UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

(Mark One)
FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended: January 31, 1998
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from to
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Commission file number: 0-15424

VAUGHN COMMUNICATIONS, INC.
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(Exact name of registrant as specified in its charter)

Minnesota 41-0626191
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State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)

5050 W. 78th Street, Minneapolis, Minnesota 55435
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(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (612) 832-3200
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Securities registered pursuant to Section 12(b) of the Act: None

Title of each class Name of each exchange on which registered

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Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.10 par value
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(Title of Class)

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(Title of Class)

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 twelve 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. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[ ]

Exhibit Index appears on Page 29.
Page 1 of 29 Pages.

The aggregate market value of the registrant's voting shares held by
non-affiliates (based upon the closing sale price therefor on the NASDAQ
National Market System on April 9, 1998) was approximately $29,642,220. As
of April 9, 1998, 4,088,582 shares of the Registrant's Common Stock were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated herein by reference:

1. The financial information set forth in the sections captioned
"SELECTED FINANCIAL DATA from Continuing Operations (in Thousands, Except Per
Share Amounts)" to be included in the Registrant's Annual Report to Shareholders
for the Year Ended January 31, 1998 (the "1998 Shareholder Report") are
incorporated herein by reference in response to Item 6 of Part II hereof.

2. The discussion under the section captioned "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" to be included in
the 1998 Shareholder Report is incorporated herein by reference in response to
Item 7 of Part II hereof.

3. The Registrant's audited financial statements to be included in the
1998 Shareholder Report are incorporated herein by reference in response to Item
8 of Part II hereof.

4. The discussions under the sections captioned "SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE", "PROPOSAL 1 ELECTION OF DIRECTORS" and
"EXECUTIVE OFFICERS" to be included in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission and delivered
to the Registrant's shareholders pursuant to Regulation 14A promulgated under
the Securities Exchange Act of 1934 with respect to the Annual Meeting of the
Shareholders to be held on June 23, 1998 (the "1998 Proxy Statement") are
incorporated herein by reference in response to Item 10 of Part III hereof.

5. The discussions under the sections captioned "COMPENSATION OF
DIRECTORS" and "EXECUTIVE COMPENSATION" but excluding the discussions included
under the subsections captioned "EXECUTIVE COMPENSATION - "Compensation
Committee Report on Executive Compensation" and "EXECUTIVE COMPENSATION -
Comparative Stock Performance" to be included in the 1998 Proxy Statement are
incorporated herein by reference in response to Item 11 of Part III hereof.

6. The discussions under the sections captioned "VOTING SECURITIES AND
PRINCIPAL HOLDERS THEREOF", "PROPOSAL 1 ELECTION OF DIRECTORS" and "TRANSACTIONS
WITH MANAGEMENT - E. D. Willette Stock Put Redemption Agreement, Including
Change of Control Provision" to be included in the 1998 Proxy Statement are
incorporated herein by reference in response to Item 12 of Part III hereof.

7. The discussion under the section captioned "TRANSACTIONS WITH
MANAGEMENT" to be included in the 1998 Proxy Statement is incorporated herein by
reference in response to Item 13 of Part III hereof.

VAUGHN COMMUNICATIONS, INC.
1998 FORM 10-K ANNUAL REPORT

Table of Contents
and
Cross Reference Sheet

PART 1
Page
----
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . .16

Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . .16

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . .17

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . .18

Item 7.A. Quantitative and Qualitative Disclosures About Market Risk . . . . .18

Item 8. Consolidated Financial Statements and Supplementary Data . . . . . .18

Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . .18

PART III

Item 10. Directors and Executive Officers of the Registrant . . . . . . . . .18

Items 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . .18

Item 12. Security Ownership of Certain Beneficial Owners and Management . . .19

Item 13. Certain Relationships and Related Transactions . . . . . . . . . . .19

PART IV

Item 14. Exhibit, Financial Statement Schedule and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

PART 1

ITEM 1. BUSINESS

GENERAL

The Company was founded under the name Vaughn Displays, Inc. in 1943 and
changed its name to VAUGHN COMMUNICATIONS, INC. in 1987. The Company is engaged
in two business segments. The Vaughn Communications Division is a multimedia
business services provider providing high volume video tape duplication and
digital media (compact disc and magnetic floppy disk) replication for the
corporate, educational and institutional user, accounting for approximately 84%
of the Company's sales in fiscal 1998. The Vaughn Products Division is a
manufacturer and distributor of gift, leather products, and custom designed soft
goods sold by gift shops and western stores, accounting for approximately 16% of
the Company's sales in fiscal 1998.

During the fiscal years ended January 31, 1998, 1997 and 1996, the
percentage of sales of the Communications Division and the Products Division as
compared to total sales of the Company were as follows:

Year Ended January 31,
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Division 1998 1997 1996
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Communications Division 84% 80% 88%
Products Division 16% 20% 12%

The Company's strategic objective is to grow and expand its two
businesses through internal growth and acquisitions. (See "Former
Businesses" and "Recent Acquisitions" below.) The term "Company" herein
refers to the registrant (VAUGHN COMMUNICATIONS, INC.), including its two
operating divisions. The Company's principal executive offices are located
at 5050 West 78th Street, Minneapolis, Minnesota 55435, and its telephone
number is (612) 832-3200.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

Financial information about industry segments for the years ended
January 31, 1998, 1997 and 1996 included in the notes to the Registrant's
audited consolidated financial statements to be included in the 1998
Shareholder Report are incorporated herein by reference.

VAUGHN COMMUNICATIONS DIVISION

The Company's operations in the multimedia business services industry
are conducted through its Communications Division. The Communications
Division currently has video tape duplication facilities in Minneapolis,
Milwaukee, Phoenix, Tampa, Portland, Atlanta, Dallas, Houston, Raleigh,
Chicago, Denver and Seattle and has a facility in Fremont, California, which
replicates compact discs ("CD"s) and "floppy" discs. Additional sales
offices are located in St. Louis, New York City, Irvine, Orlando, Knoxville,
Baltimore and Ft. Lauderdale. It serves markets that are principally located
in the United States.

PRIMARY PRODUCTS AND SERVICES OF THE COMMUNICATIONS DIVISION

GENERAL - The Division is a major provider of multimedia related
business services for corporate, educational, and institutional customers.
The Company believes it is the second largest provider of videotape
duplication services for the business-to-business market. In addition to
videotape duplication, the Company provides digital media services through
the replication of compact discs ("CD's") and magnetic disks ("floppys") for
software developers and computer equipment manufacturers. As part of its
business, the Company also provides various related services such as order
fulfillment, video editing, graphics design, international standards
conversion, MPEG compression, and the rental of video production and editing
equipment on a short-term basis.

