UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549

   
                                 FORM 10-Q/A)
                               (Amendment No. 1)
    

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934

For the period ended          October 12, 1996                         

                                    or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934

For the transition period from                      to                     

Commission file number                        1-5486                       


                           THE DIANA CORPORATION                           
          (Exact name of registrant as specified in its charter)


             Delaware                                 36-2448698           
 (State or other jurisdiction of                  (I.R.S. Employer
 incorporation or organization)                  Identification No.)


     8200 W. Brown Deer Road, Suite 200, Milwaukee, Wisconsin      53223   
(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code      (414) 355-0037     


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

                                                            X  Yes   ___ No


     At November 15, 1996, the registrant had issued and outstanding an
aggregate of 5,294,483 shares of its common stock.

<PAGE>
                      Part I - Financial Information

Item 1.  Financial Statements


                  The Diana Corporation and Subsidiaries
                  Condensed Consolidated Balance Sheets
                          (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                  October 12,   March 30,
                                                     1996          1996     
                                                  (Unaudited)
<S>                                               <C>          <C>
                                  Assets
Current assets                              
  Cash and cash equivalents                       $  9,228      $  4,480
  Marketable securities                              1,608         1,213
  Receivables                                        4,140            69
  Inventories                                        2,509         1,087
  Net assets of discontinued operations              3,421         7,389
  Other current assets                                 945           484
                                                    ------        ------
    Total current assets                            21,851        14,722
 
Property and equipment                                 915           339
Intangible assets                                    3,854         5,827
Net assets of discontinued operations                8,344         8,180
Other assets                                         2,587            24
                                                    ------        ------
                                                  $ 37,551      $ 29,092
                                                    ======        ======
              Liabilities and Shareholders' Equity          
Current liabilities 
  Accounts payable                                $  2,349      $    483
  Accrued liabilities                                1,589           816
  Current portion of long-term debt                    141           141
                                                    ------        ------
    Total current liabilities                        4,079         1,440

Long-term debt                                       1,887         1,958
Other liabilities                                      733         1,008
Commitments and contingencies 
 
Shareholders' equity         
  Preferred stock - $.01 par value                     ---           ---
  Common stock - $1 par value                        6,007         5,526
  Additional paid-in capital                        79,679        59,456
  Accumulated deficit                              (48,442)      (34,776)
  Unrealized loss on marketable securities            (481)         (876)
  Treasury stock                                    (5,911)       (4,644)
                                                    ------        ------
    Total shareholders' equity                      30,852        24,686
                                                    ------        ------
                                                  $ 37,551      $ 29,092
                                                    ======        ======
</TABLE>
See notes to condensed consolidated financial statements.

                                        1
<PAGE>
                  The Diana Corporation and Subsidiaries
              Condensed Consolidated Statements of Operations
                                (Unaudited)
                 (In Thousands, Except Per Share Amounts)

<TABLE>
<CAPTION>

                              12 Weeks Ended             28 Weeks Ended     
                         October 12,  October 14,   October 12,  October 14,
                            1996         1995          1996         1995    

<S>                       <C>          <C>          <C>          <C>   
Net sales                 $  4,046     $    264     $   4,887    $     264
Other income                   162          123           345          305 
                            ------       ------       -------      -------
                             4,208          387         5,232          569

Cost of sales                1,012          129         1,158          129
Selling and administra-
 tive expenses               2,941          543         4,709        1,178
Research and development       873          ---         1,237          ---
                            ------       ------       -------      -------
Operating loss (Note 6)       (618)        (285)       (1,872)        (738)
 
Interest expense               (19)         (26)          (45)         (61)
Minority interest               (5)           4           126           52 
                            ------       ------       -------      -------
Loss from continuing
 operations                   (642)        (307)       (1,791)        (747)
Earnings (loss) from
 discontinued operations      (456)         453          (629)         492
Estimated loss on
 disposal of discontinued
 operations                 (3,500)         ---        (3,500)         ---
                            ------       ------       -------      -------
Net loss                  $ (4,598)    $    146     $  (5,920)   $    (255)
                            ======       ======       =======      =======
Earnings (loss) per
 common share:
  Continuing operations   $   (.12)    $   (.07)    $    (.34)   $    (.17)
  Discontinued operations:
    Earnings (loss) from
     operations               (.09)         .10          (.12)         .11
    Estimated loss on
     disposal                 (.66)         ---          (.67)         ---
                            ------       ------       -------      -------
  Net earnings (loss)     $   (.87)    $    .03     $   (1.13)   $    (.06)
                            ======       ======       =======      =======
Weighted average
 number of common
 shares outstanding          5,279        4,683         5,249        4,317 
                            ======       ======       =======      =======
</TABLE>
See notes to condensed consolidated financial statements.

