UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549
   
                                FORM 10-K/A
                             (Amendment No. 1)             
    

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934
For the fiscal year ended                 March 30, 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     

Securities registered pursuant to Section 12(b) of the Act:
       Title of each class                    Name of each exchange on
                                                  which registered

  Common Stock, $1.00 Par Value                New York Stock Exchange     

        Securities registered pursuant to Section 12(g) of the Act:
                                    NONE

     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

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

     At June 10, 1996, the aggregate market value of the voting stock of the
registrant held by stockholders who were not affiliates of the registrant was
$353,887,021.  At June 10, 1996, the registrant had issued and outstanding an
aggregate of 5,028,590 shares of its Common Stock.

                   DOCUMENTS INCORPORATED BY REFERENCE 
     Portions of the registrant's definitive proxy statement to be filed
within 120 days after the end of the fiscal year covered by this report are
incorporated by reference into Part III hereof.

<PAGE>
                                  PART I

ITEM 1.   Business

General

     The Diana Corporation ("Diana" or the "Company"), was incorporated in
1961 under the laws of the State of Delaware.  The Company's operations are
through its subsidiaries:  Sattel Communications ("Sattel"), C&L
Communications, Inc. ("C&L"), Valley Communications, Inc. ("Valley") and
Atlanta Provision Company, Inc. ("APC").

     The Company's businesses are reported in three business segments: 
telecommunications equipment, voice and data network installation and
service; and wholesale distribution of meat and seafood.  Financial
information about the Company's business segments is contained in Note 14 to
the Consolidated Financial Statements.

     The telecommunications equipment segment consists of Sattel and C&L. 
Sattel is a provider of central office voice and data switching equipment for
communications providers worldwide.  The Company increased its ownership
interest in Sattel from 50% to 80% in fiscal 1996 (see Note 2 to the
Consolidated Financial Statements).  C&L is a distributer of
telecommunications equipment for wide area and local area integrated networks
to transport voice, data and video communications primarily in North America. 
The Company owns 100% of C&L.

     The voice and data network installation and service segment consists of
Valley.  Valley provides design, installation and service for voice and data
networks primarily in California.  Valley was acquired by C&L in November
1995 (see Note 2 to the Consolidated Financial Statements).  C&L owns 80% of
Valley.

     The wholesale distribution of meat and seafood segment consists of APC. 
APC is a wholly-owned subsidiary of Entree Corporation ("Entree").  The
Company owns 81.25% of Entree.

Telecommunications Equipment Segment

Sattel

     Sattel is a provider of redundant, scaleable, central office voice and
data switching equipment for communications providers worldwide.  Sattel
designs, develops, engineers and markets its switching systems worldwide.  It
outsources manufacturing, procurement of raw materials, and final assembly
and test of finished systems to Sattel Technologies, Inc. ("STI").  STI has
approximately a 4% effective ownership interest in Sattel.  Certain software
and hardware associated with adjunct and peripheral equipment used by Sattel
to provide certain functions and features is licensed, or procured under OEM
arrangements, from other vendors.

     Sattel commenced operations as a 50/50 joint venture between the Company
and Sattel Technologies, Inc., a private company, in November 1994.  In
January 1996, Diana increased its ownership interest in Sattel from 50% to
80%.

   
     Sattel's product line consists of a series of central office switching
platforms which are divided into four models; DSS-96, DSS-1000, DSS-3000 and
DSS-10000.  Each of these platforms is capable of providing end office,

                                        1
<PAGE>

tandem, international gateway or Internet access functionality either
individually, simultaneously or in any combination.   Sattel's switching
products are based on "time-space-time" switching technology.  The switch
architecture is based on a design including multiple Motorola 680X0
processors and a VMEbus structure.  Sattel believes the system is modular as
it is scaleable from 96 to 10,000 subscriber lines and from 96 to 4096
digital ports.
    

     Sattel also provides a product called DataNet to address the Internet
and Intranet Services market.  The DataNet product is a synthesis of
telephone switching technology with data handling and multiplexing
techniques.  DataNet has capabilities for passing data over telephone
circuits.  The product provides the integration of modem technology into
central office type switches.  Sattel believes that a variety of flexible
data access arrangements makes DataNet a complete, self contained voice/data
platform.

   
     The DSS/Switch with DataNet provides a services platform for Internet
Service Providers (ISPs) and other On-line Service Providers.  Sattel
believes that DataNet's capability for providing customer control, security,
real time and Local Exchange Company (LEC) billing, and fraud control combine
to make this product a marketable solution for the ISP market.  The DataNet
switch allows for customer control because it is a telephony switch and can
provide public network information that allows the customer the ability to
assign subscribers different levels of service, different billing options and
potentially parental control features (such as blocking certain portions of
the Internet based on passwords or identification).  Since DataNet is a Class
5 switch, it does provide real time communications and captures both the
"called" number (DNIS) as well as the "calling" number (ANI).  By providing
this information to the ISP, the processing of transactions can be made to be
dependent upon a match between either the DNIS or ANI with the transaction
type.  For example, rather than using a password approach (that may be
"spoofed" by a "hacker"), the DataNet customer may use the ANI from
subscribers to determine whether or not a financial transaction (such as a
credit card purchase) is allowed.  If the ANI attempting the financial
transaction is not correct, the network may disallow the transaction and
capture the phone number of the party that tried to process the transaction.
    

     Sattel presently has a patent application on file with the U.S. Patent
Office with respect to its DataNet product.  It intends to file additional
patents related to the DSS switching products and other technology as it is
developed.  Sattel relies to a great degree on trade secrets and tight
control of its software to protect its intellectual property rights.

   
     The DataNet product has undergone successful Alpha (internal) and Beta
(customer) testing at MCI's laboratory in Richardson, Texas and it has
undergone successful Beta testing at the MCI Switch Center in Los Angeles,
California by MCI and Concentric Network Corporation ("CNC").  The product
has been shipped for production to CNC and for Beta testing to GTE.  All of
the tests to date have been successful, except for one minor problem that was
encountered and corrected at the initial Beta testing in MCI's laboratories. 
Sattel has not observed any problems in a customer's production environment
for this product.  Sattel is not aware of any problems that the product might
encounter in a production environment, however, since there is not an
extended history of the product in a production environment, the possibility
exists that unforeseen problems might occur.  Sattel would immediately address
any problems with the proper technical resources.  Sattel's other products
have been tested, installed and are in production both in the United

                                        2
<PAGE>

States and overseas.  No material problems were encountered, however, minor
software and equipment problems were addressed and corrected.
    

     Sattel believes its market consists of emerging telecommunications
companies, Regional Bell Operating Companies, PTT's, Long Distance Carriers
(IXCs), Competitive Access Providers (CAPS), Internet Service Providers and
Cable TV companies.  Sattel has divided its market into four segments of
customers: 1. Strategic Accounts, 2. Internet Service Providers (ISP's), 3.
Growth Accounts, and 4. International Accounts.  Sattel has positioned its
products in the medium to small end switching market of voice/data
communications.  This target market is less than 10,000 lines and is
optimized at the 500-5,000 line size to address the Strategic and Growth
accounts. 

   
     In May 1996, Sattel and Concentric Network Corporation ("CNC") announced
a portion of a nonbinding Memorandum of Understanding between the two
companies.  Under this arrangement, Sattel will supply its DataNet product
and communications lines and services under a strategic supplier arrangement
to approximately 21 sites across the U.S. for CNC to use in its next
generation network.  CNC and Sattel agreed in concept to establish a
wholesale business for other ISP's to use the CNC backbone network.  In
addition, the Memorandum of Understanding called for Sattel to invest $10-20
million into CNC and to receive yet-to-be-determined equity interests in both
CNC and the wholesale business.  The equity interest in CNC will be in a form
that has rights substantially similar to those of a CNC Series D Preferred
Stock to be issued in the near future.  Because of delays in reaching
agreement with respect to the wholesale business, as well as delays in CNC's
overall financing arrangements, Sattel subsequently elected to provide a $5
million bridge loan to CNC.  This loan was not a condition of the Memorandum
of Understanding. Full implementation of the Memorandum of Understanding is
subject to final pricing and configuration, due diligence, and the execution
of definitive agreements. Subsequently, the parties agreed that Sattel's
investment in CNC will be limited to $5 million and that the wholesale
business will be outside of CNC.  In September 1996, Sattel sold
approximately 50% of its investment in CNC to a third party for $2.5 million. 
CNC will offer the wholesale business "most favored nation" prices, terms and
conditions.
    

     Sattel began offering switching equipment in 1995.  Sattel has incurred
losses and experienced negative cash flow.  There can be no assurance that
revenue will grow at rates anticipated by management or that Sattel will
achieve acceptable profitability or significant positive cash flow from
operations.  In addition, Sattel may continue to experience fluctuations in
operating results in the future caused by various factors, including general
economic conditions, industry acceptance of Sattel's product, technological
obsolescence, specific economic conditions in the telecommunications access
industry, user demand, capital expenditures and other costs relating to the
expansion of the operations, and the introduction of new products by Sattel
or its competitors.

                                        3
<PAGE>

   
     The telecommunications switching equipment and access businesses are
highly competitive.  Currently Sattel competes with a number of national and
regional telecommunications equipment providers such as Ascend, Xylogic,
Xircom, Racal Datacom, and US Robotics.  In the switching equipment segment,
while Sattel provides smaller scaleable switches, there are other large
manufacturers of large scale switches such as Lucent Technologies, Nortel,
Digital Switch, Siemens and others.  While they have not demonstrated
movement at this time, there is no assurance that they will not attempt to
move into Sattel's target market.  It is also possible that large
communication carriers such as AT&T, Sprint Corporation, MCI Communications
Corp., and the Regional Bell Operating Companies may enter the
telecommunications access and/or switching equipment business.  Many of
Sattel's competitors possess financial resources significantly greater than
those of Sattel and accordingly could initiate and support prolonged price
competition to gain market share.
    

     Future growth at Sattel could place a significant strain on Sattel's
administrative, operational, and financial resources, and increase demands on
its systems and controls.  In addition, as Sattel expands there will be
additional demands on the sales, marketing, and administrative resources. 
While Sattel believes that its operating and financial control systems are
adequate to address expansion plans, there can be no assurance that such
systems and controls will be adequate to maintain and effectively monitor
future growth.  Sattel anticipates that its continued growth will require it
to recruit and hire a substantial number of new managerial, technical, and
sales and marketing personnel.  The inability to continue to upgrade the
operating and financial control systems, the inability to recruit and hire
necessary personnel, or the emergence of unexpected expansion difficulties
could adversely effect the Company's business, results of operations, and
financial condition.  In addition, production, distribution or other
difficulties could adversely affect Sattel's ability to fulfill market demand
on a timely basis or increase its manufacturing costs.

   
     Sattel is dependent upon its ability to provide continued access to the
Public Switched Telecommunications Network.  Sattel's products, which have
been installed in the United States and overseas, have access and are
operating with the PSTN.  While not currently envisioned, and as with any
other telecommunications equipment, should the PSTN technical specifications
be changed in any particular country in the future, Sattel may be required to
modify its equipment in order to reflect such changes and to provide
continuous access to that country's PSTN.  Any system failure attributable to
Sattel that causes interruptions in the Public Carrier's operations could
have a material adverse effect on the Company.  
    


     Sattel's success depends to a significant degree upon the continued
contributions of its senior operating management.  The loss of the services
of these individuals, as well as key system development personnel, could have
a material adverse effect on Sattel.  Sattel's success also will depend on
its ability to attract and retain qualified management, marketing, technical,
and sales executives and personnel.  Competition for such executives and
personnel in the telecommunications access industry is intense and there are
a limited number of persons with sufficient knowledge and experience.  There
can be no assurance that Sattel will be successful in attracting and
retaining such executives and personnel.

     Sattel's success and ability to compete is dependent in part upon its
technology, although Sattel believes that its success is more dependent upon
its technical expertise than its proprietary rights.  Sattel relies upon a
combination of patent, copyright, trademark and trade secret laws, and

                                        4
<PAGE>

contractual restrictions to establish and protect its technology.  There can
be no assurance that the steps taken by Sattel will be adequate to prevent
misappropriation of its technology or that Sattel's competitors will not
independently develop technologies that are substantially equivalent or
superior to Sattel's technology.  

     A key component of Sattel's strategy is its planned expansion into
international markets.  There can be no assurance that Sattel will be able to
obtain the permits and operating licenses required for it to operate, to hire
and train employees or to market, sell and deliver high quality services in
these markets.  In addition to the uncertainty as to Sattel's ability to
expand its international presence, there are certain risks inherent to doing
business on an international level, such as unexpected changes in regulatory
requirements, trade barriers, difficulties in staffing and managing foreign
operations, longer payment cycles, problems in collecting accounts
receivable, political instability, fluctuations in currency exchange rates,
seasonal reductions in business activity, and potentially adverse tax
consequences, which could adversely impact the success of Sattel's
international operations.  In many countries, Sattel may need to enter into
a joint venture or other strategic relationship with one or more third
parties in order to successfully conduct its operations.  There can be no
assurance that such factors will not have an adverse effect on Sattel's
future international operations and, consequently, on Sattel's business,
results of operations and financial condition.

     Sattel's DSS/Switch product is manufactured by STI with complete
facilities to provide a turnkey product.  STI provides complete manufacturing
of all board, chassis, and system level assemblies for Sattel.  Currently,
STI also does final assembly and testing.  STI has from time to time
experienced delays in receipt of certain hardware components.  A failure by
a supplier to deliver quality products on a timely basis, or the inability to
develop alternative sources if and as required, could result in delays which
could materially adversely affect Sattel.  Sattel believes that quality
assurance is maintained to all required levels specified in ISO and
MIL-Specs.  Sattel generally uses industry standard components for its
products and has specified alternate sources for these parts under the
approved vendor lists provided to the contractor by Sattel's engineering
department.  Certain components, including crystals and microprocessors are
presently single sourced or are available from a limited number of sources. 
Any interruption in business between Sattel and STI could have a material
adverse effect on the Company.  Certain software and hardware associated with
adjunct and peripheral equipment used by Sattel to provide certain functions
and features is licensed, or procured under OEM arrangements, from other
vendors.

C&L

     C&L operates nationwide with its administrative headquarters and 
distribution center located in San Antonio, Texas.  C&L is an international
distributor of products sold to wide area and local area integrated networks
to transport voice, data and video communications.  C&L's principal products
include digital networking products, multiplexors, frame relay access
devices, ATM, digital switches, call controllers, wide area network routers,
ethernet switches and ethernet hubs. 

     C&L's customers are comprised of long distance carriers, interconnect
companies, value added resellers, networking companies, systems integrators,
independent telephone companies, some large end users and local area network
resellers.  The long distance carrier portion of the customer base includes

                                        5
<PAGE>

virtually all significant U.S. long distance companies.  No single customer
accounted for more than 10% of consolidated net sales for the year ended
March 30, 1996.

     C&L sales and technical staff have a technical background and knowledge
of the products' technical applications to allow for added services for C&L's
customers.  C&L's technical support group deals with multiple vendors'
products.  Therefore, C&L operates as a value-added distributor, providing
configurations services, technical support and training in the multiple
vendor solution environment.  

