<PAGE>   1
 
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                   FORM 10-K
 
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
 
                        COMMISSION FILE NUMBER 000-23213
 
                            YOUNG INNOVATIONS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                            <C>
                   MISSOURI                                      43-1718931
           (State of Incorporation)                 (I.R.S. Employer Identification No.)
         13705 SHORELINE COURT EAST,                               63045
             EARTH CITY, MISSOURI                                (Zip Code)
   (Address of Principal Executive Offices)
</TABLE>
 
Registrant's telephone number, including area code: 314-344-0010
 
          Securities Registered Pursuant to Section 12(b) of the Act:
 
                                      NONE
 
          Securities registered pursuant to Section 12(g) of the Act:
 
                    COMMON STOCK, $0.01 PAR VALUE PER SHARE
                                (Title of Class)
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]
 
     The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant on February 26, 1999 (based on the closing sale
price of $12.188 of the Registrant's Common Stock, as reported on the Nasdaq
National Market on such date) was approximately $34,180,478.
 
     Number of shares outstanding of the Registrant's Common Stock at February
26, 1999:
 
           6,772,796 shares of Common Stock, par value $.01 per share
 
     Portions of the Registrant's definitive Proxy Statement to be filed for its
1999 Annual Meeting of Stockholders are incorporated by reference into Part III
of this Report.
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<PAGE>   2
 
                                     PART I
 
     This Form 10-K (including, without limitation, Item 1 -- "Business" and
Item 7 -- "Management's Discussion and Analysis of Financial Condition and
Results of Operations") includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). All statements other than statements of historical facts
included herein are "forward-looking statements." Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to be
correct. Factors that have affected, and in the future could affect, the
Company's actual results and could cause such results during fiscal 1999 and
beyond to differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company include, but are not limited to,
the effect of economic and market conditions, opportunities for acquisitions and
the Company's ability to effectively integrate acquired companies, the impact of
managed care in dentistry, the impact of the consolidation of dental dealers,
pricing practices of other professional dental products manufacturers,
disruptions in the Company's computer systems or telephone systems, possible
increases in shipping rates or interruptions in shipping services.
 
ITEM 1. BUSINESS.
 
     Young Innovations, Inc. (the "Company") develops, manufactures and markets
supplies and equipment used by dentists and dental hygienists. The Company
believes it is the leading manufacturer and distributor of prophylaxis angles
and cups (used in teeth cleaning and polishing procedures) and panoramic X-ray
equipment in the United States. The Company also offers a line of fluorides,
pastes and infection control products used in the dental office.
 
     The Company was incorporated in July 1995 to serve as the parent company
for Young Dental Manufacturing Company ("Young Dental") and The Lorvic
Corporation ("Lorvic"). Young Dental acquired Lorvic in May 1995, adding to
Young Dental a new line of infection control products as well as chemical
engineering and manufacturing expertise. In July 1996, the Company acquired
Denticator International, Inc. (Denticator) and its line of popular low-cost
disposable prophylaxis angles to complement Young's premium-priced disposable
angles. In February 1998, the Company acquired Panoramic Corporation
("Panoramic"), a leading manufacturer and marketer of X-ray equipment sold or
rented to dental professionals in the United States.
 
     Young Dental was founded in the early 1900's. As one of many small
suppliers to the dental profession, Young Dental's strength was manufacturing
consistently reliable dental products. As dentistry evolved, Young worked with
practicing dentists and academics to identify clinical problems. Young Dental
then used its engineering and manufacturing expertise to create solutions to
those problems. The Company believes that decades of providing innovative
products to meet the evolving needs of the dental profession have earned Young a
strong reputation for quality, reliability and value.
 
     The Company markets its products in several international markets,
including Europe, South America, Central America and the Pacific Rim.
International sales represented approximately 5.5% of the Company's total net
sales in 1998.
 
     The Company is a Missouri corporation with its principal executive office
located at 13705 Shoreline Court East, Earth City, Missouri 63045, in the St.
Louis, Missouri metropolitan area; its telephone number is (314) 344-0010.
 
PRODUCTS
 
     The Company primarily markets disposable and metal prophy angles, cups and
brushes (collectively, "Prophy Products"), complementary preventive products,
including pastes, fluorides and fluoride applicators, as well as aspiration and
infection control products and dental X-ray equipment.
 
     Prophy Products. The Company believes it manufactures and sells the
broadest line of Prophy Products in the domestic professional dental products
market. The Company is able to achieve its substantial share of
 

                                       2
<PAGE>   3
 
the Prophy Product market by providing Prophy Products at both premium and
popular prices. The Company generally prices its Young branded Prophy Products
at premium levels and its Denticator branded Prophy Products at popular price
levels. The Company's broad range of Prophy Products enables it to be a single-
source supplier to its distributors.
 
     The Company's Prophy Products include several configurations of sealed
metal autoclavable prophy angles and several disposable plastic prophy angles
designed for single-use. Prophy Products consist of two components: an angle
which is attached to and extends from a standard, low-speed dental handpiece and
a rubber cup or brush which is attached to the angle and performs the cleaning
function. During the prophylaxis process, the cup or brush is filled with
abrasive paste, which is applied to the teeth as the prophy cup rotates. The
dental professional polishes both the visible portion of the tooth and the
subgingival portion (below the gum line). The prophy angle may be a disposable
or a reusable instrument; prophy cups and brushes are sold as single-use items.
Disposable prophy angles are sold as assembled units with a cup or brush already
attached. The Company produces and markets a number of different disposable
prophy angles, including both traditional right angle and contra angle
configurations. Virtually all of the Company's metal prophy angles are sealed
against penetration of matter from patients' mouths (thus reducing the risk of
cross-contamination and damage to the prophy angle) and are designed for ease of
maintenance. Because such metal prophy angles function optimally only when used
with the Company's cups and brushes, most dentists who purchase the Company's
metal prophy angles also purchase the Company's cups and brushes.
 
     Other Preventive Products. The Company's other preventive products include
polishing pastes and powders, which are abrasive agents used for cleaning and
polishing teeth; fluorides used in dental offices and at home to reduce cavities
and tooth sensitivity; applicators used by dental professionals to apply
fluoride to patients' teeth; and plaque disclosants, which are liquids or
tablets that identify the presence of plaque when applied to tooth surfaces. The
Company markets certain of its pastes, including fluoride products, in
single-use containers, the demand for which has grown in response to infection
control concerns.
 
     Infection Control Products. The Company's line of infection control
products includes products such as indicator tape and tabs used to verify the
effectiveness of a sterilizer; Nyclave wrap used to wrap instruments during
sterilization so that sterility is maintained until use; barrier products used
to wrap operatory knobs, handles and other devices that cannot be sterilized;
and surgical milk and instrument care products used to inhibit corrosion, remove
rust and lubricate hinged instruments in connection with the autoclave process.
Autoclaving is the sterilization of instruments and equipment through the use of
steam.
 
     X-Ray Products. The Company markets a line of dental X-ray equipment under
the Panoramic brand name. Panoramic's PC 1000 X-ray machine produces a high
quality image of the entire dental arch in one X-ray film. Panoramic's Laser
1000 cephalometric X-ray system allows analysis of the exact relationship of
various anatomical reference points of the patient's anterior skull profile.
General dentists and orthodontists use these calculations to locate and predict
the movement of teeth in order to fit braces and other orthodontia. The device
is used by oral surgeons to detect pathology and also to determine bone and
teeth alignment before and after surgery.
 
     Assisting and Other Products. The Company's assisting and other products
include disposable aspiration products used to remove blood, saliva and other
matter during dental procedures; cotton roll substitutes used to control saliva
and moisture during dental procedures; matrix bands used for tooth restorations;
rubber dam frames used to isolate teeth during dental procedures; and etching
gels and bonding prep used to condition tooth surfaces for bonding.
 
     Private Label and OEM Products. In addition to branded products, the
Company designs, develops and produces a limited number of proprietary private
label and OEM products under contracts with dental distributors and other
professional dental product manufacturers where the Company is able to use its
expertise and excess manufacturing capacity.
 
                                        3
<PAGE>   4
 
MARKETING AND DISTRIBUTION
 
     The Company markets its full line of products to dental professionals
worldwide using a network of medical and dental product distributors. The
Company actively supports its distributor relationships with Company sales
personnel in the United States, independent sales representatives in Canada and
exclusive sales representatives in 11 countries outside of North America. The
Company also uses non-exclusive distributors to service markets in a number of
other countries. All major distributors of dental products in North America sell
the Company's products, including Henry Schein, Inc. and Patterson Dental
Company which accounted for 17.4%, and 13.1%, respectively, of the Company's
sales in 1998. The Company has no formal agreements with its distributors which
generally purchase products from the Company by purchase order. The Company
believes these arrangements are customary in the industry. The Company's product
development, manufacturing and marketing capabilities and its relationships with
distributors allow the Company to provide a broad range of high quality,
innovative and reliable products to dental professionals. Additionally, these
capabilities and relationships enable the Company to quickly and efficiently
offer new products or product extensions to its existing customer base and new
markets. In addition to marketing through distributors in the United States, the
Company sells products directly to dental and dental hygiene schools, Veterans
Administration healthcare facilities and United States military bases.
 
