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 ~~SEPTEMBER~~DECEMBER 3031, ~~2007~~2008

¨	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
111 2nd AVENUE NORTHEAST ST. PETERSBURG, FL 33701	AND	MASTERS HOUSE 107 HAMMERSMITH ROAD LONDON W14 0QH ENGLAND
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(727) ~~622~~456-~~2100~~4460 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, or a smaller reporting company. See ~~definition~~the definitions of “large accelerated filer,” “accelerated filer” and ~~large~~“smaller ~~accelerated~~reporting ~~filer~~company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer x ¨ Non-accelerated filer ¨ Smaller Reporting Company x

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 ~~November~~February 112, ~~2007~~2009: The registrant had 259,~~133~~148,748 ordinary shares outstanding with par value of 1.25 pence, including ~~237~~230,~~193~~945,~~319~~ 236 shares represented by 5957,~~298~~736,~~579~~309 American Depositary Shares (“ADSs”). Each ADS represents four ordinary shares. The ADSs are evidenced by American Depositary Receipts.

INDEX

		Page
PART I – FINANCIAL INFORMATION		4
RISK FACTORS		4
ITEM 1.	CONSOLIDATED CONDENSED FINANCIAL STATEMENTS	4
PART I – FINANCIAL INFORMATION		8
	Consolidated Condensed Statements of Operations for the Three and Nine Months Ended December 31, 2008 and 2007	4
ITEM 1.	CONSOLIDATED CONDENSED FINANCIAL STATEMENTS	8
	Consolidated Condensed Balance Sheets as of December 31, 2008 and March 31, 2008	5
	Consolidated Condensed Statements of Operations for the Three and Six Months Ended September 30, 2007 and 2006	8
	Consolidated Condensed Statements of Cash Flows for the Nine Months Ended December 31, 2008 and 2007	6
	Consolidated Condensed Balance Sheets as of September 30, 2007 and March 31, 2007	9
	Notes to Consolidated Condensed Financial Statements	7
	Consolidated Condensed Statements of Cash Flows for the Six Months Ended September 30, 2007 and 2006	10
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
	Notes to Consolidated Condensed Financial Statements	11
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	19
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18
ITEM 4.	CONTROLS AND PROCEDURES	19
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	35
PART II – OTHER INFORMATION		20
ITEM 4.	CONTROLS AND PROCEDURES	35
ITEM 1.	LEGAL PROCEEDINGS	20
PART II – OTHER INFORMATION		36
ITEM 1A.	Risk FACTORS	20
ITEM 1.	LEGAL PROCEEDINGS	36
ITEM 2.	CHANGES IN SECURITIES AND USE OF PROCEEDS	20
ITEM 2.	CHANGES IN SECURITIES AND USE OF PROCEEDS	36
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	20
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	36
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	20
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	36
ITEM 5.	OTHER INFORMATION	21
ITEM 5.	OTHER INFORMATION	37
ITEM 6.	EXHIBITS	22
ITEM 6.	EXHIBITS	37
SIGNATURES		23
SIGNATURE		38

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~~the ~~inability~~evaluation toof ~~successfully~~various ~~implement~~alternatives following the sale of our ~~strategy~~remaining operations, including, without limitation, a members voluntary liquidation; (ii) any inability to successfully implement ~~our~~such ~~cost restructuring plans to achieve and maintain cost savings~~alternative(s); (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~~any ~~competition~~incurrence ~~in our industry and the discounting~~ of ~~products~~tax byor ~~our~~other ~~competitors;~~liabilities ~~(vi) new competition from non-traditional competitors as the result of evolving and converging technology; (vii) any inability by us to procure,~~ or ~~any~~tax ~~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 toother ~~continue~~payments tobeyond ~~bring current products to the marketplace at competitive costs and prices; (viii) any inability to arrange financing for~~ our ~~customers’ purchases~~ ofcurrent ~~equipment from us; (ix) any inability to successfully enhance~~expectations, ~~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~~vi) any negative impact ~~from~~of the ~~loss~~accreted value of aour ~~key~~outstanding ~~vendor~~preferred stock or ~~customer~~its continued accretion; (~~xiii~~vii) any negative impact ~~from the loss~~ of ~~any~~ of our ~~senior~~continued ororganization ~~key~~as ~~management~~an England ~~personnel;~~and ~~(xiv) any~~Wales ~~change~~registered inCompany ~~economic~~following ~~conditions~~the insale ~~markets~~of ~~where we operate or have material investments which may affect demand for~~ our ~~products~~U.S. oroperating ~~services~~business; (xvviii) ~~any~~actions ~~incurrence~~ of ~~tax~~governmental ~~liabilities or tax payments beyond our current expectations~~entities, ~~which~~including ~~could~~regulatory ~~adversely affect our liquidity and profitability~~requirements; (~~xvi~~ix) ~~any~~actions ~~inability~~by toshareholders ~~continue~~in toconnection ~~comply~~ with ~~our~~the ~~new~~distribution ~~senior~~of ~~secured credit facility covenants or~~ the ~~financial or other~~net ~~representations,~~proceeds ~~warranties,~~from ~~covenants~~sale orof ~~maturities~~Danka inOffice ~~our~~Imaging ~~debt instruments~~Company; (~~xvii~~x) ~~any~~the ~~delayed~~outcome orof ~~lost~~legal ~~sales~~proceedings ~~or other impacts related~~ to ~~the~~which ~~commercial~~we ~~and~~are ~~economic disruption caused by natural disasters, including hurricanes; (xviii) any delayed~~ or ~~lost~~may ~~sales~~become ~~and~~a ~~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~~party; ~~(xix) any negative impact of the accreted value of our outstanding preferred stock~~ and ~~its continued accretion;~~ (xxxi) ~~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~~Company.

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.dankabusinesssystemsplc.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.dankabusinesssystemsplc.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.

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 $13.6 million and $17.6 million during the three and six months ended September 30, 2007, respectively, primarily as a result of lower revenues, increased selling, general and administrative expenses as a percentage of revenue and the loss on the early extinguishment of debt. If we are not able to increase our revenue and continue to improve our gross margins or 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 September 30, 2007, we had consolidated indebtedness of $125.7 million, including current maturities of long-term debt and notes payable of $21.1 million. Our indebtedness includes $124.4 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.

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.

The borrowing base related to the new financing arrangements with GECC are 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.

Credit Facilities—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 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, 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 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 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.

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.

PART I – FINANCIAL INFORMATION

Item 1.

Consolidated Condensed Financial Statements

Danka Business Systems PLC

Consolidated Condensed Statements of Operations for the Three and ~~Six~~Nine Months Ended ~~September~~ December 3031, 2008 ~~2007~~ and ~~2006~~2007

(In thousands, except per American Depositary Share (“ADS”) amounts)

(Unaudited)

	Three months ended September 30,						Six months ended September 30,
	Three months endedDecember 31,						Nine months endedDecember 31,
	2007			2006			2007			2006
	2008			2007			2008			2007
Revenue:
General and administrative expenses	$	(906	)	$	(193	)	$	(2,941	)	$	(975	)
Retail equipment, supplies and related sales	$	47,527		$	48,032		$	93,689		$	102,109
Other income		11			—			246			1,172
Retail service		54,585			57,961			111,814			120,902
(Loss) earnings		(895	)		(193	)		(2,695	)		197
Rentals		3,133			3,027			6,016			8,059
Interest expense		—			—			—			(8,523	)
Total revenue		105,245			109,020			211,519			231,070
Interest income		137			20			258			1,843
Cost of sales:
Loss on early extinguishment of debt		—			(21	)		—			(9,711	)
Retail equipment, supplies and related sales costs		33,415			34,553			65,622			72,942
Loss from continuing operations		(758	)		(194	)		(2,437	)		(16,194	)
Retail service costs		33,532			36,349			67,833			73,592
(Loss) earnings from discontinued operations, net of tax		(233	)		37			(13,026	)		(1,875	)
Rental costs, including depreciation on rental assets		1,533			647			2,852			1,833
Gain (loss) on sale of discontinued operations, net of tax		99			(642	)		86,500			(2,071	)
Total cost of sales		68,480			71,549			136,307			148,367
Net (loss) earnings	$	(892	)	$	(799	)	$	71,037		$	(20,140	)
Gross profit		36,765			37,471			75,212			82,703
Operating expenses:
Selling, general and administrative expenses		37,214			36,848			73,498			77,041
Restructuring (credits) charges		(1,033	)		247			225			6,308
Loss on sale of subsidiary		—			6			—			2,512
Other income		(227	)		(482	)		(1,122	)		(64	)
Total operating expenses		35,954			36,619			72,601			85,797
Operating earnings (loss) from continuing operations		811			852			2,611			(3,094	)
Interest expense		(5,587	)		(7,551	)		(12,467	)		(14,910	)
Interest income		1,214			47			3,065			72
Loss on early extinguishment of debt		(9,690	)		—			(9,690	)		—
Loss from continuing operations before income taxes		(13,252	)		(6,652	)		(16,481	)		(17,932	)
Provision for income taxes		373			468			1,095			935
Net loss from continuing operations		(13,625	)		(7,120	)		(17,576	)		(18,867	)
Earnings (loss) from discontinued operations, net of tax		(50	)		3,662			(336	)		3,421
Gain (loss) on sale of discontinued operations, net of tax		(710	)		9,061			(1,429	)		8,846
Net (loss) earnings	$	(14,385	)	$	5,603		$	(19,341	)	$	(6,600	)
Net loss available to common shareholders:
Net loss from continuing operations	$	(~~13,625~~758	)	$	(~~7,120~~194	)	$	(172,~~576~~437	)	$	(1816,~~867~~194	)
Dividends and accretion on participating shares		(6,~~049~~534	)		(56,~~693~~148	)		(1219,~~010~~307	)		(1118,~~299~~158	)
Net loss from continuing operations available to common shareholders	$	(197,~~674~~292	)	$	(126,~~813~~342	)	$	(2921,~~586~~744	)	$	(3034,~~166~~352	)
Basic and diluted net loss available to common shareholders per ADS:
Basic net (loss) earnings available to common shareholders per ADS:
Net loss from continuing operations per ADS	$	(0.3011	)	$	(0.2010	)	$	(0.4534	)	$	(0.4753	)
Net (loss) earnings from discontinued operations per ADS		(0.00	)		(0.2001	)		(01.0314	)		(0.1906	)
Net loss per ADS	$	(0.30	)	$	(0.00	)	$	(0.48	)	$	(0.28	)
Basic net (loss) earnings per ADS	$	(0.11	)	$	(0.11	)	$	0.80		$	(0.59	)
Weighted average basic ADSs		64,~~782~~787			64,~~132~~786			64,~~755~~787			64,~~132~~778

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

Danka Business Systems PLC

Consolidated Condensed Balance Sheets as of ~~September~~December 3031, ~~2007~~2008 and March 31, ~~2007~~2008

(In thousands, except per share data)

	September 30, 2007			March 31,2007
	December 31,2008			March 31,2008
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	733,~~180~~894		$	179,~~594~~619
Restricted cash		125,~~841~~250			~~163~~5,~~979~~250
Accounts receivable, net of allowances		40,060			44,180
Assets held for sale-discontinued operations		—			206,477
Inventories		31,051			31,681
Prepaid expenses and other current assets		223			791
Prepaid expenses, deferred income taxes and other current assets		8,035			17,607
Escrow deposits and holdback from sale of discontinued operations		15,000			—
Total current assets		9954,~~167~~367			~~275~~222,~~041~~137
Equipment on operating leases, net		7,928			9,241
Property and equipment, net		4			9
Property and equipment, net		20,178			22,637
Escrow deposits from sale of discontinued operations		20,000			—
Goodwill		93,489			93,489
Total assets	$	74,371		$	222,146
Other intangible assets, net of accumulated amortization		504			554
Liabilities and shareholders’ deficit
Other assets		20,282			16,086
Total assets	$	241,548		$	417,048
Liabilities and shareholders’ equity (deficit)
Current liabilities:
Current maturities of long-term debt and notes payable	$	21,146		$	186,078
Accounts payable	$	134		$	444
Accounts payable		54,432			66,231
Accrued expenses and other current liabilities		5,707			6,757
Accrued expenses and other current liabilities		27,582			45,830
Taxes payable		4,204			4,748
Taxes payable		10,892			8,468
Liabilities held for sale-discontinued operations		—			210,879
Deferred revenue		5,540			5,875
Total current liabilities		10,045			222,828
Total current liabilities		119,592			312,482
Deferred income taxes and other long-term liabilities		—			6,351
Long-term debt and notes payable, less current maturities		104,582			65,215
Total liabilities		10,045			229,179
Deferred income taxes and other long-term liabilities		8,216			11,271
6.5% senior convertible participating shares		388,191			368,884
Total liabilities		232,390			388,968
Shareholders’ deficit:
6.5% senior convertible participating shares		356,497			344,487
Ordinary shares, 1.25 pence stated value		5,393			5,393
Shareholders’ equity (deficit):
Additional paid-in capital		331,559			331,237
Ordinary shares, 1.25 pence stated value		5,392			5,386
Accumulated deficit		(660,817	)		(712,547	)
Additional paid-in capital		331,032			330,587
Total shareholders’ deficit		(323,865	)		(375,917	)
Accumulated deficit		(683,763	)		(652,380	)
Total liabilities and shareholders’ deficit	$	74,371		$	222,146
Total shareholders’ equity (deficit)		(347,339	)		(316,407	)
Total liabilities and shareholders’ equity (deficit)	$	241,548		$	417,048

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

Danka Business Systems PLC

Consolidated Condensed Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~September~~ December 3031, ~~2007~~2008 and ~~2006~~2007

(In thousands)

(Unaudited)

