SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 3)
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
<PAGE>
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 May 3, 1996, Diana and STI entered into a
Supplemental Agreement to amend the Exchange
Agreement entered into in January 1996. STI agreed
to convey to Diana an additional 15% of SCC and
50,000 Diana Shares in exchange for being released
from the obligation to pay for certain product
development and STI's proportionate share of a $10
million capital contribution to SCC.
Between October 1994 and June 1996, the Company
invested $13.9 million and issued 300,000 shares
of its common stock in order to acquire an 80%
interest in SCC, to acquire ownership of the
intellectual property and licenses necessary to
manufacture and sell DSS and DataNet switches, to
further engineer and advance such switches, and to
fund SCC's startup costs, working capital and
investment in Concentric Network Corporation.
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.
<PAGE>
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.
<PAGE>
(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: August 14, 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
<PAGE>
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
<PAGE>
SATTEL COMMUNICATIONS COMPANY
(a company in the development stage)
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
December 31,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
The accompanying notes are an integral part of the financial
statements.
2
<PAGE>
SATTEL COMMUNICATIONS COMPANY
(a company in the development stage)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
November 23,
1994
For the (Inception)
Year Ended Through
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
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)
============ ============
</TABLE>
The accompanying notes are an integral part of the financial
statements.
3
<PAGE>
SATTEL COMMUNICATIONS COMPANY
(a company in the development stage)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
For the Period
November 23,
1994
For the (Inception)
Year Ended Through
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
The accompanying notes are an integral part of the financial
statements.
4
<PAGE>
SATTEL COMMUNICATIONS COMPANY
(a company in the development stage)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
November 23,
1994
For the (Inception)
Year Ended Through
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
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) -
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial
statements.
5
<PAGE>
SATTEL COMMUNICATIONS COMPANY
(a company in the development stage)
STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
For the Period
November 23,
1994
For the (Inception)
Year Ended Through
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
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 $ -
============ ============
</TABLE>
The accompanying notes are an integral part of the financial
statements.
6
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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)
<TABLE>
<CAPTION>
Pro Forma Pro
Diana Sattel Adj. (1) Forma
------ ------ --------- -----
<S> <C> <C> <C> <C>
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
====== ==== ===== ======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial
information.
1
<PAGE>
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)
<TABLE>
<CAPTION>
Pro Forma
Diana Valley Sattel Adjustments Pro Forma
----- ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
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
======= =======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial
information.
2
<PAGE>
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)
<TABLE>
<CAPTION>
Pro Forma
Diana Valley Sattel Adjustments Pro Forma
----- ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
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
======= =======
</TABLE>
See accompanying notes to pro forma condensed consolidated financial
information.
3
<PAGE>
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