VIDEO TAPE DUPLICATION SERVICES - The Company offers its videotape
duplication services to corporations that utilize videotape to promote their
products or instruct their customers on the use of their products;
additionally, companies use videotape to train their sales force on new
products or to communicate with their employees. The Company has continued
to expand its facilities for videotape duplication. On July 31, 1997 the
Company acquired certain assets of Dub South Acquisition, LLC ("Dub South"),
a videotape duplicator located in Atlanta, Georgia. The operations of Dub
South were merged with those of the Company's existing facility in Atlanta.
In addition to acquisitions, the Company spent approximately $1,900,000 to
expand production facilities. Expansion has been financed by cash flow
generated from operations, equipment leasing and bank financing.

DIGITAL MEDIA SERVICES - In order to better meet the current and
long-term needs of its business customers, the Company entered the digital
media replication business with the acquisition of Certified Media
Corporation ("Certified") in July 1997. Certified, which commenced
operations in 1986, was a diskette duplicator in the California market
serving the computer-based entertainment market. In 1996, Certified entered
the CD replication business. In February 1998, the Company acquired a second
Fremont based digital media duplicator, Copywise, Inc. The Company is
currently in the final stages of integrating these two businesses.

The Company's digital media services are primarily focused on CD-ROM
products used to transfer data. The Company's digital media services are
currently sold to business customers which include: (i) computer equipment
manufacturers (e.g. modems, printers, scanners, etc.) that distribute driver
software programs to consumers; and (ii) software developers, such as game
authors.

Going forward, the Company will focus its marketing efforts on existing
corporate customers that do, or could, utilize digital based media to
distribute information to customers and internal representatives. Examples
include aircraft manufacturers and industrial supply houses that distribute
parts catalogs to customers and insurance companies that distribute policy
information to agents on CD or floppy disks. As part of its overall digital
media services, the Company also provides a complete range of custom
packaging, fulfillment and design services.

The Company intends to continue to invest in additional capacity for CD
replication as the demand warrants. In fiscal 1998, approximately $2,400,000
was invested in expanding production capabilities.

MANUFACTURING

VIDEOTAPE DUPLICATION - The Company's videotape duplication facilities
are geographically distributed throughout the United States so that high
volume duplication can be accomplished at four facilities: Minneapolis (MN);
Milwaukee (WI); Atlanta (GA); and Tampa (FL). The Company also has eight
other facilities for smaller volume video manufacturing: Chicago (IL);
Raleigh (NC); Dallas (TX); Houston (TX); Phoenix (AZ); Denver (CO); Portland
(OR); and Seattle (WA).

The manufacturing process for videocassettes generally utilizes
duplicating machines that copy from a master in "real time" speed, i.e., the
regular speed of the videocassette being duplicated. In this process, high
speed tape winders are used to wind blank tape loaded to specific program
lengths into video shells. The video shells are then loaded into the
duplicating machines which receive the program being copied from a master
transport. In addition, the Company utilizes high speed machines, which
allow it to duplicate a master 150 times faster than in "real time" speed.
Real time duplicating machines are used to duplicate videocassettes in
standard play mode. High speed duplicating machines are capable of
duplicating videocassettes in either the extended play mode or the standard
play mode. The extended play format utilizes less tape than regular speed
machines require for the same program content.

The entire video duplicating and winding process takes place in an
environment that is designed to eliminate airborne particles from the
duplicating process.

Once a videocassette is loaded with tape and duplicated, the finished
product is checked to ensure that it conforms to strict audio and visual
standards established by the Company and the industry. The videocassettes
are then released to the packaging department where they are labeled,
inserted into sleeves or boxes and processed through high speed
shrink-wrapping machines for distribution to the Company's customers.

DIGITAL MEDIA SERVICES - The Company's production of CD products in
Fremont (CA) utilizes an injection molding process using high grade, optical
quality polycarbonate. The polycarbonate is pressed against a metal stamper
to create a replica of the CD Master at a rate of approximately one every
four seconds. The clear polycarbonate disc containing all of the data is
then covered with a metallic coating to provide for reflection of the reading
laser beam in the CD player. A thin layer of lacquer is applied over the
metal to protect it and to serve as a base for printing on the disc.

As a result of a recent expansion, the Company has increased its annual
capacity to approximately 30 million units.

LICENSES

CD PRODUCTS - The Company, like most other CD manufacturers, uses
patented technology primarily under nonexclusive licenses from the holders of
patents which generally provide for the payment of royalties based upon the
number of CD units sold. On March 1, 1998, the Company signed a license
agreement with U.S. Philips Corporation.

SIGNIFICANT CUSTOMERS

The Communications Division sells to more than 6,500 accounts in any
given year. Approximately 13% of its sales come from ten customers, none of
which amount to more than 3% of net sales.

Illustrative of the Communications Division's video duplication
customers are companies that use videotape to promote their products or
instruct their customers on the use of their products, financial service
companies which produce videotapes to present new financial products to sales
personnel and customers, high technology companies which use videotapes to
train sales and service personnel and corporations with many employees or
locations that wish to communicate a significant Company development to all
employees simultaneously. Such high volume customers are generally those who
need 100 or more duplicate videotapes reproduced, addressed to individual
locations and forwarded for delivery, often within a few hours or on an
overnight basis.

Illustrative of the Company's CD replication customers are software
developers and computer hardware manufacturers.

MARKETING

The Communications Division markets its products nationally through the
use of 45 field sales personnel who operate throughout the United States. To
a lesser degree, the Company also uses advertising in trade publications and
participation in trade shows.

SEASONALITY

The Communications Division's products are used consistently throughout
the year except for a slight rise in demand in September, October, and
November to supply extra requirements to customers for the holiday selling
season.

COMPETITION

Though it is not possible to reliably state the Communications
Division's relative position in the absence of published statistics, based
upon data generated by its own management, the Company believes it is one of
the largest duplicators of video tape for the non-theatrical, non-music video
segment of the U.S. market. This market is comprised of exercise,
educational, corporate, promotional and instructional videos, etc. The
Company does not hold a dominant position in the CD replication industry.

The primary competitive factors in the video tape duplication and CD
replication business are price, quality of service and range of products.
The Communications Division attempts to compete by offering high volume
videotape duplication services, at a competitive price, emphasizing service
and customer support.

The Company's principal competitors are HHG Digital Technologies
(formerly Allied Film and Video Company) and The Duplication Factory. The
video duplication business is highly competitive, not only with these
competitors, but also with many smaller duplicators.

