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, 1999.

[ ]   Transition report under Section 13 or 15(d) of the Exchange Act.
      For the transition period from _________ to _________

Commission file number              001-15563
                       ---------------------------------------------------------

                                    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. [ ]

      Issuer's revenues for its most recent fiscal year. $11,063,000.

      As of February 9, 2000, 4,859,087 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 Amex) held by non-affiliates was
approximately $2,317,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

      The Company's definitive proxy statement for its annual meeting of
shareholders to be held on April 26, 2000, a copy of which will be filed with
the Securities and Exchange Commission with 120 days of November 30, 1999, 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, 1999

                                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.                                     6
  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
236 franchised and corporate-owned 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 full
color brochures. The Company's growth strategy has included acquisitions. 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. 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 April
1999, the Company initiated a strategy to acquire and directly operate
company-owned Insty-Prints locations through the purchase of Regency Printing in
Dallas, Texas. As of November 30, 1999, the Company has two company-owned
Insty-Prints locations and future acquisitions will follow with the successful
operation of the current locations.

      In January 2000, subsequent to the end of its fiscal year, the Company
acquired substantially all the assets of Dreamcatcher Franchise Corporation and
Dreamcatcher Learning Centers, Inc. Dreamcatcher Franchise Corporation
franchises the establishment, development and operation of facilities providing
supplemental private education services to people of all ages using personalized
assessments with direct instruction in reading, writing, spelling, math,
algebra, study skills, G.E.D. preparation and college preparation. The purchase
included 10 operating franchise locations; 14 contracted, but unopened franchise
locations; and three operating learning centers. The purchase was not material
to the financial position or results of operations of the Company. The Company's
intent is to build and develop a national franchise network of learning centers.

INDUSTRY
      Industry sources estimate that the quick printing industry consists of
approximately 30,000 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. Desktop publishing, the internet and digital pre-press
technology have allowed quick printers to quickly and easily obtain customers'
electronic originals and 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 or attract the
services of a large commercial 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 downsizing 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 utilizes digital
transfer technology, which allows 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 five
to eight 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, 1999, the Company had two corporate stores and 199
separate Insty-Prints franchise owners that operated 234 print center locations.
The average revenues per location for those reporting for the full calendar year
ended December 31, 1999 were approximately $551,000. No single location, and no
single franchise owner, accounted for more than 5% of all system revenues for
the calendar year ended December 31, 1999.

      In late 1996, the Company sold and executed a Master Franchise Agreement
("MFA") with a business covering the entire country of 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; a 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:

            Business-to-Business Advertising and Marketing. Insty-Prints
encourages franchise owners to conduct local market advertising through a
co-operative 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 $15,240 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 that describe special 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 provide
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 six
annual regional meetings and provides seminars and workshops as part of a
three-day national convention.

            Support Services. Insty-Prints provides on-going support to its
franchise owners through periodic contact by field representatives, by
telephone, e-mail 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, equipment, insurance and store systems.


                                       4
<PAGE>


            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, 1999, the Company had 27 full time corporate employees
and 24 employees in the company-owned print centers. The Company believes that
its relations with its employees are satisfactory.


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
August 31, 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
            --------           -------------     --------     ------------------
            Dallas, TX          14,136 sq ft     10/31/02      $80,148 annually
            Charlotte, NC        7,885 sq ft     08/01/04      $87,000 annually

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


                                       5
<PAGE>


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, 1999.


                                     PART II

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

      The Company's Common Stock was traded on the Nasdaq Small-Cap Stock Market
under the symbol "INST" until January 10, 2000, when the stock listing
transferred to the American Stock Exchange and now trades under the symbol
"IDH." 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 1999                 Fiscal 1998
                                    Common Stock                Common Stock
                                    ------------                ------------
              Quarter           High Bid      Low Bid       High Bid     Low Bid
              -------           --------      -------       --------     -------
              First              $3.69         $3.25         $4.75        $4.13
              Second             $3.69         $2.63         $4.56        $4.25
              Third              $3.38         $2.06         $5.75        $4.38
              Fourth             $2.75         $2.31         $5.13        $3.00

      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 9, 2000 of the Company's
Common Stock was $2.25. As of February 9, 2000, there were approximately 270
holders of record of Common Stock.