     The Company's products are sold and marketed by Company employees in the
United States and by independent sales representatives in Canada. The Company
also supports its marketing activities to smaller distributors through use of
the Company's inside sales personnel. Until July 1997, the Company used
independent non-exclusive sales representatives and a small number of Company
employees for its marketing and sales efforts in the United States. In an effort
to more efficiently market its products, the Company decided to switch from
independent sales representatives to Company employees who exclusively focus on
selling the Company's products.
 
     The Company expends considerable effort educating its distributors about
the quality, reliability and features of its products. The Company also
advertises its products through industry publications and direct mail. To
supplement its other marketing efforts, the Company provides product samples to
dental professionals and exhibits its products at industry trade shows. In
addition, the Company seeks to stimulate interest in its products by providing
information and marketing materials to influential lecturers and prominent
experts and consultants in the dental industry.
 
     Panoramic markets its products in the United States and Canada directly to
the end user, primarily by direct mail, trade shows and a limited amount of
advertising in trade and professional journals.
 
PRODUCT DEVELOPMENT
 
     The Company's engineers and chemists are focused on developing innovative
professional dental products and are actively involved in improving the
Company's manufacturing processes. Frequently, these products are designed and
developed in response to needs articulated to the Company by dental
professionals. For example, the Company designed the contra disposable prophy
angle to improve the ease with which dental professionals can reach and clean
patients' teeth. The Company believes that the contra disposable prophy angle
improves access to the oral cavity thereby reduces the risk of carpal tunnel
syndrome by reducing the flexion of dental hygienists' wrists during prophy
procedures. Additionally, many of the new products or product improvements
developed by the Company are patented.
 
     All of Young Dental's disposable prophy angles have been developed since
1990. In February 1998, with the acquisition of Panoramic, the Company added a
line of dental x-ray equipment to its product offerings. In 1998, the Company
introduced a line of prophy paste under the Denticator brand name and a line of
latex-free disposable prophy angles under the Young brand name.
 
     In addition to its Prophy Product development efforts, the Company actively
seeks to introduce new and innovative products in other components of the
professional dental product market.
 
                                        4
<PAGE>   5
 
MANUFACTURING AND SUPPLY
 
     The Company manufactures virtually all of its products other than X-ray
equipment. The consolidation of the Company's two St. Louis facilities into the
expanded Earth City facility, which was substantially completed in December
1996, provides the Company with sufficient manufacturing capacity for
anticipated growth in the foreseeable future. The Company contracts for the
assembly of a substantial portion of its disposable prophy angles in Mexico.
 
     Prophy and Other Products. The Company uses a variety of state-of-the-art
computer numerically controlled machining centers, injection molding machines
and robotic assembly machines and continues to invest in new and more efficient
equipment and production lines. The primary processes involved in manufacturing
the Company's products consist of precision metal turning and milling, rubber
molding, plastic injection molding, component parts assembling and finished
goods packaging.
 
     Pastes, Liquids and Gels. The Company blends and mixes all of its pastes,
liquids and gels at the Earth City facility. The Company owns equipment used to
form and dye-cut expanded polyethylene foam and to dye-cut extruded plastic into
finished products and equipment used to package its products in a variety of
container sizes, including prophy paste in unit-dose containers.
 
     X-Ray Equipment. Panoramic's X-ray equipment is manufactured and assembled
by a contract manufacturer at Panoramic's premises in Fort Wayne, Indiana. The
contract manufacturer supplies labor, purchases most components and performs
administrative and logistical functions associated with the production of the
machines. Panoramic owns all of the tooling, engineering documentation and
assembly fixtures used in the process. Panoramic manufactures its own X-ray
generators.
 
     Total Quality Management. The Company has implemented production process
control techniques to ensure continuing process capability designed to increase
product quality and reduce scrap. The Company pursues quality throughout all
levels of the organization to maximize its ability to meet the goals and needs
of its customers. Employees receive extensive training in implementing proactive
solutions to improve the quality system, ensuring a higher quality product.
 
     Supply. The Company purchases a wide variety of raw materials, including
bar steel, brass, rubber and plastic resins, from numerous suppliers. The
majority of the Company's purchases are commodities readily available at
competitive prices. The Company also purchases certain of its products from
other manufacturers for resale.
 
COMPETITION
 
     The Company competes with manufacturers of both branded and private label
dental products in each of the markets it serves. According to Strategic Dental
Marketing, Inc., an independent market research firm, the Company had the
largest domestic market share of distributor sales in Prophy Products during
1997 and 1998.
 
     The Company believes that dental professionals place major importance on
the proven reliability of the Company's products and are generally not
price-sensitive. Young Dental and Lorvic compete on the basis of the quality and
reliability of their products as well as their reputations. As a result, Young
Dental and Lorvic typically charge premium prices for their products. By
contrast, Denticator's and Panoramic's products are targeted to more
price-sensitive dental service providers. Panoramic competes with seven
competitors, six of which are foreign manufacturers.
 
     The markets for the Company's products are highly competitive. The Company
believes that the principal competitive factors in all of its markets are
product features, reliability, name recognition, established distribution
network, customer service and, to a lesser extent, price. The relative speed
with which the Company can develop, complete testing, obtain regulatory approval
and sell commercial quantities of new products is also an important competitive
factor. Some of the Company's competitors have greater financial, research,
manufacturing and marketing resources than the Company and include DENTSPLY
International, Inc., Oral-B Laboratories, a subsidiary of The Gillette Company,
and Allegheny Teledyne Incorporated and,
 
                                        5
<PAGE>   6
 
in the case of Panoramic, Gendex, a division of DENTSPLY International, Inc.,
Siemens Dental Products, and Planmeca OY.
 
EMPLOYEES
 
     As of December 31, 1998, the Company employed approximately 200 people,
none of whom were covered by collective bargaining agreements. The Company
believes that its relations with its employees are good.
 
ITEM 2. PROPERTIES.
 
     The Company's facilities are as follows:
 
<TABLE>
<CAPTION>
           DESCRIPTION               SQUARE FEET           LOCATION                  OWNED/LEASED
           -----------               -----------           --------                  ------------
<S>                                  <C>            <C>                       <C>
Corporate Headquarters and             54,000       Earth City, Missouri
  Manufacturing..................                                             Owned
Manufacturing....................      12,000       Brownsville, Texas        Owned
Manufacturing....................      21,000       Sacramento, California    Lease expires December 31,
                                                                              2001; the Company has an
                                                                              option to purchase the
                                                                              property
Office and Manufacturing.........      28,000       Fort Wayne, Indiana       Owned
</TABLE>
 
     The Company believes that its facilities are generally in good condition
and are adequate for its operations for the foreseeable future.
 
ITEM 3. LEGAL PROCEEDINGS.
 
     The Company and its subsidiaries are from time to time parties to various
legal proceedings arising out of their businesses. Management believes there are
no such proceedings pending or threatened against the Company or its
subsidiaries which, if determined adversely, would have a material adverse
effect on the Company's business, financial condition, results of operations or
cash flows.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
     Not Applicable.
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 
     The Common Stock began trading on the Nasdaq National Market on November 5,
1997 under the symbol of "YDNT." The following table sets forth the high and low
closing prices of the Common Stock as reported by the Nasdaq National Market.
 
<TABLE>
<CAPTION>
                                                                  MARKET PRICE
                                                                ----------------
                          QUARTER                                HIGH      LOW
                          -------                                ----      ---
<S>                                                             <C>       <C>
1997
Fourth......................................................    $18       $13
1998
First.......................................................    $18       $14
Second......................................................    $16.50    $14.75
Third.......................................................    $16       $12
Fourth......................................................    $14.25    $12
</TABLE>
 
                                        6
<PAGE>   7
 
     On February 26, 1999, there were approximately 32 holders of record of the
Company's Common Stock.
 
     The Company has not paid cash dividends on its Common Stock since its
inception. The Company currently intends to retain earnings for use in its
business and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. Payment of cash dividends, if any, will be at the discretion
of the Company's Board of Directors and will be dependent upon the earnings and
financial condition of the Company and any other factors deemed relevant by the
Board of Directors and will be subject to any applicable restrictions contained
in the Company's then existing credit arrangements.
 
     The Company completed its initial public offering of 2,300,000 shares of
its common stock on November 10, 1997, and the net proceeds to the Company,
after deducting the underwriting discount and offering expenses, were $25.2
million. The sale of such shares was made pursuant to a Registration Statement
on Form S-1 (File No. 333-34971) which was declared effective on November 4,
1997. The Company used $13.2 million of the proceeds to repay borrowings under
the Revolving Credit and Term Loan Agreement dated July 22, 1996 between the
Company and NationsBank, N.A., and the balance of $12.0 million to provide a
portion of the $13.9 million used by the Company to purchase the assets of
Panoramic and repay Panoramic's indebtedness.
 
                                        7
<PAGE>   8
 
ITEM 6. SELECTED FINANCIAL DATA.
 
