EXHIBIT 13

1996 ANNUAL REPORT TO SHAREHOLDERS

THE COMPANY

Vaughn Communications, Inc. is the second largest provider in the United
States of high-volume videotape duplication services to corporations,
publishers, and educational companies. The Company operates videotape
duplication centers in areas selected because of their proximity to large
corporate bases. Facilities are now located in Minneapolis, Chicago,
Atlanta, Dallas, Milwaukee, Tampa, Phoenix, Denver, Portland, Raleigh and
Houston. Sales offices are located in New York, Los Angeles, Seattle, Ft.
Lauderdale, Orlando and St. Louis.

In addition to video services, the Company receives thirteen percent of its
total revenue from the VAUGHN PRODUCTS DIVISION which manufactures and
sells gift products and collectibles to retailers in growing niche markets.

LETTER TO SHAREHOLDERS

To Our Shareholders,

Record sales and earnings bring us to six consecutive years of growth with
a compound growth rate of 23% in sales and 83% in net income from continuing
operations. Results these past two years have established our Company as the
leader in our industries in growth and profit. We will continue to build market
share by acquiring other successful companies in markets we share and by
focusing on delivering value and quality to our customers.

This year we completed several key acquisitions that better position our
Company for competition and future growth in both segments of our business. In
April, 1995, our Company acquired a videotape duplicator (Centercom, Inc.) with
facilities in Milwaukee, Chicago and Tampa. In January, 1996, we acquired a
videotape duplicator (Advanced Audio/Video Productions, Inc.) with operations in
Denver. Also in January, 1996, we acquired a gift products company (Indian Arts
and Crafts, Inc.) based in Seattle. These acquisitions are the result of the
Company's continuing strategy to capture market share and to serve customers
through strategically placed regional offices.

For the fiscal year ended January 31, 1996, sales increased 33% to
$55,500,000 from $41,600,000 in fiscal 1995. Operating income (before interest
and taxes) increased approximately 50% to $4,900,000 from $3,200,000.

COMMUNICATIONS DIVISION: Sales increased by 40% to $48,300,000 and operating
income increased 53% to $4,690,000, reflecting the Company's efforts to grow
sales while improving gross profit and controlling operating expenses. This
year we added MPEG-2 to our video compression services, which we believe is
necessary to deliver the high end needs of server-based video distribution
systems and new DVD home video systems scheduled for introduction in 1996.
MPEG-2 will open more markets for Vaughn's growing multimedia capabilities.

PRODUCTS DIVISION: The Products Division revenues of $7,203,000 were
approximately the same as last year, reflecting flat sales for the overall
retail gift business. Sales are expected to grow in fiscal 1997 by 100% as a
result of the January acquisition of Indian Arts and Crafts ("IAAC"). With the
acquisition of IAAC, our Products Division will be consolidated in Seattle
during the third quarter of fiscal 1997. This consolidation will improve our
efficiency and bring a broader range of products to all current customers
nationwide.

GOING FORWARD: We see increasing opportunities to grow revenue and earnings.
We continue to train and develop our people, guided by the principles of Deming
Total Quality Management. In September, 1995, our Directors elected Donald
Drapeau President, Chief Operating Officer and Director, expanding our
organization to manage significant future growth. Our team of experienced and
trained leaders at all levels of the Company is looking forward to these growth
opportunities.

E. David Willette Donald J. Drapeau
Chairman and Chief Executive Officer President and Chief Operating Officer
March 31, 1996

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

Vaughn Communications, Inc. (the "Company") operates in two business
segments--the Communications Division serves the corporate videotape duplication
market, and the Products Division manufactures and sells gift products.

COMPARISON OF FISCAL 1996 AND FISCAL 1995 OPERATING RESULTS

In fiscal 1996 (year ended January 31, 1996), the Company completed several key
acquisitions that better position the Company for competition and future growth
in both segments of its business. In April, 1995, the Company acquired
Centercom, Inc. ("Centercom"), a videotape duplicator with facilities in
Milwaukee, Chicago and Tampa. The acquisition allowed the Company to
consolidate its existing facilities in Milwaukee and Tampa and add a new
facility in the Chicago market. In January, 1996, Advanced Audio/Visual
Productions, Inc., a videotape duplicator with operations in Denver, was
acquired. The acquisition increased the Company's presence in Denver from a
sales office to a full service duplication facility. Also acquired in January
was Indian Arts and Crafts, Inc., a gift products company based in Seattle.
Indian Arts and Crafts' products include a line of custom-designed soft goods
including T-shirts and sweatshirts sold primarily in Alaska and the Pacific
Northwest. Management believes that these products and territories are
complimentary to the Company's existing gift business. Management further
believes that consolidation of the operations of the two businesses in Seattle
will result in greater operation efficiencies. These acquisitions were treated
as purchases and included in the results of operations as of their respective
acquisition dates.

The Company's net sales increased 33% over fiscal 1995, from approximately
$41,603,000 to approximately $55,513,000, while the gross profit margin
increased to 31.8% in fiscal 1996 from 31.5% in fiscal 1995. Selling, general
and administrative expenses for fiscal 1996 were up 30% over the previous year
and represented 23% of net sales, down .6 percentage points from last year.
Operating profit increased 50% to approximately $4,900,000 over fiscal 1995,
while interest expense increased to approximately $1,300,000 in fiscal 1996, up
approximately $617,000 from fiscal 1995, due primarily to increased debt
associated with the acquisitions. The Company's effective income tax rate for
fiscal 1996 was 41.2%, an increase of 2.9 percentage points from the comparable
rate in fiscal 1995. This increase was due to the nondeductibility of goodwill
amortization pertaining to the acquisition of Centercom. Net income from
continuing operations increased 38% from $1,551,000 in fiscal 1995 to $2,145,000
in fiscal 1996.

The net contribution each division made to these results is discussed below.

COMMUNICATIONS DIVISION:

The Communications Division sales were up 40% from $34,400,000 in fiscal 1995 to
$48,300,000 in fiscal 1996. The acquisition of Centercom, and a 16% increase in
the sales from pre-existing facilities, contributed to this sales growth. The
Company believes that factors which contributed to this growth--an overall
increase in the videotape duplication market, improved selling efforts, and
increased production capacity--will continue in the next year and that the
growth in sales will continue, although there can be no assurance that such
growth will be experienced at or near the levels experienced in fiscal 1996.