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

OVERVIEW
      As of December 31, 1999, the Company, through its wholly-owned subsidiary
Insty-Prints, had 234 franchises and two Company-owned stores.


                                       6
<PAGE>


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,
                                                                 ------------------------------
                                                                    1999      1998      1997
                                                                   -----     -----     -----
<S>                                                                <C>       <C>       <C>
           Franchise royalties                                      41.6%     39.4%     38.3%
           Printing equipment, supplies and services                29.6      34.6      41.2
           Franchise fees                                            0.2       0.2       1.2
           Company-owned print locations                            16.4      14.7      11.8
           Finance and other income                                 12.2      11.1       7.5
                                                                   -----     -----     -----
                 Total Revenues                                    100.0     100.0     100.0
                                                                   -----     -----     -----

           COSTS AND EXPENSES
              Franchise operations:
                 Cost of sales                                      22.2      27.2      33.8
                 Selling, general and administrative expenses       30.1      28.8      29.1
                 Amortization of goodwill and other intangibles      2.1       2.0       2.0
                                                                   -----     -----     -----
                                                                    54.4      58.0      64.9
              Company-owned print locations:
                 Cost of sales                                       5.1       4.8       4.1
                 Selling, general and administrative expenses       13.8       9.1       7.7
                 Amortization of goodwill and other intangibles      0.1       0.0       0.0
                                                                   -----     -----     -----
                                                                    19.0      13.9      11.8
              Other income (expense):
                 Net gain on disposal of assets                      0.2       0.0       0.0
                                                                   -----     -----     -----
                                                                     0.2       0.0       0.0

           INCOME BEFORE PROVISION FOR INCOME TAXES                 26.8      28.1      23.3

           PROVISION FOR INCOME TAXES                               10.7      10.4       8.6
                                                                   -----     -----     -----

           NET INCOME                                               16.1%     17.7%     14.7%
                                                                   =====     =====     =====
</TABLE>

FISCAL YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997

REVENUES
      Total revenues, consisting of royalties, sales of printing equipment
supplies and services, franchise fees, company-owned print locations, and
finance and other income were $11,063,000 in 1999, compared to $11,497,000 in
1998 and $11,687,000 in 1997. Revenues have been decreasing each year primarily
as a result of reduced sales of printing equipment, supplies and services, which
is more fully discussed below.

      Royalty revenue increased 1.6% to $4,600,000 in 1999 from $4,528,000 in
1998. Royalties for 1997 were $4,470,000, resulting in an annual increase of
1.3% in 1998 compared to 1997. Royalty increases in 1999 over 1998 were
primarily attributable to unexpected collections of royalties on a franchisee's
previously unreported sales and from delinquent accounts on which royalty income
was not previously recognized due to the uncertainty of collection. Calendar
year average annualized sales per location open and reporting for the complete
12-month period were $551,000 for 1999, $521,000 for 1998 and $501,000 for 1997.
As of December 31, 1999, there were 236 franchise and company-owned locations
compared to 253 as of December 31, 1998 and 270 as of December 31, 1997. The
reduced number of franchise locations in 1999 compared to 1998 and 1997 resulted
mostly from the closing of under-performing stores. The reduced number of
locations in 1999 has slowed the growth of royalty income. Given the continued
consolidation in the printing industry and the large one-time royalty
collections in 1999, it is expected that royalty revenues will decrease 5%-8% in
the year 2000 compared to 1999.

      Sales of printing equipment, supplies and services were $3,269,000 in 1999
compared to $3,982,000 in 1998, a decrease of 18%, and were $4,817,000 in 1997,
a decrease of 17.3% between 1998 and 1997. For 1999, the decrease in sales
primarily resulted from continued slower sales of printing equipment and
decreased sales of direct mail services. Printing equipment sales decreased
primarily as a result of increased competition and direct mail services


                                       7
<PAGE>


sales were down due to decreased demand from franchisees. 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 2000 are
expected to be similar to the results of 1999.

