claim has not been resolved, but its resolution, even if adverse to the Company, is not expected to have a material impact on the Companys financial
condition. The Company does not know whether the Plaintiff will attempt to appeal the ruling dismissing the claim relating to shipping and handling charges. The Company will continue to vigorously defend the claims alleged by the
plaintiff in this action.

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

Note 8.
Income Taxes

The Company recorded an income tax benefit of $1.1 million in the first nine months of fiscal year 2008 and a tax
provision of $1.5 million in the first nine months of fiscal year 2007. The tax benefit for the current period resulted from a $2.4 million tax refund in the UK offset by a $1.1 million increase in the valuation allowance against deferred taxes, and
$0.1 million in minimum taxes and other charges. The tax provision in the prior period resulted from a $1.1 million increase in the valuation allowance against deferred taxes and $0.4 million in minimum taxes and other charges.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Our past financial performance is a
significant factor which contributes to our limited use, pursuant to Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes of projections of future taxable income in assessing the realizability of deferred
tax assets in most jurisdictions. Additionally, management considered the scheduled reversal of deferred tax liabilities and tax planning strategies in making this assessment. Considering all relevant data, management concluded that it is not
more likely than not the Company will realize the benefits of the deferred tax assets at December 31, 2007 and 2006 in most jurisdictions and therefore a valuation allowance has been recorded to reserve a portion of its deferred tax
assets at December 31, 2007 and 2006 in these jurisdictions.



19



---

##### Table of Contents

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

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

Dankas mission is to deliver value to clients by using our expert sales, technical and professional services and products to implement effective
document information solutions and services. Our product portfolio is designed to provide our customers with choice, convenience, custom cost management and continuity. Our vision is to empower our customers to benefit fully from the convergence of
image and document technologies in a connected environment. This approach will strengthen our client relationships and expand Dankas strategic value.

Our strategy to accomplish our mission is to:



| |  |  | enhance customer relationships and make every customer a reference;
| | - |  | -------------------------------------------------------------------



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



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



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



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

All tables presented herein are in thousands unless otherwise noted.

Critical Accounting Policies and Estimates

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

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



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



| |  |  | Allowances for billing disputes and inaccuracies: Billed revenues are reduced based on estimates derived by historically based statistical analysis. Measurement of
such allowance requires consideration of prior experience, including the need to adjust for current conditions and judgments about probable effects.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Changes to these estimates in the range of 15% or less would not have a material adverse or positive effect on our financial position and results of operations. The difference between actual write-offs and estimated
allowances has not been material.



20



---

##### Table of Contents

The following table summarizes our net accounts receivable:



|                                                                      |  |                  |         |   |               |   |         |  
|--------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------- | - | ------- | -
|                                                                      |  | December 31,2007 |         |   | March 31,2007 |  
|Accounts receivable, gross                                            |  | $                | 48,118  |   |               | $ | 61,547  |  
|Allowance for doubtful accounts and billing disputes and inaccuracies |  |                  | (10,940 | ) |               |   | (17,367 | )
|                                                                      |  |                  |         |   |               |   |         |  
|Accounts receivable, net                                              |  | $                | 37,178  |   |               | $ | 44,180  |  
|                                                                      |  |                  |         |   |               |   |         |  
|Allowance for doubtful accounts as a % of gross accounts receivable   |  |                  | 22.7    | % |               |   | 28.2    | %

Inventories Inventories are stated at the lower of cost or market using a method that
approximates FIFO and consist of finished goods available for sale. We acquire inventory based on our projections of future demand and market conditions. Any unexpected decline in demand and/or rapid product improvements or technological changes may
cause us to have excess and/or obsolete inventories. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and estimated market value based upon assumptions about
future demand and market conditions. If actual market conditions are less favorable than those anticipated, inventory adjustments may be required. On an ongoing basis, we review for estimated obsolete or unmarketable inventories and write-down our
inventories to their estimated net realizable value based upon our forecasts of future demand and market conditions using historical trends and analysis. If actual market conditions are less favorable than our forecasts, due in part to a greater
acceleration within the industry to digital color office imaging equipment, additional inventory write-downs may be required. Our estimates are influenced by a number of considerations including, but not limited to, the following: decline in demand
due to economic downturns, rapid product improvements and technological changes, and our ability to return to vendors a certain percentage of our purchases.

The difference between actual write-offs and estimated write-offs has not been material

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

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

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



21



---

##### Table of Contents

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

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

As discussed above under
Allowance for Doubtful Accounts, we estimate that a portion of our recorded revenues is inaccurate due to billing disputes or other errors. We reduce revenue for an estimate of future credits that will be issued for billing disputes and
inaccuracies at the time of sale. Billed revenues are reduced based on estimates derived by historically based statistical analysis. Measurement of such estimates requires consideration of prior experience, including the need to adjust for current
conditions and judgments about probable effects.

Deferred Income TaxesIn assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible. Our past financial performance is a significant factor which contributes to our inability, pursuant to FASB Statement No. 109, Accounting for Income Taxes
(SFAS 109), to use projections of future taxable income in assessing the realizability of deferred tax assets. Management therefore is limited to considering the scheduled reversal of deferred tax liabilities and tax planning strategies
in making this assessment. Considering all relevant data, management concluded that it is not more likely than not we will realize the benefits of the deferred tax assets at December 31, 2007. Consequently, we have a valuation
allowance against net deferred tax assets in all jurisdictions at December 31, 2007.

In addition, we operate within multiple taxing
jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. In managements opinion, adequate provisions for income and corporation taxes have
been made for all years.

GoodwillWe had goodwill of $93.5 million as of December 31, 2007. We review our goodwill and
indefinite-lived intangible assets annually for possible impairment, or more frequently if impairment indicators arise in accordance with FASB Statement No. 142, Goodwill and Other Intangible Assets (SFAS 142). Separable
intangible assets that have finite lives are amortized over their estimated useful lives.

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

Restructuring ChargesWe recognized restructuring charges for the consolidation of back office functions, exiting non-strategic real estate
facilities and reducing headcount. These charges are recorded pursuant to formal plans developed and approved by management. These charges are accounted for under the provisions of FASB Statement No. 112, Employers Accounting for
Post Retirement Benefits (SFAS 112) and FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146) and the recognition of restructuring charges requires that we
make certain judgments and estimates regarding the nature, timing and amount of costs associated with these plans. The estimates of future liabilities may change, requiring additional restructuring charges or the reduction of liabilities already
recorded. At the end of each reporting period, we evaluate the remaining accrued balances to ensure that no excess accruals are retained and the utilization of the provisions are for their intended purpose in accordance with the restructuring
programs. For further discussion of our restructuring programs, refer to Note 3. Restructuring Charges (Credits) to the consolidated condensed financial statements and Managements Discussion and Analysis of Financial
Condition and Results of OperationsLiquidity and Capital Resources.



22



---

##### Table of Contents

Financial Condition



|                                       |  |                  |         |   |               |   |         |  
|-------------------------------------- |  | ---------------- | ------- | - | ------------- | - | ------- | -
|                                       |  | December 31,2007 |         |   | March 31,2007 |  
|Total assets                           |  | $                | 233,547 |   |               | $ | 417,048 |  
|Total liabilities                      |  | $                | 225,061 |   |               | $ | 388,968 |  
|Working capital                        |  | $                | (15,926 | ) |               | $ | (37,441 | )
|Liabilities to liabilities and capital |  |                  | 96      | % |               |   | 93      | %
|Inventory turnover ratio               |  |                  | 5x      |   |               |   | 5x      |  

Total assets as of December 31, 2007 decreased $183.5 million or 44.0% compared to
March 31, 2007. This decrease was primarily the result of decreased restricted cash due to the repayment of our senior and subordinated notes. There were also decreases in our accounts receivable due to better collections and lower revenue
offset by an increase in other assets due to the debt issue costs incurred on our new financing agreements with GECC.