The gross profit margin increased to 32.5% in fiscal 1996 from 31.8% in the
prior year, primarily due to a decrease in the cost of materials used in the
duplication process. The decrease was due in part to the Company's importing of
materials directly from overseas sources. Although the price of videotape
duplication continues to decline, the Company expects to maintain its profit
margins by improving efficiencies, leveraging fixed costs with increased volume,
and continuing to utilize low cost providers of raw materials.

Selling, general and administrative expenses in fiscal 1996 were up 38% over
fiscal 1995, and represented 23% of net sales in fiscal 1996, which is
approximately the same as the prior year. The increase in selling, general and
administrative expenses reflects additional expenses associated with the
acquisitions previously discussed, including goodwill amortization and
noncompete payments. Excluding these expenses, selling, general and
administrative expense represented 22.3% of net sales.

Operating profit of approximately $4,693,000 increased 53% from the prior year
and reflects the Company's efforts to grow sales while improving gross profit
and controlling operating expenses.

Interest expense increased to approximately $1,185,000 for fiscal 1996, up
approximately $679,000 from fiscal 1995, due primarily to increased borrowings
resulting from the acquisitions. Pre-tax profit for the Communications Division
was $3,565,000 in fiscal 1996, a 40% increase from the prior year.

Excluding the acquisitions, the Company spent approximately $2,200,000 on
equipment and facilities to expand its production capacity. The investment was
funded by long-term financing and internally generated funds. The
Communications Division expects to spend approximately $1,600,000 for equipment
in fiscal 1997.

PRODUCTS DIVISION:

The Products Division sales of $7,203,000 were approximately the same as the
previous year. The Company's primary customers are gift shops, and management
believes the flat sales reflect the overall market conditions for retail sales
and not a loss of market share. Excluding the additional sales attributed to
the acquisition, the Company expects modest sales growth in fiscal 1997.

The gross profit margin in fiscal 1996 decreased to 27% from 30% in fiscal 1995
due to increases in raw material costs, consisting primarily of increases in the
price of leather which is the main component of the Company's manufactured
product line. By the end of the year prices for leather returned to prior year
levels, and management expects the gross profit margin to improve in fiscal
1997.

Selling, general and administrative expenses for fiscal 1996 were down 13% from
the previous year and represented 24.5% of sales in fiscal 1996 versus 28% last
year. The decrease in expenses reflects the Company's continued emphasis on
cost containment and carefully managed marketing spending.

As a result of the decrease in selling, general and administrative expenses in
fiscal 1996, operating profit of $172,000 remained approximately the same as the
previous year. Non-operating expenses, consisting primarily of interest
expense, were approximately $92,000 in fiscal 1996, compared to approximately
$101,000 in fiscal 1995. Pretax profit increased 11% to $80,000 in fiscal 1996.

LIQUIDITY AND CAPITAL RESOURCES

The financial condition of the Company improved during fiscal 1996. Operations
provided a strong, positive cash flow which resulted in net cash provided from
operations of $3,794,000 principally due to higher net earnings and improved
working capital management. The improved cash flow, combined with maintaining
credit facilities, provides adequate liquidity to meet the Company's operational
needs for at least the next twelve months. The Company maintained a $13,000,000
credit facility with American Bank of St. Paul, Minnesota. At January 31, 1996,
the Company had approximately $4,800,000 of the facility available. Subsequent
to year end, the Company entered into an amended credit facility with the bank
which increased the amount of the line of credit to $17,000,000. This new
agreement was entered into in anticipation of increased working capital needs
associated with the acquisition of Indian Arts and Crafts.

Net cash used in investing activities for fiscal 1996 was primarily related to
acquisition and capital spending. Capital expenditures increased from
$2,186,000 in fiscal 1995 to $2,402,000 in fiscal 1996. Over the past several
years, investment has been focused on expanding production capacity to take
advantage of the growth in the videotape duplication market. The expansion has
included the acquisition of competitors and investment in new capital equipment.
Management plans to continue this expansion strategy and anticipates that fiscal
1997 capital expenditures will be approximately $2,000,000 while continuing to
look for acquisition candidates. No definitive agreements have been reached
regarding any such acquisitions.

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

COMPARISON OF FISCAL 1995 AND 1994 OPERATING RESULTS

During fiscal year ended January 31, 1995 Vaughn Communications, Inc. (the
"Company") continued the implementation of its strategy which includes continued
growth of its videotape duplication business, a commitment to a quality program
to improve efficiencies in recognition of the realities of the business
environment of the 1990's and beyond, and the continued assessment of the
Company's operating units to assure they conform to the Company's long-term
focus. In March 1994 the Company sold the display products business which no
longer met the Company's long-term strategic direction. The sale of this
business unit has been treated as a discontinued operation, and prior years'
financial information has been restated to reflect this treatment. As a result,
Vaughn's fiscal 1995 earnings totaled $2,044,000 or $.63 per common share. This
was 191% greater than 1994 earnings of $1,198,000 or $.38 per share. On a
continuing operations basis, fiscal 1995 earnings were $1,551,000 or 38% greater
than the previous year.

Revenues from continuing operations increased from $32,275,000 in fiscal 1994 to
$41,603,000 in fiscal 1995, a 29% increase, while gross margins remained at
31.5%. Operating expenses as a percent of sales decreased from 24.5% in fiscal
1994 to 23.6% in fiscal 1995. Other expenses (primarily interest) increased by
$230,000 from the previous year and are attributable to the increases in the
prime lending rate and increased borrowings.

COMMUNICATIONS DIVISION:

The Communications Division's net revenues of $34,402,000 in fiscal 1995 were a
30% increase from the previous year's $26,406,000. The Company believes that
important factors affecting revenue growth have been an overall increase in the
videotape duplication market, the Company's increased production capacity, and
improved selling efforts. For these reasons the Company expects the revenue
growth to continue in fiscal 1996.

Gross margins as a percentage of sales decreased slightly from 32.9% in fiscal
1994 to 31.8% in fiscal 1995. Gross profit increased 26% on the higher volume
to $10,937,000 for fiscal 1995, up from $8,685,000 in fiscal 1994. The decrease
in percentage margins is due to declining video unit prices, partially offset by
reduced material costs.