                                        2
<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 March 30, 1996         5,526,282  $ 5,526   $ 59,456   $ (34,776)     $   (876)         877,692   $ (4,644)   $ 24,686

Net loss                                ---      ---        ---      (5,920)          ---              ---        ---      (5,920)

5% stock dividend                   250,893      251      7,474      (7,746)          ---              ---        ---         (21)

Change in unrealized loss on
 marketable securities                  ---      ---        ---         ---           395              ---        ---         395

Issuance of common stock            230,000      230     12,630         ---           ---         (200,000)     1,058      13,918

Acquisition of minority interest        ---      ---        ---         ---           ---           50,000     (2,325)     (2,325)

Other                                   ---      ---        119         ---           ---              ---        ---         119
                                  ---------   ------    -------    --------       -------          -------    -------     -------
Balance at October 12, 1996       6,007,175  $ 6,007   $ 79,679   $ (48,442)     $   (481)         727,692   $ (5,911)   $ 30,852
                                  =========   ======    =======    ========       =======          =======    =======     =======
</TABLE>
                     See notes to consolidated financial statements.
    
                                        3
<PAGE>

                  The Diana Corporation and Subsidiaries
              Condensed Consolidated Statements of Cash Flows
                               (Unaudited)
                              (In Thousands)
<TABLE>
<CAPTION>
                                                      28 Weeks Ended        
                                                  October 12,    October 14,
                                                     1996          1995   
<S>                                                <C>            <C>
Operating Activities:
  Net loss                                         $(5,920)       $  (255)
  Reconciliation of net loss to net cash      
   provided by operating activities:
    Depreciation and amortization                      218              5
    Minority interest                                 (126)            52
    Provision for estimated loss on
     discontinued operations                         3,500            ---
    Net change in discontinued operations           (3,873)         2,398
    Other                                              (74)          (345)
    Changes in operating assets and liabilities     (3,833)           (41)
                                                    ------         ------
Net cash provided (used) by operating activities   (10,108)         1,814

Investing activities:
  Increase in promissory note                       (5,000)           ---
  Sale of CNC preferred stock                        2,500            ---
  Additions to property and equipment                 (647)            (3)
  Purchases of marketable securities                   ---           (469)
  Sales of marketable securities                       ---          4,200
  Net change in discontinued operations               (395)          (208)
  Other                                                ---           (262)
                                                    ------         ------
Net cash provided (used) by investing activities    (3,542)         3,258

Financing activities:
  Repayments of long-term debt                         (71)           (71)
  Common stock issued                               13,918            --- 
  Net change in discontinued operations              4,572         (2,426)
  Other                                                (21)           --- 
                                                    ------         ------
Net cash provided (used) by financing activities    18,398         (2,497)
                                                    ------         ------
Increase in cash and cash equivalents                4,748          2,575

Cash and cash equivalents at the
  beginning of the period                            4,480            325
                                                    ------         ------
Cash and cash equivalents at the end
  of the period                                    $ 9,228        $ 2,900
                                                    ======         ======
Non-cash transactions:  
  Acquisition of common stock held by
    minority shareholder                           $ 2,325        $   ---
  Conversion of promissory note into CNC
    preferred stock                                  5,000            ---

</TABLE>
See notes to condensed consolidated financial statements.

                                        4
<PAGE>
                  The Diana Corporation and Subsidiaries
           Notes to Condensed Consolidated Financial Statements
                               (Unaudited)

NOTE 1 - Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.  In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.  Operating
results for the twenty-eight weeks ended October 12, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ended
March 29, 1997.  For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the fiscal year ended March 30, 1996.

