U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

[x]     Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
        Act of 1934.
        FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1998.

[ ]     Transition report under Section 13 or 15(d) of the Exchange Act.

        For the transition period from _________ to _________

Commission file number               0-23902
                      ----------------------------------------------------------

                                    IPI, INC.
--------------------------------------------------------------------------------
        (Exact Name of Small Business Issuer as Specified in its Charter)

        MINNESOTA                           41-1449312
--------------------------------------------------------------------------------
        (State or Other Jurisdiction of     (I.R.S. Employer Identification No.)
        Incorporation or Organization)

        15155 TECHNOLOGY DRIVE
        EDEN PRAIRIE, MN  55344
--------------------------------------------------------------------------------
        (Address of Principal Executive Offices)

        (612) 975-6200
--------------------------------------------------------------------------------
        (Issuer's Telephone Number, Including Area Code)

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

-------------------------------    -----------------------------------------

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

        COMMON STOCK, $.01 PAR VALUE
--------------------------------------------------------------------------------
              (Title of class)

        Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes _X_ No ___

        Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

        State issuer's revenues for its most recent fiscal year. $9,803,000.

        As of February 16, 1999, 4,734,087 shares of Common Stock were
outstanding, and the aggregate market value of the shares of Common Stock (based
on the closing sales price of these shares on the Nasdaq Small Cap Market held
by non-affiliates was approximately $3,408,000.

                       DOCUMENTS INCORPORATED BY REFERENCE
        The Company's definitive proxy statement for its annual meeting of
shareholders to be held on May 10, 1999, a copy of which will be filed with the
Securities and Exchange Commission with 120 days of November 30, 1998, is
incorporated into part II of this Form 10-KSB.

        Transitional Small Business Disclosure Format: Yes ___ No _X_


                                       1

<PAGE>


                                    IPI, INC.
                            FORM 10-KSB ANNUAL REPORT
                   FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1998

                                Table of Contents


PART I                                                                      PAGE
  Item 1.      Description of Business.                                        3
  Item 2.      Description of Properties.                                      6
  Item 3.      Legal Proceedings.                                              6
  Item 4.      Submission of Matters to a Vote of Security Holders.            6

PART II
  Item 5.      Market For Common Equity and Related Stockholder Matters.       6
  Item 6.      Management's Discussion and Analysis of Financial Condition
                 and Results of Operations.                                    7
  Item 7.      Financial Statements.                                          10
  Item 8.      Changes In and Disagreements With Accountants on Accounting
                 and Financial Disclosure                                     23

PART III
  Item 9.      Directors, Executive Officers, Promoters and Control Persons,
                 Compliance With Section 16(a) of the Exchange Act.           23
  Item 10.     Executive Compensation.                                        23
  Item 11.     Security Ownership of Certain Beneficial Owners and 
                 Management.                                                  23
  Item 12.     Certain Relationships and Related Transactions.                23
  Item 13.     Exhibits and Reports on Form 8-K.                              24

SIGNATURES                                                                    25


                                       2

<PAGE>


                            IPI, INC. AND SUBSIDIARY
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

GENERAL

      IPI, Inc. (the "Company"), a Minnesota corporation, was incorporated in
1983 to acquire 100% of the stock of Insty-Prints, Inc. ("Insty-Prints").
Insty-Prints is a wholly owned subsidiary of the Company. The Company, through
approximately 250 franchise locations with the "Insty-Prints" trade name, offers
full-service business printing, focusing on the fast-turnaround market. The
Company's franchise owners provide a wide variety of services primarily to
business customers, ranging from the printing of simple business cards to
reproducing digitally enhanced color transparencies. The Company's growth
strategy has included acquisitions. In June 1995, the Company acquired the
franchise contracts and certain notes receivable of Copy Boy Corporation ("Copy
Boy"), a franchisor of 21 fast-turnaround business printing locations in the
Phoenix and Tucson markets. All 21 Copy Boy stores subsequently converted to new
Insty-Prints 20 year franchise contracts. In March 1994, the Company acquired
all the outstanding stock of The Printhouse Express, Inc. ("Printhouse") from a
franchisor of full service business printing centers, primarily in the
Washington D.C. area. Printhouse had 19 locations when acquired, all of which
subsequently converted to Insty-Prints stores. Effective November 30, 1994,
Printhouse was merged into Insty-Prints.

INDUSTRY

      Industry sources estimate that the quick printing industry consists of
approximately 35,000 business locations nationwide. Of all quick printing
locations, only approximately 4,700 are franchised, according to International
Franchise Association information. Aggregate demand for fast turnaround business
printing has increased in recent years due to significant advances in printing
and copying technology, expanded services offered and the reduction of in-house
printing operations. The emergence of desktop publishing, color copying and
digital pre-press technology has allowed quick printers to produce smaller
copying and printing runs economically, shifting demand from commercial printers
to fast turn-around business printers. As a result, small businesses, which
previously could not afford the services of a professional printer, can now
utilize the services of quick printers on a cost-effective basis. These advances
in technology have also resulted in an expanded array of services offered by
quick printing locations, attracting new customers and increasing sales to
existing customers. In addition, corporate down-sizing in the 1990's has
eliminated many internal printing functions, thereby increasing the demand for
external printing operations.

BUSINESS PRINTING SERVICES

      An Insty-Prints franchise location provides a wide array of services,
including graphic design, typesetting, desktop publishing, color printing, high
volume and color copying, and bindery. Insty-Prints franchise owners target
customers are small to medium sized businesses, departments of larger
businesses, and in-house printing operations. Insty-Prints franchise owners
provide their customers with fast turn-around, high quality service on short run
printing and copying (normally between 2,000 and 5,000 copies) and smaller
format printing and copying (which includes documents up to 11 inches by 17
inches in size). Services provided may include the production of business cards,
business stationery, envelopes, business forms, brochures, pamphlets, manuals
and overhead color transparencies. In addition, Insty-Prints is introducing the
use of digital transfer technology to its franchise system. This will allow
customers to deliver completed documents by means of diskette or modem for
printing or reproduction at a franchise location. Typically, approximately 70%
of revenues in any given location are derived from printing and copying services
and the remaining revenues are derived from graphic design, binding and other
services.


                                       3

<PAGE>


      The typical Insty-Prints location is owner-operated and generally has
three to six employees, including an experienced graphic designer and an
experienced press operator. Insty-Prints recommends that franchise owners seek
locations with approximately 2,000 to 2,500 square feet in areas of high
business concentration. The cost to a prospective franchise owner to open an
Insty-Prints location typically ranges from $322,000 to $380,000 and includes,
among other things, the franchise or initial fee, the training and development
fee, cost of equipment and signage, and working capital.

      As of December 31, 1998, the Company had two corporate stores and 205
separate Insty-Prints franchise owners that operated 251 print center locations.
The average revenues per location for those reporting for the full calendar year
ended December 31, 1998 were approximately $521,000. No single location, and no
single franchise owner, accounted for more than 5% of all system revenues for
the calendar year ended December 31, 1998.