     The following table presents selected financial data of the Company. This
historical data should be read in conjunction with the Consolidated Financial
Statements and the related notes thereto in Item 8 and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Item 7. All
amounts except per share data are expressed in thousands.
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                  ------------------------------------------------------
                                                   1994      1995(1)    1996(2)     1997      1998(3)(4)
                                                   ----      -------    -------     ----      ----------
<S>                                               <C>        <C>        <C>        <C>        <C>
INCOME STATEMENT DATA:
Net sales.....................................    $12,036    $17,496    $21,580    $24,986     $36,595
Cost of goods sold............................      5,457      7,379      9,470     10,129      16,467
                                                  -------    -------    -------    -------     -------
Gross profit..................................      6,579     10,117     12,110     14,857      20,128
Selling, general and administrative
  expenses....................................      3,063      4,494      5,790      7,333      10,623
                                                  -------    -------    -------    -------     -------
Income from operations........................      3,516      5,623      6,320      7,524       9,505
Interest expense and other, net...............         65        421      1,097        876        (326)
                                                  -------    -------    -------    -------     -------
Income before provision for income taxes......      3,451      5,202      5,223      6,648       9,831
Provision for income taxes....................      1,270      2,044      1,955      2,538       3,782
                                                  -------    -------    -------    -------     -------
Net income....................................    $ 2,181    $ 3,158    $ 3,268    $ 4,110     $ 6,049
                                                  =======    =======    =======    =======     =======
Basic earnings per share......................    $  0.49    $  0.71    $  0.74    $  0.86     $  0.89
                                                  =======    =======    =======    =======     =======
Basic weighted average common shares
  outstanding.................................      4,450      4,450      4,444      4,775       6,763
Diluted earnings per share....................    $  0.49    $  0.71    $  0.74    $  0.86     $  0.89
                                                  =======    =======    =======    =======     =======
Diluted weighted average common shares
  outstanding.................................      4,450      4,450      4,444      4,782       6,805
</TABLE>
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                  ------------------------------------------------------
                                                   1994      1995(1)    1996(2)     1997      1998(3)(4)
                                                   ----      -------    -------     ----      ----------
<S>                                               <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Working capital (deficit).....................    $ 1,559    $(3,111)   $(5,772)   $16,375     $10,100
Total assets..................................      7,711     22,107     32,481     45,429      54,744
Total debt (including current maturities).....        472     10,773     16,406         --          --
Stockholders' equity..........................      5,253      7,121     10,311     41,208      48,201
</TABLE>
 
-------------------------
(1) On May 5, 1995, the Company acquired Lorvic. The income statement data for
    the year ended December 31, 1995 include results of operations for Lorvic
    from May 5, 1995 through December 31, 1995. The balance sheet data as of
    December 31, 1995 include Lorvic as of that date.
 
(2) On July 22, 1996, the Company acquired Denticator. The income statement data
    for the year ended December 31, 1996 include results of operations for
    Denticator from July 22, 1996 through December 31, 1996. The balance sheet
    data as of December 31, 1996 include Denticator as of that date.
 
(3) On February 27, 1998, the Company acquired Panoramic. The income statement
    data for the year ended December 31, 1998 include results of operations for
    Panoramic from February 27, 1998 through December 31, 1998. The balance
    sheet data as of December 31, 1998 include Panoramic as of that date.
 
(4) Weighted average common shares outstanding increased from 1997 to 1998 as a
    result of the issuance of 2.3 million shares in connection with the
    Company's initial public offering in November, 1997.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
 
OVERVIEW
 
     The Company develops, manufactures and markets supplies and equipment used
by dentists and dental hygienists. The Company believes it is the leading
manufacturer and distributor of prophylaxis angles and cups
 
                                        8
<PAGE>   9
 
(used in teeth cleaning and polishing procedures) and panoramic X-ray equipment
in the United States. The Company also offers a line of fluorides, pastes and
infection control products used in the dental office.
 
     The principal components of the Company's growth strategy are to
continuously improve its manufacturing processes, to develop innovative new
products and to complete strategic acquisitions. In order to help fund the
Company's strategy for growth, the Company completed an initial public offering
of 2.3 million shares of its common stock in November 1997, resulting in net
proceeds of $25.2 million. The Company used the proceeds to repay debt incurred
with previous acquisitions and to fund strategic future acquisitions. Since
1996, the Company has successfully completed two acquisitions. On July 22, 1996,
the Company acquired the net assets of Denticator for $7.6 million cash plus an
obligation to provide approximately $.9 million of the Company's products to a
certain customer at market value. As of December 31, 1998, all of these products
had been delivered under the obligation. On February 27, 1998, the Company
acquired the assets of Panoramic for $13.9 million cash plus 62,500 shares of
the Company's common stock and assumed approximately $3.9 million of Panoramic's
liabilities, of which $2.6 million was repaid at closing.
 
     The acquisitions of Denticator and Panoramic were accounted for using the
purchase method of accounting and the results of operations of both companies
have been included in the financial statements of the Company from the dates of
acquisition. The excess of the purchase prices over the estimated fair values of
the net assets acquired resulted in goodwill of $7.6 million and $10.4 million,
respectively, which is being amortized over 40 years from the dates of
acquisition.
 
RESULTS OF OPERATIONS
 
     The following table sets forth, for the periods indicated, certain items
from the Company's statement of income expressed as a percentage of net sales.
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                                1996     1997     1998
                                                                ----     ----     ----
<S>                                                             <C>      <C>      <C>
Net sales...................................................    100.0%   100.0%   100.0%
Cost of goods sold..........................................     43.9     40.5     45.0
                                                                -----    -----    -----
Gross Profit................................................     56.1     59.5     55.0
Selling, general and administrative expenses................     26.8     29.4     29.0
                                                                -----    -----    -----
Income from operations......................................     29.3     30.1     26.0
Interest expense and other, net.............................      5.1      3.5      (.9)
                                                                -----    -----    -----
Income before income taxes..................................     24.2     26.6     26.9
Provision for income taxes..................................      9.1     10.2     10.4
                                                                -----    -----    -----
Net income..................................................     15.1%    16.4%    16.5%
                                                                =====    =====    =====
</TABLE>
 
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
 
     Net Sales. Net sales increased $11.6 million, or 46.5%, to $36.6 million in
1998 from $25.0 million in 1997. The increase was primarily attributable to the
inclusion of sales of Panoramic (acquired on February 28, 1998). The balance of
the increase was due to higher sales of prophy products during 1998 as compared
to 1997 sales levels.
 
     Gross Profit. Gross profit increased $5.2 million, or 35.5%, to $20.1
million in 1998 from $14.9 million in 1997. Gross profit was favorably impacted
by the acquisition of Panoramic and by the increased prophy product sales. Gross
margin decreased to 55.0% of net sales in 1998 from 59.5% in 1997. This decrease
was due to the inclusion of lower margin sales of Panoramic products. The
following factors also contributed to the decrease in the gross margin
percentage: 1) the costs incurred in the transfer and consolidation of the
majority of the manufacturing operations of the Denticator product line from
California to Missouri, 2) the costs incurred in obtaining ISO certification for
the Company's manufacturing facilities in Missouri and Texas, and 3) the costs
incurred in obtaining European Conformity (CE) Mark approval for the Company's
prophy products.
 
                                        9
<PAGE>   10
 
     Selling, General, and Administrative Expenses ("SG&A"). SG&A expenses
increased $3.3 million, or 44.9%, to $10.6 million in 1998 from $7.3 million in
1997 primarily due to the inclusion of expenses of Panoramic. As a percent of
net sales, SG&A expenses decreased to 29.0% in 1998 from 29.4% in 1997.
 
     Income from Operations. Income from operations increased $2.0 million or
26.3%, to $9.5 million in 1998 from $7.5 million in 1997 as a result of the
factors explained above.
 
     Interest Expense. Interest expense decreased from $1.0 million in 1997 to
$0 in 1998. The decrease was due to the retirement of all of the Company's bank
debt with the net proceeds of the Company's initial public offering in November,
1997.
 
     Other Expense (Income). Other expense (income) increased $186,000 to
$(326,000) in 1998 from $(140,000) in 1997 primarily due to higher interest
income and gains on the disposal of assets in 1998 as compared to 1997.
 
     Provision for Income Taxes. Provision for income taxes increased $1.3
million in 1998 to $3.8 million from $2.5 million for 1997 primarily as a result
of higher taxable income.
 
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
 
     Net Sales. Net sales increased $3.4 million, or 15.8%, to $25.0 million in
1997 from $21.6 million in 1996. Sales of prophy products represented
approximately $3.0 million of the increase in net sales which was primarily
attributable to the Denticator acquisition. Sales of the Company's disposable
prophy angle products contributed approximately $2.7 million of the increase
with the remainder primarily attributable to increases in sales of prophy cups
and metal prophy angles. Additionally, sales of polishing pastes and powders
contributed approximately $111,000 and disclosing products contributed
approximately $124,000 to the increase.
 
     Gross Profit. Gross profit increased $2.8 million, or 22.7%, to $14.9
million in 1997 from $12.1 million in 1996. Gross margin increased to 59.5% of
net sales in 1997 from 56.1% in 1996. Gross profit benefited from increased
sales by Denticator, which represented approximately $2.0 million of such
increase. The Company's gross margin improved as a result of: (i) Denticator
initiating injection molding operations in April 1997; (ii) Young Dental
manufacturing its disposable prophy angle components with no outside vendor
support; (iii) consolidating the three Missouri facilities into one Missouri
facility; and (iv) improving production processes through increased automation
of vulcanizing processes and increased in-process inspections which resulted in
significantly improved yields.
 