Total liabilities
(which does not include our 6.5% convertible participating shares) decreased $163.9 million from March 31, 2007, or 42.1%. This decrease was primarily the result of the repayment of our senior and subordinated notes and decreases in our
accounts payable and accrued expenses in an effort to stay current with our vendors offset by increased debt due to our new financing arrangements.

Working capital, defined as current assets less current liabilities, increased by $21.5 million or 57.5% at December 31, 2007 compared to March 31, 2007. This increase is a direct result of our new financing arrangement and the
other factors discussed above.

Liabilities to liabilities and capital increased 3.0% at December 31, 2007 compared to March 31,
2007, due to our new financing arrangement.

For the period ending December 31, 2007, our annualized inventory turnover ratio remained
stable at 5x.



23



---

##### Table of Contents

Results of Continuing Operations

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



|                                                               |  |                                |    |  |                               |    |  |       |    |  |       |   
|-------------------------------------------------------------- |  | ------------------------------ | -- |  | ----------------------------- | -- |  | ----- | -- |  | ----- | --
|                                                               |  | Three months endedDecember 31, |    |  | Nine months endedDecember 31, |   
|                                                               |  | 2007                           |    |  | 2006                          |    |  | 2007  |    |  | 2006  |   
|Revenue:                                                       |  |                                |    |  |                               |    |  |       |    |  |       |   
|Retail equipment, supplies and related sales                   |  | 47.4                           | %  |  | 42.9                          | %  |  | 45.4  | %  |  | 43.8  | % 
|Retail service                                                 |  | 50.0                           |    |  | 54.4                          |    |  | 51.9  |    |  | 53.0  |   
|Rentals                                                        |  | 2.6                            |    |  | 2.7                           |    |  | 2.7   |    |  | 3.2   |   
|                                                               |  |                                |    |  |                               |    |  |       |    |  |       |   
|Total revenue                                                  |  | 100.0                          |    |  | 100.0                         |    |  | 100.0 |    |  | 100.0 |   
|Cost of sales                                                  |  | 67.2                           |    |  | 66.1                          |    |  | 65.4  |    |  | 64.8  |   
|                                                               |  |                                |    |  |                               |    |  |       |    |  |       |   
|Gross profit                                                   |  | 32.8                           |    |  | 33.9                          |    |  | 34.6  |    |  | 35.2  |   
|                                                               |  |                                |    |  |                               |    |  |       |    |  |       |   
|Selling, general and administrative expenses                   |  | 30.7                           |    |  | 36.4                          |    |  | 33.4  |    |  | 34.3  |   
|Restructuring charges (credits)                                |  | 1.6                            |    |  | (0.5                          | )  |  | 0.6   |    |  | 1.7   |   
|Loss on sale of subsidiary                                     |  |                               |    |  |                              |    |  |      |    |  | 0.7   |   
|Other expense (income)                                         |  |                               |    |  | (1.0                          | )  |  | (0.3  | )  |  | (0.3  | ) 
|                                                               |  |                                |    |  |                               |    |  |       |    |  |       |   
|Operating earnings (loss) from continuing operations           |  | 0.5                            |    |  | (1.0                          | )  |  | 0.9   |    |  | (1.2  | ) 
|Interest expense                                               |  | (3.4                           | )  |  | (7.0                          | )  |  | (5.1  | )  |  | (6.6  | ) 
|Interest income                                                |  |                               |    |  | 0.1                           |    |  | 1.0   |    |  |      |   
|Loss on early extinguishment of debt                           |  |                               |    |  |                              |    |  | (3.0  | )  |  |      |   
|                                                               |  |                                |    |  |                               |    |  |       |    |  |       |   
|Earnings (loss) from continuing operations before income taxes |  | (2.9                           | )  |  | (7.9                          | )  |  | (6.2  | )  |  | (7.8  | ) 
|Provision (benefit) for income taxes                           |  | (2.1                           | )  |  | 0.5                           |    |  | (0.4  | )  |  | 0.4   |   
|                                                               |  |                                |    |  |                               |    |  |       |    |  |       |   
|Net earnings (loss) from continuing operations                 |  | (0.8                           | )% |  | (8.4                          | )% |  | (5.8  | )% |  | (8.2  | )%
|                                                               |  |                                |    |  |                               |    |  |       |    |  |       |   

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



|                                             |  |                                |   |  |                               |    |  |       |    |  |       |   
|-------------------------------------------- |  | ------------------------------ | - |  | ----------------------------- | -- |  | ----- | -- |  | ----- | --
|                                             |  | Three months endedDecember 31, |   |  | Nine months endedDecember 31, |   
|                                             |  | 2007                           |   |  | 2006                          |    |  | 2007  |    |  | 2006  |   
|Retail equipment, supplies and related sales |  | 13.3                           | % |  | (24.6                         | )% |  | (1.6  | )% |  | (19.9 | )%
|Retail service                               |  | (5.9                           | ) |  | (7.1                          | )  |  | (7.0  | )  |  | (9.5  | ) 
|Rentals                                      |  | (3.8                           | ) |  | (26.2                         | )  |  | (19.7 | )  |  | (18.4 | ) 
|Total revenue                                |  | 2.4                            | % |  | (16.1                         | )% |  | (5.1  | )% |  | (14.7 | )%

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



|                                             |  |                                |   |  |                               |   |  |      |   |  |      |  
|-------------------------------------------- |  | ------------------------------ | - |  | ----------------------------- | - |  | ---- | - |  | ---- | -
|                                             |  | Three months endedDecember 31, |   |  | Nine months endedDecember 31, |  
|                                             |  | 2007                           |   |  | 2006                          |   |  | 2007 |   |  | 2006 |  
|Retail equipment, supplies and related sales |  | 26.0                           | % |  | 28.2                          | % |  | 28.6 | % |  | 28.4 | %
|Retail service                               |  | 38.2                           |   |  | 37.4                          |   |  | 39.0 |   |  | 38.6 |  
|Rentals                                      |  | 55.7                           |   |  | 55.5                          |   |  | 53.6 |   |  | 71.5 |  
|Total Gross Margin                           |  | 32.8                           | % |  | 33.9                          | % |  | 34.6 | % |  | 35.2 | %



24



---

##### Table of Contents

Nine Months Ended December 31, 2007 compared to the Nine Months Ended December 31, 2006

Revenue

Revenue includes customer purchases of office
peripherals; supplies; software and related support products; professional, consulting and maintenance services; and leasing arrangements. For the nine months ended December 31, 2007, our revenue decreased by $17.0 million or 5.1% from the nine
months ended December 31, 2006 with retail equipment, supplies and related sales declining $2.4 million or 1.6% to $145.0 million. Retail service revenue declined $12.5 million or 7.0% to $165.9 million and rental revenue was down $2.2 million
or 19.7% to $8.8 million in the nine months ended December 31, 2007.