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

                                         1999        1998        1997
                                         ----        ----        ----
           Direct Mail                   33.4%       30.6%       21.7%
           Copier Supplies               29.3        27.6        23.7
           Packaging                     12.4        10.9         8.9
           Pressroom Supplies             8.1         6.8         6.4
           Other                         16.8        24.1        39.3
                                         ----        ----        ----
                                        100.0%      100.0%      100.0%
                                        =====       =====       =====

      Franchise fee revenues were not significant in 1999, 1998 or 1997 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.

      Company-owned print location sales were $1,822,000 in 1999, which was 7.6%
greater than the $1,694,000 sales for 1998. Sales in 1997 were $1,384,000,
resulting in an 18.3% increase in 1998. Sales were higher in 1999 over 1998 due
to the acquisition of a print business in April 1999, which was offset somewhat
by the sale of a smaller print business in March 1999. Sales in 1998 were
greater than 1997 due to increased sales on comparable company-owned stores.

      Finance and other income was $1,346,000 in 1999 compared to $1,276,000 in
1998, an increase of 5.5% in 1999 and was $878,000 in 1997. Finance and other
income increased in 1999 and in 1998 over 1997 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,
collections were received on a few large franchise notes receivable that were
severely delinquent, which positively impacted interest recognized on notes
receivable. Cash and investments outstanding were $11,116,000 at November 30,
1999 compared to $9,799,000 at November 30, 1998.

FRANCHISE OPERATIONS--COST OF SALES
      Cost of sales were $2,458,000 in 1999 compared to $3,134,000 in 1998, a
decrease of 21.6%, and were $3,951,000 for 1997, resulting in a 20.7% decrease
in 1998. 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 24.8% in 1999, 21.3% in 1998
and 18.0% in 1997. The 1999 increase over 1998 was due to improved margins on
direct mail services and reduced sales of low margin products. 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.

FRANCHISE OPERATIONS--SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
      Selling, general and administrative expenses were $3,330,000 in 1999
compared to $3,308,000 in 1998, an increase of 0.7%, and were $3,401,000 in
1997, a decrease of 2.7% in 1998. The increases in 1999 expenses resulted from
normal compensation and general inflationary increases for other operating
costs, which was offset by the consolidation of two staff positions. 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.

COMPANY-OWNED PRINT LOCATIONS--COST OF GOODS SOLD
      Cost of sales were $568,000 in 1999 compared to $550,000 in 1998, an
increase of 3.3% and were $481,000 in 1997, resulting in a 14.4% increase in
1998. The increase in cost of goods sold each year was directly related to
increased sales of printing and related services. Gross margins were 68.9% in
1999, 67.5% in 1998 and 65.3% in 1997. The continued increase in margins
resulted primarily from improvements in production management and increased
pricing of certain products and services.


                                       8
<PAGE>


COMPANY-OWNED PRINT LOCATIONS--SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
      Selling, general and administrative expenses were $1,523,000 in 1999
compared to $1,048,000 in 1998, an increase of 45.3% and were $896,000 in 1997,
reflecting an increase of 17% in 1998. Expenses increased in 1999 due primarily
to the investment in new equipment, facilities and staff to position the
businesses for future growth. Expense increases in 1998 were primarily related
to the growth in sales.

INCOME TAX EXPENSE
      The Company's effective combined federal and state income tax rate was 40%
in 1999 and 37% in 1998 and 1997. The Company's effective tax rate increased in
1999 due to the loss of prior state tax benefits. The Company paid federal and
state income taxes totaling $1,430,000 in 1999, $1,141,000 for 1998 and $875,000
in 1997.

LIQUIDITY AND CAPITAL RESOURCES
      During fiscal year 1999, the Company generated $2,214,000 of cash from
operating activities, compared to $2,359,000 in fiscal 1998 and $2,446,000 in
fiscal 1997. For fiscal 1999, cash was principally used to fund the purchase of
short-term investments and marketable equity securities. Additionally, the
Company acquired a print business resulting in a cash outlay of $431,000. For
fiscal 1998, cash was principally used to purchase marketable equity securities,
fund equipment purchases and increase cash equivalents.

      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 ongoing 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
$150,000 is recorded on the balance sheet at November 30, 1999, representing
estimated losses on this guarantee. The aggregate balance outstanding under this
facility as of November 30, 1999 was $1,665,000.