	Six Months EndedSeptember 30,
	Nine Months EndedDecember 31,
	2007			2006
	2008			2007
Operating activities:
Net loss	$	(19,341	)	$	(6,600	)
Net earnings (loss)	$	71,037		$	(20,140	)
Loss (earnings) from discontinued operations		1,765			(12,267	)
(Earnings) loss from discontinued operations		(73,474	)		3,946
Loss from continuing operations		(172,~~576~~437	)		(1816,~~867~~194	)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net earnings (loss) to net cash used in operating activities:
Depreciation and amortization		~~6,745~~5			~~7,358~~22
Deferred income taxes		729			(608	)
Loss on early extinguishment of debt		—			9,711
Amortization of debt issuance costs		489			941
Gain on the sale of property and equipment		—			(920	)
Loss on early extinguishment of debt		9,690			—
Changes in net assets and liabilities
Non-cash stock-based compensation		410			—
Prepaid expenses and other current assets		529			109
Gain on sale of property & equipment and equipment on operating leases		(720	)		(249	)
Other non-current assets		(6	)		29
Proceeds from sale of equipment on operating leases		198			163
Accounts payable		(311	)		(551	)
Loss on sale of subsidiary, net		—			2,103
Accrued expenses and other current liabilities		(1,593	)		(13,080	)
Restructuring charges		225			6,308
Other long-term liabilities		—			161
Changes in net assets and liabilities:
Net cash used in continuing operating activities		(3,813	)		(20,713	)
Accounts receivable		4,120			9,429
Net cash used in discontinued operating activities		(4,384	)		(12,448	)
Inventories		630			3,614
Net cash used in operating activities		(8,197	)		(33,161	)
Prepaid expenses and other current assets		(45	)		(1,043	)
Other non-current assets		(223	)		(715	)
Accounts payable		(11,800	)		(13,094	)
Accrued expenses and other current liabilities		(23,720	)		(1,765	)
Deferred revenue		(335	)		388
Other long-term liabilities		(774	)		(1,077	)
Net cash used in continuing operating activities		(31,957	)		(7,114	)
Net cash used in discontinued operating activities		(1,765	)		(18,742	)
Net cash used in operating activities		(33,722	)		(25,856	)
Investing activities:
Capital expenditures		(3,908	)		(4,842	)
Proceeds from the sale of property and equipment		—			1,506
Proceeds from sale of discontinued operations		12,500			11,889
Net cash provided by continuing investing activities		—			1,506
Restricted cash		(12,500	)		—
Net cash provided by discontinued investing activities		157,996			169,708
Proceeds from the sale of property and equipment		1,508			175
Net cash provided by investing activities		157,996			171,214
Net cash (used in) provided by continuing investing activities		(2,400	)		7,222
Net cash used in discontinued investing activities		—			(2,910	)
Net cash (used in) provided by investing activities		(2,400	)		4,312
Financing activities:
Borrowings under line of credit agreements		~~24,580~~—			275,000
Payments under line of credit agreements		~~(15,178~~—	)		(2615,~~014~~000	)
Payments under capital lease arrangements		(297	)		(684	)
Payments of long term debt		—			(248,908	)
Payment of long term debt		(249,058	)		—
Net cash used in continuing financing activities		—			(258,908	)
Proceeds from debt issuance		105,000			—
Net cash (used in) provided by discontinued financing activities		(125,524	)		117,787
Payment of debt issue costs		(3,589	)		—
Net cash used in financing activities		(125,524	)		(141,121	)
Restricted cash		164,250			—
Net increase (decrease) in cash and cash equivalents		24,275			(3,068	)
Net cash provided by continuing financing activities		25,708			302
Cash and cash equivalents respectively, beginning of period		9,619			20,054
Net cash used in discontinued financing activities		—			(173	)
Cash and cash equivalents from discontinued operations, end of period		—			(599	)
Net cash provided by financing activities		25,708			129
Cash and cash equivalents from continuing operations, end of period	$	33,894		$	16,387
Effect of exchange rates		—			2,158
Net decrease in cash and cash equivalents		(10,414	)		(19,257	)
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		—			(23,817	)
Cash and cash equivalents from continuing operations, end of period	$	7,180		$	11,480
Supplemental disclosures-cash flow information
Interest paid		193,~~630~~592			1522,~~323~~380
Income taxes paid		13,~~700~~217			12,~~116~~599

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

106

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 unaudited consolidated condensed financial statements of Danka Business Systems PLC (“Danka” or the “Company”) ~~are unaudited~~ as of and for the three and ~~six~~nine months ended ~~September~~December 3031, ~~2007~~2008 and ~~2006.~~2007 Incontain, 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’s~~accompanying ~~operations~~consolidated ~~have~~condensed ~~historically~~financial ~~experienced~~statements ~~lower~~have ~~revenue~~been ~~during~~prepared ~~the~~in ~~second~~conformity ~~quarter~~with ofaccounting ~~its~~principles ~~fiscal~~generally ~~year, which~~accepted isin the ~~three~~United States, ~~month~~which ~~period~~contemplates ~~ended~~continuation ~~September 30.~~of ~~This~~the isCompany ~~primarily~~as ~~due~~a togoing ~~lower~~concern. ~~levels of service revenue from governmental agencies~~However, ~~such~~ as ~~school~~of ~~districts.~~December 31, ~~This~~2008, ~~has~~the ~~historically~~Company’s ~~resulted~~obligations inexceed ~~reduced~~its ~~sales~~assets ~~activity~~ and ~~reduced usage of photocopiers, facsimiles and other office imaging equipment during~~ the ~~second~~Company ~~quarter.~~has ~~Accordingly,~~sold ~~the~~all ~~results~~ of ~~operations~~its ~~for~~remaining ~~the~~operations. ~~interim~~These ~~periods~~conditions ~~are~~raise substantial ~~not~~doubt ~~necessarily~~about ~~indicative of~~ the ~~results~~Company’s ~~which~~ability ~~may~~to becontinue ~~expected~~as ~~for~~a ~~the~~going ~~entire fiscal year~~concern. The accompanying consolidated condensed ~~financial~~financials statements ~~should~~do benot ~~read~~include inany ~~conjunction~~adjustments ~~with~~that ~~the~~may ~~consolidated~~result ~~financial~~from ~~statements and~~ the ~~notes~~outcome ~~thereto~~of ~~included~~this ~~in the Company’s Annual Report on Form 10-K for the year ended March 31, 2007~~uncertainty.

~~The~~On ~~consolidated~~June 27, ~~condensed~~2008, ~~financial~~pursuant ~~statements~~to ~~contained~~a ~~herein~~stock purchase agreement (as amended, the “Stock Purchase Agreement”), dated as of April 8, 2008, among Danka, Danka Holding Company and Konica Minolta Business Solutions U.S.A., Inc. (“Konica Minolta”), the Company sold its U.S. operations to Konica Minolta in a sale of all the outstanding capital stock of Danka Office Imaging Company (“DOIC”) for a purchase price of U.S. $240 million in cash, subject to an upward or downward net worth adjustment of up to U.S. $10 million. The sum of $10 million was held back by Konica Minolta from the ~~three~~amount paid at closing as security for the Company’s purchase price adjustment obligations and ~~six~~is ~~months~~included ~~ended~~in ~~September 30,~~“Escrow ~~2007~~deposits and ~~September~~ holdback from sale of discontinued operations” in the accompanying consolidated condensed balance sheet at December 3031, ~~2006~~2008. doKonica Minolta ~~not~~was ~~comprise~~required ~~statutory~~to ~~accounts~~prepare ~~within~~and deliver its proposed net worth adjustment no later than 90 days after the ~~meaning~~closing date of ~~Section~~the sale transaction, or September ~~240~~25, 2008. By letter of that date, Konica Minolta proposed a downward net worth adjustment of approximately $8.2 million, which would result in Danka not receiving the ~~United~~$10 ~~Kingdom~~million ~~Companies~~positive ~~Act~~net ~~1985~~worth adjustment and only approximately $1.8 ~~Statutory~~million ~~accounts~~of the $10 million held back by Konica Minolta as security for the ~~year~~net ~~ended~~worth adjustment. ~~March 31~~Management believes Konica Minolta’s claim is without merit and the holdback is fully collectible, ~~2007~~and ~~were~~as ~~delivered~~such tothe Company has not made any provision for potential losses on the ~~Registrar~~recoverability of ~~Companies~~the amounts held back by Konica Minolta as security for the net worth adjustment. Additionally, $25 million of the purchase price paid by Konica Minolta at closing is being held in escrow for a period of four years following closing to satisfy any and all claims by Konica Minolta ~~England~~which may be made under the Stock Purchase Agreement of which $5 million and ~~Wales~~$20 onmillion, ~~October~~is included in “Escrow deposits and holdback from sale of discontinued operations” and “Escrow deposits from sale of discontinued operations”, respectively, in the consolidated condensed balance sheet at December 1531, ~~2007~~2008. ~~The~~To ~~independent~~date, ~~auditors’~~no ~~report~~claims onhave ~~those~~been ~~statutory~~made ~~accounts~~to ~~was~~the ~~unqualified~~escrow and ~~did~~the ~~not~~Company ~~contain~~believes ait ~~statement~~remains fully collectible. After the repayment of the Company’s outstanding indebtedness, including repayment of approximately $146 million under ~~Section 237~~the Company’s credit facilities provided by General Electric Capital Corporation (2“GECC”), ~~or 237~~(3including additional borrowings of $15 million since March 31, 2008 and early termination fees and accrued and unpaid interest of approximately $6 million), the payment of certain change-of-control and severance obligations and the ~~United~~fees ~~Kingdom~~and ~~Companies~~expenses ~~Act~~incurred ~~1985~~in connection with the sale transaction and less the holdback and escrow amounts set forth above, the net sale proceeds received by the Company were approximately $40 million.

~~Segment~~Since ~~information:~~the ~~The~~completion of the sale of DOIC, the Company’s ~~consists~~board of ~~one~~directors ~~operating~~has ~~segment,~~assessed the alternatives available to distribute the net proceeds of the sale of ~~office~~DOIC ~~imaging~~among ~~equipment~~Danka shareholders. In assessing the available alternatives, the board of directors has been mindful of the fact that there is no guarantee that the holders of the Company’s convertible participating shares will not take action(s) that may be available to them under applicable law, for example seeking an involuntary winding up of the Company, to recover amounts to which they are ultimately entitled pursuant to Danka’s Articles of Association and ~~related~~which ~~supplies~~must be paid to them before the ordinary shareholders (and holders of ADSs) are entitled to ~~services~~receive any return on the winding up of the Company. Such amounts exceed the amount of net proceeds from the sale of DOIC and the funds which are otherwise available to the Company. The passage of time continues the accretion in the ~~United~~value ~~States~~of our convertible participating shares (which exceeds the amount of the net proceeds from the sale of DOIC), further reducing the return to the holders of convertible participating shares and increasing the possibility of no return to the holders of ordinary shares (and ADSs). Accordingly, in an involuntary liquidation, it is unlikely that ordinary shareholders (including ADS holders) would receive any distribution.

On January 20, 2009, the Company filed a definitive proxy statement with the SEC to convene an extraordinary general meeting of Danka shareholders on February 19, 2009 to again consider and vote on a members’ voluntary liquidation to distribute the net proceeds from the sale of DOIC among Danka shareholders, which would permit the net cash in the

Company to be returned to Danka shareholders in the most cost effective and timely manner and allow for Danka’s affairs to be wound up in an orderly and efficient manner. Under the terms of Danka’s existing Articles of Association, the holders of Danka’s ordinary shares (and ADSs) would not be entitled to receive any portion of the amount which is expected to be available for distribution to Danka’s shareholders. Rather, given the approximately $388 million in carrying value of our convertible participating shares, under the Articles of Association, holders of such shares would be entitled to all the distributable proceeds of the Company in a liquidation. However, the Company has procured the agreement of the convertible participating shareholders to pay to the holders of ordinary shares (including holders of ADSs) a cash amount equal to $0.03 per ordinary share, or $0.12 per ADS, in a members’ voluntary liquidation, prior to any distribution to the holders of convertible participating shares in a members’ voluntary liquidation. See Note 5. “Contingencies”.

The unaudited consolidated condensed financial statements contained herein as of and for the three and nine months ended December 31, 2008 and 2007 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, 2008 were delivered to the Registrar of Companies for England and Wales on October 29, 2008. The independent auditors’ report on those statutory accounts was unqualified and did not contain a statement under Section 237(2) or 237(3) of the United Kingdom Companies Act 1985.

