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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)

for the fiscal year ended March 31, 2004.

for the transition period from              to             .

Commission file number: 0-20828

DANKA BUSINESS SYSTEMS PLC

(Exact name of registrant as specified in its charter)

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE:

(727) 622-6003 in the United States

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

Securities registered pursuant to Section 12(g) of the Act:

Ordinary Shares

1.25 p each

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or an amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  x    No  ¨

The aggregate market value of voting shares held by non-affiliates of the registrant as of September 30, 2003 was $151,247,078 based on the average bid and asked prices of American Depositary Shares or ADSs, as quoted on the NASDAQ SmallCap Market. As of June 1, 2004, the registrant had 251,006,895 ordinary shares outstanding, including 49,033,707 represented by ADSs. Each ADS represents four ordinary shares. The ADSs are evidenced by American depositary receipts.

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DANKA BUSINESS SYSTEMS PLC

Annual Report on Form 10-K for March 31, 2004

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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

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

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RISK FACTORS

Business Strategy—We believe that in order to stay competitive and generate positive earnings and cash flow, we must successfully implement the strategies discussed elsewhere in this annual report.

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

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.

Profitability—We generated an operating loss from continuing operations during the year ended March 31, 2004 (fiscal 2004) of $34.5 million compared to operating earnings from continuing operations of $44.9 million in the prior year. The operating loss from continuing operations for fiscal year 2004 included a $50.0 million restructuring charge.

We believe that our results for fiscal year 2004 were impacted in large part by:

If we continue to incur losses 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 generate sufficient cash flow from operations to pay principal or interest when due.

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Restructuring of Operations—We have implemented a plan to reduce costs in order to become competitive within our industry. This cost reduction plan involves, among other things, significant headcount reductions, the exit of certain non-strategic facility locations and the consolidation of many back-office functions into more centralized locations. If we fail to successfully implement our cost restructuring plan, including the timely sublease of vacant facilities, and fail to achieve our other long-term cost reduction goals, then we may not reduce costs quickly enough to become competitive within our industry, 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 and operating results.

Economic Uncertainty—The profitability of our business is susceptible to uncertainties in the global economy. Overall demand for our products and services and their profit margins may decline as a direct result of an economic recession, inflation, interest rates or governmental fiscal policy. As a result, our customers may reduce or delay capital expenditures for our products and services.

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 worldwide with significant technological, distribution and financial resources. Competition in our industry is based largely upon technology, performance, pricing, quality, reliability, distribution, customer service and support and lease and rental financing. In addition, our equipment suppliers continue to establish themselves as direct competitors in many of the areas in which we do business.

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 customer’s needs and demands. Furthermore, some of our principal competitors design and manufacture new technology, which may give them a competitive advantage over us.

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 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 that we can obtain 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.

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

Additionally the competitive environment creates a risk of employee retention, especially in the sales and service areas. This risk could lead to increased turnover of employees or increased compensation expense.

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, MFPs and printers. Most of our digital products replace analog products, which have historically been a significant percentage of our MIF. Digital copiers and MFPs are increasingly more reliable than analog copiers and require less maintenance. This has contributed, in part, to a decline in our service contract revenue, which has traditionally formed a significant portion of our revenues. Moreover, color printing and copying represents an important and growing part of our industry. We must improve our execution of color sales and meet the demand for color products if we are to maintain and improve our operating performance and our ability to compete.

Another industry change that has been fueled by technological changes, such as the advent of e-mail and the Internet, is the migration of copy volume from traditional stand-alone copiers to network printers as end users

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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 provide comprehensive solutions to our customers, such as offering digital copiers, MFPs and printers that are directly linked to their networks, in order to remain competitive. Finally, the speed of technological changes has caused us in the past, and may cause us in the future, to accelerate the write down of our inventory, including, but not limited to, showroom, rental and other equipment and related supplies and parts including parts and supplies for our TechSource initiative, 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 and related sales are financed by third party finance or leasing companies. With respect to our qualified United States customers, we have an agreement with General Electric Capital Corporation, or GECC, under which GECC has agreed to provide financing to our United States customers to purchase equipment from us. Although we have other financing arrangements in place, GECC finances a significant part of our United States 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. With respect to our customers outside the United States, we have country by country arrangements with various third party finance and leasing companies.