     Selling, General, and Administrative Expenses. SG&A expenses increased $1.5
million, or 26.6%, to $7.3 million in 1997 from $5.8 million in 1996. As a
percent of net sales, SG&A expenses increased to 29.4% in 1997 from 26.8% in
1996. Denticator added $944,000 to 1997 SG&A as a result of its inclusion for
the full period of 1997. Approximately $225,000 of the increase attributable to
Denticator related to a deferred stock compensation agreement with its President
and Chief Executive Officer, which will end in July 1998 and approximately
$100,000 of the increase related to amortization of goodwill from the
acquisition of Denticator. The Company also incurred additional expenses of
$316,000 related to a first quarter 1997 national disposable prophy angle
promotion to dental professionals. In addition, the Company added certain key
personnel and staff during 1997 in preparation for its initial public offering
as well as re-positioned an executive officer so that his compensation is
expensed as an SG&A item.
 
     Income from Operations. Income from operations increased $1.2 million or
19.1%, to $7.5 million in 1997 from $6.3 million in 1996.
 
     Interest Expense. Interest expense increased $42,000 to $1.0 million in
1997 from $974,000 in 1996. The increase was due to the additional debt incurred
to fund the acquisition of Denticator in July 1996. The debt was retired in
November 1997 from proceeds of the initial public offering.
 
     Other Expense (Income). Other expense (income) increased $263,000 to
$(140,000) in 1997 from $123,000 in 1996 primarily due to inclusion in 1996 of a
write-off of deferred initial public offering costs
 
                                       10
<PAGE>   11
 
expensed as a result of the Company withdrawing its registration statement in
1996 with respect to its proposed public offering in 1995.
 
     Provision for Income Taxes. Provision for income taxes increased $583,000
for 1997 to $2.5 million from $2.0 million for 1996.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     On February 27, 1998, the Company acquired the net assets of Panoramic. The
Company paid approximately $13.9 million in cash plus $1.0 million (62,500
shares) of its common stock. The acquisition was principally financed with cash
remaining from the net proceeds of the Company's initial public offering.
 
     Historically, the Company has financed its operations primarily through
cash flow from operating activities and, to a lesser extent, through borrowings
under its credit facilities. Net cash flow from operating activities was $6.4
million, $4.5 million, and $4.5 million for 1998, 1997 and 1996, respectively.
Capital expenditures for property, plant and equipment were $1.1 million, $.7
million, and $3.2 million in 1998, 1997 and 1996, respectively. Consistent with
the Company's historical capital expenditures, future capital expenditures are
expected to include injection molding equipment, computer numeric controlled
equipment and upgrades to production machinery and to the Company's information
systems. Management believes the Company has adequate liquidity and capital
resources to meet its needs on a short and long-term basis.
 
RECENT FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT
 
     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that all derivatives be
recognized as either assets or liabilities in the statement of financial
position at fair value. The Company is required to adopt this statement no later
than the beginning of fiscal year 2000. The adoption of this statement is not
expected to have an impact on operating results, statement of financial position
or cash flows, as the Company does not currently invest in derivative
instruments.
 
YEAR 2000 ISSUE
 
     Many computer systems are currently based on storing two digits to identify
the year of a transaction (for example, "98" for 1998), rather than a full four
digits, and are not programmed to consider the start of a new century.
Significant processing inaccuracies and even inoperability could result in the
year 2000 and thereafter. In addition, systems not typically regarded as
computer systems but used in manufacturing or administrative functions may
contain embedded technology so that these systems would be unable to interpret
the calendar year 2000 appropriately.
 
     With the objective of minimizing the risk of Year 2000 issues, the Company
set up a program to identify the operating systems software, applications
software and hardware on its information technology ("IT") computer network;
identify the software and equipment of its non-IT systems; and address
compliance of its key business partners. The identification of the IT and non-IT
systems is complete and the assessment for compliance and any remediation of
non-compliance were and are being conducted simultaneously.
 
     With respect to the IT systems, the mainframe operating system and the
accompanying business critical applications have been patched and letter
certified as Year 2000 compliant by the Company's hardware and software vendors.
The personal computers ("PC's"), workstations, servers and PC business
applications have been patched and tested per the vendors' instructions and are
Year 2000 compliant. The Company has a customer data base system which is not
currently Year 2000 compliant. This database is used to track customer
information and is not linked to any accounting system. The Company has
contracted with a vendor to remediate this non-compliance and expects this to be
completed by the end of the third quarter 1999 for less than $25,000. In the
event this is not completed, no information will be lost or unusable, it will
simply be presented in a different format. With respect to the non-IT systems,
the Company has obtained written certification of Year 2000 compliance from its
various administrative and manufacturing equipment vendors.
 
                                       11
<PAGE>   12
 
     In most cases, existing IT and non-IT software was already Year 2000
compliant or was patched with upgraded versions supplied by the vendors. In a
few instances, software was replaced with more current, compliant systems. Due
to the nature of the Year 2000 problem, work in the IT and non-IT areas may
continue until the Year 2000 if the Company's vendors continue to upgrade their
systems with software patches to be installed and tested by the Company.
 
     With respect to key business partners, the Company is in the process of
compiling a compliance list based on the receipt of surveys the Company sent to
its business partners. The Company is continuing to survey its partners during
1999.
 
     There has not been a material adverse impact on the Company's operations or
financial condition as a result of IT and non-IT projects caused by the Year
2000 issue. The Company has annual maintenance contracts with most of its IT and
non-IT vendors, and external costs in the form of vendor software upgrades,
patches and testing programs were covered under these contracts. Current year
costs have been expensed as those costs have been incurred. The remaining
internal and external costs are not expected to materially exceed normal
operating expenses, and the Company has not deferred any significant capital
expenditures due to its Year 2000 efforts.
 
     The Company has not had an independent review of its Year 2000 risk. The
majority of its IT and non-IT systems have already been certified in writing as
Year 2000 compliant. The remediation efforts relative to the customer data base
software remain on schedule. A reasonably possible worst case scenario would be
non-compliance of this software and ultimate replacement that would not have a
material adverse impact on the Company's operations or financial condition. With
respect to its key business partners, there can be no assurance of their
compliance by the end of 1999. A reasonably possible worst case scenario might
include these partners being non-compliant which could result in a material
disruption of the Company's operations.
 
     The Company will continue to closely monitor and assess the progress toward
compliance. The Company has spent less than $50,000 on its Year 2000 compliance
efforts, and expects to spend approximately an additional $25,000 by October 31,
1999 to complete the program. In the event that any of the Company's customers,
distributors, suppliers or vendors is not Year 2000 compliant and experience an
interruption in service that has a material adverse effect on the Company, the
Company will pursue alternative sources of supply or methods of distribution to
our customers.
 
                                       12
<PAGE>   13
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Young Innovations, Inc.:
 
     We have audited the accompanying consolidated balance sheets of Young
Innovations, Inc. (a Missouri corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 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 Young Innovations, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
 
ARTHUR ANDERSEN LLP
 
St. Louis, Missouri,
February 2, 1999
 
                                       13
<PAGE>   14
                             YOUNG INNOVATIONS, INC.

                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                                              December 31
                                                                                        -----------------------
                                                                                           1998       1997

                                     ASSETS

<S>                                                                                     <C>         <C>     
CURRENT ASSETS:
   Cash and cash equivalents ........................................................   $  4,337    $ 12,761
   Trade accounts receivable, net of allowance for doubtful accounts of $184 and $80,
     respectively ...................................................................      5,742       2,774
   Inventories ......................................................................      3,030       2,239
   Other current assets .............................................................      1,677       1,316
                                                                                        --------    --------
           Total current assets .....................................................     14,786      19,090
                                                                                        --------    --------
PROPERTY, PLANT AND EQUIPMENT .......................................................     11,713       7,441
                                                                                        --------    --------
MARKETABLE SECURITIES ...............................................................         --         100
                                                                                        --------    --------
OTHER ASSETS ........................................................................        282         656
                                                                                        --------    --------
INTANGIBLE ASSETS ...................................................................     27,963      18,142
                                                                                        --------    --------
           Total assets .............................................................   $ 54,744    $ 45,429
                                                                                        ========    ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable and accrued liabilities .........................................   $  4,686    $  2,715
                                                                                        --------    --------
           Total current liabilities ................................................      4,686       2,715
                                                                                        --------    --------
NONCURRENT LIABILITIES ..............................................................         --         456
                                                                                        --------    --------
DEFERRED INCOME TAXES ...............................................................      1,857       1,050
                                                                                        --------    --------
STOCKHOLDERS' EQUITY:
   Common stock, voting, $.01 par value, 25,000,000 shares authorized, 6,772,796 and
     6,710,296 shares issued and outstanding in 1998 and 1997, respectively .........         68          67
   Additional paid-in capital .......................................................     26,083      25,131
   Unrealized gain on marketable securities, net of tax..............................         --           9
   Retained earnings ................................................................     22,359      16,310
   Common stock in treasury, at cost, 39,914 shares .................................       (309)       (309)
                                                                                        --------    --------
           Total stockholders' equity ...............................................     48,201      41,208
                                                                                        --------    --------
           Total liabilities and stockholders' equity ...............................   $ 54,744    $ 45,429
                                                                                        ========    ========
</TABLE>




        The accompanying notes are an integral part of these statements.