     The consolidated group (hereafter referred to as the "Company") included
the following companies during fiscal 1997 and 1996.  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 fiscal 1997 and 1996.  Diana's operating
     activities consist primarily of corporate administration and investing
     activities.

     Sattel Communications Corp. ("SCC")
          Diana had a 50% ownership interest in SCC and accounted for its
     investment using the equity method of accounting from November 1994 to
     December 1995.  In January 1996, Diana increased its ownership interest
     from 50% to 80%.  The Company has included the results of SCC in its
     statement of operations for fiscal 1996 as though it had acquired its
     majority interest at the beginning of fiscal 1996 and added back the
     minority partner's share of SCC's loss as part of minority interest.  In
     April 1996, SCC established Sattel Communications LLC ("Sattel").  SCC,
     through its subsidiary Sattel, is a provider of central office voice and
     data switching equipment for communications providers worldwide.

     The operations of C&L Communications, Inc. ("C&L"), Valley
Communications, Inc. ("Valley"), Atlanta Provision Company, Inc. ("APC") and
Entree Corporation ("Entree") are classified as discontinued operations (see
Note 3).  As such, certain prior year balances have been reclassified in
order to conform to current year presentation.

     The computation of loss per common share is based on the weighted
average common shares outstanding (adjusted for the 5% stock dividend, see
Note 5) and dilutive common stock equivalents (stock options).

                                        5
<PAGE>

NOTE 2 - Research and Development Costs

     Research and development costs are charged to operations when incurred. 
Research and development costs were not directly incurred by SCC in the first
two quarters of fiscal 1996 because the intellectual property rights for the
switching products were not acquired by SCC until January 1996.  Software
development costs incurred in the development of the Company's switching
products are required to be capitalized once technological feasibility is
established in accordance with Statement of Financial Accounting Standards
("SFAS") No. 86.  Technological feasibility is established upon the
successful testing of a prototype or beta-test model based upon the Company's
product development process.  Software development costs incurred during the
period between completion of a fully-tested model and general market release
have not been significant, and, accordingly, have not been capitalized. 
Various feature development software costs may be incurred, particularly on
a specific customer requirement basis.  These costs, however, are not
considered to meet the SFAS No. 86 criteria for capitalization given the
dynamic market nature of such modifications.

NOTE 3 - Discontinued Operations 

     In November 1996, the Board of Directors of the Company approved a plan
to separate its central office voice and data switching equipment business
(the "Sattel Business") from the following businesses:

                       Segment                           Company

     Telecommunications equipment distribution          C&L
     Voice and data network installation and service    Valley
     Wholesale distribution of meat and seafood         Entree/APC

     APC is a wholly-owned subsidiary of Entree and is Entree's sole
operating company.  Valley is an 80%-owned subsidiary of C&L.

     The plan provides for a taxable spin-off of the common stock of the
Company's subsidiary, Newco, through a special dividend to the Company's
shareholders.  In November 1996, the Company agreed to contribute all of the
outstanding capital stock of C&L, 6,500,000 shares of Entree's common stock,
$7.4 million of preferred stock of APC, and certain assets and liabilities in
exchange for 12.5% Cumulative Nonvoting Convertible Preferred Stock, par
value $.01 per share of Newco ("Newco Preferred Stock") with a liquidation
amount equal to the net book value of the net assets contributed, exclusive
of the Company's $1 million capital contribution discussed below.  The Newco
Preferred Stock is redeemable by Newco at any time at the liquidation amount
plus all accrued and unpaid dividends.  The Newco Preferred Stock is
convertible at the option of the holder beginning at January 1, 2007 into
19.9% of Newco's outstanding common stock on a fully diluted basis (after
taking into account such conversion).  In addition, the Company agreed to
capitalize Newco with $1 million.  The Company intends to distribute all
shares of Newco's common stock that it owns to Diana shareholders (the
"Distribution") if the Distribution is approved by stockholders of the
Company.  The Distribution is also subject to certain other conditions which
are waivable by the Company's Board of Directors.  The Distribution is
expected to be made in early 1997.

                                        6
<PAGE>

NOTE 3 - Discontinued Operations (Continued)

     The results of operations of the telecommunications equipment
distribution segment, the voice and data network installation and service
segment and the wholesale distribution of meat and seafood segment have been
reported separately as discontinued operations.