The Company believes that its regional locations, its wide range of
product offerings, and national marketing capabilities are competitive
advantages over many others in the industry. While selling prices have been
declining in recent years as competitors continue to seek market share by
lowering prices, the Company has been reasonably successful in maintaining
its margins by lowering its material costs and achieving unit volume
increases.

VAUGHN PRODUCTS DIVISION

The Products Division is engaged in the manufacture and sale of a line
of soft goods, including custom-designed, silk-screened T-shirts and
sweatshirts, souvenir leather products, and gift items sold primarily to
retail merchants located in the United States and Canada. The Products
Division's manufacturing facilities are located in the Company's Minneapolis,
Minnesota plant where it produces a line of over 200 leather items such as
billfolds, purses, and personal accessory items, and in Seattle, Washington,
where it designs and produces its soft goods products. The Products Division
corporate headquarters are also located in Seattle. The gift products are
sold at wholesale prices for resale, primarily by gift shops, and are
marketed under the "Bloom Brothers" and "Indian Arts and Crafts" names.

SALES AND DISTRIBUTION

Sales of the Products Division's products are made throughout the United
States and Canada by in-house sales people and independent manufacturer's
representatives. The Products Division employs two sales manager and four
sales people, and retains 35 manufacturer's representatives. The products
are included in a Company catalog, periodically sent to prospective and known
customers and made available for use by the sales organization. The Company
also participates in trade shows.

The principal markets for the Products Division's products are gift and
souvenir shops that serve the tourist industry.

The Products Division sells to over 3,000 customers, none of which
account for more than 5% of its net sales.

MANUFACTURING AND RAW MATERIALS

The Products Division's manufacturing operations consists primarily of
assembly, fabricating and converting leather to finished products and silk
screening of T-shirts. Numerous subcontractors are utilized to furnish
components and subassembly. Materials utilized in these products are
standard and readily available from multiple sources at competitive prices.

SEASONAL OPERATIONS

The operations of the Company's Products Division are seasonal in
nature. Approximately half of the production and sale of its products are
delivered to customers from March through June.

COMPETITION

The primary competitive factors in the Products Division line of
business are price, product offering, quality and meeting delivery times.
The Company believes that the Products Division is competitive in each of
these areas. The Company does not have a significant share of the overall
gift market and competes for sales with many national and regional companies
throughout the United States and Canada. Many of such competitors have
significantly greater resources than the Company.

FORMER BUSINESSES

The Company originally operated as a manufacturer and distributor of
flags and banners, Christmas and seasonal decorative displays and parade and
float materials. In addition to these businesses and its two current
business segments, in 1986 the Company also entered radio broadcasting. The
radio broadcast business was not profitable for the Company and the Company's
original businesses did not always operate at predictable or acceptable
levels of profitability.

Consequently, in 1990 the Company began to redeploy its corporate and
personnel resources to the more firmly profitable current businesses operated
by the Vaughn Communications and Vaughn Products Divisions. In 1990 and
1991, the Company sold its radio station interests and its audio and video
equipment sales and engineering businesses. In February 1992, the Company
also withdrew from the Christmas display business.

On March 1, 1994, the Company completed this redeployment by selling its
flag, banner, seasonal decorative display and parade and float products
operations and assets to Chromatic Concepts Co., a Minneapolis, Minnesota
based corporation ("Buyer"). These businesses previously occupied
approximately 5,000 square feet of the Company's principal manufacturing
plant in Minneapolis, Minnesota and its 12,000 square foot manufacturing
plant in Tampa, Florida, and employed 21 manufacturing, sales and
administrative personnel. The Buyer reemployed substantially all of these
employees. The Company retained its Tampa plant, subject to a short-term
lease to the Buyer which expired October 31, 1994, after which this facility
was sold to an unrelated party. The portion of the Minneapolis plant
previously used by these businesses has been rededicated to use by the
Company's Communications and Products Divisions (see "Item 2. Properties"
below).

The Purchase and Sale Agreement with the Buyer provided for a purchase
price of $1,500,000, with $800,000 cash paid at closing, plus a $700,000
promissory note payable in installments over seven years with variable
interest at .25% per annum over the prime rate. The Company is also entitled
to certain additional payments of up to $250,000 over fifteen years
contingent upon performance of the businesses sold over this period. These
businesses accounted for approximately $2,904,000 of sales and an operating
profit of $145,000 in fiscal 1994.

BACKLOG

Order backlog is not generally a significant factor in the Company's
business. The Company relies primarily on current selling efforts coupled
with near term delivery or performance.

EMPLOYEES

On February 28, 1998, the Company had 838 employees, including 138 in
sales and marketing, 629 in manufacturing and 71 in executive, finance and
administrative positions. Two hundred twenty-eight of the Company's
manufacturing and clerical employees are part-time employees. The Company's
employees are not represented by a union. The Company considers its employee
relations to be satisfactory.

COMPLIANCE WITH ENVIRONMENTAL LAWS

The costs associated with the Company's compliance with Federal, state
and local environmental laws are minimal. For these reasons, the Company's
compliance with such laws does not have a material effect on its capital
expenditures, earnings or its competitive position in the marketplace.

RECENT ACQUISITIONS

PURCHASE OF CERTIFIED MEDIA CORPORATION

On July 31, 1997, the Company completed the acquisition of certain
assets and assumed certain liabilities of Certified Media Corporation
("Certified Media"), a California Sub S Corporation. The Company accounted
for the acquisition as a purchase.

The noncontingent price of $5,500,000 was paid to the four shareholders
of Certified Media. The Company paid $2,800,000 in cash, issued 171,210
shares of the Company's common stock valued at approximately $7.01 per share
($1,200,000 in the aggregate), equal to the average closing sale price on the
NASDAQ for the 10 days prior to July 31, 1997, and issued $1,500,000 of
long-term debt to the Sellers. The long-term debt is payable in five equal
annual installments starting on July 31, 1998. The interest rate is at the
prime rate.

The purchase price may be increased to a maximum of $7,500,000 depending
upon the financial performance of Certified Media through January 31, 1999.

The Company also entered into a five-year consulting and noncompete
agreement with Alan Gill, the former president of Certified Media. The
agreement calls for annual payments of $86,641. In addition, noncompete
agreements were signed with the remaining three shareholders for terms of
three to five years and call for annual payments ranging from $906 to $8,641.

FINANCING THE ACQUISITION

The Company used its revolving credit facility to fund the $2,800,000
cash portion of the purchase price. The credit facility provided a
$2,800,000 term loan due July 31, 2002, payable in consecutive quarterly
principal installments of $140,000 commencing October 31, 1997, plus interest
at the bank's prime rate.