                                       14
<PAGE>   15



                             YOUNG INNOVATIONS, INC.

                        CONSOLIDATED STATEMENTS OF INCOME
                        (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                Years Ended December 31
                                                     ---------------------------------------------
                                                          1998           1997           1996
                                                          ----           ----           ----

<S>                                                   <C>            <C>            <C>        
NET SALES .........................................   $    36,595    $    24,986    $    21,580
COST OF GOODS SOLD ................................        16,467         10,129          9,470
                                                      -----------    -----------    -----------
           Gross profit ...........................        20,128         14,857         12,110
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ......        10,623          7,333          5,790
                                                      -----------    -----------    -----------
           Income from operations .................         9,505          7,524          6,320
                                                      -----------    -----------    -----------
OTHER EXPENSE (INCOME):
   Interest expense ...............................           --           1,016            974
   Other (income) expense, net ....................         (326)           (140)           123
                                                     -----------     -----------    -----------
                                                            (326)            876          1,097
                                                     -----------     -----------    -----------
           Income before provision for income taxes         9,831          6,648          5,223
PROVISION FOR INCOME TAXES ........................         3,782          2,538          1,955
                                                     ------------    -----------    -----------
           Net income .............................  $      6,049    $     4,110    $     3,268
                                                     ============    ===========    ===========
BASIC EARNINGS PER SHARE ..........................  $        .89    $       .86    $       .74
                                                     ============    ===========    ===========
DILUTED EARNINGS PER SHARE ........................  $        .89    $       .86    $       .74
                                                     ============    ===========    ===========
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING .........     6,762,522      4,775,491      4,444,003
                                                     ============    ===========    ===========
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING .......     6,804,626      4,782,484      4,444,003
                                                     ============    ===========    ===========
</TABLE>






        The accompanying notes are an integral part of these statements.







                                       15
<PAGE>   16




                             YOUNG INNOVATIONS, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

 
   
<TABLE>
<CAPTION>
                                                           Unrealized
                                             Additional     Gain on                                     Common
                                  Common      Paid-In      Marketable    Comprehensive     Retained    Stock in
                                  Stock       Capital      Securities       Income         Earnings    Treasury    Total
                                  -----       -------      ----------       ------         --------    --------    -----

<S>                             <C>        <C>             <C>            <C>             <C>          <C>       <C>     
BALANCE, December 31,
1995.........................   $   42     $   --          $   23                         $  7,056     $   --    $  7,121

     Net income .............       --         --              --         $  3,268           3,268         --       3,268
     Change in unrealized
       gain (loss) on
       marketable
       securities, net of tax       --         --             (11)             (11)             --         --         (11)
                                                                          --------
     Comprehensive income ...                                             $  3,257
                                                                          ========
     Common stock redeemed ..
                                    --         --              --                               --       (329)       (329)
     Common stock in
       treasury, reissued ...       --         --              --                               --          5           5
     Change in shares and
       value of puttable
       common stock .........       --         --              --                              257         --         257
                              --------   --------        --------                         --------   --------    --------
BALANCE, December 31,
 1996 .......................       42         --              12                           10,581       (324)     10,311
     Net income .............       --         --              --         $  4,110           4,110         --       4,110
     Change in unrealized
       gain (loss) on
       marketable
       securities, net of tax       --         --              (3)              (3)             --         --          (3)
                                                                          --------
     Comprehensive income ...                                             $  4,107
                                                                          ========
     Common stock in
       treasury, reissued ...       --         --              --                               --         15          15
     Cancellation of
       puttable common stock         2         --              --                            1,619         --       1,621
     Shares issued in public
       offering .............       23     25,131              --                               --         --      25,154
                              --------   --------        --------                         --------   --------    --------
BALANCE, December 31,
1997 ........................       67     25,131               9                           16,310       (309)     41,208
     Net income .............       --         --              --         $  6,049           6,049         --       6,049
     Change in unrealized
       gain (loss) on
       marketable
       securities, net of tax       --         --              (9)              (9)             --         --          (9)
                                                                          --------
     Comprehensive income ...                                             $  6,040
                                                                          ========
     Additional shares issued        1        999              --                               --         --       1,000
     Equity issuance costs ..       --        (47)             --                               --         --         (47)
                              --------   --------        --------                         --------   --------    --------
BALANCE, December 31,
1998......................... $     68   $ 26,083          $   --                         $ 22,359   $   (309)   $ 48,201
                              ========   ========        ========                         ========   ========    ========
</TABLE>




        The accompanying notes are an integral part of these statements.








                                       16
<PAGE>   17







                             YOUNG INNOVATIONS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                         Years Ended December 31
                                                                                   -----------------------------------
                                                                                      1998        1997        1996
                                                                                      ----        ----        ----
<S>                                                                                 <C>         <C>         <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income.................................................................      $   6,049   $   4,110   $   3,268
                                                                                    ---------   ---------   ---------
   Adjustments to reconcile net income to cash flows from operating
     activities-
       Depreciation and amortization..........................................          1,698       1,280         779
       Deferred income taxes..................................................            661          43         279
       Gain on sale of equipment..............................................            (13)         (5)       (219)
       Changes in assets and liabilities-
         Trade accounts receivable............................................         (2,103)        433        (511)
         Inventories..........................................................           (154)       (447)        196
         Other current assets.................................................           (198)       (117)       (327)
         Other assets.........................................................            (58)         24         445
         Accounts payable and accrued liabilities.............................            560        (854)        563
                                                                                   ----------  ----------  ----------
           Total adjustments..................................................            393         357       1,205
                                                                                   ----------  ----------  ----------
           Net cash flows from operating activities...........................          6,442       4,467       4,473
                                                                                   ----------  ----------  ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Payments for acquisitions, net of cash acquired............................        (13,875)         --      (7,566)
   Purchases of property, plant and equipment.................................         (1,058)       (714)     (3,152)
   Proceeds from sale of property, plant and equipment........................             14          33         802
   Proceeds from sale of marketable securities................................            100         104         204
   Payments on notes receivable...............................................             --          10          18
                                                                                   ----------  ----------  ----------
           Net cash flows from investing activities...........................        (14,819)       (567)     (9,694)
                                                                                   ----------- ----------  ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from Initial Public Offering......................................             --      25,154          --
   Borrowings from long-term debt.............................................             --          --      12,000
   Payments of long-term debt.................................................             --     (11,136)     (8,978)
   Change in revolving line of credit.........................................             --      (5,270)      2,570
   Redeemed common stock......................................................             --          --        (329)
   Reissuance of common stock in treasury.....................................             --          15           5
   Equity issuance costs......................................................            (47)         --          --
                                                                                   ----------- ----------  ----------
           Net cash flows from financing activities...........................            (47)      8,763       5,268
                                                                                   ----------- ----------  ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..........................         (8,424)     12,663          47
CASH AND CASH EQUIVALENTS, beginning of period................................         12,761          98          51
                                                                                   ----------  ----------- ----------
CASH AND CASH EQUIVALENTS, end of period......................................      $   4,337    $ 12,761  $       98
                                                                                   ==========  ==========  ==========
</TABLE>




        The accompanying notes are an integral part of these statements.








                                       17
<PAGE>   18






                             YOUNG INNOVATIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)


1.  DESCRIPTION OF BUSINESS:

Young Innovations, Inc. and its subsidiaries (the Company) develops,
manufactures and markets supplies and equipment used by dentists and dental
hygienists. The Company's product offering includes disposable and metal prophy
angles, cups, brushes, panoramic x-ray machines and infection control products.
The Company's manufacturing facilities are located in Missouri, California,
Indiana and Texas. Export sales were less than 10% of total net sales for 1998,
1997 and 1996. Since the acquisition of Panoramic, the Company has two operating
segments: preventative and diagnostic. The preventative segment produces
disposable and metal prophy products. The diagnostic segment sells and rents
dental x-ray equipment. Management believes it is appropriate to aggregate these
operating segments into a single reportable segment. This aggregation is due to
similarities in economic characteristics, customers, the nature of the products
and the nature of the production processes.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Young Innovations,
Inc. formed in July 1995 and its direct and indirect wholly owned subsidiaries,
Young Dental Manufacturing Company (Young Dental), The Lorvic Corporation
(Lorvic), Denticator International, Inc. (Denticator), Young Acquisitions
Company and Panoramic Rental Corp. (collectively, Panoramic). Denticator is
included since its acquisition on July 22, 1996, and Panoramic is included since
its acquisition on February 27, 1998. All significant intercompany accounts and
transactions are eliminated in consolidation.

The preparation of these financial statements required the use of certain
estimates by management in determining the Company's assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include all highly liquid investments with an initial
maturity of three months or less.

INVENTORIES

Inventories are stated at the lower of cost (which includes material, labor and
manufacturing overhead) or market. Cost is determined by the first-in, first-out
(FIFO) method.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred, and additions and improvements
that significantly extend the lives of assets are capitalized. Upon disposition,
cost and accumulated depreciation are eliminated from the related accounts and
any gain or loss is reflected in other income or expense. The Company provides
depreciation using the straight-line method over the estimated useful lives of
the assets ranging from 3 to 39 years.