YEAR 2000 COMPLIANCE
      The Company developed and implemented a plan to achieve Year 2000
compliance. As of January 27, 2000, all computer and related electronic systems
and services have functioned appropriately with no interruptions to normal
business functions. To date, no apparent issues have arisen from vendors
providing products and services. Total costs associated with the Year 2000
compliance project were approximately $20,000 in 1999 and $16,000 in 1998.

      The Company provided its franchisees an assessment guide in October 1998,
which served 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. As of January 27, 2000, no Year
2000 issues have been brought to our attention by franchisees.

      The Company believes its efforts adequately addressed its Year 2000
concerns and, as of January 27, 2000, has no reason to believe any internal
problems will arise nor does it expect any material Year 2000 problems from its
outside vendors or franchise operations. Although the Company believes that no
significant Year 2000 matters will arise and have a material impact on its
business, financial conditions and results of operations, it cannot assure that
all potential Year 2000 issues that may affect the Company have been resolved.

FORWARD-LOOKING STATEMENTS
      This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. With the exception of historical matters, the matters
discussed herein are forward-looking statements that involve risks and
uncertainties. These forward-looking statements are based on management's goals,
estimates, assumptions and projections. Actual results and events could differ
materially from those projected, anticipated or implicit in the forward-looking
statements as a result of certain risk factors. These factors include, but are
not limited to, increased competition from other business printing centers,
reduced demand for printed media and other factors of which the Company is
unaware at this time. If any of these risks were to materialize, royalty revenue
from franchised locations and sales of products to such locations by the Company
would be reduced, thus reducing revenue and profits.


                                       9
<PAGE>


      The preceding discussion of our financial condition and results of
operations should be read in conjunction with our financial statements and the
related notes thereto appearing elsewhere herein.


ITEM 7. FINANCIAL STATEMENTS.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                            PAGE
      Report of Independent Public Accountants                               11
      Consolidated Balance Sheets as of November 30, 1999 and 1998           12
      Consolidated Statements of Operations for Each of the Three Years
         in the Period Ended November 30, 1999, 1998 and 1997                14
      Consolidated Statements of Shareholders' Equity for Each of the
         Three Years in the Period Ended November 30, 1999, 1998 and 1997    15
      Consolidated Statements of Cash Flows for Each of the Three Years
         in the Period Ended November 30, 1999, 1998 and 1997                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, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended November 30, 1999. 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, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended November 30, 1999, in
conformity with generally accepted accounting principles.




                                       ARTHUR ANDERSEN LLP



Minneapolis, Minnesota,
January 18, 2000


                                       11
<PAGE>


                           IPI, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                         November 30
                                                                -----------------------------
                                                                    1999             1998
                                                                ------------     ------------
                                     ASSETS
<S>                                                             <C>              <C>
CURRENT ASSETS:
    Cash and cash equivalents                                   $  2,022,000     $  3,828,000
    Short-term investments                                         2,590,000        1,340,000
    Marketable equity securities                                   6,504,000        4,631,000
    Trade accounts receivable, net                                 1,371,000        1,225,000
    Current maturities of notes receivable, net of allowance
        of $145,000 and $205,000 (Note 3)                            964,000          746,000
    Inventories                                                      271,000          393,000
    Prepaid expenses and other                                       107,000           92,000
    Deferred income taxes (Note 4)                                   930,000          789,000
                                                                ------------     ------------
                    Total current assets                          14,759,000       13,044,000
                                                                ------------     ------------

PROPERTY AND EQUIPMENT:
    Property and equipment                                         2,226,000        1,522,000
    Less - Accumulated depreciation and amortization                (980,000)        (961,000)
                                                                ------------     ------------
                    Property and equipment, net                    1,246,000          561,000

NOTES RECEIVABLE, net of current maturities and allowance of
    $656,000 and $648,000 (Note 3)                                   860,000        1,139,000

GOODWILL AND OTHER INTANGIBLES, net (Note 1)                       3,151,000        3,157,000
                                                                ------------     ------------

                                                                $ 20,016,000     $ 17,901,000
                                                                ============     ============
</TABLE>