DESCRIPTION OF CERTIFIED MEDIA'S BUSINESS

Certified Media's business consists primarily of the replication of
compact discs ("CDs") utilizing an injection molding process. Located in
Fremont, California, Certified Media's customers include computer software
developers and computer hardware manufacturers. Certified Media's business
has been merged with the Company's existing Communications Division.

The Company believes that the Certified Media acquisition has assisted
the Company's transformation from a videotape duplication specialist to a
total media solutions provider and that using the Company's existing sales
force will provide significant growth for Certified Media.

For Certified Media's fiscal years ended December 31, 1996 and 1995, it
had annual sales of $4,459,000 and $7,958,000 respectively. Net income
(loss) for the respective periods was ($1,189,000) and $1,047,000. The net
income numbers do not include the effect of any income taxes since Certified
Media was a Sub S Corporation.

PURCHASE OF DUB SOUTH

On July 31, 1997, the Company acquired certain of the assets and assumed
certain of the liabilities of Dub South Acquisition, LLC ("Dub South"), a
Georgia Limited Liability Company. The Company accounted for the acquisition
as a purchase.

The noncontingent purchase price for the assets included approximately
$311,000 of cash and the assumption of approximately $439,000 of liabilities.
The purchase price may be increased by an additional $1,200,000, depending on
the profit performance through January 31, 2002.

Dub South is a regional video tape duplicator with its facility in
Atlanta, Georgia. Its business is substantially similar to the video tape
duplication business of the Company's Communications Division, and its
operations have been merged into the Company's preexisting facilities in
Atlanta.

For Dub South's fiscal year ended December 31, 1996, sales were
$1,907,000 and had a net loss of $520,000.

MERGER OF SATASTAR CORPORATE SERVICES, INC.

Pursuant to a Plan and Agreement of Merger dated June 7, 1996, on June
28, 1996 Satastar Corporate Services, Inc. (DBA PVS Corporate Services), an
Illinois corporation, was merged into the Company. The Company accounted
for the transaction as a pooling of interests. The merger was effected by
the issuance of 165,357 shares of the Company's common stock valued at $13.75
per share or approximately $2,274,000 in the aggregate, in exchange for all
the common stock of Satastar.

The Company also entered into employment and noncompete agreements with
the former owners of Satastar. The agreements are for terms ranging from two
to three years and call for compensation of $130,000 to $162,000 per year.

DESCRIPTION OF SATASTAR'S BUSINESS

Satastar is a regional video tape duplicator whose business, with the
exception of specific customer identity, is substantially similar to the
video tape duplication business of the Company's Communications Division of
which Satastar has become part. Satastar has a videotape duplication
facility in Chicago, Illinois, and the Company merged its pre-existing
facility in Chicago into that of Satastar.

For Satastar's years ended December 31, 1996 and 1995, it had annual
sales of $4,056,000 and $3,868,000, respectively. Net income for the
respective periods was $102,000 and $342,000.

At the time of the merger, Satastar had 39 employees, including 3 in
sales, 10 in administration and support, and 26 in operations. A majority of
these persons are currently employees of Vaughn Communications Division.
These employees are not represented by a union, and the Company considers
Satastar's employee relations to be satisfactory and there have been no work
stoppages.

PURCHASE OF CENTERCOM AND RELATED TRANSACTIONS

On April 4, 1995, the Company completed the acquisition of all of the
capital stock of Centercom, Inc., a Wisconsin corporation, and Centercom
South, Inc., a Florida corporation (collectively "Centercom") pursuant to a
Stock Purchase Agreement of even date (the "Purchase Agreement"). The
effective date of the acquisition is April 1, 1995. The Company accounted
for the acquisition as a purchase.

The purchase price for the capital stock of Centercom was $6,420,000,
which was paid equally to the two equal former shareholders of Centercom,
Jeffrey Johnson and Robert Harmon (the "Sellers"). The Company paid
$5,250,000 in cash and issued 180,000 shares of the Company's common stock,
valued at $6.50 per share ($1,170,000 in the aggregate), equal to the closing
sale price of the stock on NASDAQ on April 3, 1995. Pursuant to the terms of
the Purchase Agreement, the Sellers have been elected as directors of the
Company and appointed as members of the Company's Audit Committee.

The Sellers receive $100,000 each per year for a period of seven years
under consulting and noncompete agreements. In addition, the Company has
entered into two ten-year leases for the video tape duplication facilities
totaling approximately 38,000 square feet owned by a partnership of the
Sellers in Milwaukee, Wisconsin, at an aggregate annual net rent of $186,353
for the first three years and $199,225 for the remaining seven years of the
lease term. Management of the Company believes that the facilities leased
from Sellers are necessary for its video tape duplication business and that
the lease terms and conditions are no less favorable to the Company than
could be obtained from an unrelated third party (see "Description of
Centercom's Business" below).

FINANCING FOR THE ACQUISITION

The Company borrowed the cash consideration for the Centercom
acquisition from a bank, under a Loan Agreement. The Loan Agreement provided
a $5,000,000 term loan due March 31, 2000, payable

in consecutive quarterly principal installments of $250,000 commencing July
1, 1995, plus interest at one-quarter percent over the bank's prime rate.
The Loan Agreement also provided a revolving credit facility of up to
$8,000,000. On February 1, 1996, the Company entered into an amended
agreement with its bank which reduced the interest rate on the term loans to
the prime rate.

DESCRIPTION OF CENTERCOM'S BUSINESS

Centercom is a national video tape duplicator whose business, with the
exception of specific customer identity and geographic concentration, is
substantially similar to the video tape duplication business of the Company's
Vaughn Communications Division of which Centercom has become a part.
Centercom has video tape duplication facilities in Milwaukee, Wisconsin,
Chicago, Illinois and Tampa, Florida. The Company has merged its preexisting
facilities in Milwaukee, Chicago and Tampa into those of Centercom.
Centercom, Inc. and Centercom South, Inc. have been and will continue as
wholly-owned subsidiaries of the Company for the immediately foreseeable
future.

For Centercom's fiscal years ended June 30, 1994 and 1993, it had annual
sales of $8,700,000 and $7,700,000, respectively. Net income for the same
periods was $645,000 and $412,000.

Centercom's operations involve the use of several hundred real time
video tape duplicating machines and three high-speed (150 times real time
rates) duplicating machines similar to those utilized by the Company.

The Company believes that the Centercom acquisition has enabled the
Company to be a dominant competitor in the Milwaukee market, enhanced the
Company's already dominant position in the Tampa market and increased the
Company's presence in the Chicago market.