                                       18
<PAGE>   19





MARKETABLE SECURITIES

Marketable securities are reflected at fair value with the corresponding impact
included as a component of stockholders' equity designated "unrealized gain on
marketable securities, net of tax." Marketable securities were sold during 1998.

OTHER ASSETS

Other assets include costs related to patents issued to the Company and pending
patent applications. Capitalized patent costs are amortized on a straight-line
basis over the estimated useful lives of the patents, generally 17 years.

INTANGIBLE ASSETS

Intangible assets, consisting of goodwill, are stated at cost less accumulated
amortization. Amortization is determined using the straight-line method over 40
years.

LONG-LIVED ASSETS

If facts and circumstances suggest that a long-lived asset may be impaired, the
carrying value is reviewed. If this review indicates that the carrying value of
the asset will not be recovered, as determined based on projected undiscounted
cash flows related to the asset over its remaining life, the carrying value of
the asset is reduced to its estimated fair value.

ADVERTISING COSTS

Advertising costs are expensed when incurred.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed when incurred and totaled $749, $566
and $597 for 1998, 1997 and 1996, respectively.

REVENUE RECOGNITION

Revenue from the sale of products is recorded at the time of passage of title,
generally when the products are shipped.

EQUIPMENT RENTED TO OTHERS

Since the acquisition of Panoramic in 1998, the Company owns x-ray equipment
rented on a month-to-month basis to customers. Installation costs of the
equipment are capitalized and amortized over four years. A liability for the
removal costs of the equipment expected to be returned to the Company is
included in accounts payable and accrued liabilities at December 31, 1998.

OTHER EXPENSE (INCOME)

Other expense (income) includes interest income, sale of scrap, and other
miscellaneous income and expense items, all of which are not directly related to
the Company's primary business. In 1998, 1997 and 1996, interest income totaled
$216, $121 and $29, respectively. Other 1996 expenses include approximately $322
of deferred offering costs expensed as a result of the Company withdrawing its
registration statement in 1996 with respect to its efforts to go public in 1995.









                                       19
<PAGE>   20





INCOME TAXES

The Company has accounted for income taxes under SFAS No. 109, an asset and
liability approach to accounting and reporting for income taxes. Deferred income
taxes are provided for temporary differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.

SUPPLEMENTAL CASH FLOW INFORMATION

Cash flows from operating activities include $3,379, $2,142 and $1,898 for the
payment of federal and state income taxes and $-0-, $1,116 and $931 for the
payment of interest during 1998, 1997 and 1996, respectively.

3.  ACQUISITIONS:

On February 27, 1998, the Company acquired the assets and assumed certain
liabilities of Panoramic, an Indiana corporation. The Company paid $13,875 in
cash and issued $1,000 (62,500 shares) of common stock. The cash portion of the
purchase price was principally financed with the net proceeds remaining from the
Company's initial public offering. The acquisition was accounted for as a
purchase transaction. The purchase price was allocated based upon estimates of
fair value. The excess of purchase price over the estimated fair value of net
assets acquired (goodwill) was $10,445 and is being amortized over 40 years. The
results of operations for Panoramic are included in the consolidated financial
statements since February 27, 1998.

On July 22, 1996, the Company acquired the assets and liabilities of Denticator
from BioDental Technologies Corp. (BioDental) and an individual. The purchase
price was financed principally through bank debt. The acquisition of Denticator
was accounted for as a purchase transaction. The purchase price was allocated
based upon estimates of fair value. The excess of purchase price over the fair
value of net assets acquired was $7,649 and is being amortized over 40 years.

The following unaudited pro forma information presents a summary of consolidated
results of operations of the Company and Panoramic as if the acquisition had
occurred at the beginning of 1997, with pro forma adjustments to give effect to
amortization of goodwill and certain other adjustments, together with related
income tax effects. The unaudited pro forma information does not purport to be
indicative of the results of operations had these transactions been completed as
of the assumed dates or which may be obtained in the future.

<TABLE>
<CAPTION>
                                                                                          Year Ended
                                                                                         December 31
                                                                                     ---------------------
                                                                                       1998       1997
                                                                                       ----       ----
                                                                                          (Unaudited)
<S>                                                                                   <C>       <C>      
         Net sales..............................................................      $ 38,019  $  34,677
         Net income.............................................................      $  6,151  $   4,163
         Basic earnings per share...............................................      $    .91  $     .86
         Diluted earnings per share.............................................      $    .90  $     .85
</TABLE>











                                       20
<PAGE>   21




4.  CONCENTRATIONS OF CUSTOMERS:

The Company generates trade accounts receivable in the normal course of
business. The Company grants credit to distributors and customers throughout the
world and generally does not require collateral to secure the accounts
receivable. The Company's credit risk is concentrated among two distributors
accounting for 41% and 50% of accounts receivable as of December 31, 1998 and
1997, respectively.

5.  INVENTORIES:

Inventories consist of the following:
<TABLE>
<CAPTION>
                                                                                         December 31
                                                                                     ---------------------
                                                                                       1998       1997
                                                                                       ----       ----

<S>                                                                                    <C>       <C>     
         Finished products......................................................       $ 1,011   $    721
         Work in process........................................................         1,069        975
         Raw materials and supplies.............................................           950        543
                                                                                       -------   --------
                    Total inventories                                                  $ 3,030   $  2,239
                                                                                       =======   ========
</TABLE>


6.  PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                                        December 31
                                                                                   -----------------------
                                                                                      1998        1997
                                                                                      ----        ----

<S>                                                                                <C>         <C>       
         Land.................................................................      $     508   $     348
         Buildings and improvements...........................................          3,880       3,572
         Machinery and equipment..............................................          9,952       9,223
         Equipment rented to others...........................................          4,024          --
                                                                                    ---------   ---------
                                                                                       18,364      13,143

         Less-  Accumulated depreciation......................................         (6,651)     (5,702)
                                                                                    ---------   ---------
                    Total property, plant and equipment, net..................      $  11,713   $   7,441
                                                                                    =========   =========
</TABLE>


7.  OTHER ASSETS:

Other assets consist of the following:

<TABLE>
<CAPTION>
                                                                                             December 31
                                                                                         -----------------
                                                                                           1998     1997
                                                                                           ----     ----

<S>                                                                                        <C>      <C>  
         Patents.....................................................................      $ 210    $ 151
         Other.......................................................................         72      505
                                                                                           -----    -----
                    Total other assets...............................................      $ 282    $ 656
                                                                                           =====    =====
</TABLE>








                                       21
<PAGE>   22





8.  INTANGIBLE ASSETS:

Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                                                        December 31
                                                                                   -----------------------
                                                                                      1998        1997
                                                                                      ----        ----
<S>                                                                                  <C>         <C>     
         Goodwill.............................................................       $ 29,691    $ 19,172
         Less-  Accumulated amortization......................................         (1,728)     (1,030)
                                                                                     --------    --------
                    Total intangible assets...................................       $ 27,963    $ 18,142
                                                                                     ========    ========
</TABLE>


Amortization of goodwill totaled $698, $475 and $368 for 1998, 1997 and 1996,
respectively.

9.   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:

Accounts payable and accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                                          December 31
                                                                                     ---------------------
                                                                                       1998       1997
                                                                                       ----       ----
<S>                                                                                   <C>        <C>     
         Accounts payable.......................................................      $    873   $   357
         Accrued salaries and bonuses...........................................         1,668     1,390
         Accrued expenses and other ............................................         2,145       968
                                                                                      --------   -------
                    Total accounts payable and accrued liabilities..............      $ 4,686    $ 2,715
                                                                                      =======    =======
</TABLE>


10. LONG-TERM DEBT:

As discussed in Note 11, the Company retired its outstanding indebtedness in
November 1997, using the proceeds from the sale of common stock. As such, no
long-term debt was outstanding at December 31, 1998 and 1997.

While borrowings were outstanding, the Company was limited under the terms of
the Loan Agreement in its ability to make loans and investments, incur
additional debt, pay dividends and sell significant assets, among other things,
without the consent of the bank.

11.  COMMON STOCK:

The Company completed an initial public offering of 2,300,000 shares of its
common stock in November 1997, and the net proceeds to the Company, after
deducting the underwriting discount and offering expenses, were $25,154. The
Company used $13,180 of the proceeds to repay borrowings under the Loan
Agreement and invested the remaining proceeds in cash equivalents.

12.  STOCK OPTIONS:

The Company adopted the 1997 Stock Option Plan (the Plan) effective in November
1997 and amended the Plan in 1998. A total of 650,000 shares of Common Stock are
reserved for issuance under this plan which shall be administered by the
compensation committee of the Board of Directors (Compensation Committee).
Participants in the Plan will be those employees whom the Compensation Committee
may select from time to time and those nonemployee directors as the Company's
Board of Directors may select from time to time.












