-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NqwLIPfzLPSeg/CA+G07r+v7eoav820c7DwXJTLg8NeE1QHdF1Nz22vRNpR4mApZ 2EbJJMb+ee0oHXy7E6/vag== 0000057201-96-000010.txt : 19960402 0000057201-96-000010.hdr.sgml : 19960402 ACCESSION NUMBER: 0000057201-96-000010 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960116 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960401 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIANA CORP CENTRAL INDEX KEY: 0000057201 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 362448698 STATE OF INCORPORATION: DE FISCAL YEAR END: 0403 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-05486 FILM NUMBER: 96543412 BUSINESS ADDRESS: STREET 1: 8200 W BROWN DEER ROAD CITY: MILWAUKEE STATE: WI ZIP: 53223-1706 BUSINESS PHONE: 4143550037 FORMER COMPANY: FORMER CONFORMED NAME: FH INDUSTRIES CORP DATE OF NAME CHANGE: 19850814 FORMER COMPANY: FORMER CONFORMED NAME: SCOT LAD FOODS INC DATE OF NAME CHANGE: 19841202 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A (Amendment No. 1) CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Earliest Event Reported): January 16, 1996 Exact name of Registrant as specified in its charter: The Diana Corporation State or Other Jurisdiction of Incorporation: Delaware Commission File Number: 1-5486 I.R.S. Employer Identification Number: 36-2448698 Address of Principal Executive Office: 8200 West Brown Deer Road Suite 200 Milwaukee, WI 53223 Registrant's Telephone Number, Including Area Code: (414) 355-0037 The undersigned Registrant hereby amends the following items, financial statements, exhibits or other portions of its Form 8-K Report dated January 31, 1996 as set forth in the pages attached hereto: ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Business Acquired: The audited financial statements of Sattel Communications Company ("Sattel") for the period November 23, 1994 (inception) through December 31, 1994 and for the year ended December 31, 1995 are filed with this report. (b) Pro Forma Financial Information: The following unaudited pro forma condensed consolidated financial information is filed with this report: Unaudited Pro Forma Condensed Consolidated Balance Sheet at January 6, 1996 Unaudited Pro Forma Condensed Consolidated Statements of Operations for the 52 Weeks Ended April 1, 1995 and the 40 Weeks Ended January 6, 1996 On January 16, 1996, The Diana Corporation ("Diana" or "Registrant") acquired an additional 30% ownership interest in Sattel Communications Corp. ("SCC") (collectively the "SCC Acquisition"). As a result, Diana increased its ownership interest in SCC from 50% to 80%. Diana issued 350,000 shares of its newly issued common stock ("the Diana Shares") to Sattel Technologies, Inc. ("STI") in connection with the transaction. STI retained a 20% ownership interest in SCC. Diana also agreed to undertake certain obligations to register the Diana Shares and to grant STI certain registration rights with respect thereto. In addition, pursuant to another agreement entered into on January 16, 1996, Diana agreed to provide SCC with additional cash sufficient to increase its capital contributions to $2.5 million and make additional loans to SCC of up to $1.425 million. In addition, on January 10, 1996, Diana and STI entered into certain agreements. Pursuant to these agreements, Diana and STI each contributed their partnership interests in Sattel to a newly-formed corporation, SCC, following the contribution to capital by Diana of its note and interest receivable from Sattel. On November 20, 1995, C&L Acquisition Corporation, a subsidiary of the Registrant's subsidiary, C&L Communications, Inc., acquired 80% of the common stock of Valley Communications, Inc. ("Valley") from Henry P. Mutz, Christopher M. O'Connor and Kenneth R. Hurst for approximately $4,320,000 including expenses and future consideration contingent on Valley attaining defined levels of pretax earnings in specified time periods through March 2001 (the "Valley Acquisition"). A separate Form 8-K was filed on December 5, 1995 and amended on January 31, 1996 for Diana's acquisition of Valley. The following unaudited pro forma financial statements give effect to the SCC Acquisition and the Valley Acquisition which are both accounted for as a purchase. The unaudited pro forma condensed consolidated balance sheet presents the combined financial position of Diana and SCC as of January 6, 1996 assuming that the SCC Acquisition had occurred