PURCHASE OF ADVANCED AUDIO/VIDEO PRODUCTIONS, INC.

Pursuant to a Purchase and Sale Agreement dated December 29, 1995, on
January 1, 1996 the Company acquired substantially all the assets and assumed
substantially all the liabilities of Advanced Audio/Video Productions, Inc.
("Advanced Video"), a Colorado corporation. The Company accounted for the
acquisition as a purchase.

The purchase price for the assets of Advanced Video in the amount of
approximately $282,000 included $182,000 of cash and $100,000 of long-term
debt to the seller. The note is payable in three annual installments of
$33,333.33 starting January 5, 1997, plus interest at the prime rate adjusted
on the anniversary date.

Advanced Video is a regional video tape duplicator with its facility
located in Denver, Colorado. Its business is substantially similar to the
video tape duplication business of the Company's Vaughn Communications
Division of which Advanced Video has become a part.

For Advanced Video's fiscal year ended December 31, 1995, it had annual
sales of $1,204,000 and net income of $60,000.

PURCHASE OF INDIAN ARTS AND CRAFTS, INC.

Pursuant to a Purchase and Sale Agreement dated January 31, 1996 the
Company acquired substantially all the assets and assumed substantially all
the liabilities of Indian Arts and Crafts, Inc. ("IAAC"), a Washington
corporation. The Company accounted for the acquisition as a purchase.

The purchase price of approximately $2,332,000 was paid to the five
shareholders of IAAC (the "Sellers"). The Company paid approximately $82,000
in cash, issued 145,138 shares of the Company's common stock valued at
$8.6125 per share ($1,250,000 in the aggregate), equal to the average closing
sale price of the stock on NASDAQ for the 10 days prior to January 31, 1996,
and issued $1,000,000 of long-term debt to the Sellers. The long-term debt
consists of two promissory notes; one in the principal amount of $250,000
payable in three equal annual installments beginning January 31, 1997, and
the other in the principal amount of $750,000 payable in seven equal annual
installments starting on January 31, 1997. The interest rate on both notes
is 8.5% per annum.

The Company also entered into a three-year employment agreement with
Howard Lowen, the president and largest shareholder of IAAC. In addition,
the Company entered into two leases with the Sellers. One lease is for a
production facility in Seattle totaling approximately 42,300 square feet at
an aggregate annual rent of $250,000. The term of this lease is 44 months
starting February 1, 1996. The second lease is for a sales office in
Anchorage ( 1,400 square feet) at an annual rental of $14,400 and has a
three-year term. Management of the Company believes that the facilities
leased from the Sellers are necessary for the business of the Products
Division and that the terms of the leases are no less favorable to the
Company than could be obtained from an unrelated third party.

FINANCING FOR THE ACQUISITION

The Company used its revolving credit facility to fund the $82,000 cash
portion of the purchase price. To fund the anticipated increase in working
capital needs, the Company entered into an Amended and Restated Loan
Agreement with a bank on February 1, 1996 (the "Amended Agreement"). The
Amended Agreement increases the total credit facility from $13,000,000 to
$17,000,000 and provides for long-term financing to finance acquisitions and
equipment purchases, and a revolving credit facility to finance working
capital. The interest rate on the long-term debt and the revolving debt is
at the prime rate.

DESCRIPTION OF IAAC'S BUSINESS

IAAC's business consists primarily of the manufacture and sale of gift
and souvenir products. Its principal products are custom-designed soft
goods, including T-shirts, sweatshirts and hats sold primarily in Alaska and
the Pacific Northwest. The Company has an art department which develops
custom designs that are silk-screened on apparel and then sold to retailers
by direct salespeople or independent manufacturer's representatives. IAAC
also resells other gift and souvenir products through the same sales
channels. IAAC has been merged into Vaughn Products Division, and the
Company moved the majority of the operations of the Products Division to
Seattle during fiscal 1997.

For IAAC's fiscal years ended December 31, 1995 and 1994, it had annual
sales of $7,543,000 and $7,593,000, respectively. Net income for the same
periods was $227,000 and $360,000, respectively.

ITEM 2. PROPERTIES

The Company owns its executive and administrative offices and principal
manufacturing plant consisting of approximately 67,000 square feet located on
a 4.1 acre site at 5050 West 78th Street, Minneapolis, Minnesota.
Approximately 5,000 square feet is devoted to and equipped for the
fabrication and warehousing of the Vaughn Products Division's products and
raw materials. Approximately 57,600 square feet is used for the Vaughn
Communications Division's separate administrative and sales offices,
showrooms, videotape duplication, shipping, warehouse and handling. The
remaining space of approximately 4,400 square feet houses the Company's
executive and administrative offices. These facilities include a separate
adjacent building of approximately 10,600 square feet. See the Notes to the
audited financial statements of the Company incorporated by reference for a
description of the mortgage term loan to the Company secured by these
facilities.

The Company leases Vaughn Communications Division's facilities in
Fremont, California; Milwaukee, Wisconsin; Phoenix, Arizona; Tampa and
Orlando, Florida; Portland, Oregon; Atlanta, Georgia; Dallas, Texas; Houston,
Texas; Raleigh, North Carolina; Chicago, Illinois; Seattle, Washington; and
Denver, Colorado for sales offices and manufacturing, totaling approximately
280,000 square feet under leases expiring from 1998 through 2003, at a
current total annual rental of approximately $1,560,000.

The Products Division's Seattle facilities leased from the IAAC Sellers
are described under "RECENT ACQUISITIONS - Purchase of Indian Arts and
Crafts, Inc." in Item 1 above. In addition, the Products Division leases
approximately 24,000 square feet of warehousing and office space in an
adjacent building. The lease expires in 1999 and has a current annual rental
of $126,000.

The Company is presently utilizing approximately 75% of its
manufacturing plant capacity measured on a five-day week/three shift per day
basis. Production capacity, however, can be expanded by adding additional
personnel or acquiring additional manufacturing equipment. Management
believes its manufacturing facilities are generally sufficient for the
Company's immediately foreseeable needs.

ITEM 3. LEGAL PROCEEDINGS

There are no legal proceedings pending against or involving the Company
or its properties which, in the opinion of management, will have a material
adverse effect upon the Company's financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company's shareholders during
the quarter ended January 31, 1998.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY

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. The information presented is the quarterly high and
low closing sale prices as reported in the NASDAQ's National Market System.
All prices are without retail markups, markdowns or commissions.