If we were to breach the covenants or other restrictions in our agreements with one or more of our financing sources, including GECC, then such source might refuse to provide financing to our customers. If one or more of our financing sources were to fail to provide financing to our customers, those customers might be unable to purchase equipment from us if we were unable to arrange alternative financing arrangements on similar terms or provide financing ourself. 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—GECC Arrangement.”

Information Systems—Our European and International operations run on numerous disparate legacy IT systems that are outdated and incompatible. The operation and coordination of these management information systems and billings systems are labor intensive and expensive. As such, we are evaluating what information system investments we should make for the countries within our European and International operations. We have determined that we need to upgrade our information systems in Italy, Germany, the United Kingdom, France, Austria, the Netherlands and other countries and expect to spend approximately between $6 million and $10 million for such upgrades. The failure to solve our management information and billing system problems in our European and International divisions could materially and adversely affect our business, financial position or results of operations.

Due to the delayed investment in our information systems, we have not properly invested in world-wide disaster recovery systems. In the event that one or more of our business systems were to fail, we would be at risk of losing valuable business knowledge in the locations where the failure occurred.

Business Processes and Policies—Our rapid expansion through acquisitions, past financial difficulties and a historical lack of focus on and investment in our information systems have impeded our ability to develop and implement internal controls and business processes consistently and enforce policies effectively. We have identified instances where our business processes and policies have not been properly implemented or followed in the past, which have resulted in, among other things, poor billing and credit practices, weak customer contract management, excessive and undisciplined issuances of customer credits, inaccurate customer data, inconsistent customer contract terms and conditions, inadequate document retention and inconsistent lease classification. While we believe that some of these issues that relate to the United States have been addressed with the implementation of new manual internal control procedures and the implementation of our Oracle ERP system,

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which is configured with better system internal controls, there is no assurance that all of these issues will be completely corrected by such changes.

Vendor Relationships—We primarily have relationships with Canon, Ricoh, Toshiba, Nexpress, Kodak and Konica. 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 and for financial support in certain competitive transactions and markets which may include vendor rebates and market development funds. An 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 lack of vendor support 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.

International Scope of Operations—Danka Business Systems PLC (also referred to herein as “Danka” or the “Company”) is incorporated under the laws of England and Wales, and we conduct a significant portion of our business outside of the United States. We generated 51% of our revenue outside the United States during fiscal year 2004. We market office imaging equipment, document solutions and related services and supplies directly to customers in 23 countries. The international scope of our operations may lead to volatile financial results and difficulties in managing our operations because of, but not limited to, the following:

With respect to our international operations that are experiencing difficulties as described above, we continue to evaluate the viability and future prospects of these businesses. Further, should we decide to downsize or exit any of these businesses, we could incur costs relating to severance and closure of facilities, and we may also be required to recognize cumulative translation losses that would reduce our earnings. We disposed of our Hungarian operations in the third quarter of fiscal year 2004 and our Polish operations in the fourth quarter of fiscal year 2004.

Any of these factors could materially and adversely affect our business, financial condition or results of operations.

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Currency Fluctuations—As a multinational company, changes in currency exchange rates affect our revenues, cost of sales and operating expenses. In addition, fluctuations in exchange rates between the United States dollar and the currencies in each of the countries in which we operate affect the results of our operations and the value of the net assets of our non-United States operations when reported in United States dollars in our United States financial statements. These fluctuations may negatively impact our results of operations or financial condition or, in some circumstances, may positively impact our results of operations disproportionately to underlying levels of actual growth or improvement in our businesses.

We generated 51% of our revenues outside the United States during fiscal year 2004, with the majority of these revenues denominated in either the euro or United Kingdom pound. During fiscal year 2004, the euro strengthened 18.4% against the United States dollar and the United Kingdom pound strengthened 9.5% against the United States dollar with significant positive effects on our reported revenue and income.