      In late 1996, the Company sold and executed a Master Franchise Agreement
("MFA") for Poland. The agreement provided for a development schedule of store
openings. The first Insty-Prints location under the Poland MFA opened in
February 1997.

FRANCHISING

      The Company is a franchisor of business printing centers which use the
"Insty-Prints" name and business systems. The franchise owners all sign
agreements with the Company, typically 20 years in length, which detail the
terms of the relationship. Terms include the definition of exclusive
territories, reporting requirements to the Company, fees, such as royalties,
franchise fees and training and development fees, terminations, covenant not to
compete, and other matters.

      Although not required under the terms of the franchise agreement, the
Company currently emphasizes franchise support in many ways to assist the owners
to conduct successful printing operations. The areas of support include:

            Retail Advertising and Marketing. Insty-Prints encourages franchise
owners to conduct local market and in-store advertising through a co-op
advertising program known as the Advertising Fund. Under this program, each
franchise owner is reimbursed for 50% of qualified advertising expenditures up
to a maximum of 70% of such owner's annual contribution to the Advertising Fund.
The Advertising Fund is funded by each franchise owner contributing 2% of its
monthly gross revenues up to a maximum of $15,000 per calendar year.
Insty-Prints develops and creates on behalf of the Advertising Fund, a variety
of in-store promotional materials and identity signage, radio spots, newspaper
advertisements and telemarketing programs which the individual franchise owners
can use.

            Direct Mail. The Company creates and administers a direct mail
program, which is available to its franchise owners for a fee. As part of this
program, the Company creates advertising pieces which describe special monthly
offers on services provided by franchise owners, generates a list of potential
customers in the territory of the subscribing franchise owner, and is
responsible for directly mailing all materials to the customers on behalf of the
franchise owner.

            Training. The Company strives to provide franchise owners with
up-to-date educational materials and training support. Upon opening a new store,
each franchise owner attends a comprehensive training program provided by
Insty-Prints. Included in this initial training, representatives from the
Company assist each new owner in developing a one-year business plan and
provides on-site support during the first week in business. To assist all
franchise owners in keeping up-to-date on all current industry and technology
changes, Insty-Prints sends out newsletters, technical bulletins, educational
materials, conducts on-going training sessions at its corporate headquarters and
at four annual regional meetings and provides seminars and workshops as part of
a three-day national "family reunion."


                                       4

<PAGE>


            Support Services. Insty-Prints provides on-going support to its
franchise owners through periodic contact by field representatives, both by
telephone and in-store visits. Representatives are available to consult with
franchise owners on specific technical questions regarding financing,
advertising, marketing support, credit and collection issues, direct mail,
hardware and software, insurance and store systems.

            Purchasing Services. The Company provides its franchise owners with
purchasing advantages for equipment and supplies in two ways. First, the Company
utilizes its substantial purchasing power to negotiate certain volume discounts
that are available to franchise owners for direct purchases from a variety of
vendors. Second, the Company is able to negotiate contracts with certain
suppliers to purchase equipment and supplies for resale to its franchise owners
at competitive prices.

            Equipment Financing. The Company and Insty-Prints guarantee certain
loans made by FBS Business Finance Corporation to individual franchise owners
for the purchase or lease of certain capital equipment. Through this facility,
the Company makes credit available for these small businesses that may have
limited access to capital.

COMPETITION

      Insty-Prints franchise owners experience competition within their market
area with respect to price, service, location and quality. In the Company's
view, the principal competitors are copy shops, quick printers (both independent
and franchised), commercial printers, in-house printing operations within large
companies and, occasionally, equipment vendors. Printing sales are typically
based on an ongoing relationship between the customer and a provider the
customer trusts to meet its expectations. Therefore, the Company believes that
customer service, sales abilities, production capabilities and sensitivity to
customer deadlines are critical elements to success.

      In addition, the Company may experience high levels of competition for the
acquisition of other franchise systems and will compete with other systems in
its efforts to convert independent business printers. The Company will compete
for acquisition candidates with other fast turn-around business printers having
national and regional franchised and company-owned operations, some of which may
have substantially greater financial, marketing, personnel and other resources
than the Company.

TRADEMARKS, SERVICE MARKS AND COPYRIGHTS

      The Company has 13 trademark and service mark registrations on its product
names from the United States Patent and Trademark Office. In addition,
Insty-Prints holds three copyrights on various advertising and instructional
materials. With the exception of the registration of the trademark
"Insty-Prints" with the state of Minnesota, none of the above marks are
registered with any state. There are no agreements currently in effect which
significantly limit the rights of the Company to use or license the use of such
trademarks, service marks, trade names, logotypes or other commercial symbols
("Marks") in any manner material to a franchise owner.

GOVERNMENT REGULATION

      Fifteen states and the Federal Trade Commission impose a pre-sale
franchise registration and/or disclosure requirement on the Company. In
addition, a number of states and the District of Columbia have statutes which
regulate substantive aspects of the company/franchise owner relationship such as
termination, non-renewal, transfer, discrimination among franchise owners and
competition with franchise owners.

EMPLOYEES

      As of November 30, 1998, the Company had 29 full time corporate employees
and 14 employees in the company owned print centers. The Company believes that
its relations with its employees are satisfactory.


                                       5

<PAGE>


ITEM 2.  DESCRIPTION OF PROPERTIES.

      The Company leases its headquarters in a 13,246 square foot
office/warehouse facility in Eden Prairie, Minnesota. The lease term expires
September 30, 2000 with current annual base rent payments of $136,800. The
Company has an option to extend the term 5 additional years.

      The Company leases facilities for two company owned print centers, as
follows:

            Location             Size of Store    Maturity    Base Lease Payment
            --------             -------------    --------    ------------------
            Minneapolis, MN       3,245 sq ft     6/30/99      $39,785 annually
            Charlotte, NC         3,180 sq ft     2/28/01      $42,780 annually

      In the opinion of management, the properties are adequately covered by
insurance.

ITEM 3.  LEGAL PROCEEDINGS.

      The Company is a party to certain claims arising in the ordinary course of
business. Certain complaints are unclear as to the amount of damages being
sought by the plaintiffs. The Company has filed counteractions in certain cases,
and discovery proceedings are in process. The ultimate outcome of the litigation
cannot presently be determined; however, in the opinion of management, the
outcome of such claims are not expected to be material to the Company.

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

      There were no matters submitted to a vote of security holders during the
fourth quarter of the Company's fiscal year ended November 30, 1998.


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

      The Company's Common Stock is traded on the Nasdaq Small Cap Market under
the symbol: INST. The following table sets forth the high and low bid prices for
each quarter as reported by NASDAQ for the periods indicated. Such quotations
reflect closing day sales.