     In fiscal 1996, C&L's primary product suppliers are Newbridge Networks,
Inc. ("Newbridge") which supplies digital networking products and Mitel
Corporation ("Mitel") which supplies call controllers.  For the year ended
March 30, 1996, these two companies supplied approximately 72% of C&L's
inventory purchases.  Although C&L has introduced new products from
manufacturers other than Newbridge and Mitel, the loss of either vendor would
have a negative impact on C&L's operations.  C&L has no manufacturing
operations.

     Newbridge is a leading international manufacturer of digital network
communications systems.  In 1992, Newbridge acknowledged C&L as being the
largest of their authorized U.S. distributors, a distinction which it still
holds at March 30, 1996.  Mitel is an international manufacturer of call
controllers and other sophisticated business telecommunications equipment. 
C&L has been an authorized distributor of Mitel call controllers since early
1985, and C&L's management believes that its relationship with Mitel is
satisfactory.

     C&L's competition in the digital networking product market comes from
(1) other telecommunications distributors and (2) manufacturers of digital
products who sell direct.  C&L competes by offering high quality products at
competitive prices while providing technical assistance to its customers. 
C&L believes that most of its competitors do not offer C&L's level of
technical assistance.

Voice and Data Network Installation and Service Segment

     Valley offers its customers broad experience and expertise in design,
engineering, installation and testing of all major structured wiring systems
for voice and data networking.  In addition to facility wiring, Valley also
provides electronic data hardware, such as hubs, routers and bridges with
associated support, for Local and Wide Area Networks.  Valley offers
engineering expertise in fiber optics, ethernet and token rings networking,
switching products, paging systems, as well as conforming to NEC, ANSI, OSHA
and other industry standards.  As part of Valley's overall project design,
the Company works with and sells all industry standard network systems and
products.  Most of Valley's business is in local area network design and
installation.  The Company's main business is in installation projects
involving 50 or more workstations, with a floor of about $15,000 to $20,000
in total project billings, and exceeding $2,000,000 in the upper range.  In
recent years Valley has developed extensive experience in planning and
installing large projects involving fiber optic cable.

     Valley has four locations in California:  Fremont, Sacramento, Irvine
and Fresno.  Valley's business is primarily within these areas, however,
Valley is considering expanding its operations outside of California.

                                        6
<PAGE>

     Valley is a Value Added Reseller (VAR) for several of the largest
industry suppliers.  Valley is one of AT&T's largest VARs on the West Coast. 
Other structured wiring system manufacturers such as Northern Telecom have
entered into agreements with Valley to represent their product lines as well. 
An important component of Valley's success has been the cultivation of
relationships with major equipment manufacturers.  Valley is a resource for
potential customers looking for advice on hardware to use for their systems. 
Valley periodically offers seminars to its clients on new technologies and
products in conjunction with selected manufacturers.

     Valley has positioned itself through business relationships with
hardware manufacturers and design consultants to benefit from the growth in
the networking market.  Valley's growth in the low-voltage portion of the
communications market has been fueled in large part by the continuing shift
by major customers from mainframes to LAN systems, and the increasing demand
for higher data systems speeds and the cabling to handle them.  This has
resulted in ongoing, retrofit programs for existing customers in addition to
new system installations.

     Previously, local phone companies held a monopoly position on
installation and maintenance of telephone cabling within all residential and
commercial buildings in California.  In August 1993, the California Public
Utilities Commission issued an order switching responsibility for this
cabling from the local phone company to the owners of the buildings
themselves.  The owners are now responsible for managing the design,
administration, engineering, installation and maintenance of all telephone
cabling beyond the Minimum Port of Entry.  Owners will be accountable for
compliance to strict standards.  Telephone cabling can usually be installed
at the same time as other planned networking systems, for the same customers
with no additional marketing or service calls.

     Most of Valley's customers are Fortune 500 companies, large corporations
or governmental agencies.  A significant share of Valley's private sector
clients are high-tech companies.  No single customer accounts for more than
10% of consolidated sales.

     The network installation and service business in California is highly
fragmented with the strong demand for sophisticated networks being tempered
by a very competitive local business climate.

Wholesale Distribution of Meat and Seafood Segment

     APC distributes primarily beef, pork, poultry, and seafood in the
southeastern region of the United States.  APC sells primarily to retail food
outlets, meat wholesalers, food service enterprises and restaurants.  It owns
and operates a warehouse facility in Atlanta, Georgia from which it delivers
these products to its customers.  Sam's Club accounted for more than 10% of
consolidated net sales for the year ended March 30, 1996.  The products
purchased for distribution are supplied by food manufacturers and processors,
the two largest of which accounted for approximately 37% of total purchases. 
APC does not have contracts with any suppliers. 

     Wholesale meat and seafood distribution in the geographic area in which
APC operates is highly competitive.  APC competes with both national and
local food wholesalers and processors, many of which have greater financial
resources and sales volume.  Competition is based primarily on price, service
and quality of product.

                                        7
<PAGE>

Research and Development

     The Company had no significant research and development activities
during the last three fiscal years, however, the Company anticipates that,
beginning in fiscal 1997, Sattel will incur material research and development
expenses.

Environmental Protection

     Compliance with federal, state and local regulations relating to
environmental protection do not have a material effect upon capital
expenditures, operating results or the competitive position of the Company. 

Employees of Registrant

     At March 30, 1996, Diana had 496 employees, of whom 60 were within the
telecommunications equipment segment, 182 were within the voice and data
network installation and service segment, 245 were within the wholesale food
distribution segment, and 9 performed corporate functions.  In the wholesale
food distribution segment, 185 employees are truck drivers and warehousemen,
some of which are covered by a collective bargaining agreement which expires
in May 1997.  In the voice and data network installation and services
segment, 138 technicians are covered by a collective bargaining agreement
which expires in August 1998.  No work stoppage occurred in fiscal 1996.  The
Company believes that it generally has good relationships with all its
employees. 

ITEM 2.   Properties

     Diana's corporate offices are located in a leased 5,000 square foot
office located in Milwaukee.  The Company owns vacant parcels of land in 
Eldridge, Iowa.

     Sattel leases 3,600 square feet of office and warehouse space in
Chatsworth, California.

     C&L leases 8,000 square feet of warehouse space and 9,000 square feet of
office space in San Antonio, Texas.  Substantially all of C&L's assets are
pledged as collateral under its Loan and Security Agreement (see Note 4 to
the Consolidated Financial Statements).

     Valley leases 21,000 square feet of office and warehouse space which
consists of four locations in Fremont, Sacramento, Irvine and Fresno,
California.  Substantially all of Valley's assets are pledged as collateral
under its Loan and Security Agreement (see Note 4 to the Consolidated
Financial Statements).

     APC owns a 91,000 square foot building in Atlanta, Georgia which
contains its office and warehouse space.  APC owns or leases trucks used in
its distribution activities and various warehouse equipment used in its
warehouse operations.  Substantially all of APC's assets are pledged as
collateral under its Loan and Security Agreement (see Note 4 to the
Consolidated Financial Statements).

ITEM 3.   Legal Proceedings

     There are no material legal proceedings.

                                        8
<PAGE>

ITEM 4.   Submission of Matters to a Vote of Security Holders

     No matter was submitted to a vote of security holders during the fourth
quarter of fiscal 1996.

                                        9
<PAGE>
                                  PART II

ITEM 5.   Market for Registrant's Common Equity and Related
          Stockholder Matters
 
     The Company's Common Stock is traded on the New York Stock Exchange
under the symbol DNA.  The table below sets forth by quarter the high and low
sales prices of the Company's Common Stock on the New York Stock Exchange
Composite Tape for the last two fiscal years. 
 
        Fiscal                             Fiscal 
         1996                               1995 
       Quarter     High      Low          Quarter       High     Low 
 
        First      8 3/8    4 1/4          First       13 3/4   7    
        Second    13 7/8    5 5/8          Second       9 3/8   6 1/2
        Third     26 5/8   10 1/8          Third        8       5 5/8
        Fourth    30 1/2   12 3/8          Fourth       6 1/4   4     

     At June 10, 1996, the Company had 1,325 shareholders of record.  

     There were no cash dividends declared during the last two fiscal years.
The Company has no plans to pay cash dividends in the foreseeable future. 
The payment of cash dividends by the Company is restricted by the Company's
subordinated debentures which provide that the consolidated tangible net
worth of the Company cannot be reduced to less than an amount equal to the
aggregate principal amount of the subordinated debentures, or $1,254,000.

                                        10
<PAGE>

ITEM 6.  Selected Financial Data

                            THE DIANA CORPORATION
                           SELECTED FINANCIAL DATA
                  (In Thousands, Except Per Share Amounts)

<TABLE>
<CAPTION>
                           March 30,  April 1,  April 2, April 3, March, 28,
                             1996       1995     1994     1993      1992  
                           --------   -------   ------  --------  --------
                              (4)                          (3)       (2)
<S>                        <C>       <C>       <C>       <C>       <C> 
Net sales                  $267,602  $250,386  $243,641  $222,254  $161,607
                            =======   =======   =======   =======   =======
Earnings (loss) before
 items noted below.......  $ (3,365) $   (720) $  3,457  $  1,857  $ (1,013)
Extraordinary items......       ---       ---      (266)    1,318       ---
Accounting change........       ---       ---       262       ---       ---
                            -------   -------   -------   -------   -------
Net earnings (loss)......  $ (3,365) $   (720) $  3,453  $  3,175  $ (1,013)
                            =======   =======   =======   =======   =======
Earnings (loss) per
 common share:

   
Primary
 Earnings (loss) before
  items noted below......  $   (.76) $   (.17) $    .84  $    .46  $   (.24)
 Extraordinary items.....       ---       ---      (.06)      .33       ---
 Accounting change.......       ---       ---       .06       ---       ---
                            -------   -------   -------   -------   -------
   Net earnings (loss)...  $   (.76) $   (.17) $    .84  $    .79  $   (.24)
                            =======   =======   =======   =======   =======
Fully diluted
 Earnings (loss) before
  items noted below......  $   (.76) $   (.17) $    .81  $    .46  $   (.24)
 Extraordinary items.....       ---       ---      (.06)      .33       ---
 Accounting change.......       ---       ---       .06       ---       ---
                            -------   -------   -------   -------   -------
   Net earnings (loss)...  $   (.76) $   (.17) $    .81  $    .79  $   (.24)
                            =======   =======   =======   =======   =======
    

Cash dividends per common
 share...................  $    ---  $    ---  $    ---  $    ---  $    ---
                            =======   =======   =======   =======   =======

Total assets.............  $ 53,533  $ 45,327  $ 54,043  $ 46,072  $ 40,536 
Long-term debt (1).......     4,006     3,307     3,784     3,853     3,409
Working capital..........    13,283    15,489    19,007    17,490    18,942
Shareholders' equity.....    24,686    19,729    18,852    15,492    12,326

               

<FN>

(1)  Includes current portion of long-term debt.

(2)  The fourth quarter of fiscal 1992 contains the results of C&L, which
     was acquired in December 1991.

(3)  Fiscal 1993 contains 53 weeks.  All other years contain 52 weeks. 

(4)  See Note 2 of the Notes to Consolidated Financial Statements regarding
     the acquisition of Sattel and Valley.

</TABLE>
                                        11
<PAGE>

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

     Results of Operations - Fiscal Year Ended March 30, 1996
     versus April 1, 1995

     In fiscal 1996, the Company acquired an 80% ownership interest in Valley
and increased its ownership interest in Sattel from 50% to 80%.  The results
of operations of Valley were included in the consolidated group beginning in
December 1995 and Sattel beginning in January 1996 (see Notes 1 and 2 to the
Consolidated Financial Statements).

     The following is a summary of sales by segment (see Note 14 to the
Consolidated Financial Statements) for fiscal 1996 and 1995, including sales
by significant product line for the meat and seafood segment (in thousands):

                                             1996           1995

       Telecommunications equipment       $ 25,350       $ 35,245
       Network installation and service      6,144            ---

       Beef                                109,785        107,055
       Pork                                 46,822         42,700
       Other                                79,501         65,386
                                           -------        -------
       Meat and seafood total              236,108        215,141
                                           -------        -------
                                          $267,602       $250,386
                                           =======        =======
     For the fiscal year ended March 30, 1996, net sales increased
$17,216,000 or 6.9% over fiscal 1995.  C&L's net sales decreased $9,895,000
or 28.1% from fiscal 1995.  C&L's sales decrease is due primarily to lower
call controller sales and lower sales of digital network communications
products (see further discussion below).  APC's net sales increased
$20,967,000 or 9.7% over fiscal 1995 net sales.  APC's overall volume (based
on tonnage) during this period increased by 3.4%.  The increase in APC's net
sales is primarily attributable to increased business resulting from the
addition of Sam's Club as a customer in December 1994.  Approximately 31.8%
of consolidated net sales for the year ended March 30, 1996 were made by APC
to two customers.  As discussed above, Valley's fiscal 1996 sales are for a
four month period beginning in December 1995.  Sattel did not make any sales
outside the consolidated group within the period from January 1996 to March
1996.

     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.  Long
distance carriers have historically been the largest customer group
purchasing call controllers.  The decrease in long distance carriers has and
will continue to result in lower unit sales of call controllers.  Equal
access is the ability of a long distance customer to access a long distance
carrier by dialing 1 and not a string of long dialing codes.  One of the
functions of the call controller is to simplify the access to a carrier
network that is not provided equal access.  Once access to the carrier
network is simplified through equal access, the need for a call controller
for this purpose is eliminated.  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

                                        12
<PAGE>

                   MANAGEMENT'S DISCUSSION AND ANALYSIS
             OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations - (Cont.)

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 frame
relay, digital switches, ATM and ISDN.

     For the fifty two weeks ended March 30, 1996, other income (loss)
improved from a loss of $417,000 to income of $519,000.  During fiscal 1996,
the Company had gains on sales of marketable securities of $26,000 as
compared to a loss of $1,227,000 incurred during fiscal 1995.  In addition,
during fiscal 1996, the Company had smaller amounts of investments in
corporate debt as compared to fiscal 1995 resulting in lower interest income. 
The components of other income (loss) are shown in Note 9 to the Consolidated
Financial Statements.

     In fiscal 1996 gross profit decreased $506,000 or 4.5% from fiscal 1995. 
On a consolidated basis, gross profit as a percentage of net sales was 4.0%
as compared to 4.5% in fiscal 1995.  Gross profit was adversely impacted
primarily by decreases in C&L's sales and gross profit margins.  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 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 sales and margins (see further
discussion below).  

     For the fiscal year ended March 30, 1996, selling and administrative
expenses increased $2,071,000 or 20.1% over fiscal 1995.  Selling and
administrative expenses have increased primarily because of the inclusion of
Valley's and Sattel's results subsequent to the transactions discussed in the
first paragraph.  Selling and administrative expenses as a percentage of net
sales was 4.6% in fiscal 1996 as compared to 4.1% in fiscal 1995.