Operating expenses as a percentage of net sales declined in fiscal 1995 to 23%
from 24.5% in fiscal 1994. However, operating expenses increased 23% to
$7,955,000 in fiscal 1995 as compared to $6,478,000 the previous year. This
increase was the result of (i) increased sales, customer service and
administrative labor to support higher sales volume ($600,000); (ii) increased
rent ($230,000) associated with expanded operations; and increases in other
categories associated with the record sales volume.

Income from operations increased 35% to $2,982,000 in fiscal 1995. The factors
which contributed to the improvement included the increase in sales volume, and
the continued improvements in the leveraging of fixed operating expenses.
Offsetting these factors was the decrease in the gross margin percentage.

The Division had non-operating expenses of $506,000 in fiscal 1995 compared to
$302,000 in the previous year due primarily to additional debt to fund the
growth and increases in the prime lending rate. For fiscal 1995, the
Communications Division had pre-tax income of $2,476,000 compared to $1,905,000
last year.

The additional sales volume required additional investment in production
equipment. For the year, the Communications Division invested approximately
$2,000,000 in new equipment and facilities which was funded by long-term
financing and internally generated funds. The Division plans to spend
$1,800,000 for equipment in fiscal 1996.

PRODUCTS DIVISION:

Sales from continuing operations in the Products Division increased 23% from
$5,869,000 in fiscal 1994 to $7,201,000 in fiscal 1995. The increase was
attributable to an increase in the product offerings and improved sales efforts.

Gross margins as a percentage of sales improved from 25.8% in the prior year to
30% in fiscal 1995. Gross profit increased 40% on the higher volume to
$2,167,000, up from $1,516,000 in fiscal 1994. The improvement was due
primarily to improved operating efficiencies which reduced labor costs, and a
shift in product mix to higher margin products.

Operating expenses for fiscal 1995 increased 48% to $2,021,000 from $1,367,000
in 1994. As a percentage of net sales, operating expenses increased from 23% in
fiscal 1994 to 28% in fiscal 1995. The major factor in the $654,000 increase
was approximately $435,000 of operating expenses such as rent, insurance,
executive salaries and data processing costs which were allocated on an ongoing
basis to the remaining operations of the Products Division after the sale of the
display business (see following discussion). Excluding these costs, operating
expenses increased 16%, and was attributable to the higher costs needed to
support the increased sales volume.

Income from operations decreased slightly to $136,000 in 1995 from $148,000 in
1994. Excluding the reallocated operating costs, operating income would have
increased 292% to $432,000. This performance was due to the increased volume
and the improvement in gross margins.

Non-operating expenses, consisting primarily of interest expense were $64,000 in
fiscal 1995, compared to $8,000 in fiscal 1994. The increase was due to higher
interest rates, increased borrowings, and the inclusion of an $11,000 gain on
the sale of equipment in fiscal 1994. Pre-tax income decreased from $140,000 in
fiscal 1994 to $72,000 in fiscal 1995.

DISCONTINUED OPERATIONS:

The discontinued operations are the result of the Company's sale of the assets
and operations of the operating unit involved in the manufacture and sale of
flag, float and display products. The sale was completed March 1, 1994. The
net gain on the sale of the assets was approximately $554,000. The tax
liability on this gain is expected to be fully offset by capital loss
carryforwards the Company has available.

SELECTED FINANCIAL DATA FROM CONTINUING OPERATIONS (IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

Year Ended January 31
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:

Net sales. . . . . . . . . $55,513 $41,603 $32,275 $24,589 $19,978
Cost of goods sold . . . . 37,887 28,528 22,074 16,730 13,252
------- ------- ------- ------- -------
Gross profit . . . . . . . 17,626 13,075 10,201 7,859 6,726
Operating expenses . . . . 12,761 9,828 7,905 6,351 5,489
------- ------- ------- ------- -------
Operating income . . . . . 4,865 3,247 2,296 1,508 1,237
Interest expense . . . . . (1,286) (669) (529) (410) (562)
Other income (expense) . . 66 (67) 24 69 98
------- ------- ------- ------- -------
Income from continuing
operations before
income taxes . . . . . . 3,645 2,511 1,791 1,167 773
Income taxes . . . . . . . 1,500 960 667 366 297
------- ------- ------- ------- -------

Income from continuing
operations . . . . . . . 2,145 1,551 1,124 801 476
Income from
discontinued operations . - 493 74 175 279
------- ------- ------- ------- -------
Net income . . . . . . . . $ 2,145 $ 2,044 $ 1,198 $ 976 $ 755
------- ------- ------- ------- -------
------- ------- ------- ------- -------

Net income per common share:
Continuing operations. . $ .61 $ .48 $ .36 $ .27 $ .16
Discontinued operations. - .15 .02 .06 .10
------- ------- ------- ------- -------
$ .61 $ .63 $ .38 $ .33 $ .26
------- ------- ------- ------- -------
------- ------- ------- ------- -------

Weighted average common
and common equivalent
shares outstanding . . . 3,512 3,253 3,183 2,970 2,898

January 31
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
BALANCE SHEET DATA
Working capital. . . . . . $ 7,648 $ 4,008 $ 2,455 $ 2,949 $ 2,721
Total assets . . . . . . . 31,475 21,256 18,968 12,474 10,234
Long-term obligations
(excluding current
portion) . . . . . . . . 7,527 3,283 3,580 3,103 2,865
Total liabilities. . . . . 18,145 12,836 12,793 7,583 6,362
Total stockholders' equity 13,330 8,420 6,175 4,891 3,872

Consolidated Balance Sheets

JANUARY 31
1996 1995
-----------------------------

ASSETS
Current assets:
Trade receivables, less allowance of $556,000
and $500,000, respectively $ 9,411,016 $ 7,287,924
Other receivables 182,325 123,557
Inventories 7,693,007 5,762,279
Deferred income taxes 113,191 229,523
Prepaid expenses and other current assets 741,458 120,265
Income taxes receivable 98,799 16,073
-----------------------------
Total current assets 18,239,796 13,539,621

Property, plant and equipment:
Land 48,424 48,424
Buildings and improvements 2,452,467 2,226,648
Machinery and equipment 18,018,564 13,842,391
-----------------------------
20,519,455 16,117,463
Less accumulated depreciation (12,251,552) (9,650,652)
-----------------------------
8,267,903 6,466,811
Intangible assets, net of accumulated amortization
of $312,000 and $121,000, respectively 3,827,559 98,144
Long-term receivable 691,558 850,466
Other 447,719 301,329