                                       22
<PAGE>   23





A summary of the options outstanding and exercisable are as follows:

    
<TABLE>
<CAPTION>
                                                                                                 Weighted
                                                                                Range of         Average
                                                                                Exercise         Exercise
                                                                  Shares        Prices           Price
                                                                  ------        ------           -----

<S>                                                               <C>       <C>      <C>          <C>   
          Outstanding, January 1, 1997.....................            --          -                  --
          Granted..........................................       235,800   $12.00 - $13.50       $12.03
          Exercised........................................            --          -                  --
          Forfeited........................................         1,200       $12.00            $12.00
                                                                  -------
          Outstanding, December 31, 1997...................       234,600   $12.00 - $13.50       $12.03
                                                                  =======
          Exercisable at December 31, 1997.................        30,000   $12.00 - $13.50       $12.25
                                                                  =======

          Outstanding, January 1, 1998.....................       234,600   $12.00 - $13.50       $12.03
          Granted..........................................       133,000   $12.375 - $17.50      $14.83
          Exercised........................................            --          -                  --
          Forfeited........................................        19,200       $12.00            $12.00
                                                                  -------
          Outstanding, December 31, 1998...................       348,400   $12.00 - $17.50       $13.10
                                                                  =======
          Exercisable at December 31, 1998.................        58,750   $12.00 - $17.50       $13.13
                                                                  =======
</TABLE>


As of January 1, 1999, 131,160 shares are exercisable with a range of exercise
prices from $12.00 - $17.50 with a weighted average price of $13.11.

The Compensation Committee of the Board of Directors establishes vesting
schedules for each option issued under the plan. Outstanding options generally
vest over four years. The exercise price was equal to the fair value of the
common stock at the date of grant. All options expire 10 years from the grant
date.

In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company elected APB Opinion No. 25, "Accounting for Stock Issued to Employee,"
and related interpretations in accounting for the Plan. Accordingly, no
compensation cost has been recognized for the Plan. Had compensation costs for
the Plan been determined based upon the fair value of the options at the grant
date consistent with the methodology prescribed under SFAS No. 123, the
Company's net income and earnings per share would approximate the pro forma
amounts below:


<TABLE>
<CAPTION>
                                                              Year Ended                 Year Ended
                                                           December 31, 1998          December 31, 1997
                                                         ----------------------     ----------------------
                                                              As         Pro            As         Pro
                                                           Reported     Forma        Reported     Forma
                                                           --------     -----        --------     -----

<S>                                                         <C>          <C>           <C>         <C>   
         Net income..................................       $6,049       $5,541        $4,110      $3,890
         Earnings per share:
           Basic.....................................     $    .89       $  .82        $  .86      $  .81
           Diluted...................................     $    .89       $  .81        $  .86      $  .81
</TABLE>


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: (i) dividend yield of 0%; (ii) expected volatility of 45.0% and
70.0% for 1998 and 1997, respectively; (iii) risk free interest rate of 5.3% and
6.0% for 1998 and 1997, respectively; and (iv) expected life of eight years. The
weighted average fair value of the options at the grant date was $9.09 and $9.03
for 1998 and 1997, respectively.








                                       23
<PAGE>   24





13.  EARNINGS PER SHARE:

During 1997, the Company adopted Statement of Financial Accounting Standards No.
128, Earnings per Share. Basic earnings per share (Basic EPS) is computed by
dividing net income by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share (Diluted EPS) include
the dilutive effect of stock options, if any, using the treasury stock method.
For 1996, there were no stock options outstanding. For 1998 and 1997, the
weighted average shares outstanding during the period of 6,762,522 and
4,775,491, respectively, used for Basic EPS, was increased by the dilutive
impact of stock options of 42,104 and 6,993, respectively, for a total of
6,804,626 and 4,782,484 shares, respectively, used for Diluted EPS.

As discussed in Note 10, the Company retired substantially all of its
outstanding indebtedness using the net proceeds from the sale of common stock.
Assuming the Company's revolving line of credit and long-term borrowings were
retired as of January 1, 1997, supplementary earnings per share would be $.80
for the year ended December 31, 1997, reflecting the elimination of interest
expense, net of income taxes, of $628 for 1997. Supplementary earnings per share
assumes 4,775,491 weighted average share outstanding for 1997 plus 1,150,000
shares, representing those shares of common stock sold at the initial public
offering price, the application of the net proceeds therefrom sufficient to
retire $12,400 of average outstanding borrowings for 1997.

14.  INCOME TAXES:

The components of the provision for income taxes are as follows:



<TABLE>
<CAPTION>
                                                                                Years Ended December 31
                                                                           --------------------------------
                                                                               1998       1997       1996
                                                                               ----       ----       ----

<S>                                                                          <C>        <C>        <C>    
          Current.....................................................       $ 3,121    $ 2,495    $ 1,676
          Deferred....................................................           661         43        279
                                                                             -------    -------    -------
                     Total provision for income taxes.................       $ 3,782    $ 2,538    $ 1,955
                                                                             =======    =======    =======
</TABLE>


The income tax provisions are different from the amount computed by applying the
U.S. federal income tax rates to income before provision for income taxes. The
reasons for these differences are as follows:



<TABLE>
<CAPTION>
                                                                                Years Ended December 31
                                                                           --------------------------------
                                                                                1998       1997       1996
                                                                                ----       ----       ----
<S>                                                                          <C>        <C>        <C>    
          Income before provision for income taxes....................       $ 9,831    $ 6,648    $ 5,223
          U.S. federal income tax rate................................            34%        34%        34%
                                                                             -------    -------    -------
                     Computed income taxes............................         3,343      2,260      1,776
          Goodwill amortization.......................................            97         97         97
          Other.......................................................           (26)        14        (19)
                                                                             -------    -------    -------
                     Provision for federal income taxes...............         3,414      2,371      1,854
          State income taxes, net of federal tax benefit..............           368        167        101
                                                                             -------    -------    -------
                     Provision for income taxes.......................       $ 3,782    $ 2,538    $ 1,955
                                                                             =======    =======    =======
          Effective tax rate..........................................            38%        38%        37%
                                                                             =======    =======    =======
</TABLE>


Temporary differences that gave rise to deferred income tax assets and
liabilities are as follows:








                                       24
<PAGE>   25



<TABLE>
<CAPTION>

                                                                                         December 31
                                                                                     ---------------------
                                                                                       1998       1997
                                                                                       ----       ----
<S>                                                                                  <C>        <C>      
         Deferred income tax assets:
           Trade accounts receivable............................................       $    68  $    28
           Inventories..........................................................            56       38
           Accrued liabilities..................................................           539      412
                                                                                       -------  -------
                    Total deferred income tax assets............................           663      478
                                                                                       -------  -------
         Deferred income tax liabilities:
           Property, plant and equipment........................................        (1,010)    (742)
           Intangibles..........................................................          (582)    (129)
           Other................................................................          (265)    (140)
                                                                                       -------  -------
                    Total deferred income tax liabilities.......................        (1,857)  (1,011)
                                                                                       -------   ------
         Net deferred income tax liability......................................       $(1,194)  $ (533)
                                                                                       =======   ======
</TABLE>


Current deferred income tax assets of $663 and $517 are included in other
current assets as of December 31, 1998 and 1997, respectively.

15.  MAJOR CUSTOMERS:

The percentage of net sales to major distributors to total net sales consist of
the following:

<TABLE>
<CAPTION>
                                                                                      Years Ended
                                                                                      December 31
                                                                              -----------------------------
                     Distributor                                                1998      1997      1996
                     -----------                                                ----      ----      ----

<S>                                                                           <C>       <C>       <C>  
          Henry Schein, Inc.................................................  17.4%     17.6%     19.1%
          Patterson Dental Company..........................................  13.1      16.9      17.9
</TABLE>


16.  SALES OF EQUIPMENT RENTED TO OTHERS:

Panoramic periodically sells x-ray equipment that has been rented to customers
in its normal course of business. The Company recognizes revenue for the
proceeds of such sales and records as cost of goods sold the net book value of
the equipment. Net sales and gross profit from sales of the equipment were $801
and $416 for the period from acquisition to December 31, 1998.

17.  EMPLOYEE BENEFITS:

The Company (excluding Panoramic) has a nonqualified bonus plan under which 5%
of base compensation is paid annually to full-time employees in Missouri, Texas
and California who are at least 25 years of age and have at least three years of
service with the Company. Compensation expense related to this plan totaled
$155, $125 and $106 in 1998, 1997 and 1996, respectively. The Company also has a
nonqualified profit sharing plan for its employees (excluding Panoramic).
Compensation expense related to this plan was $442, $189 and $190 in 1998, 1997
and 1996, respectively, and is based on the overall profitability of the Company
(excluding Panoramic). In 1997, Denticator had a nonqualified profit sharing
plan for certain employees in California. Compensation expense related to this
plan was $87 in 1997. Panoramic has a defined contribution 401(k) plan covering
substantially all full-time employees meeting service and age requirements.
Contributions to the Plan can be made by an employee through deferred
compensation and through a discretionary employer contribution. Compensation
expense related to this plan was $26 for 1998. Panoramic has nonqualified bonus
and profit sharing plans covering substantially all employees. Contributions to
the plan are based upon profitability and other performance measurements of
Panoramic. Compensation expense related to these plans was $429 in 1998.