Our retail equipment, supplies and related sales are declining
due to new entrants and existing providers competing for product placement, and lower productivity of newly hired sales personnel. While we have added sales personnel in strategic locations, we continue to lack the necessary sales coverage
throughout the United States to cover and protect our existing installed base, due to earlier cost cutting measures. This is inhibiting our ability to retain and upgrade customers as their contracts end and/or their machines age out. Year over year,
our new product placements or new machines in field (MIF) decreased by 13%. This decrease in product placement is being partially offset by increases in average selling prices over all product lines of approximately 15%. These issues
combined with the advent of other competitive equipment from printer manufacturers may continue to hinder the growth in this area of our business. Our supplies revenue decreased by $1.0 million year over year due to the sale of Image One, our wholly
owned print services subsidiary, in fiscal year 2007.

Service revenue includes revenue from the maintenance and servicing of equipment and
is driven by the total number MIF that we service. Service revenues continued to decrease due in part to the continued conversion from analog devices to digital devices and decreased MIF. Year over year, digital devices in our installed base grew
6.3%, however, they generated a lower average cost per copy charge than the analog devices. This decrease in copy charges from the conversion to digital devices has been offset, somewhat by a shift to color copies which have a higher average per
copy charge than traditional black and white copies. Revenue from color machines now represents 6.4% of total copies compared to 5.1% in the prior year period.

We are also experiencing a decline in our MIF due in part to lower hardware sales. During the first nine months of fiscal year 2008, our net MIF decline was 6,122 machines resulting in a base service revenue decline
of $8.4 million. In addition, pricing pressures from competition and enhanced technology are inhibiting price maintenance on renewals and new contracts entered into. This decline in MIF is expected to continue which will impact service revenue on a
go-forward basis

Rental revenue declined by $2.2 million or 19.7% to $8.8 million in the nine months ended December 31, 2007. During
the year-ago period, revenue was recognized for fiscal year 2006 rental activity on rental equipment on contracts with certain governmental customers that did not meet revenue recognition criteria in fiscal year 2006.

Gross Profit

Our total gross profit margin after
costs of goods sold, which primarily includes inventory, service labor and overhead, management costs and depreciation of equipment, decreased to 34.6% in the nine months ended December 31, 2007 from 35.2% in the year-ago period.

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

Purchasing and receiving costs, inspection costs, warehousing costs and other distribution costs are included in selling, general and administrative costs because no meaningful allocation of these expenses to equipment, supplies and rental
costs of sales is practicable. Accordingly, our gross margins may not be comparable to other companies, since some companies include all of the costs related to their distribution network in cost of sales, while others exclude a portion of them from
gross margin, including them instead in operating expense line items. These costs totaled $8.3 million and $8.8 million for the nine months ended December 31, 2007 and 2006, respectively.

We receive vendor rebates based on arrangements with certain equipment vendors. Those arrangements typically require vendors to make incentive payments
to the Company based on the volume of periodic purchases (dollar amounts, quantity of specific units, etc.). Such rebates are accrued when purchases are made and can be reasonably estimated, recorded as reductions of inventory costs when accrued and
recognized as a reduction to cost of sales when the related inventories are sold. Credits to cost of sales during the nine months ended December 31, 2007 were $6.0 million compared to $4.5 million in the prior year period.



25



---

##### Table of Contents

Retail equipment, supplies and related sales margins increased slightly to 28.6% from 28.4% in the
year-ago period. This increase was primarily related to revised sales compensation plans that are focused on margin performance and vendor credits of $1.0 million received during the current period.

Retail service margins increased to 39.0% from 38.6%. The increase in retail service margins was a direct result of a reduction in fixed costs related to
our service organization of approximately $4.5 million and an increase year over year of vendor credits of $1.5 million offset by the transition to all inclusive service contracts that contain provisions for service and consumables.

Rental margins decreased in the current year period compared to the year-ago period. During fiscal year 2006, we entered into a government contract with
a 36 month term which requires annual purchase orders for budgetary purposes. Revenue and depreciation expense were expected to be recognized ratably over the contract term. However, a delay in the execution of the purchase order by the government
entity caused us to defer all of the revenue we expected to recognize in fiscal year 2006 to fiscal year 2007. This resulted in an increase to our fiscal year 2007 gross profit as the depreciation associated with the deferred revenue was recognized
in fiscal year 2006. In fiscal year 2008, our rental gross profit returned to historical levels resulting in a decrease in rental margins from 71.5% in fiscal year 2007 to 53.6% in fiscal year 2008.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (SG&A) in the current year decreased by $8.8 million or 7.7% from the year-ago period to $106.7 million from $115.5 million. The decrease in SG&A for the year resulted from a
decrease in professional fees of $11.1 million year over year, primarily relating to the outsourcing agreements for our general and administrative functions, including lower variable costs due to lower transactions generated. This decrease was
offset by increases in sales headcount and commission expenses of approximately $1.5 million in an effort to increase sales coverage in certain strategic markets. While we have added sales personnel in strategic locations, we are experiencing lower
productivity due to these newly hired sales personnel and we continue to lack the necessary sales coverage throughout the United States to cover and protect our existing installed base, due to earlier cost cutting measures. Any inability by us to
attract and retain qualified sales personnel may hinder our revenue growth. As a percentage of total revenue, SG&A expenses decreased to 33.4% in the current year from 34.3% in the nine months ended December 31, 2006.

Restructuring Charges (Credits)

During the last two
fiscal years, we formulated plans to continue to eliminate inefficiencies in our field operations and to reduce our SG&A costs by eliminating and consolidating back office functions, reducing sales and service personnel and exiting certain
facilities. During the prior fiscal year, we recorded $2.0 million of severance charges and $3.8 million of facility charges primarily relating to our Field Support Office. In addition, we recorded approximately $0.1 million in charges relating to
our prior restructuring plans. During the current period, we recorded severance charges of $1.5 million relating to the 2008 plan, and $0.4 million of facility charges relating to prior year plans.

Loss on Sale of Subsidiary

During fiscal year 2007,
we sold our interest in our wholly-owned subsidiary, Image One, resulting in a loss of $2.5 million.

Other (Income) Expense

Other income for the current fiscal year primarily included a gain on the sale of a building during the first quarter of approximately $0.9. The prior
year income included a gain of $0.5 million relating to grants from taxing authorities offset by amortization on intangibles related to our Image One subsidiary and foreign exchange losses.

Operating Earnings (Loss) from Continuing Operations

Our operating earnings from continuing operations was $3.2 million for the nine months ended December 31, 2007 compared to a loss of $4.1 million in the prior year period. The increase in operating earnings for the current year was due
to lower SG&A expenses, lower restructuring charges and the gain on the sale of a building offset by lower revenues and gross margin. The operating loss from continuing operations in the prior-year was principally due to increased restructuring
charges and the loss on the sale of our wholly owned subsidiary discussed above.



26



---

##### Table of Contents

Interest Expense and Interest Income

Interest expense decreased by $6.2 million or 27.6% due to the payoff of our senior and subordinated notes and our new financing agreements with GECC as more fully described in Note 6. Debt to the
consolidated condensed financial statements.

Interest income increased $3.0 million due to increased cash balances as the result of the
sale of our European businesses in the prior fiscal year.

Loss on Early Extinguishment of Debt

During the current fiscal year, we redeemed our senior and subordinated notes as more fully described in Note 6. Debt to the consolidated
condensed financial statements, resulting in a loss of $9.7 million.