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

Note 2. Recent Accounting Pronouncements

In September ~~July~~ 2006, the ~~Financial Accounting Standards Board (“~~FASB”) issued ~~Interpretation~~FASB Statement No. 48157, “~~Accounting~~Fair ~~for~~Value ~~Uncertainty in Income Taxes~~Measurements” (~~FIN~~“FAS 48157”), which ~~clarifies~~provides ~~the~~enhanced ~~accounting~~guidance for ~~uncertainty~~using infair ~~income~~value ~~taxes recognized~~to inmeasure aassets ~~company’s~~and ~~financial statements in accordance with FASB Statement No~~liabilities. ~~109,~~ ~~“Accounting~~FAS ~~for~~157 ~~Income~~clarifies ~~Taxes.”~~the ~~This~~principle ~~interpretation~~that ~~prescribes~~fair value ashould ~~recognition~~be ~~threshold~~based ~~and~~on ~~measurement~~assumptions ~~attribute~~market ~~for~~participants ~~the~~would ~~financial~~use ~~statement recognition~~when ~~and~~pricing ~~measurement~~an ofasset ~~a tax position taken~~ or ~~expected to be taken in a tax return~~liability. ~~FIN~~Under 48FAS ~~also provides guidance on de-recognition of tax benefits~~157, ~~classification~~fair onvalue ~~the~~measurements ~~balance~~would ~~sheet,~~be ~~interest~~separately ~~and~~disclosed ~~penalties,~~by ~~accounting~~level inwithin ~~interim~~a ~~periods, disclosure,~~fair ~~and~~value ~~transition~~hierarchy. The ~~Company~~adoption ~~adopted~~of ~~FIN~~FAS 48157 ~~effective~~ on April 1, ~~2007.~~2008 Asdid anot ~~result~~have ofa ~~the~~material ~~adoption~~impact ofon ~~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~~financial ~~rate~~position, ifresults ~~recognized.~~of Ofoperations ~~this~~or ~~amount,~~cash ~~less than $0~~flows.1 ~~million was recorded as a reduction to the April 1, 2007 retained earnings balance.~~

In February 2007, the FASB issued FASB Statement No. 159, “The ~~Company~~Fair ~~files~~Value ~~numerous~~Option ~~income~~for ~~tax~~Financial ~~returns~~Assets inand ~~the~~Financial ULiabilities—Including an Amendment of FASB Statement No.S 115” (“FAS 159”). atUnder ~~the~~FAS ~~federal~~159, ~~state~~a ~~and~~company may ~~local~~elect ~~levels,~~to ~~and~~use infair ~~certain~~value ~~foreign~~to ~~jurisdictions.~~measure ~~The~~accounts ~~Company~~and ~~has~~loans ~~analyzed~~receivable, ~~filing~~available-for-sale ~~positions~~and inheld-to-maturity ~~all~~securities, ofequity ~~the~~method ~~federal~~investments, ~~state~~accounts payable, guarantees and ~~foreign~~ ~~jurisdictions~~issued ~~where~~debt. itOther iseligible ~~required~~items toinclude ~~file~~firm ~~income~~commitments ~~tax~~for financial ~~returns,~~instruments asthat ~~well~~otherwise aswould ~~all~~not ~~open~~be ~~tax~~recognized ~~years~~at ininception ~~these~~and ~~jurisdictions.~~non-cash ~~With~~warranty ~~few~~obligations ~~exceptions,~~where ~~the~~a ~~Company~~warrantor is nopermitted ~~longer~~to ~~subject~~pay a third party to ~~U.S.~~provide ~~federal,~~the ~~state,~~warranty ~~local,~~goods or ~~foreign~~services. ~~income~~If ~~tax~~the ~~examinations~~use byof fair value is elected, any ~~taxing~~upfront ~~authorities~~costs ~~for~~and ~~years~~fees ~~prior~~related to the ~~fiscal~~item ~~year~~must ~~ended~~be ~~March 31~~recognized in earnings and cannot be deferred (e.g., ~~2004~~debt issue costs). The ~~Company~~fair value election is ~~not~~irrevocable ~~currently~~and ~~under~~generally ~~audit~~made on an instrument-by-instrument ~~the~~basis, ~~Internal~~even ~~Revenue~~if ~~Service~~a ~~but~~company ishas ~~currently~~similar instruments ~~under~~that ~~audit~~it inelects ~~certain~~not ~~state~~to ~~and~~measure ~~local~~based ~~jurisdictions.~~on ~~Returns~~fair ~~filed~~value. inAt the ~~United~~ ~~Kingdom~~adoption ~~for~~date, ~~tax~~unrealized ~~years~~gains ~~ended~~and ~~March 31,~~losses ~~2005~~on ~~and~~existing ~~2006,~~items ~~are~~for ~~currently~~which ~~under~~fair ~~review.~~value Wehas ~~have~~been ~~filed~~elected ~~claims~~are inreported ~~certain~~as ~~jurisdictions~~a cumulative adjustment to ~~assert~~beginning ~~our~~retained ~~position~~earnings. Subsequent ~~should~~to the ~~law~~adoption beof ~~clarified~~FAS by159, ~~judicial~~changes ~~means.~~in Atfair ~~this~~value ~~point~~are recognized in ~~time,~~earnings. weThe ~~believe~~adoption itof ~~is unlikely~~FAS ~~that~~159 weon ~~will~~April 1, ~~receive~~2008 ~~any~~did ~~benefit~~not ~~from~~have ~~these~~a ~~claims,~~material ~~but~~impact weon ~~will~~the ~~continue~~Company’s tofinancial ~~monitor~~position, ~~developments~~results ~~until~~of operations or cash flows because the ~~issues~~Company ~~are~~did ~~fully~~not ~~resolved.~~elect ~~Accordingly,~~to weapply ~~have~~fair ~~not~~value ~~included~~accounting to any ~~benefit~~financial ~~for~~asset ~~these~~or ~~claims~~liability inthat ~~the~~was ~~amount~~not ofalready ~~unrecognized~~carried ~~tax~~at ~~benefits~~fair value under previous accounting rules.

AsNote 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~~Discontinued ~~decrease~~Operations 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.

11U.S. operations

On June 27, 2008, pursuant to the Stock Purchase Agreement, dated as of April 8, 2008, among Danka, Danka Holding Company and Konica Minolta, the Company sold its U.S. operations to Konica Minolta in a sale of all the outstanding capital stock of DOIC for a purchase price of U.S. $240 million in cash, subject to an upward or downward net worth adjustment of up to U.S. $10 million. The sum of $10 million was held back by Konica Minolta from the amount paid at closing as security for the Company’s purchase price adjustment obligations and is included in “Escrow deposits and holdback from sale of discontinued operations” in the accompanying consolidated condensed balance sheet at December 31, 2008. Konica Minolta was required to prepare and deliver its proposed net worth adjustment no later than 90 days after the closing date of the sale transaction, or September 25, 2008. By letter of that date, Konica Minolta proposed a downward net worth adjustment of approximately $8.2 million, which would result in Danka not receiving the $10 million positive net worth adjustment and only approximately $1.8 million of the $10 million held back by Konica Minolta as security for the net worth adjustment. Management believes Konica Minolta’s claim is without merit and the holdback is fully collectible, and as such the Company has not made any provision for potential losses on the recoverability of the amounts held back by Konica Minolta as security for the net worth adjustment. Additionally, $25 million of the purchase price paid by Konica Minolta at closing is being held in escrow for a period of four years following closing to satisfy any and all claims by Konica Minolta which may be made under the Stock Purchase Agreement of which $5 million and $20 million, is included in “Escrow deposits and holdback

~~The~~ from ~~Company’s~~sale ~~policy~~of isdiscontinued tooperations” ~~recognize~~and ~~interest~~“Escrow ~~and~~deposits ~~penalties~~from ~~related~~sale toof ~~unrecognized~~discontinued ~~tax~~operations”, ~~benefits~~respectively, asin the consolidated condensed ~~part~~balance ofsheet ~~its~~at ~~provision~~December 31, ~~for~~2008. ~~federal~~To date, no claims have been made to the escrow and ~~state~~the ~~income~~Company ~~tax~~believes ~~expense~~it remains fully collectible. AsAfter the repayment of ~~September 30,~~the ~~2007~~Company’s outstanding indebtedness, including repayment of approximately $146 million under the Company’s ~~has~~credit facilities provided by GECC (including additional borrowings of $15 million since March 31, 2008 and early termination fees and accrued and unpaid interest of approximately $0.6 million), the payment of ~~interest~~certain change-of-control and ~~penalties~~severance ~~related~~obligations toand ~~unrecognized~~the ~~tax~~fees ~~benefits~~and expenses incurred in connection with the sale transaction and less the holdback and escrow amounts set forth above, the net sale proceeds received by the Company were approximately $40 million.

InSummarized ~~September~~information ~~2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements” (“FAS 157”) which provides enhanced guidance~~ for ~~using~~DOIC 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~~set ~~for~~forth ~~Danka~~below: beginning April 1, 2008 although early adoption is permitted. The Company does not expect FAS 157 to have a material impact on its historical consolidated financial position and results of operations, but could have an impact on the measurement of assets and liabilities acquired following the effective date of the new standard.

Note 3. Restructuring Charges (Credits)


	Three Months Ended December 31,						Nine Months Ended December 31,
	2008			2007			2008			2007
Revenues	$	—		$	108,166		$	81,452		$	319,684
Net loss from discontinued operations, net of tax		—			(682	)		(12,384	)		(2,259	)
Provision for income taxes on discontinued operations		—			33			—			1,128
(Loss) gain on sale of discontinued operations, net of tax		59			—			86,761			—
Benefit for income taxes on gain on sale of discontinued operations		(342	)		—			(3,281	)		—

~~Fiscal Year 2007 Plan:~~ In ~~fiscal~~connection ~~year~~with ~~2007,~~ the ~~Company~~sale ~~formulated~~of ~~plans to continue to eliminate inefficiencies in its field operations and to reduce its selling~~DOIC, ~~general~~as ~~and~~described ~~administrative costs by eliminating and consolidating back office functions~~above, ~~reducing~~ ~~sales~~the ~~and~~credit ~~service personnel and exiting certain~~ facilities. ~~These~~provided ~~charges~~by GECC were ~~accounted~~repaid ~~for under the provisions of FASB Statement No. 112, “Employers’ Accounting for Post Retirement Benefits” (“SFAS 112”)~~ and ~~FASB~~ ~~Statement No~~terminated. ~~146,~~ ~~“Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”).~~

AsIn ~~part~~accordance with FASB Statement No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”, estimates of ~~these~~assets ~~plans,~~and liabilities to be sold have been reclassified from various line items within the ~~Company~~consolidated ~~recorded~~condensed abalance ~~$5.5~~sheets ~~million~~and ~~restructuring~~aggregated ~~charge~~into in“Assets ~~fiscal~~held ~~year~~for ~~2007~~sale-discontinued ~~consisting~~operations” and “Liabilities held for sale-discontinued operations” as of $2March 31, 2008.0 ~~million~~The ~~relating~~following torepresents ~~severance~~the ~~charges~~carrying ~~due~~amounts toof ~~additional~~the ~~cost~~major ~~reduction~~classes ~~efforts~~of assets and ~~$3.5~~liabilities ~~million~~which inwere ~~facility~~sold ~~costs~~or ~~primarily~~transferred ~~related~~ to ~~the~~ ~~Company’s~~Konica ~~Field~~Minolta ~~Support~~on ~~Office~~June 27, 2008, inas ~~St.~~of ~~Petersburg~~March 31, ~~Florida.~~2008:

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 $0.3 million and $0.9 million, respectively. Payments for the 2007 plan are expected to continue until March 2008.


	March 31, 2008 Carrying Amount
Assets
Cash and cash equivalents	$	4,900
Accounts receivable, net		37,662
Inventory		27,201
Prepaid expenses, deferred income taxes and other current assets		3,833
Equipment on operating leases, net		6,803
Property and equipment, net		16,913
Goodwill		93,488
Other intangible assets, net		454
Other assets		15,223

	$	206,477

Liabilities
Current maturities of long-term debt and notes payable	$	125,786
Accounts payable		50,025
Accrued expenses and other current liabilities		21,789
Taxes payable		3,367
Deferred revenue		5,135
Long-term debt and notes payable, less current maturities		269
Deferred income taxes and other long-term liabilities		4,508

	$	210,879

~~The~~9 ~~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:

	Cumulative Expense through March 31, 2007		Reserve at March 31, 2007		Charge (Credit)			Cash Outlays			Reserve atSeptember 30, 2007
Severance	$	2,032	$	662	$	—		$	(303	)	$	359
Future lease obligations on facility closures		3,495		1,656		(43	)		(942	)		671
Total	$	5,527	$	2,318	$	(43	)	$	(1,245	)	$	1,030

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. 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:

	Cumulative Expense throughMarch 31,2007		Reserve at March 31,2007		Charge(Credit)		CashOutlays			Reserve atSeptember 30, 2007
Severance	$	6,562	$	—	$	—	$	—		$	—
Future lease obligations on facility closures		960		214		83		(193	)		104
Total	$	7,522	$	214	$	83	$	(193	)	$	104

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 $0.2 million of fiscal year 2004 Plan facility charges. Cash outlays for facilities during fiscal year 2008 were $0.6 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:

	Cumulative Expense throughMarch 31, 2007		Reserve atMarch 31,2007		Charge(Credit)		CashOutlays			Reserve atSeptember 30,2007
Severance	$	5,747	$	—	$	—	$	—			—
Future lease obligations on facility closures		20,382		1,875		202		(552	)		1,525
Total	$	26,129	$	1,875	$	202	$	(552	)	$	1,525

Note 4. Discontinued Operations

European operations

During fiscal year 2007, the Company ~~completed~~sold ~~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 ~~During~~a ~~fiscal~~holdback ~~year~~of ~~2008, the Company received~~ $127.5 million, ~~consisting~~both of ~~the $5.0~~which ~~million~~we ~~purchase~~received ~~price~~during ~~adjustment~~fiscal ~~and~~year ~~a $7~~2008.5 ~~million holdback.~~ 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 EndedSeptember 30,						Six Months EndedSeptember 30,
	Three Months EndedDecember 31,						Nine Months EndedDecember 31,
	2007			2006			2007			2006
	2008			2007			2008			2007
Revenues	$	—		$	115,749		$	—		$	241,297
Net (loss) earnings from discontinued operations, net of tax	$	(233	)	$	719		$	(642	)	$	384
Net earnings (loss) from discontinued operations, net of tax		(50	)		3,286			(336	)		3,025
Provision for income taxes on discontinued operations		—			628			—			756
Provision (benefit) for income taxes on discontinued operations		(73	)		(59	)		128			(1,596	)
Gain (loss) on sale of discontinued operations, net of tax		40			(642	)		(261	)		(2,071	)
Gain (loss) on sale of discontinued operations, net of tax		(690	)		(648	)		(1,409	)		(863	)

13Per the terms of the Share Purchase 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 in “Restricted cash” at December 31, 2008 and March 31, 2008.

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 the operations. The tax audits are ongoing and as of December 31, 2008, 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. Any payments arising from these audits will be settled using the available funds in escrow. On January 26, 2009, Ricoh made a claim against the remaining $5.3 million held in escrow for the tax amounts subject to these tax audits.