Further, our intercompany loans are subject to fluctuations in exchange rates between the United States dollar and the currencies in each of the countries in which we operate, primarily the euro and the United Kingdom pound. Based on the outstanding balance of our intercompany loans at March 31, 2004, a change of 1% in the exchange rate for the euro and United Kingdom pound, would cause a change in our foreign exchange gain of approximately $0.3 million.

Moreover, we pay for some inventory in euro countries in United States dollars, but we generally invoice our customers in such countries in euros. If the euro weakens against the United States dollar, our operating margins and cash flow may be negatively impacted when we receive payment in euros but we pay our suppliers in United States dollars.

We generally do not hedge our exposure to changes in foreign currency.

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

Indebtedness—At March 31, 2004, we had consolidated long-term indebtedness, including current maturities of long-term debt, of $244.0 million which included $64.5 million in principal amount of 10% subordinated notes due April 1, 2008, or the subordinated notes, and $175.0 million in principal amount of senior notes, less unamortized discount of $3.8 million, or the senior notes. The subordinated notes have interest which is paid every six months on April 1 and October 1 while the senior notes have interest payable every six months on June 15 and December 15, which commenced December 15, 2003.

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

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Senior Notes and Other Covenants—The indenture governing our senior notes, the $50 million senior secured revolving credit facility with Fleet Capital Corporation or Fleet credit facility and the €25 million ABN Amro Bank credit facility or ABN credit facility, contain covenants that, among other things, limit our ability to: incur additional indebtedness or, in the case of our restricted subsidiaries, issue preferred stock; create liens; pay dividends or make other restricted payments; make certain investments; sell or make certain dispositions of assets or engage in sale and leaseback transactions; engage in transactions with affiliates; place restrictions on the ability of our restricted subsidiaries to pay dividends, or make other payments to us; engage in certain business activities; and engage in mergers or consolidations. In addition, the indenture governing the senior notes may require us to use a portion of our excess cash flow (as defined in the indenture) to repay other senior indebtedness or offer to repurchase the senior notes.

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 management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. We also maintain internal controls that are designed with the objective of providing 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 financial statements in conformity with generally accepted accounting principles.

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 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 some persons, by collusion of two or more people, 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 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 conditions in the capital markets generally. 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 UK GAAP:

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As of the date of filing of this annual report we have insufficient accumulated realized profits to pay dividends on our ordinary shares. In addition, our Fleet credit facility prohibits us from paying dividends on our ordinary shares without our lenders’ consent, and the indenture governing the senior notes restricts our ability to pay such dividends. Also, we may only pay dividends on our ordinary shares 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 or as paper copies 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 Annual Report on Form 10-K.

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PART I

ITEM 1.    BUSINESS

Based on revenue, we are one of the largest independent providers of office imaging equipment, document solutions and related services and supplies in the United States and Europe. We offer a wide range of state of the art office imaging products, services, supplies and solutions that primarily include digital and color copiers, digital and color multifunction peripherals, or MFPs, facsimile machines and software. We also provide a wide range of contract services, including professional and consulting services, maintenance, supplies, leasing arrangements, technical support and training on the installed base of equipment created primarily by our retail equipment and related sales. We operate in 23 countries and employ approximately 7,700 individuals. We generated approximately 49%, 42% and 9% of our total revenue from the United States, Europe and other international areas, respectively, for fiscal year 2004.

Our revenue is generated from two primary sources: (1) new retail equipment and related sales and (2) service and supply contracts. We primarily sell Canon products in the United States and Ricoh products, on a retail and wholesale basis under our proprietary Infotec tradename, in Europe. We also sell other brands, including Heidelberg/Nexpress, Toshiba, Konica-Minolta and H-P. A significant portion of our retail equipment and related sales are made to existing customers, and nearly all are sold with a service or supply contract. In the United States, these contracts typically have an initial term of one to three years and renew on an annual basis thereafter, whereas in Europe, these contracts typically have a term of one to five years. A large majority of our retail equipment and related sales are financed by third party finance or leasing companies. For fiscal year 2004, retail equipment and related sales accounted for approximately 35% of our total revenue.

