-----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, UktQulsqfcDKWph/fPnUBVgT1/puvz1Xej02BaqlEMIx6oPhA50PJ6SkHkx+nuw0 hDxsdSDcJosIcCElhlh6mA== 0000057201-96-000020.txt : 19960715 0000057201-96-000020.hdr.sgml : 19960715 ACCESSION NUMBER: 0000057201-96-000020 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960106 FILED AS OF DATE: 19960712 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: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-05486 FILM NUMBER: 96594233 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 10-Q/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A (Amendment No. 1) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended January 6, 1996 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 1-5486 THE DIANA CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-2448698 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8200 W. Brown Deer Road, Suite 200, Milwaukee, Wisconsin 53223 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (414) 355-0037 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. X Yes ___ No At January 31, 1996, the registrant had issued and outstanding an aggregate of 4,128,520 shares of its common stock. Part I - Financial Information Item 1. Financial Statements The Diana Corporation and Subsidiaries Condensed Consolidated Balance Sheets (Dollars in Thousands)
January 6, April 1, 1996 1995 ---------- ---------- (Unaudited) Assets Current assets Cash and cash equivalents $ 3,473 $ 2,440 Restricted short-term investment 81 300 Marketable securities 2,204 6,211 Receivables 17,150 14,785 Inventories 11,081 12,237 Other current assets 776 390 ------ ------ Total current assets 34,765 36,363 Property and equipment, net 4,046 3,803 Intangible assets 6,793 4,137 Other assets 2,032 1,024 ------ ------ $ 47,636 $ 45,327 ====== ====== Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 14,455 $ 12,355 Accrued and other current liabilities 3,282 1,390 Revolving line of credit 5,643 6,803 Current portion of long-term debt 503 326 ------- ------ Total current liabilities 23,883 20,874 Long-term debt 3,613 2,981 Other liabilities 1,449 1,743 Commitments and contingencies Shareholders' equity Preferred stock - $.01 par value --- --- Common stock - $1 par value 5,006 4,810 Additional paid-in capital 51,547 48,548 Accumulated deficit (32,264) (28,178) Unrealized loss on marketable securities (954) (713) Treasury stock (4,644) (4,738) ------ ------ Total shareholders' equity 18,691 19,729 ------ ------ $ 47,636 $ 45,327 ====== ======
See notes to condensed consolidated financial statements. 1 The Diana Corporation and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) (In Thousands, Except Per Share Amounts)
12 Weeks Ended 40 Weeks Ended ----------------------- ----------------------- January 6, January 7, January 6, January 7, 1996 1995 1996 1995 ---------- ---------- ---------- --------- Net sales $ 61,111 $ 55,159 $ 203,493 $ 186,163 Other income (loss) 114 136 447 (584) ------ ------ ------- ------- 61,225 55,295 203,940 185,579 Cost of sales 58,658 52,274 196,087 176,980 Selling and administra- tive expenses 2,586 2,338 7,518 7,749 ------ ------ ------- ------- Operating earnings (loss) (19) 683 335 850 Interest expense (246) (193) (788) (777) Non-operating income --- --- --- 68 Income tax expense --- (26) --- (26) Minority interest (12) --- (12) (44) Equity in loss of unconsolidated subsidiaries (321) (72) (388) (42) ------ ------ ------- ------- Net earnings (loss) $ (598) $ 392 $ (853) $ 29 ====== ====== ======= ======= Earnings (loss) per common share $ (.15) $ .09 $ (.21) $ .01 ====== ====== ======= ======= Weighted average number of common shares outstanding 4,122 4,278 4,117 4,198 ====== ====== ======= =======
See notes to condensed consolidated financial statements. 2 The Diana Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (In Thousands)
40 Weeks Ended -------------- January 6, January 7, 1996 1995 ---------- ---------- Operating Activities: Net earnings (loss) $ (853) $ 29 Reconciliation of net earnings (loss) to net cash provided by operating activities: Loss on sales of marketable securities --- 1,227 Depreciation and amortization 983 865 Minority interest 12 44 Equity in loss of unconsolidated subsidiaries 388 42 Payment of net liabilities of unconsolidated subsidiary (238) (111) Changes in operating assets and liabilities 3,986 4,906 ------ ------ Net cash provided by operating activities 4,278 7,002 Investing activities: Acquisition of Valley, net of cash acquired (2,999) --- Additions to property and equipment (436) (320) Purchases of marketable securities (469) (5,647) Sales of marketable securities 4,273 9,276 Investments in unconsolidated subsidiary (1,481) --- Other 256 142 ------ ------ Net cash provided by investing activities ( 856) 3,451 Financing activities: Changes in short-term borrowings (1,825) (6,427) Changes in long-term debt (515) (406) Payment toward bond settlement --- (2,822) Other (49) --- ------ ------ Net cash used by financing activities (2,389) (9,655) ------ ------ Increase in cash and cash equivalents 1,033 798 Cash and cash equivalents at the beginning of the period 2,440 1,661 ------ ------ Cash and cash equivalents at the end of the period $ 3,473 $ 2,459 ====== ====== Non-cash transactions: Purchase of Subsidiary financed by seller $ 1,000 $ --- Purchase of minority interest with common stock --- 1,895