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


                                       12
<PAGE>


                           IPI, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                    November 30
                                                                           -----------------------------
                                                                               1999             1998
                                                                           ------------     ------------
                      LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                                                        <C>              <C>
CURRENT LIABILITIES:
    Accounts payable                                                       $    485,000     $    534,000
    Accrued compensation                                                        296,000          296,000
    Accrued financing liabilities (Note 7)                                      150,000          200,000
    Deferred revenues                                                           264,000           14,000
    Income taxes payable                                                        126,000          306,000
    Other accrued liabilities                                                   432,000          258,000
                                                                           ------------     ------------
                    Total current liabilities                                 1,753,000        1,608,000
                                                                           ------------     ------------
LONG-TERM CAPITAL LEASE OBLIGATIONS                                             319,000           51,000

COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)

SHAREHOLDERS' EQUITY:
    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                                                         2,682,000          900,000
    Unrealized loss on marketable securities available for sale, net of
       income tax effects                                                      (369,000)        (289,000)
                                                                           ------------     ------------
                    Total shareholders' equity                               17,944,000       16,242,000
                                                                           ------------     ------------
                                                                           $ 20,016,000     $ 17,901,000
                                                                           ============     ============
</TABLE>


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


                                       13
<PAGE>


                           IPI, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                              For the Years Ended November 30
                                                                       ----------------------------------------------
                                                                           1999             1998             1997
                                                                       ------------     ------------     ------------
<S>                                                                    <C>              <C>              <C>
REVENUES:
    Royalty fees                                                       $  4,600,000     $  4,528,000     $  4,470,000
    Printing equipment, supplies and services                             3,269,000        3,982,000        4,817,000
    Franchise fees                                                           26,000           17,000          138,000
    Company-owned print locations                                         1,822,000        1,694,000        1,384,000
    Finance and other income                                              1,346,000        1,276,000          878,000
                                                                       ------------     ------------     ------------
                    Total revenues                                       11,063,000       11,497,000       11,687,000
                                                                       ------------     ------------     ------------
COSTS AND EXPENSES:
   Franchise operations:
      Cost of sales                                                       2,458,000        3,134,000        3,951,000
      Selling, general and administrative expenses                        3,330,000        3,308,000        3,401,000
      Amortization of goodwill and other intangibles                        231,000          231,000          231,000
                                                                       ------------     ------------     ------------
                                                                          6,019,000        6,673,000        7,583,000
   Company-owned print locations:
      Cost of sales                                                         568,000          550,000          481,000
      Selling, general and administrative expenses                        1,523,000        1,048,000          896,000
      Amortization of goodwill and other intangibles                          9,000               --               --
                                                                       ------------     ------------     ------------
                                                                          2,100,000        1,598,000        1,377,000
                                                                       ------------     ------------     ------------
OPERATING INCOME                                                          2,944,000        3,226,000        2,727,000

NET GAIN ON DISPOSAL OF ASSETS                                               26,000               --            1,000
                                                                       ------------     ------------     ------------
INCOME BEFORE INCOME TAX                                                  2,970,000        3,226,000        2,728,000
INCOME TAX EXPENSE                                                        1,188,000        1,194,000        1,009,000
                                                                       ------------     ------------     ------------
NET INCOME                                                             $  1,782,000     $  2,032,000     $  1,719,000
                                                                       ============     ============     ============
BASIC AND DILUTED EARNINGS PER COMMON SHARE                            $        .38     $        .43     $        .36
                                                                       ============     ============     ============
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
  EQUIVALENT SHARES OUTSTANDING
    - BASIC                                                               4,734,000        4,734,000        4,734,000
                                                                       ============     ============     ============
    - DILUTED                                                             4,734,000        4,745,000        4,734,000
                                                                       ============     ============     ============
OTHER COMPREHENSIVE INCOME, NET OF TAX (NOTE 1)
   Net income                                                          $  1,782,000     $  2,032,000     $  1,719,000
   Unrealized loss on marketable securities available for sale, net
     of income tax effects                                                  (80,000)        (242,000)         (47,000)
                                                                       ------------     ------------     ------------
   Total Comprehensive Income                                          $  1,702,000     $  1,790,000     $  1,672,000
                                                                       ============     ============     ============
</TABLE>