as of January 6, 1996. Such pro forma information is based upon the historical balance sheet data of Diana, including Valley, as of January 6, 1996, and Sattel as of December 31, 1995. The unaudited pro forma condensed consolidated statement of operations for the 52 weeks ended April 1, 1995 gives effect to the SCC Acquisition and the Valley Acquisition by combining the following results of operations: 1) Diana for the 52 weeks ended April 1, 1995 2) Sattel for the period November 23, 1994 (inception) through March 31, 1995 3) Valley for the year ended April 30, 1995 The unaudited pro forma condensed consolidated statement of operations for the 40 weeks ended January 6, 1996 gives effect to the SCC Acquisition and the Valley Acquisition by combining the following results of operations: 1) Diana for the 40 weeks ended January 6, 1996 2) Sattel for the 9 months ended December 31, 1995 3) Valley for the 7 months ended November 30, 1995 The results of operations of Valley for the one month ended April 30, 1995 were not material to the pro forma results of operations for the 40 weeks ended January 6, 1996. The unaudited pro forma condensed consolidated financial information has been prepared by the Registrant based upon assumptions deemed proper by it. The unaudited pro forma condensed consolidated financial information presented herein is shown for illustrative purposes only and is not necessarily indicative of the future financial position or future results of operations of the Registrant, or of the financial position or results of operations of the Registrant that would have actually occurred had the transactions been in effect as of the date or for the periods presented. The unaudited pro forma condensed consolidated financial information should be read in conjunction with the historical financial statements and related notes of the Registrant. (c) Exhibits 2.1 Exchange Agreement dated January 16, 1996 by and among The Diana Corporation and Sattel Technologies, Inc., incorporated herein by reference to Exhibit 10.2 of the Registrant's Registration Statement on Form S-3 (Reg. No. 333-1055) 23 Consent of Price Waterhouse LLP SIGNATURES 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. THE DIANA CORPORATION (Registrant) Date: April 1, 1996 /s/ R. Scott Miswald Vice President and Treasurer ITEM 7 (a) SATTEL COMMUNICATIONS COMPANY (a company in the development stage) FINANCIAL STATEMENTS AND REPORT DECEMBER 31, 1995 AND 1994 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Sattel Communications Company (a company in the development stage) In our opinion, the accompanying balance sheet and the related statements of operations, of cash flows and of changes in partners' capital (deficit) present fairly, in all material respects, the financial position of Sattel Communications Company at December 31, 1995 and 1994, and the results of its operations and its cash flows for the year ended December 31, 1995 and the period from November 23, 1994 (date of inception) through December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Milwaukee, WI March 27, 1996 1 SATTEL COMMUNICATIONS COMPANY (a company in the development stage) BALANCE SHEET
ASSETS December 31, ---------------------------- 1995 1994 ------------ ------------ CURRENT ASSETS Cash $ 10,276 $ - Accounts receivable 85,000 - Due from Sattel Technologies, Inc. 38,833 - Inventories 82,614 - Advance to Sattel Technologies, Inc. 450,000 - Prepaid expenses 46,580 - ------------ ------------ Total current assets 713,303 - ------------ ------------ EQUIPMENT - NET 43,962 - DEFERRED ORGANIZATION COSTS 46,697 38,789 OTHER ASSETS 38,139 - ------------ ------------ TOTAL ASSETS $ 842,101 $ 38,789 ============ ============ LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) CURRENT LIABILITIES Accounts payable $ 66,446 - Unearned revenue 138,856 - Accrued payroll 32,198 - Accrued interest 15,287 - Other accrued liabilities 10,118 - ------------ ------------ Total current liabilities 262,905 - ------------ ------------ NOTE PAYABLE TO THE DIANA CORPORATION 861,070 - PARTNERS' CAPITAL (DEFICIT) (281,874) 38,789 ------------ ------------ TOTAL LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) $ 842,101 $ 38,789 ============ ============
The accompanying notes are an integral part of the financial statements. 2 SATTEL COMMUNICATIONS COMPANY (a company in the development stage) STATEMENT OF OPERATIONS