See notes to condensed consolidated financial statements. 3 The Diana Corporation and Subsidiaries Notes to Condensed Consolidated Financial Statements January 6, 1996 (Unaudited) NOTE 1 - Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the forty weeks ended January 6, 1996 are not necessarily indicative of the results that may be expected for the fiscal year ended March 30, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the fiscal year ended April 1, 1995. The computation of earnings (loss) per common share is based on the weighted average common shares outstanding and dilutive common stock equivalents (stock options). NOTE 2 - Acquisition On November 20, 1995, C&L Acquisition Corporation, a subsidiary of the Company's subsidiary, C&L Communications, Inc. ("C&L") acquired 80% of the common stock of Valley Communications, Inc. ("Valley") from Henry P. Mutz, Christopher M. O'Connor and Kenneth R. Hurst (collectively, the "Minority Shareholders") for approximately $4,320,000 including expenses and future consideration. The terms of the future consideration payable to the Minority Shareholders are as follows: (1) For the year ended August 31, 1996 - 100% of Valley's pretax earnings in excess of $1,300,000; (2) For the 7 months ended March 31, 1997 - 50% of Valley's pretax earnings in excess of $758,000, and (3) For the years ended March 31, 1998, 1999, 2000 and 2001 - 50% of Valley's pretax earnings in excess of $1,300,000. The Company will account for any future consideration with respect to the acquisition of Valley as an adjustment to the purchase price of Valley in accordance with EITF 95-8. Funding for the acquisition was obtained from the Company's cash equivalents, C&L's revolving line of credit and a loan of $1,000,000 from Valley's minority shareholders. The acquisition was accounted for as a purchase. The cost of the acquisition exceeded the fair value of the net assets of Valley by approximately $2,936,000. The excess is being amortized on the straight line method over 40 years. Valley is one of the largest network installation and service companies in California. 4 NOTE 2 - Acquisition (Continued) Valley has a first right of refusal on the sale of stock by a Minority Shareholder (except for a sale to a permitted transferee). Generally, the stock shall be offered to Valley upon the same terms and conditions as offered to the prospective purchaser except that the offering price of the stock shall be the proposed sale price or 75% of the appraised value of the shares as defined in the Stockholders Agreement, whichever is less. The Minority Shareholders have the option, exercisable at any time during the Put Period, as defined below, upon the delivery of a written notice to Valley, to require that Valley purchase from the Minority Shareholders such number of shares as shall be specified in such notice at a price equal to the appraised value of the shares as defined in the Stockholders Agreement. Such redemption price shall be paid in cash at closing. The term "Put Period" as used herein shall mean the period of time commencing on the fifteenth (15) day after receipt by the Minority Shareholders of Valley's audited financial statements for the fiscal year ended March 31, 2000, and expiring thirty (30) days after receipt by the Minority Shareholders of Valley's audited financial statements for the fiscal year ended March 31, 2004. The Minority Shareholders have the option to require Valley to purchase the remainder of a Minority Shareholder's ownership interest upon death or disability (incapacitation for 90 days in any 12-month period) of a Minority Shareholder. In addition, if a Minority Shareholder is terminated by Valley for certain causes as defined in the Employment Contract, the Minority Shareholder has the option to require Valley to purchase 50% of the Minority Shareholder's ownership interest on the date of termination and 50% on November 20, 2000. The purchase price of the shares acquired by Valley pursuant to this paragraph shall be equal to the appraised value of the shares as defined in the employment agreement. The Company will account for any stock acquired by Valley pursuant to the provisions discussed in the above three paragraphs by the purchase method of accounting for the acquisition of minority interest in accordance with Accounting Interpretation No. 26 of APB 16. Shareholders of Valley owning 10% or more of