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.
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
The Diana Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
January 6, April 1,
1996 1995
---------- ----------
(Unaudited)
Assets
<S> <C> <C>
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
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
The Diana Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
12 Weeks Ended 40 Weeks Ended
----------------------- -----------------------
January 6, January 7, January 6, January 7,
1996 1995 1996 1995
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
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
====== ====== ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
The Diana Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
40 Weeks Ended
--------------
January 6, January 7,
1996 1995
---------- ----------
<S> <C> <C>
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
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