   
     As a result of recent efforts to sell APC, the Company has concluded
there has been a decrease in the fair value of APC which did not support the
recoverability of the remaining goodwill balance related to the acquisition
of APC.  The determination of fair value was based on the sales price
included in a letter of intent and asset purchase agreement relating to a
proposed sale of APC.  The sales price of the assets of APC to be sold (which
excluded goodwill and other noncurrent assets) was generally at book value. 
The buyer had the option to purchase all of APC's fixed assets at $2,800,000
or to enter into a triple net lease with APC.  The carrying amount of each
major component of APC's assets are:  current assets - $14,523,000, fixed
assets - $3,170,000 and other noncurrent assets (excluding goodwill) -
$355,000.  The Company has prepared projections of APC's cash flows (before
interest expense) for fiscal 1997-1999 which reflect cash flow of
approximately $3.6 million.  During the fourth quarter of fiscal 1996, the
Company concluded that an impairment of goodwill has occurred and wrote off
the remaining goodwill of $852,000 originally attributable to the acquisition
of APC.  The goodwill write off has no effect on the Company's cash flow or
tangible shareholders' equity.  On August 12, 1996, all negotiations and
agreements with third parties concerning the proposed sale of APC were
terminated.
    
                                        13
<PAGE>

                  MANAGEMENT'S DISCUSSION AND ANALYSIS
             OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations - (Cont.)

     For the fiscal year ended March 30, 1996, interest expense decreased
$22,000 or 2.0% from fiscal 1995.  The decrease is primarily attributable to 
lower borrowings by C&L under its line of credit due to reduced receivable
and inventory levels.

     Equity in loss of unconsolidated subsidiaries increased to a loss of
$370,000 in fiscal 1996 from a loss of $69,000 in fiscal 1995.  The
components of these losses are shown in Note 11 to the Consolidated Financial
Statements.  The increase in the loss is primarily due to an increased loss
incurred by Sattel attributable to the development of its business prior to
the inclusion of Sattel in the Company's Consolidated Financial Statements in
January 1996 (see Note 1 to the Consolidated Financial Statements).  

     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 the other departed
personnel.

     Results of Operations - Fiscal Year Ended April 1, 1995
     versus April 2, 1994

     The following is a summary of sales for fiscal 1995 and 1994, including
sales by significant product line for APC (in thousands):

                                             1995           1994

          Telecommunications equipment    $ 35,245       $ 28,308

          Beef                             107,055        116,557
          Pork                              42,700         40,770
          Other                             65,386         58,006
                                           -------        -------
          Meat and seafood total           215,141        215,333
                                           -------        -------
                                          $250,386       $243,641
                                           =======        =======
     For the fiscal year ended April 1, 1995, net sales increased $6,745,000
or 2.8% over fiscal 1994.  C&L's net sales increased $6,937,000 or 24.5% over
fiscal 1994.  C&L's sales increase is due primarily to increased sales of
call controllers (see discussion in the following paragraph) and products
used in digital networks for integrated voice and data communications
systems.  APC's net sales decreased $192,000 or .1% over fiscal 1994 net
sales.  APC's overall volume (based on tonnage) during this period increased
by 1.8%.

                                        14
<PAGE>

                  MANAGEMENT'S DISCUSSION AND ANALYSIS
             OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations - (Cont.)

     During the second quarter of fiscal 1995 C&L completed the sale of call
controllers pursuant to a purchase commitment made by a customer in fiscal
1994.  This order resulted in call controller sales of $3,648,000 in fiscal
1995.  Sales attributable to this order significantly impacted the increase
in C&L's year-to-date call controller  sales and total year-to-date sales
over the prior year results.  During the fourth quarter of fiscal 1995, C&L's
sales were 10% below fourth quarter fiscal 1994 sales.  This decrease in
sales is primarily attributable to lower call controller sales.  The fourth
quarter of fiscal 1994 included sales under the purchase commitment referred
to above.   In addition,  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.

     The components of other income (loss) are disclosed in Note 9 to the
Consolidated Financial Statements.  The decrease in other income (loss) is
attributable to lower interest income from marketable securities and losses
incurred on the disposition of marketable securities.  The increase in
interest rates during fiscal 1995 adversely impacted Diana's marketable
securities which prior to the end of the second quarter of fiscal 1995
consisted primarily of investments in corporate debt obligations. 
Consequently, Diana's corporate office has reduced its investment in these
securities resulting in reduced interest income and losses on investments
that were sold.  In addition, during fiscal year 1994, Diana recorded
$747,000 of interest income resulting from the refund of federal income taxes
of $400,000 (shown separately as an income tax credit) paid in a prior year.

     In fiscal 1995 gross profit increased $287,000 or 2.6% over fiscal 1994. 
On a consolidated basis, gross profit as a percentage of net sales was 4.5%
in fiscal 1995 unchanged from fiscal 1994.  C&L's gross profit percentage was
19.5% in fiscal 1995 as compared to 20.7% in fiscal 1994.  The decrease in
C&L's gross profit percentage is due to a lower gross profit percentage
achieved on the large call controller sale discussed above and to an
increasingly competitive market for products used in digital networks for
integrated voice and data communications systems.  APC's gross profit
percentage was 2% in fiscal 1995 as compared to 2.3% in fiscal 1994.  APC's
fiscal 1995 gross profit and gross profit percentage decreased from fiscal
1994 primarily due to increased transportation and warehouse costs and
inventory losses due to inefficiencies in APC's warehouse and transportation
operations (see discussion below) partially offset by lower product costs. 

     For the fiscal year ended April 1, 1995, selling and administrative
expenses increased $1,157,000 or 12.6% over fiscal 1994.  Selling and
administrative expenses have increased primarily because of increased selling
and advertising expenses incurred by C&L to penetrate new and existing
markets.  During fiscal 1995 C&L incurred expenses attributable to the
development and distribution of an updated product catalog, increased
participation in trade shows and increased advertising and promotional
efforts.  In addition, C&L attempted to expand its business outside of the
United States through the development of an international sales department
and the opening of a sales and distribution office in Mexico.  As a result of
these efforts, C&L increased its business as evidenced by the sales increase
of 24.5% in fiscal 1995 as compared to fiscal 1994.   The attempt to expand 

                                        15
<PAGE>

                   MANAGEMENT'S DISCUSSION AND ANALYSIS
             OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations - (Cont.)

international business was unsuccessful due to the devaluation of the Peso
and the international sales department and office in Mexico were closed. 
Selling and administrative expenses as a percentage of net sales was 4.1% in
fiscal 1995 as compared to 3.8% in fiscal 1994.

     For the fiscal year ended April 1, 1995, interest expense decreased
$93,000 or 7.8% over fiscal 1994.  The decrease is primarily attributable to
a reduction in short term borrowings by Diana's corporate office.  Diana's
corporate office utilized short term (margin) borrowings to purchase some
marketable securities.  Some of the proceeds from the sale of marketable
securities as discussed above were used to repay all of the short term
borrowings.

     The decrease in minority interest is attributable to the Company's
acquisition of the remaining 20% of C&L's common stock from its minority
shareholders.

     In fiscal 1995, APC incurred increased warehouse and transportation
payroll expenses and inventory losses.  Consequently, APC made management
changes and implemented new procedures in an attempt to improve its warehouse
and transportation operations.  Furthermore, during the latter part of fiscal
1995's third quarter, APC began selling to Sam's Club.  APC services the
Southeastern region of this national warehouse club.  Sam's Club generated a
significant amount of volume at margins that were lower than APC's average
historical margins.  Initially, the addition of this new business increased
the operational costs discussed above which management believes is the
primary reason for the loss of $749,000 incurred in the fourth quarter of
fiscal 1995.

Liquidity and Capital Resources

     The Company recorded cash flow from operating activities of $1,368,000
as compared to $6,717,000 in fiscal 1995.  The decrease in cash flow is
primarily attributable to an increase in net loss and less cash provided by
the net change in working capital items.  The increase in receivables is
primarily attributable to the acquisition of Valley partially offset by
reduced receivables at APC and C&L.  The increase in accounts payable is
primarily attributable to the acquisition of Valley.

     Marketable securities decreased in fiscal 1996 primarily due to the
Company's decision to invest its excess funds in more liquid investments so
that cash is more readily available for its operating requirements.  The
Company generated cash of $5,380,000 through sales of marketable securities.

     In fiscal 1996, the Company had $696,000 of capital expenditures
consisting primarily of purchases by APC to improve its distribution facility
and Sattel for the development of its business.  The Company estimates that
fiscal 1997 capital expenditures will approximate $1.8 million.  Significant
capital expenditures are anticipated for testing equipment for Sattel and for
trailers and equipment for APC.  The revolving line of credit agreements
discussed in Note 4 to the Consolidated Financial Statements include
covenants that limit fiscal 1997 capital expenditures for C&L, Valley and APC
to $1,100,000.

                                        16
<PAGE>

   
     In fiscal 1996, the Company utilized cash of $4,412,000 in connection
with advances made to Sattel and its acquisitions of Valley and its
additional 30% interest in Sattel (see Note 2 to the Consolidated Financial
Statements).  The Company utilized cash of $3,320,000 for the acquisition of
Valley.  In addition, the Company received $1 million of seller financing
which is payable over a 5 year period at $200,000 per year.  The Company
believes that Valley will generate sufficient cash flow from operations,
after the payment of dividends to Valley's minority shareholders, to service
the acquisition debt.  The Company may be required to make future payments to
the sellers through fiscal 2001 based on a percentage of Valley's pretax
earnings as further described in Note 2 to the Consolidated Financial
Statements if Valley's pretax earnings are in excess of certain defined
levels.  This arrangement was established to provide the Company a return on
its investment in Valley prior to the payment by the Company of additional
purchase price to the Valley minority shareholders.  Additional purchase
price payments will not have an adverse effect on liquidity due to the
minimum earning levels of Valley that are required.  Any such payments will
have the effect of limiting the return on the investment in Valley to the
extent of the payments.
    

     APC, C&L and Valley have separate revolving line of credit facilities
which provide working capital financing to these subsidiaries.  The terms of
these credit facilities and related borrowings and credit availability under
these credit facilities is described in Note 4 to the Consolidated Financial
Statements.

   
     APC's revolving line of credit facility ("APC Revolver") contains
financial covenants requiring a minimum level of tangible net worth, earnings
and net cash flow.  The following is a comparison of APC's performance
against the covenants at March 30, 1996 (in thousands):

                                      Covenant        Actual
                                     Requirement    Performance

          Tangible Net Worth         $ 3,900,000     $ 5,575,000
                                      ==========      ==========
          Earnings                      (400,000)     (1,045,000)
                                      ==========      ==========
          Net Cash Flow                  230,000         449,000
                                      ==========      ==========
    
   
At March 30, 1996 APC failed to satisfy the earnings covenant due to the
write off of goodwill of $852,000.  In June 1996, APC and its lender entered
into a waiver and amendment agreement relating to the APC Revolver in order
to avoid violating certain financial covenants at March 30, 1996 and in
fiscal 1997.  The amended APC Revolver provides for the following financial
covenants during fiscal 1997:  minimum tangible net worth of $3,900,000
through March 28, 1997 and $4,400,000 on March 29, 1997, a net loss of not
greater than $40,000 and net cash flow on a rolling 13-period basis (measured
at the end of each four week period) ranging from $385,000 to $500,000. 
Based upon APC's projections, the Company believes that APC will have
adequate working capital for fiscal 1997.  Because the APC Revolver provides
for repayment of borrowings after a 90 day notice from the lender, the
indebtedness is classified as short term.  The fiscal 1995 financial
statements have been reclassified to conform to fiscal 1996 presentation.  In
October 1996, APC refinanced its revolving line of credit with a new lender. 
The new credit facility provides for a revolving line of credit up to $10
million with certain terms more favorable than the previous credit facility.
    
                                        17
<PAGE>

     C&L's revolving line of credit facility ("C&L Revolver") contains
financial covenants requiring minimum levels of tangible net worth and pretax
income computed on a rolling 12-month basis, a minimum ratio of current
assets to current liabilities and a maximum ratio of total liabilities to
tangible net worth.  At March 30, 1996, C&L failed to satisfy the pretax
income requirement.  In June 1996, C&L and its lender entered into a waiver
and amendment agreement relating to the C&L Revolver in order to avoid
violating certain financial covenants at March 30, 1996 and in fiscal 1997. 
The amended C&L Revolver provides for the following financial covenants
during fiscal 1997:  minimum tangible net worth of $2,000,000; minimum
cumulative income from operations, calculated on a quarterly basis of
$115,000, $446,000, $730,000 and $1,174,000, respectively; a current ratio of
1:1 and a maximum ratio of total liabilities to equity of 6:1.   At June 27,
1996, based upon the representations and projections of C&L's management, the
Company believes that C&L will meet the financial covenants during fiscal
1997 or will obtain any required waivers from the lender.

     In May 1996, the Company contributed an additional $10 million to
Sattel.  Sattel loaned $5 million to CNC pursuant to a Promissory Note due
September 30, 1996 in favor of Sattel which is convertible into CNC Series D
Preferred Stock under certain conditions outlined in the Note.  In addition,
Sattel may, pursuant to the terms of the Memorandum of Understanding, invest
an additional $5,000,000 in Series D Preferred Stock of CNC.

     In the fourth quarter of fiscal 1996 and in the first quarter of fiscal
1997, the Company raised approximately $17.4 million, after commissions and
expenses, through the sale of 600,000 shares of Common Stock.  The Company
believes that it has adequate resources to meet its liquidity needs for
fiscal 1997.  On a long term basis, financing for the Company's operations,
including working capital requirements for Sattel and capital expenditures,
will come from cash generated from operations, the sale of additional equity
or other securities, additional bank borrowings and other sources of capital,
if available.  The Company intends to file a registration statement in July
1996 for shelf registration of up to 500,000 shares of common stock, which
may be sold in fiscal 1997 if conditions warrant.  

   
     The Company is investigating how it can be restructured in order to
maximize shareholder value.  Management is currently looking at several
alternative approaches, based on separating operating units by industry type
into independent publicly traded companies.  Management will present their
restructuring plans to the Board as soon as possible.  Management has
retained the services of Hambrecht & Quist, LLC, an investment banking firm,
to assist them with this effort.
    

Forward Looking Statements

   
     The following may be considered "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995:  the
Company's estimate of fiscal 1997 capital expenditures, the statements that
the Company believes APC and C&L will meet financial covenants in its loan
agreement or obtain any required waivers during fiscal 1997, the Company
believes that it and APC will have adequate working capital in fiscal 1997,
the Company's estimate of APC's cash flows for fiscal 1997-1999 will be
approximately $3.6 million and the Company believes that Valley will generate
sufficient cash flows from operations to service the acquisition debt
incurred for the Valley acquisition.  Actual results or developments may
differ materially from those contained in the forward looking statements. 
Factors which may cause such a difference to occur include but are not

                                        18
<PAGE>

limited to (i) whether extraordinary repairs are needed to APC's distribution
facility, (ii) whether the Company can continue to grow its business, (iii)
whether the Company can control the operating expenses of APC which began to
increase in fiscal 1994, (iv) product demand, competition, the cost of
products, and industry conditions, (v) whether vendors continue to provide
credit to APC on satisfactory terms, (vi) whether APC's secured lender
exercises its demand right or grants any necessary waivers and (vii) new
competitors entering APC's marketplace and (viii) the risks and uncertainties
discussed in Item 1 relating to Sattel's business.
    

Accounting Pronouncements

     Effective April 2, 1994, the Company adopted the provisions of SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities".  The
effect as of April 2, 1994 of adopting SFAS No. 115 increased net earnings by
$412,000, or $.10 per fully diluted share.