-----------------------------
$31,474,535 $21,256,371
-----------------------------
-----------------------------

JANUARY 31
1996 1995
-----------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank under credit facility $ 3,632,907 $ 4,691,699
Accounts payable 2,572,849 2,440,566
Salaries, wages and payroll taxes 512,906 302,123
Income taxes payable 197,026 -
Other 897,842 736,084
Current portion of long-term debt and capital
lease obligations 2,778,552 1,361,486
-----------------------------
Total current liabilities 10,592,082 9,531,958

Long-term debt, net of current maturities 6,233,482 2,173,662
Capital lease obligations, net of current portion 1,293,545 1,109,130
Deferred income taxes 25,326 21,178

SHAREHOLDERS' EQUITY
Common Stock, par value $.10 per share:
Authorized shares--20,000,000
Issued and outstanding shares--3,297,466 and
2,832,298, respectively 329,747 283,230
Additional paid-in capital 6,294,401 3,576,020
Retained earnings 6,705,952 4,561,193
-----------------------------
Total shareholders' equity 13,330,100 8,420,443
-----------------------------
$31,474,535 $21,256,371
-----------------------------
-----------------------------

SEE ACCOMPANYING NOTES.

Consolidated Statements of Income

YEAR ENDED JANUARY 31
1996 1995 1994
-----------------------------------------

Net sales $55,512,872 $41,603,183 $32,274,895
Cost of goods sold 37,887,127 28,528,380 22,074,183
-----------------------------------------
Gross profit 17,625,745 13,074,803 10,200,712

Selling, general and administrative
expenses 12,760,921 9,828,058 7,904,539
-----------------------------------------
Income from operations 4,864,824 3,246,745 2,296,173

Other income (expense):
Interest income 36,384 31,646 4,594
Interest expense (1,286,449) (669,027) (529,008)
Other 30,000 (98,056) 19,116
-----------------------------------------
Income from continuing operations
before income taxes 3,644,759 2,511,308 1,790,875
Income taxes 1,500,000 960,000 666,500
-----------------------------------------
Net income from continuing
operations 2,144,759 1,551,308 1,124,375
Income (loss) from discontinued
operations net of taxes - (61,915) 73,289
Gain on sale of display operations - 554,266 -
-----------------------------------------
Net income $ 2,144,759 $ 2,043,659 $ 1,197,664
-----------------------------------------
-----------------------------------------

Net income per common share:
Primary:
Continuing operations $.62 $.48 $.37
Discontinued operations - .15 .02
-----------------------------------------
$.62 $.63 $.39
-----------------------------------------
-----------------------------------------
Fully diluted:
Continuing operations $.61 $.48 $.36
Discontinued operations - .15 .02
-----------------------------------------
$.61 $.63 $.38
-----------------------------------------
-----------------------------------------

SEE ACCOMPANYING NOTES.

Consolidated Statement of Shareholders' Equity

COMMON STOCK ADDITIONAL
------------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------------------------------------------------------------

Balance at January 31, 1993 2,537,864 $253,786 $3,317,395 $1,319,870 $ 4,891,051
Stock options exercised 232,702 23,270 163,905 - 187,175
Common Stock received as
partial consideration of
stock options exercised (21,158) (2,115) (98,385) - (100,500)
Net income - - - 1,197,664 1,197,664
---------------------------------------------------------------
Balance at January 31, 1994 2,749,408 274,941 3,382,915 2,517,534 6,175,390
Stock options exercised 82,890 8,289 91,042 - 99,331
Tax benefit on stock options
exercised - - 102,063 - 102,063
Net income - - - 2,043,659 2,043,659
---------------------------------------------------------------
Balance at January 31, 1995 2,832,298 283,230 3,576,020 4,561,193 8,420,443
Common Stock issued 325,138 32,514 2,387,486 - 2,420,000
Stock options exercised 148,965 14,897 175,041 - 189,938
Common Stock received as
partial consideration of
stock options exercised (8,935) (894) (62,520) - (63,414)
Tax benefit on stock options
exercised - - 218,374 - 218,374
Net income - - - 2,144,759 2,144,759
---------------------------------------------------------------
Balance at January 31, 1996 3,297,466 $329,747 $6,294,401 $6,705,952 $13,330,100
---------------------------------------------------------------
---------------------------------------------------------------

SEE ACCOMPANYING NOTES.

Consolidated Statements of Cash Flows

YEAR ENDED JANUARY 31
1996 1995 1994
------------------------------------------
OPERATING ACTIVITIES

Net income $2,144,759 $2,043,659 $1,197,664
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Less gain on sale of display business - (554,266) -
Amortization 190,767 5,478 20,656
Depreciation 2,759,491 2,134,679 1,677,855
Deferred income taxes 168,639 99,479 (183,000)
Changes in operating assets and liabilities:
Receivables (470,498) (1,407,187) (2,001,098)
Inventories 118,170 (1,331,234) (2,209,340)
Income taxes 399,436 (461,777) 130,556
Prepaid expenses and other current assets (98,262) 31,552 (61,547)
Accounts payable (1,160,755) (716,195) 1,223,010
Salaries, wages and payroll taxes (111,753) 71,437 (95,548)
Other liabilities (146,108) (471,043) 338,404
------------------------------------------
Net cash provided by (used in) operating activities 3,793,886 (555,418) 37,612

INVESTING ACTIVITIES
Purchases of businesses, less cash acquired (4,355,010) - -
Additions to property, plant and equipment (2,238,441) (1,983,862) (2,688,469)
Long-term receivables 158,908 75,956 (15,630)
Net carrying amount of property disposals 5,938 119,235 1,935
Cash proceeds from sale of display business - 800,000 -
Other 18,992 (48,921) (154,714)
------------------------------------------
Net cash used in investing activities (6,409,613) (1,037,592) (2,856,878)

FINANCING ACTIVITIES
Increase in long-term debt 5,000,000 135,000 661,000
Proceeds from sale of Common Stock under
option plans 126,524 99,331 86,675
Repayments of long-term debt and capital leases (2,640,702) (1,376,027) (1,071,087)
(Repayments) borrowings under revolver (1,058,792) 1,765,724 2,925,975
Lease financing of equipment 1,188,697 968,982 216,703
------------------------------------------
Net cash provided by financing activities 2,615,727 1,593,010 2,819,266
------------------------------------------

Change in cash and cash equivalents - - -
Cash and cash equivalents at beginning of year - - -
------------------------------------------
Cash and cash equivalents at end of year $ - $ - $ -
------------------------------------------
------------------------------------------

Consolidated Statements of Cash Flows (continued)

YEAR ENDED JANUARY 31
1996 1995 1994
------------------------------------------

Supplemental schedule of non-cash investing and
financing activities:
Capital lease of equipment $ 163,488 $ 202,528 $ 988,004

SEE ACCOMPANYING NOTES.