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


                                       14
<PAGE>


                           IPI, INC. AND SUBSIDIARIES

                 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, 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
                                            ==========  ============  ============  ============   ============   ============
Net income                                          --            --            --     1,782,000             --      1,782,000


Unrealized loss on marketable securities
  available for sale, net of related
  income tax effects                                --            --            --            --        (80,000)       (80,000)
                                            ----------  ------------  ------------  ------------   ------------   ------------

BALANCE, November 30, 1999                   4,734,000  $     47,000  $ 15,584,000  $  2,682,000   $   (369,000)  $ 17,944,000
                                            ==========  ============  ============  ============   ============   ============
</TABLE>


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


                                       15
<PAGE>


                           IPI, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                   For the Years Ended November 30
                                                                           ----------------------------------------------
                                                                               1999             1998              1997
                                                                           ------------     ------------     ------------
<S>                                                                        <C>              <C>              <C>
OPERATING ACTIVITIES:
    Net income                                                             $  1,782,000     $  2,032,000     $  1,719,000
    Adjustments to reconcile net income to net cash provided by
        operating activities-
            Depreciation and amortization                                       440,000          418,000          391,000
            Deferred income taxes                                               (65,000)         (54,000)          20,000
            Net change in other operating items:
                Trade accounts receivable                                      (146,000)          49,000           24,000
                Inventories                                                     135,000          (78,000)          83,000
                Prepaid expenses and other                                       (6,000)          27,000           48,000

                Accounts payable, deferred revenues and other
                    accrued liabilities                                          74,000          (35,000)         161,000
                                                                           ------------     ------------     ------------
                    Net cash provided by operating activities                 2,214,000        2,359,000        2,446,000
                                                                           ------------     ------------     ------------

INVESTING ACTIVITIES:
    Purchase of property and equipment, net                                    (371,000)        (238,000)        (230,000)
    Sale (purchases) of short-term investments, net                          (1,250,000)        (540,000)       2,380,000
    Purchase of marketable equity securities                                 (2,029,000)              --       (5,089,000)
    Change in notes receivable, net                                              61,000          953,000          530,000
    Purchase of Regency Printing                                               (431,000)              --               --
                                                                           ------------     ------------     ------------
                    Net cash provided by (used in) investing activities      (4,020,000)         175,000       (2,409,000)
                                                                           ------------     ------------     ------------
                    Increase (decrease) in cash and cash equivalents         (1,806,000)       2,534,000           37,000

CASH AND CASH EQUIVALENTS, beginning of year                                  3,828,000        1,294,000        1,257,000
                                                                           ------------     ------------     ------------
CASH AND CASH EQUIVALENTS, end of year                                     $  2,022,000     $  3,828,000     $  1,294,000
                                                                           ============     ============     ============
SUPPLEMENTAL CASH FLOW INFORMATION:
    Income taxes paid                                                      $  1,430,000     $  1,141,000     $    875,000
                                                                           ============     ============     ============
    Equipment acquired under capital leases                                $    545,000     $         --     $    212,000
                                                                           ============     ============     ============
</TABLE>


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


                                       16
<PAGE>


                           IPI, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           NOVEMBER 30, 1999 AND 1998

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
236 franchised and corporate-owned locations in the United States with heavier
concentrations in the Midwest and Eastern Coast states. The Company operates two
corporate-owned Insty-Prints centers, one of which was acquired in 1999 (Note
2). In 1999, the Company initiated an expansion strategy to grow through
acquiring print businesses and operating them directly. Continuation of this
strategy will depend on the future results of these two locations. Relative to
the 1999 acquisition, the Company established three legal entities: IPI
Holdings, LLC; IPI Management, LLC; and Texas IPI, L.P.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant inter-company balances and
transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS

Cash equivalents consist of financial instruments that 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 finance and other income in the accompanying
consolidated statements of operations.

Marketable equity securities consist of common stock of Cornerstone Realty
Income Trust, Inc., 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, 1999, the cost, fair value and gross unrealized loss on
marketable equity securities are as follows:

           Fair value                    $6,504,000
           Cost                           7,118,000
                                         ----------
           Gross unrealized loss         $  614,000
                                         ==========

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 $614,000 and $452,000 for the year ended November 30, 1999 and 1998,
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.