   
        In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of."  This statement establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of. 
This statement is effective for financial statements for fiscal years
beginning after December 15, 1995.  Management has concluded that an
impairment of APC's assets has not occurred based on the operating cash flows
of approximately $1.2 million (before interest expense) generated by APC
during fiscal 1996 and estimates of APC's cash flows for future periods.  The
Company believes that the adoption of this standard will not have a material
effect on its consolidated results of operations or financial position.
    

        In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-
Based Compensation."  This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans and is
effective for fiscal years beginning after December 15, 1995.  The Company
has decided to continue accounting for employee stock compensation under
currently existing accounting principles, but will disclose pro forma results
using the new standard's alternative accounting treatment as is permitted
under SFAS No. 123.

     Effective April 4, 1993, the Company adopted the liability method of
accounting for income taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes".  The cumulative effect as of April 4, 1993 of adopting SFAS
No. 109 increased net earnings for fiscal 1994 by $262,000.

Impact of Inflation

     Inflation has not had a significant impact on net sales or earnings
(loss) before extraordinary items or accounting change for the three most
recent fiscal years.

                                        19
<PAGE>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                  THE DIANA CORPORATION AND SUBSIDIARIES




                                                                   PAGE

Report of Price Waterhouse LLP, Independent Accountants.........    21  

Report of Ernst & Young LLP, Independent Auditors...............    22
 
Consolidated Balance Sheets.....................................    23
 
Consolidated Statements of Operations...........................    24
 
Consolidated Statements of Changes in Shareholders' Equity......    25
 
Consolidated Statements of Cash Flows...........................    26
 
Notes to Consolidated Financial Statements......................    27

                                        20
<PAGE>

                      REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Shareholders
of The Diana Corporation


In our opinion, the consolidated financial statements listed under Item
14(a)(1) and (2) appearing in this report present fairly, in all material
respects, the financial position of The Diana Corporation and its
subsidiaries at March 30, 1996, and the results of their operations and their
cash flows for the year 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 audit.  We conducted our audit 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 audit
provides a reasonable basis for the opinion expressed above.



   
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
June 27, 1996, except as to the stock dividend described in Note 17 which is
as of October 2, 1996
    

                                   21
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors and Shareholders
The Diana Corporation


We have audited the accompanying consolidated balance sheet of The
Diana Corporation and subsidiaries (the Company) as of April 1,
1995, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for each of the two
years in the period ended April 1, 1995.  Our audits also included
the financial statement schedules as of April 1, 1995 and for each
of the two years in the period ended April 1, 1995 listed in the
Index at Item 14(a).  These financial statements and schedules are
the responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial statements and
schedules based on our audits.  

We conducted our audits in accordance with generally accepted
auditing standards.  Those standards 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.  An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of The Diana Corporation and subsidiaries at April 1,
1995, and the consolidated results of its operations and its cash
flows for each of the two years in the period ended April 1, 1995,
in conformity with generally accepted accounting principles.  Also,
in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information
set forth therein.

As discussed in Note 10 to the consolidated financial statements,
the Company changed its method of accounting for income taxes,
effective April 4, 1993.  


Milwaukee, Wisconsin                            ERNST & YOUNG LLP
June 2, 1995

                                   22
<PAGE>

                    THE DIANA CORPORATION AND SUBSIDIARIES 
                         CONSOLIDATED BALANCE SHEETS 
                           (Dollars in Thousands)
<TABLE>
<CAPTION>
                                                       March 30,  April 1,
                                                         1996       1995 
                                                       --------   -------
                                  ASSETS
<S>                                                     <C>       <C>
Current assets 
  Cash and cash equivalents............................ $ 6,254   $ 2,440 
  Marketable securities................................   1,215     6,211
  Receivables, less allowance for
   doubtful accounts of $772 and $600..................  16,171    14,785
  Inventories..........................................  12,337    12,237
  Other current assets.................................   1,009       690
                                                         ------    ------
    Total current assets...............................  36,986    36,363

Property and equipment         
  Land.................................................     357       357
  Building and improvements............................   4,702     4,400
  Fixtures and equipment...............................   4,182     3,298
                                                         ------    ------
                                                          9,241     8,055
  Less accumulated depreciation........................  (5,083)   (4,252)
                                                         ------    ------
                                                          4,158     3,803

Intangible assets......................................  11,585     4,137 
Other assets...........................................     804     1,024
                                                         ------    ------
                                                        $53,533   $45,327
                                                         ======    ======

                   LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Accounts payable..................................... $13,707   $12,355
  Accrued liabilities..................................   2,514     1,390
  Revolving line of credit.............................   7,038     6,803
  Current portion of long-term debt....................     444       326
                                                         ------    ------
        Total current liabilities......................  23,703    20,874

Long-term debt.........................................   3,562     2,981
Other liabilities .....................................   1,582     1,743
Commitments and contingencies (Note 6).................

Shareholders' equity
  Preferred stock - $.01 par value.
   Authorized 5,000,000 shares; none issued............     ---       ---
  Common stock - $1 par value.  Authorized 15,000,000
   shares; issued 5,526,282 and 4,810,353 shares.......   5,526     4,810
  Additional paid-in capital...........................  59,456    48,548
  Accumulated deficit.................................. (34,776)  (28,178)
  Unrealized loss on marketable securities.............    (876)     (713)
  Treasury stock at cost...............................  (4,644)   (4,738)
                                                         ------    ------
        Total shareholders' equity.....................  24,686    19,729
                                                         ------    ------
                                                        $53,533   $45,327
                                                         ======    ======
</TABLE>
              See notes to consolidated financial statements.

                                        23
<PAGE>

                    THE DIANA CORPORATION AND SUBSIDIARIES 
                    CONSOLIDATED STATEMENTS OF OPERATIONS 
                   (In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
                                                   Fiscal Year Ended      
                                            ------------------------------
                                            March 30,  April 1,   April 2,
                                              1996       1995       1994  
                                            --------   --------   --------
<S>                                         <C>        <C>        <C>
Net sales..............................     $267,602   $250,386   $243,641
Other income (loss)....................          519       (417)     2,697
                                             -------    -------    -------
                                             268,121    249,969    246,338

Cost of sales..........................      256,920    239,198    232,740
Selling and administrative expenses....       12,385     10,314      9,157
Write-off of goodwill..................          852        ---        ---
                                             -------    -------    -------
Operating earnings (loss)..............       (2,036)       457      4,441

Interest expense.......................       (1,076)    (1,098)    (1,191)
Non-operating income...................           95         34        ---
Income tax credit (expense)............          (87)       ---        400
Equity in earnings (loss) of        
  unconsolidated subsidiaries..........         (370)       (69)        97
Minority interest......................          109        (44)      (290)
                                             -------    -------    -------
Earnings (loss) before extraordinary 
  item and accounting change...........       (3,365)      (720)     3,457

Extraordinary item.....................          ---        ---       (266)
                                             -------    -------    -------
Earnings (loss) before accounting 
  change...............................       (3,365)      (720)     3,191

Cumulative effect of accounting change.          ---        ---        262
                                             -------    -------    -------
Net earnings (loss)....................     $ (3,365)  $   (720)  $  3,453
                                             =======    =======    =======
   
Earnings (loss) per common share:
 Primary                 
   Before extraordinary item...........     $   (.76)  $   (.17)  $    .84
   Extraordinary item..................          ---        ---       (.06)
   Accounting change...................          ---        ---        .06
                                             -------    -------    -------
   Net earnings (loss).................     $   (.76)  $   (.17)  $    .84
                                             =======    =======    =======
 Fully diluted                 
   Before extraordinary item...........     $   (.76)  $   (.17)  $    .81
   Extraordinary item..................          ---        ---       (.06)
   Accounting change...................          ---        ---        .06
                                             -------    -------    -------
   Net earnings (loss).................     $   (.76)  $   (.17)  $    .81
                                             =======    =======    =======
Weighted average number of common
 shares outstanding
   Primary.............................        4,401      4,224      4,108
                                             =======    =======    =======
   Fully diluted.......................        4,401      4,224      4,255
                                             =======    =======    =======
    
</TABLE>
              See notes to consolidated financial statements.

                                        24
<PAGE>

                           THE DIANA CORPORATION AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                     (Dollars in Thousands)
<TABLE>
<CAPTION>
                                     Common Stock     Additional               Unrealized Loss      Treasury Stock        Total
                                  Number of    Par     Paid in    Accumulated   on Marketable     Number of            Shareholders'
                                    Shares    Value    Capital      Deficit      Securities        Shares      Cost       Equity   
<S>                               <C>        <C>       <C>        <C>             <C>             <C>        <C>         <C>
Balance at April 3, 1993          4,637,530  $ 4,638   $ 45,786   $ (27,818)      $   ---         1,344,667  $(7,114)    $ 15,492
Net earnings                            ---      ---        ---       3,453           ---               ---      ---        3,453
5% stock dividend                       ---      ---        214      (1,084)          ---          (163,889)     866           (4)
Exercise of stock options               ---      ---        (47)        ---           ---           (15,500)      82           35
Unrealized loss on
 marketable securities                  ---      ---        ---         ---          (412)              ---      ---         (412)
Other                                   ---      ---        288         ---           ---               ---      ---          288  
                                  ---------   ------    -------    --------        ------         ---------  -------      -------
Balance at April 2, 1994          4,637,530    4,638     46,241     (25,449)         (412)        1,165,278   (6,166)      18,852
Net loss                                ---      ---        ---        (720)          ---               ---      ---         (720)
5% stock dividend                   172,823      172      1,830      (2,009)          ---               ---      ---           (7)
Exercise of stock options               ---      ---        (14)        ---           ---            (4,500)      24           10
Change in unrealized loss on 
 marketable securities                  ---      ---        ---         ---          (301)              ---      ---         (301)
Acquisition of minority interest        ---      ---        491         ---           ---          (265,262)   1,404        1,895
                                  ---------   ------    -------    --------       -------         ---------  -------      -------   
Balance at April 1, 1995          4,810,353    4,810     48,548     (28,178)         (713)          895,516   (4,738)      19,729
Net loss                                ---      ---        ---      (3,365)          ---               ---      ---       (3,365)
5% stock dividend                   195,929      196      3,022      (3,233)          ---               ---      ---          (15)
Exercise of stock options               ---      ---        (39)        ---           ---           (12,300)      65           26
Change in unrealized loss on
 marketable securities                  ---      ---        ---         ---          (163)              ---      ---         (163)
Acquisition of Sattel               350,000      350      4,594         ---           ---               ---      ---        4,944
Issuance of common stock            170,000      170      3,315         ---           ---               ---      ---        3,485   
Other                                   ---      ---         16         ---           ---            (5,524)      29           45
                                  ---------   ------    -------    --------       -------         ---------  -------      -------
Balance at March 30, 1996         5,526,282  $ 5,526   $ 59,456   $ (34,776)     $   (876)          877,692 $ (4,644)    $ 24,686
                                  =========   ======    =======    ========       =======         =========  =======      =======

</TABLE>
                       See notes to consolidated financial statements.

                                                                 25
<PAGE>
                    THE DIANA CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS 
                               (In Thousands)
<TABLE>
<CAPTION>
                                                    Fiscal Year Ended      
                                             ------------------------------
                                             March 30,  April 1,   April 2,
                                               1996       1995       1994  
                                             --------   --------   --------
<S>                                          <C>        <C>        <C>
Operating activities
 Earnings (loss) before extraordinary        
  items and accounting change..........      $(3,365)   $  (720)   $ 3,457
 Adjustments to reconcile earnings
  (loss) to net cash provided (used) by
  operating activities:
   Loss (gain) on sale of
    marketable securities..............          (26)     1,227       (479)
   Depreciation and amortization.......        1,441      1,154      1,098
   Provision for losses on accounts
    receivable.........................          509        313        153
   Write-off of goodwill...............          852        ---        ---
   Equity in loss (earnings) of
    unconsolidated subsidiaries........          370         69        (97)
   Minority interest...................         (109)        44        290
   Payments of net liabilities of
    unconsolidated subsidiary..........         (242)       (95)      (361)
   Other...............................         (256)       311        (14)
   Changes in current assets and 
    liabilities........................        2,194      4,414     (4,355)
                                              ------     ------     ------
Net cash provided (used) by operating
 activities............................        1,368      6,717       (308)

Investing activities
 Purchases of property and equipment...         (696)      (599)      (555)
 Affiliate advances and acquisitions,
  net of cash acquired.................       (4,412)       ---     (1,983)
 Purchases of marketable securities....         (475)    (5,647)   (20,218)
 Sales of marketable securities........        5,380      9,276     21,031
 Collection of notes receivable........          138        194        252
 Other.................................           55       (195)       ---
                                              ------     ------     ------
Net cash provided (used) by investing
 activities............................          (10)     3,029     (1,473)

Financing activities
 Changes in short-term borrowings......          236     (5,667)     1,190 
 Payments on long-term debt............       (1,265)      (478)      (390)
 Payments toward bond settlements......          ---     (2,822)      (178)
 Common stock issued...................        3,485        ---        --- 
                                              ------     ------     ------
Net cash provided (used) by financing
 activities............................        2,456     (8,967)       622
                                              ------     ------     ------
Increase (decrease) in cash and cash
 equivalents...........................        3,814        779     (1,159)

Cash and cash equivalents at the 
 beginning of the year.................        2,440      1,661      2,820
                                              ------     ------     ------
Cash and cash equivalents at the end of
 the year..............................      $ 6,254    $ 2,440    $ 1,661
                                              ======     ======     ======
</TABLE>
                See notes to consolidated financial statements. 

                                        26
<PAGE>
 
                    THE DIANA CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                MARCH 30, 1996


NOTE 1 - Summary of Significant Accounting Policies

Basis of Presentation
 
     The consolidated group (hereafter referred to as the "Company") included
the following companies during the past three years.  The following describes
each entity in the consolidated group and its current status:

     The Diana Corporation ("Diana")
             Diana and its wholly-owned subsidiaries are included in the
        consolidated group for all three fiscal years.  

     Sattel Communications ("Sattel")
             Diana had a 50% ownership interest in Sattel and accounted for its
        investment in Sattel using the equity method of accounting from November
        1994 to December 1995.  In January 1996, Diana increased its ownership
        interest in Sattel from 50% to 80%.  Sattel was included in the
        consolidated group effective January 1996.  Sattel is a provider of
        central office voice and data switching equipment for communications
        providers worldwide.

     C&L Communications, Inc. ("C&L")
             C&L is included in the consolidated group for all three fiscal
        years.  Effective June 1994, Diana increased its ownership interest in
        C&L from 80% to 100%.  C&L is a distributor of telecommunications
        equipment for wide area and local area integrated networks to transport
        voice, data and video communications primarily in North America.

     Valley Communications, Inc. ("Valley")
             Valley was acquired by C&L on November 20, 1995 and is included in
        the consolidated group subsequent to the acquisition date.  C&L owns 80%
        of Valley.  Valley provides design, installation and service for voice
        and data networks and equipment primarily in California.

     Entree Corporation ("Entree")
             Entree and its wholly-owned subsidiary, Atlanta Provision Company,
        Inc. ("APC"), are included in the consolidated group for all three
        fiscal years.  APC distributes meat and seafood in the southeastern
        United States.  A majority of APC's sales are to retail food stores and
        meat wholesalers, with the remaining sales to food service enterprises
        and restaurants.  Diana owns 81.25% of Entree.