1. SIGNIFICANT ACCOUNTING POLICIES

BUSINESS ACTIVITY

Vaughn Communications, Inc. is one of the largest providers in the United States
of high volume videotape duplication services to corporations, publishers and
educational companies located in the United States. The Company operates
videotape duplication centers throughout the country in areas selected because
of their proximity to large corporate bases. In addition to video services, the
Company receives approximately 13% of its total revenue from the manufacture and
sale of gift products to retailers in niche markets. Additional information on
the Company's operations by segment are included in Note 9 to the financial
statements.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements included the accounts of the Company and
all of its majority-owned subsidiaries after elimination of all significant
intercompany accounts, transactions and profits.

INVENTORIES

Inventories are valued at the lower of average cost (first-in, first-out method)
or market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated on the basis of cost. Assets are
depreciated using the straight-line and declining balance methods. The carrying
value of property, plant and equipment is assessed annually and/or when factors
indicating an impairment are present.

INTANGIBLE ASSETS

The excess of purchase price over the fair value of net assets of businesses
acquired is being amortized over periods of 10 to 40 years using the straight-
line method. The carrying value of intangible assets are assessed annually
and/or when factors indicating impairment are present.

INCOME TAXES

The Company records income taxes in accordance with SFAS No. 109, Accounting for
Income Taxes. This statement requires the use of the asset and liability method
of accounting for income taxes. Deferred taxes are recognized for the estimated
taxes ultimately payable or recoverable based on enacted tax law. Changes in
enacted tax rates are reflected in the tax provision as they occur.

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

NET INCOME PER COMMON SHARE

Net income per common share is based on the weighted average number of shares of
Common Stock outstanding during each year including the effect of dilutive
outstanding Common Stock equivalents.

STATEMENT OF CASH FLOWS

For purposes of the statement of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less when purchased to be
cash equivalents.

STOCK-BASED COMPENSATION

The Company follows Accounting Principles Board Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES, (APB 25) and related interpretations in accounting
for its employee stock options. Under APB 25, when the exercise price of
employee stock options equals the market price of the underlying stock on the
date of the grant, no compensation expense is recognized.

RECLASSIFICATIONS

Certain 1995 and 1994 amounts have been reclassified to conform to the current
year's presentation.

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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

2. INVENTORIES

The components of inventories were as follows at January 31:

1996 1995
-------------------------

Raw material $2,329,560 $1,378,811
Finished goods 5,363,447 4,383,468
-------------------------
$7,693,007 $5,762,279
-------------------------
-------------------------

3. NOTE PAYABLE TO BANK

Borrowings under the note payable to bank in fiscal 1995 were due on demand with
interest payable monthly at .25% over prime (8.75% at January 31, 1995).
Advances under this note are at the sole discretion of the bank and are limited
to the lesser of $6,500,000 less the sum of the outstanding principal amounts on
any term notes payable to the bank, or the collateral value of receivables and
inventory. All the Company's assets except real estate and fixtures thereon have
been pledged to secure this indebtedness.

Effective March 31, 1995, the Company entered into a $13,000,000 revolving
credit facility, which amends the previous credit facility. Advances under the
credit facility are limited to the lesser of $13,000,000 less the sum of the
outstanding principal amounts on any term notes payable to the bank, or the
collateral value of receivables and inventory. The revolving credit facility
accrues interest at a rate equal to the prime rate. Interest on the credit
facility is payable monthly. All of the Company's assets except real estate and
fixtures have been pledged to secure this indebtedness. This facility expires on
May 31, 1996.

Pursuant to the loan agreement, the Company is required, among other things, to
maintain minimum levels of net worth, pretax profit, ratio of current assets to
current liabilities and ratio of debt to net worth. The Company is required to
receive approval from the bank prior to incurring or assuming any indebtedness
not in the ordinary course of business, paying any dividends or redeeming its
capital stock, entering into any transactions of merger, consolidation or
liquidation, or making loans or investments in another business.

On February 1, 1996, the Company entered into a new $17,000,000 credit facility
with its bank, which amends the previous credit facility. The agreement provides
term financing to fund acquisitions (including the Centercom acquisition) and
equipment purchases, and a revolving credit facility to be used to finance
working capital. The interest rate on the term debt is .25% over the prime rate,
while the interest rate on the revolving debt is at the prime rate.

4. LONG-TERM DEBT

Long-term debt consists of the following at January 31:

1996 1995
------------------------

Term note payable to bank under credit facility in
20 quarterly installments of $250,000, secured by all
the Company's assets except real estate and fixtures
thereon. Interest is payable monthly at 1/4% over
prime (8.75% on January 31, 1996). $4,250,000 $ -

First mortgage loan on land and building secured by
properties having a net book value of $697,185 at
January 31, 1996. 1,406,759 1,446,298

Term note payable to bank in 36 monthly installments of
$23,611, secured by all the Company's assets except
real estate and fixtures thereon. Interest is payable
at 1/2% over prime (9% on January 31, 1996).
613,889 -

1996 1995
------------------------

Notes payable to Indian Arts and Crafts, Inc. Interest
on both notes is payable annually on the first
anniversary date at 8.5%. Notes are secured by assets
having a net book value of $1,607,800 at January 31, 1996.
Note I is payable in 3 annual installments of $83,333
plus accrued interest beginning January 31, 1997.
Note II is payable in seven annual installments of $ 250,000 $ -
$107,143 plus accrued interest beginning
January 31, 1997.
750,000 -

Term note payable to bank in 48 monthly installments of
$10,125. Interest is payable at 1/2% over prime (9%
at January 31, 1996). Secured by assets having a net
book value of $135,000 at January 31, 1996. 212,625 344,250