Our marketing and selling efforts target the mid- to high-volume black and white image market, which is concentrated in machines that can produce from 31 to greater than 91 copies per minute, and the growing color image market. Within these markets, our primary products include state of the art digital and color copiers and MFPs that photocopy, print, scan and fax information and related software and service.

We have a world-wide installed machine base of analog and digital copiers and MFPs of approximately 299,000 units, which we refer to as machines in field, or MIF, which generate monthly recurring revenues under our service contracts. Our service revenue generated from these contracts is closely correlated to the number, type and mix of analog, digital and digitally-connected machines in our MIF. In fiscal year 2004, our service revenue accounted for approximately 48% of our total revenue.

We are a public limited company organized under the laws of England and Wales and we were incorporated on March 13, 1973.

Our Industry

The office imaging industry consists of the production and supply of various imaging products, as well as the provision of after-market products and services. The global digital printing peripherals equipment market, excluding services, is estimated to be $50-60 billion in 2004, segmented approximately equally between the United States, Europe and the rest of the world.

The office imaging industry is comprised of large office equipment manufacturers, independent distributors and, as technologies continue to evolve, traditional desktop and network printer companies. Office imaging products are sold primarily through five channels of distribution: distributors, original equipment manufacturers, or OEMs, independent dealer sales, retail sales and direct manufacturer sales. Distributor and independent dealer sales result from customer calls performed by independent dealer outlets that generally sell manufacturer-branded products. Retail sales include sales of low-end products typically through national retail outlets or smaller local dealers. Direct sales by office equipment manufacturers involve the marketing of products by sales representatives working directly for the manufacturer.

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The office imaging industry within the United States is generally represented by the following six black & white “digital segments,” two color segments and a new category of “color capable” systems that are designed to produce primarily black & white images, and have the added capability to produce “office color” images at lower speeds.

There are several trends that are prevalent in the office imaging industry, including:

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Products and Services

Office Imaging Systems

We offer a large selection of the top brands of office imaging products as part of our document solutions packages. These products represent a full complement of digital and color copiers, digital and color MFPs and facsimile machines, as well as print management software and related parts and supplies.

In the United States, we sell high volume, segments 5 and 6 products, which include the Heidelberg Digimaster, Canon iR 105, as well as the Toshiba e-Studio series of digital products. In the mid-volume segments 3 and 4, we sell the full range of Canon iR and Toshiba e-Studio series digital copiers and MFPs. In the color segment, we sell the Canon CLC series of products as well as the Toshiba e-Studio line of color products. In addition, we sell a full complement of front end print server equipment and a portfolio of applications software which enhances the features and functions of the equipment. For example, among other things, certain of these software products:

In Europe, we sell the Heidelberg Digimaster, as well as high volume products manufactured by Ricoh under our Infotec brand name, and Toshiba. In the color segment, we sell the Canon CLC series of products. We also sell a full range of Ricoh/Infotec and Toshiba e-Studio products in the mid-volume range in Europe, where we also sell a full portfolio of print server equipment and software with the capabilities described above.

We sell a variety of products in our International segment, where in most countries we have regional relationships with equipment manufacturers. For example, in Canada we sell primarily Canon and Toshiba digital equipment. In Mexico, we sell Toshiba digital products and, like some of the other Latin America countries, which have been slower to make the analog to digital transition, we market refurbished equipment primarily on a rental basis. We are beginning to market solutions and software in some of these countries where we have been able to establish a base of digital equipment.

Technical Services

We also offer a broad range of field technical services which primarily involve the service and maintenance of our MIF. Our worldwide network of field engineers is dedicated to insuring that customers get maximum up time from their investment in our office imaging systems. Each field engineer is highly trained and capable of servicing multiple equipment brands, including Canon, Ricoh, Toshiba, Hewlett-Packard, Nexpress, Lexmark and others. Additionally, each field engineer is equipped with the experience, training, tools and parts necessary to insure that customers are provided with rapid response time and first-time fix capability. Field engineers have access to a computerized warehouse system that stocks thousands of parts for immediate delivery to customers, and are equipped with laptop computers which contain reference materials and diagnostic software to assist with the early resolution of customer issues.