     The components of net assets of discontinued operations included in the
balance sheets at October 12, 1996 and March 30, 1996 are as follows (in
thousands):

<TABLE>
<CAPTION>
                                          October 12, 1996                

                                       Telecommuni-    Network
                             Meat and    cations     Installation
                             Seafood   Equipment     and Service    Total
<S>                          <C>         <C>          <C>         <C> 
Receivables                  $  9,535    $  5,255     $  2,668    $ 17,458
Inventories                     5,153       6,788          168      12,109
Other current assets            1,976         502          366       2,844
Accounts payable               (6,843)     (4,556)        (844)    (12,243)
Revolving lines of credit      (6,929)     (4,446)        (452)    (11,827)
Other current liabilities        (684)       (190)        (855)     (1,729)
                              -------     -------      -------     -------
                             $  2,208    $  3,353     $  1,051       6,612
                              =======     =======      =======
Reserve for loss on disposal                                        (3,191)
                                                                   -------
Net current assets of
 discontinued operations                                          $  3,421
                                                                   =======
Property and equipment, net  $  3,083    $    329     $    531    $  3,943
Intangible assets                 ---       2,541        2,936       5,477
Other assets                      388         324           89         801
Long term debt                   (765)        ---         (800)     (1,565)
Other liabilities                 ---         ---         (312)       (312)
                              -------     -------      -------     -------
Net noncurrent assets of
  discontinued operations    $  2,706    $  3,194     $  2,444    $  8,344
                              =======     =======      =======     =======

                                           March 30, 1996                   

Receivables                  $  8,848    $  3,609     $  3,645    $ 16,102
Inventories                     4,541       6,172          536      11,249
Other current assets            1,134         878          288       2,300
Accounts payable               (7,893)     (4,230)      (1,101)    (13,224)
Revolving lines of credit      (2,996)     (2,996)      (1,046)     (7,038)
Other current liabilities        (726)       (520)        (754)     (2,000)
                              -------     -------      -------     -------
Net current assets of
  discontinued operations    $  2,908    $  2,913     $  1,568    $  7,389
                              =======     =======      =======     =======
Property and equipment, net  $  3,170    $    308     $    341    $  3,819
Intangible assets                 ---       2,780        2,979       5,759
Other assets                      355         323          102         780
Long term debt                   (804)        ---         (800)     (1,604)
Other liabilities                 ---        (200)        (374)       (574)
                              -------     -------      -------     -------
Net noncurrent assets of
  discontinued operations    $  2,721    $  3,211     $  2,248    $  8,180
                              =======     =======      =======     =======
</TABLE>
                                        7
<PAGE>

NOTE 3 - Discontinued Operations (Continued)

     Operating results, net of minority interest, relating to the
discontinued operations for these periods is as follows (in thousands):

<TABLE>
<CAPTION>
                              Twenty-Eight Weeks Ended October 12, 1996  
                                       Telecommuni-    Network
                             Meat and    cations     Installation
                             Seafood   Equipment     and Service    Total
 
<S>                          <C>         <C>           <C>        <C>
Net sales                    $130,868    $ 12,963      $  7,409   $151,240
                              =======     =======       =======    =======
Income (loss) from
  continuing operations      $   (735)   $    (37)     $    143   $   (629)
                              =======     =======       =======    =======

                              Twenty-Eight Weeks Ended October 14, 1995  
 
Net sales                    $128,955    $ 13,427      $    ---   $142,382
                              =======     =======       =======    =======
Income (loss) from
  continuing operations      $   (268)   $    760      $    ---   $    492 
                              =======     =======       =======    =======
</TABLE>

     No income taxes have been allocated to discontinued operations for the
twenty-eight weeks ended October 12, 1996 or October 14, 1995 because there
was no consolidated income tax expense or income tax expense for continuing
operations in these periods.

     In reclassifying the Company's financial statements for presentation of
discontinued operations, the Company reflected all of APC's interest expense
that was paid to the Company under an intercompany loan to discontinued
operations.  Interest expense paid by APC to the Company was $0 and $87,000
for the twenty-eight weeks ended October 12, 1996 and October 14, 1995,
respectively and is included in other income.