                                       Fiscal 1998              Fiscal 1997
                                       Common Stock             Common Stock
            Quarter                High Bid     Low Bid     High Bid     Low Bid
            -------                --------     -------     --------     -------
            First                   $4.75        $4.13       $4.00        $3.25
            Second                  $4.56        $4.25       $4.00        $3.25
            Third                   $5.75        $4.38       $4.38        $3.88
            Fourth                  $5.13        $3.00       $5.50        $3.75

      No dividends have been paid on the Common Stock since the Company's June
1994 public offering. The Company currently intends to retain earnings for use
in operation and expansion of its business and therefore does not anticipate
paying any cash dividends in the foreseeable future.

      The last reported sales price as of February 16, 1999 of the Company's
Common Stock was $3.50. As of February 16, 1999, there were approximately 230
holders of record of Common Stock.


                                       6

<PAGE>


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

OVERVIEW

      As of December 31, 1998, the Company, through its wholly-owned subsidiary
Insty-Prints, had 251 franchises and two Company-owned stores.

RESULTS OF OPERATIONS

      The following table sets forth certain statement of operations data as a
percentage of sales for the periods indicated:

<TABLE>
<CAPTION>
                                                                   Fiscal Year Ended November 30,
                                                                   ------------------------------
                                                                     1998       1997       1996
                                                                    ------     ------     ------
<S>                                                                 <C>        <C>        <C>  
            Royalty fees                                              46.2%      43.4%      39.5%
            Printing equipment, supplies and services                 40.6       46.8       50.9
            Franchise fees                                              .2        1.3        2.5
            Finance and other income                                  13.0        8.5        7.1
                                                                    ------     ------     ------
            Total Revenues                                           100.0      100.0      100.0
                                                                    ------     ------     ------
            Costs and expenses:
                  Cost of sales                                       32.0       38.4       42.8
                  Selling, general and administrative expenses        32.8       32.9       31.5
                  Amortization of goodwill and other intangibles       2.3        2.2        2.2
                                                                    ------     ------     ------
            Total costs and expenses                                  67.1       73.5       76.5
                                                                    ------     ------     ------
            Income before provision for income taxes                  32.9       26.5       23.5

                  Provision for income taxes                          12.2        9.8        8.7
                                                                    ------     ------     ------
            Net income                                                20.7%      16.7%      14.8%
                                                                    ======     ======     ======
</TABLE>

FISCAL YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996

REVENUES

      Total revenues, consisting of royalties, sales of printing equipment
supplies and services, franchise fees, and finance and other income, were
$9,803,000 in 1998, compared to $10,303,000 in 1997 and $10,384,000 in 1996.
Revenues have been decreasing each year primarily as a result of reduced sales
of printing equipment, supplies and services, which is discussed in the third
paragraph of this section.

      Royalty revenue increased 1.3% to $4,528,000 in 1998 from $4,470,000 in
1997. Royalties for 1996 were $4,102,000, resulting in an annual increase of
9.0% in 1997 compared to 1996. Royalty increases in 1998 were primarily as a
result of increased sales by franchise owners. Calendar year average annualized
sales per location open and reporting for the complete 12 month period were
$521,000 for 1998, $501,000 for 1997 and $445,000 for 1996. As of December 31,
1998, there were 253 franchise and company owned locations compared to 270 as of
December 31, 1997 and 294 as of December 31, 1996. The reduced number of
franchise locations in 1998 compared to 1997 and 1996 resulted mostly from the
closing of underperforming stores. The reduced number of locations in 1998 has
negatively affected the growth of royalty income.

      Sales of printing equipment, supplies and services were $3,982,000 in 1998
compared to $4,817,000 in 1997, a decrease of 17.3%, and were $5,286,000 in
1996, a decrease of 8.9% between 1997 and 1996. The decrease in sales in 1998
resulted from reduced franchise owner demand for printing equipment and
elimination of selling certain electronic publishing equipment. The decrease in
sales in 1997 primarily resulted from the elimination of selling certain
electronic publishing products and envelopes. Sales revenue and mix for 1999 are
expected to be similar to the results of 1998.


                                       7

<PAGE>


The four largest sale items over the past three years as a percent of total
sales were as follows:

                                      1998       1997       1996
                                     ------     ------     ------
            Printing Equipment         11.8%      16.0%      15.9%
            Direct Mail                30.6       21.7       20.8
            Copier Supplies            27.6       23.7       20.7
            Electronic Publishing       2.9       11.0       14.1
            Other                      27.1       27.6       28.5
                                     ------     ------     ------
                                      100.0%     100.0%     100.0%
                                     ======     ======     ======

      Franchise fee revenues were not significant in 1998, 1997 or 1996 due to
the Company's emphasis on growth through acquisitions and increasing existing
franchise location sales rather than seeking to add new locations by sales of
new franchises.

      Finance and other income was $1,276,000 in 1998 compared to $878,000 in
1997, an increase of 45% in 1998 and was $741,000 in 1996. Finance and other
income increased in 1998 and in 1997 over 1996 as interest income increased due
to an increased level of invested funds and higher yielding investments, which
involve assuming increased market risk of principal. Additionally, in 1998,
sizeable payments were made on a few large franchise notes receivable that were
severely delinquent, which positively impacted interest recognized on notes
receivable. Cash and investments outstanding were $9,799,000 at November 30,
1998 compared to $7,108,000 at November 30, 1997.

COST OF SALES.

      Cost of sales were $3,134,000 in 1998 compared to $3,951,000 in 1997, a
decrease of 20.7%, and were $4,444,000 for 1996, resulting in a 11.1% decrease
in 1997. The decrease in the comparative fiscal years was directly related to
the reduced level of the sales of printing equipment, supplies and services.
Margins on the sales of products and services were 21.3% in 1998, 18.0% in 1997
and 15.9% in 1996. The 1998 increase over 1997 was due to improved margins on
the sale of consumable products and reduced sales of lower margin products, such
as printing equipment and certain electronic publishing equipment. The increase
in 1997 over 1996 was due to improved margins on consumable products and the
direct mail program, and reduced sales of lower margin equipment.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

      Selling, general and administrative expenses were $3,212,000 in 1998
compared to $3,393,000 in 1997, a decrease of 5.3%, and were $3,273,000 in 1996,
an increase of 3.7% in 1997. Decreases in expenses for 1998 resulted from the
elimination of one executive position and the expiration of a long-term
consulting contract, both effective December 1, 1997, which were offset by
normal compensation increases and general inflationary increases for other
operating costs. The increase in 1997 reflects normal compensation and general
inflationary increases.

INCOME TAX EXPENSE

      The Company's effective combined federal and state income tax rate was 37%
in 1998, 1997 and 1996. The Company paid federal and state income taxes totaling
$1,141,000 in 1998, $875,000 for 1997 and $916,000 in 1996.