     Investments in 20%-50% owned subsidiaries in which management has the
ability to exercise significant influence are accounted for using the equity
method of accounting (see Note 11).  Accounts and transactions between
members of the consolidated group are eliminated in the consolidated
financial statements. 

   
     In fiscal 1996, the minority interest attributable to the 20% owners of
Sattel and Valley amounted to $507,000 and is included in other liabilities.
    

                                        27
<PAGE>

NOTE 1 - Summary of Significant Accounting Policies (Continued)

Fiscal Year

     The Company's fiscal year ends on the Saturday closest to March 31.
There were 52 weeks in all years presented. 

Financial Instruments

     The carrying value of cash and cash equivalents, marketable securities,
receivables, accounts payable and borrowings at March 30, 1996 and April 1,
1995 approximate fair value.

Marketable Securities

     The Company accounts for marketable securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."  Under SFAS No. 115,
management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance
sheet date.  Debt securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to
maturity.  Held-to-maturity securities are stated at amortized cost, adjusted
for amortization of premiums and accretion of discounts to maturity.  Such
amortization is included in other income (loss).  Marketable equity
securities and debt securities not classified as held-to-maturity are
classified as available-for-sale.  Available-for-sale securities are carried
at fair value (based on published market values), with the unrealized gains
and losses reported in a separate component of shareholders' equity.  The
amortized cost of debt securities is adjusted for amortization of premiums
and accretion of discounts to maturity.  Such amortization is included in
other income (loss).  Realized gains and losses, interest income and
dividends are included in other income (loss).  For purposes of determining
the gain or loss on a sale, the cost of securities sold is determined using
the average cost of all shares of each such security held at the dates of
sale.  

Concentrations of Risk

     APC performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral.  Receivables from APC's
customers are generally due within 7 to 30 days.  Approximately 31.8% of
consolidated net sales for the year ended March 30, 1996 were made by APC to
two customers.  Approximately 14.1% of consolidated receivables at March 30,
1996 were due from these two customers.

     Approximately 72% of C&L's inventory purchases are from two companies. 
The loss of either company would have a negative impact on C&L's operations.

Inventories
 
     Inventories, consisting of finished product, are stated at the lower of
cost or market.  Items are removed from inventory based on the specific
identification method or the average cost method. 

                                        28
<PAGE>

NOTE 1 - Summary of Significant Accounting Policies (Continued)

Property and Equipment

     Property and equipment are stated at cost.  Provisions for depreciation
are computed on the straight-line method for financial reporting purposes
over 3 to 10 years for equipment and 5 to 25 years for building and
improvements.  Depreciation for income tax purposes is computed on
accelerated cost recovery methods.  Expenditures which substantially increase
value or extend asset lives are capitalized.  Expenditures for maintenance
and repairs are charged to expense as incurred.

Intangible Assets

     Intangible assets consist of the following (in thousands):

                                             1996      1995

          Intellectual property rights     $ 5,029    $  ---  
          Goodwill                           5,491     2,846
          Covenants not to compete           1,021     1,291
          Other                                 44       ---
                                            ------     -----
                                           $11,585    $4,137
                                            ======     =====
     Intellectual property rights are amortized on a straight line basis over
a 20 year period.  Goodwill is amortized on a straight line basis over 5-40
years.  Covenants not to compete are amortized over the non-compete periods
of 5-7 years.  Accumulated amortization was $1,930,000 and $1,598,000 at
March 30, 1996 and April 1, 1995, respectively.

   
     Goodwill is reviewed for impairment whenever events or circumstances
provide evidence that suggest that the carrying amount of the asset may not
be recoverable.  Impairment is generally determined by using identifiable
cash flows over the remaining amortization period to estimate fair value.  
    
   
     As a result of recent efforts to sell APC, the Company has concluded
there has been a decrease in the fair value of APC which did not support the
recoverability of the remaining goodwill balance related to the acquisition
of APC.  The determination of fair value was based on the sales price
included in a letter of intent and agreement relating to a proposed sale of
APC.  During the fourth quarter of fiscal 1996, the Company concluded that an
impairment of goodwill has occurred and wrote off the remaining goodwill of
$852,000 resulting from the acquisition of APC.  Management has concluded
that a measurement date with respect to the proposed sale of APC has not been
reached as of March 30, 1996.  Management considered the probability of
contingencies, including the potential buyer obtaining suitable financing,
the lack of approval of a formal plan of disposal and management's stated
intent to remove APC from the market if a sale does not culminate in the near
future in arriving at its conclusion.
    
   
     In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of."  This statement establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of. 
This statement is effective for financial statements for fiscal years
beginning after December 15, 1995.  Management has concluded that an

                                        29
<PAGE>

impairment of APC's assets has not occurred based on the operating cash flows
of approximately $1.2 million (before interest expense) generated by APC
during fiscal 1996 and estimates of APC's cash flows for future periods.  The
Company believes that the adoption of this standard will not have a material
effect on its consolidated results of operations or financial position.
    

Revenue Recognition

     The Company recognizes revenue when product is shipped.

Income Taxes

     The Company accounts for income taxes using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes."

Earnings (Loss) Per Common Share 

     Primary and fully diluted per share amounts are determined by dividing
earnings (loss) by the weighted average number of shares of common stock and
materially dilutive common stock equivalents (stock options) outstanding.

                                        30
<PAGE>

NOTE 1 - Summary of Significant Accounting Policies (Continued)

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
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.

Reclassifications

     Certain amounts in the financial statements as of April 1, 1995 and for
each of the two years in the period ended April 1, 1995 have been
reclassified to conform with the classifications used for the year ended
March 30, 1996.

NOTE 2 - Acquisitions

Sattel Communications

   
     In November 1994, the Company and Sattel Technologies, Inc. ("STI")
entered into a general partnership agreement to establish Sattel, which was
subsequently converted into a limited liability corporation.  The Company and
STI each received a 50% interest in Sattel.  Profits and losses were
allocated equally among the two partners.  Under the terms of this agreement,
initial contributions to be made to the partnership by the Company were
operating capital and the cost of a marketing study which in the aggregate
would not exceed $200,000.  In addition, the Company agreed to prepare a
business plan and arrange for ongoing product production if the partners
approved the marketing plan.  STI agreed to develop, design and test a
telecommunications product, manufacture three units, provide administrative
services and provide the use of its facilities to Sattel until permanent
facilities were determined.  In addition, STI agreed to contribute to the
partnership certain technology and other intangibles.
    


        On January 16, 1996, the Company acquired an additional 30% ownership
interest in Sattel.  The acquisition was accounted for as a purchase of a
minority interest.  As a result, the Company increased its ownership interest
in Sattel from 50% to 80%.  The Company issued 350,000 shares of its newly
issued common stock ("the Diana Shares") to 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.  In addition,
the Company agreed to provide Sattel with additional cash to increase its
capital contributions to Sattel to $2.5 million and to loan Sattel $1.425
million.  The total purchase price related to the Company's additional 30%
interest in Sattel, including the 350,000 shares issued, the minority
partner's share of additional equity contributions, liabilities assumed and
costs of the acquisition, was allocated based on the fair value of assets
acquired at the acquisition date, consisting principally of intellectual
property rights of approximately $5.1 million.

                                        31
<PAGE>

   
     On May 3, 1996, the Company and STI entered into a Supplemental
Agreement to amend the Exchange Agreement entered into on January 16, 1996. 
STI agreed to convey to the Company an additional 15% of Sattel and 50,000
Diana Shares in exchange for being released from certain product development
obligations and STI's proportionate share of a $10 million capital
contribution to Sattel.  In May 1996, the Company contributed $10 million to
Sattel pursuant to the Supplemental Agreement.  This transaction will result
in a net reduction of approximately $1,825,000 of intangible assets recorded
at March 30, 1996.  In addition, subsequent to March 30, 1996, Sattel granted
equity participation interests to certain employees of the Company.  The
Company's effective ownership of Sattel remains at approximately 80% after
the grant of these interests.  STI's effective ownership interest in Sattel
was reduced to approximately 4% as a result of all of these transactions.
    
   
        Sattel has an option to purchase the equity participation interests in
the event of the employee's termination from the Company.  The purchase price
of the equity participation interest will either be an agreed upon amount or
a price determined by an appraiser.  In addition, certain holders of equity
participation interests have the right to require an initial public offering
of Sattel ("IPO") provided Sattel's cumulative pretax income for four
consecutive quarters has been at least $15 million.  A minimum of three
holders of equity participation interests holding at least 25% of the profit
interest units are required to provide written notice to Sattel of a request
for an IPO.  Sattel may redeem the equity participation interests held by
holders requesting an IPO in lieu of an IPO.  The redemption price will
either be an agreed upon amount or a price determined by an appraiser.  No
compensation expense will be recognized upon the granting of the equity
interests.  The estimated fair value of the equity participation interests at
the date of grant is considered immaterial to the financial statements based
on the subordinated nature of the interests resulting from the priority
distributions payable to Sattel Communications Corp. in accordance with the
Sattel Communications LLC operating agreement.  Compensation expense will be
recognized prospectively when it becomes probable that an initial public
offering by Sattel or other defined triggering event will occur. 
Compensation cost will be charged to expense over the period from the date
the triggering event becomes probable to the date the equity interest become
convertible or the end of the required service period, whichever occurs
first.  If Sattel exercises its option to repurchase equity interests
previously granted upon termination of the employee(s) or in lieu of
initiating an initial public offering of Sattel, total compensation cost will
be equal to the cash paid upon repurchase.    
    
                                        32
<PAGE>

NOTE 2 - Acquisitions

Valley

     On November 20, 1995, C&L Acquisition Corporation, a subsidiary of C&L,
acquired 80% of the common stock of 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 as defined in the purchase agreement 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 
cash, revolving line of credit draws and a loan of $1,000,000 from the
Minority Shareholders (see Note 5).  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.

     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 the number of shares specified in the notice at a price equal to
the appraised value of the shares as defined in the Stockholders Agreement. 
The 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 day
after receipt by the Minority Shareholders of Valley's audited financial
statements for the fiscal year ended March 31, 2000, and expiring thirty 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 based on a multiple of earnings as defined in the Employment Contract.

                                        33
<PAGE>

NOTE 2 - Acquisitions (Continued)

     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.  The 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 sub-debt,
the sub-debt shall be offered to all stockholders who purchased sub-debt in
proportion to their relative holdings of stock of Valley.

     The following unaudited pro forma results of operations for the fifty
two weeks ended March 30, 1996 and April 1, 1995, respectively, assume the
acquisitions of Valley and Sattel occurred at the beginning of each period
(with respect to Sattel in 1995, since its inception in November 1994) (in
thousands, except per share amounts):

                                             1996           1995

     Net sales                            $ 297,307      $ 264,087
                                            =======        =======
     Net loss                             $  (3,312)     $    (157)
                                            =======        =======
   
     Loss per common share                $    (.75)     $    (.04)
                                            =======        =======
    
    
     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 - Marketable Securities

     Effective April 2, 1994, the Company adopted the provisions of SFAS No.
115.  In accordance with SFAS No. 115, prior period financial statements have
not been restated to reflect the change in accounting principle.  The effect
as of April 2, 1994 of adopting SFAS No. 115 increased net earnings by
$412,000 or $.10 per fully diluted share.

                                        34
<PAGE>

NOTE 3 - Marketable Securities (Continued)

     The following is a summary of available-for-sale and held-to-maturity
marketable securities (in thousands):

                                 Available-for-Sale Marketable Securities 
                                             March 30, 1996               
                                ------------------------------------------
                                           Gross       Gross     Estimated
                                         Unrealized  Unrealized    Fair
                                Cost       Gains       Losses      Value 
                                ----     ---------   ---------    -------
Debt securities               $   303      $---        $  12      $   291
Equity securities               1,788       ---          864          924
                               ------       ---         ----       ------
                              $ 2,091      $---        $ 876      $ 1,215
                               ======       ===         ====       ======

                                 Available-for-Sale Marketable Securities 
                                              April 1, 1995               
                                ------------------------------------------
                                           Gross       Gross     Estimated
                                         Unrealized  Unrealized    Fair
                                Cost       Gains       Losses      Value 
                                ----     ---------   ---------    -------
Debt securities               $ 1,156      $ 21        $  58      $ 1,119
Equity securities               1,604       ---          676          928
                               ------       ---         ----       ------
                              $ 2,760      $ 21        $ 734      $ 2,047
                               ======       ===         ====       ======

                                  Held-to-Maturity Marketable Securities  
                                              April 1, 1995               
                                ------------------------------------------
                                           Gross       Gross     Estimated
                                         Unrealized  Unrealized    Fair
                                Cost       Gains       Losses      Value 
                                ----     ---------   ---------    -------
U.S. treasury security        $ 4,164      $---        $ ---      $ 4,164
                               ======       ===         ====       ======
     The gross realized gains on sales of available-for-sale securities
totaled $31,000, $14,000 and $592,000 in fiscal 1996, 1995 and 1994,
respectively, and the gross realized losses totaled $5,000, $1,241,000 and
$113,000 in fiscal 1996, 1995 and 1994, respectively.  The net adjustment to
unrealized losses on available-for-sale securities included as a separate
component of shareholders' equity totaled $876,000 and $713,000 at March 30,
1996 and April 1, 1995, respectively.

     The Company considers its marketable securities to be primarily a
resource for potential acquisitions.  Pending such uses, the Company invests
its marketable securities for the purpose of generating additional income
and/or capital appreciation.  The Company does not limit its potential
investments of marketable securities based on level of risk or investment
concentration.

                                        35
<PAGE>

NOTE 3 - Marketable Securities (Continued)

     Expected maturities of marketable securities will differ from
contractual maturities because the issuers of the securities may have the
right to prepay obligations without prepayment penalties.  The amortized cost
and estimated fair value of marketable securities at March 30, 1996, by
contractual maturity, are shown below (in thousands):

                                           Available-for-Sale Securities
                                           -----------------------------
                                                         Estimated
                                                Cost     Fair Value
                                                ----     ----------
     Due after five years                     $   303      $   291
     Equity securities                          1,788          924
                                               ------       ------
                                              $ 2,091      $ 1,215
                                               ======       ======
NOTE 4 - Revolving Line of Credit

     Revolving line of credit consists of the following (in thousands):

                               1996      1995

                    APC       $2,996    $4,241
                    C&L        2,996     2,562
                    Valley     1,046       ---
                               -----     -----
                              $7,038    $6,803

                                  =====     =====
     APC has a Loan and Security Agreement ("APC Revolver") with a lender
(amended for the seventh time effective June 27, 1996) providing a revolving
line of credit through November 1997 of up to $9,500,000 with interest at the
prime rate plus 2.0% (prime was 8.25% at March 30, 1996).  A $2 million
letter of credit facility with fees of 2.0% is included within the total
credit facility.  At March 30, 1996, APC borrowed $2,996,000 and had letters
of credit of $2,000,000 issued on its behalf by the lender.
    