Income Taxes

We recorded a tax benefit of $1.1 million during the nine months ended December 31, 2007 and a tax provision of $1.5 million in the prior year
period. The income tax benefit in the current period resulted from a $2.4 million benefit associated with the refund, in the UK, of previously paid tax offset by a $1.1 million increase in the valuation allowance against deferred taxes and $0.1
million in minimum taxes and other charges. The income tax provision for the prior year period resulted from a $1.1 million increase in the valuation allowance against deferred taxes and $0.4 million in minimum taxes and other charges.

Net Earnings (Loss) from Continuing Operations

Net loss from continuing operations was $18.5 million in the nine months ended December 31, 2007 compared to a loss from continuing operations of $27.8 million in the year-ago period. We incurred a net loss from continuing operations
available to common shareholders of $0.57 per ADS during the current period compared to net loss from continuing operations of $0.69 per ADS in the year-ago period.

Three Months Ended December 31, 2007 compared to the Three Months Ended December 31, 2006

Revenue

For the three months ended December 31, 2007, our revenue increased by $2.5 million or 2.4% from the three months ended
December 31, 2006 with retail equipment, supplies and related sales increasing $6.0 million or 13.3% to $51.3 million. Retail service revenue declined $3.4 million or 5.9% to $54.1 million, while rental revenue decreased slightly to $2.8
million in the three months ended December 31, 2007.

Our retail equipment, supplies and related sales increased quarter over quarter
due to an increase in our color machine placements. New color machines placed during the current fiscal year quarter increased 80% over the prior year quarter. This was offset by a 25% decrease in black and white machines placed during the current
period.

Service revenue includes revenue from the maintenance and servicing of equipment and is driven by the total number of MIF that we
service. Service revenues continued to decrease due in part to the continued conversion from analog devices to digital devices. Quarter over quarter, the increase in our digital devices installed base generated a lower average cost per copy charge
than the analog devices. This decrease in copy charges from the conversion to digital devices has been offset, somewhat by a shift to color copies which have a higher average per copy charge than traditional black and white copies. Copies made on
color machines represented 7.1% of total copies in the current quarter compared to 5.2% in the prior year quarter.

We are also
experiencing a decline in our MIF due to decreases in our equipment sales. During the third quarter of fiscal year 2008, our net MIF declined by 2,085 machines resulting in a base service revenue decline of $4.1 million. Usage service revenue on
these same machines decreased service revenue by approximately $0.5 million. These declines are being offset by increases in service revenue per machine for maintenance contacts of approximately $0.8 million. This is due to slight pricing increases
as well as a more favorable mix of color and high volume machines in the installed base.

Gross Profit

Our total gross profit margin after costs of goods sold, which primarily includes inventory, service labor and overhead, management costs and depreciation
of equipment, decreased to 32.8% in the three months ended December 31, 2007 from 33.9% in the year-ago period.



27



---

##### Table of Contents

Purchasing and receiving costs, inspection costs, warehousing costs and other distribution costs are
included in selling, general and administrative costs because no meaningful allocation of these expenses to equipment, supplies and rental costs of sales is practicable. Accordingly, our gross margins may not be comparable to other companies, since
some companies include all of the costs related to their distribution network in cost of sales, while others exclude a portion of them from gross margin, including them instead in operating expense line items. These costs totaled $2.8 million and
$2.9 million for the three months ended December 31, 2007 and 2006, respectively.

We receive vendor rebates based on arrangements
with certain equipment vendors. Those arrangements typically require vendors to make incentive payments to the Company based on the volume of periodic purchases (dollar amounts, quantity of specific units, etc.). Such rebates are accrued when
purchases are made and can be reasonably estimated, recorded as reductions of inventory costs when accrued and recognized as a reduction to cost of sales when the related inventories are sold. Credits to cost of sales during the three months ended
December 31, 2007 were $1.6 million compared to $1.7 million in the prior year quarter.

Retail equipment, supplies and related sales
margins decreased to 26.0% from 28.2% in the year-ago period. This decrease was primarily related to the hardware mix. With the placement of more color machines, the starter kits included with each machine are more costly than traditional black and
white machines.

Retail service margins increased to 38.2% from 37.4%. The increase in retail service margins was a direct result of a
reduction in fixed costs related to our sales organization of approximately $1.2 million and an increase quarter over quarter in vendor credits of $0.1 million offset by the transition to all inclusive service contracts that contain provisions for
service and consumables.

Rental margins remained stable for the quarter.

Selling, General and Administrative Expenses

Selling, general and administrative expenses
(SG&A) in the current year quarter decreased by $5.3 million or 13.7% from the year-ago period to $33.2 million from $38.5 million. This decrease resulted from a decrease in professional fees of $6.2 million primarily relating to our
outsourcing agreements for our general and administrative functions and lower employee costs of $1.3 million due to our continued cost cutting measures aimed at reducing SG&A. This was offset by expenses incurred by an increased sales staff,
such as commission and travel expenses, in an effort to increase sales coverage in certain markets. As a percentage of total revenue, SG&A expenses decreased to 30.7% in the current quarter from 36.4% in the three months ended December 31,
2006.

Restructuring Charges (Credits)

During the current fiscal year quarter, we reversed the remaining provisions relating to our Field Support Office due to favorable sublease negotiations. This credit was offset by the broker fees of $0.7 million related to the sublease
agreement. The prior year charge related to additional facility charges for prior restructuring plans.

Other (Income) Expense

Other income for the prior fiscal year quarter resulted primarily from foreign exchange gains.

Operating Earnings (Loss) from Continuing Operations

Our operating earnings from continuing operations increased to $0.6 million for the three months ended December 31, 2007 compared to a loss of $1.0 million in the prior year period. This increase was due to lower SG&A expenses
offset by lower service revenues and lower gross margins as discussed above.

Interest Expense and Interest Income

Interest expense decreased by $3.7 million or 50.0% due to the payoff of our senior and subordinated notes and our new financing agreements with GECC as
more fully described in Note 6. Debt to the consolidated condensed financial statements.



28



---

##### Table of Contents

Interest income remained stable.

Income Taxes

We recorded a tax benefit of $2.2 million during the three months ended
December 31, 2007 and a tax provision of $0.6 million in the prior year period. The income tax benefit in the current period resulted from a $2.4 million UK tax refund offset by an increase in the valuation allowance against deferred taxes and
other net charges of $0.2 million. The income tax provision for the prior year period resulted from a $0.3 million increase in the valuation allowance against deferred taxes and $0.3 million in minimum taxes and other charges.

Net Earnings (Loss) from Continuing Operations

Net
loss from continuing operations was $0.9 million in the three months ended December 31, 2007 compared to a loss from continuing operations of $8.9 million in the year-ago period. We incurred a net loss from continuing operations available to
common shareholders of $0.11 per ADS during the current period compared to net loss from continuing operations of $0.23 per ADS in the year-ago period.