     The estimated loss on disposal at October 12, 1996 includes the
following items to be incurred in connection with the Distribution (in
thousands):

Estimated expenses in connection with the Distribution             $1,200
Estimated fair value of warrant to be issued                        1,400
Severance payments to Messrs. Fisher, Runge and Lilly                 508
Estimated operating loss for the disposal period                      200
Charge due to acceleration of deferred compensation payments
 to Messrs. Fisher and Runge                                          137
Other                                                                  55
                                                                    -----
                                                                   $3,500
                                                                    =====
     Estimated expenses to be incurred in connection with the Distribution
include amounts related primarily to legal, accounting and investment banking
fees.  In addition, included above is the estimated fair value of a warrant
to purchase 100,000 shares of Company Common Stock to be issued to the
Company's investment banker upon completion of the Distribution.  The results
of operations of APC, C&L and Valley between November 20, 1996 (the
measurement date) and the estimated date of the Distribution are estimated to
reflect a loss of $200,000.

                                        8
<PAGE>

NOTE 4 - Sattel Communications

     On May 3, 1996, the Company and Sattel Technologies, Inc. ("STI")
entered into a Supplemental Agreement by which the Company acquired an
additional 15% ownership interest in SCC.  The acquisition occurred as part
of a transaction in which the Company contributed an additional $10 million
in cash to SCC.  In lieu of contributing its proportionate share of the
additional funding to SCC, and in exchange for a release from its obligation
to pay for certain product development efforts, STI agreed to convey to the
Company 15% of SCC, together with 50,000 shares of the Company's common stock
it had previously acquired.  This transaction resulted in a net reduction of
approximately $1,825,000 of intangible assets recorded at March 30, 1996.  In
addition, in fiscal 1997, Sattel granted equity participation interests to
certain employees of the Company.  On October 14, 1996, the Company acquired
from STI its remaining 5% ownership interest in SCC for 15,000 shares of the
Company's common stock.  The Company's effective ownership of Sattel remains
at 80% after all of these transactions.

     In June 1996, Concentric Network Corporation ("CNC") executed a
Promissory Note for $5,000,000 in favor of Sattel for a bridge loan.  CNC
granted to Sattel a warrant to purchase 551,470 shares of CNC Series D
Preferred Stock ("CNC Preferred Stock") at an exercise price of $1.36 per
share (equal to the par value of such shares) as additional consideration for
the bridge loan to CNC.  The warrant is exercisable immediately and expires
on June 6, 1999.  In August 1996, the Promissory Note and accrued interest
receivable were converted into 3,729,110 shares of CNC Preferred Stock.  In
September 1996, Sattel sold to StreamLogic Corporation 1,838,234 shares, or
49% of its CNC Preferred Stock for $2.5 million.  No gain or loss was
recognized in connection with this sale.  Sattel continues to own the warrant
from CNC.  The investment in CNC Preferred Stock of $2,572,000 is classified
within other assets in the Condensed Consolidated Balance Sheet.

NOTE 5 - Shareholders' Equity

   
     In April 1996, the Company raised $13,918,000, after commissions and
expenses, through the sale of 430,000 shares of common stock.
    
   
     On September 3, 1996, the Board of Directors declared a 5% stock
dividend which was paid on October 2, 1996 to shareholders of record on
September 16, 1996.  Per share amounts and weighted average shares
outstanding in the accompanying financial statements have been restated for
the stock dividend.  In addition, the 5% stock dividend resulted in an
increase in common stock, additional paid-in capital and accumulated deficit
in the October 12, 1996 Condensed Consolidated Balance Sheet of $251,000,
$7,474,000 and $7,746,000, respectively.
    

                                        9
<PAGE>

NOTE 6 - Business Segment Information

     The Company operates worldwide in the central office voice and data
switching equipment business segment.  This segment consists solely of the
operations of Sattel.  Information by industry segment is as follows for the
twelve and twenty-eight weeks ended October 12, 1996 (in thousands):