For the Period November 23, 1994 For the (Inception) Year Ended Through December 31, December 31, 1995 1994 ------------ ------------ Net sales $ 264,483 $ - Cost of sales 128,655 - ------------ ------------ Gross profit 135,828 - Selling, general and administrative expenses 1,033,053 54,362 ------------ ------------ Operating loss (897,225) (54,362) Interest expense 15,287 - ------------ ------------ Net loss $ (912,512) $ (54,362) ============ ============
The accompanying notes are an integral part of the financial statements. 3 SATTEL COMMUNICATIONS COMPANY (a company in the development stage) STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the Period November 23, 1994 For the (Inception) Year Ended Through December 31, December 31, 1995 1994 ------------ ------------ Beginning of period $ 38,789 $ - Capital contributions 591,849 93,151 Net losses accumulated during the development stage (912,512) (54,362) ------------ ------------ End of period $ (281,874) $ 38,789 ============ ============
The accompanying notes are an integral part of the financial statements. 4 SATTEL COMMUNICATIONS COMPANY (a company in the development stage) STATEMENT OF CASH FLOWS
For the Period November 23, 1994 For the (Inception) Year Ended Through December 31, December 31, 1995 1994 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (912,512) $ (54,362) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation 2,968 - Amortization 9,965 - Increase (decrease) in cash due to changes in: Accounts receivable (85,000) - Due from Sattel Technologies, Inc. (38,833) - Inventories (82,614) - Advance to Sattel Technologies, Inc. (450,000) - Prepaid expenses (46,580) - Accounts payable 66,446 - Unearned revenue 138,856 - Accrued payroll 32,198 - Accrued interest 15,287 - Other accrued liabilities 10,118 - Deferred organization costs (17,873) (38,789) Other assets (38,139) - ------------ ------------ Net cash used for operating activities (1,395,713) (93,151) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (46,930) - ------------ ------------ Net cash used for investing activities (46,930) - ------------ ------------
The accompanying notes are an integral part of the financial statements. 5 SATTEL COMMUNICATIONS COMPANY (a company in the development stage) STATEMENT OF CASH FLOWS (CONTINUED)
For the Period November 23, 1994 For the (Inception) Year Ended Through December 31, December 31, 1995 1994 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Increase in note payable to The Diana Corporation 861,070 - Capital contributions 591,849 93,151 ------------ ------------ Net cash provided by financing activities 1,452,919 93,151 ------------ ------------ NET INCREASE IN CASH 10,276 - CASH, BEGINNING OF PERIOD - - ------------ ------------ CASH, END OF PERIOD $ 10,276 $ - ============ ============
The accompanying notes are an integral part of the financial statements. 6 SATTEL COMMUNICATIONS COMPANY (a company in the development stage) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 NOTE 1 - FORMATION OF THE COMPANY AND NATURE OF BUSINESS Effective November 23, 1994, The Diana Corporation ("Diana"), through an affiliate, and Sattel Technologies, Inc. ("STI") entered into a general partnership agreement to establish Sattel Communications Company ("Sattel"). Diana and STI each received a 50% interest in Sattel. Sattel was formed for the primary purpose of implementing a plan for the manufacture and worldwide (primarily domestic) distribution of certain telecommunications products, including the existing line of STI's central office switching equipment and new products under development. Under the terms of this agreement, initial contributions to be made to the partnership were cash of $200,000 from Diana and certain technology and other intangibles from STI. Profits and losses were to be allocated equally among the two partners. Subsequent to November 23, 1994, the parties entered into certain additional agreements, culminating on January 16, 1996 (see NOTE 7 - - SUBSEQUENT EVENTS), related to the partnership and its operations. Through these agreements, Diana acquired an additional 30% interest in Sattel and Sattel obtained certain additional technology rights from STI. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION - The accompanying financial statements reflect the partners' capital contributions valued at the respective parties' predecessor financial reporting bases and accordingly, no value has been ascribed to the technology and other intangibles contributed by STI. DEVELOPMENT STAGE ENTERPRISE - Sattel qualifies as a development stage enterprise under Statement of Financial Accounting Standards No. 7, "Accounting and Reporting by Development Stage Enterprises." Activities through December 31, 1995 primarily consisted of assembling an organization to include general management, marketing, financial and engineering personnel; and product and market development. 7 REVENUE RECOGNITION - Revenue from product sales is recognized upon shipment. Revenue for the year ended December 31, 1995 represented sales to two customers, each representing 68% and 32% of sales, respectively. RESEARCH AND DEVELOPMENT EXPENSES - Research and development costs are expensed as incurred. INVENTORIES - Inventories are stated at the lower of cost or market, with cost determined using the first-in, first-out method. Inventories at December 31, 1995 are comprised entirely of finished goods. EQUIPMENT - Equipment is stated at cost and depreciated over estimated useful lives using the straight-line method. DEFERRED ORGANIZATION COSTS - The partnership capitalized certain organization costs which are amortized on a straight-line basis over five years. INCOME TAXES - No provision for federal income taxes is necessary in the financial statements of the partnership because, as a partnership, it is not subject to federal income tax and the tax effect of its activities accrues to the partners. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. STATEMENT OF CASH FLOWS - For purposes of the statement of cash flows, the Company considers all investments with a maturity of three months or less at the date of purchase to be cash equivalents. The Partnership paid no income taxes or interest during the year ended December 31, 1995 and the period ended December 31, 1994. NOTE 3 - EQUIPMENT Equipment consists of the following at December 31, 1995: Office equipment $ 46,930 Accumulated depreciation (2,968) ------------ $ 43,962 ============ 8 NOTE 4 - NOTE PAYABLE The Company had borrowings of $861,070 outstanding on a $2,000,000 credit facility with Diana at December 31, 1995. Such borrowings bear interest at the prime rate. Unpaid principal and interest outstanding under the credit facility was contributed to the capital of the partnership subsequent to December 31, 1995 and the existing credit facility was terminated. See NOTE 7 - SUBSEQUENT EVENTS for further discussion of available financing. NOTE 5 - RELATED PARTY TRANSACTIONS Products sold during 1995 and inventories on hand at December 31, 1995 were purchased from STI. Sattel also made an advance payment to STI of $450,000 related to 1996 inventory requirements. Amounts due from STI at December 31, 1995 totaled $38,833 and relate to the cost of engineering services performed on behalf of STI. In addition, included in the statement of operations for the year ended December 31, 1995 are expenses of $26,944 which are to be reimbursed by STI related to certain research and development efforts. Under an agreement between the parties, STI agreed to reimburse Sattel up to $150,000 for such costs. Sattel's headquarters are located in STI's development and manufacturing facility located in Chatsworth, CA. Sattel funded certain leasehold improvements totaling $51,631 made to STI's facility, and in return, Sattel will occupy the renovated office space rent free from October 16, 1995 through October 15, 1997. This amount has been capitalized by Sattel and is being amortized over the related rental period. NOTE 6 - FINANCIAL INSTRUMENTS The carrying values of cash, accounts receivable and accounts payable approximate fair value. Accounts receivable at December 31, 1995 is comprised of an amount due from a single customer. NOTE 7 - SUBSEQUENT EVENTS Diana and STI entered into certain agreements dated January 10, 1996 and January 16, 1996. Pursuant to the January 10, 1996 agreements, Diana and STI each contributed their partnership interests in Sattel to a newly-formed corporation, Sattel Communications Corp. ("SCC"), following the contribution to capital by Diana of its note from the partnership and the allocation of all of Sattel's losses since inception to Diana's capital account. On January 16, 1996, in exchange for 350,000 9 shares of Diana stock, STI transferred an additional 30% ownership interest in SCC to Diana. STI also agreed, pursuant to the January 16, 1996 agreements, to eliminate certain restrictions on SCC's marketing rights with respect to the technology contributed by STI; to eliminate requirements for Sattel to transfer its technology rights back to STI upon the occurrence of certain events; bear the cost of developing certain product features applicable to technology held by SCC; and supply SCC's 1996 inventory needs at agreed upon prices. SCC is in turn required, subject to certain conditions, to source its 1996 inventory requirements from STI. In addition, Diana agreed to provide SCC with additional cash sufficient to increase its capital contributions to $2.5 million and make additional loans to SCC of up to $1.425 million. 