Price
-----
Calendar Period High Low
--------------- ---- ---

1998: First Quarter $8.125 $5.50

1997: First Quarter $8.00 $6.00
Second Quarter 7.50 5.25
Third Quarter 8.56 6.75
Fourth Quarter 8.00 5.44

1996: First Quarter $9.375 $8.375
Second Quarter 19.00 9.00
Third Quarter 15.00 9.50
Fourth Quarter 10.50 7.00

The last sales price for the Company's Common Stock as reported by the
NASDAQ National Market System on April 9, 1998 was $7.25 per share. As of
January 31, 1998, the Company had 310 shareholders of record. The Company
has never paid a cash dividend on its Common Stock. It intends to retain all
earnings to finance the development of its business. The Company's loan
agreement with its bank contains limitations on paying dividends.
Accordingly, no cash dividends are anticipated for the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

The Company's sale of unregistered during the fiscal year ended January
31, 1998 was previously reported in its Quarterly Report on Form 10-Q for the
quarter ended July 31, 1997.

ITEM 6. SELECTED FINANCIAL DATA

The financial information set forth in the sections entitled "SELECTED
FINANCIAL DATA from Continuing Operations (in Thousands, Except Per Share
Amounts)" to be included in the Company's 1998 Shareholder Report is
incorporated herein by reference in response to this Item 6. This section
should be read in conjunction with the Notes to Consolidated Financial
Statements which also appear in the 1998 Shareholder Report and are
incorporated herein by reference.

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

The discussion under the Section entitled "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" to be included in
the 1998 Shareholder Report is incorporated herein by reference in response
to this Item 7.

ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The disclosure requirements of Item 305 of Regulation S-K are not
applicable to the Company.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company for each of the
years in the three-year period ended January 31, 1998, together with the
report thereon of Ernst & Young LLP, contained in the 1998 Shareholder
Report, are incorporated herein by reference in response to this Item 8.

The supplementary financial information requirements of Item 302 of
Regulation S-K are not applicable to the Company.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The discussions under the sections captioned "SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE", "PROPOSAL 1 ELECTION OF DIRECTORS" and
"EXECUTIVE OFFICERS" to be included in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission and
delivered to the Registrant's shareholders pursuant to Regulation 14A
promulgated under the Securities Exchange Act of 1934 with respect to the
Annual Meeting of the Shareholders to be held on June 23, 1998 (the "1998
Proxy Statement") are incorporated herein by reference in response to this
Item 10.

ITEM 11. EXECUTIVE COMPENSATION

The discussions under the sections captioned "COMPENSATION OF DIRECTORS"
and "EXECUTIVE COMPENSATION" but excluding the discussions included under the
subsections captioned "EXECUTIVE COMPENSATION - Compensation Committee Report
on Executive Compensation" and "EXECUTIVE COMPENSATION - Comparative Stock
Performance" to be included in the 1998 Proxy Statement are incorporated
herein by reference in response to this Item 11.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The discussions under the sections captioned "VOTING SECURITIES AND
PRINCIPAL HOLDERS THEREOF", "PROPOSAL 1 ELECTION OF DIRECTORS" and
"TRANSACTIONS WITH MANAGEMENT - E. D. Willette Stock Put Redemption
Agreement, Including Change of Control Provision" to be included in the 1998
Proxy Statement are incorporated herein by reference in response to this Item
12.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The discussion under the section captioned "TRANSACTIONS WITH
MANAGEMENT" to be included in the 1998 Proxy Statement is incorporated herein
by reference in response to this Item 13.

PART IV

ITEM 14. EXHIBIT, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a) 1. CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY

The consolidated financial statements listed below of the Company for
each of the years in the three-year period ended January 31, 1998,
together with the report thereon of Ernst & Young LLP, contained in
the 1998 Shareholder Report (attached as Exhibit 13) are incorporated
herein by reference in response to this Item 14 (a) (1).

Independent Auditor's Report of Ernst & Young LLP
Consolidated Balance Sheets as of January 31, 1998 and 1997
Consolidated Statements of Income for the years ended January 31,
1998, 1997 and 1996
Consolidated Statement of Shareholders' Equity for the years ended
January 31, 1998, 1997
and 1996
Consolidated Statements of Cash Flows for the years ended January 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements

With the exception of the aforementioned information, and the
information specified in Parts II and III, the 1998 Shareholder Report
is not to be deemed filed as part of this Report.

2. FINANCIAL STATEMENT SCHEDULE OF THE COMPANY

Schedule No. Page
------------ ----

II Valuation and Qualifying Accounts S-1

All other schedules are omitted, because they are not applicable, or
not required, or because the information is included in the Company's
consolidated financial statements or notes thereto.

(b) REPORTS ON FORM 8-K

No current Reports on Form 8-K were filed by the Company during the
quarter ended January 31, 1998.

Exhibit No. Description of Exhibits
----------- -----------------------

(2)(a) Stock Purchase Agreement dated April 4, 1995,
providing for the Company's purchase of all of the
capital stock of Centercom, Inc., a Wisconsin
corporation, and Centercom South, Inc. a Florida
corporation, from Jeffrey Johnson and Robert Harmon
(incorporated herein by reference to Exhibit 2(a)-1
to the Company's Current Report on Form 8-K with a
Date of Report of April 14, 1995).

(2)(b) Escrow Agreement dated April 14, 1995 among the Company,
Jeffrey Johnson, Robert Harmon and Firstar Trust Company
(incorporated herein by reference to Exhibit (2)(a)-2 to
the Company's Current Report on Form 8-K with a Date of
Report of April 14, 1995).

(2)(c) Purchase and Sale Agreement dated January 31, 1996 between the
Company and the Shareholders of Indian Arts and Crafts, Inc.
(without Exhibits, Schedules or Attachments) (incorporated by
reference to Exhibit (2)(c) to the Company's Annual Report on
Form 10-K for the year ended January 31, 1996 (hereinafter
referred to as the "1996 Form 10-K")).

(2)(d) Plan and Agreement of Merger dated June 7, 1996, between the
Company and Satastar Corporate Services, Inc., doing business
as PVS Corporate Services (without Exhibits, Schedules or
Attachments).

(2)(e) Agreement dated July 15, 1997 between Certified Media
Corporation and the Company (incorporated herein by reference
to Exhibit 10 to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1997).

(2)(f) Purchase and Sale Agreement dated June 30, 1997 between the
Company and Dub South Acquisition, LLC.

(3)(i)(a) Restated Articles of Incorporation of the Company, and all
amendments filed with the Minnesota Secretary of State
through March 12, 1987 (incorporated herein by reference to
Exhibit 3(a) to the Company's Registration Statement on Form
S-1 No. 33-10918

hereinafter referred to as the "Company's S-1 Registration
Statement").