<TABLE>
<CAPTION>
                                      Twelve Weeks       Twenty-Eight Weeks
                                         Ended                 Ended
                                      October 12,           October 12,
                                         1996                   1996       
<S>                                   <C>                    <C>
Net sales:
 Switching equipment (Sattel)          $  4,046              $  4,887     
                                        =======               =======
Operating earnings (loss):
 Switching equipment (Sattel)          $     99              $   (699)
 Corporate office (Diana)                  (717)               (1,173)
                                        -------               -------
                                       $   (618)             $ (1,872)
                                        =======               =======
Depreciation and amortization:
 Switching equipment (Sattel)                                $    213
 Corporate office (Diana)                                           5
                                                              -------
                                                             $    218
                                                              =======
Capital expenditures:
 Switching equipment (Sattel)                                $    637
 Corporate office (Diana)                                          10
                                                              -------
                                                             $    647
                                                              =======
Identifiable assets:
 Switching equipment (Sattel)                                $ 17,664
 Discontinued operations                                       11,765
 Corporate office (Diana)                                       8,122
                                                              -------
                                                             $ 37,551
                                                              =======
</TABLE>
                                        10
<PAGE>
                        Part II.  Other Information

                   Management's Discussion and Analysis
             of Financial Condition and Results of Operations

Results of Operations

     The Company's historical results of operations have been restated to
reflect the operations of C&L, Valley and APC as discontinued operations. 
The following discussion encompasses the results of operations of the
Company's corporate office and Sattel.  Sattel's operations were through SCC
prior to Sattel's formation in April 1996.  SCC commenced operations in
November 1994 as a 50/50 joint venture between the Company and STI.  In
January 1996, the Company increased its ownership interest in SCC from 50% to
80%.  SCC is included in the consolidated financial statements since the
beginning of fiscal 1996 (see Note 1 to the Condensed Consolidated Financial
Statements).

     Sattel's revenues and expenses increased in the second quarter and year-
to-date periods of fiscal 1997 as compared to the same time period in fiscal
1996.  These increases, as indicated below, are primarily because Sattel's
operations in fiscal 1996 consisted of the start up and development of its
business.

      Sattel had sales of $4,046,000 in the second quarter of fiscal 1997, 
primarily from the sale of DSS switches.  Sattel's fiscal 1997 year-to-date
sales were $4,887,000 primarily from the sale of DSS switches.  Approximately
90% and 91% of sales in the second quarter and year-to-date periods of fiscal
1997, respectively, were from sales to CNC.

     For the twelve and twenty-eight weeks ended October 12, 1996, selling
and administrative expenses increased $2,398,000 and $3,531,000 over the
corresponding periods in fiscal 1996.  Selling and administrative expenses
have increased primarily because of the increase in Sattel's business. 
During the second quarter and year-to-date periods of fiscal 1996, Sattel
incurred nominal selling and administrative expenses as compared to fiscal
1997 because the business was in the early stages of its development.

     Research and development expense of $873,000 and $1,237,000 were
incurred by Sattel during the second quarter and year-to-date periods of
fiscal 1997.  An explanation of the increase in research and development
expenses and the Company's accounting policy for these expenses is in Note 2
to the Condensed Financial Statements.

     Minority interest in fiscal 1997 represents the minority partner's share
of Sattel's second quarter earnings and year-to-date loss, respectively.  In
fiscal 1996, the Company has included the results of SCC in its statement of
operations as though it had acquired its majority interest at the beginning
of fiscal 1996 and added back the minority partner's share of SCC's loss as
part of minority interest (see Note 1 to the Condensed Consolidated Financial
Statements).

                                        11
<PAGE>

     The loss from continuing operations in the second quarter of fiscal 1996
is primarily due to a small profit incurred by Sattel offset by the Company's
corporate office operating loss.  The increase in the loss from continuing
operations for the twelve weeks ended October 12, 1996 as compared to the
same period of time in fiscal 1996 is primarily due to an increase in the
Company's corporate office expenses.

     The summarized operating results of discontinued operations for the
twenty-eight weeks ended October 12, 1996 and October 14, 1995, respectively,
are shown in Note 3 to the Consolidated Financial Statements.  The change in
the operating results from discontinued operations from fiscal 1996 to 1997
is primarily attributable to an increase in APC's loss and a reduction in
C&L's results.  APC's loss increased primarily due to a decrease in gross
profit margins and expenses of $227,000 incurred in connection with the
refinancing of its revolving line of credit.  C&L's operating results
decreased due to a 3% reduction in its sales, a decrease in gross profit
margins and an increase in operating expenses.