LIQUIDITY AND CAPITAL RESOURCES

      During fiscal year 1998, the Company generated $2,359,000 from operating
activities, compared to $2,446,000 in fiscal 1997 and $1,682,000 in fiscal 1996.
For fiscal 1998, cash was principally used to purchase marketable equity
securities, fund equipment purchases and increase cash equivalents. For fiscal
1997, cash was principally used to purchase marketable equity securities and
fund equipment purchases. Funds from the sale of short-term investments were
also used to support the preceding cash uses.


                                       8

<PAGE>


      Management believes the current cash, short term and marketable equity
investment balances as well as future cash flow from operations should be
sufficient to fund future growth and other on-going operational needs.

      The Company has no bank debt or credit facility. Operations are funded
from cash generated by the business.

      Franchise owners may finance their equipment purchases through a
$6,000,000 equipment financing facility established with FBS Business Finance
Corporation by Insty-Prints for the benefit of the franchise owners. This
facility is guaranteed by the Company and Insty-Prints, whose contingent
liability under this agreement is capped at $2,400,000. A loss reserve of
$200,000 is recorded on the balance sheet at November 30, 1998, representing
estimated losses on this guarantee. The aggregate balance outstanding under this
facility as of November 30, 1998 was $2,660,000.

YEAR 2000 COMPLIANCE

      The Company has adopted a plan to achieve Year 2000 compliance and an
assessment of its internal systems has essentially been completed. Most desktop
computers are Macintosh-based and are Year 2000 compliant, as well as the
software utilized. Those desktop systems not compliant will be upgraded to new
systems that are Year 2000 compliant by the third quarter of 1999. Software
updates to the Company's mainframe systems are substantially complete and
expected to be finalized by the end of the second quarter of 1999. The vendor
supplying the Point of Sale system used by most franchisees has verified that
the system is Year 2000 compliant. The Company has completed an analysis of its
vendor relationships in which the risk of each vendor's non-compliance with Year
2000 was assessed. Survey letters were sent to major vendors in mid-year 1998 to
ascertain the status of each vendor's Year 2000 compliance. The survey process
of vendors will be completed by the end of the first quarter of 1999 and will be
monitored thereafter. Total costs associated with the Year 2000 compliance
project through November 30, 1998 have been approximately $16,000 and total
costs related to Year 2000 are expected to be less than $50,000.

      The Company provided its franchisees an assessment guide in October 1998,
which serves as a step-by-step planning document for their use addressing Year
2000 compliance. Most of the primary equipment used by franchisees is not date
sensitive nor does it contain embedded chips.

      The Company does not have vendor or customer relationships in which
critical data is exchanged electronically. The Company would suffer if a service
provider such as a telecommunications or utility vendor was not Year 2000
compliant and their respective service was interrupted or terminated. In such a
case, the Company would be required to revert to its disaster recovery plan for
the specific issue. If a large number of vendors that provide product to our
franchisees were not compliant and unable to provide our franchisees products,
it is likely that the Company would recognize a material reduction of royalties
from the franchisees' lost sales.

      To date, the Company has not identified any suppliers who do not plan to
be Year 2000 compliant; this analysis is ongoing. If non-compliant vendors are
identified, the Company intends to develop appropriate contingency plans.

      While the Company believes its planning efforts are adequate to address
its Year 2000 concerns, the Year 2000 readiness of the Company's suppliers and
business partners may lag behind the Company's efforts. Although the Company
does not believe that the Year 2000 matters discussed above will have a material
impact on its business, financial condition and results of operations, it is
uncertain as to what extent the Company may be affected by such matters.


                                       9

<PAGE>


FORWARD LOOKING STATEMENTS

      Except for historical financial information, the information contained in
this annual report constitute forward-looking statements and are based on
management's goals, estimates, assumptions and projections. Important factors
could cause results to differ materially from those expected by management. Some
of these factors, such as increased competition from other business printing
centers or reduced demand for printed media could decrease sales by franchised
locations and decrease sales of products to franchisees by the Company. This
would reduce royalty revenue from franchised locations and sales of products to
such locations by the Company, thus reducing revenues and profits.

      Due to factors noted above and elsewhere in this annual report, the
Company's future earnings and Common Stock price may be subject to volatility.
Any shortfall in revenue or earnings from anticipated levels could have a
significant effect on the trading price of the Company's Common Stock in any
given period.

ITEM 7.  FINANCIAL STATEMENTS.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                  PAGE

      Report of Independent Public Accountants                               11
      Consolidated Balance Sheets as of November 30, 1998 and 1997           12
      Consolidated Statements of Operations for Each of the Three Years
        in the Period Ended November 30, 1998, 1997 and 1996                 14
      Consolidated Statements of Shareholders' Equity for Each of the 
        Three Years in the Period Ended November 30, 1998, 1997 and 1996     15
      Consolidated Statements of Cash Flows for Each of the Three Years
        in the Period Ended November 30, 1998, 1997 and 1996                 16
      Notes to Consolidated Financial Statements                             17


                                       10

<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To IPI, Inc.:

We have audited the accompanying consolidated balance sheets of IPI, Inc. (a
Minnesota corporation) and Subsidiary as of November 30, 1998 and 1997, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended November 30, 1998. 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 financial statements referred to above present fairly, in
all material respects, the financial position of IPI, Inc. and Subsidiary as of
November 30, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended November 30, 1998, in
conformity with generally accepted accounting principles.





                                         ARTHUR ANDERSEN LLP


Minneapolis, Minnesota,
January 11, 1999


                                       11

<PAGE>


                            IPI, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                           November 30
                                                                 --------------------------------
                                                                      1998               1997
                                                                 -------------      -------------
                                     ASSETS
<S>                                                              <C>                <C>          
CURRENT ASSETS:
    Cash and cash equivalents                                    $   3,828,000      $   1,294,000
    Short-term investments                                           1,340,000            800,000
    Marketable equity securities                                     4,631,000          5,014,000
    Trade accounts receivable, net                                   1,225,000          1,274,000
    Current maturities of notes receivable, net of allowance
        of $205,000 and $163,000 (Note 2)                              746,000            987,000
    Inventories                                                        393,000            315,000
    Prepaid expenses and other                                          92,000            119,000
    Deferred income taxes (Note 3)                                     789,000            593,000
                                                                 -------------      -------------
                    Total current assets                            13,044,000         10,396,000
                                                                 -------------      -------------
PROPERTY AND EQUIPMENT:
    Property and equipment                                           1,522,000          1,356,000
    Less - Accumulated depreciation and amortization                  (961,000)          (790,000)
                                                                 -------------      -------------
                    Property and equipment, net                        561,000            566,000

NOTES RECEIVABLE, net of current maturities and
     allowance of $648,000 and $522,000 (Note 2)                     1,139,000          1,852,000
GOODWILL AND OTHER INTANGIBLES, net (Note 1)                         3,157,000          3,388,000
                                                                 -------------      -------------
                                                                 $  17,901,000      $  16,202,000
                                                                 =============      =============
</TABLE>


              The accompanying notes are an integral part of these
                          consolidated balance sheets.