Note payable to Central Life Assurance Company
payable in annual installments of $40,000, with the
remaining balance due February 1, 1997. Interest is
payable monthly at 9.5%. 200,000 240,000

4. LONG-TERM DEBT (CONTINUED)

Note payable to Cranberry Novelty Manufacturing Inc.
payable in 10 annual installments of $17,500. Interest
is payable annually at the prime rate (8.5% at
January 31, 1996). 122,500 140,000

Note payable to shareholders of Teknifilm, Inc. payable
in annual installments of $54,077, with the remaining
balance due January 1, 1997. Interest is payable
quarterly at 9.0%. Note is secured by equipment
having a net book value of $275,650 at January 31,
1996. 108,153 162,229

1996 1995
------------------------
Note payable to Advanced Audio/Video Productions,
Inc., payable in 3 annual installments of $33,333
plus accrued interest commencing January 5, 1997.
Interest is payable annually at the prime rate on
the anniversary date (8.5% on January 5, 1996).
Secured by certain assets. $ 100,000 $ -

Note payable to I. Michael Kasser for building
improvements in 24 monthly installments of
$6,106. Interest is payable at 8%. 40,700 113,968

Term note payable to bank in 48 monthly installments
of $8,605. Interest is payable monthly at 1/2% over
prime (9% at January 31, 1996). Secured by assets
having a net book value of $10,300 at January 31,
1996. 8,565 111,825

Term note payable to bank in 36 monthly installments
of $12,806. Interest is payable monthly
at 1/2% over prime. - 153,656
------------------------
8,063,191 2,712,226
Current portion (1,829,709) (538,564)
------------------------
$6,233,482 $2,173,662
------------------------
------------------------

Pursuant to the terms of the mortgage agreement, the Company in 1994 renewed the
mortgage for three years at an interest rate of 8.125%. It is payable in monthly
installments with the balance payable in full on March 1, 1997. The mortgage may
be prepaid in whole at any time subject to a prepayment premium. The interest
rate is subject to a 4% increase in certain events of default.

4. LONG-TERM DEBT (CONTINUED)

Required annual principal payments on long-term debt are as follows for years
ending January 31: 1997--$1,829,709; 1998--$3,196,377; 1999--$1,288,533;
2000--$1,124,644; 2001--$374,643; thereafter--$249,285.

Interest paid approximated interest expense for 1994, 1995 and 1996.

5. LEASES

The Company leases various types of equipment under long-term lease agreements
classified as capital leases. Property, plant and equipment includes the
following leased property:

JANUARY 31
1996 1995
---------------------------

Equipment $4,454,000 $3,102,000
Less accumulated amortization (2,020,000) (1,099,000)
---------------------------
$2,434,000 $2,003,000
---------------------------
---------------------------

Amortization of leased assets is included in depreciation and amortization
expense.

The Company leases certain facilities, equipment and autos under noncancelable
operating lease agreements with initial lease terms in excess of one year. Rent
expense from these operating leases was $977,306, $723,766 and $542,411 in 1996,
1995 and 1994, respectively.

5. LEASES (CONTINUED)

Future minimum payments under capital leases and noncancelable operating leases
with initial terms of one year or more consisted of the following at January 31,
1996:

CAPITAL OPERATING
LEASES LEASES
---------------------------

Year ending January 31:
1997 $1,101,300 $1,197,917
1998 925,589 1,151,113
1999 421,284 1,080,785
2000 99,132 695,301
2001 - 218,954
Thereafter - 830,100
---------------------------
Total minimum lease payments 2,547,305 $5,174,170
------------
------------
Amount representing interest (304,917)
------------
Present value of net minimum lease payments 2,242,388
Current portion (948,843)
------------
Long-term capital lease obligations $1,293,545
------------
------------

6. STOCK OPTIONS

Under the terms of the Company's stock option plans, 249,897 shares of Common
Stock were reserved at January 31, 1996 for issuance or grant to officers,
directors and employees at prices ranging from 85% to 110% of fair market value
at the date of grant. The options granted are determined by the Compensation
Committee. Options granted are usually exercisable at any time after grant,
except for those granted under the Company-wide stock option plan, which vest
over a four-year period. The options generally expire after five years.

A summary of outstanding options and shares reserved under the plans is as
follows:

SHARES
RESERVED OPTIONS PRICE PER
FOR GRANT OUTSTANDING SHARE
----------------------------------------------

Balance January 31, 1994 208,486 806,233 $ .50 to $4.13
Options exercised - (82,888) .50 to 5.38
Options granted (71,058) 71,058 5.38 to 6.25
Terminated/expired 36,181 (36,181) .50 to 5.63
--------------------------
Balance January 31, 1995 173,609 758,222 .50 to 6.25
Adoption of new plan 200,000 -
Options exercised - (148,869) .50 TO 6.88
Options granted (125,206) 125,206 5.84 TO 8.38
Terminated/expired 1,494 (1,494) .50 TO 6.88
--------------------------
Balance January 31, 1996 249,897 733,065 $.50 TO $8.38
--------------------------
--------------------------

OPTIONS PRICE PER
OUTSTANDING SHARE
-------------------------------

Exercisable at January 31:
1996 614,372 $.50 to $8.38
1995 657,230 $.50 to $5.63

7. INCOME TAXES

The provision for federal and state income tax expense from continuing
operations was as follows:

YEAR ENDED JANUARY 31
1996 1995 1994
------------------------------------------

Current:
Federal $1,109,300 $ 875,000 $717,300
State 222,000 163,000 132,200
------------------------------------------
1,331,300 1,038,000 849,500
Capital loss carryforward - (213,000) -
Deferred 168,700 135,000 (183,000)
------------------------------------------
$1,500,000 $ 960,000 $666,500
------------------------------------------
------------------------------------------

7. INCOME TAXES (CONTINUED)

Discontinued operations in fiscal 1995 resulted in $35,000 of tax benefit. The
tax benefit arose from a $36,000 reduction in deferred taxes and $1,000 of
current federal tax expense.