~~The~~Note ~~indenture governing the Company’s 11~~4.0% ~~senior~~Earnings ~~notes due June 15, 2010 restricted the use of the net proceeds~~ (~~as defined in the indenture~~Loss) ~~from~~Per ~~the~~Share ~~sale of the Company’s European businesses as more fully describe in Note 6. “Debt” to the consolidated condensed financial statements.~~

InThe ~~addition,~~effect ~~per~~of the ~~terms~~Company’s of6.5% ~~the~~senior ~~sale~~convertible ~~agreement~~participating shares, which represent the ~~Company~~number ~~established~~of anADSs ~~escrow~~shown in the ~~amount~~table ofbelow ~~$15.8~~are ~~million~~not toincluded ~~cover~~in ~~various~~the ~~obligations~~computation ~~in respect~~ of ~~certain~~diluted ofearnings per share for the three ~~European~~and ~~operations’~~nine ~~property~~months ~~leases~~ended ~~and~~December 31, ~~banking~~2008 and ~~financing~~2007, ~~agreements.~~because ~~This~~their ~~escrow~~effect ~~reduced~~would ~~the~~be ~~net~~anti-dilutive. ~~proceeds~~ADS equivalents from ~~the~~stock ~~sale~~options ofshown in the ~~European~~table ~~businesses~~below ~~and~~are isnot included asin ~~part~~the computation of ~~the~~diluted ~~Company’s~~earnings ~~restricted~~per ~~cash~~share for the three and ~~balance~~nine atmonths ~~September~~ended December 3031, ~~2007~~2008 ofand ~~which~~2007, ~~$5.0~~because ~~million~~their ~~has~~effect ~~been~~would ~~classified~~be ~~as long~~anti-~~term~~dilutive.

Australia


	Three months ended December 31,		Nine months ended December 31,
	2008	2007	2008	2007
Potential ADSs issuance from:
6.5% senior convertible participating shares	30,887	28,958	30,401	28,502
Stock options	3,568	4,127	3,568	4,127

InNote ~~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~~5.6 ~~million~~Contingencies 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 Ended September 30,				Six Months Ended September 30,
	2007		2006		2007		2006
Revenues	$	—	$	9,477	$	—	$	22,058
Net earnings from discontinued operations		—		278		—		561
Gain on sale of discontinued operations		—		9,709		—		9,709

Litigation: On June 27, 2008, DCML LLC (“DCML”), the beneficial owner of approximately 8.1% of the Company’s outstanding ordinary shares, filed a complaint in the U.S. District Court for the Southern District of New York against the Company, its board of directors, and one of the holders of the Company’s 6.50% senior convertible participating shares (collectively, the “defendants”). The case bears the caption DCML LLC v. Danka Business System Plc, et al., No. 08 Civ. 5829 (SAS). The complaint alleges that the Company and its board of directors violated Section 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 thereunder in connection with the proxy statement and supplement to proxy statement issued by the Company to solicit votes with respect to the sale of Danka Office Imaging Company (“DOIC”), a proposed members voluntary liquidation and related proposals, which were voted on by Danka shareholders at an extraordinary general meeting held on June 27, 2008. The complaint also alleges that the Company’s board of directors breached its fiduciary duties to ordinary shareholders by, among other things, recommending that Danka shareholders vote in favor of the sale of DOIC, the proposed members voluntary liquidation and related proposals. The complaint seeks, among other things, unspecified compensatory damages. On July 9, 2008, the plaintiff filed an amended complaint. On August 22, 2008, Danka and other defendants filed both a motion to dismiss the complaint and a motion for sanctions against DCML pursuant to Federal Rule of Civil Procedure 11. On September 5, 2008, defendant Cypress Merchant Banking Partners II, L.P., filed a motion to dismiss the complaint. On November 26, 2008, the court issued an opinion and order granting defendants’ motion to dismiss the case and denying defendants’ motion for sanctions. The deadline for DCML to file an appeal has passed.

~~Other~~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 will have a material effect upon its financial position, results of operations or liquidity.

~~During~~See ~~fiscal~~Note ~~year~~3. ~~2006,~~“Discontinued ~~the Company sold its~~ operations” infor ~~Canada~~a ~~and~~discussion ~~Central~~of ~~and~~contingencies ~~South~~regarding ~~America.~~the ~~Summarized~~sales ~~information~~of isthe ~~set~~Company’s ~~forth~~U.S. ~~below:~~and European operations.

	Three Months Ended September 30,					Six Months Ended September 30,
	2007			2006		2007			2006
Revenues	$	—		$	—	$	—		$	—
Net earnings (loss) from discontinued operations		—			98		—			(165	)
Loss on sale of discontinued operations		(20	)		—		(20	)		—

Note 6. Income Taxes

~~Note~~In 5assessing 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. ~~Earnings~~The ~~(Loss)~~ultimate ~~Per~~realization ~~Share~~ 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 limits our use 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, 2008 and 2007 in most jurisdictions and therefore a valuation allowance has been recorded to reserve a portion of its deferred tax assets at December 31, 2008 and 2007 in these jurisdictions.

~~The~~11 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 six months ended September 30, 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 six months ended September 30, 2007 and 2006, because their effect would be anti-dilutive.

	Three months ended September 30,		Six months ended September 30,
	2007	2006	2007	2006
Potential ADSs issuance from:
6.5% senior convertible participating shares	28,495	26,716	28,269	26,504
Stock options	4,264	5,494	4,264	5,508

~~Note~~The 6Company files numerous income tax returns in the U.S. ~~Debt~~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.

~~Debt~~During ~~consists~~the ofcurrent fiscal period, there were no significant changes to the ~~following~~Company’s asunrecognized tax benefits. Included in the balance of ~~September 30,~~unrecognized ~~2007~~tax ~~and~~benefits ~~March~~at December 31, ~~2007:~~2008 is $0.8 million related to tax positions for which it is reasonably possible that the total amounts could change within the next twelve months.

	September 30, 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		104,850			—
Capital lease obligations		730			1,026
Borrowings on revolving credit lines bearing interest of prime plus 3.25%		19,580			10,000
Borrowings on various notes payable bearing interest from prime to 12.0% maturing principally over the next 5 years		568			747
Total debt and notes payable		125,728			251,293
Less current maturities of long-term debt and notes payable		(21,146	)		(186,078	)
Long-term debt and notes payable, less current maturities	$	104,582		$	65,215

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, 2008, the Company has accrued $0.1 million of interest and penalties related to unrecognized tax benefits.

The ~~indenture~~Company’s ~~governing~~effective ~~the~~tax ~~senior~~rate ~~notes~~differs ~~restricted~~from ~~the~~its ~~use~~35% ofstatutory ~~the~~tax ~~net~~rate ~~proceeds~~primarily ~~(as~~due ~~defined~~to the decrease in the ~~indenture)~~ ~~from~~valuation allowance due to the ~~sale~~income tax effect of the ~~Company’s~~sale ~~European~~of ~~businesses~~DOIC. ~~Per~~No ~~the~~tax ~~terms~~benefit has ofbeen recorded due to current year losses from continuing operations as the ~~indenture~~company believes it is not likely to benefit from these losses through future taxable income, nor does the ~~use~~company ofhave ~~these~~taxable ~~net~~income ~~proceeds~~from continuing operations in ~~was~~prior ~~restricted~~years in order to ~~the~~carryback ~~following:~~these losses.

•During ~~Repayment~~the current fiscal year period, a net income tax benefit of ~~indebtedness~~$3.3 ~~under~~million related to the ~~Company’s~~U.S. ~~credit~~operations ~~facility~~and ~~with~~is recorded in “Gain (loss) on sale of discontinued operations”. During the prior year fiscal period, the Company recorded a ~~corresponding~~tax ~~reduction~~provision of $1.9 million, recorded in ~~the~~“(Loss) gain ~~amount~~from ~~available~~discontinued ~~under~~operations”, of which $1.1 million and $0.8 million related to the ~~facility;~~U.S. and European operations, respectively.

•12 ~~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 senior notes on June 25, 2007, which expired on July 24, 2007. Two holders of the senior notes accepted the tender offer and the Company redeemed and paid $4.4 million, which included an aggregate principal amount of $4.3 million plus accrued and unpaid interest, to the holders of the senior notes that accepted the tender.

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

On or after June 15, 2007, the Company 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 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.

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 three months ended September 30, 2007:

	Debt as ofJune 30, 2007		Tender OfferPayments			Call Premium		RedemptionPayments			Other(payments) /borrowings			Debt as ofSeptember 30,2007
11% senior notes, due 2010	$	175,000	$	(4,310	)	$	9,388	$	(180,078	)	$	—		$	—
10% subordinated notes, due 2008		64,520		—			—		(64,520	)		—			—
Senior secured credit facilities		105,000		—			—		—			(150	)		104,850
Capital leases		879		—			—		—			(149	)		730
Other long-term obligations		15,291		—			—		—			4,857			20,148
Total	$	360,690	$	(4,310	)	$	9,388	$	(244,598	)	$	4,558		$	125,728

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.

As of September 30, 2007, the borrowing base for the revolving credit facility was $29.5 million and DOIC had $19.6 million of borrowings under the revolver. In addition, the DOIC had $1.3 million of exposure on the revolver for various letters of credit issued on its behalf. These amounts are included in “Current maturities of long-term debt and notes payable” on the consolidated condensed balance sheet. The borrowing base fluctuates each month and is generally highest at the end of the quarter. The borrowing base related to the new financing arrangements with GECC are 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.

DOIC incurred $7.4 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 $6.9 million at September 30, 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 provision of $1.1 million in the first six months of fiscal year 2008 and a tax provision of $0.9 million in the first six months of fiscal year 2007. The tax provision for the current period resulted from a $0.7 million increase in the valuation allowance against deferred taxes and $0.4 million in minimum taxes and other charges. The tax provision in the prior period resulted from a $0.7 million increase in the valuation allowance against deferred taxes and $0.2 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 September 30, 2007 and 2006 in most jurisdictions and therefore a valuation allowance has been recorded to reserve a portion of its deferred tax assets at September 30, 2007 and 2006 in these jurisdictions.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On June 27, 2008, Danka Business Systems PLC (~~also referred to herein as~~ “Danka”, or the “Company”) completed the sale of its U.S. operating subsidiary, Danka Office Imaging Company (“weDOIC”). Pursuant to a stock purchase agreement (as amended, the “usStock Purchase Agreement”), ordated as of April 8, 2008, among Danka, Danka Holding Company and Konica Minolta Business Solutions U.S.A., Inc. (“~~our~~Konica Minolta”), ~~is one~~the Company sold its U.S. operations to Konica Minolta in a sale of all the ~~leading~~outstanding ~~independent~~capital ~~providers~~stock of ~~print~~DOIC ~~products~~for ~~and~~a ~~services~~purchase price of U.S. $240 million in ~~the~~cash, ~~United~~subject ~~States~~to an upward or downward net worth adjustment of up to U.S. We$10 ~~provide~~million. ~~comprehensive~~The ~~document~~sum ~~solutions~~of ~~that~~$10 ~~include~~million ~~office~~was ~~imaging~~held ~~equipment,~~back ~~document~~by ~~related~~Konica ~~software,~~Minolta ~~related~~from ~~services~~the amount paid at closing as security for the Company’s purchase price adjustment obligations and ~~supplies~~is ~~that~~included ~~assist~~in ~~our~~“Escrow deposits and ~~customers~~holdback ~~with~~from sale of discontinued operations” in the ~~management~~accompanying ofconsolidated ~~their~~condensed ~~output~~balance ~~requirements~~sheet at December 31, 2008. ~~These~~Konica ~~solutions~~Minolta ~~are~~was ~~designed~~required to ~~improve~~prepare ~~business~~and ~~processes,~~deliver ~~reduce~~its ~~costs~~proposed ~~and~~net ~~increase~~worth ~~productivity~~adjustment no later than 90 days after the closing date of the sale transaction, or September 25, 2008. WeBy ~~offer~~letter of that date, Konica Minolta proposed a ~~broad~~downward ~~selection~~net worth adjustment of ~~digital~~approximately ~~office~~$8.2 ~~imaging~~million, ~~products~~which ~~including~~would ~~copiers,~~result in Danka not receiving the $10 million positive ~~multi-function~~net ~~peripherals~~worth ~~(“MFPs”),~~adjustment ~~facsimile~~and ~~machines~~only approximately $1.8 million of the $10 million held back by Konica Minolta as security for the net worth adjustment. Management believes Konica Minolta’s claim is without merit and ~~printers~~the ~~that~~holdback weis ~~integrate~~fully ~~with~~collectible, and anas ~~open~~such ~~architecture~~the ~~portfolio~~Company has not made any provision for potential losses on the recoverability of ~~software~~the ~~that~~amounts ~~has~~held ~~been~~back ~~carefully~~by ~~selected~~Konica Minolta as security for ~~optimum~~the ~~performance~~net worth adjustment. WeAdditionally, ~~also~~$25 ~~provide~~million of the purchase price paid by Konica Minolta at closing is being held in escrow for a ~~wide~~period ~~range~~of four years following closing to satisfy any and all claims by Konica Minolta which may be made under the Stock Purchase Agreement of ~~contract services~~which $5 million and $20 million, ~~equipment~~is ~~maintenance~~included in “Escrow deposits and holdback from sale of discontinued operations” and “Escrow deposits from sale of discontinued operations”, ~~supplies~~respectively, ~~leasing~~in ~~arrangements~~the consolidated condensed balance sheet at December 31, ~~technical~~2008. ~~support~~To date, no claims have been made to the escrow and ~~training~~the ~~primarily~~Company onbelieves it remains fully collectible. After the ~~installed~~repayment ~~base~~of the Company’s outstanding indebtedness, including repayment of ~~equipment~~approximately ~~created~~$146 million under the Company’s credit facilities provided by General ~~our~~Electric ~~retail~~Capital ~~equipment~~Corporation (“GECC”), ~~supplies~~(including additional borrowings of $15 million since March 31, 2008 and ~~related~~early ~~sales~~termination fees and accrued and unpaid interest of approximately $6 million), the payment of certain change-of-control and severance obligations and the fees and expenses incurred in connection with the sale transaction and minus the holdback and escrow amounts set forth above, the net sale proceeds received by the Company were approximately $40 million.