                                       12

<PAGE>


                            IPI, INC. AND SUBSIDIARY

                           Consolidated Balance Sheets

                                   (Continued)

<TABLE>
<CAPTION>
                                                                              November 30
                                                                     ------------------------------
                                                                         1998              1997
                                                                     ------------      ------------
                      LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                                                  <C>               <C>         
CURRENT LIABILITIES:
    Accounts payable                                                 $    534,000      $    417,000
    Accrued compensation                                                  296,000           411,000
    Accrued financing liabilities (Note 7)                                200,000           200,000
    Deferred revenues                                                      14,000            52,000
    Income taxes payable                                                  306,000           242,000
    Other accrued liabilities                                             258,000           321,000
                                                                     ------------      ------------
                    Total current liabilities                           1,608,000         1,643,000
                                                                     ------------      ------------
LONG-TERM CAPITAL LEASE OBLIGATIONS                                        51,000           107,000

COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)


SHAREHOLDERS' EQUITY (Note 4):

    Common stock, $.01 par value, 15,000,000 shares authorized,
      4,734,000 shares issued and outstanding                              47,000            47,000
    Additional paid-in capital                                         15,584,000        15,584,000
    Retained earnings (deficit)                                           900,000        (1,132,000)

    Unrealized loss on marketable securities available for sale,
      net of related income tax effects                                  (289,000)          (47,000)
                                                                     ------------      ------------
                    Total shareholders' equity                         16,242,000        14,452,000
                                                                     ------------      ------------
                                                                     $ 17,901,000      $ 16,202,000
                                                                     ============      ============
</TABLE>

              The accompanying notes are an integral part of these
                          consolidated balance sheets.


                                       13

<PAGE>


                            IPI, INC. AND SUBSIDIARY

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                      For the Years Ended November 30
                                                                -------------------------------------------
                                                                   1998             1997            1996
                                                                -----------     -----------     -----------
<S>                                                             <C>             <C>             <C>        
REVENUES:
    Royalty fees                                                $ 4,528,000     $ 4,470,000     $ 4,102,000
    Printing equipment, supplies and services                     3,982,000       4,817,000       5,286,000
    Franchise fees                                                   17,000         138,000         255,000
    Finance and other income                                      1,276,000         878,000         741,000
                                                                -----------     -----------     -----------
                    Total revenues                                9,803,000      10,303,000      10,384,000
                                                                -----------     -----------     -----------
COSTS AND EXPENSES:
    Cost of sales                                                 3,134,000       3,951,000       4,444,000
    Selling, general and administrative expenses                  3,212,000       3,393,000       3,273,000
    Amortization of goodwill and other intangibles                  231,000         231,000         231,000
                                                                -----------     -----------     -----------
                    Total costs and expenses                      6,577,000       7,575,000       7,948,000
                                                                -----------     -----------     -----------
                    Income before provision for income taxes      3,226,000       2,728,000       2,436,000

PROVISION FOR INCOME TAXES                                        1,194,000       1,009,000         903,000
                                                                -----------     -----------     -----------
NET INCOME                                                      $ 2,032,000     $ 1,719,000     $ 1,533,000
                                                                ===========     ===========     ===========
BASIC AND DILUTED EARNINGS PER COMMON SHARE                     $       .43     $       .36     $       .32
                                                                ===========     ===========     ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
  COMMON EQUIVALENT SHARES OUTSTANDING
  - BASIC                                                         4,734,000       4,734,000       4,734,000
                                                                ===========     ===========     ===========
  - DILUTED                                                       4,745,000       4,734,000       4,734,000
                                                                ===========     ===========     ===========
</TABLE>

  The accompanying notes are an integral part of these consolidated statements.


                                       14

<PAGE>


                            IPI, INC. AND SUBSIDIARY

                 Consolidated Statements of Shareholders' Equity

<TABLE>
<CAPTION>
                                         Common Stock
                                 --------------------------      Additional        Retained         Unrealized
                                   Shares                         Paid-In          Earnings          Loss on
                                   Issued         Amount          Capital         (Deficit)         Securities           Total
                                 ---------     ------------     ------------     ------------      ------------      ------------
<S>                              <C>           <C>              <C>              <C>               <C>               <C>         
BALANCE,
  November 30, 1995              4,734,000     $     47,000     $ 15,584,000     $ (4,384,000)     $         --      $ 11,247,000
                                 ---------     ------------     ------------     ------------      ------------      ------------
Net income                              --               --               --        1,533,000                --         1,533,000
                                 ---------     ------------     ------------     ------------      ------------      ------------
BALANCE,
  November 30, 1996              4,734,000           47,000       15,584,000       (2,851,000)               --        12,780,000
                                 ---------     ------------     ------------     ------------      ------------      ------------
Net income                              --               --               --        1,719,000                --         1,719,000
Unrealized loss on
  marketable securities
  available for sale, net
  of related income tax
  effects                               --               --               --               --           (47,000)          (47,000)
                                 ---------     ------------     ------------     ------------      ------------      ------------
BALANCE,
  November 30, 1997              4,734,000     $     47,000     $ 15,584,000     $ (1,132,000)     $    (47,000)     $ 14,452,000
                                 ---------     ------------     ------------     ------------      ------------      ------------
Net income                              --               --               --        2,032,000                --         2,032,000
Unrealized loss on
  marketable securities
  available for sale, net
  of related income tax
  effects                               --               --               --               --          (242,000)         (242,000)
                                 ---------     ------------     ------------     ------------      ------------      ------------

BALANCE,
  November 30, 1998              4,734,000     $     47,000     $ 15,584,000     $    900,000      $   (289,000)     $ 16,242,000
                                 =========     ============     ============     ============      ============      ============
</TABLE>


  The accompanying notes are an integral part of these consolidated statements.


                                       15

<PAGE>


                            IPI, INC. AND SUBSIDIARY

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                     For the Years Ended November 30
                                                                            ------------------------------------------------
                                                                                1998              1997               1996
                                                                            ------------      ------------      ------------
<S>                                                                         <C>               <C>               <C>         
OPERATING ACTIVITIES:
    Net income                                                              $  2,032,000      $  1,719,000      $  1,533,000
    Adjustments to reconcile net income to net cash provided
        by operating activities-
            Depreciation and amortization                                        418,000           391,000           346,000
            Deferred income taxes                                                (54,000)           20,000           (54,000)
            Net change in other operating items:
                Trade accounts receivable                                         49,000            24,000           187,000
                Inventories                                                      (78,000)           83,000          (132,000)
                Prepaid expenses and other                                        27,000            48,000            52,000
                Accounts payable, deferred revenues and other
                    accrued liabilities                                          (35,000)          161,000          (250,000)
                                                                            ------------      ------------      ------------
                    Net cash provided by operating activities                  2,359,000         2,446,000         1,682,000
                                                                            ------------      ------------      ------------
INVESTING ACTIVITIES:
    Purchase of property and equipment, net                                     (238,000)         (230,000)         (212,000)
    Sale (purchase) of short-term investments, net                              (540,000)        2,380,000          (532,000)
    Purchase of marketable equity securities                                          --        (5,089,000)               --
    Change in notes receivable, net                                              953,000           530,000          (256,000)
                                                                            ------------      ------------      ------------
                    Net cash provided by (used in) investing activities          175,000        (2,409,000)       (1,000,000)
                                                                            ------------      ------------      ------------
                    Increase in cash and cash equivalents                      2,534,000            37,000           682,000