The components of the deferred tax assets and liabilities at year-end were:

YEAR ENDED JANUARY 31
1996 1995
-------------------------

Deferred tax assets:
Net capital loss carryforwards $ - $118,900
Inventory reserves 318,800 231,800
Bad debt expense 212,100 198,200
Additional tax cost of inventory 75,200 81,300
Non-deductible reserves 8,200 78,200
-------------------------
614,300 708,400
Deferred tax liabilities:
Rental equipment depreciation (501,100) (360,000)
Accumulated depreciation (25,300) (21,200)
-------------------------
(526,400) (381,200)
-------------------------
Net deferred tax assets 87,900 327,200
Valuation allowance - (118,900)
-------------------------
$ 87,900 $208,300
-------------------------
-------------------------

The difference between total income tax expense and the amount computed by
applying the statutory federal income tax rate to income before income taxes was
as follows:

YEAR ENDED JANUARY 31
1996 1995 1994
------------------------------------------

Taxes at statutory rate of 34% $1,239,200 $1,009,300 $648,600
State income taxes, net of federal tax benefit 162,400 116,100 78,600
Intangible amortization 64,600 5,500 5,500
Realization of capital loss carryforward - (213,000) -
Impact of adopting Statement No. 109 - - (50,000)
Other 33,800 7,100 27,300
------------------------------------------
1,500,000 925,000 710,000
Benefit (expense) allocated to discontinued
operations - 35,000 (43,500)
------------------------------------------
$1,500,000 $ 960,000 $666,500
------------------------------------------
------------------------------------------

The Company paid income taxes of $938,000 $1,288,000 and $779,000 in 1996, 1995
and 1994, respectively.

The Company had capital loss carryforwards of approximately $300,000 at
January 31, 1995 which expired at January 31, 1996.

8. RELATED PARTY TRANSACTION

Pursuant to a Stock Put Redemption Agreement between the Company and its Chief
Executive Officer ("CEO") dated August 27, 1986, as amended June 24, 1992, the
Company has agreed to redeem shares of Common Stock having a value of up to
$1,500,000 from the CEO's estate, following his death or, unless the Board
determines that such redemption is not in the best interest of the Company, from
the CEO upon any entity acquiring beneficial ownership of in excess of 20% of
the Company without Board approval. The put options to require or request
redemption by the Company can be exercised any time up to one year after the
date of the event giving rise to the option. The per share redemption price, in
the event of death, will be the greater of the fair market value or book value
of the Common Stock. The per share redemption price in event of change in
control will be the greater of fair market value, the highest price paid by the
new controlling shareholder, or a multiple of ten times net pretax earnings per
share. Any redemption from the CEO's estate will be paid out of the proceeds of
$1,500,000 of term life insurance which the Company carries on the CEO's life.

9. INDUSTRY SEGMENTS

The Company operates within two industry segments. Vaughn Communications
Division is engaged in video tape duplication and rental of video equipment. The
Vaughn Products Division is engaged in the manufacture and/or sale of souvenirs,
gifts and leather products.

YEAR ENDED JANUARY 31
1996 1995 1994
-------------------------------------------

Net sales from continuing operations:
Communications Division $48,309,408 $34,402,174 $26,406,260
Products Division 7,203,464 7,201,009 5,868,635
-------------------------------------------
Total sales $55,512,872 $41,603,183 $32,274,895
-------------------------------------------
-------------------------------------------

Operating profit from continuing
operations:
Communications Division $ 4,693,052 $ 3,073,591 $ 2,304,460
Products Division 171,772 173,154 (8,287)
-------------------------------------------
Total operating profit 4,864,824 3,246,745 2,296,173

Interest expense, net of interest income (1,250,065) (637,381) (524,414)
Other income (expense) 30,000 (98,056) 19,116
-------------------------------------------
Income from continuing operations
before income taxes $ 3,644,759 $ 2,511,308 $ 1,790,875
-------------------------------------------
-------------------------------------------

Identifiable assets:
Communications Division $25,035,622 $17,395,929 $13,523,705
Products Division 6,438,913 3,860,442 5,444,665
-------------------------------------------
Total assets $31,474,535 $21,256,371 $18,968,370
-------------------------------------------
-------------------------------------------

Depreciation and amortization:
Communications Division $ 2,876,081 $ 2,038,903 $ 1,494,073
Products Division 74,177 101,254 204,438
-------------------------------------------
Total $ 2,950,258 $ 2,140,157 $ 1,698,511
-------------------------------------------
-------------------------------------------

Capital expenditures:
Communications Division $ 2,351,440 $ 2,132,042 $ 3,098,759
Products Division 50,489 54,347 577,714
-------------------------------------------
Total $ 2,401,929 $ 2,186,389 $ 3,676,473
-------------------------------------------
-------------------------------------------

10. ACQUISITIONS

On April 4, 1995, the Company completed the acquisition of all the capital stock
of Centercom, Inc. and Centercom South, Inc. (collectively "Centercom"), a
videotape duplicator with facilities in Milwaukee, Wisconsin; Chicago, Illinois;
and Tampa, Florida. The effective date of acquisition was April 1, 1995, and was
accounted for by the purchase method of the accounting and, accordingly, results
from operations have been included in the consolidated financial statements from
April 1, 1995.

The purchase price was $6,420,000 including $5,250,000 of cash and 180,000
shares of Vaughn Communications, Inc. common stock valued at $1,170,000. In
addition, the selling shareholders of Centercom collectively will be paid
$200,000 a year for seven years under non-compete and consulting agreements.
Goodwill recorded in this transaction will be amortized over 15 years using the
straight-line method.

On January 1, 1996, the Company completed the acquisition of substantially all
of the assets of Advanced Audio/Video Productions, Inc., a video tape duplicator
located in Denver, Colorado. The acquisition has been accounted for by the
purchase method of accounting, and the consolidated statement of income for the
year ended January 31, 1996 includes the results of Advanced Audio/Video from
January 1, 1996.

The purchase price was approximately $282,000 including a cash payment by the
Company of approximately $182,000 and long-term debt to the seller of $100,000.
(See Note 4 for description of long-term debt.) Goodwill recorded in this
transaction will be amortized over 15 years using the straight-line method.

On January 31, 1996, the Company acquired the assets and assumed certain
liabilities of Indian Arts and Crafts, Inc., a gift products business located in
Seattle, Washington. The acquisition has been accounted for by the purchase
method of accounting, and the consolidated financial statements for the year
ended January 31, 1996 reflect the purchase of the business, but do not include
any results from operations since the transaction was completed on the last day
of the fiscal year.