In the large majority of our sales of office imaging systems, our customers also purchase a service contract which gives them access to our field technical engineers. We also receive referrals for technical services from OEMs for products they sell. This gives our customers immediate access to the best possible response to issues pertaining to their equipment, networking platforms, applications software and operating systems. Our technical services organization gives us broad service capabilities in the locations in which we do business and a competitive advantage as it allows us to offer our services on a multinational basis.

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We generally offer our technical services pursuant to contracts. Our service and supply contracts typically have an initial term of one to three years and renew on an annual basis thereafter. New systems, as designed by manufacturers, are increasingly incorporating new technology into their MFP’s, that permit field maintenance to be performed by replacing key components with field replaceable units, or FRU’s. This trend may result in customer’s requesting additional flexibility in their maintenance contracts that permits higher levels of self maintenance, and may impact the company’s service revenue model.

Value-Added Service Offerings

We offer a portfolio of value-added service offerings that provide our customers with efficiency and cost savings opportunities, as well as provide us with supplemental revenue streams. These value-added service offerings include the following:

Professional Services

Our Professional Services Group provides consulting services to our customers to help them reduce print costs, optimize the use of their office imaging equipment and improve their employees’ productivity by integrating our proven software solutions to leverage their investment in their imaging equipment. Expert guidance is provided by field-based personnel as well as our world-class Digital Solutions Center that replicates customer environments and provides advanced testing services. The group’s services include:

Danka @ the Desktop

Our Danka @ the Desktop system is designed to optimize the use of a customer’s digital copiers, MFPs and network printers by providing the customer product offerings with the most efficient printing solution. Danka @ the Desktop enables our professional and technical services to provide customers:

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TechSource

TechSource is our multi-vendor services offering to our clients whereby we provide all of their office equipment service needs, including everything from traditional copiers and printers to facsimile machines, scanners, MFPs, PCs, laptops, servers and network components. TechSource endeavors to consolidate customer contracts and provide a single point of contact for customers to obtain services on their full range of networked devices. TechSource leverages our benchmark Technical Services organization and our field engineers to provide many of these services, which include:

Training

We train many of our employees with assistance from our major manufacturing partners so that there is a uniform application of our operating procedures throughout our sales network. Upon employment, our United States sales representatives participate in an intensive information and skills training program at Danka University which is designed to train our sales personnel in providing value-added solutions to our customers. Most U.S. Danka associates have access to Danka University, and many are trained at the United States headquarters in St. Petersburg. The Danka University learning management system online site also hosts numerous training modules. After the initial training is completed, we continue to develop the skills and knowledge of our sales representatives by providing new product training, self-study computer based courses and ongoing sales skill development.

Field engineers and service technicians who are new to Danka are immediately trained and certified. Our service personnel are continuously trained on new technology developed by our equipment manufacturers. Our service training centers are certified at authorized service facilities by many of our equipment manufacturers. In addition, each field engineer carries state of the art service tools, including a laptop computer loaded with technical information and diagnostic software.

Our network and system support engineers receive ongoing training on industry standard certifications for office imaging equipment, as well as application software support from some of the leading technology companies, including Microsoft, Adobe Systems, Novell and Sun Microsystems.

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 worldwide with significant technological, distribution and financial resources. Competition in our industry is based largely upon technology, performance, pricing, quality, reliability, distribution, customer service and support and lease and rental financing. In addition, our equipment suppliers continue to establish themselves as direct competitors in many of the areas in which we do business. Some manufacturers of products in our industry have been consolidating in an attempt to gain market share and reduce costs. As such, the availability of certain products may become constrained or such products may become unavailable. Such consolidations may negatively impact our relationships with certain of our partners within the industry.

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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 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 that we can obtain for our products and may affect our ability to retain customers.

Employees

As of March 31, 2004, we employed approximately 7,700 persons, with approximately 3,600 in our U.S. segment, approximately 2,800 in our European segment and approximately 1,300 in our International segment.

Some of our non-U.S. employees are subject to labor agreements that, among other things, establish rates of pay and working hours. We consider our employee relations to be good. We believe that we provide working conditions and wages that are comparable to those of our competitors.