CASH AND CASH EQUIVALENTS, beginning of year                                   1,294,000         1,257,000           575,000
                                                                            ------------      ------------      ------------
CASH AND CASH EQUIVALENTS, end of year                                      $  3,828,000      $  1,294,000      $  1,257,000
                                                                            ============      ============      ============
SUPPLEMENTAL CASH FLOW INFORMATION:
    Income taxes paid                                                       $  1,141,000      $    875,000      $    916,000
                                                                            ============      ============      ============
    Sale of partnership interests for note receivable                       $         --      $         --      $    124,000
                                                                            ============      ============      ============
    Equipment acquired under capital leases                                 $         --      $    212,000      $         --
                                                                            ============      ============      ============
</TABLE>


  The accompanying notes are an integral part of these consolidated statements.


                                       16

<PAGE>


                            IPI, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           November 30, 1998 and 1997

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION:

BUSINESS

IPI, Inc. (the Company), through its wholly owned subsidiary Insty-Prints, Inc.
(Insty-Prints), is a franchisor of business printing centers and provides
ongoing support to its franchisees through business and technical training as
well as research and evaluation of new products and services. Insty-Prints has
approximately 250 franchised locations in the United States with heavier
concentrations in the Midwest and Eastern Coast states. In August 1995, the
Company established a second wholly owned subsidiary, Digital Output Center
(DOCs), a start-up venture with the purpose of exploring and developing digital
graphics and reproduction services. DOCs opened in March 1996 and in November
1996 was merged into the Company and operates as a separate division. Prior to
the Company's initial public offering (see Note 4), the Company was a wholly
owned subsidiary of Jacobs Industries, Incorporated (JII).

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the
Company and its subsidiary. All significant intercompany balances and
transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS

Cash equivalents consist of financial instruments which are highly liquid and
mature within 90 days.

SHORT-TERM INVESTMENTS AND MARKETABLE EQUITY SECURITIES

Management determines the appropriate classification of its investments at the
time of purchase and re-evaluates such determination at each balance sheet date.

Short-term investments consist principally of variable rate demand notes and are
stated at fair value, which approximates cost. All short-term investments are
classified as trading securities. These securities are bought and held
principally for the purpose of selling them in the near term. Unrealized holding
gains and losses are included in earnings.

Marketable equity securities consist of common stock of a publicly traded real
estate investment trust. These securities are classified as available for sale
and, accordingly, are stated at fair value with unrealized gains or losses
reported as a separate component of shareholders' equity, net of tax effects.

At November 30, 1998, the cost, fair value and gross unrealized loss on
marketable equity securities are as follows:

            Fair value                  $4,631,000
            Cost                         5,089,000
                                        ----------
            Gross unrealized loss       $  458,000
                                        ==========


                                       17

<PAGE>


The gross unrealized loss on marketable equity securities and the related income
tax effect have been excluded from the Statement of Cash Flows due to their
non-cash nature. Dividend distributions received on marketable equity securities
were $452,000 and $110,000 for the year ended November 30, 1998 and 1997,
respectively.

INVENTORIES

Inventories consist of printing supplies and used equipment held for resale
which are valued using the lower of cost (first-in, first-out method) or market.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Maintenance and repairs are
expensed as incurred. Depreciation is computed using the straight-line method
over the estimated useful lives of three to eight years. Accelerated methods are
used for income tax reporting.

GOODWILL AND OTHER INTANGIBLES

Goodwill and other intangibles included the following as of November 30:

                                                             Amortization Period
                                          1998         1997         (Years)
                                     -------------------------------------------
   Goodwill                            $4,302,000   $4,302,000      18 - 40
   Non-competition agreement (Note 5)     250,000      250,000         5
   Accumulated amortization            (1,395,000)  (1,164,000)
                                       ----------   ----------
                                       $3,157,000   $3,388,000
                                       ==========   ==========

Goodwill consists of the excess of cost over the fair market value of the
acquired net assets of Insty-Prints, Printhouse and Copy Boy and is being
amortized on a straight-line basis over 40, 18 and 20 years, respectively. The
cost of $250,000 related to the non-compete with the prior owner of Copy Boy is
being amortized over 60 months, the term of the non-compete agreement. The
Company periodically evaluates whether events or circumstances have occurred
which may indicate that the remaining estimated useful lives may warrant
revision or that the remaining intangible asset balance may not be recoverable.
In the event that factors indicate that the intangible assets in question should
be evaluated for possible impairment, a determination of the overall
recoverability of such intangible assets would be made.

ALLOWANCE FOR LOSSES

Management periodically evaluates the collectibility of trade accounts and notes
receivable. Allowances for losses on trade accounts receivable are established
for estimated uncollectible amounts. Allowance for losses on notes receivable
are recorded for differences between the unpaid principal balances of each note
and the present value of expected future payments to be received.

REVENUE RECOGNITION

Franchise fee revenue is recognized when earned, which occurs in two parts:
training fees are recognized at the completion of new owners training and
development fees are recognized after the opening of new locations. Franchisees
are required to pay monthly royalty fees of 2% to 4.5% of gross revenues over
the term of the franchise agreement of up to 20 years. Royalty fees are
recognized as revenue on the accrual method while revenue from printing
equipment and supply sales is recognized upon shipment.

INCOME TAXES

Deferred income taxes are determined based on the estimated future tax effects
of differences between the financial statement and tax basis of assets and
liabilities.


                                       18

<PAGE>


NET INCOME PER COMMON SHARE

In March 1997, the Financial Accounting Standards Board issued SFAS No. 128
"Earnings per Share," which changes the way companies calculate their earnings
per share (EPS). SFAS No. 128 replaces primary EPS with basic EPS and fully
diluted EPS with diluted EPS. Basic EPS is computed by dividing reported gain by
the weighted average shares outstanding, excluding potentially dilutive
securities while diluted EPS includes the dilutive securities. The Company
adopted SFAS No. 128 in the first quarter of 1998 and all prior periods EPS data
has been restated.

BUSINESS SEGMENT INFORMATION

The Company is principally engaged in one business segment--the franchising and
servicing of business printing centers under the trade name of Insty-Prints(R).

USE OF ESTIMATES

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Ultimate results could differ
from those estimates.