10 ITEM 7 (b) PRO FORMA FINANCIAL INFORMATION THE DIANA CORPORATION AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AT JANUARY 6, 1996 UNAUDITED (DOLLARS IN THOUSANDS)
Pro Forma Pro Diana Sattel Adj. (1) Forma ------ ------ --------- ----- ASSETS Current assets Cash $ 3,473 $ 10 $ 130 (a) $ 3,613 Restricted short-term investment 81 --- --- 81 Marketable securities 2,204 --- --- 2,204 Receivables 17,150 124 (15) 17,259 Inventories 11,081 83 --- 11,164 Other current assets 776 496 --- 1,272 ------ ---- ----- ------ Total current assets 34,765 713 115 35,593 Property and equipment, net 4,046 44 14 (b) 4,104 Intangible assets 6,793 47 5,886 (b) 12,726 Other assets 2,032 38 (1,206) (c) 864 ------ ---- ----- ------ $47,636 $ 842 $4,809 $53,287 ====== ==== ===== ====== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $14,455 $ 66 $ --- $14,521 Accrued liabilities and other current liabilities 3,282 197 165 3,617 (27) Current portion of long-term debt 1,363 --- --- 1,363 ------ ---- ----- ------ Total current liabilities 19,100 263 138 19,501 Long-term debt 8,396 861 (861) (d) 8,396 Other liabilities 1,449 --- 306 (e) 1,755 Commitments and contingencies Shareholders' equity (deficit) 18,691 (282) 4,944 (f) 23,635 282 (f) ------ ---- ----- ------ $47,636 $ 842 $4,809 $53,287 ====== ==== ===== ======
See accompanying notes to pro forma condensed consolidated financial information. 1 PRO FORMA FINANCIAL INFORMATION THE DIANA CORPORATION AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE 52 WEEKS ENDED APRIL 1, 1995 UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Pro Forma Diana Valley Sattel Adjustments Pro Forma ----- ------ ------ --------- --------- Net sales $250,386 $13,701 $ --- $ --- $264,087 Other income (417) 17 --- --- (400) ------- ------ ---- ---- ------- 249,969 13,718 --- --- 263,687 Cost of sales 239,198 9,215 --- --- 248,413 Selling and adminis- trative expenses 10,314 3,524 124 (197) (2) 13,765 ------- ------ ---- ---- ------- Operating earnings 457 979 (124) 197 1,509 Interest expense (1,098) (38) --- (286) (3) (1,422) Non-operating income 34 --- --- --- 34 Provision for income taxes --- (389) --- 300 (4) (89) Equity in earnings (loss) of unconsoli- dated subsidiaries (69) --- --- 62 (5) (7) Minority interest (44) --- --- (138) (6) (182) ------- ------ ---- ---- ------- Net earnings (loss) $ (720) $ 552 $(124) $ 135 $ (157) ======= ====== ==== ==== ======= Loss per common share $ (.18) $ (.04) ======= ======= Weighted average number of common shares outstanding (7) 4,027 4,377 ======= =======
See accompanying notes to pro forma condensed consolidated financial information. 2 PRO FORMA FINANCIAL INFORMATION THE DIANA CORPORATION AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE 40 WEEKS ENDED JANUARY 6, 1996 UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Pro Forma Diana Valley Sattel Adjustments Pro Forma ----- ------ ------ --------- --------- Net sales $203,493 $11,441 $ 264 $ --- $215,198 Other income 447 (7) --- --- 440 ------- ------ ---- ---- ------- 203,940 11,434 264 --- 215,638 Cost of sales 196,087 7,911 129 --- 204,127 Selling and adminis- trative expenses 7,518 2,811 963 (23) (2) 11,269 ------- ------ ---- ---- ------- Operating earnings 335 712 (828) 23 242 Interest expense (788) (45) (15) (167) (3) (1,015) Provision for income taxes --- (280) --- 215 (4) (65) Equity in earnings (loss) of unconsoli- dated subsidiaries (388) --- --- 393 (5) 5 Minority interest (12) --- --- 45 (6) 33 ------- ------ ---- ---- ------- Net earnings (loss) $ (853) $ 387 $(843) $ 509 $ (800) ======= ====== ==== ==== ======= Loss per common share $ (.21) $ (.18) ======= ======= Weighted average number of common shares outstanding (7) 4,117 4,467 ======= =======