(3)(i)(b) Articles of Amendment to the Company's Restated Articles of
Incorporation, as filed with the Minnesota Secretary of State
on July 16, 1987 (incorporated herein by reference to Exhibit
19 to the Company's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1987).

(3)(i)(c) Articles of Amendment to the Company's Restated Articles of
Incorporation, as filed with the Minnesota Secretary of State
on June 24, 1993 (incorporated herein by reference to
Exhibit 3(a) to the Company's Annual Report on Form 10-K for
the year ended January 31, 1994, (hereinafter referred to as
the "1994 Form 10-K")).

(3)(ii)(a) Restated By-Laws of the Company and all amendments thereto
through March 12, 1987 (incorporated herein by reference to
Exhibit 3(b) to the Company's S-1 Registration Statement).

(3)(ii)(b) Third Amendment to the Company's Restated By-Laws adopted
April 19, 1994 (incorporated herein by reference to
Exhibit 3(b) to the 1994 Form 10-K).

(10)(a) [Intentionally left blank.]

(10)(b) Purchase and Sale Agreement Restated February 17, 1994, dated
as of February 28, 1994, providing for the Company's sale of
its flag, banner and parade and float products, assets and
business to Chromatic Concepts Co. (incorporated herein by
reference to Exhibit (10)(b) to the 1994 Form 10-K).

(10)(c) Purchase Agreement dated as of May 25, 1993, providing for the
Company's purchase from Cranberry Novelty Manufacturing Company
of the "Cranberry Lake" novelty product line (incorporated
herein by reference to Exhibit (10)(c) to the 1994 Form 10-K).

(10)(d) Adoption Agreement dated November 5, 1992 for Vaughn
Communications, Inc. Retirement Savings Plan (the "Plan")
adopting Fidelity Management & Research Co. standard prototype
Profit Sharing/401(K) Plan basic plan document No. 7 and copy
of Retirement Service Agreement dated November 4, 1992 with
Fidelity Management Trust Company, providing for the trust and
administration of the Plan, first effective as of the Plan year
beginning February 1, 1993 (incorporated herein by reference to
Exhibit (10)(d) to the 1994 Form 10-K).

(10)(e) [Intentionally left blank.]

(10)(f) 1990 Company-Wide Stock Option Plan adopted by the Company's
Board of Directors on June 26, 1990, as amended December 17,
1990, and forms of 1990 Incentive Stock Option and 1990
Non-statutory Stock Option Agreements (incorporated herein by
reference to Exhibit 10(f) to the Company's Annual Report on
Form 10-K for the year ended January 31, 1991), and copy of
amendment to such Plan adopted by the Board June 24, 1992
(incorporated herein by reference to Exhibit 10(f) to the
Company's Annual Report on Form 10-K for the year ended
January 31, 1993, (hereinafter referred to as the "1993
Form 10-K")).

(10)(g) 1988 Stock Option Plan adopted by the Company's Board of
Directors on December 20, 1988, and forms of 1988 Incentive
Stock Option and 1988 Nonstatutory Stock Option Agreements
(incorporated herein by reference to Exhibit 10(g) to the
Company's Annual Report on Form 10-K for the year ended
January 31, 1989), and copies of amendments to such Plan
adopted by the Board June 24, 1992 (incorporated herein
by reference to Exhibit 10(g) to the 1993 Form 10-K).

(10)(h) Amended and Restated Stock Put Redemption Agreement dated
June 24, 1992, between the Company and E. David Willette
(incorporated herein by reference to Exhibit 10(h) to the
1993 Form 10-K).

(10)(i) 1983 Incentive Stock Option Plan and form of 1983 Incentive
Stock Option Agreement (incorporated by reference to
Exhibit 10(1) to the Company's S-1 Registration Statement),
and copy of amendment to such Plan adopted by the Board
June 24, 1992 (incorporated herein by reference to
Exhibit 10(i) to the 1993 Form 10-K).

(10)(j) 1985 Stock Option Plan (incorporated by reference to
Exhibit 10(m) to the Company's S-1 Registration Statement),
copy of Amendment to the 1985 Stock Option Plan adopted by
the Company's Board of Directors on December 10, 1987, and
corresponding revised forms of 1985 Incentive Stock Option
Agreement and 1985 Nonstatutory Option Agreement
(incorporated by reference to Exhibit 10(j) to the Company's
Annual Report on Form 10-K for the year ended January 31,
1988), and copy of amendment to such Plan adopted by the Board
June 24, 1992 (incorporated herein by reference to Exhibit
10(j) to the 1993 Form 10-K).

(10)(k) 1990 Non-Employee Directors Stock Option Plan adopted by the
Company's Board of Directors June 26, 1990, as amended
December 17, 1990, and form of 1990 Non-Employee Directors
Stock Option Agreement (non-statutory) (incorporated herein by
reference to Exhibit 10(k) to the 1993 Form 10-K).

(10)(l) Mortgage and Security Agreement and Fixture Financing
Statement and Promissory Note, dated February 26, 1988,
between the Company (as mortgagor and borrower) and The
Canada Life Assurance Company (as mortgagee and lender),
providing for a three year $1,600,000 mortgage loan to
the Company with three year renewal options secured by the
Company's Minneapolis, Minnesota headquarters and adjacent
plant and office facilities (incorporated by reference to
Exhibit 10(1) to the Company's Annual Report on Form 10-K
for the year ended January 31, 1988).

(10)(m) 1990 Discounted Stock Option Plan adopted by the Company's
Board of Directors on June 26, 1990, as amended December 17,
1990, and form of 1990 Discounted Stock Option Agreement
(nonstatutory) (incorporated herein by reference to Exhibit
10(m) to the Company's Annual Report on Form 10-K for the
year ended January 31, 1991), and copy of amendment to such
Plan adopted by the Board June 24, 1992 (incorporated herein
by reference to Exhibit 10(m) to the 1993 Form 10-K).

(10)(n) Leases each dated April 4, 1995, between Centercom, Inc.,
the Company's wholly-owned subsidiary, as Lessee, and
Centercom Partnership, a partnership owned by Jeffrey
Johnson and Robert Harmon, the former owners of all of the
capital stock of Centercom, Inc., as Lessor, and Specialty
Services, Inc., a real estate holding corporation owned by
Messrs. Johnson and Harmon, as Lessor, respectively
providing for the lease and rental from and after April 4,
1995, of the real estate and buildings located at 5737 West
Hemlock Street and 5621 West Hemlock Street, Milwaukee,
Wisconsin, from which the Company's wholly-owned subsidiary,
Centercom, Inc., conducts its Milwaukee, Wisconsin based
videotape duplication operations (incorporated herein by
reference to Exhibit (10)(n) to the 1995 Form 10-K).