NEW ACCOUNTING PRONOUNCEMENTS

SFAS No. 130 - Reporting Comprehensive Income was issued during June 1997 and
establishes standards for reporting and display of comprehensive income and its
components in the financial statements. The Company will adopt this standard in
fiscal 1999. The adoption of SFAS No. 130 will have no impact on the Company's
consolidated results of operations, financial position or cash flows.

SFAS No. 133 - Accounting for Derivative Instruments and Hedging Activities was
issued during June 1998 and establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires the recognition of all
derivatives as either assets or liabilities in the statement of financial
position and the measurement of those instruments at fair value. This
pronouncement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The adoption of SFAS No. 133 will not have a material
impact on the Company's consolidated results of operations, financial position
or cash flows.

2.   NOTES RECEIVABLE:

Notes receivable consist primarily of notes from franchisees. Notes receivable
of $2,553,000 at November 30, 1998 are subject to security agreements with
franchisees and are collateralized by printing equipment, furniture and
fixtures. The majority of the notes receivable are also personally guaranteed by
the respective franchisees. The franchisees generally pay principal and interest
in monthly installments over a period not to exceed 120 months. The majority of
notes written are for a period of 60 to 84 months.

3.   INCOME TAXES:

The Company files a consolidated federal income tax return and a combined state
return with affiliated companies. Prior to the Company's initial public
offering, the Company filed a federal income tax return with JII and
participated in a related tax sharing agreement.


                                       19

<PAGE>


The provision for income taxes consists of the following:

                               For the Years Ended November 30
                         --------------------------------------------
                             1998             1997            1996
                         -----------      -----------     -----------
         Current:
             Federal     $ 1,057,000      $   980,000     $   946,000
             State           191,000            9,000          11,000
                         -----------      -----------     -----------
                           1,248,000          989,000         957,000
         Deferred            (54,000)          20,000         (54,000)
                         -----------      -----------     -----------
                         $ 1,194,000      $ 1,009,000     $   903,000
                         ===========      ===========     ===========

The differences between income taxes computed using the federal statutory rate
and the effective tax rate were as follows:

                                                               For the Years
                                                                   Ended
                                                                November 30
                                                          ----------------------
                                                          1998     1997     1996
                                                          ----     ----     ----

         Federal statutory rate                            34%      34%      34%
         State income taxes, net of federal tax benefit     1        1        1
         Nondeductible amortization                         2        2        2
         Other, net                                        --       --       --
                                                         ----     ----     ----
                                                           37%      37%      37%
                                                         ====     ====     ====

The tax effect of significant temporary differences representing deferred tax
assets as of November 30, 1998 and 1997, are as follows:

                                              1998          1997
                                           ---------     ---------

         Allowance for losses              $ 333,000     $ 267,000
         Accrued financing liabilities        78,000        78,000
         Accrued compensation                 37,000        55,000
         Accrued franchise incentives         58,000        56,000
         Other                               283,000       137,000
                                           ---------     ---------
                                           $ 789,000     $ 593,000
                                           =========     =========

No valuation allowance was required as of November 30, 1998 or 1997.

4.   COMMON STOCK:

In June 1994, the Company completed an initial public offering of 1,100,000
shares at $4.00 per share with net proceeds of approximately $3,780,000. In
connection with this offering, the Company issued warrants to the underwriters
to purchase 25,000 shares of common stock at an exercise price of $6.60 per
share. The right to purchase shares under the warrants may be exercised at any
time during the four-year period beginning June 1995.


                                       20

<PAGE>


5.   STOCK OPTION PLANS:

The Company has long-term incentive and stock option plans which allow for the
granting of stock options and other incentive awards to key employees, officers
and directors of the Company. The employee stock option plan was amended in
March 1996, increasing the stock options available by 50,000 and the plans now
provide for a maximum of 400,000 shares to be granted. The options are generally
granted at prices equal to the fair market value of the shares at the date of
grant and are exercisable in cumulative annual increments of 20% each,
commencing one year after the date of grant. The following is a summary of
activity of the plans for the years ended November 30, 1998, 1997 and 1996:

                                              Number         Price
                                            of Options     Per Share
                                            ----------     ---------

         Outstanding, November 30, 1995       334,000      $    4.00
                                              -------      ---------
                Granted                        84,000           4.00
                Cancelled                    (124,000)          4.00
                                              -------      ---------
         Outstanding, November 30, 1996       294,000           4.00
                                              -------      ---------
                Granted                        94,000           4.00
                Cancelled                     (88,000)          4.00
                                              -------      ---------
         Outstanding, November 30, 1997       300,000           4.00
                                              -------      ---------
                Granted                        22,000           4.45
                Cancelled                     (55,000)          4.00
                                              -------      ---------
         Outstanding, November 30, 1998       267,000      $    4.04
                                              =======      =========

The number of options exercisable at November 30, 1998, 1997 and 1996 are
129,600, 90,000 and 82,400, respectively, and all are at the exercise price of
$4.00 per share. As of November 30, 1998, there were 133,000 options available
for future grant.

The Company applies Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issues to Employees," and related interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized in the accompanying consolidated statements of operations. Had
compensation cost been recognized based on the fair values of options at the
grant dates consistent with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," the
Company's net income and net income per common share would have been decreased
to the following pro forma amounts:

                                            1998           1997          1996
                                         -----------   -----------   -----------
         Net Income
               As reported               $ 2,032,000   $ 1,719,000   $ 1,533,000
               Pro forma                   1,960,000   $ 1,671,000   $ 1,514,000
         Income Per Share-as reported:
               Basic                     $       .43   $       .36   $       .32
               Diluted                   $       .43   $       .36   $       .32
         Income Per Share-pro forma:
               Basic                     $       .41   $       .35   $       .30
               Diluted                   $       .41   $       .35   $       .30

Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years. The weighted
average fair values of options granted in 1998, 1997 and 1996 were $2.57, 2.41
and $2.00, respectively.


                                       21

<PAGE>


The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used: risk-free interest rates of 5.72% to 5.56% for 1998 and 6.38%
to 6.91% for 1997 and 5.85% to 6.87% for 1996; no expected dividends; expected
lives of 10 years for 1998, 1997 and 1996; and expected volatility of 34.52% to
35.29% for 1998 grants and 30.2% to 34.9% for 1997 grants and 22.2% to 27% for
1996 grants.

6.   RELATED-PARTY TRANSACTIONS:

The Company paid management fees of $75,000 in 1998, 1997 and 1996 to an
affiliated company.

The Company funded a two year loan of $200,000 at 6.1% interest to Thomas S.
Galloway, a Director and Officer of the Company. The loan is secured by 100,000
shares of Company stock. Mr. Galloway resigned as a Director and Officer of the
Company, effective November 30, 1997, and the loan was fully repaid.