~~Danka’s~~The ~~mission~~sale isof DOIC to ~~deliver~~Konica ~~value~~Minolta constituted the sale of Danka’s remaining operations. Prior to ~~clients~~the bysale ~~using~~of ~~our~~DOIC, ~~expert~~based ~~sales~~on revenue, ~~technical~~we ~~and~~were ~~professional~~one ~~services~~of ~~and~~the ~~products~~largest toindependent ~~implement~~providers ~~effective document~~of ~~information~~comprehensive document solutions including office imaging equipment, software, support, and related services and supplies in the United States. ~~Our~~We ~~product~~offered ~~portfolio~~a iswide ~~designed~~range toof ~~provide~~state ~~our~~of ~~customers~~the ~~with~~art office ~~choice~~imaging products, ~~convenience~~services, ~~custom~~supplies ~~cost management~~ and ~~continuity.~~solutions ~~Our~~that ~~vision~~primarily isincluded todigital ~~empower~~and ~~our~~color ~~customers~~copiers, todigital ~~benefit~~and ~~fully~~color ~~from~~multifunction ~~the~~peripherals, ~~convergence~~printers, ~~of image~~facsimile machines and ~~document~~software, ~~technologies~~contract inservices, aincluding ~~connected~~professional ~~environment.~~and consulting ~~This~~services, ~~approach~~maintenance, ~~will~~supplies, ~~strengthen~~leasing ~~our~~arrangements, ~~client~~technical ~~relationships~~support and ~~expand~~training, collectively referred to as Danka’s ~~strategic~~Document ~~value~~Services.

~~Our~~We ~~strategy~~are toa ~~accomplish~~public ~~our~~limited ~~mission~~company isorganized ~~to:~~under the laws of England and Wales and we were incorporated on March 13, 1973.

• enhance customer relationships and make every customer a reference;

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

• optimize our internal processes and systems and reduce the opportunity for errors;

• maximize free cash flow generation and reduce net debt; and

• maximize return for our stakeholders.

All tables presented herein are in thousands unless otherwise noted.

Critical Accounting Policies and Estimates

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

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

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

• Allowances for billing disputes and inaccuracies: 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.

The following table summarizes our net accounts receivable:

	September 30, 2007			March 31, 2007
Accounts receivable, gross	$	54,399		$	61,547
Allowance for doubtful accounts and billing disputes and inaccuracies		(14,339	)		(17,367	)
Accounts receivable, net	$	40,060		$	44,180
Allowance for doubtful accounts as a % of gross accounts receivable		26.4	%		28.2	%

Inventories—We acquire inventory based on our projections of future demand and market conditions. Any unexpected decline in demand and/or rapid product improvements or technological changes may cause us to have excess and/or obsolete inventories. We have provided an appropriate estimate of reserves against these inventory items in current and prior periods. On an ongoing basis, we review for estimated obsolete or unmarketable inventories and write-down our inventories to their estimated net realizable value based upon our forecasts of future demand and market conditions using historical trends and 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 recorded reserves 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”).

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.

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 September 30, 2007. Consequently, we have a valuation allowance against net deferred tax assets in all jurisdictions at September 30, 2007.

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

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

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

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.”

Financial Condition

	September 30, 2007			March 31, 2007
Total assets	$	241,548		$	417,048
Total liabilities	$	232,390		$	388,968
Working capital	$	(20,425	)	$	(37,441	)
Liabilities to liabilities and capital		96	%		93	%
Inventory turnover ratio		4 x			5 x

Total assets as of September 30, 2007 decreased $175.5 million or 42.1% compared to March 31, 2007. This decrease was primarily the result of decreased cash due to the repayment of our senior and subordinated notes during the current quarter. There were also decreases in our accounts receivable due to better collections and lower revenue offset by an increase in other assets due 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 $156.6 million from March 31, 2007, or 40.3%. This decrease was primarily the result of the repayment of our senior and subordinated notes during the current quarter 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 $17.0 million or 45.4% at September 30, 2007 compared to March 31, 2007. This increase is a direct result of our new financing arrangement and the other factors discussed above.

Liabilities to liabilities and capital increased 3.0% at September 30, 2007 compared to March 31, 2007, due to our new financing arrangement.

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

Results of Continuing Operations

~~The~~Three ~~following~~Months ~~table~~Ended ~~sets forth~~December 31, ~~for~~2008 ~~the~~compared ~~periods~~to ~~indicated,~~ the ~~percentage~~Three ofMonths ~~total~~Ended ~~revenue~~December 31, ~~represented~~2007 ~~by certain items in our consolidated condensed statements of operations:~~

	Three months ended September 30,				Six months ended September 30,
	2007		2006		2007		2006
Revenue:
Retail equipment, supplies and related sales	45.1	%	44.0	%	44.3	%	44.2	%
Retail service	51.9		53.2		52.9		52.3
Rentals	3.0		2.8		2.8		3.5
Total revenue	100.0		100.0		100.0		100.0
Cost of sales	65.1		65.6		64.4		64.2
Gross profit	34.9		34.4		35.6		35.8
Selling, general and administrative expenses	35.4		33.8		34.8		33.3
Restructuring charges (credits)	(1.0	)	0.2		0.1		2.7
Loss on sale of subsidiary	—		—		—		1.1
Other expense (income)	(0.2	)	(0.4	)	(0.5	)	—
Operating earnings (loss) from continuing operations	0.7		0.8		1.2		(1.3	)
Interest expense	(5.3	)	(6.9	)	(5.9	)	(6.5	)
Interest income	1.1		—		1.5		—
Loss on early extinguishment of debt	(9.2	)	—		(4.6	)	—
Earnings (loss) from continuing operations before income taxes	(12.7	)	(6.1	)	(7.8	)	(7.8	)
Provision (benefit) for income taxes	0.3		0.4		0.5		0.4
Net earnings (loss) from continuing operations	(13.0	)%	(6.5	)%	(8.3	)%	(8.2	)%

General and Administrative Expenses

~~The~~General ~~following~~and administrative ~~table~~expenses ~~sets~~(“G&A”) ~~forth~~in ~~for~~ the ~~periods~~current ~~indicated~~year ~~the~~quarter ~~percentage~~increased ofby ~~revenue~~$0.7 ~~increase (decrease)~~million from ~~continuing~~the ~~operations~~year-ago period to $0.9 million from $0.2 million. This increase is primarily due to increased professional fees incurred relating to the on-going ~~prior~~liquidation ~~year:~~efforts of the Company.

	Three months ended September 30,				Six months ended September 30,
	2007		2006		2007		2006
Retail equipment, supplies and related sales	(1.1	)%	(19.3	)%	(8.2	)%	(17.7	)%
Retail service	(5.8	)	(12.8	)	(7.5	)	(10.6	)
Rentals	3.5		(31.6	)	(25.4	)	(15.2	)
Total revenue	(3.5	)%	(16.4	)%	(8.5	)%	(14.0	)%

Other Income

~~The~~Other ~~following~~income ~~table~~for ~~sets~~the ~~forth~~each ~~for~~of the ~~periods~~fiscal ~~indicated~~year ~~the~~quarter ~~gross~~was ~~profit~~primarily ~~margin~~the ~~percentage~~result ~~from continuing~~of ~~operations~~foreign ~~for~~exchange ~~each~~gains ofon ~~our~~payables ~~revenue~~and ~~classifications:~~accrued expenses.

	Three months endedSeptember 30,				Six months endedSeptember 30,
	2007		2006		2007		2006
Retail equipment, supplies and related sales	29.7	%	28.1	%	30.0	%	28.6	%
Retail service	38.6		37.3		39.3		39.1
Rentals	51.1		78.6		52.6		77.3
Total Gross Margin	34.9	%	34.4	%	35.6	%	35.8	%

(Loss) Earnings

22Our loss was $0.9 million for the three months ended December 31, 2008 compared to a loss of $0.2 million in the prior year period. This increase in loss year over year was due to higher G&A costs as discussed above.

~~Six~~Interest ~~Months~~Income ~~Ended September 30, 2007 compared to the Six Months Ended September 30, 2006~~

~~Revenue~~Interest income increased by $0.1 million. The income in the current period resulted from interest earned on cash balances as a result of the undistributed proceeds from the sale of our US operations.

Revenue includes customer purchases of office peripherals; supplies; software and related support products; professional, consulting and maintenance services; and leasing arrangements. For the six months ended September 30, 2007, our revenue decreased by $19.6 million or 8.5% from the six months ended September 30, 2006 with retail equipment, supplies and related sales declining $8.4 million or 8.2% to $93.7 million. Retail service revenue declined $9.1 million or 7.5% to $111.8 million and rental revenue was down $2.0 million or 25.4% to $6.0 million in the six months ended September 30, 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 15%. This decrease in product placement is being partially offset by increases in average selling prices over all product lines of approximately 10%. 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 7.0%, and 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 tend to have a higher average per copy charge than traditional black and white copies. Revenue from color machines increased approximately 3.1% year over year and now represents 6.1% of total copies compared to 5.0% in the prior year period.

We are also experiencing a decline in our MIF due in part to lower hardware sales. During the first six months of fiscal year 2008, our net MIF decline was 4,036 machines resulting in a base service revenue decline of $1.1 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 $2.0 million or 25.4% to $6.0 million in the six months ended September 30, 2007. During the year-ago period, revenue was recognized on rental equipment on contracts with certain governmental customers that had been delayed from fiscal year 2006.

Gross Profit

Our total gross profit margin after costs of goods sold, which primarily includes inventory, service labor and overhead, management costs and depreciation of equipment, decreased slightly to 35.6% in the six months ended September 30, 2007 from 35.8% 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 $5.6 million and $6.0 million for the six months ended September 30, 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 six months ended September 30, 2007 were $4.3 million compared to $2.8 million in the prior year period.

Retail equipment, supplies and related sales margins increased to 30.0% from 28.6% 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 year.

Retail service margins increased to 39.3% from 39.1%. The increase in retail service margins was a direct result of a reduction in fixed costs related to our service organization of approximately $3.3 million and an increase year over year of vendor credits of $0.6 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 77.3% in fiscal year 2007 to 52.6% in fiscal year 2008.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) in the current year decreased by $3.5 million or 4.6% from the year-ago period to $73.5 million from $77.0 million. The decrease in SG&A for the year resulted from a decrease in professional fees of $4.8 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 $1.6 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 increased to 34.8% in the current year from 33.3% in the six months ended September 30, 2006. This was a direct result of our lower revenues.

Restructuring Charges (Credits)

In fiscal year 2007, we formulated plans to continue to eliminate inefficiencies in our field operations and to reduce our SG&A costs by eliminating and consolidating back office functions, reducing sales and service personnel and exiting certain facilities. During the prior fiscal year, we recorded $2.0 million of severance charges and $3.5 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 year, we recorded facility charges of $0.2 million relating to the 2007 plan.

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 $2.6 million for the six months ended September 30, 2007 compared to a loss of $3.1 million in the prior year period. The increase in operating earnings for the current quarter 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.

Interest Expense and Interest Income

Interest expense decreased by $2.4 million or 16.4% 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 prior ~~current~~year 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~~Net ~~Taxes~~Loss from Continuing Operations

WeNet ~~recorded~~loss afrom ~~tax~~continuing ~~provision~~operations ofwas $10.18 million ~~during~~in the ~~six~~three months ended ~~September~~December 3031, ~~2007~~2008 ~~and~~compared to a ~~tax~~loss ~~provision~~from ofcontinuing operations of $0.92 million in the ~~prior~~ year -ago period. ~~The~~We ~~income~~incurred ~~tax~~a ~~provision~~net inloss ~~the current period resulted~~ from acontinuing ~~$0.7~~operations ~~million~~available ~~increase~~to incommon ~~the~~shareholders ~~valuation~~of ~~allowance against deferred taxes and~~ $0.411 ~~million~~per inADS ~~minimum~~during ~~taxes~~the ~~and~~current ~~other~~period ~~charges.~~compared ~~The~~to ~~income~~net ~~tax~~loss ~~provision~~from ~~for~~continuing ~~the~~operations ~~prior~~of ~~year period resulted from a~~ $0.710 ~~million~~per ~~increase~~ADS in the ~~valuation allowance against deferred taxes and $0~~year-ago period.2 ~~million in minimum taxes and other charges.~~

~~Net Earnings~~Discontinued ~~(Loss) from Continuing~~ Operations

~~Net~~ The loss from ~~continuing~~discontinued operations ~~was~~during ~~$17.6 million in~~ the ~~six~~current ~~months~~period ~~ended September 30,~~was ~~2007~~the ~~compared~~result ~~to a loss from continuing operations~~ of ~~$18.9~~additional ~~million~~professional infees ~~the year-ago period. We~~ incurred arelating ~~net loss from continuing operations available~~ to ~~common~~the ~~shareholders~~sale of ~~$0.45~~our ~~per ADS during the current period compared to net loss from continuing~~ operations ~~of $0~~.47 ~~per ADS in the year-ago period.~~

~~Three~~Nine Months Ended ~~September~~December 3031, ~~2007~~2008 compared to the ~~Three~~Nine Months Ended ~~September~~December 3031, ~~2006~~2007

~~Revenue~~General and Administrative Expenses

~~For~~General ~~the~~and ~~three~~administrative ~~months~~expenses ~~ended~~in ~~September 30,~~the ~~2007,~~current ~~our~~year ~~revenue~~increased ~~decreased~~ by $31.89 million ~~or 3.5%~~ from the ~~three~~year-ago ~~months~~period ~~ended~~to ~~September 30, 2006 with retail equipment, supplies and related sales declining~~ $02.59 million orfrom $1.~~1% to $47.5~~0 million. ~~Retail~~This ~~service~~increase ~~revenue~~is ~~declined~~primarily ~~$3.4~~due ~~million or 5.8%~~ to ~~$54.6~~increased ~~million,~~professional ~~while~~fees ~~rental~~incurred ~~revenue~~relating ~~increased slightly~~ to ~~$3.1 million in~~ the ~~three~~on-going ~~months~~liquidation ~~ended~~efforts ~~September 30,~~of ~~2007~~the Company.

~~Service revenue includes revenue from the maintenance and servicing of equipment and is driven by the total number of MIF that we service. Service~~Other ~~revenues~~Income 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 tend to have a higher average per copy charge than traditional black and white copies. Revenue from color machines increased approximately 6.1% quarter over quarter and represented 6.3% of total copies compared to 5.1% in the prior year period.

WeOther ~~are~~income ~~also~~for ~~experiencing a decline in our MIF due to decreases in our equipment sales. During~~ the ~~second~~current ~~quarter of~~ fiscal year ~~2008,~~was ~~our~~primarily ~~net~~the ~~MIF~~result ~~declined by 2,480 machines resulting in a base service revenue decline~~ of ~~$0.6~~foreign ~~million.~~exchange ~~Usage service~~gains ~~revenue~~ on ~~these~~accounts ~~same~~payable ~~machines~~and ~~decreased~~accrued expenses ~~service~~while ~~revenue~~other byincome ~~approximately~~for ~~$0.5~~the ~~million.~~prior Infiscal ~~addition,~~year ~~pricing~~quarter ~~pressures~~resulted primarily from ~~competition~~a ~~and~~gain ~~enhanced technology are inhibiting price maintenance~~ on ~~renewals~~the ~~and~~sale ~~new~~of ~~contracts entered into which resulted in~~ a ~~decrease~~building in ~~revenue of approximately $0~~London.8 ~~million.~~

~~Gross~~(Loss) ~~Profit~~Earnings

Our ~~total~~loss ~~gross~~was ~~profit~~$2.7 ~~margin~~million ~~after~~for ~~costs~~the ofnine ~~goods~~months ~~sold~~ended December 31, ~~which~~2008 ~~primarily~~compared ~~includes~~to ~~inventory,~~earnings ~~service~~of ~~labor~~$0.2 ~~and~~million ~~overhead,~~in ~~management~~the ~~costs~~prior ~~and~~year ~~depreciation~~period. ofThis ~~equipment,~~decrease ~~increased~~year over year was due to ~~34.9%~~the ingain on the ~~three~~sale ~~months~~of ~~ended~~the ~~September 30,~~building ~~2007~~in ~~from~~the ~~34.4%~~prior year and increased G&A expenses in the current year~~-ago~~ period as discussed above.

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 $2.9 million and $2.7 million for the three months ended September 30, 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 September 30, 2007 were $1.8 million compared to $1.2 million in the prior year quarter.

Retail equipment, supplies and related sales margins increased to 29.7% from 28.1% in the year-ago period. This increase was primarily related to revised sales compensation plans that are focused on margin performance.

Retail service margins increased to 38.6% from 37.3%. The increase in retail service margins was a direct result of a reduction in fixed costs related to our sales organization of approximately $1.3 million and an increase quarter over quarter in vendor credits of $0.5 million offset by the transition to all inclusive service contracts that contain provisions for service and consumables.

Rental margins decreased in the current year quarter 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 78.6% in fiscal year 2007 to 51.1% in fiscal year 2008.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) in the current year quarter increased by $0.4 million or 1.0% from the year-ago period to $37.2 million from $36.8 million. This increase resulted from increased sales personnel costs and commission payments of approximately $1.7 million in an effort to increase sales coverage in certain strategic markets. Any inability by us to attract and retain qualified sales personnel may result in lower revenues overall. This increase was offset by a decrease in professional fees of $1.3 million primarily relating to our outsourcing agreements for our general and administrative functions. As a percentage of total revenue, SG&A expenses increased to 35.4% in the current quarter from 33.8% in the three months ended September 30, 2006. This was a direct result of our lower revenues.

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 current fiscal year quarter resulted from grants from taxing authorities of $0.2 million. The prior year period included grants of $0.5 million.

Operating Earnings (Loss) from Continuing Operations

Our operating earnings from continuing operations decreased slightly to $0.8 million for the three months ended September 30, 2007 compared to earnings of $0.9 million in the prior year period.

Interest Expense and Interest Income

Interest expense decreased by $28.05 million ~~or 26.0%~~ due to the payoff of our senior and subordinated notes ~~and our new financing agreements with GECC as more fully described~~ in ~~Note~~fiscal 6.year ~~“Debt” to the consolidated condensed financial statements~~2008.

26Interest income decreased by $1.6 million. The income in the prior period resulted from interest earned on cash balances as a result of the sale of our European operations at the end of fiscal year 2007.

Interest income increased $1.2 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~~prior year 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~~Net ~~Taxes~~Loss from Continuing Operations

WeNet ~~recorded~~loss afrom ~~tax~~continuing ~~provision~~operations ofwas $02.4 million ~~during~~in the ~~three~~nine months ended ~~September~~December 3031, ~~2007~~2008 ~~and~~compared to a ~~tax~~loss ~~provision~~from continuing operations of $016.42 million in the ~~prior~~ year -ago period. ~~The~~We ~~income~~incurred ~~tax~~a ~~provision~~net inloss ~~the~~from ~~current~~continuing ~~period~~operations available ~~resulted~~to ~~from~~common ashareholders of $0.434 ~~million~~per ~~increase~~ADS induring the ~~valuation~~current ~~allowance~~period ~~against~~compared ~~deferred~~to ~~taxes.~~net ~~The~~loss ~~income~~from ~~tax~~continuing ~~provision~~operations ~~for~~of ~~the prior year period resulted from a~~ $0.353 ~~million~~per ~~increase~~ADS in the ~~valuation allowance~~year-ago ~~against deferred taxes and $0~~period.1 ~~million in minimum taxes and other charges.~~

~~Net~~Discontinued ~~Earnings (Loss) from Continuing~~ Operations

~~Net~~The loss from ~~continuing~~discontinued operations ~~was~~during ~~$13.6 million in~~ the ~~three~~nine months ended ~~September~~ December 3031, ~~2007~~2008 ~~compared~~was ~~to a loss from continuing operations of $7.1 million in~~ the ~~year-ago~~losses ~~period. We~~ incurred ain ~~net~~DOIC ~~loss~~prior ~~from continuing operations available~~ to ~~common shareholders of $0.30 per ADS during~~ the ~~current~~sale ~~period compared~~ to ~~net~~Konica ~~loss~~Minolta ~~from~~in ~~continuing~~the ~~operations~~first quarter of ~~$0.20~~fiscal ~~per ADS in the~~ year~~-ago period~~ 2009.

2714

Liquidity and Capital Resources

The following summarizes our cash flows from continuing and discontinued operations for the first ~~six~~nine months of fiscal years ~~2008~~2009 and ~~2007~~2008 as reported in our consolidated condensed statements of cash flows in the ~~accompanying~~ accompanying consolidated condensed financial statements:

	Six Months Ended September 30,
	Nine Months EndedDecember,
	2007			2006
	2008			2007
Net cash used in operating activities	$	(313,~~957~~813	)	$	(720,~~114~~713	)
Net cash provided by (used in) investing activities		(2,400	)		7,222
Net cash provided by investing activities		—			1,506
Net cash provided by financing activities		25,708			302
Net cash used in financing activities		—			(258,908	)
Effect of discontinued operations		(128,~~765~~088	)		~~(15~~274,~~555~~448	)
Effect of exchange rates		—			2,158
Net increase (decrease) in cash		24,275			(3,667	)
Net decrease in cash		(10,414	)		(12,987	)
Cash and cash equivalents, beginning of period		9,619			20,054
Cash and cash equivalents, beginning of period		17,594			24,467
Cash and cash equivalents, end of period	$	33,894		$	16,387
Cash and cash equivalents, end of period	$	7,180		$	11,480

Cash flows

Our ~~generation~~net ~~and use of~~ cash isflow ~~cyclical~~used ~~within~~in aoperating ~~quarter.~~activities ~~Typically,~~from wecontinuing ~~generate~~operations aduring ~~significant portion of our cash toward~~ the ~~end~~first ofnine ~~each~~months ~~quarter where we typically conclude a large percentage~~ of ~~our~~fiscal ~~retail equipment~~year ~~transactions~~2009 ~~while~~was ~~our~~$3.8 ~~use~~million. ofCash ~~cash~~used isin ~~more~~continuing ~~evenly~~operating ~~spread~~activities ~~during~~for the ~~quarter~~prior ~~after~~year aperiod ~~greater~~were $20.7 ~~use~~million ofprimarily ~~cash~~due ~~toward~~to the ~~beginning~~payment of ~~the~~interest ~~quarter,~~on ~~when~~our wesenior ~~typically pay vendors for products sold toward the end of the quarter~~ and ~~for~~subordinated ~~other services~~notes ~~provided~~outstanding during the ~~quarter~~period.

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~~provided inby ~~operating~~investing activities ~~for~~from continuing operations ~~during the first six months of fiscal years 2008 and 2007~~ was $321.~~0 million~~5 ~~and $7.1~~ million, ~~respectively.~~the ~~The~~first ~~cash~~nine ~~flows~~months ~~from continuing operations during each period is a result~~ of the ~~continuing~~fiscal ~~decline~~year in2008 ~~our~~due ~~revenues~~to ~~and~~ the ~~resulting~~sale ~~decline~~of inproperty ~~our~~and ~~gross profit~~equipment, ~~payouts~~principally ofa ~~restructuring,~~building ~~payouts of accrued professional fees and reductions~~ in ~~other accrued expenses~~London. 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~~financing activities ~~was~~from ~~$2.4~~continuing ~~million~~operations for the first six months of fiscal years 2008. This outflow was the result of capital expenditures offset by $1.5 million generated on the sale of a building. Our net cash flow provided by investing activities was $7.2 million during the ~~first~~prior ~~six months of fiscal~~ year ~~2007.~~period ~~This cash inflow~~ was ~~generated~~ by the ~~sale~~payoff of our ~~Australian~~senior ~~subsidiary~~and ~~during~~subordinated notes ~~the~~and ~~second~~credit ~~quarter~~facility ofwith ~~fiscal~~Bank ~~year~~of ~~2007 offset by capital expenditures~~America.

~~Our~~The ~~net~~ Company also has restricted cash ~~flow~~at ~~provided~~December 31, by2008 ~~financing~~of ~~activities~~$5.3 ~~during~~million ~~fiscal~~related ~~years~~to an ~~2008~~escrow ~~and~~established ~~2007~~relating ~~was~~to ~~$25.7~~the ~~million~~sale ~~and~~of ~~$0.~~our European operations as more fully described in Note 3. ~~million,~~“Discontinued ~~respectively~~Operations” to the consolidated condensed financial statements. The ~~increase~~Company is subject to tax audits in ~~cash~~certain jurisdictions ~~flow~~that ~~during~~were ~~the~~sold ~~current~~during fiscal year ~~was~~2007. Per the ~~result~~terms of ~~borrowings~~the onShare Purchase Agreement, we are liable for any adverse outcome of these audits up through the date of sale of the operations. The tax audits are ongoing and as of December 31, 2008, the recorded liability is our ~~new~~best ~~financing~~estimate ~~arrangement~~of the exposure from these audits. We intend to vigorously defend any adverse findings which may or may not be material. Any payments arising from these audits will be settled using ~~with~~the ~~GECC~~available funds in escrow. On January 26, 2009, Ricoh made a claim against the remaining $5.3 million held in escrow for the tax amounts subject to these tax audits.

~~The~~On June 27, 2008, the Company ~~also~~completed ~~has~~the ~~restricted~~sale ~~cash~~of atits ~~September~~U.S. operating subsidiary, DOIC. Pursuant to a stock purchase agreement, dated as of April 308, ~~2007~~2008, among Danka, Danka Holding Company and Konica Minolta, the Company sold its U.S. operations to Konica Minolta in a sale of ~~$17~~all the outstanding capital stock of DOIC for a purchase price of U.8S. $240 million (in cash, subject to an upward or downward net worth adjustment of ~~which~~up to U.S. $510 million.0 The sum of $10 million iswas ~~classified~~held back by Konica Minolta from the amount paid at closing as security for the Company’s purchase price adjustment obligations and is included in ~~long-term)~~“Escrow ~~primarily~~deposits ~~related~~and holdback from sale of discontinued operations” in the accompanying consolidated condensed balance sheet at December 31, 2008. Konica Minolta was required to anprepare ~~escrow~~and deliver its proposed net worth adjustment no later than 90 days after the closing date of ~~$15~~the sale transaction, or September 25, 2008. By letter of that date, Konica Minolta proposed a downward net worth adjustment of approximately $8.2 million, ~~established~~which ~~relating~~would toresult in Danka not receiving the ~~sale~~$10 million positive net worth adjustment and only approximately $1.8 million of ~~our~~the ~~European~~$10 ~~operations~~million held back by Konica Minolta as ~~more~~security for the net worth adjustment. Management believes Konica Minolta’s claim is without merit and the holdback is fully ~~described~~collectible, ~~below~~and as such the Company has not made any provision for potential losses on the recoverability of the amounts held back by Konica Minolta as security for the net worth adjustment. Additionally, $25 million of the purchase price paid by Konica Minolta at closing is being held in escrow for a period of four years following closing to satisfy any and all claims by Konica Minolta which may be made under the Stock Purchase Agreement of which $5 million and $20 million, is included in ~~Note~~“Escrow 4.deposits and holdback from sale of discontinued operations” and “~~Discontinued~~Escrow ~~Operations~~deposits from sale of discontinued operations”, torespectively, in the consolidated condensed ~~financial~~balance sheet at ~~statements~~December 31, 2008. To date, no claims have been made to the escrow and the Company believes it remains fully collectible. After the repayment of the Company’s outstanding indebtedness, including repayment of approximately $146 million under the Company’s credit facilities provided by GECC, (including additional borrowings of

~~During~~15 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.

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~~15 million insince ~~revolving~~March 31, ~~loans~~2008 asand ~~more~~early ~~fully~~termination ~~described~~fees inand ~~Note~~accrued 6.and ~~“Debt”~~unpaid tointerest ~~the~~of ~~consolidated~~approximately ~~condensed~~$6 ~~financial~~million), ~~statements. Proceeds from this financing were used in conjunction with~~ the ~~proceeds~~payment of ~~the previously completed sale~~ certain change-of-control ~~our~~and ~~European~~severance ~~businesses~~obligations ~~to reduce~~ and ~~refinance~~the ~~our~~fees ~~existing debt~~ and ~~enhance~~expenses ~~working~~incurred ~~capital.~~in ~~The~~connection ~~credit agreements governing these new financing arrangements contain customary financial covenants that we must comply~~ with onthe asale ~~quarterly~~transaction ~~basis~~and ~~relating~~minus tothe ~~our~~holdback ~~leverage ratios, fixed charge coverage ratio, cumulative EBITDA~~ and anescrow ~~annual~~amounts ~~capital~~set ~~expenditure~~forth ~~threshold~~above, ~~all~~the asnet ~~more~~sale ~~fully~~proceeds ~~described~~received inby ~~Exhibit 10.66. “First Lien Credit Agreement” and Exhibit 10.67. “Second Lien Credit Agreement” attached to~~ the Company’s ~~Annual~~were ~~Report~~approximately ~~on Form 10-K filed of June 27, 2007~~$40 million.

~~Notices~~In ofconnection ~~Redemption~~with ~~were initiated by~~ the ~~Company~~sale onof ~~June 25~~DOIC, ~~2007~~as todescribed 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 27above, ~~2007,~~ the ~~senior~~credit ~~notes~~facilities ~~and~~provided ~~subordinated~~by ~~notes~~GECC were ~~redeemed~~repaid and ~~paid and during the second quarter of fiscal year 2008, the Company recorded a charge of approximately $9~~terminated.~~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.~~

~~The~~Since ~~borrowing~~the ~~base~~completion ~~related~~of tothe sale of DOIC, the ~~new~~Company’s ~~financing~~board ~~arrangements~~of ~~with~~directors ~~GECC~~has ~~are~~assessed ~~subject~~the alternatives available to ~~certain~~distribute ~~multiples~~the net proceeds of ~~adjusted~~the ~~EBITDA~~sale asof ~~more~~DOIC ~~fully described~~among inDanka ~~the~~shareholders. ~~credit~~In ~~agreements~~assessing ~~and~~the ~~therefore~~available alternatives, the ~~cash~~board ~~availability~~of directors has been mindful of the fact that wethere ~~have~~is no guarantee that the holders of the Company’s convertible participating shares will not take action(s) that may be available to them under applicable law, for example seeking an involuntary winding up of the ~~financing~~Company, ~~arrangements~~to recover amounts to which they are ~~reliant~~ultimately entitled pursuant to Danka’s Articles of Association and which must be paid to them before ordinary shareholders (and holders of ADSs) are entitled to receive any return on the winding up of the Company. ~~meeting~~Such ~~these~~amounts ~~adjusted~~exceed ~~EBITDA~~the ~~multiples.~~amount Weof ~~believe~~net ~~cash~~proceeds ~~and~~from ~~cash~~the ~~equivalents~~sale onof ~~hand,~~DOIC ~~together~~and ~~with~~the funds ~~availability~~which are otherwise available to the Company. The passage of time continues the accretion in the value of our ~~financing~~convertible ~~arrangement~~participating ~~with~~shares ~~GECC~~(which exceeds the amount of the net proceeds from the sale of DOIC), ~~based~~further onreducing ~~our~~the ~~estimated~~return ~~EBITDA~~to ~~performance~~the holders of convertible participating shares and increasing the possibility of no return to the holders of ordinary shares (and ADSs). Accordingly, in an involuntary liquidation, it is ~~sufficient~~unlikely that ordinary shareholders (including ADS holders) would receive any distribution. The Company has been advised by Cypress Merchant Banking Partners II LP and certain of its affiliates (the “Cypress Shareholders”) that they intend to ~~fund~~file ~~our~~an ~~cash~~application ~~requirements~~in the near future seeking the involuntary winding up of the Company under the provisions of the United Kingdom’s Insolvency Act 1986. That application will be made to the English High Court. The Cypress Shareholders have also informed the Company that, in the event that the proposed members’ voluntary liquidation is rejected once again, they will seek the support of the Company’s management and board of directors for the ~~next~~involuntary ~~twelve~~liquidation ~~months~~application.

~~Restructuring~~On ~~Charges~~January 20, 2009, the Company filed a proxy statement with the SEC to convene an extraordinary general meeting of Danka shareholders on February 19, 2009, to again consider and vote on a members’ voluntary liquidation to distribute the net proceeds from the sale of DOIC among Danka shareholders, which would permit the net cash in the Company to be returned to Danka shareholders in the most cost effective and timely manner and allow for Danka’s affairs to be wound up in an orderly and efficient manner. Under the terms of Danka’s existing Articles of Association, the holders of Danka’s ordinary shares (~~Credits~~and ADSs) would not be entitled to receive any portion of the amount which is expected to be available for distribution to Danka’s shareholders. Rather, given the approximately $388 million in value of our convertible participating shares, under the Articles of Association, holders of such shares would be entitled to all the distributable proceeds of the Company in a liquidation. However, the Company has procured the agreement of the convertible participating shareholders to pay to the holders of ordinary shares (including holders of ADSs) a cash amount equal to $0.03 per ordinary share, or $0.12 per ADS, in a members’ voluntary liquidation, prior to any distribution to the holders of convertible participating shares in a members’ voluntary liquidation. See Note 5. “Contingencies” to the consolidated condensed financial statements.

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.

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:

	Cumulative Expense through March 31, 2007		Reserve at March 31, 2007		Charge (Credit)			Cash Outlays			Reserve at September 30, 2007
Severance	$	2,032	$	662	$	—		$	(303	)	$	359
Future lease obligations on facility closures		3,495		1,656		(43	)		(942	)		671
Total	$	5,527	$	2,318	$	(43	)	$	(1,245	)	$	1,030

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:

	Cumulative Expense through March 31,2007		Reserve at March 31, 2007		Charge (Credit)		Cash Outlays			Reserve at September 30, 2007
Severance	$	6,562	$	—	$	—	$	—		$	—
Future lease obligations on facility closures		960		214		83		(193	)		104
Total	$	7,522	$	214	$	83	$	(193	)	$	104

The remaining liabilities of the 2004 Plan restructuring charge of $.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:

	Cumulative Expense throughMarch 31, 2007		Reserve at March 31, 2007		Charge (Credit)		Cash Outlays			Reserve at September 30, 2007
Severance	$	5,747	$	—	$	—	$	—			—
Future lease obligations on facility closures		20,382		1,875		202		(552	)		1,525
Total	$	26,129	$	1,875	$	202	$	(552	)	$	1,525

Long-Term Debt

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

	Total		Payments due in Less Than 1 Year		Payments due in More Than 1 Year
Senior secured credit facilities		104,850		750		104,100
Capital leases		730		622		108
Other long-term obligations		20,148		19,774		374
Total	$	125,728	$	21,146	$	104,582

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

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

On or after June 15, 2007, we 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.

DOIC incurred $7.4 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 $6.9 million at September 30, 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.

Contractual Obligations and Commitments

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

	Amount of contractual obligations per period
	Total		Less than 1 year		1 – 3 years		4 – 5 years		After 5 years
Senior secured credit facility		104,850		750		—		59,100		45,000
Capital lease obligations		730		622		108		—		—
Other long-term obligations		20,148		19,774		189		81		104
Restructuring payment obligations (1)		2,660		1,654		1,006		—		—
Operating lease obligations		44,438		10,659		15,094		8,169		10,516
Purchase obligations		16,518		16,518		—		—		—
Total contractual obligations	$	189,344	$	49,977	$	16,397	$	67,350	$	55,620

(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~~ additional participating shares in the period through to December 2004. The terms of ~~DOIC’s~~the ~~financing~~issue ~~agreements~~of ~~with~~the ~~GECC~~senior ~~restrict~~notes due 2010, which were repaid in June 2007, forbade the payment of cash dividends. Accordingly, dividends, which are cumulative, were paid in the form of additional participating shares from issuance to December 2004. At that time, we were obliged to pay the participating share dividends in cash. However, the terms of the participating shares permit us to continue to pay payment-in-kind dividends following December 17, 2004 if our then existing principal indebtedness, which includes our credit facility and debt securities issued in an aggregate principal amount in excess of $50.0 million in a bona fide underwritten public or private offering, prohibits us from paying cash dividends. Further, if we are not permitted by the terms of the participating shares to pay payment-in-kind dividends following December 17, 2004 and we have insufficient distributable reserves under English law to pay cash dividends, the amount of any unpaid dividend will be added to the “liquidation return” of each participating share.

~~The holders~~16 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 holders of the participating shares are, ~~currently~~in ~~convertible~~general, ~~into~~entitled ~~ordinary~~to ~~shares~~appoint attwo adirectors ~~conversion~~to ~~price~~the ~~of $3~~board.11 ~~per~~Since ~~ordinary~~we ~~share~~have ~~(equal~~not topaid ~~$12.44~~dividends ~~per~~in ~~ADS),~~cash ~~subject~~for tosix ~~adjustment~~successive inquarters ~~certain~~following ~~circumstances~~December to2004, ~~avoid~~they ~~dilution~~are ofentitled ~~the~~to ~~interests~~appoint ofa ~~participating~~further ~~shareholders.~~two Asdirectors ofuntil ~~September 30, 2007~~ the ~~participating~~time ~~shares~~we have ~~voting~~paid ~~rights,~~cash dividends on anthe ~~as converted~~participating ~~basis,~~shares ~~currently~~for ~~corresponding~~four tosuccessive ~~approximately 29~~quarters.9% As of the ~~total~~date ~~voting~~of ~~power~~this offiling, ~~our~~the ~~capital~~holders ~~stock~~of ~~which~~the ~~includes~~participating anshares ~~additional~~have ~~139,332~~appointed ~~participating~~two ~~shares~~directors into ~~respect~~the ofCompany’s ~~payment-in-kind~~Board ~~dividends~~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, 2008 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 169,325 participating shares in respect of payment-in-kind dividends.

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

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

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

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

In the event of a 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~~ 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. However, an independent committee of the Company’s board of directors reached agreement after considerable negotiations with the Cypress Shareholders—which, as of the date hereof, collectively hold approximately 92% of the convertible participating shares—which would entitle the holders of the Company’s ordinary shares, including holders of ADSs, to be paid a cash amount equal to $0.03 per ordinary share, or $0.12 per ADS, in the event of a members’ voluntary liquidation. In order to effect this arrangement, the Company procured the agreement of the Cypress Shareholders, together with the other holder of our convertible participating shares, to irrevocably and unconditionally direct and instruct the liquidators to pay to the holders of ordinary shares (including holders of ADSs) the payment described above out of the proceeds of a members’ voluntary liquidation, prior to any distribution of the proceeds of a members’ voluntary liquidation to the holders of convertible participating shares.

In17 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 six months ended September 30, 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.

Recent Accounting Pronouncements

In ~~July~~September 2006, the FASB issued ~~Interpretation~~FASB Statement No. 48157, “~~Accounting~~Fair ~~for~~Value ~~Uncertainty in Income Taxes~~Measurements” (~~FIN~~“FAS 48157”), which ~~clarifies~~provides ~~the~~enhanced ~~accounting~~guidance for ~~uncertainty~~using infair ~~income~~value ~~taxes~~to ~~recognized~~measure inassets aand ~~company’s financial statements in accordance with FASB Statement No~~liabilities. ~~109,~~ ~~“Accounting~~FAS ~~for~~157 ~~Income~~clarifies ~~Taxes.”~~the ~~This~~principle ~~interpretation~~that ~~prescribes~~fair avalue ~~recognition~~should ~~threshold~~be ~~and~~based ~~measurement~~on ~~attribute~~assumptions ~~for~~market ~~the~~participants ~~financial~~would ~~statement~~use ~~recognition~~when ~~and~~pricing ~~measurement~~an ofasset ~~a tax position taken~~ or ~~expected to be taken in a tax return~~liability. ~~FIN~~Under 48FAS ~~also provides guidance on de-recognition of tax benefits~~157, ~~classification~~fair onvalue ~~the~~measurements ~~balance~~would ~~sheet,~~be ~~interest~~separately ~~and~~disclosed ~~penalties,~~by ~~accounting~~level inwithin ~~interim~~a ~~periods,~~fair ~~disclosure,~~value ~~and transition~~hierarchy. The ~~Company~~adoption ~~adopted~~of ~~FIN~~FAS ~~48 effective~~157 on April 1, ~~2007.~~2008 Asdid anot ~~result~~have ofa ~~the~~material ~~adoption~~impact ofon ~~FIN 48,~~ the Company ~~has $12.9 million of unrecognized tax benefits recorded. Of this $3.0 million would affect the Company~~’s ~~effective~~financial ~~tax rate~~position, ifresults ~~recognized. Of this amount, less~~of ~~than~~operations ~~$0.1~~or ~~million~~cash ~~was recorded as a reduction to the April 1, 2007 retained earnings balance~~flows.

~~The~~In ~~Company~~February ~~files~~2007, ~~numerous~~the ~~income~~FASB ~~tax returns~~issued inFASB ~~the~~Statement UNo.S. 159, at“The ~~the~~Fair ~~federal,~~Value ~~state~~Option for Financial Assets and ~~local~~Financial ~~levels,~~Liabilities—Including ~~and~~an inAmendment ~~certain~~of ~~foreign~~FASB ~~jurisdictions~~Statement No. 115” ~~The~~(“FAS ~~Company~~159”). ~~has~~FAS ~~analyzed~~159 ~~filing~~expands ~~positions~~the inuse ~~all~~ of ~~the~~fair ~~federal,~~value ~~state~~accounting ~~and~~but ~~foreign~~does ~~jurisdictions~~not ~~where~~affect itexisting isstandards ~~required~~which torequire ~~file~~assets ~~income~~or ~~tax~~liabilities ~~returns,~~to asbe ~~well~~carried asat ~~all~~fair ~~open~~value. ~~tax~~Under ~~years~~FAS in159, ~~these~~a ~~jurisdictions.~~company ~~With~~may ~~few~~elect ~~exceptions,~~to ~~the~~use ~~Company~~fair isvalue noto ~~longer~~measure ~~subject~~accounts toand ~~U.S.~~loans ~~federal~~receivable, ~~state~~available-for-sale and held-to-maturity securities, ~~local~~equity method investments, oraccounts ~~foreign~~payable, ~~income~~guarantees ~~tax~~and ~~examinations~~issued bydebt. ~~taxing~~Other eligible ~~authorities~~items include firm commitments for ~~years~~financial ~~prior~~instruments tothat ~~the~~otherwise ~~fiscal~~would ~~year~~not ~~ended~~be ~~March 31, 2004.~~recognized ~~The~~at ~~Company~~inception and non-cash warranty obligations where a warrantor is ~~not~~permitted ~~currently~~to ~~under~~pay ~~audit~~a bythird party to provide the ~~Internal~~warranty ~~Revenue~~goods ~~Service~~or ~~but~~services. isIf the ~~currently~~use ~~under~~of ~~audit~~fair invalue ~~certain~~is ~~state~~elected, ~~and~~any ~~local~~upfront ~~jurisdictions.~~costs ~~Returns~~and ~~filed~~fees inrelated to the ~~United~~item ~~Kingdom~~must ~~for~~be ~~tax~~recognized ~~years~~in ~~ended~~earnings ~~March 31,~~and ~~2005~~cannot ~~and~~be ~~2006~~deferred, ~~are~~e.g., ~~currently under~~debt ~~review~~issue costs. WeThe ~~have~~fair ~~filed~~value ~~claims~~election inis ~~certain~~irrevocable ~~jurisdictions~~and togenerally ~~assert~~made ~~our~~on ~~position~~an ~~should~~instrument-by-instrument basis, ~~the~~even ~~law~~if bea ~~clarified~~company byhas ~~judicial~~similar ~~means~~instruments that it elects not to measure based on fair value. At ~~this~~the ~~point~~adoption ~~in time~~date, weunrealized ~~believe~~gains itand islosses ~~unlikely~~on ~~that~~existing weitems ~~will~~for ~~receive~~which ~~any~~fair ~~benefit~~value ~~from~~has ~~these~~been ~~claims,~~elected ~~but~~are wereported ~~will continue~~as a cumulative adjustment to beginning ~~monitor~~retained ~~developments~~earnings. ~~until~~Subsequent to the ~~issues~~adoption of FAS 159, changes in fair value are ~~fully~~recognized ~~resolved~~in earnings. ~~Accordingly~~The adoption of FAS 159 on April 1, we2008 ~~have~~did not ~~included~~have ~~any~~a ~~benefit~~material ~~for~~impact ~~these~~on ~~claims~~the inCompany’s ~~the~~financial ~~amount~~position, results of operations ~~unrecognized~~or ~~tax~~cash ~~benefits~~flows.

As18 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 statues in various jurisdictions and amended returns in the U.K.

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 September 30, 2007, the Company has accrued $0.6 million of interest and penalties related to unrecognized tax benefits.

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

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

~~Interest~~Not ~~Rate~~applicable ~~Risk~~

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

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

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

We also had a credit facility with Bank of America (the “BofA Credit Facility”) that was to expire on January 4, 2009, to provide a $50.0 million, senior secured revolving credit facility, which includes a $30.0 million sublimit for standby and documentary letters of credit. The BofA Credit Facility bore interest at an annual rate equal to, at our option, (a) the sum of the rate of interest publicly announced from time to time by Bank of America as its prime or base rate of interest plus the applicable margin thereon or (b) the sum of LIBOR for interest periods at our option of one, two, three or nine months plus the applicable margin thereon. The Company terminated this agreement on June 25, 2007.

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

Market Risk

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

Item 4.

Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (principal executive officer) and ~~Chief~~Principal ~~Financial~~Accounting 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~~Principal ~~Financial~~Accounting Officer, evaluated the effectiveness of of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), at ~~September~~December 3031, ~~2007~~2008. Based on that evaluation, our Chief Executive Officer and ~~Chief~~Principal ~~Financial~~Accounting Officer concluded that, at ~~September~~ December 3031, ~~2007~~2008, (i) our disclosure controls and procedures were effective and (ii) no change in internal control over financial reporting occurred during the quarter ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

~~Changes~~19 ~~in Internal Control Over Financial Reporting~~

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

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)~~European ~~plan~~tax matters during the ~~six~~nine months ended ~~September~~December 3031, ~~2007~~2008.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

Litigation: In On June 27, ~~2003~~2008, ~~Danka~~ ~~was~~DCML ~~served~~LLC ~~with~~(“DCML”), athe ~~class~~beneficial ~~action~~owner ~~complaint~~of ~~titled~~approximately ~~Stephen L~~8.1% ~~Edwards,~~of etthe ~~al.,~~Company’s ~~Plaintiffs~~outstanding ~~vs.~~ordinary ~~Danka Industries~~shares, ~~Inc.,~~filed eta ~~al.,~~complaint ~~including~~in ~~American~~the ~~Business~~U.S. ~~Credit~~District ~~Corporation,~~Court ~~Defendants,~~for ~~alleging~~the ~~claims~~Southern District of ~~breach~~New ofYork ~~contract,~~against ~~fraud/intentional misrepresentation~~the Company, its ~~unjust~~board ~~enrichment~~of directors, ~~violation~~and one of the ~~Florida~~holders ~~Deception~~of ~~and~~the ~~Unfair~~Company’s ~~Trade~~6.50% ~~Protection~~senior ~~Act~~convertible ~~and~~participating ~~injunctive~~shares ~~relief~~(collectively, the “defendants”). The ~~claim~~case ~~was~~bears ~~filed~~the incaption ~~the~~DCML ~~state~~LLC ~~court~~v. inDanka ~~Tennessee~~Business System Plc, ~~and~~et al., No. 08 Civ. 5829 (SAS). The complaint alleges that the Company ~~has~~and ~~removed~~its ~~the~~board ~~claim~~of todirectors ~~the~~violated ~~United~~Section 14(a) ~~States~~of ~~District Court~~the ~~for~~Securities ~~Middle~~Exchange ~~District~~Act of ~~Tennessee~~1934 ~~for~~and ~~further~~Rule ~~proceedings.~~14a-9 ~~The~~thereunder ~~plaintiffs~~in ~~have~~connection ~~filed~~with athe ~~motion~~proxy statement and supplement to proxy ~~certify~~statement issued by the ~~class,~~Company ~~which~~to solicit votes with respect to the ~~Company~~sale ~~has~~of ~~opposed.~~Danka ~~The~~Office Imaging Company ~~had~~(“DOIC”), ~~filed~~ a ~~motion~~proposed ~~for~~members ~~summary~~voluntary ~~judgment~~liquidation and related proposals, which ~~plaintiffs~~were ~~had~~voted ~~opposed.~~on ~~On October 13,~~by ~~2006,~~Danka ~~the~~shareholders ~~United~~at ~~States~~an extraordinary ~~District~~general ~~Court~~meeting ~~for~~held ~~the~~on ~~Middle~~June 27, ~~District~~2008. ofThe ~~Tennessee~~complaint ~~granted~~also ~~Danka~~alleges that the Company’s ~~motion~~board ~~for~~of ~~summary~~directors ~~judgment~~breached ~~and~~its ~~dismissed~~fiduciary ~~the~~duties ~~Plaintiff’s claims~~to ~~regarding~~ordinary ~~shipping~~shareholders ~~and~~by, ~~handling~~among ~~charges~~other things, ~~which~~recommending ~~served~~that asDanka ~~the~~shareholders vote ~~basis~~in favor of the ~~putative~~sale ~~class~~of ~~claim. The~~DOIC, ~~U.S.~~the ~~District~~proposed ~~Court~~members ~~ruling~~voluntary ~~effectively~~liquidation ~~defeats~~and ~~the~~related ~~Plaintiff’s~~proposals. ~~ability~~The ~~to represent a~~complaint ~~class~~seeks, oramong ~~serve~~other asthings, aunspecified ~~potential~~compensatory ~~class member~~damages. On July ~~The~~9, ~~Plaintiff’s~~2008, ~~remaining~~the ~~claim~~plaintiff ~~has~~filed ~~not~~an ~~been~~amended complaint. On ~~resolved~~August 22, ~~but~~2008, ~~its~~Danka ~~resolution,~~and ~~even~~other ifdefendants ~~adverse~~filed both a motion to dismiss the ~~Company,~~complaint isand ~~not~~a ~~expected~~motion tofor ~~have~~sanctions aagainst ~~material~~DCML ~~impact~~pursuant onto ~~the~~Federal ~~Company’s~~Rule ~~financial~~of ~~condition~~Civil Procedure 11. On September ~~The Company~~5, ~~does~~2008, ~~not~~defendant ~~know~~Cypress ~~whether~~Merchant ~~the~~Banking Partners ~~Plaintiff~~II, ~~will attempt~~L.P., filed a motion to ~~appeal~~dismiss the ~~ruling dismissing~~complaint. On November 26, 2008, the ~~claim~~court ~~relating~~issued toan ~~shipping~~opinion and ~~handling~~order ~~charges.~~granting ~~The~~defendants’ ~~Company~~motion ~~will~~to ~~continue~~dismiss tothe ~~vigorously~~case ~~defend~~and ~~the~~denying ~~claims~~defendants’ ~~alleged~~motion byfor ~~the~~sanctions. ~~plaintiff~~The indeadline ~~this~~for DCML ~~action~~to file an appeal has passed.

Item 1A.

Risk Factors

Not applicable.

Item 2.

Changes in Securities and Use of Proceeds

Not applicable.

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

Submission of Matters to a Vote of Security Holders

The Annual general meeting of the shareholders of Danka Business Systems PLC was held on ~~September~~October 531, ~~2007~~2008. At the meeting, the following actions were taken by the shareholders:

1. ~~Erik~~Kevin ~~Vonk~~C. Daly was elected as Director of the Company. The voting on the resolution was as follows:

FOR	52128,~~471~~777,~~172~~784	54.2	%
AGAINST	9108,~~140~~402,~~819~~482	45.7	%
ABSTAIN	3136,~~204~~496	00.1	%

2. David J. ~~Ernest~~Downes ~~Riddle~~ was elected as Director of the Company. The voting on the resolution was as follows:

FOR	59128,~~585~~825,~~636~~132	54.3	%
AGAINST	~~433~~108,~~111~~366,444	45.6	%
ABSTAIN	3125,~~204~~596	00.1	%

363. W. Andrew McKenna was elected as Director of the Company. The voting on the resolution was as follows:


FOR	128,848,756	54.3	%
AGAINST	108,343,536	45.6	%
ABSTAIN	124,880	00.1	%

34. ~~Ernst~~J. &Ernest ~~Young~~Riddle ~~LLP~~ was ~~re-appointed~~elected as ~~our~~Director ~~auditor for fiscal year 2008, and the Board~~ of ~~Directors, or duly appointed Committee there of, was authorized to fix~~ the ~~auditor’s remuneration~~Company. The voting on the resolution was as follows:

FOR	60128,~~166~~777,~~914~~300	54.2	%
AGAINST	1108,~~443~~412,~~820~~680	46.7	%
ABSTAIN	4127,~~861~~192	00.1	%

45. ~~The~~Ernst ~~Director’s~~& ~~Remuneration~~Young ~~Report~~LLP was re-appointed as our auditor for fiscal year ~~2007~~2009, and the Board of Directors, or duly appointed Committee there of, was ~~approved~~authorized to fix the auditor’s remuneration. The voting on resolution was as follows:

FOR	55174,~~018~~293,~~397~~368	73.4	%
AGAINST	662,~~593~~905,~~096~~112	26.5	%
ABSTAIN	4118,~~102~~692	00.1	%

The Director’s Remuneration Report for fiscal year 2008 was approved. The voting on resolution was as follows:


FOR	123,945,264	52.2	%
AGAINST	113,165,640	47.7	%
ABSTAIN	206,264	00.1	%

Item 5.

Other Information

None.

Item 6.

Exhibits

(a)

Exhibits.

Exhibit No.		Description
31.1		Certification of ~~CEO~~Chief Executive Officer (Principal Executive Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of ~~CFO~~Principal Accounting Officer (Principal Financial Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of ~~CEO~~Chief Executive Officer (Principal Executive Officer) 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~~Principal Accounting Officer (Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

3722

SIGNATURE

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

		Danka Business Systems PLC
		(Registrant)
Date: November 6, 2007		/s/ Edward K. Quibell
Date: February 17, 2009		/s/ A.D. Frazier
		Edward K. Quibell
		A.D. Frazier
		Chief Financial Officer
		Chief Executive Officer (Duly Authorized Officer and Principal Executive Officer)
		/s/ Mary K. Priolo
		Mary K. Priolo
		Principal Accounting Officer (Principal Financial Officer)

Exhibit Index

Exhibit No.		Description
31.1		Certification of ~~CEO~~Chief Executive Officer (Principal Executive Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of ~~CFO~~Principal Accounting Officer (Principal Financial Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of ~~CEO~~Chief Executive Officer (Principal Executive Officer) 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~~Principal Accounting Officer (Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

3823

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