                                       17
<PAGE>


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
                                        1999         1998         (Years)
                                     -------------------------------------------
Goodwill                             $4,536,000   $4,302,000      15 - 40
Non-competition agreement (Note 5)      250,000      250,000         5
Accumulated amortization             (1,635,000)  (1,395,000)
                                     ----------   ----------
                                     $3,151,000   $3,157,000
                                     ==========   ==========

Goodwill consists of the excess of cost over the fair market value of the
acquired net assets of Insty-Prints, Printhouse, Copy Boy and Regency Printing
(Note 2) and is being amortized on a straight-line basis over 40, 18, 20 and 15
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, through May 2000, 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, supply sales and print 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.

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.


                                       18
<PAGE>


BUSINESS SEGMENT INFORMATION

The Company is principally engaged in one business segment--the franchising and
operating 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 adopted this standard in
fiscal 1999.

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, 2000. The adoption of SFAS No. 133 is not expected to have a
material impact on the Company's consolidated results of operations, financial
position or cash flows.

RECLASSIFICATION

Prior to fiscal 1999, the operating results of company-owned print businesses
were included in selling, general and administrative expenses. With the adoption
in 1999 of the strategy to acquire and operate additional company-owned
locations, the revenues and expenses of company print businesses are shown
separately on the consolidated statements of operations for all periods.

2. ACQUISITION:

In April 1999, Texas IPI, L.P. purchased the printing related assets and assumed
the facility and printing equipment leases of Regency Plaza Printing and Office
Supplies, Inc. (Regency), located in Dallas, Texas. The consideration paid of
$431,000 exceeded the fair value of assets received by $234,000, which has been
recorded as goodwill that is being amortized on a straight-line basis over
fifteen (15) years. The assets purchased include furniture, computers, leasehold
improvements, customer list and various printing equipment items. Leases assumed
were primarily for presses, copiers and related printing equipment and the
business facility. The operations of Texas IPI, L.P. are included in the IPI
Statement of Operations from the date of acquisition and would not have been
material to prior periods.

3. NOTES RECEIVABLE:

Notes receivable consists primarily of notes from franchisees. Notes receivable
of $1,665,000 at November 30, 1999 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.

4. 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 Jacobs Industries,
Inc. 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
                                    -----------------------------------------
                                      1999            1998             1997
                                    ----------     ----------      ----------
      Current:
          Federal                   $1,045,000     $1,057,000        $980,000
          State                        208,000        191,000           9,000
                                    ----------     ----------      ----------
                                     1,253,000      1,248,000         989,000
      Deferred                         (65,000)       (54,000)         20,000
                                    ----------     ----------      ----------
                                    $1,188,000     $1,194,000      $1,009,000
                                    ==========     ==========      ==========

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
                                                          -------------------
                                                          1999   1998    1997
                                                          ----   ----    ----

      Federal statutory rate                              34%    34%     34%
      State income taxes, net of federal tax benefit       4      1       1
      Nondeductible amortization                           2      2       2
      Other, net                                           -      -       -
                                                         ---    ---     ---
                                                          40%    37%     37%
                                                         ===    ===     ===


The tax effect of significant temporary differences representing deferred tax
assets as of November 30, 1999 and 1998 are as follows:

                                                          1999         1998
                                                        --------     --------

      Allowance for losses                              $313,000     $333,000
      Accrued financing liabilities                       59,000       78,000
      Accrued compensation                                27,000       37,000
      Accrued franchise incentives                        66,000       58,000
      Other                                              465,000      283,000
                                                        --------     --------
                                                        $930,000     $789,000
                                                        ========     ========


No valuation allowance was required as of November 30, 1999 or 1998.

5. STOCK OPTION PLANS:

The Company has long-term incentive and stock option plans that 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 both plans
together 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.