(10)(o) Consulting and Non-Competition Agreements, each dated April
4, 1995, among the Company, its wholly-owned subsidiary,
Centercom, Inc. and each of Jeffrey Johnson and Robert
Harmon, the prior shareholders of Centercom, Inc., from whom
the Company acquired the capital stock of Centercom, Inc.,
providing for certain covenants of Jeffrey Johnson and
Robert Harmon against competition with the Company and
Centercom, Inc. and for performance of certain consulting
services by said prior shareholders (incorporated herein by
reference to Exhibit (10)(o) to the 1995 Form 10-K).

(10)(p) Shareholder Voting Agreement dated April 4, 1995, among the
Company, E. David Willette and Jeffrey Johnson and Robert
Harmon, providing that E. David Willette will vote his own
shares of the Company's Common Stock for the election
of Jeffrey

Johnson and Robert Harmon as members of the
Company's Board of Directors (incorporated herein by
reference to Exhibit (10)(p) to the 1995 Form 10-K).

(10)(q) Amended and Restated Loan Agreement dated February 1, 1996,
between the Company and American Bank N.A. (incorporated by
reference to Exhibit (10)(q) to the 1996 Form 10-K.)

(10)(r) 1995 Non-Employee Director Stock Option Plan adopted by
the Board of Directors on June 20, 1995 and form of 1995
Non-Employee Director Nonstatutory Stock Option Agreement.

(10)(s) Third Modification Agreement and Amendment to Mortgage dated
January 1, 1997 between the Company and the Canada Life
Assurance Company.

(10)(t) Employment and Noncompetition Agreement dated September 25,
1995 between Donald J. Drapeau and the Company.

(10)(u) Addendum No. 1 to Employment Agreement dated March 13, 1998
between Donald J. Drapeau and the Company (amending Exhibit
(10)(t)).

(10)(v) 1998 Employment and Noncompetition Agreement dated March 13,
1998 between E. David Willette and the Company.

(10)(w) 1998 Employment and Noncompetition Agreement dated March 13,
1998 between M. Charles Reinhart and the Company.

(10)(x) Revolving Credit and Term Loan Agreement dated August 29,
1997 between the Company and Firstar Bank of Minnesota, N.A.
amending an Amended and Restated Loan Agreement dated March
31, 1995.

(13) 1998 Annual Report to Shareholders.

(23) Consent of Independent Auditors

(24) Power of Attorney (see the Signature Page of this
Report)

(27) Financial Data Schedules

(d) Financial Statements required by Regulation S-X which are excluded
from the Annual Report to Shareholders.

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.

VAUGHN COMMUNICATIONS, INC.

By \s\ E. David Willette
------------------------------------
E. David Willette
Chairman and Chief Executive Officer
(Principal Executive Officer)

By \s\ M. Charles Reinhart
------------------------------------
M. Charles Reinhart
Chief Financial Officer
(Principal Financial and Accounting Officer)

Dated: April 30, 1998

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
above or below, constitutes and appoints E. David Willette and M. Charles
Reinhart, or either of them, his true and lawful attorneys-in-fact, and
agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to this Report, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of
the Company in their respective capacities as directors of the Company.

\s\ E. David Willette Director April 30, 1998
-------------------------------
E. David Willette

\s\ Roger F. Heegaard Director April 30, 1998
-------------------------------
Roger F. Heegaard

\s\ Harold G. Wahlquist Director April 30, 1998
-------------------------------
Harold G. Wahlquist

\s\ William D. Smith Director April 30, 1998
-------------------------------
William D. Smith

\s\ Laurence F. LeJeune Director April 30, 1998
-------------------------------
Laurence F. LeJeune

\s\ Michael R. Sill Director April 30, 1998
-------------------------------
Michael R. Sill

\s\ Rodney P. Burwell Director April 30, 1998
-------------------------------
Rodney P. Burwell

\s\ Jeffrey Johnson Director April 30, 1998
-------------------------------
Jeffrey Johnson

\s\ Robert Harmon Director April 30, 1998
-------------------------------
Robert Harmon

\s\ Donald J. Drapeau Director April 30, 1998
-------------------------------
Donald J. Drapeau

VAUGHN COMMUNICATIONS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------

Additions
---------

Charged Charged
Balance at to Costs to Other Balance at
Beginning and Accounts- Deductions End of
Description of Period Expenses Describe Describe Period
----------- --------- -------- -------- -------- ------

Year ended
1/31/98:

Deducted from
asset account:
Allowance for
doubtful accounts $650,000 $1,185,058 $709,058(1) $1,126,000
-------- ---------- -------- ----------
-------- ---------- -------- ----------

Year ended
1/31/97:

Deducted from
asset account:
Allowance for
doubtful accounts $625,600 $396,694 $372,294(1) $650,000
-------- -------- -------- --------
-------- -------- -------- --------

Year ended
1/31/96:

Deducted from
asset account:
Allowance for
doubtful accounts $536,700 $386,160 $297,260(1) $625,600
-------- -------- -------- --------
-------- -------- -------- --------
- -----------------------------------------------------------------------------------------------------------------

(1) Uncollectible accounts written off, net of recoveries

S-1

VAUGHN COMMUNICATIONS, INC.

ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998

INDEX TO EXHIBITS

Exhibit No. Description of Exhibit
- ----------- ----------------------

(2)(f) Purchase and Sale Agreement dated June 30, 1997 between
the Company and Dub South Acquisition, LLC.

(10)(t) Employment and Noncompetition Agreement dated September 25,
1995 between Donald J. Drapeau and the Company.

(10)(u) Addendum No. 1 to Employment Agreement dated March 13,
1998 between Donald J. Drapeau and the Company (amending
Exhibit (10)(t).

(10)(v) 1998 Employment and Noncompetition Agreement dated March
13, 1998 between E. David Willette and the Company.

(10)(w) 1998 Employment and Noncompetition Agreement dated March
13, 1998 between M. Charles Reinhart and the Company.

(10)(x) Revolving Credit and Term Loan Agreement dated August 29,
1997 between the Company and Firstar Bank of Minnesota, N.A.
amending an Amended and Restated Loan Agreement dated
March 31, 1995.

(13) 1998 Annual Report to Shareholders

(23) Consent of Independent Auditors

(24) Power of Attorney (see Signature Page of Report)

(27) Financial Data Schedules