29



---

##### Table of Contents

Liquidity and Capital Resources

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



|                                                    |  |                               |          |   |      |   |         |  
|--------------------------------------------------- |  | ----------------------------- | -------- | - | ---- | - | ------- | -
|                                                    |  | Nine Months EndedDecember 31, |         
|                                                    |  | 2007                          |          |   | 2006 |  
|Net cash used in operating activities               |  | $                             | (29,014  | ) |      | $ | (30,071 | )
|Net cash used in investing activities               |  |                               | (3,536   | ) |      |   | (9,374  | )
|Net cash (used in) provided by financing activities |  |                               | (141,121 | ) |      |   | 10,925  |  
|Effect of discontinued operations                   |  |                               | 173,063  |   |      |   | 6,069   |  
|Effect of exchange rates                            |  |                               |         |   |      |   | 4,204   |  
|                                                    |  |                               |          |   |      |   |         |  
|Net decrease in cash                                |  |                               | (608     | ) |      |   | (18,247 | )
|Cash and cash equivalents, beginning of period      |  |                               | 17,594   |   |      |   | 24,467  |  
|                                                    |  |                               |          |   |      |   |         |  
|Cash and cash equivalents, end of period            |  | $                             | 16,986   |   |      | $ | 6,220   |  
|                                                    |  |                               |          |   |      |   |         |  

Cash flows

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

Generally, cash provided by operations, cash on the balance sheet and the availability on our credit
facilities continue to be our primary source of funds to finance operating needs and capital expenditures. Our net cash flow used in operating activities for continuing operations during the first nine months of fiscal years 2008 and 2007 was $29.0
million and $30.1 million, respectively. The cash flows from continuing operations during each period is a result of the continuing decline in our revenues and the resulting decline in our gross profit, payouts of restructuring, payouts of accrued
professional fees and reductions in other accrued expenses. These uses of cash were offset somewhat by improved collections of accounts receivable. The increase year over year was primarily the result of lower accrued expenses due to lower
restructuring charges.

Our net cash flow used in investing activities from continuing operations was $3.5 million and $9.4 million for the
first nine month of the fiscal years 2008 and 2007, respectively. Cash used during each period was the result of capital expenditures. During the current period, we generated cash of $1.5 million from the sale of property and equipment, principally
a building in London.

Our net cash flow used in financing activities from continuing operations during the current period of $141.1
million was due to the payoff of our senior and subordinated debt offset by our new financing arrangement with GECC. Our net cash flow provided by financing activities during the prior year period of $10.9 million was primarily the result of
increased borrowings on our BofA Credit Facility.

The Company also has restricted cash at December 31, 2007 of $7.3 million (of which
$5.3 million is classified as long-term) primarily related to an escrow established relating to the sale of our European operations as more fully described below and in Note 4. Discontinued Operations to the consolidated condensed
financial statements.

During fiscal year 2007, we sold our European operations to Ricoh in a sale of all the outstanding capital stock of
those European subsidiaries set forth in the Share Purchase Agreement for a purchase price of U.S. $215 million in cash, after an upward adjustment of U.S. $5 million as more fully described in Note 4. Discontinued Operations to the
consolidated condensed financial statements. Under the indenture governing our 11% senior notes, we were obligated to make a tender offer within 365 days of the sale for the notes at par, utilizing the balance of the asset sale proceeds that has not
been used under the permitted expenditures defined in the indenture. In compliance with this requirement, we initiated a tender offer at par to the holders of the senior notes on June 25, 2007, which expired on July 24, 2007 as more fully
described in Note 6. Debt to the consolidated condensed financial statements.



30



---

##### Table of Contents

The sale of our European operations was completed in anticipation of the repayment of our senior and
subordinated notes in an effort to lower our interest expense (and subsequent payments) on a go forward basis. The cash contribution from our European operations generally had not been substantial enough to cover these interest payments.

Also on June 25, 2007, DOIC completed new financing agreements with GECC pursuant to which DOIC may borrow up to $145.0 million including $40.0
million in revolving loans as more fully described in Note 6. Debt to the consolidated condensed financial statements. Proceeds from this financing were used in conjunction with the proceeds of the previously completed sale of our
European businesses to reduce and refinance our existing debt and enhance working capital. The credit agreements governing these new financing arrangements contain customary financial covenants that we must comply with on a quarterly basis relating
to our leverage ratios, fixed charge coverage ratio, cumulative EBITDA and an annual capital expenditure threshold, all as more fully described in Exhibit 10.66. First Lien Credit Agreement and Exhibit 10.67. Second Lien Credit
Agreement attached to the Companys Annual Report on Form 10-K filed of June 27, 2007.

Notices of Redemption were
initiated by the Company on June 25, 2007 to the holders of the 11.0% Senior Notes due 2010 at 105.5% of par plus accrued and unpaid interest and to the holders of the 10.0% Subordinated Notes due 2008 at 100.0% of par plus accrued and unpaid
interest. On July 27, 2007, the senior notes and subordinated notes were redeemed and paid and during the second quarter of fiscal year 2008, the Company recorded a charge of approximately $9.4 million for the call premium on the redemption of
the senior notes as more fully described in Note 6. Debt to the consolidated condensed financial statements.

Our liquidity is
dependent upon cash on hand, cash generated from operations and the availability of funding under our credit agreements with GECC. The borrowing base under our GECC credit agreements is limited to certain multiples of our adjusted EBITDA, as
described in the agreements. Our availability of financing under the credit agreements is also dependent upon the satisfaction of a number of other conditions including meeting leverage and other financial covenants. If we are unable to continue
meeting these covenants, GECC could declare us in default, among other possible courses of action. We are in compliance with these covenants at December 31, 2007. In the event of default, in order to fund our cash requirements in fiscal year
2009 we may be required to negotiate changes to our financial covenants with, or to obtain waivers of certain of these covenants from, GECC or to negotiate replacement financing arrangements with one or more other financial institutions. If such
actions become necessary, we believe that we will be able to negotiate such changes, waivers and/or replacement financings, but no assurance can be given that we will be successful or as to the terms of any such arrangements.

On November 14, 2007, the First Lien Credit Agreement was amended to extend the Consolidated First Lien Leverage Ratio of 3.7 to 1 to
December 15, 2007 and to increase the interest rate applicable margin on the term loan by one percent. The Second Lien Credit Agreements was amended to increase the interest rate applicable margin on the term loan by one percent. On
December 14, 2004 the First Lien Credit Agreement was further amended to extend the Consolidated First Lien Leverage Ratio of 3.7 to 1 to January 31, 2008.

Restructuring Charges (Credits)

Fiscal Year 2008 Plan:In fiscal year 2008, the Company
formulated plans to continue to eliminate inefficiencies in its field operations and to reduce its selling, general and administrative costs by eliminating and consolidating back office functions, reducing sales and service personnel and exiting
certain facilities. These charges were accounted for under the provisions of FASB Statement No. 112, Employers Accounting for Post Retirement Benefits (SFAS 112) and FASB Statement No. 146, Accounting
for Costs Associated with Exit or Disposal Activities (SFAS 146).

As part of these plans, the Company recorded a $1.5
million restructuring charge in fiscal year 2008 consisting of severance charges due to additional cost reduction efforts. Cash outlays for severance during the period were $0.6 million. Payments for the 2008 plan are expected to continue until
March 2008.

The remaining liability of the fiscal year 2008 Plan restructuring charge is categorized within Accrued expenses and
other current liabilities.

The following table summarizes the fiscal year 2008 Plan restructuring charge:

2008 Plan Restructuring Charge:



|          |  |        |       |             |   |      |                            |  |   |    
|--------- |  | ------ | ----- | ----------- | - | ---- | -------------------------- |  | - | ---
|          |  | Charge |       | CashOutlays |   |      | Reserve atDecember 31,2007
|Severance |  | $      | 1,535 |             | $ | (560 | )                          |  | $ | 975
|          |  |        |       |             |   |      |                            |  |   |    



31



---

##### Table of Contents

Fiscal Year 2007 Plan:In fiscal year 2007, the Company formulated plans to continue to eliminate
inefficiencies in its field operations and to reduce its selling, general and administrative costs by eliminating and consolidating back office functions, reducing sales and service personnel and exiting certain facilities. These charges were
accounted for under the provisions of FASB Statement No. 112, Employers Accounting for Post Retirement Benefits (SFAS 112) and FASB Statement No. 146, Accounting for Costs Associated with Exit or
Disposal Activities (SFAS 146).