The purchase price was approximately $2,332,000 including approximately $82,000
of cash, 145,138 shares of Vaughn Communications, Inc. common stock valued at
$1,250,000, and long-term debt to the seller of $1,000,000. (See Note 4 for
description of long-term debt.) Goodwill recorded in this transaction will be
amortized over 10 years using the straight-line method.

10. ACQUISITIONS (CONTINUED)

The pro forma unaudited results of operations, assuming consummation of all
acquisitions as of February 1, 1994, are as follows:

YEAR ENDED JANUARY 31
1996 1995
--------------------------

Sales $66,070,000 $60,285,000
Income from continuing operations 2,424,000 2,140,000
Net income 2,424,000 2,632,000
Income per common share:
Continuing operations $.66 $.60
Discontinued operations - .14
--------------------------
$.66 $.74

11. DISCONTINUED OPERATIONS

On March 1, 1994, the Company sold the assets and operations of the operating
unit of the Company involved in the manufacture and sale of flags, float and
display products. The non-contingent selling price of $1,500,000 included cash
of $800,000 and a note receivable of $700,000. The gain on the sale was
approximately $550,000 and added $.15 to the fiscal 1995 earnings per share.
Prior years have been restated to include the Company s former display business
as discontinued operations.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments as of January 31,
1996 approximated their fair value.

Report of Independent Auditors

The Shareholders and Board of Directors
Vaughn Communications, Inc.

We have audited the accompanying consolidated balance sheets of Vaughn
Communications, Inc. and subsidiaries as of January 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended January 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Vaughn
Communications, Inc. and subsidiaries at January 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1996, in conformity with generally
accepted accounting principles.

Minneapolis, Minnesota
March 20, 1996

BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

BOARD OF DIRECTORS

E. DAVID WILLETTE, Chairman and Chief Executive Officer. Age 60

WILLIAM D. SMITH, JR., Chief Operating/Financial Officer, Viromed
Laboratories, Inc. (laboratory testing and products). Age: 45

R. F. HEEGAARD, Chairman, Homestyles Publishing and Marketing,
(magazine publishing), Minneapolis, Minnesota. Age: 69

LAURENCE F. LEJEUNE, President, LeJeune Investment Co.
(diversified investments) Minneapolis, Minnesota. Age: 59

HAROLD G. WAHLQUIST, President and Chief Executive Officer, First
Community Bank Group, Inc. (a bank holding company), Minneapolis,
Minnesota. Age: 57

MICHAEL R. SILL, Chief Executive Officer, Road Machinery & Supplies Co.
(distribution of construction equipment and services), Savage,
Minnesota. Age: 64

RODNEY P. BURWELL, Chairman of the Board, Xerxes Corporation
(manufacturer of fiberglass underground fuel storage tanks),
Minneapolis, Minnesota. Age: 57

ROBERT HARMON, Retired Former President, Centercom, Inc.,
Milwaukee, Wisconsin. Age: 49

JEFFREY JOHNSON, Retired Former Vice-President and Secretary,
Centercom, Inc., Milwaukee, Wisconsin. Age 50

DONALD J. DRAPEAU, President and Chief Operating Officer. Age: 42

OFFICERS

E. DAVID WILLETTE, Chairman, Chief Executive Officer, Treasurer

DONALD J. DRAPEAU, President and Chief Operating Officer

WILLIAM D. DORNBUSCH, Vice President, General Manager, Vaughn
Products Division

M. CHARLES REINHART, Secretary and Controller

COMMON STOCK INFORMATION

The Company's Common Stock is traded over-the-counter and has been included
in the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ") National Market System since March 26, 1994,
under the symbol VGHN. For the periods indicated through March 25, 1994,
the table sets for the quarterly high and low closing sales prices as
reported in the NASDAQ's Small Cap Market. For the periods indicated after
March 25, 1994, the information presented is the quarterly high and low
closing sales prices as reported in the NASDAQ's National Market System.
All prices are without retail markups, markdowns or commissions.

CALENDAR PERIOD SALE PRICE
------------------------------------------------ ---------------------
HIGH LOW

1994: First Quarter. . . . . . . . . . . . . $ 5.875 $ 4.75
Second Quarter . . . . . . . . . . . . 5.625 4.625
Third Quarter. . . . . . . . . . . . . 6.875 4.875
Fourth Quarter . . . . . . . . . . . . 7.75 5.50

1995: First Quarter. . . . . . . . . . . . . $ 7.875 $ 6.25
Second Quarter . . . . . . . . . . . . 7.875 5.75
Third Quarter. . . . . . . . . . . . . 9.375 7.125
Fourth Quarter . . . . . . . . . . . . 9.50 7.75

1996: First Quarter. . . . . . . . . . . . . $ 9.375 $ 8.375

As of January 31, 1996, the Company had 325 shareholders of record.
------------------------------------------------------------------------

CORPORATE HEADQUARTERS
Vaughn Communications, Inc.,
5050 West 78th Street
Minneapolis, MN 55435
(612) 832-3200

PUBLICLY-TRADED SECURITIES
Vaughn Communications, Inc. Common Stock is listed on the
NASDAQ National Market System under the Symbol: VGHN.

TRANSFER AGENT
Chemical Mellon
85 Challenger Road, Overpeck Centre
Ridgefield Park, NJ 07660

INDEPENDENT AUDITORS
Ernst & Young LLP, Minneapolis, Minnesota

ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 4:00 p.m.
on Wednesday, June 19, 1996 at The Marquette Hotel,
7th & Marquette, Minneapolis, Minnesota.

FORM 10-K REPORT
The Company's 1996 Annual Report on Form 10-K is available
without charge on written request to M. Charles Reinhart,
Corporate Secretary.

COUNSEL
Jacobson Harwood Bennett & Erickson, P.A.
Minneapolis, Minnesota

VAUGHN COMMUNICATIONS, INC.
5050 WEST 78TH STREET
MINNEAPOLIS, MN 55438

Atlanta, Georgia

Chicago, Illinois

Dallas, Texas

Denver, Colorado

Ft. Lauderdale, Florida

Houston, Texas

Los Angeles, California

Milwaukee, Wisconsin

Minneapolis, Minnesota

New York, New York

Orlando, Florida

Phoenix, Arizona

Portland, Oregon

Raleigh/Durham, North Carolina

Seattle, Washington

St. Louis, Missouri

Tampa, Florida