See accompanying notes to pro forma condensed consolidated financial information. 3 THE DIANA CORPORATION AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (Unaudited) NOTE 1 - The pro forma condensed consolidated balance sheet has been prepared to reflect the SCC Acquisition at an aggregate cost of $5,109,000 summarized as follows: Fair value of 350,000 common shares of Diana issued to STI valued at 14 1/8 per share $4,944,000 Direct expenses of the SCC Acquisition 165,000 ---------- $5,109,000 ========== Pro forma adjustments are made to reflect: a. A capital contribution of $130,000 made by Diana to Sattel on January 3, 1996. b. The net assets of SCC at 30% of the estimated fair value at the acquisition date and the excess of acquisition cost over the fair value of net assets acquired (goodwill) summarized as follows: Amortization Period ------------ Equipment $ 14,000 5 years ========== Switch technology $4,521,000 20 years Datanet technology 567,000 18 years Goodwill 798,000 5 years --------- $5,886,000 ========== In addition to the acquisition price related to the 30% minority interest acquired on January 16, 1996, the above allocation reflects the excess of Diana's investment over its equity in the net assets of Sattel at the acquisition date and subsequent capital contributions made by Diana to SCC. An appraisal was performed to determine the fair value of the net assets acquired and the amortization period thereof. 4 c. The elimination of Diana's net investment in Sattel of $1,206,000, including notes receivable from Sattel. d. The elimination of Sattel's note payable to Diana. e. STI's 20% minority interest in SCC subsequent to capital contributions made by Diana to SCC. f. The fair value of 350,000 common shares of Diana issued to STI (valued at 14 1/8 per share) and the elimination of Sattel's partners' deficit of $282,000. NOTE 2 - a. To reflect additional depreciation and amortization resulting from increased basis of equipment and technology; and the amortization of goodwill, all on a straight line basis over amortization periods reflected in NOTE 1 (b) resulting from the SCC Acquisition. b. To reflect additional depreciation and amortization resulting from increased basis of equipment and non- compete agreements; and the amortization of goodwill, all on a straight line basis over amortization periods of 5, 7 and 40 years, respectively, resulting from the Valley Acquisition. c. To reflect the reduction of officers payroll expense due to new employment agreements executed by Valley's officers. 52 Weeks 40 Weeks Ended Ended April 1, January 6, 1995 1996 --------- ---------- a) Depreciation and amortization expense $ 140,000 $ 316,000 b) Depreciation and amortization expense 107,000 63,000 c) Officers payroll expense reduction <444,000> <402,000> --------- -------- $<197,000> $ <23,000> ========= ======= 5 NOTE 3 - To reflect interest expense on borrowings incurred to make the Valley Acquisition summarized as follows: Annual 7 Months Interest Interest Interest Borrowings Rate Expense Expense ---------- -------- -------- -------- Borrowings under revolver $2,185,000 8.5% $186,000 $109,000 Note payable to Valley minority shareholders 1,000,000 10% 100,000 58,000 ---------- -------- -------- $3,185,000 $286,000 $167,000 ========== ======== ======== NOTE 4 - To eliminate Valley's provision for federal income taxes due to existing federal income tax net operating loss carry forwards of the consolidated group. NOTE 5 - To eliminate the equity in loss of Sattel recorded by Diana. NOTE 6 - To reflect the minority shareholder's 20% proportionate share of Sattel's and Valley's results of operations as adjusted for certain of the pro forma adjustments. NOTE 7 - To reflect the increase in the weighted average number of common shares outstanding for the 350,000 shares of Diana's common stock issued to STI as if the shares were issued at the beginning of the period. 6 EX-23 2 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-3 and in the Registration Statement on Form S-8 listed below of The Diana Corporation of our report dated March 27, 1996 on the financial statements of Sattel Communications Company included in this Current Report on Form 8-K/A - Amendment No. 1. 1. Registration Statement on Form S-3 (Registration No. 33-88392) 2. Registration Statement on Form S-3 (Registration No. 333-1055) 3. Registration Statement on Form S-8 (Registration No. 33-67188) PRICE WATERHOUSE LLP Milwaukee, Wisconsin March 29, 1996 -----END PRIVACY-ENHANCED MESSAGE-----