the outstanding common stock of Valley shall have the right to require Valley to pay annual dividends in the amount of the lesser of $1,300,000 (prorated for any period less than one fiscal year) or the After-Tax Operating Profit of Valley for such period, provided, however, that such dividend payment (i) does not reduce the net worth of Valley below $1,400,000, (ii) does not render Valley insolvent or otherwise impair its capital, (iii) does not violate any agreement with creditors of Valley, and (iv) does not contravene otherwise applicable laws. Valley may sell subordinated notes ("Sub-Debt") due in five (5) years and bearing interest at twenty-five percent (25%) per annum with interest payments due quarterly not to exceed the amount of dividends paid by Valley after November 20, 1995. Such Sub-Debt shall be offered to all stockholders of Valley in proportion to their percentage ownership of the stock of Valley, provided, however, that if any stockholder declines to purchase any such note, the note shall be offered to all stockholders who purchased such notes in proportion to their relative holdings of stock of Valley. 5 NOTE 2 - Acquisition (Continued) The following unaudited pro forma results of operations for the forty weeks ended January 6, 1996 and January 7, 1995, respectively, assume the acquisition of Valley and Sattel Communications Corp. (see Note 4 below) occurred at the beginning of each period (in thousands, except per share amounts): 1996 1995 ---- ---- Net sales $ 215,198 $ 195,407 ======= ======= Net earnings (loss) $ (800) $ 233 ======= ======= Earnings (loss) per common share $ (.18) $ .05 ======= ======= This pro forma information does not purport to be indicative of the results that actually would have been obtained if the combined operations had been conducted during the periods presented and is not intended to be a projection of future results. NOTE 3 - Commitments and Contingencies C&L participates in an equipment leasing arrangement. C&L is subject to a future subscription obligation relating to the equipment lease for approximately $414,000 at January 6, 1996, if income from the underlying lease is insufficient to fund future operations of the arrangement. The lease for equipment expires in January 1999. Lisa and Charles Chandler, the former owners of C&L, have jointly and severally indemnified the Company with respect to any future subscription obligations. NOTE 4 - Revolving Line of Credit Revolving line of credit consists of the following (in thousands): January 6, April 1, 1996 1995 ---------- -------- APC $2,997 $4,241 C&L 1,786 2,562 Valley 860 --- ------ ------ $5,643 $6,803 ====== ====== The terms of the revolving line of credit facilities are further described in Item 2 (Liquidity and Capital Resources). Borrowings under the APC Loan and Security Agreement ("APC Revolver") are classified as short term, because the APC Revolver provides for repayment of borrowings after a 90 day notice from the lender. The fiscal 1995 financial statements have been reclassified to conform to fiscal 1996 presentation. At January 6, 1996, the Company classified all borrowings made by C&L under its revolving line of credit as a current liability in accordance with EITF 95-22. C&L's borrowings under its revolving line of credit at April 1, 1995 have been reclassified from current portion of long-term debt for consistent presentation. 6 NOTE 5 - Subsequent Event On January 16, 1996, the Company acquired an additional 30% ownership interest in Sattel Communications Corp. ("Satcom"). As a result, the Company increased its ownership interest in Satcom from 50% to 80%. The Company issued 350,000 shares of its newly issued common stock ("the Diana Shares") to Sattel Technologies, Inc. ("STI") in connection with the transaction. The value assigned to the Diana Shares was $4,944,000, or $14.125 per share, based on the average closing market price of the Company's common stock from January 12, 1996 through January 18, 1996. STI retained a 20% ownership interest in Satcom. In addition, the Company has agreed to register the Diana Shares for resale. STI will be permitted to sell under the Registration Statement, up to 50,000 Diana Shares at any time following the date on which the Registration Statement becomes effective, an additional 150,000 Diana Shares at any time after January 16, 1997 and the remaining 150,000 Diana Shares at any time after July 16, 1997; provided that if the closing price on the New York Stock Exchange ("NYSE") of a Diana Share shall on any date be equal or greater than $16.75, then STI shall thereafter be permitted to sell all of its Diana Shares. The Company has not yet completed its analyses of the following accounting ramifications of the transaction: the appraisal to determine the fair value of the net assets acquired, purchase price allocation and amortization periods. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following is a summary of sales for the third quarter and year-to- date for fiscal 1996 and 1995, including sales by significant product line for APC (in thousands): Third Quarter Year-To-Date -------------- ------------ 1996 1995 1996 1995 ---- ---- ---- ---- C&L $ 5,956 $ 7,927 $ 19,382 $ 27,705 Valley 1,402 --- 1,402 --- Beef 23,427 22,512 85,700 79,410 Pork 9,824 8,790 36,793 31,450 Other 20,502 15,930 60,216 47,598 ------ ------ ------- ------- APC Total 53,753 47,232 182,709 158,458 ------ ------ ------- ------- $ 61,111 $ 55,159 $ 203,493 $ 186,163 ====== ====== ======= ======= For the twelve weeks ended January 6, 1996, net sales increased $5,952,000 or 10.8% over fiscal 1995 third quarter net sales. C&L's net sales decreased $1,971,000 or 24.9% from its fiscal 1995 third quarter net sales primarily due to lower call controller sales and lower sales of digital network communications products. The market for call controllers has been negatively impacted by a continuing consolidation of long distance carriers and continuing growth of equal access resulting in a reduction of demand for the product. In addition, the digital network communications marketplace in the United States is growing at a slower pace than in previous years due to the proliferation of voice T-1 circuits. Network providers are seeking faster access devices which can compress data more cost effectively. Consequently, there has been downward pricing pressure in this market which has impacted the digital products that are sold by C&L. C&L is addressing the changing dynamics in the telecommunications marketplace through the introduction of new product lines including ISDN, ATM, frame relay and digital switches. APC's overall volume (based on tonnage) during this period increased by 1.6% and net sales increased $6,521,000 or 13.8% over fiscal 1995 third quarter net sales. The increase in APC's net sales is attributable to increased business resulting from the addition of a customer in December 1994. Sales to this customer during the third quarter accounted for approximately 25% of APC's net sales. Year-to-date fiscal 1996 sales to this customer accounted for more than 25% of APC's net sales. For the forty weeks ended January 6, 1996, net sales increased $17,330,000 or 9.3% over fiscal 1995 sales for the same period of time. C&L's fiscal 1996 year-to-date sales decreased $8,323,000 or 30.0% from fiscal 1995. C&L's year-to-date sales decrease is attributable to the same factors discussed above. APC's overall volume (based on tonnage) during this period increased by 5.3% and net sales increased by $24,251,000 or 15.3% from fiscal 1995 sales. APC's year-to-date sales increase is attributable to the same factors discussed above. 8 As further discussed in Note 2 to the Condensed Consolidated Financial Statements, Valley was acquired on November 20, 1995. Net sales for the twelve and forty weeks ended January 6, 1996 include Valley's earned contract revenues subsequent to the acquisition. For the forty weeks ended January 6, 1996, other income (loss) improved from a loss of $584,000 to income of $447,000. During the forty weeks ended January 6, 1996, the Company did not incur any material gains or losses on sales of marketable securities as compared to a loss of $1,226,000 incurred during the same period of time in fiscal 1995. In addition, during fiscal 1996, the Company had smaller amounts of investments in corporate debt as compared to the same period of time in fiscal 1995 resulting in lower interest income. During the second quarter of fiscal 1995, the Company reduced its investments in corporate debt in amounts sufficient enough to eliminate all margin borrowings incurred to acquire these investments. Throughout fiscal 1995 the Company was decreasing its investments in corporate debt due to the decrease in interest rates. For the twelve weeks ended January 6, 1996, gross profit decreased $432,000 or 15.0% from the same period in fiscal 1995. The decrease in gross profit is primarily attributable to the reduction in C&L's sales and gross profit margins. On a consolidated basis, gross profit as a percentage of net sales was 4.0% in the third quarter of fiscal 1996 as compared to 5.2% in the third quarter of fiscal 1995. C&L's gross profit as a percentage of net sales was 16.4% in the third quarter of fiscal 1996 as compared to 20.8% in fiscal 1995. The decrease in C&L's gross profit percentage in fiscal 1996 is attributable to lower margins on both call controllers and digital products due to the factors discussed in the sales analyses. In addition, the previously disclosed departure of several of C&L's key employees, some of which went to work for a newly formed competitor, has adversely affected C&L's margins. APC's gross profit as a percentage of net sales was 2.0% in the third quarter of fiscal 1996 as compared to 2.6% in fiscal 1995. The