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

During the second quarter of fiscal year 2008, the Company eliminated the remaining reserve related to its Field Support office due to
favorable sublease negotiations. The remaining obligation relating to this facility consists of broker fees incurred as part of the sublease agreement. The obligation is expected to be paid by the end of fiscal year 2008. Cash outlays for severance
and facilities during the period were $0.4 million and $1.2 million, respectively. Payments for the 2007 plan are expected to continue until March 2008.

The remaining liability of the fiscal year 2007 Plan restructuring charge is categorized within Accrued expenses and other current liabilities.

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

2007 Plan Restructuring Charge:



|                                              |  |                                       |       |                         |   |                |  |   |             |   |  |                            |        |   |  |   |    
|--------------------------------------------- |  | ------------------------------------- | ----- | ----------------------- | - | -------------- |  | - | ----------- | - |  | -------------------------- | ------ | - |  | - | ---
|                                              |  | CumulativeExpensethroughMarch 31,2007 |       | Reserve atMarch 31,2007 |   | Charge(Credit) |  |   | CashOutlays |   |  | Reserve atDecember 31,2007
|Severance                                     |  | $                                     | 2,032 |                         | $ | 662            |  | $ |            |   |  | $                          | (417   | ) |  | $ | 245
|Future lease obligations on facility closures |  |                                       | 3,495 |                         |   | 1,656          |  |   | (116        | ) |  |                            | (1,158 | ) |  |   | 382
|                                              |  |                                       |       |                         |   |                |  |   |             |   |  |                            |        |   |  |   |    
|Total                                         |  | $                                     | 5,527 |                         | $ | 2,318          |  | $ | (116        | ) |  | $                          | (1,575 | ) |  | $ | 627
|                                              |  |                                       |       |                         |   |                |  |   |             |   |  |                            |        |   |  |   |    

Fiscal Year 2005 Plan:In fiscal year 2005, the Company formulated plans to continue to
eliminate inefficiencies in its field operations and to reduce its selling, general and administrative costs by eliminating and consolidating back office functions and exiting certain facilities. These charges were accounted for under the provisions
of SFAS 112 and SFAS 146.

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

During fiscal year 2008, the Company recorded $0.1 million of restructuring charge related to facilities. Cash outlays for facilities during the period
were $0.2 million. Payments for the remaining 2005 Plan obligations are expected to continue through July 2009.

The remaining liability of
the 2005 Plan restructuring charge of $0.1 million is categorized within Accrued expenses and other current liabilities.

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

2005 Plan Restructuring Charge:



|                                              |  |                                       |       |                         |   |                |  |             |     |  |                            |      |   |  |   |   
|--------------------------------------------- |  | ------------------------------------- | ----- | ----------------------- | - | -------------- |  | ----------- | --- |  | -------------------------- | ---- | - |  | - | --
|                                              |  | CumulativeExpensethroughMarch 31,2007 |       | Reserve atMarch 31,2007 |   | Charge(Credit) |  | CashOutlays |     |  | Reserve atDecember 31,2007
|Severance                                     |  | $                                     | 6,562 |                         | $ |               |  | $           |    |  | $                          |     |   |  | $ |  
|Future lease obligations on facility closures |  |                                       | 960   |                         |   | 214            |  |             | 125 |  |                            | (243 | ) |  |   | 96
|                                              |  |                                       |       |                         |   |                |  |             |     |  |                            |      |   |  |   |   



32



---

##### Table of Contents

|      |  |                                       |       |                         |   |                |  |             |     |  |                            |      |   |  |   |   
|----- |  | ------------------------------------- | ----- | ----------------------- | - | -------------- |  | ----------- | --- |  | -------------------------- | ---- | - |  | - | --
|      |  | CumulativeExpensethroughMarch 31,2007 |       | Reserve atMarch 31,2007 |   | Charge(Credit) |  | CashOutlays |     |  | Reserve atDecember 31,2007
|Total |  | $                                     | 7,522 |                         | $ | 214            |  | $           | 125 |  | $                          | (243 | ) |  | $ | 96
|      |  |                                       |       |                         |   |                |  |             |     |  |                            |      |   |  |   |   

Fiscal Year 2004 Plan:In fiscal year 2004, the Company formulated plans to significantly
reduce its selling, general and administrative costs by consolidating the back-office functions, exiting non-strategic real estate facilities and reducing headcount. These charges were accounted for under the provisions of SFAS 112 and SFAS 146.

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

During fiscal year 2008, the Company recorded $0.4 million of fiscal year 2004 Plan facility charges. Cash outlays for facilities during fiscal year 2008
were $0.8 million. Payments for the remaining 2004 Plan obligations are expected to continue through November 2011.

The remaining
liabilities of the 2004 Plan restructuring charge of $0.5 million and $1.0 million is categorized within Accrued expenses and other current liabilities and Deferred income taxes and other long-term liabilities, respectively.

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

2004 Plan Restructuring Charge:



|                                              |  |                                       |        |                         |   |                |  |             |     |  |                            |      |   |  |   |      
|--------------------------------------------- |  | ------------------------------------- | ------ | ----------------------- | - | -------------- |  | ----------- | --- |  | -------------------------- | ---- | - |  | - | -----
|                                              |  | CumulativeExpensethroughMarch 31,2007 |        | Reserve atMarch 31,2007 |   | Charge(Credit) |  | CashOutlays |     |  | Reserve atDecember 31,2007
|Severance                                     |  | $                                     | 5,747  |                         | $ |               |  | $           |    |  | $                          |     |   |  |   |     
|Future lease obligations on facility closures |  |                                       | 20,382 |                         |   | 1,875          |  |             | 431 |  |                            | (816 | ) |  |   | 1,490
|                                              |  |                                       |        |                         |   |                |  |             |     |  |                            |      |   |  |   |      
|Total                                         |  | $                                     | 26,129 |                         | $ | 1,875          |  | $           | 431 |  | $                          | (816 | ) |  | $ | 1,490
|                                              |  |                                       |        |                         |   |                |  |             |     |  |                            |      |   |  |   |      

Long-Term Debt

The following table sets forth our future payments for our debt as of December 31, 2007:



|                                 |  |       |         |                                |   |                                |  |   |        
|-------------------------------- |  | ----- | ------- | ------------------------------ | - | ------------------------------ |  | - | -------
|                                 |  | Total |         | Payments due inLess Than1 Year |   | Payments due inMore Than1 Year
|Senior secured credit facilities |  |       | 104,700 |                                |   | 900                            |  |   | 103,800
|Capital leases                   |  |       | 578     |                                |   | 578                            |  |   |       
|Other long-term obligations      |  |       | 21,182  |                                |   | 20,860                         |  |   | 322    
|                                 |  |       |         |                                |   |                                |  |   |        
|Total                            |  | $     | 126,460 |                                | $ | 22,338                         |  | $ | 104,122
|                                 |  |       |         |                                |   |                                |  |   |        

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



33



---

##### Table of Contents

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

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



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

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

Notices of Redemption were initiated by the Company on June 25, 2007
to the holders of the 11.0% Senior Notes due 2010 at 105.5% of par plus accrued and unpaid interest and to the holders of the 10.0% Subordinated Notes due 2008 at 100.0% of par plus accrued and unpaid interest. On July 27, 2007 the senior notes
and the subordinated notes were redeemed and paid. During the second quarter of fiscal year 2008, we recorded a charge of approximately $9.4 million for the call premium on the redemption of the senior notes and $0.3 million of other costs relating
to the remaining debt issues cost on the Companys terminated credit facility with Bank of America as more fully described in Note 6. Debt to the consolidated condensed financial statements.