     The components of the estimated loss on disposal of discontinued
operations are shown in Note 3 to the Condensed Consolidated Financial
Statements.

Liquidity and Capital Resources

     The Company used cash in operating activities of $10,108,000 during the
twenty-eight weeks ended October 12, 1996 as compared to positive cash flow
of $1,814,000 for the same period of time in fiscal 1996.  The decrease in
cash flow is primarily attributable to an increase in the net loss from
continuing operations, less cash provided by the net change in working
capital items (due to an increase in receivables because of Sattel's second
quarter fiscal 1997 sales of $4,046,000) and a reduction in cash provided by
operating activities of discontinued operations.

     Capital expenditures increased to $647,000 in fiscal 1997 from $3,000 in
fiscal 1996.  The increase in capital expenditures is due to purchases made
by Sattel for the continued development of its business.  The Company
anticipates that fiscal 1997 capital expenditures will approximate $1 million
consisting primarily of testing equipment for SCC.

     In June 1996, Concentric Network Corporation ("CNC") executed a
Promissory Note for $5,000,000 in favor of Sattel for a bridge loan.  CNC
granted to Sattel a warrant to purchase 551,470 shares of CNC Series D
Preferred Stock ("CNC Preferred Stock") at an exercise price of $1.36 per
share (equal to the par value of such shares) as additional consideration for
the bridge loan to CNC.  The warrant is exercisable immediately and expires
on June 6, 1999.  In August 1996, the Promissory Note and accrued interest
receivable were converted into 3,729,110 shares of CNC Preferred Stock.  In
September 1996, Sattel sold to StreamLogic Corporation 1,838,234 shares, or
49% of its CNC Preferred Stock for $2.5 million.  No gain or loss was
recognized in connection with this sale.  Sattel continues to own the warrant
from CNC.

                                        12
<PAGE>

     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 and capital expenditure requirements for Sattel,
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.  In July 1996, the Company filed a registration statement for
shelf registration of up to 500,000 shares of common stock, which was
withdrawn in October 1996.

     The decrease in intangible assets is primarily attributable to the
transaction discussed in Note 4 to the Condensed Consolidated Financial
Statements.

     Sattel and StreamLogic have entered into an agreement to establish
SatLogic LLC ("SatLogic"), a company that will be jointly owned by Sattel and
StreamLogic.  SatLogic's business purpose will be the implementation and
execution, directly or indirectly, of a wholesale business created to sell or
resell network services elements to other value added network service
providers such as Internet service providers as well as other transactions. 
SatLogic will initially be capitalized with a $500,000 cash contribution by
Sattel and a promissory note from StreamLogic in favor of SatLogic for
$1,000,000 secured by the pledge of 735,294 shares of CNC Series D Preferred
Stock owned by StreamLogic.  In addition, Sattel and StreamLogic have agreed
to a total commitment of capital to SatLogic of $2 million of which each is
responsible for half.

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 and that the Company
believes that it will have adequate resources to meet its liquidity needs in
fiscal 1997.  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 limited to (i) whether the Company
can continue to grow its business, (ii) product demand, competition, the cost
of products, and industry conditions, and (iii) the risks and uncertainties
relating to Sattel's business.

                                        13
<PAGE>

Item 6.   Exhibits and Reports on Form 8-K

          a)   Exhibits:

               4.1   -   Loan and Security Agreement dated October 4, 1996
                         between Atlanta Provision Company, Inc. and Sanwa
                         Business Credit Corporation

               27    -   Financial Data Schedule

          b)   A Form 8-K was filed by the Company on September 11, 1996
               which covered:

               Item 5.   Other Events
                         Press release dated September 5, 1996 announcing
                         that on September 3, 1996 the Board of Directors of
                         the Company adopted a Stockholder Rights Plan      
                         and declared a dividend of one Right on each
                         outstanding share of the Company's common stock,
                         payable on September 16, 1996 to stockholders of
                         record on September 16, 1996.

                                        14
<PAGE>
                                Signatures



           Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.


                                             THE DIANA CORPORATION

   

                                             By:/s/ R. Scott Miswald      
                                                 Vice President and Treasurer
                                                 (Principal Financial and
                                                 Accounting Officer)
    


   
DATE:  January 24, 1997