     Borrowings under the APC Revolver are restricted based on defined
percentages of eligible accounts receivable and inventories.  The amount
available under the APC Revolver at March 30, 1996 was $3,754,000.  APC pays
a fee of 1/2% on the average unused line of credit.  Substantially all assets
of APC are pledged as collateral under the APC Revolver.  The APC Revolver
restricts APC in a number of areas, including, but not limited to,
declaration of dividends, mergers and acquisitions, transactions with
affiliates, capital expenditures and additional indebtedness.

     APC's Revolver contains financial covenants requiring a minimum level of
tangible net worth, earnings and net cash flow.  At March 30, 1996 APC failed
to satisfy the earnings covenant.  In June 1996, APC and its lender entered
into a waiver and amendment agreement relating to the APC Revolver in order
to avoid violating certain financial covenants at March 30, 1996 and in
fiscal 1997.

   
     Because the APC Revolver provides for repayment of borrowings after a 90
day notice from the lender, the indebtedness is classified as short term.  
    
                                        36
<PAGE>

NOTE 4 - Revolving Line of Credit (Continued)

   
     C&L has a Loan and Security Agreement ("C&L Revolver") with a lender
(amended for the first time effective June 27, 1996) providing a revolving
line of credit through January 1999 of up to $6,000,000, with interest at the
prime rate or LIBOR plus 2.25%.  In addition, there is an unused line fee of
 .25%.  Borrowings under the C&L Revolver are restricted based on defined
percentages of eligible accounts receivable and inventories.  The amount
available under the C&L Revolver at March 30, 1996, was $803,000. 
Substantially all assets of C&L are pledged as collateral under the C&L
Revolver.  The C&L Revolver restricts C&L in a number of areas, including,
but not limited to, declaration of dividends, payment of salaries to
officers, mergers and acquisitions, transactions with affiliates, capital
expenditures and additional indebtedness.
    

     C&L's Revolver contains financial covenants requiring minimum levels of
tangible net worth and pretax income computed on a rolling 12-month basis, a
minimum ratio of current assets to current liabilities and a maximum ratio of
total liabilities to tangible net worth.  At March 30, 1996, C&L failed to
satisfy the pretax income requirement.  In June 1996, C&L and its lender
entered into a waiver and amendment agreement to the C&L Revolver in order to
avoid violating certain financial covenants at March 30, 1996 and in fiscal
1997.  

     Valley has a Loan and Security Agreement ("Valley Revolver") with a
lender providing a revolving line of credit through March 1999 of up to
$2,500,000 with interest at the prime rate or LIBOR plus 2.25%.  In addition,
there is an unused line fee of .25%.  Borrowings under the Valley Revolver
are restricted based on defined percentages of eligible accounts receivable
and inventories.  The amount available under the Valley Revolver at March 30,
1996 was $1,206,000.  Substantially all assets of Valley are pledged as
collateral under the Valley Revolver.  The Valley Revolver provides for the
maintenance of certain financial ratios and restricts Valley in a number of
areas including, but not limited to, declaration of dividends, payments of
salaries to officers, mergers and acquisitions, transactions with affiliates,
capital expenditures and additional indebtedness.

   
     At March 30, 1996, the Company classified all borrowings made by C&L and
Valley under their respective revolving lines of credit as current
liabilities in accordance with EITF 95-22.  These revolving lines of credit
have 3 year terms expiring in fiscal 1999.  C&L's borrowings under its
revolving line of credit at April 1, 1995 have been classified as a current
liability for consistent presentation.
    
                                        37
<PAGE>

NOTE 5 - Long-Term Debt

     Long-term debt consists of the following (in thousands): 

                                           March 30,      April 1,
                    Note     Due Date        1996           1995   
                    ----   ------------   -----------    ----------
Debentures and
 interest            A     January 2002     $ 2,099       $ 2,240

Note payable         B     October 2000       1,000           ---

Mortgage notes       C     August 2006          837           875

Notes payable        D     May 1998              70           158

Other obligations                               ---            34
                                             ------        ------
                                              4,006         3,307
                    Less current portion       (444)         (326)
                                             ------        ------
                                            $ 3,562       $ 2,981
                                             ======        ======
A.   Principal of $1,254,000 and capitalized interest of $845,000.  Interest
     at 11.25%.  The debentures are unsecured.  The payment of cash dividends
     by the Company is restricted by the Company's subordinated debentures
     which provide that the consolidated tangible net worth of the Company
     cannot be reduced to less than an amount equal to the  aggregate
     principal amount of the subordinated debentures, or $1,254,000.

B.   Note payable to the minority shareholders of Valley collateralized by
     the common stock of Valley owned by the Company (see Note 2).  Interest
     at 10%.

C.   Interest at 7% and 8.25%.  The mortgage notes are collateralized by land
     and building with a carrying value of $2,627,000 as of March 30, 1996.

D.   Interest at 8.75% - 11.0%.  The notes are collateralized by equipment.

     Approximate annual amounts payable by the Company and its subsidiaries
on long-term debt are as follows (in thousands): 

                    1997 .................... $   444
                    1998 ....................     403
                    1999 ....................     397
                    2000 ....................     399
                    2001 ....................     404
                    Thereafter ..............   1,959
                                               ------
                                              $ 4,006
                                               ======
NOTE 6 - Commitments and Contingencies

     The Company and its subsidiaries lease various facilities and equipment
under noncancelable lease arrangements for varying periods.  Leases that
expire generally are expected to be renewed or replaced by other leases. 
Total rental expense (including contingent rentals) under operating leases in
fiscal 1996, 1995 and 1994 was $2,090,000, $1,870,000 and $1,929,000,
respectively.

                                        38
<PAGE>

NOTE 6 - Commitments and Contingencies (Continued)

     Future minimum payments (excluding contingent rentals) under
noncancelable operating leases with initial terms of one year or more for
fiscal years subsequent to March 30, 1996 are as follows (in thousands):

                    1997 .................... $ 1,094
                    1998 ....................     751
                    1999 ....................     567
                    2000 ....................     393
                    2001 ....................     300
                    Thereafter ..............      11
                                               ------
                                              $ 3,116
                                               ======
     C&L participates in an equipment leasing partnership.  C&L is subject to
a contingent obligation relating to the equipment lease of approximately
$386,000 at March 30, 1996, if income from the underlying lease is
insufficient to fund future operations of the partnership.  The lease for
equipment expires in January 1999.  The prior owners of C&L have indemnified
the Company with respect to any future obligations.

                                        39
<PAGE>

NOTE 7 - Stock Options

     In fiscal 1986, the Company's Board of Directors adopted The Diana
Corporation 1986 Nonqualified Stock Option Plan (the "Plan"), which permits
the Company to grant nonqualified stock options to key employees and
directors of the Company and its subsidiaries.  The Plan is limited to
775,609 common shares.  The Plan is administered by the Company's Board of 
Directors, which is authorized, among other things, to determine which
persons receive options under the Plan, the number of shares for which an
option may be granted, and the exercise price and expiration date for each 
option.  Options granted under the Plan may not be exercised after eleven
years from the date of grant, and  no  options  may  be  granted  after
December 10, 1997.  The exercise price will not be less than the fair market
value of the Company's common stock on the date of grant, although the Board
has discretion to set the exercise price at any amount that it may establish
from time to time.  Transactions for fiscal 1996, 1995 and 1994 are as
follows:
                                    1996        1995        1994

     Options outstanding at
      beginning of year           566,976     544,264     533,110

     Changes during year:
      5% stock dividend            31,482      27,212      26,654
      Options granted              85,000         ---         ---
      Options exercised           (12,300)     (4,500)    (15,500)
                                  -------     -------     -------
      Net increase                104,182      22,712      11,154
                                  -------     -------     -------
     Options outstanding
      at end of year              671,158     566,976     544,264
                                  =======     =======     =======
     Options exercisable          661,158     566,976     544,264

     Option price range           $2.05-                        
                                   $20.00                       

     In March 1996, the Company's Board of Directors adopted the Sattel
Communications LLC Employees Nonqualified Stock Option Plan (the "Sattel
Plan"), which permits the Company to grant nonqualified stock options for the
Company's common stock to key employees and directors of Sattel.  The Plan is
limited to 500,000 shares of the Company's common stock.  The Sattel Plan is
administered by the Company's Board of Directors, which is authorized, among
other things, to determine which persons receive options under the Sattel
Plan, the number of shares for which an option may be granted, and the
exercise price and expiration date for each option.  Options granted under
the Sattel Plan may not be exercised after eleven years from the date of
grant, and  no  options  may  be  granted  after March 8, 2007.  The exercise
price will not be less than the fair market value of the Company's common
stock on the date of grant, although the Board has discretion to set the
exercise price at any amount that it may establish from time to time.

                                        40
<PAGE>

NOTE 7 - Stock Options (Continued)

        In March 1996, stock options for 300,000 shares of the Company's common
stock were granted under the Sattel Plan at an exercise price of $20.00 per
share .  These options, if vested, may be exercised any time between March
31, 1999 and March 31, 2001.  The stock options shall vest as follows:  (a)
100,000 option shares vest if Sattel's pretax earnings for the fiscal year
ending March 31, 1997 exceeds $15 million, (b) 100,000 option shares vest if
Sattel's pretax earnings for the fiscal year ending March 31, 1998 exceeds
$22.5 million (whether or not the conditions in (a) are satisfied), and (c)
100,000 option shares vest if Sattel's pretax earnings for the fiscal year
ending March 31, 1999 exceeds $33.75 million (whether or not the conditions
in (a) or (b) are satisfied), provided that, in each case, the grantee is
employed by Sattel on March 31, 1999.

        Notwithstanding the foregoing, if Sattel's pretax earnings for the
fiscal year ending March 31, 1997 is between $10 million and $15 million, the
option shall vest with respect to 100,000 option shares referred to in (a) in
the previous paragraph, if Sattel pretax earnings for the fiscal year ending
March 31, 1998 exceeds $22.5 million, provided the grantee is employed by
Sattel on March 31, 1999.

NOTE 8 - Employee Benefit Plans

     APC contributes to a multiemployer defined benefit pension plan pursuant
to the terms of a collective bargaining agreement.  Amounts contributed to
this plan by APC were $25,000, $34,000 and $39,000, for fiscal years 1996,
1995 and 1994, respectively.  Certain subsidiaries offer qualified employees
the opportunity to participate in 401(k) plans.  The Company accrued $15,000
for matching contributions in fiscal 1996.  There were no contributions under
these plans for any other year presented.

NOTE 9 - Other Income (Loss)

     Other income (loss) consists of the following for the last three fiscal
years (in thousands):

                                                1996      1995      1994 

Interest income...........................    $  326    $   570    $2,132
Net gains (losses) on sales of marketable
  securities (See Note 3).................        26     (1,227)      479 
Other - net...............................       167        240        86
                                               -----     ------     -----
                                              $  519    $  (417)   $2,697
                                               =====     ======     =====

                                        41
<PAGE>

NOTE 10 - Income Taxes

     Effective April 4, 1993, the Company adopted the liability method of
accounting for income taxes in accordance with SFAS No. 109.  The cumulative
effect as of April 4, 1993 of adopting SFAS No. 109 increased net earnings
for fiscal 1994 by $262,000.

     A reconciliation of the income tax provision and the amount computed by
applying the statutory federal income tax rate (34%) to earnings (loss)
before extraordinary items, accounting change, minority interest and income
tax credit (expense) is as follows (in thousands):

                                                    Fiscal Year Ended
                                              March 30,  April 1,   April 2,
                                                1996      1995       1994  

Expense (credit) at statutory rate.........   $(1,181)  $  (230)   $ 1,138
Write-off of goodwill......................       290       ---        ---
Settlements of liabilities of                
  unconsolidated subsidiary................      (156)      (36)    (1,357)
Reversal of liabilities of unconsolidated
  subsidiary...............................       ---       ---        (71)
Tax effect of net operating loss not 
  benefited................................       918       198        180
Other, net.................................       216        68        110
                                               ------    ------     ------
Income tax provision.......................   $    87   $   ---    $   ---
                                               ======    ======     ======
     In fiscal 1996, the Company recorded income tax expense of $87,000
primarily attributable to state income taxes of a subsidiary.  In fiscal
1994, the Company recorded an income tax credit of $400,000 resulting from
the refund of federal income taxes paid in a prior year.

                                        42
<PAGE>

NOTE 10 - Income Taxes (Continued)

     Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and income tax purposes.  Components of the
Company's deferred tax assets and liabilities are as follows (in thousands):

                                                  March 30,    April 1,
                                                    1996         1995  

Deferred tax assets:
  Federal net operating loss carryforwards        $  7,830     $  6,809
  Federal capital loss carryforward                    408          417
  State net operating loss carryforwards             2,436        2,247
  Capitalized interest on Diana debentures             338          394
  Deferred compensation                                460          530
  Allowance for doubtful accounts                      278          225
  Intangible assets (net)                              ---          227
  General business credit carryforwards                145          145
  All other                                            532          461
                                                   -------      -------
     Total deferred tax assets                      12,427       11,455
  Valuation allowance for deferred tax assets       (9,366)     (10,279)
                                                   -------      -------
     Net deferred tax assets                         3,061        1,176

Deferred tax liabilities:
  Intangible assets (net)                            1,949          ---
  Building and improvements basis difference           494          523
  Tax over book depreciation                           245          263
  All other                                            373          390
                                                   -------      -------
     Total deferred tax liabilities                  3,061        1,176
                                                   -------      -------
Net deferred taxes                                $    ---     $    ---
                                                   =======      =======
     The Company has approximately $23,000,000 and $31,250,000 in federal and
state net operating loss carryforwards, respectively.  These carryforwards
expire at various dates through fiscal 2011.

NOTE 11 - Equity in Earnings (Loss) of Unconsolidated Subsidiaries

     Prior to the Company's acquisition of an additional 30% interest in
Sattel in January 1996 (see Note 2), the Company accounted for its 50%
ownership interest in Sattel under the equity method of accounting.  The
Company's proportionate share of Sattel's loss from April 2, 1995 to December
31, 1995 was $393,000.  APC has a 50% ownership interest in Fieldstone Meats
of Alabama, Inc. ("Fieldstone"), a company which produces cured hams and
bacon.  Diana owns a 50% interest in a partnership that holds promissory
notes, secured by inventory and equipment, due over a five year period which
substantially ended in fiscal 1996.  At March 30, 1996 and April 1, 1995, the
carrying value of the Company's investment in unconsolidated subsidiaries was
$312,000 and $557,000, respectively, and is included within other assets.

                                        43
<PAGE>

NOTE 11 - Equity in Earnings (Loss) of Unconsolidated Subsidiaries
          (Continued)

     The Company's equity in the earnings (loss) of unconsolidated
subsidiaries for the last three fiscal years are as follows (in thousands):

                                   1996      1995      1994 

          Sattel                  $(393)    $ (62)    $ ---
          Fieldstone                  7       (35)       48
          Partnership                16        28        49
                                   ----      ----      ----
                                  $(370)    $ (69)    $  97
                                   ====      ====      ====
NOTE 12 - Extraordinary Items

     Carl and Dorothy Ossmann, Mary Leach, Wilmer and Florence Tiede, and
Rosemary and Ray Ward V. The Diana Corporation, Donald E. Runge and Richard
Y. Fisher (the "Ossmann Suit"), and First Trust National Association and
Norwest Bank Minnesota V. Farm House Foods Corporation and The Diana
Corporation (the "First Trust Suit").  In March 1994, the remaining parties
to the Ossmann Suit and the First Trust Suit entered into an Amended
Memorandum of Understanding (the "Settlement") providing for settlement of
the matter.  In fiscal 1995, the defendants made total payments of $3,237,000
to the trustees pursuant to the Settlement as full and complete payment of
all amounts due, including principal and accrued interest with a carrying
value of $3,391,000 and trustee fees and costs.  In addition, a payment of
$180,000 was made to the attorneys of the class pursuant to the Settlement. 
The Company accounted for the Settlement in accordance with SFAS No. 76,
"Extinguishment of Debt" and recorded an extraordinary loss, including the
direct costs of settlement, of $266,000 in fiscal 1994.