decrease in APC's gross profit percentage in fiscal 1996 is primarily due to lower margins on sales to the customer added in December 1994. For the forty weeks ended January 6, 1996, gross profit decreased $1,777,000 or 19.4% from the same period in fiscal 1995. The decrease in gross profit is primarily attributable to the reduction in C&L's sales and gross profit margins. On a consolidated basis, year-to-date gross profit as a percentage of net sales was 3.6% in fiscal 1996 as compared to 4.9% in fiscal 1995. C&L's gross profit as a percentage of net sales was 18.1% for the forty weeks ended January 6, 1996 as compared to 19.7% for the same period of time in fiscal 1995. The decrease in C&L's gross profit percentage is attributable to lower margins on call controllers and digital products due to the factors discussed in the sales analyses. APC's gross profit as a percentage of net sales for the forty weeks ended January 6, 1996 was 1.9% as compared to 2.4% for the same period of time in fiscal 1995. The decrease in APC's gross profit percentage for the forty weeks ended January 6, 1996 is primarily due to lower margins on sales to the customer added in December 1994. 9 For the twelve weeks ended January 6, 1996, selling and administrative expenses increased $248,000 or 10.6% from the same period in fiscal 1995. Selling and administrative expenses as a percentage of net sales were 4.2% for the twelve weeks ended January 6, 1996 unchanged from the same period in fiscal 1995. Selling and administrative expenses have increased primarily because of the inclusion of Valley's results for December 1995, partially offset by lower selling and administrative expenses for both C&L and APC. For the forty weeks ended January 6, 1996, selling and administrative expenses decreased $231,000 or 3.0% over the same period in fiscal 1995. Selling and administrative expenses as a percentage of net sales were 3.7% for the forty weeks ended January 6, 1996 as compared to 4.2% for the same period in fiscal 1995. The decrease in selling and administrative expenses is primarily attributable to lower selling and marketing expenses incurred by C&L resulting from its lower sales, partially offset by increased expenses due to the inclusion of Valley's results for December 1995. For the twelve and forty weeks ended January 6, 1996, interest expense increased $53,000 or 27.5% and $11,000 or 1.4%, respectively, over the same periods in fiscal 1995. The increase in interest expense for the twelve and forty weeks ended January 6, 1996 is primarily due to interest expense incurred on borrowings incurred in connection with the acquisition of Valley, partially offset by reduced interest expense from lower borrowings by C&L under its line of credit. Equity in loss of unconsolidated subsidiaries was $321,000 and $72,000, respectively, for the twelve weeks ended January 6, 1996 and January 7, 1995. Equity in loss of unconsolidated subsidiaries was $388,000 and $42,000, respectively, for the forty weeks ended January 6, 1996 and January 7, 1995. The primary reason for the increased losses for both periods is due to losses incurred by the Company's unconsolidated subsidiary, Satcom. Satcom was formed in December 1994. The losses incurred by Satcom are primarily due to the development of its business. In future financial statements the Company will account for Satcom as a consolidated subsidiary. This is due to the increase in the Company's ownership interest in Satcom from 50% to 80% on January 16, 1996 as discussed in Note 4 to the Condensed Consolidated Financial Statements. Satcom manufactures and distributes public telecommunications digital switching and transmission systems. In addition, Satcom has recently introduced a proprietary public switched telephone network data delivery system called Datanet. Although Satcom has successfully tested Datanet, no assurance can be given that sales of Datanet or of Satcom's other products will increase to the levels that the Company contemplates. Satcom has not yet commenced manufacturing and selling large numbers of Datanet systems. Strong future sales of Datanet is dependent upon the acceptance of Datanet in the marketplace, the economic advantage of Datanet over competitive products and Datanet remaining technologically advanced. With regard to Satcom's digital switching systems, there is no assurance that similar digital switches will not be offered by other manufacturers, some of which may have greater resources and stronger distribution channels. In addition, production, distribution or other difficulties could adversely affect Satcom's ability to fulfill market demand on a timely basis or increase its manufacturing costs. 