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

On November 14, 2007, the First Lien Credit Agreement was amended to extend the Consolidated First Lien Leverage Ratio to 3.7 to 1 from 3.5 to 1 to
December 15, 2007 and to increase the applicable interest rate margin on the term loan by one percent. The Second Lien Credit Agreements was amended to increase the applicable interest rate margin on the term loan by one percent. On
December 14, 2004 the First Lien Credit Agreement was further amended to extend the Consolidated First Lien Leverage Ration of 3.7 to 1 to January 31, 2008.

DOIC incurred $6.9 million in debt issuance costs related to the new credit facilities with GECC are amortizing these costs over the remaining terms of the facilities. The remaining balance of the unamortized costs
was $5.9 million at December 31, 2007.

In connection with the refinancing, on June 25, 2007, DOIC terminated its credit facility
which would have expired on January 4, 2009, with Bank of America (the BofA Credit Facility) to provide for a $50.0 million, senior secured revolving credit facility, which includes a $30.0 million sub-limit for standby and
documentary letters of credit. The BofA Credit Facility bore interest at an annual rate equal to, at our option, (a) the sum of the rate of interest publicly announced from time to time by Bank of America as its prime or base rate of interest
plus the applicable margin thereon or (b) the sum of LIBOR for interest periods at our option of one, two, three or nine months plus the applicable margin thereon.

Off-Balance Sheet Arrangements

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



34



---

##### Table of Contents

Contractual Obligations and Commitments

The following table summarizes our significant contractual obligations at December 31, 2007, and the effect such obligations are expected to have on
our liquidity and cash flows in future periods. This table excludes accounts payable, accrued expenses (except restructuring charges), taxes payable and deferred revenue already recorded on our balance sheet as current liabilities at
December 31, 2007.



|                                      |  |                                              |         |                 |   |             |  |             |        |              |   |        |  |   |       
|------------------------------------- |  | -------------------------------------------- | ------- | --------------- | - | ----------- |  | ----------- | ------ | ------------ | - | ------ |  | - | ------
|                                      |  | Amount of contractual obligations per period
|                                      |  | Total                                        |         | Less than1 year |   | 1  3 years |  | 4  5 years |        | After 5years
|Senior secured credit facility        |  |                                              | 104,700 |                 |   | 900         |  |             | 58,800 |              |   | 45,000 |  |   |      
|Capital lease obligations             |  |                                              | 578     |                 |   | 578         |  |             |       |              |   |       |  |   |      
|Other long-term obligations           |  |                                              | 21,182  |                 |   | 20,860      |  |             | 146    |              |   | 82     |  |   | 94    
|Restructuring payment obligations (1) |  |                                              | 3,269   |                 |   | 2,263       |  |             | 1,006  |              |   |       |  |   |      
|Operating lease obligations           |  |                                              | 59,151  |                 |   | 12,207      |  |             | 18,084 |              |   | 11,169 |  |   | 17,691
|Purchase obligations                  |  |                                              | 11,705  |                 |   | 11,705      |  |             |       |              |   |       |  |   |      
|                                      |  |                                              |         |                 |   |             |  |             |        |              |   |        |  |   |       
|Total contractual obligations         |  | $                                            | 200,585 |                 | $ | 48,513      |  | $           | 78,036 |              | $ | 56,251 |  | $ | 17,785
|                                      |  |                                              |         |                 |   |             |  |             |        |              |   |        |  |   |       



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

Other Financing Arrangements

Senior Convertible Participating Shares

On December 17, 1999, we issued 218,000 6.50% senior convertible participating shares, or the participating shares, for $218.0 million. The
participating shares are entitled to dividends equal to the greater of 6.50% per annum or ordinary share dividends on an as converted basis. In accordance with the terms of their issue, dividends were payable in the form of additional
participating shares in the period through to December 2004. The terms of the financing arrangement in place with Bank of America restricted the payment of cash dividends. Accordingly, dividends, which are cumulative, were paid in the form of
additional participating shares from issuance to December 2004. At that time, we were obliged to pay the participating share dividends in cash. However, the terms of the participating shares permit us to continue to pay payment-in-kind dividends
following December 17, 2004 if our then existing principal indebtedness, which includes our credit facility and debt securities issued in an aggregate principal amount in excess of $50.0 million in a bona fide underwritten public or private
offering, prohibits us from paying cash dividends. Further, if we are not permitted by the terms of the participating shares to pay payment-in-kind dividends following December 17, 2004 and we have insufficient distributable reserves under
English law to pay cash dividends, the amount of any unpaid dividend will be added to the liquidation return of each participating share. The terms of DOICs financing agreements with GECC also restrict the payment of cash
dividends.

The holders of the participating shares are, in general, entitled to appoint two directors to the board. As the Company had not
paid dividends in cash for nine successive quarters following December 2004, they are entitled to appoint a further two directors until the time the Company has paid cash dividends on the participating shares for four successive quarters. As of the
date of this filing, the holders of the participating shares have appointed two directors to the Companys Board of Directors.

The
participating shares are currently convertible into ordinary shares at a conversion price of $3.11 per ordinary share (equal to $12.44 per ADS), subject to adjustment in certain circumstances to avoid dilution of the interests of participating
shareholders. As of December 31, 2007 the participating shares have voting rights, on an as converted basis, currently corresponding to approximately 29.9% of the total voting power of our capital stock which includes an additional 145,140
participating shares in respect of payment-in-kind dividends.

If, by December 17, 2010, we have not converted or otherwise redeemed
the participating shares, we are required, subject to compliance with applicable laws and the instruments governing our indebtedness, and except as set out immediately following, to redeem all of the then outstanding participating shares. If we fail
to do this, we must then redeem the maximum number of such shares that can then lawfully be redeemed, assuming that the liquidation value per participating share is at that time greater than the market value of the ordinary shares into which the
participating shares are convertible. The amount to be paid on the redemption of each participating share in cash is the greater of (a) the then liquidation value or (b) the then market value of the ordinary shares into which the
participating shares are convertible, in each case plus accumulated and unpaid dividends from the most recent dividend payment date. If the price set out in (b) above is applicable, we are permitted to convert the participating shares into the
number of ordinary shares into which they are convertible instead of making the cash payment.



35



---

##### Table of Contents

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

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

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

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

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

General Electric Capital Corporation

We have an agreement with GECC under which GECC agrees to provide financing to our qualified United States customers to purchase equipment. The agreement expires March 31, 2009. In connection with this agreement, we are obligated to
provide a minimum level of customer leases to GECC. The minimum level of customer leases is equal to a specified percentage of United States retail equipment and related sales revenues. If we fail to provide a minimum level of customer leases under
the agreement, we are obligated to pay penalty payments to GECC. For the nine months ended December 31, 2007 and 2006, we were not required to make any penalty payments to GECC.