                                       25
<PAGE>   26





18. RELATED-PARTY TRANSACTIONS:

The Company leases a portion of its office space to, pays for services from and
loans funds to, a corporation in which a principal stockholder of the Company
has an equity interest. Rental and other income from such corporation totaled
$13, $13 and $15 in 1998, 1997 and 1996, respectively. As of December 31, 1998
and 1997, the Company had an unsecured note receivable of $48 from such
corporation. The Company paid an aggregate of $14, $12 and $10 for services
provided by such corporation in 1998, 1997 and 1996, respectively.

The Company sells products to, and pays for services from, a corporation in
which a principal stockholder of the Company has an equity interest. Net sales
to such corporation totaled $54, $98 and $34 in 1998, 1997 and 1996,
respectively. Amounts paid for services totaled $7, $9 and $41 in 1998, 1997 and
1996, respectively.

Since the acquisition of Panoramic in 1998, the Company provides administrative
services for a corporation in which an officer of the Company has an equity
interest. This corporation provides financing for certain purchasers of the
Company's products. Net sales of the Company's products through financing
arrangements with such corporation totaled $1,051 during 1998. Net sales from
such corporation totaled $16 in 1998 and the accounts receivable from the
corporation totaled $246 at December 31, 1998.

In April 1997, Denticator purchased the assets of Hot Plastics Technologies,
Inc. ("HPT"), a company that had provided injection molding services for
Denticator. The former President and Chief Executive Officer of Denticator owned
75% of the stock of HPT. The sole consideration paid by Denticator for the
acquisition was the assumption of HPT's liabilities, which aggregated $606 and
included a note payable to the former President and Chief Executive Officer of
Denticator of $104. The Company paid HPT an aggregate of $213 for injection
molding services between January 1, 1997, and the date of HPT's acquisition by
Denticator.

19.  CONTINGENCIES:

In the normal course of business, the Company is subject to certain claims and
lawsuits. Management is not aware of any claims or lawsuits that will have a
material adverse effect on the financial position or results of operations of
the Company.

20.  ACCOUNTING STANDARD NOT YET IMPLEMENTED:

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that all derivatives be
recognized as either assets or liabilities in the statement of financial
position at fair value. The adoption of SFAS 133 is not expected to have a
material effect on the Company's financial position or results of operations as
the Company does not hold any derivative instruments.









                                       26
<PAGE>   27
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
 
     None.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
     Information concerning the Company's directors and executive officers
called for by this item will be included on pages 3, 4 and 10 in the Company's
definitive Proxy Statement prepared in connection with the 1999 Annual Meeting
of Stockholders and is incorporated herein by reference. Such proxy statement
will be filed with the Commission within 120 days after the close of the
Company's fiscal year.
 
ITEM 11. EXECUTIVE COMPENSATION.
 
     Information concerning the compensation of the Company's executives called
for by this item will be included on pages 4 and 5 in the Company's definitive
Proxy Statement prepared in connection with the 1999 Annual Meeting of
Stockholders and is incorporated herein by reference. Such proxy statement will
be filed with the Commission within 120 days after the close of the Company's
fiscal year.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
     Information concerning security ownership of certain beneficial owners and
management called for by this item will be included on pages 9 and 10 in the
Company's definitive Proxy Statement prepared in connection with the 1999 Annual
Meeting of Stockholders and is incorporated herein by reference. Such proxy
statement will be filed with the Commission within 120 days after the close of
the Company's fiscal year.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
     Information concerning certain relationships and related transactions
called for by this item will be included on page 9 in the Company's definitive
Proxy Statement prepared in connection with the 1999 Annual Meeting of
Stockholders and is incorporated herein by reference. Such proxy statement will
be filed with the Commission within 120 days after the close of the Company's
fiscal year.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
 
     (a)(1) Financial Statements -- Reference is made to Item 8 hereof.
 
     (a)(2) Financial Statement Schedule -- The following financial statement
schedule of the Company is included for the years ended December 31, 1996, 1997
and 1998:
 
                 Schedule II Valuation and Qualifying Accounts.
 
     All other financial statement schedules are omitted for the reason that
they are not required or are not applicable, or the required information is
shown in the financial statements or the notes thereto.
 
     (a)(3) Exhibits -- See the Exhibit Index for the exhibits filed as a part
of or incorporated by reference into this report.
 
     (b) Reports on Form 8-K, none
 
                                       27
<PAGE>   28
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
 
Dated: March 22, 1999
 
                                          YOUNG INNOVATIONS, INC.
 
                                          By:    /s/ GEORGE E. RICHMOND
 
                                            ------------------------------------
                                                     George E. Richmond
                                                  Chief Executive Officer
 
     Each person whose signature appears below constitutes and appoints George
E. Richmond and Alfred E. Brennan his true and lawful attorneys-in-fact and
agents, each acting alone, with full powers of substitution and re-substitution
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to this report, and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                   SIGNATURE                                       TITLE                        DATE
                   ---------                                       -----                        ----
<C>                                                 <S>                                    <C>
             /s/ GEORGE E. RICHMOND                 Chief Executive Officer, Director      March 22, 1999
------------------------------------------------    (Principal Executive Officer)
               George E. Richmond
 
             /s/ ALFRED E. BRENNAN                  President, Chief Operating Officer,    March 22, 1999
------------------------------------------------    Director
               Alfred E. Brennan
 
           /s/ ARTHUR L. HERBST, JR.                Executive Vice President, Chief        March 22, 1999
------------------------------------------------    Financial Officer, Director
             Arthur L. Herbst, Jr.                  (Principal Financial Officer and
                                                    Principal Accounting Officer)
 
            /s/ RICHARD G. RICHMOND                 Vice President, Secretary and          March 22, 1999
------------------------------------------------    Director
              Richard G. Richmond
 
             /s/ RICHARD P. CONERLY                 Director                               March 22, 1999
------------------------------------------------
               Richard P. Conerly
 
              /s/ CONNIE H. DRISKO                  Director                               March 22, 1999
------------------------------------------------
                Connie H. Drisko
 
              /s/ JAMES R. O'BRIEN                  Director                               March 22, 1999
------------------------------------------------
                James R. O'Brien
 
              /s/ CRAIG E. LABARGE                  Director                               March 22, 1999
------------------------------------------------
                Craig E. LaBarge
</TABLE>
 
                                       28
<PAGE>   29
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<S>        <C>
 3.1*      Articles of Incorporation of Registrant and Statement of
           Correction
 3.2*      By-Laws of Registrant
10.1*      Escrow Agreement dated May 4, 1995 among Young Dental
           Manufacturing Company, Chemical Venture Capital Associates,
           P. Jeffrey Leck, John F. Kirtley, Richard C. Nemanick,
           Lorvic Holdings, Inc. and Boatmen's Trust Company.
10.2*      Contingent Payment Agreement dated as of May 4, 1995, by and
           between Young Dental Manufacturing Company, The Richard C.
           Nemanick Trust and Boatmen's Trust Company.
10.3*      Young Dental Manufacturing Company Pension Bonus Plan dated
           as of April 12, 1983.
10.4*      Young Dental Manufacturing Company Profit Sharing Plan dated
           as of January 1, 1987.
10.5*      1997 Stock Option Plan of the Registrant
10.6*      Employment Agreement dated October 8, 1997, by and between
           Young Innovations, Inc. and Alfred E. Brennan.
10.7**     Asset Purchase and Sale Agreement dated February 16, 1998
           between Registrant and Panoramic Corporation.
21***      Subsidiaries of the Registrant
23***      Consent of Independent Accountants
24         Power of Attorney (included on Signature page)
27***      Financial Data Schedule
</TABLE>
 
-------------------------
*   Filed as an Exhibit to Registrant's Registration Statement No. 333-34971 on
    Form S-1 and incorporated herein by reference.
 
**  Filed as an Exhibit to Registrant's Current Report on Form 8-K filed on
    March 11, 1998 and incorporated herein by reference.
 
*** Filed herewith.
 
                                       29
<PAGE>   30
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
TO YOUNG INNOVATIONS, INC.:
 
     We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Young Innovations, Inc. and
subsidiaries included in the Young Innovations, Inc. Form 10-K Annual Report and
have issued our report thereon dated February 2, 1999. Our audits were made for
the purpose of forming an opinion on those statements taken as a whole. Schedule
II included in this Form 10-K Annual Report is the responsibility of the
Company's management and is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
 
ARTHUR ANDERSEN LLP
 
St. Louis, Missouri
February 2, 1999
 
                                       S-1
<PAGE>   31
 
                            YOUNG INNOVATIONS, INC.
 
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                   YEARS ENDED DECEMBER 31, 1996, 1997, 1998
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                     ADDITIONS
                                                             --------------------------
                                                 BALANCE     CHARGED TO                                  BALANCE
                                                BEGINNING    COSTS AND                                   AT END
                                                 OF YEAR      EXPENSES     ACQUISITIONS    DEDUCTIONS    OF YEAR
                                                ---------    ----------    ------------    ----------    -------
<S>                                             <C>          <C>           <C>             <C>           <C>
Allowance for doubtful
Receivables
1996........................................       32            22             --             --           54
1997........................................       54            26             --             --           80
1998........................................       80            87             37             20          184
</TABLE>
 
                                       S-2