7.   COMMITMENTS AND CONTINGENCIES:

GUARANTEES

The Company is a guarantor of equipment financing by certain franchisees in
amounts which aggregated $2,660,000 at November 30, 1998 and $3,441,000 at
November 30, 1997. Under the terms of the guarantees, the maximum annual
liability of the Company was approximately $2,400,000 at November 30, 1998 and
1997. The Company has recorded reserves for estimated losses on these guarantees
as accrued financing liabilities in the accompanying consolidated balance
sheets. As guarantor, the Company is subject to restrictive covenants which,
among other matters, require that the Company maintain a minimum net worth and a
debt to net worth ratio, as defined. As of November 30, 1998 and 1997, the
Company was in compliance with such covenants.

OPERATING LEASES

At November 30, 1998, the Company's minimum annual rental commitments for leased
equipment and facilities under operating leases with lease terms in excess of
one year, were as follows:

         For the Years Ending November 30                     Amount
         --------------------------------                  -----------

               1999                                        $   269,000
               2000                                            194,000
               2001                                             25,000
               2002                                             12,000
                                                           -----------
                    Total minimum payments required        $   500,000
                                                           ===========

Rent expense was $305,000, $317,000 and $269,000 in 1998, 1997 and 1996,
respectively.

LEGAL PROCEEDINGS

The Company is a party to certain claims arising in the ordinary course of
business. Certain complaints are unclear as to the amount of damages being
sought by the plaintiffs. The Company has filed counteractions in certain cases,
and discovery proceedings are in process. The ultimate outcome of the litigation
cannot presently be determined; however, in the opinion of management, the
outcome of such claims are not expected to be material to the Company.

CONSULTING AGREEMENT

In 1997, the Company had a consulting agreement with an individual which
provided for compensation based on the Company's net income as defined. This
agreement also provided that if more than 50% of the voting stock or
substantially all of the assets of Insty-Prints were sold, the consultant was
required to be paid six times the compensation paid in the previous year. This
agreement expired on November 30, 1997. Amounts charged to expense under this
agreement were $112,000 in 1997 and $100,000 in 1996.


                                       22

<PAGE>


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE.

      There have been no changes in accountants nor disagreements with
accountants on accounting or financial disclosures.


                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

      The information called for in this item is incorporated by reference to
the Sections of the Proxy Statement entitled "Nominees", "Key Employees" and
"Section 16(a) Beneficial Ownership Reporting Compliance in the Company's Proxy
Statement.


ITEM 10. EXECUTIVE COMPENSATION.

      The information required in this item is incorporated by reference to the
Section of the Proxy Statement entitled "Executive Compensation."


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      The information called for in this item is incorporated by reference to
the Section of the Proxy Statement entitled "Security Ownership of Certain
Beneficial Owners and Management."


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      The information called for in this item is incorporated by reference to
the Section of the Proxy Statement entitled "Certain Relationships and Related
Transactions."


                                       23

<PAGE>


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Documents Filed as Part of Form 10-KSB Report - Exhibits

Exhibit No.          Description                                            Page
-----------   ------------------------------------------------------------------

    2.1       Asset Purchase Agreement by and among IPI, Inc.,
              Insty-Prints, Inc., Copy Boy Corporation and Stan P.
              Hilkemeyer dated effective June 1, 1995 (5)

    3.1       Articles of Incorporation as amended and restated to date (1)

    3.2       By-laws (1)

    4         Specimen of Common Stock (2)

  +10.1       Form of Insty-Prints, Inc. Franchise Agreement (7)

  +10.2       1994 Long-Term Incentive Plan (1) (8)

  +10.3       1994 Non-Employee Directors' Stock Option Plan (1)

  +10.3a      Amendment to Non-Employees Directors' Stock Option Plan dated
              October 13, 1995 (4)

   10.4       Management Services Agreement between Jacobs Management
              Corporation and Insty-Prints dated effective December 1, 1993
              (1)

   10.5       Management Services Agreement between Jacobs Management
              Corporation and IPI, Inc. dated effective December 1, 1993
              (1)

   10.6       Amended and Restated Ultimate Net Loss Agreement between FBS
              Business Finance Corporation and Insty-Prints dated October
              3, 1995 (6)

   10.7       Consulting Agreement between Insty-Prints and E. Kennen
              Fisher dated effective November 30, 1987,as amended (1)

   10.8       Lease for Corporate Headquarters of IPI, Inc. (3)

  *11         Statement Re: Computation of per share earnings

   21         List of Subsidiaries of IPI, Inc. (1)

  *23         Consent of Independent Public Accountants

  *27          Financial Data Schedule

*  Filed herewith.
+   Management contract or compensatory plan or arrangement required to be filed
    as an exhibit to this Form 10-KSB pursuant to Item 13(a).
    (1)  Incorporated by reference to the registrant's registration statement
         on Form SB-2 dated March 31, 1994, Reg. No. 33-77190C.
    (2)  Incorporated by reference to Amendment No.1 to the registrant's
         statement on Form SB-2 dated April 29, 1994, Reg. No. 33-77190C.
    (3)  Incorporated by reference to the registrant's annual 10-KSB filing
         dated February 21, 1995.
    (4)  Incorporated by reference to the registrant's registration statement
         on FormS-8 dated November 22, 1995, Reg. No. 33-99770.
    (5)  Incorporated by reference to the registrant's 8-K filing dated June 1,
         1995.
    (6)  Incorporated by reference to the registrant's annual 10-KSB filing
         dated February 21, 1995.
    (7)  Incorporated by reference to the registrant's annual 10-KSB filing
         dated February 27, 1997.
    (8)  Incorporated by reference to the registrant's Form S-8 filing dated
         June 3, 1997.

(b) Reports on Form 8-K
     No reports on Form 8-K were filed during the three months ended November
30, 1998.


                                       24

<PAGE>


                                   SIGNATURES


     In accordance with Sections 13 and 15 (d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
there unto duly authorized, on February 19, 1999.

     IPI, Inc.


     By: /S/ Robert J. Sutter
        ---------------------------
             Robert J. Sutter
     PRESIDENT AND CHAIRMAN OF THE BOARD

     In accordance with the Exchange Act, this report has been signed below on
February 19, 1999 by the following persons on behalf of the registrant and in
the capacities indicated.


     Signatures                     Title
     ----------                     -----


 /S/ Robert J. Sutter               Chairman of the Board and President
-----------------------------          (Principal Executive Officer)
     Robert J. Sutter

 /S/ Irwin L. Jacobs                Director
-----------------------------
     Irwin L. Jacobs

 /S/ Daniel T. Lindsay              Director
-----------------------------
     Daniel T. Lindsay

 /S/ Dr. Kenneth J. Roering         Director
-----------------------------
     Dr. Kenneth J. Roering

 /S/ Howard Grodnick                Director
-----------------------------
     Howard Grodnick

 /S/ Dennis M. Mathisen             Director
-----------------------------
     Dennis M. Mathisen

 /S/ David M. Engel                 Vice President - Finance and Chief Financial
-----------------------------           Officer (Principal Accounting Officer)
     David M. Engel


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