Tax Payments

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

Seasonality

The Companys operations have historically experienced lower revenue during the second quarter of its fiscal year, which is the three month period ended September 30. This is primarily due to lower levels of
service revenue from governmental agencies such as school districts. This has historically resulted in reduced sales activity and reduced usage of photocopiers, facsimiles and other office imaging equipment during the second quarter. Accordingly,
the results of operations for the interim periods are not necessarily indicative of the results which may be expected for the entire fiscal year.



36



---

##### Table of Contents

Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), which clarifies the accounting for
uncertainty in income taxes recognized in a companys financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition of tax benefits, classification on the balance sheet, interest and penalties,
accounting in interim periods, disclosure, and transition. The Company adopted FIN 48 effective April 1, 2007. As a result of the adoption of FIN 48, the Company has $12.9 million of unrecognized tax benefits recorded. Of this, $3.0 million
would affect the Companys effective tax rate, if recognized. Of this amount, less than $0.1 million was recorded as a reduction to the April 1, 2007 retained earnings balance.

The Company files numerous income tax returns in the U.S. at the federal, state and local levels, and in certain foreign jurisdictions. The Company has
analyzed filing positions in all of the federal, state and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. With few exceptions, the Company is no longer subject to U.S.
federal, state, local, or foreign income tax examinations by taxing authorities for years prior to the fiscal year ended March 31, 2005. The Company is not currently under audit by the Internal Revenue Service but is currently under audit in
certain state and local jurisdictions, and in certain foreign jurisdictions. Returns filed in the United Kingdom for tax years ended March 31, 2006, are currently under review.

As a result of the implementation of FIN 48, the Company recognized a $2.1 million decrease in assets for unrecognized tax benefits associated with
federal net operating losses, a $0.6 million decrease in assets for unrecognized tax benefits associated with state net operating losses and a $3.8 million decrease in assets for unrecognized tax benefits associated with foreign net operating
losses. Included in the balance of unrecognized tax benefits at April 1, 2007 is $7.4 million related to tax positions for which it is reasonably possible that the total amounts could materially change within the next twelve months. This amount
represents a decrease in unrecognized tax benefits from prior periods comprised of items related to the expiration of statutes in various jurisdictions and amended returns in the U.K.

During the current period, the Company adjusted its unrecognized tax benefits by $7.0 million consisting of $4.6 million related to the expiration of the
applicable statute of limitations and $2.4 million related to a tax refund claim in the UK (the effect of which directly impacted the Companys effective tax rate as a benefit in the current period). Also during the current period, the Company
adjusted its unrecognized tax benefits associated with federal net operating losses by $1.2 million, its unrecognized tax benefits associated with state net operating losses by $0.6 million and its unrecognized tax benefits associated with foreign
net operating losses by $3.8 million. This total adjustment of $5.6 million of unrecognized tax benefits was due to the expiration of the applicable statute of limitations. Included in the balance of unrecognized tax benefits at December 31,
2007 is less than $0.1 million related to tax positions for which it is reasonably possible that the total amounts could change within the next twelve months.

The Companys policy is to recognize interest and penalties related to unrecognized tax benefits as part of its provision for federal and state income tax expense. As of December 31, 2007, the Company has
accrued $0.1 million of interest and penalties related to unrecognized tax benefits.

In September 2006, the FASB issued FASB Statement
No. 157, Fair Value Measurements (FAS 157) which provides enhanced guidance for using fair value to measure assets and liabilities. FAS 157 clarifies the principle that fair value should be based on assumptions market
participants would use when pricing an asset or liability. Under FAS 157, fair value measurements would be separately disclosed by level within a fair value hierarchy. FAS 157 is effective for Danka beginning April 1, 2008 although early
adoption is permitted. The Company is currently evaluating the requirements of FAS 157 and has not yet determined the impact of adoption, if any, on its financial position, results of operations or cash flows.

In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding
an Amendment of FASB Statement No. 115 (FAS 159). FAS 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. Under FAS 159, a
company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. Other eligible items include firm commitments
for financial instruments that otherwise would not be recognized at inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to provide the warranty goods or services. If the use of fair value is elected, any
upfront costs and fees related to the item must be recognized in earnings and cannot be deferred, e.g., debt issue costs. The fair value election is irrevocable and generally made on an instrument-by-instrument basis, even if a company has similar
instruments that it elects not to measure based on fair value. At the adoption date, unrealized gains and losses on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings.
Subsequent to the adoption of FAS 159, changes in fair value are recognized in earnings. FAS 159 is effective for Danka beginning April 1, 2008. The Company is currently evaluating the requirements of FAS 159 and has not yet determined the
impact of adoption, if any, on its financial position, results of operations or cash flows.



37



---

##### Table of Contents

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

Market Risk

Our market risk is primarily limited to fluctuations in interest rates as they pertain to our borrowings under
our credit facility.

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

We estimate that a half percent change in interest rates would impact the interest charged on the borrowings under the GECC
financing arrangements by approximately $0.6 million.



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

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

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), at December 31, 2007. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, at
December 31, 2007, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2007 that have materially affected, or
are reasonably likely to materially affect our internal controls over financial reporting.



38



---

##### Table of Contents

APPROVAL OF NON-AUDIT SERVICES

The audit committee has approved Ernst & Young LLP and its affiliates to perform services relating to the Companys 401(k) plan during the nine months ended December 31, 2007.

PART II  OTHER INFORMATION



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

Litigation:In June 2003,
Danka was served with a class action complaint titled Stephen L. Edwards, et al., Plaintiffs vs. Danka Industries, Inc., et al., including American Business Credit Corporation, Defendants, alleging claims of breach of contract, fraud/intentional
misrepresentation, unjust enrichment, violation of the Florida Deception and Unfair Trade Protection Act and injunctive relief. The claim was filed in the state court in Tennessee, and the Company has removed the claim to the United States District
Court for Middle District of Tennessee for further proceedings. The plaintiffs have filed a motion to certify the class, which the Company has opposed. The Company had filed a motion for summary judgment, which plaintiffs had opposed. On
October 13, 2006, the United States District Court for the Middle District of Tennessee granted Dankas motion for summary judgment and dismissed the Plaintiffs claims regarding shipping and handling charges, which served as the
basis of the putative class claim. The U.S. District Court ruling effectively defeats the Plaintiffs ability to represent a class or serve as a potential class member. The Plaintiffs remaining claim has not been
resolved, but its resolution, even if adverse to the Company, is not expected to have a material impact on the Companys financial condition. The Company does not know whether the Plaintiff will attempt to appeal the ruling
dismissing the claim relating to shipping and handling charges. The Company will continue to vigorously defend the claims alleged by the plaintiff in this action.

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



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

Not
applicable.



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

Not applicable.



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

None.



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

None.



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

(a) Exhibits.



|            |  |                                                                                                                               
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                   
|31.1        |  | Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|            | 
|31.2        |  | Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|            | 
|32.1        |  | Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|            | 
|32.2        |  | Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



39



---

##### Table of Contents

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 6, 2008 |  | /s/ Edward K. Quibell     
|                       |  | Edward K. Quibell         
|                       |  | Chief Financial Officer   

Exhibit Index



|            |  |                                                                                                                               
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                   
|31.1        |  | Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|            | 
|31.2        |  | Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|            | 
|32.1        |  | Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|            | 
|32.2        |  | Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



40