10 In October 1995, C&L appointed a new chief executive officer who has excellent senior management experience in telecommunications switching and data communications. Subsequently, several employees resigned from C&L including, among others, the chief financial officer, the vice president of sales and marketing, the sales manager and six out of fourteen sales people. Several if not all of these former employees went to work for a newly formed competitor. Subsequently, a sales person that went to work for the newly formed competitor returned to C&L. C&L has replaced most of the other departed personnel. LIQUIDITY AND CAPITAL RESOURCES For the forty weeks ended January 6, 1996, the Company had $436,000 of capital expenditures. C&L's and APC's Loan and Security Agreements include covenants that restrict capital expenditures. In fiscal 1996, C&L's and APC's capital expenditures will be limited to $900,000 because of covenants in their Loan and Security Agreements that restrict capital expenditures. In January 1996, C&L entered into a new credit facility with its current lender because its previous credit facility terminated in December 1995. The revolving line of credit remains unchanged from $6,000,000. The credit facility expires in January 1999. The interest charges were reduced from prime plus .25% to either prime, or LIBOR plus 2.25%, however, an unused facility fee of .25% was instituted. At January 6, 1996, C&L borrowed $1,786,000 and had available unused borrowing capacity of $3,004,000. APC's credit facility provides a revolving line of credit of up to $9,500,000 with interest at the prime rate plus 2.0% through November 1997. A $2 million letter of credit facility is included within the total credit facility. At January 6, 1996, APC borrowed $2,997,000 and had letters of credit of $2,000,000 issued on its behalf. At January 6, 1996, APC had available unused borrowing capacity of $3,678,000. In August and November 1995, APC and its lender entered into waiver and amendment agreements relating to the Loan and Security Agreement in order to avoid violating certain financial covenants in fiscal 1996. The November 1995 amendment provides for the following financial covenants during the next twelve months: minimum tangible net worth of $3,900,000, a net loss for the fiscal year ended March 30, 1996 not to exceed $400,000 and net cash flow on a rolling thirteen period basis (measured at the end of each four week period) ranging from $(355,000) to $500,000. At February 9, 1996, based upon the representations and projections of APC's management, the Company believed that APC would meet the financial covenants during the next twelve months. APC's lender did not grant to APC a grace period in connection with the waiver granted to APC. Because APC's credit facility provides for repayment of borrowings after a 90 day notice from the lender, borrowings under the credit facility are classified as short term. The fiscal 1995 financial statements have been reclassified to conform to fiscal 1996 presentation. The Company is exploring options with respect to its investment in APC, including a possible sale of APC or other methods of divestiture. A formal plan of disposal has not been adopted by the Company's Board of Directors. Valley's credit facility provides a revolving line of credit of up to $1,000,000 with interest at the prime rate plus 1% through February 28, 1996. At January 6, 1996, Valley borrowed $800,000 and had unused borrowing capacity of $200,000. Valley anticipates completing a refinancing of its credit facility in February 1996. 11 In the fourth quarter of fiscal 1996 and in the first quarter of fiscal 1997, through April 12, 1996, the Company raised approximately $9.6 million, after commissions and expenses, through the sale of 400,000 shares of Common Stock. As a result of such sales, the Company believes that it has adequate capital resources for its liquidity needs through at least fiscal 1997. If conditions warrant, however, the Company may raise additional capital in fiscal 1997 for longer term liquidity needs. Satcom's sales for its fiscal year ended December 31, 1995 were $264,000. For this period, there were no sales of the Data Net product. Satcom has hired personnel to prepare and implement a marketing program for its products. STI will supply Satcom with its inventory needs during calendar 1996, provided STI delivers the inventory on time, in good quality and on competitive terms. 12 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K a) Exhibits: 27 - Financial Data Schedule b) A Form 8-K dated October 17, 1995 was filed by the Company which covered Item 5. Other Events and Item 7. Financial Statements and Exhibits. A Form 8-K dated December 5, 1995 was filed by the Company which covered Item 2. Acquisition or Disposition or Assets and Item 7. Financial Statements and Exhibits. 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 By:/s/ R. Scott Miswald R. Scott Miswald Vice President, Treasurer and Controller (Principal Financial and Accounting Officer) DATE: July 12, 1996 -----END PRIVACY-ENHANCED MESSAGE-----