     The amounts included in extraordinary item are not net of taxes due to
the existence of net operating loss carryforwards (see Note 10).

NOTE 13 -  Related Party Transactions

     Certain of the Company's non-employee directors provide services to the
Company and/or its subsidiaries for which they are compensated.  Amounts
accrued or paid to all directors for these services during fiscal 1996, 1995
and 1994 are $63,000, $367,000 and $329,000, respectively.

     Included in other assets is a receivable of $324,000 from the sellers of
C&L.  Pursuant to the Stock Purchase Agreement executed in connection with
the acquisition of C&L, the sellers are to reimburse the Company for any of
the Company's net operating losses used to offset taxable income generated by
certain investments owned by C&L.  The sellers are currently employees of
C&L.

     C&L leases its building and certain vehicles from certain employees of
C&L.  Total rent expense on such leases was $143,000, $144,000 and $141,000
for the years ended March 30, 1996, April 1, 1995 and April 2, 1994,
respectively.

     Effective June 1994, the Company acquired the remaining 20% of C&L's
common stock from its minority shareholders in exchange for 265,262 shares
(adjusted for the 5% stock dividend paid in July 1994) of the Company's
common stock.

                                        44
<PAGE>


NOTE 14 - Business Segment Information 

     The Company operates in the following business segments:  the wholesale
distribution of meat and seafood, telecommunications equipment and voice and
data network installation and service.  The wholesale distribution of meat
and seafood segment consists of APC.  In fiscal 1996, APC had one customer
that comprised 24.9% of its net sales and 21.9% of consolidated net sales. 
The telecommunications equipment segment consists of the Company's 80%-owned
subsidiary, Sattel, and C&L.  The voice and data network installation and
service segment consists of the Company's 80%-owned subsidiary, Valley, which
was acquired in November 1995.  The operating results of Sattel and Valley
have been consolidated since their respective acquisition dates in fiscal
1996 (see Note 2).  There are no material export sales.  Information by
industry segment is as follows (in thousands):

<TABLE>
<CAPTION>
                                               Fiscal Years Ended      
                                         ------------------------------
                                         March 30,   April 1,   April 2,    
                                           1996        1995      1994  
                                         --------   --------   --------
<S>                                      <C>        <C>        <C>
Net sales: 
  Meat and seafood.................      $236,108   $215,141   $215,333
  Telecommunications equipment.....        25,350     35,245     28,308
  Network installation and service.         6,144        ---        ---
                                          -------    -------    -------
                                         $267,602   $250,386   $243,641
                                          =======    =======    =======
Operating earnings (loss):    
  Meat and seafood.................      $   (306)  $    234   $  1,013
  Telecommunications equipment.....          (816)     2,734      2,549
  Network installation and service.           652        ---        ---
  Corporate........................        (1,566)    (2,511)       879
                                          -------    -------    -------
                                         $ (2,036)  $    457   $  4,441
                                          =======    =======    =======
Depreciation and amortization:
  Meat and seafood.................      $    639   $    605   $    551
  Telecommunications equipment.....           695        524        496
  Network installation and service.            73        ---        --- 
  Corporate........................            34         25         51
                                          -------    -------    -------
                                         $  1,441   $  1,154   $  1,098
                                          =======    =======    =======
Capital expenditures:
  Meat and seafood.................      $    408   $    474   $    655
  Telecommunications equipment.....           241        113        217
  Network installation and service.            22        ---        ---
  Corporate........................            25         12          3
                                          -------    -------    -------
                                         $    696   $    599   $    875
                                          =======    =======    =======
Identifiable assets:          
  Meat and seafood.................      $ 18,048   $ 20,569   $ 21,329
  Telecommunications equipment.....        21,702     16,720     18,109
  Network installation and service.         7,881        ---        ---
  Corporate........................         5,902      8,038     14,605
                                          -------    -------    -------
                                         $ 53,533   $ 45,327   $ 54,043
                                          =======    =======    =======
</TABLE>
                                        45
<PAGE>

NOTE 15 - Statement of Cash Flows

     Supplemental cash flow information is as follows for the last three
fiscal years (in thousands):

                                            1996       1995       1994 
Change in current assets and 
 liabilities:
   Receivables.........................   $ 2,066    $   189    $(3,797)
   Inventories.........................     1,845      3,204     (4,760)
   Other current assets................       292        168       (218)
   Accounts payable....................    (1,420)       718      4,287 
   Other current liabilities...........      (589)       135        133 
                                           ------     ------     ------
                                          $ 2,194    $ 4,414    $(4,355)
                                           ======     ======     ======
Supplemental information:
 Interest paid.........................   $ 1,002    $ 1,001    $ 1,090
  
Non-cash transactions:
 Purchase of minority interest with
  common stock.........................     4,944      1,895        ---
 Reduction of net liabilities of
  unconsolidated subsidiary............       219        ---        655
 Purchase of subsidiary financed by
  seller...............................     1,000        ---        ---
 Purchase of property and equipment
  financed by seller...................       ---        ---        320

NOTE 16 - Quarterly Results of Operations (Unaudited)

     Fiscal Year Ended March 30, 1996 (in thousands, except per share
amounts):

                                 12 Weeks   12 Weeks   12 Weeks   16 Weeks
                                  Ended      Ended      Ended      Ended
                                March 30,  January 6, October 14, July 22,
                                  1996        1996        1995      1995 

Net sales....................... $64,110    $61,111    $60,828    $81,553
Cost of sales...................  60,834     58,658     58,497     78,931
Net earnings (loss).............  (2,512)      (598)       146       (401)
   
Earnings (loss) per common share    (.54)      (.14)       .03       (.09)
    

     As a result of recent efforts to sell APC, the Company has concluded
there has been a decrease in the market value of APC.  During the fourth
quarter of fiscal 1996, the Company concluded that an impairment of goodwill
has occurred and wrote off the remaining goodwill of $852,000 resulting from
the acquisition of APC.


                                        46
<PAGE>

NOTE 16 - Quarterly Results of Operations (Unaudited) (Continued)

     Fiscal Year Ended April 1, 1995 (in thousands, except per share
amounts):

                                 12 Weeks   12 Weeks   12 Weeks   16 Weeks
                                  Ended      Ended      Ended      Ended
                                 April 1,  January 7, October 15, July 23,
                                  1995        1995        1994      1994 

Net sales....................... $64,223    $55,159    $56,255    $74,749
Cost of sales...................  62,218     52,274     53,059     71,647
Net earnings (loss).............    (749)       392        424       (787)
   
Earnings (loss) per common share    (.17)       .09        .09       (.20)
    

NOTE 17 - Subsequent Event

     In April 1996, the Company raised approximately $14 million, after
commissions and expenses, through the sale of 430,000 shares of common stock.

   
     In June 1996, Concentric Network Corporation ("CNC") executed a
Promissory Note for $5,000,000 in favor of Sattel due September 30, 1996
which is convertible into CNC Series D Preferred Stock ("CNC Stock") under
certain conditions outlined in the Note.  In addition, CNC granted to Sattel
a warrant to purchase 551,470 shares of CNC Stock at an exercise price of
$1.36 per share as additional consideration for the loan to CNC.  The warrant
is exercisable immediately and expires on June 6, 1999.
    
   
     On September 3, 1996, the Board of Directors of the Company declared a
5% stock dividend which was paid on October 2, 1996 to shareholders of record
on September 16, 1996.  Per share amounts in the accompanying financial
statements have been restated for the stock dividend.
    

Note 18 - Subsequent Event (Unaudited)

   
     On August 12, 1996, all negotiations and agreements with third parties
concerning the proposed sale of APC were terminated.
    
   
     In August 1996, the Promissory Note and accrued interest receivable were
converted into 3,729,110 shares of CNC Series D Preferred Stock.  In
September 1996, Sattel sold to a third party 1,838,234 shares of its CNC
Series D Preferred Stock for $2.5 million.
    
                                        47
<PAGE>

                                 PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

                                                                 Form 10-K
(a)  Financial Statements and Financial Statement Schedules     Page Number

 (1) The following consolidated financial statements
     of The Diana Corporation and its subsidiaries are
     included in Item 8:

     Report of Price Waterhouse LLP, Independent Accountants        20    

     Report of Ernst & Young LLP, Independent Auditors              21    

     Consolidated Balance Sheets - March 30, 1996
     and April 1, 1995                                              22    

     Consolidated Statements of Operations - Fiscal
     Years Ended March 30, 1996, April 1, 1995 and
     April 2, 1994                                                  23    

     Consolidated Statements of Changes in Shareholders'
     Equity - Fiscal Years Ended March 30, 1996, 
     April 1, 1995 and April 2, 1994                                24

     Consolidated Statements of Cash Flows -
     Fiscal Years Ended March 30, 1996,
     April 1, 1995 and April 2, 1994                                25

     Notes to Consolidated Financial Statements                     26

 (2) The following consolidated financial statement schedules of
     The Diana Corporation are included in Item 14(d):

     Schedule I -  Condensed Financial Information of Registrant    50

     Schedule II - Valuation and Qualifying Accounts                54

        All other schedules are omitted because the required information is not
        present or is not present in amounts sufficient to require submission
        of the schedules or because the information required is included in the
        consolidated financial statements or the notes thereto.

(b)  Reports on Form 8-K:

        During the last quarter of fiscal 1996, the Company filed (1) a Form 8-K
        on January 31, 1996 regarding its increased ownership interest in Sattel
        from 50% to 80%; (2) a Form 8-K/A on January 31, 1996 to amend the Form
        8-K filed on December 5, 1995; (3) a Form 8-K on March 7, 1996 regarding
        a change in its certifying accountant; (4) a Form 8-K/A on March 8, 1996
        to amend the Form 8-K filed on March 7, 1996; and (5) a Form 8-K on
        March 19, 1996 related to the sale of APC.

                                        48
<PAGE>

(c)     Exhibits

Exhibit
Number    Description

 3.1      Restated Certificate of Incorporation, as amended September 1, 1992
          (incorporated herein by reference to Exhibit 3.1 of Registrant's
          Form 10-K for the year ended April 3, 1993).

 3.2      By-Laws of Registrant, as amended (April 2, 1991) (incorporated
          herein by reference to Exhibit 3.2 of the Registrant's Form 10-K
          for the year ended March 30, 1991).

 4.1      Loan and Security Agreement between C&L Communications, Inc. and
          Sanwa Business Credit dated January 2, 1996 (incorporated herein by
          reference to Exhibit 10.1 of the Registrant's Registration
          Statement on Form S-3 Reg. No. 333-1055). 

 4.2      First Amendment to Loan and Security Agreement and Waiver Agreement
          between C&L Communications, Inc. and Sanwa Business Credit
          Corporation dated June 27, 1996.

 4.3      Loan and Security Agreement between Barclays Business Credit, Inc.
          and Atlanta Provision Company, Inc. dated November 24, 1992 
          (incorporated herein by reference to Exhibit 10.10 of the
          Registrant's Form 10-Q for the 40 weeks ended January 2, 1993).

 4.4      Waiver and First Amendment to Loan and Security Agreement between
          Atlanta Provision Company, Inc. and Barclays Business Credit, Inc.
          dated June 25, 1993 (incorporated herein by reference to Exhibit
          4.2 of Registrant's Form 10-Q for the period ended July 24, 1993).

 4.5      Waiver and Second Amendment to Loan and Security Agreement between
          Atlanta Provision Company, Inc. and Barclays Business Credit, Inc.
          dated September 9, 1993 (incorporated herein by reference to
          Exhibit 4.1 of Registrant's Form 10-Q for the period ended October
          16, 1993).

 4.6      Waiver and Third Amendment to Loan and Security Agreement between
          Atlanta Provision Company, Inc. and Barclays Business Credit, Inc.
          dated June 1, 1994 (incorporated herein by reference to Exhibit 4.8
          of Registrant's Form 10-K for the year ended April 2, 1994).

 4.7      Waiver and Fourth Amendment to Loan and Security Agreement between
          Atlanta Provision Company, Inc. and Shawmut Capital Corporation
          (successor to Barclays Business Credit, Inc.) dated June 28, 1995
          (incorporated herein by reference to Exhibit 4.9 of Registrant's
          Form 10-K for the year ended April 1, 1995).

 4.8      Waiver and Fifth Amendment to Loan and Security Agreement between
          Atlanta Provision Company, Inc. and Shawmut Capital Corporation
          (successor to Barclays Business Credit, Inc.) dated August 31, 1995
          (incorporated herein by reference to Exhibit 4.1 of Registrant's
          Form 10-Q for the period ended July 22, 1995).


                                        49
<PAGE>

Exhibit
Number    Description

 4.9      Waiver and Sixth Amendment to Loan and Security Agreement between
          Atlanta Provision Company, Inc. and Shawmut Capital Corporation
          (successor to Barclays Business Credit, Inc.) dated November 28,
          1995 (incorporated herein by reference to Exhibit 4.1 of
          Registrant's Form 10-Q for the period ended October 14, 1995).

 4.10     Waiver and Seventh Amendment to Loan and Security Agreement between
          Atlanta Provision Company, Inc. and Fleet Capital Corporation
          (successor to Barclays Business Credit, Inc.) dated June 27, 1996.

 4.11     Certain other long-term debt as described in Note 5 of Notes to
          Consolidated Financial Statements.  The Registrant agrees to
          furnish to the Commission, upon request, copies of any instruments
          defining the rights of holders of any such long-term debt.

10.1      Employment Arrangement between Richard Y. Fisher and the Registrant
          effective April 4, 1993 and ending April 1, 1995 (incorporated
          herein by reference to Exhibit 10.12 of Registrant's Form 10-K for
          the year ended April 3, 1993).*

10.2      Amended and Restated Employment Agreement between Richard Y. Fisher
          and The Diana Corporation dated April 2, 1995 (incorporated herein
          by reference to Exhibit 10.2 of Registrant's Form 10-K for the year
          ended April 1, 1995).*

10.3      Employment Agreement between Donald E. Runge and Farm House Foods
          Corporation dated October 16, 1987, which was guaranteed by the
          Registrant on September 29, 1988 (incorporated herein by reference
          to Exhibit 10.14 of Registrant's Form 10-K for the year ended April
          3, 1993).* 

10.4      Employment Agreement between Donald E. Runge and The Diana
          Corporation dated April 2, 1995 (incorporated herein by reference
          to Exhibit 10.4 of Registrant's Form 10-K for the year ended April
          1, 1995).*

10.5      Employment Agreement between Sydney B. Lilly and The Diana
          Corporation dated April 2, 1995 (incorporated herein by reference
          to Exhibit 10.5 of Registrant's Form 10-K for the year ended April
          1, 1995).*

10.6      Consulting  Agreement  dated  December  23, 1991  and  ending 
          December 23, 1996 between C&L Acquisition Corporation and Jack E.
          Donnelly (incorporated herein by reference to Exhibit 10.11 of
          Registrant's Form 10-K for the year ended April 3, 1993).*



___________________________________________________________________________
*           Represents a management contract or compensatory plan, contract or
          arrangement in which a director or named executive officer of the
          Company participated.