Trademarks and Service Marks

We believe that our trademarks and service marks have gained recognition in the office imaging and document management industry and are important to our marketing efforts. We have registered various trademarks and service marks. In particular, we believe that the trademarks “Danka,” “Infotec,” “TechSource” and “Danka @ the Desktop” are important to our ongoing business. Our policy is to continue to pursue registration of our marks whenever possible and to vigorously oppose any infringement of our proprietary rights. Depending on the jurisdiction, trademarks and service marks are valid as long as they are in use and/or their registrations are properly maintained, and they have not been found to become generic. Registrations of trademarks and service marks in the United States can generally be renewed indefinitely as long as the trademarks and service marks are in use.

Backlog

Backlogs are not material to our business.

ITEM 2.    PROPERTIES

Our general policy is to lease, rather than own, our business locations. We lease numerous properties for administration, sales, service and distribution functions and for our retail and wholesale operations. As of March 31, 2004, our principal facilities include 206,000 square feet of leased office space in St. Petersburg, Florida that we use for our U.S. and corporate operations. The terms vary under the leases. Some of our leases contain a right of first refusal or an option to purchase the underlying real property and improvements. In general, our lease agreements require us to pay our proportionate share of taxes, common area expenses, insurance and related costs of the rental properties.

Our management believes that the properties we occupy are, in general, suitable and adequate for the purposes for which they are used.

ITEM 3.    LEGAL PROCEEDINGS

In June 2003, we were served with a putative 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

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Tennessee, and we have sought to remove the claim to Federal court for further proceedings. The plantiffs have filed a motion to certify the class, which we have opposed. We have filed a motion for sumary judgement, which plantiffs have opposed. All such motions remain pending before the federal court. We intend to vigorously defend all claims alleged by the plaintiffs.

We are also subject to legal proceedings and claims which arise in the ordinary course of our business. We do not expect these legal proceedings to have a material effect upon our financial position, results of operations or liquidity.

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

No matter was submitted to a vote of security holders during the fourth quarter of fiscal year 2004.

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PART II

ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table sets forth the high and low sale price for our ADSs, as reported by the Nasdaq SmallCap Market and the high and low middle market quotations, which represent an average of bid and offered prices in pence, for the ordinary shares as reported on the Official List of the London Stock Exchange. Each ADS represents four ordinary shares.

As of May 17, 2004, 48,973,103 ADSs were held of record by 1,838 registered holders and 251,006,895 ordinary shares were held of record by 3,062 registered holders. Since some of the ADSs and ordinary shares are held by nominees, the number of holders may not be representative of the number of beneficial owners. We most recently paid a dividend to shareholders on July 28, 1998. We are an English company and we currently have insufficient profits, as determined under English law, to pay dividends on our ordinary shares. In addition, we are not currently permitted to pay dividends, other than payment-in-kind dividends on our participating shares, under our senior credit facility. We do not expect to pay dividends on our ordinary shares for the foreseeable future and any decision to do so will be made by our board of directors in light of our earnings, financial position, capital requirements, credit agreements, legal requirements and other such factors as our board of directors deems relevant.

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ITEM 6.    SELECTED FINANCIAL DATA

The following Selected Consolidated Financial and Other Data table sets forth our selected historical consolidated financial data for each of the fiscal years in the five-year period ended March 31, 2004, which were derived from our audited consolidated financial statements. The following data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes included elsewhere in this Annual Report.

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

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Footnotes to “SELECTED FINANCIAL DATA”

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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is provided as a supplement to the accompanying audited consolidated financial statements and footnotes to help provide an understanding of our financial condition, changes in financial condition and results of operations. The MD&A is organized as follows:

Overview.    This section provides a general description of our business, as well as recent significant transactions that have occurred during fiscal years 2004, 2003, and 2002 that we believe are important in understanding our results of operations, and anticipating trends in those operations.

Critical accounting policies and estimates.    This section discusses those accounting policies that both are considered important to our financial condition and results and require significant judgment and estimates on the part of management in their application. In addition, our significant accounting policies, including the critical accounting policies, are summarized in the notes to the accompanying audited consolidated financial statements.