                                       20
<PAGE>


The following is a summary of activity of the plans for the years ended November
30, 1999, 1998 and 1997:

                                                   Number of      Price
                                                    Options     Per Share
                                                    -------     ---------
          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         4.00
                 Cancelled                          (55,000)        4.00
                                                    -------       ------
          Outstanding, November 30, 1998            267,000         4.04
                                                    -------       ------
                 Granted                             69,000         5.00
                 Cancelled                           (8,000)        4.25
                                                    -------       ------
          Outstanding, November 30, 1999            328,000       $ 4.02
                                                    =======       ======

The number of options exercisable at November 30, 1999, 1998 and 1997 are
180,200. 129,600 and 90,000, respectively, and all are at the exercise price of
$4.00 per share, except 1,200 options at November 30, 1999 that are exercisable
at $5.00 per share. As of November 30, 1999, there were options for 72,000
shares 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:

                                          1999           1998            1997
                                      -----------    ------------    -----------
      Net Income
            As reported                $1,782,000     $2,032,000      $1,719,000
            Pro forma                   1,702,000      1,960,000      $1,671,000
      Income Per Share-as reported:
            Basic                            $.38           $.43            $.36
            Diluted                          $.38           $.43            $.36
      Income Per Share-pro forma:
            Basic                            $.36           $.41            $.35
            Diluted                          $.36           $.41            $.35

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 1999, 1998 and 1997 were $1.67, $2.57
and $2.41, respectively.

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 5.85% to 5.66% for 1999 and 5.72%
to 5.56% for 1998 and 6.38% to 6.91% for 1997; no expected dividends; expected
lives of 10 years for 1998, 1997 and 1996; and expected volatility of 38.5% to
40.5% for 1999 grants and 34.52% to 35.29% for 1998 grants and 30.2% to 34.9%
for 1997 grants.

6. RELATED-PARTY TRANSACTIONS:

The Company paid management fees of $75,000 in 1999, 1998 and 1997 to an
affiliated company.


                                       21
<PAGE>


7. COMMITMENTS AND CONTINGENCIES:

GUARANTEES

The Company is a guarantor of equipment financing by certain franchisees in
amounts that aggregated $1,665,000 at November 30, 1999 and $2,660,000 at
November 30, 1998. Under the terms of the guarantees, the maximum annual
liability of the Company was approximately $2,400,000 at November 30, 1999 and
1998. 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, 1999 and 1998, the
Company was in compliance with such covenants.

OPERATING LEASES

At November 30, 1999, 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                                        $   361,000
              2000                                            329,000
              2001                                            220,000
              2002                                            207,000
              2003                                            120,000
                                                          -----------
                 Total minimum payments required          $ 1,237,000
                                                          ===========

Rent expense was $362,000, $305,000 and $317,000 in 1999, 1998 and 1997,
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 financial
positions or the results of operations of the Company.

8. SUBSEQUENT EVENT

In January 2000, the Company formed a new subsidiary, Dreamcatcher Franchise
Corporation, a Minnesota company to acquire substantially all the assets of
Dreamcatcher Franchise Corporation, a Colorado company that franchises learning
centers, and Dreamcatcher Learning Centers, Inc., an operator of three learning
centers. The purchase of the assets was not material to the financial position
or results of operations of the Company. The purchase includes franchise
contracts for 10 operating locations and 14 locations yet to be opened. It is
the Company's plan to develop this business and become a national franchisor of
learning centers.


                                       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 for the Year 2000 Annual Meeting of Shareholders.


ITEM 10. EXECUTIVE COMPENSATION.

      The information required in this item is incorporated by reference to the
Section of the Proxy Statement for the Year 2000 Annual Meeting of Shareholders
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 for the Year 2000 Annual Meeting of
Shareholders 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 for the Year 2000 Annual Meeting of
Shareholders 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, as amended (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.
    *23     Consent of Independent Public Accountants
    *27     Financial Data Schedule

    *  Filed herewith.
    +   Material 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, 1999.


                                       24
<PAGE>


                                   SIGNATURES


      In accordance with Sections 13 or 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 15, 2000.

      IPI, Inc.


      By: /S/ Robert J. Sutter
          -----------------------------
              Robert J. Sutter
          CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD

      In accordance with the Exchange Act, this report has been signed below on
February 15, 1999 by the following persons on behalf of the registrant and in
the capacities indicated.


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


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

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

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

/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 and Principal
    David M. Engel              Financial Officer)


                                       25