                                        50
<PAGE>

Exhibit
Number    Description

10.7      Amendment to Consulting Agreement between C&L Acquisition
          Corporation and Jack E. Donnelly dated March 7, 1995 (incorporated
          herein by reference to Exhibit 10.7 of Registrant's Form 10-K for
          the year ended April 1, 1995).*

10.8      1986 Nonqualified Stock Option Plan of Registrant as amended
          (incorporated herein by reference to Exhibit 10.13 of Registrant's
          Form 10-K for the year ended April 3, 1993).*  

10.9      1993 Nonqualified Stock Option Plan of Entree Corporation
          (incorporated herein by reference to Exhibit 10.12 of Registrant's
          Form 10-K for the year ended April 2, 1994).*

10.10     Agreement dated May 14, 1995 between Atlanta Provision Company,
          Inc. and The United Food & Commercial Workers Union Local 1996
          (incorporated herein by reference to Exhibit 10.1 of the
          Registrant's Form 10-Q for the period ended July 22, 1995).

10.11     Purchase Agreement dated August 14, 1995 by and between C&L
          Acquisition Corporation and Henry Mutz, Chris O'Connor and Ken
          Hurst (incorporated herein by reference to Exhibit 2.1 of the
          Registrant's Form 8-K/A dated January 31, 1996).

10.12     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).

10.13     1996 Sattel Communications LLC Employees Nonqualified Stock Option
          Plan.

10.14     Agreement Regarding Award of Class B Units between Sydney B. Lilly
          and Sattel Communications LLC dated April 1, 1996.*

10.15     Memorandum of Understanding between The Diana Corporation, Sattel
          Communications Corp. and Sattel Technologies, Inc. dated May 3,
          1996.

10.16     Second Supplemental Agreement Relating to Joint Venture and
          Exchange Agreement Reformation between The Diana Corporation,
          Sattel Technologies, Inc. and D.O.N. Communications Corp. dated May
          3, 1996.
   
10.17     Operating Agreement of Sattel Communications, LLC.

10.18     Amendment to the Operating Agreement of Sattel Communications LLC.

10.19     Second Amendment to the Operating Agreement of Sattel
          Communications LLC.
    

11        Computation of Earnings Per Share

                                        51
<PAGE>

Exhibit
Number    Description

22        Subsidiaries of Registrant

23        Consent of Independent Auditors

27        Financial Data Schedule

___________________________________________________________________________
*         Represents a management contract or compensatory plan, contract or
          arrangement in which a director or named executive officer of the
          Company participated.

                                        52
<PAGE>

                  THE DIANA CORPORATION AND SUBSIDIARIES
        SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                         CONDENSED BALANCE SHEETS
                              (In Thousands)
<TABLE>
<CAPTION>

                                                     March 30,  April 1, 
                                                       1996       1995  

                                   ASSETS
<S>                                                  <C>       <C>
Current assets:
  Cash and cash equivalents........................  $ 3,567    $   ---
  Marketable securities............................    1,213        ---
  Other current assets.............................      201        389
                                                      ------     ------
    Total current assets...........................    4,981        389

Land and equipment (net)...........................      158         16
Investments in and advances to unconsolidated 
 subsidiaries......................................   23,536     23,789
                                                      ------     ------
                                                     $28,675    $24,194
                                                      ======     ======

                    LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable.................................  $   177    $   ---
  Accrued liabilities..............................      638        682
  Current portion of long-term debt................      141        141
                                                      ------     ------
    Total current liabilities......................      956        823

Long-term debt.....................................    1,958      2,099
Other liabilities..................................    1,075      1,543


Shareholders' equity:
  Common stock.....................................    5,526      4,810
  Additional paid-in capital.......................   59,456     48,548
  Accumulated deficit..............................  (34,776)   (28,178)
  Unrealized loss on marketable securities.........     (876)      (713)
  Treasury stock...................................   (4,644)    (4,738)
                                                      ------     ------
    Total shareholders' equity.....................   24,686     19,729
                                                      ------     ------
                                                     $28,675    $24,194
                                                      ======     ======
</TABLE>


See notes to condensed financial statements and notes to consolidated
financial statements.

                                        53
<PAGE>

                  THE DIANA CORPORATION AND SUBSIDIARIES 
  SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
                        STATEMENTS OF OPERATIONS 
                 (In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
                                                Fiscal Year Ended
                                         March 30,   April 1,    April 2, 
                                           1996        1995        1994 

<S>                                      <C>         <C>         <C>
Other income..........................   $   774     $    47     $   755

Administrative expenses...............    (1,878)     (1,621)     (1,388)

Interest expense......................      (106)       (112)       (119)

Non-operating income (expense)........       (50)        199         208

Income tax credit.....................       ---         ---         400

Equity in earnings (loss) of
 unconsolidated subsidiaries..........    (2,105)        767       3,601
                                          ------      ------      ------
Earnings (loss) before extraordinary
 item and accounting change...........    (3,365)       (720)      3,457

Extraordinary item....................       ---         ---        (266)
                                          ------      ------      ------
Earnings (loss) before accounting
 change...............................    (3,365)       (720)      3,191

Cumulative effect of accounting change       ---         ---         262
                                          ------      ------      ------
Net earnings (loss)...................   $(3,365)    $  (720)    $ 3,453
                                          ======      ======      ======
   
Earnings (loss) per common share:
 Primary 
   Before extraordinary item..........   $  (.76)    $  (.17)    $   .84
   Extraordinary item.................       ---         ---        (.06)
   Accounting change..................       ---         ---         .06
                                          ------      ------      ------
   Net earnings (loss)................   $  (.76)    $  (.17)    $   .84
                                          ======      ======      ======
 Fully diluted 
   Before extraordinary item..........   $  (.76)    $  (.17)    $   .81
   Extraordinary item.................       ---         ---        (.06)
   Accounting change..................       ---         ---         .06
                                          ------      ------      ------
   Net earnings (loss)................   $  (.76)    $  (.17)    $   .81
                                          ======      ======      ======
Weighted average number of common
 shares outstanding
   Primary............................     4,401       4,224       4,108
                                          ======      ======      ======
   Fully diluted......................     4,401       4,224       4,255
                                          ======      ======      ======
    
</TABLE>

See notes to condensed financial statements and notes to consolidated
financial statements.

                                        54
<PAGE>

                  THE DIANA CORPORATION AND SUBSIDIARIES 
  SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
                         STATEMENTS OF CASH FLOWS 
                              (In Thousands)
<TABLE>
<CAPTION>
                                                    Fiscal Year Ended 
                                              March 30, April 1,  April 2,
                                                1996      1995      1994 

<S>                                           <C>       <C>       <C>
Operating activities
 Earnings (loss) before extraordinary items
  and accounting change.....................  $(3,365)  $  (720)  $ 3,457
 Adjustments to reconcile earnings (loss)
  to net cash used by operating activities:
   Depreciation & amortization..............       29         8        10
   Equity in (earnings) loss of
    unconsolidated subsidiaries.............    2,105      (767)   (3,601)
   Non-operating income.....................      ---       ---      (208)
   Payments of net liabilities of
    unconsolidated subsidiary...............     (242)      (95)     (361)
   Changes in current assets and liabilities: 
     Receivables............................      ---     1,374    (1,370)
     Other..................................      (79)     (181)      184 
                                               ------    ------    ------
Net cash used by operating activities.......   (1,552)     (381)   (1,889)

Investing activities 
  Additions to equipment....................      (25)      (11)       (3)
  Purchase of securities....................     (475)      ---       ---
  Proceeds of sale of securities............    5,380       ---       ---
  Changes in investments in and advances to
   unconsolidated subsidiaries..............   (3,430)    3,475     2,318
                                               ------    ------    ------
Net cash provided by investing activities...    1,450     3,464     2,315

Financing activities 
 Payments on long-term debt.................     (141)     (261)     (261)
 Issuance of common stock...................    3,485       ---       --- 
 Payments toward bond settlements...........      ---    (2,822)     (178)
                                               ------    ------    ------
Net cash provided (used) by financing
 activities.................................    3,344    (3,083)     (439)
                                               ------    ------    ------
Increase (decrease) in cash.................    3,242       ---       (13)
Increase in cash resulting from merger with
 subsidiary.................................      325       ---       ---
Cash at the beginning of the year...........      ---       ---        13
                                               ------    ------    ------
Cash at the end of the year.................  $ 3,567   $   ---   $   ---
                                               ======    ======    ======
Supplemental information:
 Interest paid..............................  $  106    $    11   $    17

Non-cash transactions:
 Purchase of minority interest with common
  stock.....................................   4,944      1,895       ---
 Reduction of net liabilities of 
  unconsolidated subsidiary.................     219        ---       655

</TABLE>

See notes to condensed financial statements and notes to consolidated
financial statements. 

                                        55
<PAGE>

                  THE DIANA CORPORATION AND SUBSIDIARIES 
  SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED) 
                  NOTES TO CONDENSED FINANCIAL STATEMENTS 
 

NOTE 1 - BASIS OF PRESENTATION

     The condensed financial information of the Registrant includes the
accounts of the parent company.  In fiscal 1996, the parent's wholly-owned
subsidiary, D.O.N., Incorporated was merged into the parent.

     Substantially all investments in and advances to unconsolidated
subsidiaries are eliminated in the consolidated financial statements.  In
fiscal 1996, other income includes management fees and interest income of
$448,000 that is eliminated in the consolidated financial statements. 
Intercompany profits between related parties are eliminated in these
financial statements.

NOTE 2 - LONG-TERM OBLIGATIONS
 
          Approximate annual amounts due on long-term obligations for the
five years subsequent to March 30, 1996 are (in thousands):

                           1997           $  141 
                           1998              141 
                           1999              141 
                           2000              141 
                           2001              141 
                           Thereafter      1,394

                                           -----
                                          $2,099
                                           =====

NOTE 3 - COMMITMENTS AND CONTINGENCIES

          Diana leases its corporate office space under a noncancelable lease
with a rental commitment of $36,000 in fiscal 1997.

          Diana has guaranteed obligations of an unconsolidated subsidiary
not to exceed $1,050,000 of which $370,000 was outstanding at March 30, 1996. 
Subsequent to March 30, 1996, Diana guaranteed the obligations of another
unconsolidated subsidiary not to exceed $400,000.  Subsequent to March 30,
1996, Diana extended an unsecured line of credit of $1 million at prime plus
2% to an unconsolidated subsidiary.

                                        56
<PAGE>

                  THE DIANA CORPORATION AND SUBSIDIARIES 

              SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS 

<TABLE>
<CAPTION>
                                                 Fiscal Year Ended
                                           March 30,  April 1,   April 2,
                                             1996       1995       1994 
                                                   (In Thousands)

<S>                                        <C>        <C>       <C>
Valuation accounts deducted in balance  
 sheet from assets to which they apply: 
Allowance for doubtful accounts: 
    Balance at beginning of period......   $  600     $  517     $  784
    Additions - 
      Charged to costs and expenses.....      519        313        153
    Reductions - 
      Accounts written off, net of
       recoveries.......................     (347)      (230)      (420)
                                            -----      -----      -----
    Balance at end of period............   $  772     $  600     $  517
                                            =====      =====      =====
Allowance for unrealized losses on
  inventory:
    Balance at beginning of period......   $  189     $  106     $  345
    Additions -
     Charged to costs and expenses......      399        273        123
    Reductions -
     Amounts written off on sale or
      disposal of inventories...........     (185)      (190)      (362)
                                            -----      -----      -----
    Balance at end of period............   $  403     $  189     $  106 
                                            =====      =====      =====
Allowance for net unrealized losses on 
 current marketable securities: 
    Balance at beginning of period......   $  713     $  412     $  ---
    Addition-charge against
     shareholders' equity...............      163        301        412  
                                            -----      -----      -----
    Balance at end of period............   $  876     $  713     $  412
                                            =====      =====      =====
</TABLE>

                                        57
<PAGE>

                                 SIGNATURES

   
     Pursuant to the requirements of Section 13 or 15 (d) 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 this 15th day of
October, 1996.
    

                                          The Diana Corporation



                                        By  /s/ R. Scott Miswald         
                                                Vice President, Treasurer and
                                                Controller

                                        58
<PAGE>

                                                                   EXHIBIT 11

                   THE DIANA CORPORATION AND SUBSIDIARIES
                  COMPUTATION OF EARNINGS (LOSS) PER SHARE

<TABLE>
<CAPTION>

                                                 Fiscal Year Ended
                                           March 30,   April 1,  April 2, 
                                             1996       1995       1994 
                                        (In Thousands, Except Per Share Data)

   
<S>                                        <C>        <C>        <C>
Primary
  Average shares outstanding.............    4,401      4,224      4,002
  Net effect of dilutive stock options -
   based on the treasury stock method
   using average market price............      ---        ---        106
                                            ------     ------     ------
  Total..................................    4,401      4,224      4,108
                                            ======     ======     ======
  Net earnings (loss)....................  $(3,365)   $  (720)   $ 3,453 
                                            ======     ======     ======
  Per share amount.......................  $  (.76)   $  (.17)   $   .84 
                                            ======     ======     ======
Fully diluted
  Average shares outstanding.............    4,401      4,224      4,002
  Net effect of dilutive stock options-
   based on the treasury stock method
   using the greater of average market
   price or year end market price........      ---        ---        253
                                            ------     ------     ------
  Total..................................    4,401      4,224      4,255
                                            ======     ======     ======
  Net earnings (loss)....................  $(3,365)   $  (720)   $ 3,453 
                                            ======     ======     ======
  Per share amount.......................  $  (.76)   $  (.17)   $   .81 
                                            ======     ======     ======
    
</TABLE>
<PAGE>

                                                             EXHIBIT 23.1


                    Consent of Independent Accountants
                    
   
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statement on Form S-3 and in the
Registration Statement on Form S-8 listed below of The Diana Corporation of
our report dated June 27, 1996, except as to the stock dividend described in
Note 17 which is as of October 2, 1996, on the financial statements of The
Diana Corporation included in this Annual Report on Form 10-K.
    

     1.  Registration Statement on Form S-3
         (Registration No. 33-88392)

     2.  Registration Statement on Form S-8
         (Registration No. 33-67188)



   
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
October 11, 1996
    

<PAGE>

                                                              EXHIBIT 23.2


             CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

   
     We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-67188) pertaining to The Diana Corporation 1986
Nonqualified Stock Option Plan and the Registration Statement (Form S-3 No.
33-88392) of The Diana Corporation and in the related Prospectus of our
report dated June 2, 1995, with respect to the consolidated financial
statements and schedules of The Diana Corporation included in the Annual
Report (Form 10-K/A, Amendment No. 1) for the fiscal year ended March 30,
1996.

    
   




    
   
Milwaukee, Wisconsin                                        ERNST & YOUNG LLP
October 11, 1996