Results of operations.    This section provides an analysis of our results of operations for all three years presented in the accompanying consolidated statement of operations. This analysis is presented on a consolidated basis. In addition, brief descriptions are provided of transactions and events that impact comparability of the results of operations being analyzed.

Exchange rates.    This section provides an analysis of where we operate and the impact foreign exchange rates have on our results of operations.

Liquidity and capital resources.    This section provides an analysis of our cash flows, as well as a discussion of our outstanding obligations and commitments, both firm and contingent, existing as of March 31, 2004. Included in the discussion of outstanding obligations is the amount of financial capacity available to fund our future commitments, as well as a discussion of other financial arrangements.

New accounting pronouncements.    This section discusses the impact on our prospective financial reporting of new financial accounting policies issued by the Financial Accounting Standards Board, the SEC or the Public Company Accounting Oversight Board.

OVERVIEW

Based on revenue, we are one of the largest independent providers of office imaging equipment, document solutions and related services and supplies in the United States and Europe. We offer a wide range of state of the art office imaging products, peripherals and solutions that primarily include digital and color copiers, digital and color MFPs, facsimile machines and software. We also provide a wide range of contract services, including professional and consulting services, maintenance, supplies, leasing arrangements, technical support and training on the installed base of equipment created primarily by our retail equipment and related sales. We operate in 23 countries and employ approximately 7,700 individuals.

Since fiscal year 2003, we focused our strategic efforts on positioning our business for profitable growth through the following initiatives:

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In the second half of fiscal year 2004, we formulated plans to significantly reduce our SG&A costs by consolidating our back-office functions in the United States, exiting non-strategic real estate facilities and reducing headcount in the United States, Europe and International businesses. As part of these plans, we recorded a $20.0 million restructuring charge in the third quarter of fiscal year 2004 that included $8.9 million related to severance for employees and $11.1 million related to future lease obligations for facilities that were vacated by December 31, 2003. In the fourth quarter of fiscal 2004, we recorded a $30.6 million restructuring charge that included $18.1 million related to severance for employees and $12.5 million related to future lease obligations for facilities that were vacated by March 31, 2004. As part of these cost reduction plans and other cost saving initiatives, the company expects to generate annual savings of approximately $51 million to $56 million, primarily resulting from headcount and facility reductions.

Our reportable segments are United States, Europe and International. Our reportable segments do not include the discontinued operations of Danka Services International (“or DSI”). With respect to our operations around the world that are experiencing difficulties, we continue to evaluate the viability and future prospects of these businesses. Further, should we decide to downsize or exit any of these businesses, we could incur costs in respect of severance and closure of facilities, and we may also be required to recognize cumulative translation losses that would reduce our earnings. We disposed of our Hungarian and Polish operations in fiscal year 2004.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our management strives to report our financial results in a clear and understandable manner, even though in some cases accounting and disclosure rules are complex and require technical terminology. We follow U.S. generally accepted accounting principles in preparing our consolidated financial statements contained elsewhere herein, which require us to make certain estimates and apply judgments that affect our financial position and results of operations. Our management continually reviews our accounting policies including how they are applied and how they are reported and disclosed in our financial statements. Following is a summary of our critical accounting policies and how they are applied in the preparation of our financial statements.

Allowance for Doubtful Accounts—We provide an allowance on our accounts receivable for estimated losses. Our estimates are based upon the aging of our receivable accounts and expected credits to our customers due to billing disputes and inaccuracies. If the financial condition of any of our customers were to deteriorate and result in the impairment of their ability to make payments to us or if actual credits exceed estimated credits, an additional allowance may be required. Subsequent to the implementation of our Vision 21/Oracle ERP system, we formulated a plan to validate the credits in our United States customer accounts from the legacy systems in the fourth quarter of fiscal year 2004. As part of this plan we issued account statements to some of our customers in the fourth quarter of fiscal year 2004. We anticipate that all customers will receive a statement by the end of the first quarter of fiscal year 2005. After allowing time for statement reconciliations, we will true-up customers’

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credit balances in the second quarter of fiscal year 2005. The following table summarizes our net accounts receivable.

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. The transition of our industry from analog to digital photocopiers has resulted in the obsolescence of some of our retail equipment, supplies and parts. Additional obsolescence could occur for some of our remaining retail equipment, supplies and parts, particularly as it relates to our Kodak installed base, which is primarily analog. We have provided appropriate reserves against these 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 office imaging equipment, additional inventory write-downs may be required. Our estimates are influenced by a number of considerations including, but not limited to, the following: decline in demand due to economic downturns, rapid product improvements and technological changes, and our ability to return to vendors a certain percentage of our purchases.

Revenue Recognition—Wholesale and retail equipment and related sales are recognized upon acceptance of delivery by the customer. In the case of equipment sales financed by third party finance/leasing companies or financed by us, retail equipment and related sales are recognized upon acceptance of delivery by the customer and credit acceptance by the finance/leasing company or us, if later. In addition, for the sale of certain digital equipment that requires a comprehensive setup by us before it can be used by a customer, such as a Heidelberg 9110/9150 or equivalent type of equipment, revenue is recognized upon acceptance of delivery and installation by the customer and written confirmation of installation by a company representative. 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.

Rental operating lease income is recognized straight-line over the lease term. Retail service revenues, which includes TechSource service contract revenues are generally recognized ratably over the term of the underlying maintenance contracts. Under the terms of the retail service contract, the customer is billed a flat periodic charge and/or a usage-based fee. We record revenue for the flat periodic charge each period and for actual or estimated usage every period.

Deferred Income Taxes—As part of the process of preparing our consolidated financial statements, we have to estimate our income and corporation taxes in each of the taxing jurisdictions in which we operate. This process involves estimating our actual current tax expense/loss carryforwards together with assessing any temporary differences resulting from the different treatment of certain items, such as the timing for recognizing revenues and expenses for tax and accounting purposes. These differences and loss carryforwards may result in deferred tax assets and liabilities, which are included in our consolidated balance sheet.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary

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differences become deductible. Our past financial performance is a significant factor which contributes to our inability, pursuant to Statement of Financial Accounting Standards 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. Due to the inability to use projections of future taxable income in making its assessment in most jurisdictions and changes in available tax planning strategies, management concluded that it is not “more likely than not” we will realize the benefits of the deferred tax assets at March 31, 2004 in most jurisdictions and, therefore, a valuation allowance has been recorded to reserve our deferred tax assets at March 31, 2004.

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 review our goodwill and indefinite-lived intangible assets annually for possible impairment, or more frequently if impairment indicators arise. Separable intangible assets that have finite lives are amortized over their estimated useful lives.

We had goodwill of $282.4 million as of March 31, 2004. If it is determined under Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) that our goodwill is impaired, we will be required to write-down the value of such goodwill in amounts that could be material.

We performed our annual impairment test during the fourth quarter of our fiscal year 2004, under the requirements of SFAS 142. Based on the results of that impairment test, no adjustments for impairment were necessary.

Accounting for Stock Based Compensation—As permitted by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) we account for our stock option plans under the intrinsic value recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. As the exercise price of all options granted under these plans was equal to the market price of the underlying common stock on the grant date, no stock-based employee compensation cost is recognized in net earnings. In general, these options expire in ten years and vest over three years. The proceeds from options exercised are credited to shareholders’ equity (deficit).

For disclosure purposes we compute the impact to earnings (loss) of stock-based compensation using the Black-Scholes option pricing model. SFAS 123 requires the use of option pricing models that were not developed for use in valuing employee stock options. The Black-Scholes option pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option pricing models require the input of highly subjective assumptions, including the option’s expected life and price volatility of the underlying stock. Because our stock options have characteristics significantly different from those traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing model does not necessarily provide a reliable single measure of the fair value of employee stock options.

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RESULTS OF OPERATIONS

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

The following table sets forth for the periods indicated the change in our revenue from the prior year:

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

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The following tables set forth for the periods indicated the revenue, gross profit, operating earnings (loss) from continuing operations, capital expenditures, depreciation and amortization, assets and long-lived assets for each of our operating segments: