UNITED STATES
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, 2003
  
  Commission file number 0-13875  Lancer
Corporation (Exact name of registrant as specified in its
charter)  Texas
  
  74-1591073(State or other jurisdiction of
  incorporation or organization)
  
  (IRS Employer
  Identification No.)6655 Lancer Blvd., San Antonio, Texas
  
  78219(Address of principal executive offices)
  
  (Zip Code)Registrants telephone number, including
  area code (210) 310-7000Securities registered pursuant to
  Section 12 (b) of the Act:NONESecurities registered pursuant to
  Section 12 (g) of the Act:Common Stock, par value $.01 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. YESo  NO  ý  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.ý  Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). YESo  NO  ý  On June 28, 2003, (the last business day of the registrants most
recently completed second fiscal quarter on which the common equipy was traded)
the aggregate market value of Common Stock held by non-affiliates (based on the
closing market price) was $29,190,545. 
For purposes of this computation, all executive officers, directors and
5% beneficial owners of the registrant are deemed to be affiliates.  Such determination should not be deemed to
be an admission that such officers, directors or 5% beneficial owners are, in
fact, affiliates of the Company.  The number of shares of the registrants common stock outstanding as of
June 22, 2004 was 9,432,121.  DOCUMENTS INCORPORATED BY REFERENCE  None 
     PART I  ITEM 1.BUSINESS  General  Lancer designs, engineers, manufactures and markets fountain soft
drink, beer and citrus beverage dispensing systems, and other equipment for use
in the food service and beverage industry. 
Lancer also markets frozen beverage dispensers manufactured by a joint
venture that is 50% owned by the Company. 
Lancers products are sold by Company personnel and through independent
distributors and agents principally to major soft drink companies (primarily
The Coca-Cola Company), bottlers, equipment distributors, beer breweries,
restaurants and convenience stores for use in various food and beverage
operations.  The Company is a vertically
integrated manufacturer whose tooling, production, assembly and testing
capabilities enable it to fabricate a substantial portion of the components
used in Company products.  In addition,
the Company is an innovator of new products in the beverage dispensing industry
and has a large technical staff supported by state-of-the-art engineering
facilities to develop these new products and to enhance existing product lines
in response to changing industry requirements and specific customer demands.  The Company was incorporated in Texas on December 18, 1967, and initially
manufactured parts for beverage dispensing equipment.  The Company designed, engineered, manufactured and marketed its
first mechanically cooled soft drink dispensing system in 1971.  Since that time, the Company has expanded
its engineering and production facilities and has developed new products,
including various configurations of the Companys mechanically and ice cooled
beverage dispensing systems, syrup pumps, carbonators and other related
equipment, accessories and parts.  The Beverage Dispensing
Industry  The manufacture of fountain soft drink and other beverage dispensing
systems is a rapidly changing industry. 
Technological changes and improvements continue to be reflected in the
development, manufacture and introduction of new products and processes.  Manufacturers of such beverage dispensing
systems generally sell most of their products to one or more major soft drink
companies, licensed bottlers, large international breweries, equipment
distributors and food service chains. 
In order to facilitate sales of their beverage products to end-users,
soft drink companies and some breweries, and their respective affiliates, in
turn sell or lease the dispensing systems to restaurants, convenience stores,
concessionaires and other food and beverage operators.  Soft drink companies generally recommend
that their affiliates purchase beverage dispensing systems from approved
manufacturers.  Informal, long-term
relationships between certain manufacturers and soft drink companies have
become the norm in the industry.  Products  The Companys products can be divided into four major categories: (i)
fountain soft drink, citrus, and frozen beverage dispensers; (ii) post-mix
dispensing valves; (iii) beer dispensing systems; and (iv) other products and
services.  Soft Drink, Citrus, and Frozen Beverage Dispensers  The Company manufactures and sells a broad range of mechanically cooled
and ice cooled soft drink and citrus dispensing systems.  These systems are non-coin operated.  The type of equipment and configuration of
each model varies according to intended use and specific customer needs.  The Companys mechanically cooled dispensing
systems chill beverages as they run through stainless steel tubing inside a
self-contained refrigeration unit.  In
the Companys ice cooled dispensing systems, the beverage is cooled as it runs
through stainless steel tubing encased in an aluminum cold plate which serves
as the heat transfer element when covered with ice.  Several of the ice cooled systems also dispense ice.  The Company manufactures both post-mix and
pre-mix dispensing equipment for each of the mechanically cooled and ice cooled
fountain systems.  Lancer manufactures several models of mechanically cooled citrus
dispensing systems for counter top use. The Coca-Cola Company is the primary
customer for the Companys citrus dispensing products.  2 
   Lancer FBD Partnership, Ltd., a joint venture in which Lancer owns a
50% interest, manufactures frozen beverage dispensers.  The joint venture sells directly to most
third party customers, and in certain situations, pays a commission to Lancer
in return for marketing services.  The prices of the Companys dispensing systems vary depending on
dispensing capacity, number of drink selections, speed of beverage flow and
other customer requirements.  Sales of
soft drink, citrus, and frozen beverage dispensers for the years ended
December 31, 2003, 2002 and 2001, accounted for approximately 37%, 45% and
41% of total sales, respectively.  Post-Mix Dispensing Valves  The Company manufactures and sells post-mix dispensing valves which mix
syrup and carbonated water at a preset ratio. 
The valves are designed to be interchangeable with existing post-mix
valves used with Coca-Cola products. 
The Company manufactures accessories for the valves, including
push-button activation, water-only dispensing mechanisms, portion controls and
other automatically activated valve controls. 
The Companys primary valve, the LEV, has been designated by The
Coca-Cola Company as the standard valve for the U.S. market.  Lancer uses the LEV in many of its own
dispensing systems, and also sells the valve to competing equipment
makers.  For the years ended
December 31, 2003, 2002 and 2001, sales of valves and related accessories
accounted for approximately 11%, 10% and 11% of total net sales, respectively.  Beer Dispensing Systems  The Company manufactures and markets beer dispensing equipment and
related accessories.  Products include
chillers, taps, fonts and dispensers. 
Lancers operations in Australia and New Zealand account for most of the
Companys sales of beer related equipment. 
Sales of beer equipment represented 10%, 6% and 5% of total net sales in
the years ended December 31, 2003, 2002 and 2001, respectively.  Other Related Products and Services  The Company remanufactures various dispensing systems and sells
replacement parts in connection with the remanufacturing process.  Revenues from remanufacturing activities
were 6%, 6% and 5% of net sales in the years ended December 31, 2003, 2002
and 2001.  The Company manufactures and/or markets a variety of other products
including syrup pumps, carbonators, stainless steel and brass fittings, carbon
dioxide regulator components, water filtering systems, and a variety of other
products, accessories, and spare parts for use with beverage dispensing
systems.  The Company has an operation
in Brisbane, Australia that installs and services beverage equipment.  Prior to March 31, 2002, Lancer also
provided logistics services to certain of its customers.  Together, these parts and services
constitute 36%, 33% and 38% of the Companys total net sales for the years
ended December 31, 2003, 2002 and 2001, respectively.  The Company owns a 50% interest in a development stage joint venture
that markets concentrated shelf-stable milk products.  The investment is accounted for under the equity method.  Product Research and
Development  In order to maintain its competitive position, the Company continuously
seeks to improve and enhance its line of existing beverage dispensing systems
and equipment, and to develop new products to meet the demands of the food and
beverage industry.  Some projects are
originated by Company personnel while others are initiated by customers.  The Company has, from time to time, entered
into agreements with customers to design and develop new products.  For the years ended December 31, 2003,
2002 and 2001, Company-sponsored research and development expenses were $2.1
million, $2.3 million and $2.4 million, respectively.  Production, Inventory
and Raw Materials  The Companys major products typically contain a number of metal and/or
plastic parts that are manufactured by the Company.  The production of these parts usually requires metal dies,
fixtures, thermal plastic injection molds, and other tooling, some of which are
produced in the Companys tool and die and mold departments.  Other manufacturing processes include
welding, polishing, painting, tube bending, metal turning, stamping, and  3 
   assembling of printed circuit boards and wire harnesses.  The Company assembles the various parts and
components into finished products, or sells them as spare parts.  Substantially all raw materials and parts not manufactured internally
are readily available from other commercial sources.  The Company has not experienced any significant shortages in the
supply of its raw materials and parts over the past several years.  Shortages can occur from time to time, however,
and could delay or limit the manufacture of the Companys products. Such a
disruption could adversely affect the Companys operations.  The Company does not stockpile large amounts
of raw materials and parts, but attempts to control its inventory through
extrapolation of historical production requirements and by using its specific
knowledge of the market.  In addition,
the Company would be able to manufacture some purchased parts if shortages of
these parts were to occur.  There can be
no assurances, however, that these measures will be entirely successful or that
disruptive shortages will not occur in the future.  Backlog  The Companys manufacturing operations are driven by actual and
forecasted customer demand. The Companys backlog of unfilled orders was
approximately $3.7 million, $5.2 million and $7.8 million at December 31,
2003, 2002 and 2001, respectively.  It
is anticipated that 2003 backlog orders will be filled in 2004.  Marketing and
Customers  The Companys products are marketed in the United States through a
network of independent distributors and salaried sales representatives.  The principal purchasers of Company products
are major soft drink companies, bottlers, breweries, beverage equipment dealers,
restaurants, convenience stores and other end users.  Substantially more than half of the Companys sales are derived from,
or influenced by, The Coca-Cola Company. 
Lancer is a preferred supplier to The Coca-Cola Company.  Direct sales to The Coca-Cola Company, the
Companys largest customer, accounted for approximately 28%, 35% and 36% of the
Companys total net sales for the years ended December 31, 2003, 2002 and
2001, respectively.  None of the
Companys customers, including The Coca-Cola Company, are contractually
obligated to purchase minimum quantities of Lancer products.  Consequently, The Coca-Cola Company has the
ability to adversely affect, directly or indirectly, the volume and price of
the products sold by the Company. 
Lancer does not expect any significant, long-term volume or price
reductions in its business with The Coca-Cola Company.  If they were to occur, however, such
reductions would have a material adverse impact on the Companys financial
position and its results of operations.  The Company and The Coca-Cola Company have entered into a master
development agreement that governs development of various products.  Products that are developed pursuant to this
agreement may be sold only to The Coca-Cola Company or its designated agents.  The agreement generally provides that The
Coca-Cola Company will also retain the rights to any tooling it pays for and
any resulting patents.  The Company is
obligated under the development agreement to make its manufacturing
capabilities available for the benefit of The Coca-Cola Company as they relate
to, and are required for, selected projects. 
The Company supplies engineering and research and development personnel,
designs, develops and creates prototypes, and obtains either an exclusive or a
non-exclusive license to manufacture and market the resulting products.  Generally, the Company warrants all such
products for one year.  The Coca-Cola
Company may terminate the development agreement at any time, subject to certain
conditions.  The Company and The Coca-Cola Company have also entered into agreements
under which the Company remanufactures used products owned by The Coca-Cola
Company.  International Sales  For the years ended December 31, 2003, 2002 and 2001, the
Companys sales to customers outside the United States were approximately 36%,
32% and 30% of total net sales, respectively. 
The Company has sales employees, distributors, and/or licensees in Latin
America, Europe, Africa and Asia.  The
Company manufactures products in Australia and Mexico, and operates warehouses
in Belgium, Ecuador, New Zealand, and the United Kingdom.  The Companys foreign sales and operations could be adversely affected
by foreign currency fluctuations, exchange controls, tax policies,
deterioration of foreign economies, the expropriation of Company property, and
other political  4 
   actions and economic events. 
Although the Company attempts to limit such risks, there can be no
assurance that these efforts will be successful.  Financial Information
About Segments and Geographic Areas  The Company organizes its business into the following geographical
segments:  the North America region, the
Latin America region, the Asia/Pacific region, and the Europe region.  The North America region consists of the
United States and Canada.  The Europe
region includes the Middle East and Africa. 
The Brazil segment is reported as discontinued operations for 2003, 2002
and 2001 in the Consolidated Statement of Operations.  See Notes to Consolidated Financial Statements, Note 2 -Discontinued
Operations.  The Companys net sales and operating income for 2003, 2002 and 2001
follow (amounts in thousands):  North
  America
  
  Latin
  America
  
  Asia/Pacific
  
  EuropeNet Sales:2003
  
  $
  75,924
  
  $
  7,690
  
  $
  21,645
  
  $
  8,2412002
  
  97,575
  
  13,351
  
  18,555
  
  9,5342001
  
  87,770
  
  9,816
  
  15,303
  
  9,856Operating Income:2003
  
  $
  10,517
  
  $
  117
  
  $
  3,660
  
  $
  272002
  
  17,430
  
  1,979
  
  1,785
  
  1,3602001
  
  11,115
  
  587
  
  1,446
  
  1,601  Additional financial information about segments and geographic areas is
set forth in Notes to Consolidated Financial Statements, Note 13 - Segment and
Geographic Information.  Competition  The business of manufacturing and marketing beverage dispensing systems
and related equipment is highly competitive and is characterized by rapidly
changing technology.  Competition is
primarily based upon product suitability, reliability, technological
development and expertise, price, product warranty and delivery time.  The Company believes its competitive
position is strong because of its ability to tailor quality products and
service to fit the needs of its main customers.  The Company frequently competes with other companies that have
substantially greater financial resources than the Company, which can be a
disadvantage.  The Company has been able
to compete successfully in the past, however, and believes it will be able to
do so in the future.  Employees  As of December 31, 2003, the Company had 1,197 full-time employees
of whom 56 were engaged in engineering and technical support, 931 in
manufacturing, 110 in marketing and sales and 100 in general management and
administrative positions.  There are 415
employees that work in the United States, primarily at the Companys facilities
in San Antonio, Texas.  There are 588
employees that work at the Companys facility in Piedras Negras, Mexico, and a
total of 125 people are employed by the Companys subsidiaries in Australia and
New Zealand.  Certain sales
representatives are located in various parts of the United States, Latin
America, Europe and Asia.  None of the
U.S. employees are represented by a union or are subject to collective
bargaining agreements.  Substantially
all full-time United States employees are eligible to participate in the
Companys employee profit sharing plan and various other benefit programs.  Intellectual Property  The Company presently owns 82 United States patents and numerous
corresponding foreign patents. 
Additionally, it has 30 pending U.S. patent applications and
corresponding foreign patent applications. 
The Companys products covered by patents or pending patent applications
include food, beverage and ice beverage dispensing equipment  5 
   and components.  The patents
have a remaining life of 1 to 18 years. 
Management does not believe the expiration of such patents will have a
significant adverse impact on continuing operations.  The Company seeks to improve its products and to obtain patents on these
improvements.  As a result, the Company
believes its patent portfolio will expand, thereby lessening its reliance on
any one particular patent.  The Company
also believes its competitive position is enhanced by its existing patents and
that any future patents will continue to enhance this position.  There can be no assurance, however, that the
Companys existing or future patents will continue to provide a competitive
advantage, nor can there be any assurance that the Companys competitors will
not produce non-infringing competing products.  In addition to Company-owned patents, Lancer has assigned patents to
the Companys customers, primarily The Coca-Cola Company.  These patents are the result of special
development projects between Lancer and its customers.  These projects are typically paid for by the
customer, with Lancer either retaining licenses to manufacture the products
covered by these patents for the customer, or granting such licenses to the
customer.  The Company occasionally
acquires patent protection for products that are complimentary to products
whose patents are controlled by third parties.  The name Lancer is the federally registered trademark of the
Company.  It is also registered in many
foreign countries.  In certain
instances, the Company grants a non-exclusive license to its distributors,
primarily foreign, to use the trademark subject to control by the Company.  Environmental Matters  The Companys operations are subject to increasingly stringent federal,
state, local, and foreign laws and regulations relating to the protection of
the environment.  In the United States,
these environmental laws and regulations, which are implemented by the
Environmental Protection Agency and comparable state agencies, govern the
management of hazardous waste, the discharge of pollutants into the air and
into surface and ground water, and the manufacture and disposal of certain
substances.  There are no material environmental claims pending or, to the Companys
knowledge, threatened against the Company. 
The Company also believes that its operations are in material compliance
with current U.S., state, and foreign laws and regulations.  The Company estimates that any expenses
incurred in maintaining compliance with current laws and regulations will not
have a material effect on the Companys earnings or capital expenditures.  The Company can provide no assurance,
however, that the current regulatory requirements will not change, or that
currently unforeseen environmental incidents will not occur, or that past
non-compliance with environmental laws will not be discovered on the Companys
properties.  Seasonality  The Companys net sales in the fourth quarter of its fiscal years have
frequently been lower than in other quarters because of seasonality in the
capital spending budgets of many of the Companys customers.  See Notes to Consolidated Financial
Statements, Note 12  Quarterly Financial Information.  ITEM 2.PROPERTIES  The Companys primary manufacturing and administrative facility is
located in San Antonio, Texas. The Company-owned 346,000 square foot building
is located on a 40-acre tract of land in the southeast sector of San
Antonio.  In Piedras, Negras, Mexico,
the Company owns two buildings with a combined 195,000 square feet of
manufacturing, warehouse and office space, and leases an additional 30,000
square foot warehouse facility. The Company also leases a small facility in
Auckland, New Zealand, a 42,846 square foot plant in Beverley, South Australia,
a suburb of Adelaide, and small facilities in Brisbane, Melbourne, and Sydney,
Australia; Brussels, Belgium; Quito, Ecuador; Cheshire, England; and Monterrey,
Mexico.  The Company leases
approximately 233,000 square feet of space throughout the world.  Total net rent expense for real estate was $1.1 million, $1.0 million
and $1.2 million in 2003, 2002 and 2001, respectively.  Total rent expense includes $89,000 in 2003,
2002 and 2001 for certain properties leased from a partnership controlled by
certain shareholders.  See Item 13 -
Certain Relationships and Related Transactions for more information and Notes
to Consolidated Financial Statements, Note11 - Commitments and Contingencies -.  6 
   ITEM 3.LEGAL PROCEEDINGS  In August of 2003, the US Attorneys Office informed the Company
that it was conducting an investigation arising from allegations raised in a
lawsuit against The Coca-Cola Company by a former Coca-Cola employee, Matthew
Whitley and requested certain information, which the Company supplied. On
January 13, 2004, the Company received written notice that the SEC had
issued a formal order of investigation, dated December 2, 2003,  that appears to concern matters which were
the subject of the Audit Committee investigation, including allegations
contained in the Matthew Whitley lawsuit against the Coca-Cola Company. The
Company is unable at this point to predict the scope or outcome of these
investigations. The Company has cooperated, and intends to continue to
cooperate, with both the US Attorneys Office and the SEC investigations.  On May 14, 2004, a purported class action, cause number 04-CV-427,
naming as defendants the Company, George F. Schroeder, David F. Green and The
Coca-Cola Company was filed in the United States District Court for the Western
District of Texas by TDH Partners. The action alleges that the defendants
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder. Specifically, the complaint alleges that
during the period October 26, 2000 to February 4, 2004, the
defendants engaged in a pattern of fraudulent conduct involving the issuance of
a series of false and misleading statements because they materially described
inaccurately the nature of Lancers revenue, with a goal of manipulating the
sales of fountain products. The action also alleges that Lancers public
statements failed to fully reveal that it had major manufacturing problems,
which resulted in a high defect rate in its products and that Lancer engaged in
a fraudulent scheme with its largest customer, to artificially create demand
for a new line of soda machine dispensers that Lancer was manufacturing for the
customer to sell to its commercial customers. No specific amount of damages has
been claimed.  Neither the Company nor
George F. Schroeder has been served with the lawsuit as of the date of this
filing.  The Company intends to vigorously defend itself against Plaintiffs
claims. Due to the uncertainty of litigation, and the early stage of the
proceedings, the Company is unable to express an opinion as to the probable or
likely outcome of this litigation or an estimate of the amount or range of
potential loss in the event of an unfavorable outcome.  ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS  No matter was submitted to the security holders for a vote by proxy or
otherwise during the fourth quarter of the year ended December 31, 2003.  PART II  ITEM 5.MARKET FOR REGISTRANTS COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS  The Companys common stock is currently traded on the American Stock
Exchange (AMEX) under the symbol LAN. 
The following table sets forth the range of high and low market price as
reported by the AMEX for the periods indicated.  Market Price For Common Stock  2004
  
  2003
  
  2002Quarter
  
  High
  
  Low
  
  High
  
  Low
  
  High
  
  LowFirst *
  
  $
  7.65
  
  $
  5.95
  
  $
  10.13
  
  $
  5.80
  
  $
  5.80
  
  $
  4.90Second
  
  
  
  
  
  7.35
  
  5.95
  
  6.99
  
  5.32Third
  
  
  
  
  
  6.90
  
  3.71
  
  6.49
  
  5.14Fourth
  
  
  
  
  
  7.00
  
  4.52
  
  9.35
  
  6.25  The AMEX halted
trading in Lancer shares from February 3, 2004 until May 20, 2004.  On May 27, 2004, the closing price of the Companys common stock, as
reported by the AMEX, was $6.20 per share. 
On that date, there were 229 holders of record of the Companys common
stock, not including shares held by  7 
   brokers and nominees.  The
Company believes that there are approximately 2,000 beneficial owners of the
Companys common stock.  The Company has
not declared a cash dividend on the common stock to date.  It is a general policy of the Company to
retain earnings to support future growth.  Equity
Compensation Plan Information  Plan Category
  
  Number of
  securities to be
  issued upon exercise of
  outstanding options,
  warrants and rights
  (a)
  
  Weighted
  average exercise
  price of outstanding
  options, warrants
  and rights
  (b)
  
  Number of
  securities
  remaining available for
  future issuance
  (excluding securities
  reflected in column (a)
  (c)Equity compensation plan approved by security
  holders
  
  332,916
  
  $
  5.51
  
  470,284Equity compensation plan not approved by
  security holders
  
  41,800
  
  $
  8.13
  
  158,200Total
  
  374,716
  
  $
  5.81
  
  628,484  The Company has established the Lancer Corporation Stock Option Plan of
2002, which provides for the grant of options to purchase shares of common
stock of the Company to officers and key employees and non-employees of the
Company, such as Board members. The plan is administered by the Compensation
Committee.  The Companys executives are
encouraged to own shares of Lancer Corporation common stock, thereby aligning
the interests of management with those of shareholders and tying executive
compensation to long-term company performance. The maximum number of shares
underlying the awards under the Option Plan of 2002 is 200,000. All options
granted pursuant to this plan expire no later than ten (10) years after the
date of grant.    For additional
information concerning the Companys stock option plans, see Notes to
Consolidated Financial Statements, Note 6 - Employee Benefit Plans.  8 
   ITEM 6.SELECTED FINANCIAL DATA (In thousands, except per share amounts)  Years
  Ended December 31,2003
  
  2002
  
  2001
  
  2000
  
  1999Operating Data:Net sales
  
  $
  113,500
  
  $
  139,015
  
  $
  122,745
  
  $
  111,700
  
  $
  127,775Gross profit
  
  29,099
  
  37,090
  
  26,868
  
  25,058
  
  21,483Selling, general and administrative
  expenses
  
  28,613
  
  27,535
  
  22,235
  
  21,286
  
  21,091Operating income
  
  486
  
  9,555
  
  4,633
  
  3,772
  
  392Interest expense
  
  329
  
  1,318
  
  3,128
  
  3,243
  
  3,329Other (income) expense, net
  
  1,326
  
  (51
  )
  (992
  )
  (346
  )
  (2,869
  )Earnings (loss) from continuing operations
  before income taxes
  
  (1,169
  )
  8,288
  
  2,497
  
  875
  
  (68
  )Income tax expense (benefit)
  
  190
  
  2,669
  
  918
  
  342
  
  (121
  )Earnings (loss) from continuing operations
  
  (1,359
  )
  5,619
  
  1,579
  
  533
  
  53Earnings (loss) from discontinued
  operations
  
  592
  
  (1,613
  )
  (177
  )
  25
  
  (4,620
  )Net earnings (loss)
  
  (767
  )
  4,006
  
  1,402
  
  558
  
  (4,567
  )Earnings per share:BasicEarnings (loss) from continuing operations
  
  $
  (0.15
  )
  $
  0.60
  
  $
  0.17
  
  $
  0.06
  
  $
  0.01Earnings (loss) from discontinued
  operations
  
  $
  0.06
  
  $
  (0.17
  )
  $
  (0.02
  )
  $
  
  
  $
  (0.51
  )Net earnings (loss)
  
  $
  (0.09
  )
  $
  0.43
  
  $
  0.15
  
  $
  0.06
  
  $
  (0.50
  )DilutedEarnings (loss) from continuing operations
  
  $
  (0.15
  )
  $
  0.60
  
  $
  0.17
  
  $
  0.06
  
  $
  0.01Earnings (loss) from discontinued
  operations
  
  $
  0.06
  
  $
  (0.17
  )
  $
  (0.02
  )
  $
  
  
  $
  (0.51
  )Net earnings (loss)
  
  $
  (0.09
  )
  $
  0.43
  
  $
  0.15
  
  $
  0.06
  
  $
  (0.50
  )Weighted average shares outstanding:Basic
  
  9,356
  
  9,327
  
  9,127
  
  9,125
  
  9,124Diluted
  
  9,356
  
  9,433
  
  9,315
  
  9,290
  
  9,124Years
  Ended December 31,2003
  
  2002
  
  2001
  
  2000
  
  1999Balance Sheet Data:Total assets
  
  $
  82,278
  
  $
  92,755
  
  $
  96,604
  
  $
  102,392
  
  $
  103,054Short-term debt
  
  3,735
  
  7,726
  
  18,318
  
  24,129
  
  22,683Long-term debt, less current installments
  
  8,268
  
  9,808
  
  11,872
  
  12,724
  
  13,922Shareholders equity
  
  51,963
  
  50,151
  
  44,286
  
  43,533
  
  44,476  ITEM 7.MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The
Company desires to take advantage of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 and is including this
statement for the expressed purpose of availing itself of the protection of the
safe harbor with respect to all of such forward-looking statements. These
forward-looking statements describe future plans or strategies and include the
Companys expectations of future financial results. The Companys ability to
predict results or the effect  9 
   of future plans or strategies is inherently uncertain and the Company
can give no assurance that those results or expectations will be attained.
Factors that could affect actual results include but are not limited to:  general economic
trends;  ability to
service our debt;  availability of
capital sources;  currency
fluctuations;  fluctuations in
operating costs;  competitive
practices in the industry in which we compete;  changes in labor
conditions;  our capital
expenditure requirements;  technological
changes and innovations;  legislative or
regulatory requirements;  operating
changes and product needs of our main customer, The Coca-Cola Company;  the results of
the Securities and Exchange Commission (SEC) and United States Attorney (US
Attorney) investigations (See the Background section below);  losses from
litigation, including the current purported class action; and  All other
factors described herein under Risk Factors.  These and other factors should be considered in evaluating the
forward-looking statements, and undue reliance should not be placed on such
statements.  The Company does not undertake and specifically disclaims any
obligation to update any forward-looking statements to reflect occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.  The following discussion should be read in connection with the
Companys Consolidated Financial Statements, related notes and other financial
information included elsewhere in this document.  Background  In June 2003, the Audit Committee of the Companys Board of
Directors (the Audit Committee) began conducting an internal investigation
(the Investigation). The Investigation was related to allegations raised by a
lawsuit against The Coca-Cola Company by a former Coca-Cola employee, Matthew
Whitley. Although the Company was not a defendant to the lawsuit, certain  allegations contained in the lawsuit
specifically involved the Company. The Investigation was later expanded to
include allegations raised in certain press articles.  The Companys former independent auditors, KPMG LLP, advised that,
until the Investigation was complete, they would not be able to complete their
review of the Companys consolidated financial statements for the second and
third quarters of 2003. Therefore, the Company was unable to file its quarterly
reports for the second and third quarters with the Securities and Exchange
Commission (the SEC). On December 5, 2003, the Company provided
financial information for the second and third quarters of 2003 in exhibits to
a Form 8-K, in order to provide information to the investing public while the
Investigation continued.  The Companys inability to file its quarterly report for the second
quarter of 2003 with the SEC on a timely basis violated the American Stock
Exchange (AMEX) continued listing standards, specifically
Section 1003(d) of the AMEX Company Guide. The Company submitted a formal
action plan to regain compliance with AMEX on September 30, 2003 and AMEX
accepted the plan on October 8, 2003. Since the initial acceptance, the
Company has had to revise the plan with the approval of AMEX in order to
accommodate new developments, including the  10 
   Companys inability to file its annual report on Form 10-K for 2003 and
its quarterly report on Form 10-Q for the first quarter 2004. The plan
currently indicates that the Company expects to regain compliance with the listing
standards on or near June 30, 2004. By accepting the plan and its
revisions, AMEX has provided the Company with an extension of time in order to
regain compliance and is allowing the Company to maintain its listing, subject
to periodic progress reviews by the AMEX staff. If the Company does not make
progress consistent with the plan or regain compliance in a time and manner
acceptable to AMEX, the AMEX staff could initiate delisting procedures. The
Company intends to make all efforts to comply fully with the plan, although no
assurance can be made that it will achieve compliance by the target date or
otherwise progress in a manner acceptable to AMEX.  In August of 2003, the United States Attorneys Office for the
Northern District of Georgia (the US Attorneys Office) informed the Company
that it was conducting an investigation arising from allegations raised in a
lawsuit against The Coca-Cola Company by a former Coca-Cola employee, Matthew
Whitley, and requested certain information, which the Company supplied. In
January 2004, the Company received written notice that the SEC had issued
a formal order of investigation that appeared to concern matters which were the
subject of the Investigation. The Company has fully cooperated, and intends to
continue to cooperate fully, with both the US Attorneys Office and the SEC
investigations. Although the Company is unable at this point to predict the
scope or outcome of these investigations, it is possible that it could result
in the institution of administrative, civil injunctive or criminal proceedings,
the imposition of fines and penalties, and/or other remedies and
sanctions.  The conduct of these
proceedings could adversely affect the Companys business. In addition, the
Company expects to continue to incur expenses associated with responding to
these agencies, regardless of the outcome, and the efforts and attention of our
management team may be diverted from normal business operations. This could
adversely affect our business, financial condition, operating results, and cash
flow.  On January 30, 2004, the Company announced that the Investigation
had concluded and the Audit Committee released a general summary of the
Investigation findings. On February 2, 2004, KPMG resigned from its
position as independent auditors of the Company. In addition, KPMG withdrew its
December 31, 2002, 2001 and 2000 audit reports and advised the Company
that the financial statements and related audit reports should no longer be
relied upon. KPMG stated in a letter to the Company that they had determined
that likely illegal acts, which had been the subject of the Investigation, had
come to their attention and that these likely illegal acts would have a
material effect on the Companys financial statements. Additionally, KPMG
indicated that information had come to their attention that caused them to
conclude that the Companys accounting for revenue recognition in connection
with sales of equipment to Coca-Cola North America Fountain in the years ended
December 31, 2001 and 2002 is not correct and has raised concerns that the
accounting is not correct in each of the three quarters of fiscal year 2003.
The Company has filed the letters from KPMG which outline these assertions and
have responded to them in a Form 8-K, filed with the SEC on
February 10, 2004, and two subsequent amendments to that Form 8-K, filed
with the SEC on February 24, 2004 and March 10, 2004, which have also
been filed hereto as Exhibits 99.1, 99.2 and 99.3.  On March 1, 2004, the Audit Committee engaged BDO Seidman, LLP
(BDO) as the Companys new independent auditor to audit the Companys
financial information for 2003 and preceding fiscal years and review financial
information for prior quarterly periods. This process of audit and review was
completed by BDO on June 16, 2004, 2004. The Company believes that the
filing of this Form 10-K along with the filing of the Form 10-Q/A for the first
quarter 2003, the Forms 10-Q for the second and third quarters of 2003 and the
first quarter of 2004, and the Form 10-K/A for the fiscal year ended
December 31, 2002, make the Company current with their reporting
obligations with the SEC.  On May 14, 2004, a purported class action, cause number 04-CV-427,
naming as defendants the Company, George F. Schroeder, David F. Green and The Coca-Cola
Company was filed in the United States District Court for the Western District
of Texas by TDH Partners. The action alleges that the defendants violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder. Specifically, the complaint alleges that during the
period October 26, 2000 to February 4, 2004, the defendants engaged
in a pattern of fraudulent conduct involving the issuance of a series of false
and misleading statements because they materially described inaccurately the
nature of Lancers revenue, with a goal of manipulating the sales of fountain
products. The action also alleges that Lancers public statements failed to
fully reveal that it had major manufacturing problems, which resulted in a high
defect rate in its products and that Lancer engaged in a fraudulent scheme with
its largest customer, to artificially create demand for a new line of soda
machine dispensers that Lancer was manufacturing for the customer to sell to
its commercial customers. No specific amount of damages has been claimed.
Neither the Company nor George F. Schroeder has been served with the lawsuit as
of the date of this filing.  Although the Company as a whole has faced adversity from the several
potentially distracting events that transpired in the years 2003 and 2004, the
Company has maintained its high level of quality business operations,
solidified its  11 
   existing business relationships and continued to enhance its
competitive position through its dedication to providing quality products and
service. Management expects to continue to execute its existing business plan
in new markets and look for opportunities to increase market share in existing
markets.  Results of Operations  Continuing Operations  Revenues
by Geographic Segment (Amounts
in thousands)  % Change2003
  
  2002
  
  2001
  
  2003 vs
  2002
  
  2002 vs
  2001North America
  
  $
  75,924
  
  $
  97,575
  
  $
  87,770
  
  -22
  %
  11
  %Latin America
  
  7,690
  
  13,351
  
  9,816
  
  -42
  %
  36
  %Asia/Pacific
  
  21,645
  
  18,555
  
  15,303
  
  17
  %
  21
  %Europe
  
  8,241
  
  9,534
  
  9,856
  
  -14
  %
  -3
  %$
  113,500
  
  $
  139,015
  
  $
  122,745
  
  -18
  %
  13
  %  Revenues.  Net sales in 2003 declined 18%, after
increasing 13% in 2002.  Changes in unit
volume caused substantially all of the year-to-year sales fluctuations.  Currency exchange rate fluctuations had a
positive impact of 3% on net sales in 2003, and 1% in 2002. In the North
America region, Lancers largest market, weak overall market conditions in the
foodservice equipment industry decreased the demand for Lancer products.  Additionally, sales were negatively affected
by a significant customers restructuring activities in early 2003. In the
Latin America region, sales fell sharply in 2003, following a considerable
sales increase in 2002. These fluctuations were driven by the Companys sales
in Mexico, which were bolstered in 2002 by an unusually large order that was
shipped in the second half of that year. The lack of similar large orders affected
the regions performance in 2003, as did the continuing poor economic
conditions that have impacted much of Latin America.  Currency exchange rate movements had a negative impact on Latin
America sales of 3% in 2003.  Higher
2003 sales in the Asia/Pacific region were attributable to exchange rate
fluctuations, which had an 18% positive impact on sales in the region.  The opening of a sales office in Melbourne,
Australia and the acquisition of a service operation in Brisbane, Australia
contributed to sales growth in 2002. 
The Companys performance in the more mature Asia/Pacific markets of
Australia and New Zealand was stable, while demand in many of the developing
Asian economies continued to be weak. In Europe, sales in 2003 declined despite
a 13% positive impact from currency exchange rate fluctuations.  The overall sales decline in the region was
due to continued poor demand for fountain equipment in the region, and
production problems with one of the Companys valve products.  Valve shipments rebounded in the fourth
quarter of 2003.  Gross margin.  Gross margin was 25.6%, 26.7% and 21.9% in
2003, 2002 and 2001, respectively.  In
2003, reduced manufacturing spending partially offset the negative impact of
lower factory output.  Additionally, the
Company increased its warranty reserve during the second quarter of 2003, which
resulted in additional warranty expense of $0.3 million.  The Company also took a charge of
approximately $1.2 million relating to inventory that was intended for use in
the production of a customers beverage dispensing platform, and which is
unlikely to be used.  For more
information on this charge, see the Outlook section below.  Gross margin increased in 2002 over 2001
levels because of a more favorable product mix, and because of the higher
factory output to support the strong demand in 2002.  Higher manufacturing volume tends to have a positive impact on
gross margin because a significant portion of the Companys manufacturing costs
is fixed.  Operating expenses.  Selling, general and administrative expenses
were $28.6 million, $27.5 million and $22.2 million in 2003, 2002 and 2001,
respectively.  Spending rose $1.1
million in 2003, driven by $2.5 million of costs associated with the investigation
conducted by the Audit Committee and the investigations conducted by the SEC
and the US Attorneys Office. 
Additionally, the strengthening of foreign currencies against the U.S.
dollar caused expenses to increase by $0.8 million in 2003.  These increases were partially offset by a
$2.0 million decline in 2003 of variable compensation costs based on the
Companys operating performance. In 2002, much of the spending increase was
related to a $3.4 million increase in employee compensation and benefits, most
of which was variable  12 
   based upon Company performance. Also in 2002, professional fees rose
$0.8 million, and bad debt expense rose $0.3 million, primarily from customers
in Latin America.  Non-Operating
Income/Expenses. Interest expense
was $0.3 million in 2003, down from $1.3 million in 2002, and $3.1 million in
2001.  Lower average borrowings,
combined with lower average interest rates attached to those borrowings, have
caused interest expense to decline in recent years.  Loss from joint
ventures was $0.2 million, $0.7 million and $0.3 million in 2003, 2002 and
2001, respectively.  During 2003, the
Companys 50% owned joint venture Lancer FBD Partnership, Ltd. (Lancer FBD)
impaired $0.5 million of inventory relating to a terminated project.  During the first quarter of 2004, the
intended customer for the inventory agreed to reimburse Lancer FBD for the
inventory.  During 2003, the
Company impaired certain assets, resulting in a loss of $1.2 million.  Included in the total is $0.9 million
relating to the writeoff of the Companys investment in a joint venture whose
performance did not support the previous carrying value.  The Company sold
its holdings of common stock in Packaged Ice, Inc. during 2003, resulting in a
gain of $0.2 million.  In 2001, other
income of $1.0 million included a $1.0 million gain relating to the
cancellation of a project, and a $0.3 million write-down of the carrying value
of an impaired investment.  In 2003, the
Company decided to terminate the Domestic International Sales Corporation
election for the Companys subsidiary that exports products from the United
States.  The termination resulted in a
$0.8 million charge to income tax expense. 
Additionally, the IRS completed its audit of the Companys deduction of
its investment in its Brazilian operations, and other matters.  As a result, Lancer reversed certain tax
accruals, resulting in an income tax benefit of $0.3 million.  Loss/Income from
Continuing Operations.  Loss from continuing operations was $1.4 million in 2003,
compared to income of $5.6 million in 2002, and $1.6 million in 2001.  The loss in 2003 was mainly due to the
decline in net sales in 2003, and to additional expenses related to the
investigation conducted by the Audit Committee and the investigations conducted
by the SEC and the US Attorneys Office.  Discontinued
Operations  Lancer decided to close its Brazilian subsidiary during the second
quarter of 2002.  The Brazilian
subsidiarys results are now classified as discontinued operations.  Revenue from discontinued operations was $-0- in 2003, $0.5 million in
2002, and $1.1 million in 2001.  During
2002, the Company recognized $2.1 million for the estimated loss from disposal
of discontinued operations, and incurred a $0.4 million operating loss from
discontinued operations.  Income (net of
tax) from discontinued operations was $0.6 million in 2003, a loss of $1.6
million in 2002, and a loss of $0.2 million in 2001.  Outlook  During 2003, the Company took a charge of approximately $1.2 million on
inventory unlikely to be used as intended in the production of a customers
beverage dispensing platform.  The
Company believes there are no significant alternative uses for the inventory.  Lancer is seeking reimbursement from the
customer for the inventory, as well as for certain expenses relating to the
project, but can make no assurance that it will be successful in obtaining any
reimbursement.  If it were to receive
reimbursement in the future, Lancer would likely recognize income in the amount
of the reimbursement.  During the second half of 2003, the Company incurred $2.5 million of
expenses relating to the Investigation conducted by the Audit Committee, and
the investigations conducted by the SEC and the US Attorneys Office.  The Company will continue to incur expense
from the SEC and US Attorneys investigations and related matters during
2004.  Additionally, the Company will
incur significant additional expense in 2004 from the audit/reaudit of the
Companys financial statements for fiscal years 2000, 2001, 2002 and 2003.  13 
   Critical Accounting
Policies  The Consolidated Financial Statements and Notes to Consolidated
Financial Statements contain information that is important to managements
discussion and analysis.  The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities.  Critical accounting policies are those that reflect significant
judgments and uncertainties and may result in materially different results
under different assumptions and conditions. 
We believe that our critical accounting policies are limited to those
described below.  For a detailed
discussion on the application of these and other accounting policies, see Note
1 - Summary of Significant Accounting Policies in the Notes to Consolidated
Financial Statements.  Revenue Recognition  Revenue is recognized in accordance with the following methods:  (a)At the
time of shipment for all products except for those sold under agreements
described in (b).The Company requires a purchase order for all sales. At the
time of the shipment, risk of ownership and title passes to the customer. The
goods are completely assembled and packaged and the Company has no further
performance obligations.  (b)As produced
and at time of title transfer, for certain products manufactured and warehoused
under production and warehousing agreements with certain customers.  The Company had no such arrangements after
March 31, 2002.  (c)The
Company has entered into an agreement with its major customer to receive
partial reimbursement for design and development.  The reimbursement is offset against cost on a percentage of
completion basis.  (d)The Company
has agreed to provide exclusive rights for use of certain tools to its major
customer.  These tools are included in
fixed assets and are depreciated over the life of the asset.  The corresponding license and maintenance
fees are recorded as deferred income and recognized over the life of the
agreement, which approximates the life of the corresponding asset.  Reserve for Slow
Moving and Obsolete Inventory  The Companys provides for slow moving inventory based on an analysis
of the aging and utility of the inventory. Obsolete inventory is 100% reserved
at the time the product is deemed obsolete due to technological advances and
discontinuation of products. In addition, managements evaluation of the
specific items also influences the reserve. 
The Company believes that the reserve as of  December 31, 2003 is adequate to provide for expected
losses.  Reserve for Medical
Costs and Workers Compensation  The Company maintains a self-insurance program for major medical and
hospitalization coverage for employees and their dependents, which is partially
funded by payroll deductions.  The
estimate of the loss reserves necessary for claims is based on the Companys
estimate of claims incurred as of the end of the year. The Company uses detail
lag reports provided by the insurance administrator to determine an appropriate
reserve balance. The Company has provided for both reported medical costs and
incurred but not reported medical costs in the accompanying Financial
Statements.  The Company has a maximum
liability of $100,000 per participant per policy year.  Amounts in excess of the stated maximum are
covered under a separate policy provided by an insurance company.  The Company is self-insured for all workers compensation claims
submitted by Texas employees for on-the-job injuries. The estimate of the loss
reserves necessary for claims are based on the Companys estimate of claims
incurred as of the December 31, 2003. In addition to detail lag reports
provided by the insurance administrator, the Company uses an injury report to
determine an appropriate reserve balance. The Company has provided for both
reported costs and incurred but not reported costs of workers compensation
coverage in the Financial Statements. 
In an effort to provide for catastrophic events, the Company carries an
excess indemnity policy for workers compensation claims.  All claims paid under the policy are subject
to an annual deductible of $500,000 to be paid by the Company.  Based upon the Companys past experience,
management believes that the Company has adequately provided for potential
losses.  However, multiple occurrences
of serious injuries to employees could have a material adverse effect on the
Companys financial position or its results of operations.  14 
   Goodwill  The Company accounts for goodwill and other intangible assets in
accordance with Statement of Financial Accounting Standards Board No. 142,
Goodwill and Other Intangible Assets, which requires that goodwill and
certain indefinite-lived assets no longer be amortized, but instead be
evaluated at least annually for impairment. 
Other intangible assets are amortized on a straight-lined basis over
their estimated useful lives, which range from eighteen months to fifteen
years.  The determination of the value of goodwill and other intangibles
requires us to make estimates and assumptions about future business trends and
growth.  If an event occurs which would
cause us to revise our estimates and assumptions uses in analyzing the value of
our goodwill or other intangibles, such revision could result in an impairment
chard that could have a material impact on our financial condition and results
of operations.  Goodwill is tested for impairment annually in the third quarter or
whenever an event occurs or circumstances change that may reduce the fair value
of the reporting unit below its book value. 
The impairment test is conducted for each reporting unit in which
goodwill is recorded by comparing the fair value of the reporting unit with its
carrying value.  Fair value is
determined primarily by computing the future discounted cash flows expected to
be generated by the reporting unit.  If
the carrying value exceeds the fair value, goodwill may be impaired. If this
occurs, the fair value of the reporting unit is then allocated to its assets
and liabilities in a manner similar to a purchase price allocation in order to
determine the implied fair value of the goodwill of the reporting unit.  The implied fair value is then compared with
the carrying amount of the goodwill of the reporting unit, and, if it is less,
then the Company would recognizean impairment loss.  Allowance for
Doubtful Accounts  The Company maintains its allowance for doubtful accounts at a balance
adequate to reduce accounts receivable to the amount of cash expected to be
realized on collection. The methodology used to determine the allowance is
based on the Companys prior collection experience. Specific customers
financial strength and circumstance also influence the balance. Accounts that
are determined to be uncollectible are written-off in the period in which they
are determined to be uncollectible.  Liquidity and Capital Resources  General The Companys principal sources of liquidity
are cash flows from operations and amounts available under the Companys lines
of credit. The Company has met, and currently expects that it will continue to
meet, substantially all of its working capital and capital expenditure
requirements, as well as its debt service requirements, with funds provided by
operations and borrowings under its credit facilities.  Cash Provided by Operations and
Capital Expenditures Cash
provided by operating activities was $6.7 million, $18.2 million and $11.9
million in 2003, 2002 and 2001, respectively. The decline in 2003 was caused
largely by the decline in income from continuing operations, along with
declines in accounts payable and accrued expenses. The Company made capital
expenditures of $4.1 million in 2003, primarily for the expansion of a
production facility in Piedras Negras, Mexico, and for equipment and
tooling.  The Company financed the
capital spending and $5.5 million of debt reduction primarily with cash
provided by operating activities and cash on hand.  Additionally, the Company sold its holdings of common stock in
Packaged Ice, Inc., netting proceeds of $0.3 million.  The Company does not expect any significant increase in capital
spending requirements in 2004.  Other Debt The Company has a $1.196 million debt payable
outstanding in relation to its discontinued Brazilian operations that was due
on December 31, 2001. The Company has not repaid the debt, pending discussions
with the payee relating to settlement of the debt, but it has recorded the
balance of the debt plus interest accrued through December 31, 2003 in its
financial statements.  During the second
quarter of 2003, the payee demanded payment of the debt. The Company has not
paid the debt, but has chosen to continue to discuss the status of the debt in
an attempt to reach a settlement.  The
Company can make no assurance that it will be successful in negotiating such a
settlement of the debt. The Company believes that it has the liquidity
available to pay the debt if the circumstances so require, assuming that the
Companys ability to access cash through its credit facility remains unimpeded.
Nonpayment of a material obligation is an event of default under the terms of
the Companys credit facility. The Companys lenders have waived the event of
default caused by the nonpayment of the Brazilian debt.  Credit Facility As of December 31, 2003, the Company
maintained a credit facility with three lenders. The credit facility included a
$25.0 million revolving loan with a December 31, 2003 balance of $1.0 million,
and term loans with a combined December 31, 2003 balance of $9.4 million. On
December 31, 2003, the Company had cash of $1.1 million, and unused
availability of $15.2 million under its revolving loan. As of December 31,
2003, the Company may have been in default under certain provisions of its
Seventh Amendment and Restated Credit Agreement, as amended (the Former Credit
Agreement), as reported by the Company on a Form 8-K filed with the SEC on
April 4, 2004.  Under
Section 5.1(a) of Former Credit Agreement, the Company was required to deliver
copies of its audited consolidated financial statements within 95 days of the
end of each fiscal year. The Company was not able to provide such audited
financial statements in a timely manner, causing it to be in default of the
Former Credit Agreement.  15 
   Additionally, other events or circumstances,
including but not limited to, (i) the Companys inability to comply with
certain financial covenants, (ii) the Companys inability to comply with filing
requirements under the Exchange Act of 1934, as amended, and (iii) the
occurrence of the events described above under Background which may be deemed
to materially and adversely affect the Company, may have also caused additional
defaults under the Former Credit Agreement to have occurred.  On June 30, 2004, the Company and its lenders
entered into the Amended and Restated Credit Agreement (the Credit Agreement)
and all prior defaults were waived. The Credit Agreement (as was the case with
the Former Credit Agreement) provides for available borrowings based on certain
percentages of accounts receivable and inventory and is collateralized by substantially
all of the Companys assets in the United States. Additionally, the Credit
Agreement provides for, among other things, (i) a revolving loan amount of
$10.0 million, which was reduced from the prior amount of $25.0 million, (ii) a
maturity date for the revolving loan of January 31, 2005, which was accelerated
from the prior maturity of July 15, 2005, (iii) an increased interest rate on
outstanding balances of Base Rate (which generally approximates prime) plus 2%,
from performance pricing based on LIBOR (iv) a waiver of the Companys defaults
and events of default under the Former Credit Agreement, and (v) additional
information delivery requirements by the Company, including the delivery of
monthly financial statements.  Other Due mainly to certain cross-default
provisions, the Company was also in default under certain of its guaranties and
a capital lease. All such defaults have been waived as of June 30, 2004.  Contractual
Obligations  The following table provides a summary of the Companys contractual
obligations as of December 31, 2003. 
Additional details about these items are included in the notes to the
consolidated financial statements (amounts in thousands).  Payments
  Due by PeriodContractual obligations
  
  2004
  
  2005
  
  2006
  
  2007
  
  2008 and
  After
  
  TotalIndebtedness
  
  $
  2,735
  
  $
  8,136
  
  $
  132
  
  $
  
  
  $
  
  
  $
  11,003Operating leases
  
  1,090
  
  669
  
  420
  
  368
  
  302
  
  2,849Other
  
  146
  
  147
  
  
  
  
  
  
  
  293Total contractual cash obligations
  
  $
  3,971
  
  $
  8,952
  
  $
  552
  
  $
  368
  
  $
  302
  
  $
  14,145  In addition, the balance of the revolving loan portion of the credit
facility was $1.0 million at December 31, 2003.  Seasonality  The Companys net sales in the fourth quarter of its fiscal years have
frequently been lower than in other quarters because of seasonality in the
capital spending budgets of many of the Companys customers.  See Note 12  Quarterly Financial
Information in the Notes to Consolidated Financial Statements.  Accounting and Tax
Matters  SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, issued in December 2002, amends SFAS No. 123 Accounting for
Stock-Based Compensation to provide alternative methods of transition for a
voluntary change to the fair-value based method of accounting for stock-based
employee compensation.  In addition,
SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results.  The
transition guidance and annual disclosure provisions of SFAS No. 148 are
effective for fiscal years ending after December 15, 2002.  The  16 
   interim disclosure provisions are effective for financial statements
for interim periods beginning after December 15, 2002.  The Company will continue to account for
stock-based compensation using the intrinsic value method under APB Opinion No.
25.  The disclosure modifications
required for fiscal years ending after December 15, 2002 are included in
the notes to these financial statements.  In December 2003, the FASB issued FASB Interpretation No. 46
(revised December 2003)(Interpretation 46), Consolidation of Variable
Interest Entities.  Application of this
interpretation is required in our financial statements for interests in
variable interest entities that are considered to be special-purpose entities
for the year ended December 31, 2003. 
The Company determined that it does not have any arrangements or
relationships with special-purpose entities. 
Application of Interpretation 46 for all other types of variable
entities is required for our Company effective March 31, 2004.  Interpretation 46 addresses the consolidation of business enterprises
to which the usual condition (ownership of a majority voting interest) of
consolidation does not apply.  This
interpretation focuses on controlling financial interests that may be achieved
through arrangements that do not involve voting interests.  It concludes that in the absence of clear
control through voting interests, a companys exposure (variable interest) to
the economic risks and potential rewards from the variable interest entitys
assets and activities are the best evidence of control.  If an enterprise holds a majority of the
variable interests of an entity, it would be considered the primary
beneficiary.  The primary beneficiary is
required to include assets, liabilities and the results of operations of the
variable interest entity in its financial statements.  SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities, issued in April 2003, amends and clarifies financial
accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities.  The Statement is generally effective for
contracts entered into or modified after June 30, 2003.  The adoption of SFAS No. 149 did not have a
material impact on the Companys financial statements.  SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, issued in May 2003,
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity.  The Statement is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities.  The adoption of SFAS No. 150 did not have a
material impact on the Companys financial statements.  Risk Factors  We Are Currently the
Target of Securities Litigation and May Be the Target of Further Actions, Which
May Be Costly and Time Consuming to Defend.  On May 14, 2004, a purported class action, cause number 04-CV-427,
naming as defendants the Company, George F. Schroeder, David F. Green and The
Coca-Cola Company was filed in the United States District Court for the Western
District of Texas by TDH Partners. The action alleges that the defendants
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder. Specifically, the complaint alleges that
during the period October 26, 2000 to February 4, 2004, we engaged in
a pattern of fraudulent conduct involving the issuance of a series of false and
misleading statements because they materially described inaccurately the nature
of our revenue, with a goal of manipulating the sales of fountain products. The
action also alleges that our public statements failed to fully reveal that we
had major manufacturing problems, which resulted in a high defect rate in our
products and that we engaged in a fraudulent scheme with our largest customer,
to artificially create demand for a new line of soda machine dispensers that we
were manufacturing for the customer to sell to their commercial customers. No
specific amount of damages has been claimed.  The ultimate outcome of this matter cannot presently be determined and
may require significant commitment of our financial and management resources
and time, which may seriously harm our business, financial condition and
results of operations.  We cannot assure
you that any of the allegations discussed above can be resolved without costly
and protracted litigation, and the outcome may have a materially adverse impact
upon our financial position, results of operations and cash flows.  17 
   In addition, securities class action litigation has often been brought
against a company following a decline in the market price of its securities.
The uncertainty of the currently pending SEC and US Attorney investigations and
litigation could lead to more volatility in our stock price.  We may in the future be the target of
securities class action claims similar to those described above.  We are Subject to a
Formal SEC Inquiry and an Investigation by the US Attorney.  In August of 2003, the United States Attorneys Office for the
Northern District of Georgia (the US Attorneys Office) informed the Company
that it was conducting an investigation arising from allegations raised in a
lawsuit against The Coca-Cola Company by a former Coca-Cola employee, Matthew
Whitley, and requested certain information, which the Company supplied. In
January 2004, the Company received written notice that the SEC had issued
a formal order of investigation that appeared to concern matters which were the
subject of the Investigation. The Company has fully cooperated, and intends to
continue to cooperate fully, with both the US Attorneys Office and the SEC
investigations. Although the Company is unable at this point to predict the
scope or outcome of these investigations, it is possible that it could result
in the institution of administrative, civil injunctive or criminal proceedings,
the imposition of fines and penalties, and/or other remedies and
sanctions.  The conduct of these
proceedings could adversely affect the Companys business. In addition, the
Company expects to continue to incur expenses associated with responding to
these agencies, regardless of the outcome, and the efforts and attention of our
management team may be diverted from normal business operations which could, in
turn adversely affect our business, financial condition, operating results, and
cash flow. We intend to continue to cooperate with the SEC and comply with the
SECs requests for information.  We
cannot predict when the SEC will conclude its inquiry, or the outcome and
impact thereof.  Our Common Stock Has
Been Subject to a Delisting Action from The American Stock Exchange.  The Companys common stock is traded on the American Stock Exchange
(AMEX) under the symbol LAN. Following the Companys inability to file its
quarterly report for the second quarter of 2003 with the SEC on a timely basis,
we received notice that we were in violation of the AMEX continued listing
standards, specifically Section 1003(d) of the AMEX Company Guide. The
Company submitted a formal action plan to regain compliance with AMEX on
September 30, 2003 and AMEX accepted the plan on October 8, 2003.
Since the initial acceptance, the Company has had to revise the plan with the
approval of AMEX in order to accommodate new developments, including the
Companys inability to file its annual report on Form 10-K for 2003 and its
quarterly report on Form 10-Q for the first quarter 2004. By accepting the plan
and its revisions, AMEX provided the Company with an extension of time in order
to regain compliance and allowed the Company to maintain its listing, subject
to periodic progress reviews by the AMEX staff. We believe that, by filing this
Form 10-K and past periodic reports that were deficient or missing, that we are
now in compliance with Section 1003(d) of the AMEX Company Guide. However,
AMEX has not provided the Company with any final compliance affirmation. If the
Company were to continue to be out of compliance or in violation of other AMEX
continued listing requirements, AMEX could initiate delisting procedures. The
commencement of such delisting procedures and the potential impact on the price
of the Companys common stock could have a material adverse effect on the
Company.  Our Vendors,
Suppliers and Customers May React Adversely to the Lack of Timely SEC Filings
of Our Historical Financial Statements.  Our future success depends in large part on the support of our
suppliers and customers, who may react adversely to the lack of timely SEC
filings of our historical financial statementsNegative publicity about us may
cause some of our potential customers to defer purchases of our products. Our
vendors and suppliers may re-examine their willingness to do business with us,
supply products and services if they lose confidence in our ability to fulfill
our commitments.  Provisions in Our
Certificate of Incorporation and Bylaws and Texas Law Could Delay or Discourage
a Takeover which Could Adversely Affect the Price of Our Common Stock.  Our board of directors has the authority to issue up to 5 million
shares of preferred stock and to determine the price, rights, preferences,
privileges, and restrictions, including voting rights, of those shares without
any further vote or action by holders of our common stock.  If preferred stock is issued, the voting and
other rights of the holders of our common stock may be subject to, and may be
adversely affected by, the rights of the holders of our preferred stock.  The issuance of preferred stock may have the
effect of delaying or preventing a change of control of the Company that could
have been at a premium price to our stockholders.  18 
   Certain provisions of our certificate of incorporation and bylaws could
discourage potential takeover attempts and make attempts to change management
by stockholders difficult.  Our board of
directors has the authority to impose various procedural and other requirements
that could make it more difficult for our stockholders to effect certain
corporate actions.  Any vacancy on our
board of directors may be filled by a vote of the majority of directors then in
office.  In addition, certain provisions of Texas law could have the effect of
delaying or preventing a change in control of the Company.  Section 13.03 of the Texas Business
Corporation Act, for example, prohibits a Texas corporation from engaging in
any business combination with any affiliated shareholder for a period of three
years from the date the person became an affiliated shareholder unless certain
conditions are met.  The Trading Price of
Our Common Stock Has Been, and Is Expected to Continue to Be, Volatile.  The American Stock Exchange, where our stock trades, and stock markets
in general, have  historically
experienced extreme price and volume fluctuations that have affected companies
unrelated to their individual operating performance. The trading price of our
common stock has been and is likely to continue to be volatile due to such
factors as:  Variations in
quarterly results of operations;  Announcements of
new products or acquisitions by our competitors;  Governmental
regulatory action;  Resolution of
pending or unasserted litigation, including the existing purported class
action;  Resolution of
SEC or US Attorney investigations; and  General trends
in our industry and overall market conditions.  Movements in prices of equity securities in general may also affect the
market price of our common stock.  Reliance Upon The
Coca-Cola Company  Substantially more than half of the Companys sales are derived from or
influenced by The Coca-Cola Company. Direct sales to The Coca-Cola Company, the
Companys largest customer, accounted for approximately 28%, 35% and 36% of the
Companys net sales for the years ended December 31, 2003, 2002 and 2001,
respectively. The Company does not have a long-term supply contract with The
Coca Cola Company or its any of its other customers. As a result, The Coca Cola
Company has the ability to adversely affect, directly or indirectly, the volume
and price of the products sold by the Company. While the Company does not
anticipate the loss or reduction in this business or the imposition or
significant price constraints based upon Lancers past experience and current
relations with The Coca Cola Company, any such occurrence would have a material
adverse effect upon the Company and its results of operation.  Competition  The business of manufacturing and marketing beverage dispensing systems
and other related equipment is characterized by rapidly changing technology and
is highly competitive, with competition based primarily upon product
suitability and reliability, price, product warranty, technical expertise and
delivery time. In addition, the Company frequently competes with companies
having substantially greater financial resources than the Company. Although the
Company believes it has been able to compete successfully in the past, there
can be no assurance that it will be able to do so in the future.  Dividends  Since its inception, the Company has not paid, and it has no current
plans to pay, cash dividends on the Common Stock. The Company currently intends
to retain all earnings to support the Companys operations and future growth.
The payment of any future dividends will be determined by the Board of
Directors based upon the Companys earnings, financial condition and cash
requirements, restrictions in financing agreements, business conditions and  19 
   other factors the Board of Directors may deem relevant. The Companys
debt financing agreements prohibit the payment of dividends without lender
approval.  Voting Power  The directors and executive officers of the Company beneficially own
approximately 35% of the outstanding shares of the Common Stock. As a result,
the directors and executive officers of the Company will have the ability to
affect the vote of the Companys shareholders on significant corporate actions
requiring shareholder approval, including mergers, share exchanges and sales of
all or substantially all of the Companys assets. With such voting power, the
directors and executive offers of the Company may also have the ability to
delay or prevent a change in control of the Company.  ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK  Interest Rate
Exposure  On December 31, 2003, substantially all of the Companys $12.0
million of debt outstanding was variable rate debt. Based on exposures on
December 31, 2003, if interest rates were to change by one percentage
point, the Companys annual pretax income would be impacted by approximately
$0.1 million.  The Companys only derivative financial instrument in 2003 was an
interest rate swap that expired in January 2003.  The Company had no derivative financial instruments at
December 31, 2003.  Foreign Exchange
Exposure  In 2003, the Companys subsidiaries with a functional currency other
than the United States dollar incurred operating income of $1.3 million. If the
average annual exchange rate of the functional currencies of those subsidiaries
were to fluctuate by 10% against the United States dollar, the operating profit
of those subsidiaries could be impacted by as much as $0.1 million, when
translated to United States dollars. 
This analysis does not consider the effect of changes in costs, demand,
asset values, or other unpredictable factors that could result from currency
fluctuations.  ITEM 8.FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA  The Financial Statements required to be presented under Item 8 are
hereby incorporated by reference to the Financial Statements beginning at page
F-1 of this Form 10-K (the Financial Statements).  ITEM 9.CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  On February 2, 2004, KPMG LLP resigned from its position as the
Companys independent auditors, as previously reported by the Company on Form
8-K, filed with the SEC on February 10, 2004 and amended on
February 24, 2004 and March 10, 2004.  The Form 8-K and its amendments set forth disagreements as described in
Item 304(a)(1)(iv) of Regulation S-K and reportable events as defined in Item
304(a)(1)(iv) of Regulation S-K. The disagreements relate mainly to the scope,
findings and conclusions of the investigation and proposed remedial action.  The reportable events that were set forth in the Form 8-K and its amendments
relate to KPMGs stated (i) inability to rely on managements representations
or to be associated with the financial statements due to certain investigation
findings as well as the Companys issuance of the January 30 press release
and subsequent press statements, and (ii) conclusion that the accounting for
the Companys revenue recognition in connection with its sales of equipment to
Coca-Cola North America Fountain in the years ended December 31, 2001 and
2002 was not correct and that it raised concerns that the accounting was not
correct in each of the three quarters of fiscal year 2003.  The sales of equipment to Coca-Cola North
America Fountain were made pursuant to an agreement in effect from 2001 to 2002.  The Companys
new independent auditors have audited the Companys financial information for
the years 2000, 2001, 2002  and 2003,
including the Companys revenue recognition in connection with its sales of
equipment to Coca-Cola North America Fountain and have determined that the
Companys accounting for the transaction was  20 
   appropriate.
Therefore, there has been no adjustment to the financial statements in relation
to this transaction. Since KPMG did not inform the Company what the appropriate
accounting method should be in regard to the revenue recognition in connection
with its sales of equipment to Coca-Cola North America Fountain, it is not
possible to set forth the effect on the financial statements if an alternate
accounting method proposed by the former auditors had been followed.  There have been no other transactions or events in 2004 which were
similar to those that involved the disagreement or reportable events described
above.  ITEM 9A - CONTROLS
AND PROCEDURES  An evaluation was carried out under the supervision and with the
participation of the Companys management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined under
Securities and Exchange Commission rules). Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the design
and operation of these disclosure controls and procedures were effective as of
the end of the period covered by this report.  In January 2004, the Companys Audit Committee completed its
investigation, which began in June 2003. During, and at the conclusion of
the investigation, the Audit Committee made recommendations with respect to
improvements in the Companys internal controls. The recommendations included
supplementing the internal audit function with external resources, obtaining
written confirmation of compliance with the Companys Code of Conduct on a
quarterly basis by certain management employees and annually by all employees,
and a review by Internal Audit of electronic and paper record-keeping processes
and procedures and implementation of their recommendations. The Company
reviewed and made enhancements to electronic and paper record-keeping processes
and procedures during the fourth quarter of 2003 and implemented the other
recommendations during 2004. Other than as described above, there have been no
significant changes during the fourth quarter of 2003 in the Companys internal
controls or in other factors that could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.  On February 2, 2004, KPMG resigned from its position as
independent auditors of the Company. In addition, KPMG withdrew its
December 31, 2002, 2001 and 2000 audit reports and advised the Company
that the financial statements and related audit reports should no longer be
relied upon. KPMG stated in a letter to the Company that, among other things,
they had determined that likely illegal acts, which had been the subject of the
Audit Committee investigation, had come to their attention and that these
likely illegal acts would have a material effect on the Companys financial
statements. The Company filed a Form 8-K with the SEC on February 10, 2004
(the Original 8-K) which set forth certain disclosure relating to the KPMG
resignation and the circumstances surrounding the resignation. Subsequently,
the Company filed two amendments to the Original 8-K, one filed with the SEC on
February 24, 2004 (the First Amendment) and the other on March 10,
2004 (the Second Amendment).  The
Original 8-K, First Amendment and Second Amendment are included hereto as
Exhibits 99.1, 99.2 and 99.3 respectively and are hereby incorporated by
reference in their entirety to this Item 9A.  In response to the Original 8-K disclosure, KPMG submitted a letter to
the Company dated February 20, 2004 (the KPMG Letter) which was filed
with the First Amendment and is included hereto as part of Exhibit 99.2. The
KPMG Letter stated that KPMG believed the investigative report indicated that
the Audit Committees investigation had uncovered evidence as to the following:  (i)
Preparation of documentation inconsistent with the underlying economic
substance as to transactionsbetween
the Registrant and Coca-Cola North America Fountain; (ii)
Improper personal use of corporate assets; (iii)
Unapproved loans to Registrant officers and directors; (iv)
Improperly maintained books and records; (v)
Non-disclosure of related-party transactions; and (vi)
Improper re-invoicing at the Registrants Mexico facility.  The Company filed a response to the various assertions stated in (i) 
(vi) above in the First Amendment, which is included hereto as Exhibit 99.2.
KPMG subsequently supplied the Company with a letter, which was filed with the
Second Amendment and included hereto as part of Exhibit 99.3, that addressed
the Companys conclusions contained in the First Amendment.  21 
   PART III  ITEM 10. 
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT  The following table sets forth certain information as of May 27, 2004
regarding the directors and executive officers of Lancer Corporation:  Name
  
  Age
  
  PositionRichard C. Osborne (2)(3)
  
  60
  
  Chairman of the Board and DirectorWalter J. Biegler (1)(3)
  
  62
  
  DirectorJean M. Braley (2)(3)
  
  74
  
  DirectorNorborne P. Cole, Jr. (1)(2)(3)
  
  62
  
  DirectorOlivia F. Kirtley (1)(2)(3)
  
  53
  
  DirectorAlfred A. Schroeder
  
  67
  
  DirectorGeorge F. Schroeder
  
  64
  
  DirectorChristopher D. Hughes
  
  57
  
  President & Chief Executive OfficerMark L. Freitas
  
  43
  
  Chief Financial OfficerStonewall J. Fisher
  
  61
  
  Vice-President Legal Affairs and Chief Legal OfficerScott D. Adams
  
  42
  
  Secretary-Treasurer  
 (1)Member of the Audit Committee.  Olivia F. Kirtley is the Chairperson of the
Audit Committee. (2)Member of the Compensation Committee.  Noborne P. Cole Jr. is the Chairman of the
Compensation Committee. (3)Member of the Nominating and Corporate
Governance Committee.  Walter J. Biegler
is the Chairman of the Nominating and Corporate Governance Committee.  Mr. Walter J. Biegler has served as a director of the Company since
1985.  Mr. Biegler is a private
investor.  From 1991 until 1998, he was
Chief Financial Officer of Periodical Management Group, Inc., a San Antonio,
Texas distributor of periodicals, books and specialty items in the United
States, Mexico and the Virgin Islands. 
Prior to November 1991, he served as the Chief Financial Officer
and Senior Vice President-Finance of La Quinta Motor Inns, Inc. of San Antonio,
Texas, a national hotel chain.  Ms. Jean M. Braley has served as a director of the Company since
1976.  Ms. Braley has been a private
investor since 1985.  She is also a
partner in Lancer Properties.  See
Compensation and Certain Transactions.  Mr. Norborne P. Cole, Jr. has served as a director of the Company since
2001.  He has been a business consultant
since 1998.  From 1994 to 1998, Mr. Cole
was Managing Director/CEO of Coca-Cola Amatil in Sydney, Australia.  From 1991 to 1994, Mr. Cole was President
and CEO of Coca-Cola Bottling, SA in Paris, France.  From 1989 to 1990, he was Regional Manager of Coca-Cola Benelux +
Denmark.  Mr. Cole held a number of
positions with The Coca-Cola Company and Coca-Cola bottlers from 1966 to
1989.  Mr. Cole serves on the Board of
Directors of Papa Johns International, Inc.  Ms. Olivia F. Kirtley has served as a director of the Company since
December 1999.  She is a Certified
Public Accountant and business consultant. 
She is past Chairman of the American Institute of Certified Public
Accountants. From 1979 until 2000, Ms. Kirtley held several management
positions with Vermont American Corporation, a leading global manufacturer and
marketer of power tool accessories, including Vice President of Finance,
Treasurer and Director of Tax.  Ms.
Kirtley serves on the Board of Directors of Alderwoods Group, Inc., ResCare,
Inc. and Papa Johns International, Inc.  Mr. Richard C. Osborne has served as a director of the Company since
2001.  He was elected Chairman of the
Board in 2004.  He is currently a
Managing Director with Madison Capital Partners, a private equity investment
firm.  From 1989 to 1999, Mr. Osborne
served as Chairman, Chief Executive Officer and President of Scotsman  22 
   Industries, a manufacturer of beverage dispensing equipment, ice
machines, display cases, walk-in coolers and refrigeration equipment.  He worked in a variety of positions with
Scotsman from 1979 to 1989.  Prior to
joining Scotsman, Mr. Osborne worked with The Pillsbury Company and General
Motors.  Mr. Alfred A. Schroeder is a co-founder of the Company and served as
Chairman of the Board of Directors of the Company from its inception in 1967
until 2004.  His primary
responsibilities include conceptual engineering design and new product
development.  He is the brother of
George F. Schroeder, and is also a partner in Lancer Properties.  See Compensation and Certain Transactions.  Mr. George F. Schroeder is a co-founder of the Company.  He served as its Chief Executive Officer
from 1967 until 2004, and as a director since 1967.  His primary responsibilities involve managing the Companys joint
venture investments.   He is the brother
of Alfred A. Schroeder, and is also a partner in Lancer Properties.  See Compensation and Certain Transactions.  Mr. Christopher D. Hughes joined the Company in 2000 as Chief Operating
Officer. In 2002, he was named to the additional position of President, and in
2004, he was named Chief Executive Officer. Prior to joining the Company, Mr.
Hughes worked for 17 years with Enodis Corporation and its predecessor entity,
Scotsman Industries. He served in a variety of senior management positions with
Enodis, including Vice-PresidentOperations of Kysor Warren, President of
Booth/Crystal Tips, President of Halsey Taylor, and Vice-PresidentOperations
of Scotsman Ice Systems. Prior to his association with Enodis, Mr. Hughes
served as Vice-PresidentGeneral Manager of Morrison-Knudsens Central and
Western Transit Operations, and as Vice PresidentOperations of Mooney Aircraft
Corporation in Kerrville, Texas.  Mr. Mark L. Freitas joined the Company in 1998, was named Corporate
Controller in 1999, and became Chief Financial Officer in 2003. From 1995 to
1998, Mr. Freitas worked with Bausch & Lomb, Inc., as a Senior Corporate
Auditor and Cost Manager.  Mr. Stonewall J. Fisher joined the Company in 1999 as Vice-President,
Legal Affairs and Chief Legal Officer. 
Prior to joining Lancer, Mr. Fisher was the Managing Partner of the San
Antonio, Texas law firm of Lang, Ladon, Green, Coghlan & Fisher for 24
years.  Mr. Fisher is a member of the
State Bar of Texas and is also a Certified Public Accountant.  Mr. Scott D. Adams joined the Company in 1996 as Assistant Treasurer,
and was named Secretary-Treasurer in 1998. 
From 1987 to 1996, Mr. Adams worked in various commercial banking
positions, most recently for Wells Fargo Bank and its predecessor First Interstate
Bank.  Audit Committee  We have an Audit Committee composed of the following three directors:
Olivia Kirtley, Walter Biegler, and Norborne Cole. Our Board has determined
that each member of the Audit Committee is independent, as defined in the
AMEX listing standards.  Following our 2004 Annual Meeting of Shareholders, we intend to
constitute an Audit Committee composed of three independent directors.  Our Board of Directors has determined that each member of the audit
committee is an audit committee financial expert as defined by Item 401(h) of
Regulation S-K of the Securities Exchange Act of 1934, as amended and is
independent within the meaning of Item 7(d)(3)(iv) of Schedule 14A of the
Exchange Act.  Section 16(a)
Beneficial Ownership Reporting Compliance  Based on our records, we believe that during 2003 all our directors,
officers and 10% or greater beneficial owners timely filed all required
Section 16(a) reports.  Code of Ethics  23 
   We have adopted a Code of Ethics that applies to executive officers.
Our Code of Ethics is available on our website at www.lancercorp.com. We intend
to post amendments to or waivers from our Code of Ethics (to the extent
applicable to our chief executive officer, principal financial officer or
principal accounting officer) on our website.  ITEM 11EXECUTIVE
COMPENSATION  The following table sets forth the compensation paid or to be paid by
the Company to the Chief Executive Officer and the four other most highly paid
executive officers for services rendered in all capacities for the years ended
December 31, 2003, 2002 and 2001.  Long TermCompensationAnnual
  Compensation
  
  AwardsOther
  
  SecuritiesAnnual
  
  Underlying
  
  All OtherName/Title
  
  Year
  
  Salary
  
  Bonus
  
  Compensation
  (1)
  
  Options
  
  Compensation
  (2)($)
  
  ($)
  
  ($)
  
  (#)
  
  ($)Alfred A. Schroeder (3)
  
  2003
  
  249,995
  
  
  
  8,535
  
  
  
  98,230Chairman of the Board
  
  2002
  
  249,995
  
  116,787
  
  6,672
  
  
  
  162,2282001
  
  230,763
  
  2,008
  
  6,372
  
  12,500
  
  226,550George F. Schroeder (4)
  
  2003
  
  249,995
  
  
  
  8,037
  
  
  
  43,026Chief Executive Officer
  
  2002
  
  249,995
  
  116,787
  
  4,952
  
  
  
  177,6222001
  
  230,763
  
  2,008
  
  4,584
  
  12,500
  
  139,599Christopher D. Hughes (5)
  
  2003
  
  214,989
  
  
  
  8,535
  
  
  
  President and Chief
  
  2002
  
  208,644
  
  98,101
  
  5,500
  
  15,000
  
  46,717Operating Officer
  
  2001
  
  200,132
  
  1,740
  
  
  
  
  
  26,890Mark L. Freitas (6)
  
  2003
  
  142,566
  
  10,000
  
  5,466
  
  
  
  Chief Financial Officer
  
  2002
  
  112,774
  
  46,455
  
  4,155
  
  
  
  2001
  
  107,847
  
  937
  
  3,867
  
  
  
  Stonewall J. Fisher
  
  2003
  
  124,987
  
  
  
  4,402
  
  
  
  Vice-President Legal Affairs and
  
  2002
  
  111,058
  
  37,058
  
  4,096
  
  
  
  Chief Legal Officer
  
  2001
  
  106,810
  
  929
  
  3,880  
 (1)These amounts reflect Company
contributions to its profit sharing plan and 401K plan for the benefit of the
Named Officers for the years indicated. (2)These amounts include premiums paid for
the benefit of the Named Officers for life insurance policies that commenced in
1994, amounts reimbursed for the payment of tax on the insurance-related
compensation, relocation expenses, and other taxable fringe benefits. (3)Alfred A. Schroeder served as Chairman
of the Board until the first quarter of 2004. (4)George F. Schroeder served as Chief
Executive Officer until the first quarter of 2004. (5)Christopher D. Hughes was appointed
Chief Executive Officer in the first quarter of 2004. (6)Mark L. Freitas served as Corporate
Controller of the Company during 2002, and was named Chief Financial Officer in
2003.  24 
   Report of the
Compensation Committee on Executive Compensation  The Compensation Committee of the Board of Directors consists of four
non-employee directors of the Company. 
It is authorized to review and consider the Companys compensation
standards and practices.  The
Compensation Committee considers suggestions from management and makes
recommendations to the Board of Directors concerning the cash compensation to
be paid to executive and other officers of the Company and its subsidiaries.  The Committee also administers the Companys
stock option plans and awards long-term compensation in the form of stock
options to executive officers and other eligible persons under such plans.  The Companys executive compensation program is designed to attract and
retain talented managers and to motivate such managers to increase
profitability and shareholder value over time. 
Executive officers compensation consists of base salary and benefits
and may include incentives in the form of annual cash bonuses and stock
options.  In determining base salaries for executive and other officers, the
Compensation Committee considers recommendations from the Chief Executive
Officer of the Company.  Annual cash
bonuses are typically tied to performance targets approved by the Compensation
Committee.  Bonuses may also be awarded
at the Compensation Committees discretion for special individual contributions
to the success of the Company.  The
Compensation Committee determines the CEOs compensation based on the same criteria
that it uses for other executive officers.  During 2003, the Company maintained a bonus program for executive
officers and certain other employees. 
Awards were available for achieving goals relating to net sales,
earnings before interest and taxes, net earnings per share, and accounts
receivable and inventory levels. 
Because the Company did not achieve its relevant goals, executive
officers did not receive awards under the bonus program.  A $10,000 bonus was awarded to the Chief
Financial Officer during 2003 for individual contribution to the Company.  The Compensation Committee believes the base salaries and cash bonuses
of its executive officers are set at the levels of comparable companies as
measured by market capitalization. 
During 2002, the Committee conducted a comprehensive review of the
Companys compensation of its executive officers.  As part of the review, the Committee hired outside consultants to
assure that the Companys compensation practices are competitive, and that they
properly align individual rewards with desired Company performance.  Employees, including executive officers and non-employees of the
Company or its affiliates who are designated by the Compensation Committee, are
eligible to receive grants of stock options from the Company.  Options granted generally have an exercise
price equal to the market value of the Common Stock on the date of grant,
generally become exercisable in equal annual installments over four years after
the date of grant, and are contingent upon the optionees continued employment
with the Company.  The number of options
granted to an individual varies according to his or her individual contribution
to the success of the Company.  The
Committee intends to make future grants as necessary to focus managers on
increasing profitability and shareholder value.  Federal income tax laws impose limitations on the deductibility of
compensation in excess of $1 million paid to executive officers in certain
circumstances.  Certain
performance-based compensation, however, is specifically exempt from such
limitations.  The Committee believes the
compensation of its executive officers cannot always be based upon fixed
formulas, and that the prudent use of discretion in determining compensation is
in the best interest of the Company and its shareholders.  In some cases, the Committee, in the
exercise of such discretion, may approve executive compensation that is not
fully deductible.  The Company, however,
does not expect the limitations on deductibility to have a material impact on
its financial condition.  Norborne P. Cole, Jr. - Chair
Jean M. Braley
Olivia F. Kirtley
Richard C. Osborne  Compensation of
Directors  Directors who are also employees of the Company receive no compensation
for serving as a director.  Directors
who are not employees of the Company receive a fee of $6,000 per year, plus
$1,500 per meeting.  Committee members
receive $750 per committee meeting. 
Additionally, the Chair of the Audit Committee receives an annual fee of
$5,000, and the Chairs of the Compensation Committee and Nominating and
Corporate Governance Committee receive an annual fee of $3,000.  During 2003, each director who was not an
employee of the Company was eligible to receive an option grant covering 4,000
shares.  The options have an exercise
price equal to the market value of the Companys Common Stock on the date of
grant, and expire ten years after the date of grant.  The options vest 20 %  25 
   on the date of grant, and 20% at the first, second, third, and fourth
anniversaries of the date of grant. 
Jean M. Braley chose not to receive any stock options in 2003.  Compensation
Committee Interlocks and Insider Participation  Ms. Jean M. Braley, a member of the Companys Compensation Committee,
is a partner in Lancer Properties. Lancer Properties is a Texas general
partnership that owns the land and building at 235 West Turbo in San Antonio,
Texas where a portion of the Companys operations is located.  The Company leases the premises on a
month-to-month basis for $7,400 per month. The Company pays all maintenance
expenses, property taxes, assessments and insurance premiums on these
facilities.  See Item 13, Certain
Relationships and Related Transactions.  26 
   Options Exercised
During the 2003 Fiscal Year and Fiscal Year End Option Values  The following table discloses, for the Chief Executive Officer, and the
other Named Executive Officers, information concerning options exercised during
the fiscal year ended December 31, 2003, and the number and value of the
options held at the end of fiscal year 2003 based upon the closing price of
$6.80 per share of Common Stock on December 31, 2003.  Name/Title
  
  Shares
  Acquired
  On
  Exercise
  
  Value
  Realized
  
  Number of
  Securities
  Underlying Unexercised
  Options at FY-End
  Exercisable/Unexercisable
  
  Value of
  Unexercised In-the
  Money
  Options at FY-End
  Exercisable/UnexercisableAlfred A. Schroeder (1)
  
  0
  
  0
  
  7,500/
  
  $5,550/Chairman of the Board
  
  
  
  
  
  5,000
  
  $3,700George F. Schroeder (2)
  
  0
  
  0
  
  7,500/
  
  $5,500/Chief Executive Officer
  
  
  
  
  
  5,000
  
  $3,700Christopher D. Hughes (3)
  
  0
  
  0
  
  26,000/
  
  $44,100/President and Chief
  
  
  
  
  
  14,000
  
  $21,150Operating OfficerMark L. Freitas (4)
  
  0
  
  0
  
  13,000/
  
  $10,560/Chief Financial Officer
  
  
  
  
  
  1,000
  
  $2,640Stonewall J. Fisher
  
  0
  
  0
  
  13,000/
  
  $25,900/Vice-President Legal Affairs and
  
  
  
  
  
  2,000
  
  6,475Chief Legal Officer  
 (1)   Alfred
A. Schroeder served as Chairman of the Board until the first quarter of 2004. (2)George F. Schroeder served as Chief Executive
Officer until the first quarter of 2004. (3)Christopher D. Hughes was appointed Chief
Executive Officer in the first quarter of 2004. (4)Mark L. Freitas served as Corporate
Controller of the Company during 2002, and was named Chief Financial Officer in
2003.  Company Performance  The following graph shows a comparison of cumulative total returns for
the Company, the Standard & Poors SmallCap 600 Index, and the Standard
& Poors 600 Industrial Machinery (SPIM) Index for the five-year period
ended December 31, 2003.  The total cumulative return on investment (change in the year end stock
price plus reinvested dividends) for each year for the Company, the Standard
& Poors SmallCap 600 Index, and the SPIM Index is based on the stock price
or composite index on December 31 of each year presented.  The comparison assumes that $100 was
invested in the Companys Common Stock and in each of the other two indices.  27 
     1998
  
  1999
  
  2000
  
  2001
  
  2002
  
  2003Lancer
  Corporation
  
  $
  100.00
  
  $
  42.05
  
  $
  52.27
  
  $
  45.45
  
  $
  84.55
  
  $
  61.82Standard &
  Poors SmallCap 600
  
  $
  100.00
  
  $
  112.40
  
  $
  125.67
  
  $
  133.89
  
  $
  114.30
  
  $
  158.63S & P
  Smallcap 600 Industrial Machinery
  
  $
  100.00
  
  $
  100.05
  
  $
  92.35
  
  $
  99.31
  
  $
  93.17
  
  $
  125.32  28 
   ITEM 12.SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT  The following table sets forth information as of June 9, 2004,
regarding the beneficial ownership of common stock of Lancer by each person
known by Lancer to own 5% or more of the outstanding shares of each class of
Lancers Common Stock, each director of Lancer, each executive officer of the
Company named in the Summary Compensation Table set forth in Item 11 (the
Named Executive Officers), and the directors and Named Executive Officers of
Lancer as a group.  The persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock owned by them, unless otherwise noted.  Name of Beneficial Owner and
  Number
  of Persons in Group (1)
  
  Number of
  Shares
  of Common Stock
  Beneficially Owned
  
  Percent of
  ClassAlfred A. Schroeder (2)
  
  1,219,450
  
  12.8George F. Schroeder (3)
  
  1,334,184
  
  14.1Walter J. Biegler (4)
  
  11,930
  
  *Jean M. Braley (5)
  
  456,877
  
  4.8Norborne P. Cole, Jr. (4)
  
  9,180
  
  *Olivia F. Kirtley (4)(6)
  
  252,880
  
  2.7Richard C. Osborne (4)
  
  14,180
  
  *Mark L. Freitas (7)
  
  14,988
  
  *Christopher D. Hughes (8)
  
  38,265
  
  *Stonewall J. Fisher (9)
  
  25,749
  
  *Bedrock Capital, L.P. (10)
  
  560,000
  
  5.9James F. Gallivan (11)
  
  570,780
  
  6.0James C. Smith (12)
  
  757,500
  
  8.0All directors and executive officers as a
  group (eleven persons) (13)
  
  3,390,683
  
  35.8  
 *Less than 1%  (1)Unless otherwise noted, the address for each
beneficial owner is 6655 Lancer Blvd., San Antonio, Texas 78219.  (2)Includes 10,000 shares purchasable pursuant
to options which are exercisable within the next 60 days, and 17,762 shares
owned through the Companys 401K plan.  (3)Includes 447,525 shares held by trusts for
the children of Mr. George F. Schroeder, of which Mr. George F. Schroeder is
the trustee, and 10,000 shares purchasable pursuant to options which are
exercisable within the next 60 days.  (4)Includes 4,180 shares purchasable pursuant to
options which are exercisable within the next 60 days.  (5)Includes 265,318 shares held by the William
V. Braley Estate Trust for which Ms. Braley serves as sole trustee.  (6)Includes 174,200 shares jointly owned with
Ms. Kirtleys husband and 69,500 shares owned by Ms. Kirtleys husband.  Also includes 5,000 shares owned by Ms.
Kirtleys children, in which Ms. Kirtley has disclaimed any beneficial
ownership.  (7)Includes 988 shares owned through the
Companys 401K plan, and 14,000 shares purchasable pursuant to options which
are exercisable within the next 60 days.  (8)Includes 1,565 shares owned through the
Companys 401K plan, and 29,000 shares purchasable pursuant to options which
are exercisable within the next 60 days.  (9)Includes 15,000 shares purchasable pursuant
to options which are exercisable within the next 60 days.  (10)Based on information contained in a
Schedule 13D filed with the SEC on May 7, 2004, Bedrock Capital, L.P.
beneficially owns 560,000 shares of Lancer Common Stock, and Bedrock Management,
L.P. the general partner of Bedrock Capital, L.P. and Bedrock G.P., L.L.C., the
general partner of Bedrock Management, L.P. may also be deemed to beneficially
own these 560,000 shares.  Bedrocks
mailing address is 8235 Douglas Avenue, Suite 420, Dallas, Texas 75225.  (11)Based on
information contained in a Schedule 13D filed with the SEC on May 7, 2004, Mr.
Gallivan beneficially owns 570,780 shares of Common Stock, including the
560,000 shares held by Bedrock Capital, L.P. Mr. Gallivans business address is
P.O. Box 1320, St. Thomas, U.S. Virgin Islands 00804.  (12)Based on
information contained in a Schedule 13D filed with the SEC on May 7, 2004, Mr.
Smith beneficially owns 757,500 shares of Common Stock, including the 560,000
shares held by Bedrock Capital, L.P. and 197,500 shares held by T2, Ltd. Mr.
Smiths business address is P.O. Box 1320, St. Thomas, U.S. Virgin Islands
00804.  29 
   (13)Includes 79,720 shares purchasable pursuant to
options which are exercisable within the next 60 days.  A table containing information, as of May 27, 2004, with respect to
compensation plans under which equity securities of the Company are authorized
for issuance is set forth in Item 5 - Market for Registrants Common Equity and
Related Stockholder Matters - Equity Compensation Plan Information.  ITEM 13CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS  Lancer Properties is a Texas general partnership that owns the land and
building at 235 West Turbo in San Antonio, Texas where a portion of the
Companys operations is located.  The
Company leases the premises on a month-to-month basis for $7,400 per month. The
Company pays all maintenance expenses, property taxes, assessments and
insurance premiums on these facilities. 
Alfred A. Schroeder, George F. Schroeder and Jean M. Braley, all of whom
were directors of the Company during 2003, own 13.33%, 13.33% and 15%,
respectively, of Lancer Properties.  The
William V. Braley Estate Trust, for which Mrs. Braley serves as sole trustee,
also holds a 15% interest in the partnership.  During 2003, Alfred A. Schroeder and George F. Schroeder were indebted
to the Company for as much as approximately $13,000 and $93,000, respectively,
for cash advances received from the Company prior to 2003.  This indebtedness was evidenced by
promissory notes payable to the Company. 
The indebtedness accrued interest at a rate of 6.0% per annum, and was
payable upon demand.  The indebtedness
was paid in full in 2003, so the aggregate balance as of December 31, 2003
was $0.  ITEM 14PRINCIPAL
ACCOUNTANT FEES AND SERVICES  AUDIT FEES  The aggregate fees for the audit of the Companys consolidated
financial statements for the years ended December 31, 2000, 2001, 2002 and
2003 and the reviews of the quarterly consolidated financial statements for
2002 and 2003 were $1.3 million.  The
estimated aggregate fee pertaining to the 2003 audits and review is
approximately $0.3 million.  The Companys current Principal Accountant is BDO Seidman LLP, who were
engaged by the Company on March 1, 2004. BDO Seidman LLP replaced our
former auditors KPMG, LLP, who resigned on February 2, 2004 and withdrew
their December 31, 2002, 2001 and 2000 audit reports and advised the
Company that the financial statements and related audit reports should no
longer be relied upon. During the fiscal years ended December 31, 2003 and
December 31, 2002, fees for services provided by BDO Seidman LLP and KPMG,
LLP were as follows:  December 31,2003
  
  2002Audit FeesBDO Seidman LLP for 2003 and Prior years
  
  $
  1,300,000
  
  $
  KPMG, LLP
  
  $
  81,470
  
  $
  295,980Total
  
  $
  1,381,470
  
  $
  295,980Tax FeesKPMG, LLP
  
  $
  11,598
  
  $
  18,238Other servicesKPMG, LLP
  
  $
  134,489
  
  $
  11,535  Other Services include amounts paid to KPMG, LLP for additional work
performed during the Audit Committee Independent investigation, We were not
billed for any other services by BDO Seidman LLP.  30 
   PART IV  ITEM 15EXHIBITS,
FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K  (1) Exhibits: 3.1*
  
  Registrants
  Articles of Incorporation and amendments thereto.3.2*
  
  Bylaws of
  the Registrant.4.1*
  
  Specimen
  Common Stock Certificate, $0.01 par value, of Registrant.10.1*
  
  Lancer
  Corporation Profit Sharing Plan.10.2*
  
  1992
  Non-Statutory Stock Option Plan.10.3#
  
  Lancer
  Corporation Stock Incentive Plan, Effective Date March 1, 1996.10.4+++
  
  Lancer
  Corporation Stock Option Plan of 2002.10.5*
  
  Master Development
  Agreement, dated January 12, 1984, between Lancer Corporation and The
  Coca-Cola Company.10.6+
  
  Master Lease
  and Supplement between The Frost National Bank and Lancer Partnership, Ltd.10.7*
  
  Net Lease
  Agreement, dated July 1, 1974, between Lancer Corporation and Lancer
  Properties dated as of June 3, 1977.10.8
  
  Amended and
  Restated Credit Agreement dated June 30, 2004 between Lancer Partnership,
  Ltd. and Lancer DE Mexico, S.A. de C.V., as Borrowers, Lancer Corporation and
  certain of its subsidiaries as Guarantors, and The Frost National Bank, as
  Agent.10.9++
  
  Stock Pledge
  between Lancer Corporation and The Frost National Bank.10.10++
  
  Guaranty
  between Lancer Corporation and certain of its subsidiaries and The Frost
  National Bank.10.11
  
  Guaranty
  between Advanced Beverage Solutions and The Frost National Bank.10.12
  
  Form of
  Reaffirmation of Guaranty between Lancer Corporation and certain of its
  subsidiaries and the Frost National Bank.10.13***
  
  Security Agreement between Lancer Corporation and certain of its
  subsidiaries and The Frost National Bank, Harris Trust and Savings Bank, and
  Whitney National Bank.10.14
  
  Security
  Agreement between Advanced Beverage Solutions, LLC and The Frost National
  Bank, Harris Trust and Savings Bank, and Whitney National Bank.10.15
  
  Form of Amendment to the Security Agreement between Lancer
  Corporation and certain of its subsidiaries and The Frost National Bank,
  Harris Trust and Savings Bank, and Whitney National Bank.21.1
  
  List of
  Significant Subsidiaries of the Registrant.23.1
  
  Consent of
  BDO Seidman LLP.31.1
  
  Certification
  of Chief Executive Officer of Lancer Corporation Pursuant to Section 302 of
  the Sarbanes-Oxley Act of 2002.31.2
  
  Certification
  of Chief Financial Officer of Lancer Corporation Pursuant to Section 302 of
  the Sarbanes-Oxley Act of 2002.32.1
  
  Certification
  of Chief Executive Officer of Lancer Corporation Pursuant to 18 U.S.C.
  Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
  
  Certification
  of Chief Financial Officer of Lancer Corporation Pursuant to 18 U.S.C.
  Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.99.1
  
  Current
  Report on Form 8-K, filed with the Commission on February 10, 2004.99.2
  
  First Amendment
  to the Current Report on Form 8-K, filed with the Commission on February 24,
  2004.99.3
  
  Second
  Amendment to the Current Report on Form 8-K, filed with the Commission on
  March 10, 2004. 
 * These exhibits are
incorporated by reference to the Registrants Registration Statement No.
33-82434 filed on Form S-1 with the Securities and Exchange Commission (the
Commission) on August 5, 1994, as amended by Amendment No. 1 to Form S-1
Registration Statement with the Commission on August 23, 1994. ++ These exhibits are
incorporated by reference to the Registrants Form 10-Q for the quarter ended
June 30, 1995, filed with the Commission on August 14, 1995. # This exhibit is incorporated
by reference to the Registrants Proxy dated April 22, 1996, filed with the
Commission on April 24, 1996. ## These exhibits are
incorporated by reference to the Registrants Form 10-K for the year ended
December 31, 1997, filed with the Commission on March 31, 1998. ### This exhibit is
incorporated by reference to the Registrants Form 10-Q for the quarter ended
June 30, 1998, filed with the Commission on August 17, 1998.  31 
   *** This exhibit is
incorporated by reference to the Registrants Form 10-Q for the quarter ended
September 30, 2000, filed with the Commission on November 13, 2000. + This exhibit is incorporated
by reference to the Registrants Form 10-K for the year ended December 31,
2001, filed with the Commission on March 29, 2002. +++ This exhibit is
incorporated by reference to the Registrants Form 10-K for the year ended
December 31, 2002, filed with the Commission on March 27, 2003.  32 
   SIGNATURES  Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.  LANCER CORPORATION  by:
  /s/ CHRISTOPHER D. HUGHESChristopher D. Hughes
  June 28, 2004Chief Executive Officer  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.  Signature
  
  Title
  
  Date/s/ CHRISTOPHER D. HUGHES
  
  President and Chief Executive Officer
  
  June 28, 2004Christopher D. Hughes
  
  (principal executive officer)
  
  Date/s/ MARK L. FREITAS
  
  Chief Financial Officer
  
  June 28, 2004Mark L. Freitas
  
  (principal financial officer, principal
  accounting officer)
  
  Date/s/ RICHARD C. OSBORNE
  
  Chairman of the Board
  
  June 28, 2004Richard C. Osborne
  
  
  
  Date/s/ WALTER J. BIEGLER
  
  Director
  
  June 28, 2004Walter J. Biegler
  
  
  
  Date/s/ JEAN M. BRALEY
  
  Director
  
  June 28, 2004Jean M. Braley
  
  
  
  Date/s/ NORBORNE P. COLE, JR.
  
  Director
  
  June 28, 2004Norborne P. Cole, Jr.
  
  
  
  Date/s/ OLIVIA F. KIRTLEY
  
  Director
  
  June 28, 2004Olivia F. Kirtley
  
  
  
  Date/s/ ALFRED A. SCHROEDER
  
  Director
  
  June 28, 2004Alfred A. Schroeder
  
  
  
  Date/s/ GEORGE F. SCHROEDER
  
  Director
  
  June 28, 2004George F. Schroeder
  
  
  
  Date  33 
   LANCER
CORPORATION  INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE  LANCER CORPORATIONReport of Independent Registered Public
  Accounting FirmConsolidated Financial Statements:Balance Sheets as of December 31, 2003 and 2002Statements of Operations for each of the
  three years in the period ended December 31, 2003Statements of Shareholders Equity and Comprehensive
  Income (Loss) for each of the three-years in the period ended
  December 31, 2003Statements of Cash Flows for each of the three-years
  in the period ended December 31, 2003Notes to Consolidated Financial StatementsII-Reserve accountsSchedule for
  the years ended December 31, 2003, 2002 and 2001  F-1 
   REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  The Board of Directors and Shareholders of
Lancer Corporation
San Antonio, Texas  We have audited the accompanying consolidated balance sheets of Lancer
Corporation as of December 31, 2003 and 2002, and the related consolidated
statements of operations, shareholders equity and comprehensive income (loss),
and cash flows for each of the three-years in the period ended
December 31, 2003. We have also audited the schedule listed in Item 15(a)(2)
of this Form 10-K.  These consolidated
financial statements and the schedule are the responsibility of the
Companys management.  Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.  We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). 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 and schedule.  An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
financial statement and schedule. We believe that our audits provide a
reasonable basis for our opinion.  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Lancer
Corporation as of December 31, 2003 and 2002 and the results of its
operations and its cash flows for each of the three-years in the period ended
December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.  Also in our opinion, the schedule, presents fairly, in all material
respects, the information set forth therein.  As discussed in Note 1, the Company has adopted the provisions of
Statement of Financial Accounting Standards No. 142, Goodwill and other
Intangible Assets, effective January 1, 2002.   /s/ BDO Seidman, LLPBDO Seidman, LLPDallas, TexasJune 16, 2004  F-2 
   LANCER
CORPORATION  CONSOLIDATED BALANCE
SHEETSDecember 31, 2003 and 2002  (Amounts in thousands, except share data)  ASSETS  December 31,
  2003
  
  December 31,
  2002Current assets:Cash
  
  $
  1,129
  
  $
  3,241Receivables:Trade accounts and notes
  
  14,226
  
  17,265Other
  
  1,268
  
  1,03915,494
  
  18,304Less allowance for doubtful accounts
  
  (745
  )
  (979
  )Net receivables
  
  14,749
  
  17,325Inventories, net
  
  24,502
  
  29,094Prepaid expenses
  
  474
  
  264Tax refund receivable
  
  225
  
  Deferred tax asset
  
  568
  
  285Total current assets
  
  41,647
  
  50,209Property, plant and equipment, at cost:Land
  
  1,432
  
  1,432Buildings
  
  22,211
  
  21,837Machinery and equipment
  
  22,769
  
  22,073Tools and dies
  
  12,709
  
  12,137Leaseholds, office equipment and vehicles
  
  10,796
  
  10,165Assets in progress
  
  2,597
  
  1,45572,514
  
  69,099Less accumulated depreciation and
  amortization
  
  (38,395
  )
  (34,224
  )Net property, plant and equipment
  
  34,119
  
  34,875Long-term receivables ($0 and $106 due from
  officers, respectively)
  
  12
  
  127Long-term investments
  
  1,786
  
  2,303Intangibles and other assets, at cost, less
  accumulated amortization
  
  4,714
  
  5,241$
  82,278
  
  $
  92,755  See accompanying notes to consolidated
financial statements.  F-3 
   LANCER
CORPORATION  CONSOLIDATED
BALANCE SHEETS (Continued)
December 31, 2003 and 2002  (Amounts in thousands, except share data)  LIABILITIES AND SHAREHOLDERS EQUITY  December 31,
  2003
  
  December 31,
  2002Current liabilities:Accounts payable
  
  $
  6,609
  
  $
  10,141Current installments of long-term debt
  
  2,735
  
  2,726Line of credit with bank
  
  1,000
  
  5,000Deferred licensing and maintenance fees
  
  1,021
  
  1,449Accrued expenses and other liabilities
  
  6,964
  
  7,977Taxes payable
  
  
  
  182Total current liabilities
  
  18,329
  
  27,475Deferred tax liability
  
  1,175
  
  2,342Long-term debt, excluding current
  installments
  
  8,268
  
  9,808Deferred licensing and maintenance fees
  
  2,396
  
  2,686Other long-term liabilities
  
  147
  
  293Total liabilities
  
  30,315
  
  42,604Commitments and contingenciesShareholders equity:Preferred stock, without par value
  5,000,000 shares authorized; none issued
  
  
  
  Common stock, $.01 par value:
  50,000,000 shares authorized; 9,426,121 issued and
  9,361,895 outstanding in 2003, and 9,396,121 issued and
  9,336,931 outstanding in 2002
  
  94
  
  93Additional paid-in capital
  
  12,848
  
  12,710Accumulated other comprehensive income
  (loss)
  
  6
  
  (2,389
  )Deferred compensation
  
  (92
  )
  (169
  )Retained earnings
  
  39,467
  
  40,234Less common stock in treasury, at cost;
  64,226 shares in 2003 and 59,190 shares in 2002
  
  (360
  )
  (328
  )Total shareholders equity
  
  51,963
  
  50,151$
  82,278
  
  $
  92,755  See accompanying notes to consolidated
financial statements.  F-4 
   LANCER
CORPORATION  CONSOLIDATED
STATEMENTS OF OPERATIONSYears ended December 31, 2003, 2002 and 2001  (Amounts in thousands, except share data)  2003
  
  2002
  
  2001Net sales
  
  $
  113,500
  
  $
  139,015
  
  $
  122,745Cost of sales
  
  84,401
  
  101,925
  
  95,877Gross profit
  
  29,099
  
  37,090
  
  26,868Selling, general and administrative
  expenses
  
  28,613
  
  27,535
  
  22,235Operating income
  
  486
  
  9,555
  
  4,633Other (income) expense:Interest expense
  
  329
  
  1,318
  
  3,128Loss from joint ventures
  
  217
  
  653
  
  296Minority interest
  
  
  
  (55
  )
  (239
  )Other, net
  
  1,109
  
  (649
  )
  (1,049
  )1,655
  
  1,267
  
  2,136Income (loss) from continuing operations
  before income taxes
  
  (1,169
  )
  8,288
  
  2,497Income tax expense (benefit):Current
  
  1,430
  
  1,440
  
  1,319Deferred
  
  (1,240
  )
  1,229
  
  (401
  )190
  
  2,669
  
  918Income (loss) from continuing operations
  
  (1,359
  )
  5,619
  
  1,579Discontinued operations:(Loss) from operations of discontinued
  Brazilian subsidiary
  
  (196
  )
  (2,442
  )
  (268
  )Income tax benefit
  
  788
  
  829
  
  91Income (loss) from discontinued operations
  
  592
  
  (1,613
  )
  (177
  )Net (loss) earnings
  
  $
  (767
  )
  $
  4,006
  
  $
  1,402Common Shares Outstanding:Basic
  
  9,356,082
  
  9,326,529
  
  9,127,062Diluted
  
  9,356,082
  
  9,433,193
  
  9,314,789Earnings Per Share:BasicEarnings (loss) from continuing operations
  
  $
  (0.15
  )
  $
  0.60
  
  $
  0.17Earnings (loss) from discontinued
  operations
  
  $
  0.06
  
  $
  (0.17
  )
  $
  (0.02
  )Net earnings (loss)
  
  $
  (0.09
  )
  $
  0.43
  
  $
  0.15DilutedEarnings (loss) from continuing operations
  
  $
  (0.15
  )
  $
  0.60
  
  $
  0.17Earnings (loss) from discontinued
  operations
  
  $
  0.06
  
  $
  (0.17
  )
  $
  (0.02
  )Net earnings (loss)
  
  $
  (0.09
  )
  $
  0.43
  
  $
  0.15  See accompanying notes to consolidated
financial statements.  F-5 
   LANCER
CORPORATION  CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY ANDCOMPREHENSIVE
INCOME (LOSS)
Years ended December 31, 2003, 2002 and 2001  (Amounts in thousands, except share data)  Common Stock
  
  Additional
  Paid- in Capital
  
  Accumulated
  Other Comprehensive Income (Loss)
  
  Deferred
  Compensation
  
  Retained
  Earnings
  
  Treasury
  Stock
  
  Total
  Shareholders EquityBalance December 31, 2000
  
  $
  91
  
  $
  11,933
  
  $
  (3,317
  )
  $
  
  
  $
  34,826
  
  $
  
  
  $
  43,533Comprehensive income:Net earnings
  
  
  
  
  
  
  
  
  
  1,402
  
  
  
  1,402Cumulative translation adjustment
  
  
  
  
  
  (817
  )
  
  
  
  
  
  
  (817
  )Reclassification adjustment for realized loss included in net income,
  net of tax
  
  
  
  
  
  172
  
  
  
  
  
  
  
  172Unrealized loss on derivative instruments:Initial loss upon Adoption of SFAS No. 133
  
  
  
  
  
  (51
  )
  
  
  
  
  
  
  (51
  )Reclassification adjustment for loss included in interest expense
  
  
  
  
  
  37
  
  
  
  
  
  
  
  37Total comprehensive income:
  
  
  
  
  
  
  
  
  
  
  
  
  
  743Exercise of 2,900 stock options
  
  
  
  10
  
  
  
  
  
  
  
  
  
  10Balance December 31, 2001
  
  91
  
  11,943
  
  (3,976
  )
  
  
  36,228
  
  
  
  44,286Comprehensive income:Net earnings
  
  
  
  
  
  
  
  
  
  4,006
  
  
  
  4,006Cumulative translation adjustment
  
  
  
  
  
  1,567
  
  
  
  
  
  
  
  1,567Unrealized gain on investment, net of tax
  
  
  
  
  
  6
  
  
  
  
  
  
  
  6Unrealized loss on derivative instruments:Reclassification adjustment of loss included in interest expense
  
  
  
  
  
  14
  
  
  
  
  
  
  
  14Total comprehensive income:
  
  
  
  
  
  
  
  
  
  
  
  
  
  5,593Exercise of 268,362 stock options for cash and by surrender of shares
  
  2
  
  372
  
  
  
  
  
  
  
  (328
  )
  46Compensatory element of stock options granted
  
  
  
  395
  
  
  
  
  
  
  
  
  
  (395
  )Amortization of deferred compensation
  
  
  
  
  
  
  
  226
  
  
  
  
  
  226Balance December 31, 2002
  
  93
  
  12,710
  
  (2,389
  )
  (169
  )
  40,234
  
  (328
  )
  50,151Comprehensive income:Net earnings
  
  
  
  
  
  
  
  
  
  (767
  )
  
  
  (767
  )Cumulative translation adjustment
  
  
  
  
  
  2,395
  
  
  
  
  
  
  
  2,395Total comprehensive income:
  
  
  
  
  
  
  
  
  
  
  
  
  
  1,628Exercise of 30,000 stock options for cash and by surrender of shares
  
  1
  
  138
  
  
  
  
  
  
  
  (32
  )
  107Amortization of deferred compensation
  
  
  
  
  
  
  
  77
  
  
  
  
  
  77Balance December 31, 2003
  
  $
  94
  
  $
  12,848
  
  $
  6
  
  $
  (92
  )
  $
  39,467
  
  $
  (360
  )
  $
  51,963  See accompanying notes to consolidated
financial statements.  F-6 
   LANCER
CORPORATION  CONSOLIDATED
STATEMENTS OF CASH FLOWSYears ended December 31, 2003, 2002 and 2001  (Amounts in thousands)  2003
  
  2002
  
  2001Cash flow from operating activities:Net (loss) earnings
  
  $
  (767
  )
  $
  4,006
  
  $
  1,402Adjustments to reconcile net earnings to
  net cash provided by operating activitiesDepreciation and amortization
  
  5,328
  
  4,959
  
  4,816Deferred licensing and maintenance fees
  
  (718
  )
  (1,638
  )
  1,126Deferred income taxes
  
  (1,393
  )
  844
  
  (453
  )Loss (gain) on sale and disposal of assets
  
  279
  
  (4
  )
  (6
  )Write-down of Brazilian assets, net of
  taxes
  
  
  
  1,548
  
  Loss on impairment
  
  1,053
  
  30
  
  279Gain on sale of long-term investment
  
  (220
  )
  
  
  Minority interest
  
  
  
  (55
  )
  (239
  )Loss from joint ventures
  
  217
  
  653
  
  296Stock-based compensation expense
  
  77
  
  226
  
  Changes in assets and liabilities:Receivables
  
  4,143
  
  1,167
  
  (1,532
  )Prepaid expenses
  
  (210
  )
  391
  
  (13
  )Income taxes receivable
  
  (225
  )
  
  
  Inventories
  
  5,825
  
  3,145
  
  7,678Other assets
  
  (492
  )
  (649
  )
  (720
  )Accounts payable
  
  (4,748
  )
  1,857
  
  (868
  )Accrued expenses
  
  (1,291
  )
  2,502
  
  (239
  )Income taxes payable
  
  (154
  )
  (762
  )
  343Net cash provided by operating activities
  
  6,704
  
  18,220
  
  11,870Cash flow from investing activities:Proceeds from sale of assets
  
  89
  
  20
  
  52Acquisition of property, plant and
  equipment
  
  (4,145
  )
  (3,658
  )
  (3,998
  )Acquisition of subsidiary company
  
  
  
  (252
  )
  Sale (purchase) of long-term investments
  
  321
  
  (502
  )
  7Net cash used in investing activities
  
  (3,735
  )
  (4,392
  )
  (3,939
  )Cash flow from financing activities:Net (payments) under line of credit
  agreements
  
  (4,000
  )
  (10,600
  )
  (5,400
  )Proceeds from issuance of long-term debt
  
  
  
  
  
  697Retirement of long-term debt, net of
  proceeds
  
  (1,531
  )
  (2,056
  )
  (1,960
  )Net proceeds from exercise of stock options
  
  138
  
  46
  
  10Net cash used in financing activities
  
  (5,393
  )
  (12,610
  )
  (6,653
  )Effect of exchange rate changes on cash
  
  312
  
  174
  
  (200
  )Net (decrease) increase in cash
  
  (2,112
  )
  1,392
  
  1,078Cash at beginning of period
  
  3,241
  
  1,849
  
  771Cash at end of period
  
  $
  1,129
  
  $
  3,241
  
  $
  1,849Supplemental cash flow informaton:Cash paid for interest
  
  $
  594
  
  $
  1,658
  
  $
  2,954Cash paid for (refunded) for income taxes
  
  $
  (1,200
  )
  $
  1,200
  
  $
    See accompanying notes to consolidated
financial statements  F-7 
   LANCER CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1.Summary
of Significant Accounting Policies  Nature of Operations  Lancer Corporation (the Company) designs, engineers, manufactures and
markets fountain soft drink and other beverage dispensing systems and related
equipment for use in the food service and beverage industry. The Company sells
its products through Company personnel, and through independent distributors
and agents, principally to major soft drink companies (primarily The Coca-Cola
Company), bottlers, equipment distributors, beer breweries and food service
chains for use in various food and beverage operations. Lancer is a vertically
integrated manufacturer, fabricating a significant portion of the components used
in Company products.  Lancer was
incorporated in Texas in 1967.  Principles of Consolidation  The consolidated financial statements include the accounts of Lancer
Corporation and all domestic and foreign subsidiaries.  All significant intercompany balances and
transactions have been eliminated. Investments in companies in which the
Company has the ability to exercise significant influence over operating and
financial policies are accounted for by the equity method.  Accordingly, the share of the earnings (losses)
of these companies is included in consolidated income.  The Company periodically evaluates whether
impairment losses must be recorded on each investment by comparing the
projection of the undiscounted future operating cash flows to the carrying amount
of the investment. If this evaluation indicates that future undiscounted
operating cash flows are less than the carrying amount of the investments, the
underlying assets are written down by charges to expense to that the carrying
amount equals the future discounted cash flows.  Concentrations of Credit Risk  The Company has accounts receivable from customers in the food service
and beverage industry and is not concentrated in any specific geographic
region.  The Company has receivables
from one major customer - See Note 13 - Segment and Geographic Information. The
food and beverage industry may be affected by economic factors, which may
impact the account receivable generally; the company does not require
collateral from customers.  Accounts Receivable Allowance for Doubtful Accounts  The Company maintains its allowance for doubtful accounts at a balance
adequate to reduce accounts receivable to the amount of cash expected to be
realized on collection. The methodology used to determine the allowance is based
on the Companys prior collection experience. Specific customers financial
strength and circumstance also influence the balance. Accounts that are
determined to be uncollectible are written-off in the period in which they are
determined to be uncollectible.  Inventories  Inventories are stated at the lower of cost or market on a first-in,
first-out basis (average cost as to raw materials and supplies) or market (net
realizable value).  Certain items in inventory have become obsolete due to technological
advances and discontinuation of products. 
The Company has taken these items into consideration in valuing its
inventory.  F-8 
   Property, Plant and Equipment  Property, plant and equipment are stated at cost.  Depreciation is calculated on a
straight-line basis over estimated useful lives ranging from 5 to 39
years.  Long-lived assets are evaluated
annually for possible impairment adjustments, which may be required.  See note 2 for discussion of discontinued
operations.  Depreciation expense was $4.9 million, $4.7 million and 4.5 million for
the years ended December 31, 2003, 2002 and 2001 respectively.
Maintenance, repair and purchases of small tools and dies are expensed as
incurred.  Long-term Investments  The Company owns a 50% interest in a joint venture, Lancer FBD
Partnership, Ltd., which manufactures frozen beverage dispensing systems.  The investment is accounted for under the
equity method.  The developer of the
technology utilized by the joint venture owns the remaining 50%.  The joint venture owns the rights to that
technology. (See Note 3 - Investment in Joint Ventures.)  The Company purchased a 50% interest in a joint venture, Lauch Lancer
LLC, d.b.a. Moo Technologies, which markets concentrated shelf-stable milk for
foodservice customers.  The investment
is accounted for under the equity method. 
The developer of the technology utilized by the joint venture owns the remaining
50%.  The joint venture owns the right
to that technology.  The joint venture
is a development stage enterprise that reported an operating loss and no
revenue in for the years ended December 31, 2003 and 2002. (See Note 3 -
Investment in Joint Ventures.).  Also included in long-term investments in 2002 is an investment in the
common stock of Packaged Ice, Inc., a company that sells ice bagger machines
manufactured by the Company.  Lancer
owns less than 10% of the common stock of Packaged Ice, Inc.  The investment, accounted for as an
available-for-sale security, is recorded at fair value with net unrealized
gains and losses reported, net of tax, in other comprehensive income.  The fair value is determined by quoted
market prices. The Company sold its holdings in common stock of Package Ice,
Inc. during 2003, resulting in a gain of $0.2 million.  Goodwill and Other Intangible Assets  The Company accounts for goodwill and other intangible assets in
accordance with Statement of Financial Accounting Standards Board No. 142,
Goodwill and Other Intangible Assets, which requires that goodwill and
certain indefinite-lived assets no longer be amortized, but instead be
evaluated at least annually for impairment. The Company adopted the provisions
of SFAS 142 on January 1, 2002. 
Other intangible assets are amortized on a straight-lined basis over
their estimated useful lives, which range from eighteen months to fifteen
years.  The determination of the value of goodwill and other intangibles
requires us to make estimates and assumptions about future business trends and
growth.  If an event occurs which would
cause us to revise our estimates and assumptions uses in analyzing the value of
our goodwill or other intangibles, such revision could result in an impairment
charge that could have a material impact on our financial condition and results
of operations.  Goodwill is tested for impairment annually in the third quarter or
whenever an event occurs or circumstances change that may reduce the fair value
of the reporting unit below its book value. 
The impairment test is conducted for each reporting unit in which
goodwill is recorded by comparing the fair value of the reporting unit with its
carrying value.  Fair value is
determined primarily by computing the future discounted cash flows expected to
be generated by the reporting unit.  If
the carrying value exceeds the fair value, goodwill may be impaired. If this
occurs, the fair value of the reporting unit is then allocated to its assets
and liabilities in a manner similar to a purchase price allocation in order to
determine the implied fair value of the goodwill of the reporting unit.  The implied fair value is then compared with
the carrying amount of the goodwill of the reporting unit, and, if it is less,
then the Company would recognize an impairment loss. Based on the impairment
testing, no impairment occurred in 2002 and 2003.  The Company has approximately $1.9 million of goodwill, net of
accumulated amortization of $0.8 million, at December 31, 2003 and 2002,
respectively.  Amortization expense
related to goodwill for the year ended December  F-9 
   31, 2001 was $0.2 million. A reconciliation of the effects of the
adoption of SFAS No. 142 on net income and basic and diluted earnings per share
is as follows (Amounts in thousands, except share data):  2003
  
  2002
  
  2001Net (loss) earnings
  
  $
  (767
  )
  $
  4,006
  
  $
  1,402Add back goodwill amortization (net of tax
  effect)
  
  
  
  
  
  147Adjusted net (loss) earnings
  
  $
  (767
  )
  $
  4,006
  
  $
  1,549Basic earnings per common share:Net (loss) earnings
  
  $
  (0.09
  )
  $
  0.43
  
  $
  0.15Add back goodwill amortization (net of tax
  effect)
  
  
  
  
  
  0.02Adjusted net (loss) earnings
  
  $
  (0.09
  )
  $
  0.43
  
  $
  0.17Diluted earnings per common share:Net (loss) earnings
  
  $
  (0.09
  )
  $
  0.43
  
  $
  0.15Add back goodwill amortization (net of tax
  effect)
  
  
  
  
  
  0.02Adjusted net (loss) earnings
  
  $
  (0.09
  )
  $
  0.43
  
  $
  0.17  Other intangible assets with definite useful lives are recorded on the
basis of cost in accordance with SFAS No. 142, and are amortized on a
straight-line basis.  The Company
assesses the recoverability of its other intangible assets by determining
whether the amortization of the intangible balance over its remaining useful
life can be recovered through projected undiscounted future cash flows over the
remaining amortization period.  If
projected undiscounted future cash flows indicate that an unamortized
intangible asset will not be recovered, an impairment loss is recognized based
on projected discounted future cash flows. 
Cash flow projections are based on trends of historical performance and
managements estimate of future performance, given consideration of existing
and anticipated competitive and economic conditions.  The Company has approximately $3.0 million and $3.2 million of
intangible assets, net of accumulated amortization of $1.1 million and $0.7
million, at December 31, 2003 and 2002, respectively.  Amortization expense related to other
intangible assets was $0.4 million, $0.3 million and $0.2 million for the years
ended December 31, 2003, 2002 and 2001, respectively.  Estimated amortization expense is $0.2
million for each of the five years ending December 31, 2008.  Derivative Instruments  The Company accounts for derivative instruments using the principles of
Statement of Financial Accounting Standard (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities.  SFAS No. 133 provides guidance on accounting and financial
reporting for derivative instruments and hedging activities.  SFAS No. 133 requires the recognition of all
derivatives as either assets or liabilities on the consolidated balance sheet,
and the periodic measurement of those instruments at fair value.  The Company determined that hedge accounting
would not be elected for derivatives existing at January 1, 2001, which
consisted of interest rate swap agreements. 
The Company entered into the swap agreements to effectively fix the
interest rate on a portion of its debt in order to lessen the Companys
exposure to floating rate debt.  Changes
in the fair value of those derivatives are recorded in income.  The adoption of SFAS No. 133 as of
January 1, 2001, resulted in a cumulative-effect-type expense to other
comprehensive income of $51 thousand, which is recognized in interest expense
over the term of the interest rate swap agreements ranging from 11 months to 24
months.  As of December 31, 2003
and 2002, the fair value of the interest rate swap agreements was a liability
of $-0- thousand and $53 thousand respectively, which is included in accrued
expenses in the accompanying financial statements.   The Company recognized in interest expense $2 thousand, $14
thousand and $37 thousand relating to the transition adjustment for 2003, 2002
and 2001, respectively.  Changes in the
fair value of the interest rate swap agreements reduced interest expense by $53
thousand and $311 thousand in 2003 and 2002, respectively, and increased
interest expense by $311 thousand in 2001.  F-10 
   Reserve for Medical Costs and Workers Compensation  The Company maintains a self-insurance program for major medical and
hospitalization coverage for employees and their dependents, which is partially
funded by payroll deductions.  The
estimate of the loss reserves necessary for claims is based on the Companys
estimate of claims incurred as of the end of the year. The Company uses detail
lag reports provided by the insurance administrator to determine an appropriate
reserve balance. The Company has provided for both reported medical costs and
incurred but not reported medical costs in the accompanying Financial
Statements.  The Company has a maximum
liability of $100,000 per participant per policy year.  Amounts in excess of the stated maximum are
covered under a separate policy provided by an insurance company.  The Company is self-insured for all workers compensation claims
submitted by Texas employees for on-the-job injuries. The estimate of the loss
reserves necessary for claims are based on the Companys estimate of claims
incurred as of the December 31, 2003. In addition to detail lag reports
provided by the insurance administrator, the Company uses an injury report to
determine an appropriate reserve balance. The Company has provided for both
reported costs and incurred but not reported costs of workers compensation
coverage in the Financial Statements. 
In an effort to provide for catastrophic events, the Company carries an
excess indemnity policy for workers compensation claims.  All claims paid under the policy are subject
to an annual deductible of $500,000 to be paid by the Company.  Based upon the Companys past experience,
management believes that the Company has adequately provided for potential
losses.  However, multiple occurrences
of serious injuries to employees could have a material adverse effect on the
Companys financial position or its results of operations.  Net Earnings (Loss) per Share  The following reconciliation of the numerators and denominators of the
basic and diluted per common share computations (Amounts in thousands except
share data):  2003
  
  2002
  
  2001Basic Earnings (loss) per shareEarnings (loss) from Continuing operations
  
  $
  (1,359
  )
  $
  5,619
  
  $
  1,579Earnings (loss) from Discontinued
  operations
  
  592
  
  (1,613
  )
  (177
  )Net earnings (loss)
  
  $
  (767
  )
  $
  4,006
  
  $
  1,402Weighted average common shares outstanding
  
  9,356,082
  
  9,326,529
  
  9,127,062Net earnings (loss) per share
  
  $
  (0.09
  )
  $
  0.43
  
  $
  0.15Diluted Earnings (loss) per shareEarnings (loss) from Continuing operations
  
  $
  (1,359
  )
  $
  5,619
  
  $
  1,579Earnings (loss) from Discontinued
  operations
  
  592
  
  (1,613
  )
  (177
  )Net earnings (loss)
  
  $
  (767
  )
  $
  4,006
  
  $
  1,402Weighted average common shares outstanding
  
  9,356,082
  
  9,326,529
  
  9,127,062Incremental shares assuming dilution
  
  
  
  106,664
  
  187,727Weighted average diluted common shares
  outstanding
  
  9,356,082
  
  9,433,193
  
  9,314,789Net earnings (loss) per share
  
  $
  (0.09
  )
  $
  0.43
  
  $
  0.15  Options to purchase approximately 114,550, 82,550, and 132,250 shares
in 2003, 2002 and 2001, respectively, were outstanding but were not included in
the computation because the exercise price is greater than the average market
price of the common shares.  F-11 
   Revenue Recognition  Revenue is recognized in accordance with the following methods:  (a)At the time of shipment for all products
except for those sold under agreement described in (b). The Company requires a
purchase order for all sales. At the time of the shipment, risk of ownership
and title passes to the customer. The goods are completely assembled and
packaged and the Company has no further performance obligations.  (b)As produced and at time of title transfer, for
certain products manufactured and warehoused under production and warehousing
agreements with certain customers.  The
Company had no such arrangements after March 31, 2002.  (c)The Company has entered into an agreement
with its major customer to receive partial reimbursement for design and
development.  The reimbursement is
offset against cost on a percentage of completion basis.  (d)The Company has agreed to provide exclusive
rights for use of certain tools to its major customer.  These tools are included in fixed assets and
are depreciated over the life of the asset. 
The corresponding license and maintenance fees are recorded as deferred
income and recognized over the life of the agreement, which approximates the
life of the corresponding asset.  Income Taxes  Income taxes are accounted for under the asset and liability
method.  Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards.  Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.  The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.  Provision for U.S. income taxes on the undistributed earnings of
foreign subsidiaries is made only on those amounts in excess of the funds
considered to be permanently reinvested.  Research and Development  Company-sponsored research and development costs are expensed as
incurred and totaled approximately $2.1 million, $2.3 million, and $2.4 million
for the years ended December 31, 2003, 2002 and 2001, respectively.  Foreign Currency Translation  Assets and liabilities of non-U.S. subsidiaries that operate in a local
currency environment are translated to U.S. dollars at year-end exchange
rates.  Income and expense items are
translated at average rates of exchange prevailing during the year.  Translation adjustments are accumulated in a
separate component of shareholders equity. 
Inventories, plant and equipment and other non-monetary assets and
liabilities of non-U.S. subsidiaries that operate in U.S. dollars are
translated at approximate exchange rates prevailing when acquired.  All other assets and liabilities are
translated at year-end exchange rates. 
All other income and expense items are translated at average rates of
exchange prevailing during the year. 
For those companies that operate in U.S. dollars, gains and losses that
result from translation are included in earnings.  F-12 
   Stock Options  At December 31, 2003, the Company has two stock option plans,
which are described further in Note 6. 
The Company utilizes the intrinsic value method required under
provisions of APB Opinion No. 25 and related interpretations in measuring
stock-based compensation for employees. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at grant date
as prescribed by SFAS No. 123, net earnings and net earnings per share would
have been adjusted to the pro forma amounts indicated in the table below
(Amounts in thousands, except share data):  2003
  
  2002
  
  2001Net (loss) earnings-as reported
  
  $
  (767
  )
  $
  4,006
  
  $
  1,402Add: Total stock-based compensation expense
  determined under the intrinsic value method, net of tax
  
  51
  
  150
  
  Deduct: Total stock-based compensation
  expense determined under fair value based method for all awards, net of tax
  
  (112
  )
  (94
  )
  (161
  )Net (loss) earnings-pro forma
  
  $
  (828
  )
  $
  4,062
  
  $
  1,241Net (loss) earnings per basic share-as
  reported
  
  $
  (0.09
  )
  $
  0.43
  
  $
  0.15Net (loss) earnings per basic share-pro
  forma
  
  $
  (0.09
  )
  $
  0.44
  
  $
  0.14Net (loss) earnings per diluted share-as
  reported
  
  $
  (0.09
  )
  $
  0.43
  
  $
  0.15Net (loss) earnings per diluted share-pro
  forma
  
  $
  (0.09
  )
  $
  0.43
  
  $
  0.13Weighted-average fair value of options,
  granted during the period
  
  $
  3.84
  
  $
  2.88
  
  $
  2.02   The fair value of each option granted in 2003, 2002 and 2001 is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions:  2003
  
  2002
  
  2001Expected life (years)
  
  7
  
  5
  
  4Interest rate
  
  3.8
  %
  3.0
  %
  4.0
  %Volatility
  
  47.1
  %
  42.9
  %
  44.4
  %Expected Dividend yield
  
  0.0
  %
  0.0
  %
  0.0
  %  Comprehensive Income  Comprehensive income (loss)
consists of net earnings, currency translation adjustment, unrealized gain
(loss) on investment, and unrealized loss on derivative instruments and is
presented in the consolidated statements of shareholders equity and
comprehensive income.  Reporting of
Comprehensive Income requires additional disclosures in the consolidated financial
statements but it does not affect the Companys financial position or results
of operations.  Use of Estimates  The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. 
In preparing these financial statements, management has made its best
estimates and judgments of certain amounts included in the financial
statements, giving due consideration to materiality.  Changes in the estimates and assumptions used by management could
have significant impact on the Companys financial results.  Actual results could differ from those
estimates.  Impairment of Long-Lived Assets  Long-lived assets and intangible assets with definite lives are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. The review is
based on a projection of the undiscounted future operating cash flows of the
underlying assets. To the extent such projections indicate that future
undiscounted cash flows are not sufficient to recover the carrying amounts of
related assets, a charge is recorded to reduce the carrying amount to equal
projected future discounted cash flows.  Reclassifications  Certain amounts in the consolidated financial statements for prior
years have been reclassified to conform with the current years presentation.  F-13 
   Recent Accounting Pronouncements  SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, issued in December 2002, amends SFAS No. 123 Accounting for
Stock-Based Compensation to provide alternative methods of transition for a
voluntary change to the fair-value based method of accounting for stock-based
employee compensation.  In addition,
SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of
the method used on reported results. 
The transition guidance and annual disclosure provisions of SFAS No. 148
are effective for fiscal years ending after December 15, 2002.  The interim disclosure provisions are
effective for financial statements for interim periods beginning after
December 15, 2002.  The Company
will continue to account for stock-based compensation using the intrinsic value
method under APB Opinion No. 25.  The
disclosure modifications required for fiscal years ending after
December 15, 2002 are included in the notes to these financial statements.  In December 2003, the FASB issued FASB Interpretation No. 46
(revised December 2003)(Interpretation 46), Consolidation of Variable
Interest Entities.  Application of this
interpretation is required in our financial statements for interests in
variable interest entities that are considered to be special-purpose entities
for the year ended December 31, 2003. 
The Company determined that it does not have any arrangements or
relationships with special-purpose entities. 
Application of Interpretation 46 for all other types of variable
entities is required for our Company effective March 31, 2004.  Interpretation 46 addresses the consolidation of business enterprises
to which the usual condition (ownership of a majority voting interest) of
consolidation does not apply.  This
interpretation focuses on controlling financial interests that may be achieved
through arrangements that do not involve voting interests.  It concludes that in the absence of clear
control through voting interests, a companys exposure (variable interest) to
the economic risks and potential rewards from the variable interest entitys
assets and activities are the best evidence of control.  If an enterprise holds a majority of the
variable interests of an entity, it would be considered the primary
beneficiary.  The primary beneficiary is
required to include assets, liabilities and the results of operations of the
variable interest entity in its financial statements.  SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities, issued in April 2003, amends and clarifies financial
accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities.  The Statement is generally effective for
contracts entered into or modified after June 30, 2003.  The adoption of SFAS No. 149 did not have a
material impact on the Companys financial statements.  SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, issued in May 2003,
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity.  The Statement is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities.  The adoption of SFAS No. 150 did not have a
material impact on the Companys financial statements.  2.Discontinued
Operations  During the quarter ended June 30, 2002, the Company decided to
close its Brazilian subsidiary.  In
connection with the closure of the Brazilian subsidiary, the Company recorded
an estimated loss from disposal of discontinued operations of $1.8 million in
the quarter ended June 30, 2002 related to the write-down of the Brazilian
subsidiary assets net of expected proceeds, foreign currency translation
losses, and an accrual for estimated exit costs. Accordingly, the Company has
reported the results of operations of the Brazilian subsidiary as discontinued  F-14 
   operations in the Consolidated Statements of Operations. For business
segment reporting purposes, the Brazil operation was previously classified as
the segment Brazil.  Certain information with respect to the discontinued Brazilian
operation for the years ended 2003, 2002 and 2001 is as follows (Amounts in
thousands):  Years
  ended December 31,2003
  
  2002
  
  2001Net sales
  
  $
  
  
  $
  466
  
  $
  1,092Pretax (loss) from discontinued operations
  
  
  
  (378
  )
  (268
  )Pretax (loss) on disposal of discontinued
  operations, net of tax
  
  (196
  )
  (2,064
  )
  Income tax benefit
  
  788
  
  829
  
  91Income (loss) from discontinued operations
  
  $
  592
  
  $
  (1,613
  )
  $
  (177
  )  During the first quarter of 2003, the IRS completed its audit of the
Companys deduction of its investment in the Brazilian operations, and other
matters.  As a result, the Company
reversed certain tax accruals resulting in a tax benefit of  $0.7 million from discontinued operations
for the year ended December 31, 2003.  Assets and liabilities of the discontinued operation are as follows
(Amounts in thousands):  2003
  
  2002Current assets
  
  $
  
  
  $
  293Property, plant and equipment, net
  
  
  
  29Current liabilities
  
  (1,208
  )
  (1,499
  )Net liabilities of discontinued operation
  
  $
  (1,208
  )
  $
  (1,177
  )  Current liabilities include a $1.196 million note payable that was due
on December 31, 2001.  The note
payable is more fully described in Note 5 - Long-term Debt and Line of Credit
with Banks  3.Investment
in Joint Ventures  The Companys 50% share of net earnings, after elimination of profit in
ending inventory, is included in other income. On May 1, 2002, the Companys
joint venture Lancer FBD Partnership, Ltd. that manufactures frozen beverage
equipment began selling directly to most third party customers, and paying a
commission to the Company of $0.8 million and $0.1 million for the years ended
December 31, 2003,and 2002 respectively. 
Prior to May 1, 2002, the joint venture sold substantially all of its
production to the Company, and the Company distributed the equipment to third
party customers. The joint venture sales to the Company were $0.1 million and
$3.0 million for the years ended December 31, 2003 and 2002 respectively.
The joint venture purchases from the Company were $2.0 million and $0.5 million
for the years ended December 31, 2003 and 2002 respectively. The joint
venture had a balance due from (to) the Company of $(1.5) million and $(0.8)
million at December 31, 2003 and 2002 respectively.  F-15 
   The Companys joint venture, Lauch Lancer LLC d.b.a. Moo Technologies,
is a developmental stage enterprise that reported an operating loss and no
revenue in 2003 and 2002.  4.Income
Taxes  An analysis of income tax expense (benefit) follows (Amounts in
thousands):  Current
  
  Deferred
  
  Total2003Continuing operations:Federal
  
  $
  421
  
  $
  (1,089
  )
  $
  (668
  )State
  
  64
  
  
  
  64Foreign
  
  945
  
  (151
  )
  794Total
  
  $
  1,430
  
  $
  (1,240
  )
  $
  190Discontinued operations:Federal
  
  $
  (66
  )
  $
  (722
  )
  $
  (788
  )2002Continuing operations:Federal
  
  $
  364
  
  $
  1,121
  
  $
  1,485State
  
  24
  
  
  
  24Foreign
  
  1,052
  
  108
  
  1,160Total
  
  $
  1,440
  
  $
  1,229
  
  $
  2,669Discontinued operations:Federal
  
  $
  (444
  )
  $
  (385
  )
  $
  (829
  )2001Continuing operations:Federal
  
  $
  362
  
  $
  (407
  )
  $
  (45
  )State
  
  24
  
  
  
  24Foreign
  
  933
  
  6
  
  939Total
  
  $
  1,319
  
  $
  (401
  )
  $
  918Discontinued operations:Federal
  
  $
  
  
  $
  (91
  )
  $
  (91
  )
  Temporary differences between the financial statement carrying amounts
and tax bases of assets and liabilities that give rise to significant portions
of the net deferred tax liability relate to the following (Amounts in
thousands):  F-16 
   2003
  
  2002Deferred tax assets:Accounts receivable
  
  $
  198
  
  $
  229Inventory
  
  953
  
  1,449Compensation and benefits
  
  211
  
  353Net operating loss carryforward, expiring
  in 2020
  
  2,099
  
  63Minimum taxes creditable in foreign
  jurisdictions
  
  570
  
  639Asset impairments
  
  404
  
  US tax credits
  
  1,119
  
  741Other
  
  50
  
  233Total gross deferred tax assets
  
  5,604
  
  3,707Deferred tax liabilities:Property, plant and equipment
  
  3,408
  
  3,495DISC income
  
  2,667
  
  1,746Foreign deferred liabilities
  
  136
  
  523Total deferred tax liability
  
  6,211
  
  5,764Net deferred tax liability
  
  $
  607
  
  $
  2,057  US tax credits comprise of Increasing Research and Experimentation
Credits (R&E) and Alternative Minimum Tax (AMT) credit carry-forward. These
credits expire in various years beginning 2019.  In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. 
Based on the expectation of future taxable income and that the
deductible temporary differences will offset existing taxable temporary
differences, management believes it is more likely than not the Company will
realize the benefits of these deductible differences at December 31, 2003.  The actual tax expense (benefit) differs from the expected tax
expense (benefit) (computed by applying U.S. Federal corporate rate of 34% to
earnings before income taxes) as follows (Amounts in thousands):  2003
  
  2002
  
  2001Computed expected tax expense (benefit)
  from continuing operations
  
  $
  (398
  )
  $
  2,818
  
  $
  849Increase (decrease) in taxes resulting
  from:Effect of tax credits
  
  
  
  (129
  )
  (118
  )Effect of nondeductible expenses
  
  352
  
  78
  
  44Liquidation of DISC
  
  791
  
  
  
  Reversal of accruals
  
  (206
  )
  
  
  IRS examination and related interest
  
  (319
  )
  
  
  State, net of Federal benefit
  
  42
  
  16
  
  16Effect of foreign tax rates
  
  (58
  )
  (26
  )
  34Other, net
  
  (14
  )
  (88
  )
  93$
  190
  
  $
  2,669
  
  $
  918  In accordance with SFAS No. 109, no federal income taxes had been
provided for the accumulated undistributed earnings of the Companys Domestic
International Sales Corporation (the DISC) as of December 31, 1992.  On December 31, 1992, the accumulated
undistributed earnings of the DISC totaled $2.4 million. During the year ended  F-17 
   December 31, 2003, the Company decided to terminate the DISC
election and recorded $0.8 million in income tax expense for the taxes due
prior to December 31, 1992. 
The  $2.667 million of DISC
deferred income tax is payable to the IRS over 10 years form the date of
liquidation.  During the first quarter of 2003, the IRS completed its audit of the
Companys deduction of its investment in the Brazilian operations, and other
matters.  As a result, the Company
reversed certain tax accruals resulting in an income tax benefit of $0.9
million. Of this benefit, $0.7 million related to the Brazilian operations was
reclassified from tax benefits of continuing operations to tax benefits of discontinued
operations for the year ended December 31, 2003. In addition, during 2003
the IRS completed its examination of the Companys income tax return for the
year ended December 31, 1999.  5.Long-term
Debt and Line of Credit with Banks  (Amounts in thousands)
  
  2003
  
  2002Notes payable to banks, due in quarterly
  installments plus interest based upon prime and LIBOR (weighted average rate
  of 2.28% at December 31, 2003) through July 15, 2005; secured by
  substantially all of the Companys assets in the United States
  
  $
  9,386
  
  $
  10,786Debt payable to seller of Brazil
  subsidiary, due in annual installments plus interest based on LIBOR (weighted
  average interest rate of 1.88% at December 31, 2003) through
  December 31, 2001
  
  1,196
  
  1,196Capital lease payable to bank, due in
  monthly installments plus interest of 6.72% through November 1, 2006
  
  421
  
  55211,003
  
  12,534Less current installments of long-term debt
  
  2,735
  
  2,726$
  8,268
  
  $
  9,808  Effective June 30, 2004, the Company and its lenders entered into
the Credit Agreement. The Credit Agreement, which amended and restated the
Seventh Amendment and Restated Credit Agreement as amended, provides for, among
other things, (i) a revolving loan amount of $10.0 million, which was reduced
from the prior amount of $25.0 million (ii) a maturity date for the revolving
loan of January 31, 2005, which was accelerated from the prior maturity of
July 15, 2005, (iii) an increased interest rate on outstanding balances of
Base Rate (which approximates prime) plus 2%, (iv) a waiver of certain prior
defaults and events of default, and (v) additional information delivery
requirements by the Company, including the delivery of monthly financial
statements.  As of December 31, 2003, the revolving loan portion of the credit
facility had an outstanding balance of $1.0 million, and term loans had a
combined outstanding balance of $9.4 million. Permitted borrowings under the
revolving loan are based upon a specified percentage of the Companys accounts
receivable and inventory in any given month. 
On December 31, 2003, the Company had cash of $1.1 million, and
unused availability of $15.2 million under its revolving loan.  The term loan expires on July 15, 2005,
while the revolving loan expires on  F-18 
   January 31, 2005. All loans under the credit facility are
collateralized by substantially all of the Companys assets in the United
States.  The weighted average interest
rate was 2.26% as of December 31, 2003.  The Company has a $1.196 million debt payable outstanding in relation
to the Companys discontinued Brazilian operations that was due on
December 31, 2001.  The Company has
not repaid the debt, pending discussions with the payee relating to settlement
of the debt, but it has recorded the balance of the debt plus interest accrued
through December 31, 2003 in its financial statements.  During the second quarter of 2003, the payee
demanded payment of the debt.  The
Company has not paid the debt, but has chosen to continue to discuss the status
of the debt in an attempt to reach a settlement.  The Company can make no assurance that it will be successful in
negotiating such a settlement of the debt. 
The Company believes that it has the liquidity available to pay the debt
if the circumstances so require, assuming that the Companys ability to access
cash through its credit facility remains unimpeded. Nonpayment of a material
obligation is an event of default under the Companys Credit Agreement.  The Companys lenders under the Credit
Agreement have waived the event of default caused by the nonpayment of the note
to the Companys credit facilities.  Annual maturities on long-term debt outstanding at December 31,
2003 are as follows (Amounts in thousands):  2004
  
  $
  2,7352005
  
  8,1362006
  
  1322007
  
  2008
  
  $
  11,003
  To manage its exposure to fluctuations in interest rates, the Company
entered into interest rate swap agreements (the Swap Agreements) in recent
years.  The last of these Swap
Agreements expired in the first quarter of 2003.  6.Employee
Benefit Plans  Stock Options  The Company has stock option plans under which incentive and
non-qualified options may be granted. 
Options are granted at the market price per share at the grant
date.  Options generally become
exercisable in 20% increments beginning on the grant date and expire ten years
from the grant date.  During the third quarter of 2002, the Companys Board of Directors
extended the life of the Companys outstanding stock options by five
years.  The change resulted in an
expense of $0.4 million, $0.2 million of which was recognized during the third
and fourth quarters of 2002.  The
remaining $0.2 million will be recognized ratably as the options vest.  A summary of transactions for all options follows:  F-19 
   Option
  PriceStock
  Options
  
  Low
  
  High
  
  Weighted
  AverageOutstanding at December 31, 2000
  
  745,038
  
  $
  1.29
  -
  $
  16.54
  
  $
  4.77Granted
  
  29,000
  
  $
  5.51
  -
  $
  6.06
  
  $
  5.98Canceled
  
  (168,725
  )
  $
  3.56
  -
  $
  10.00
  
  $
  7.31Exercised
  
  (2,900
  )
  $
  3.57
  -
  $
  3.57
  
  $
  3.56Outstanding at December 31, 2001
  
  602,413
  
  $
  1.29
  -
  $
  16.54
  
  $
  4.12Granted
  
  110,300
  
  $
  3.60
  -
  $
  9.00
  
  $
  5.86Canceled
  
  (57,700
  )
  $
  3.56
  -
  $
  16.54
  
  $
  11.56Exercised
  
  (268,362
  )
  $
  1.30
  -
  $
  3.56
  
  $
  1.40Outstanding at December 31, 2002
  
  386,651
  
  $
  3.56
  -
  $
  13.63
  
  $
  5.40Granted
  
  66,000
  
  $
  5.15
  -
  $
  9.70
  
  $
  7.23Canceled
  
  (47,935
  )
  $
  3.56
  -
  $
  6.57
  
  $
  5.26Exercised
  
  (30,000
  )
  $
  3.56
  -
  $
  7.75
  
  $
  4.58Outstanding at December 31, 2003
  
  374,716
  
  $
  3.56
  -
  $
  13.63
  
  $
  5.81  A summary of exercisable options follows:  Options
  Outstanding
  
  Options
  ExcerciableRange of
  Prices
  
  Number
  
  Weighted
  Avg. of
  Exercise Price
  
  Weighted
  Avg. of
  Remaining
  Life (yrs.)
  
  Number of
  Exercisable
  Options
  
  Weighted
  Avg. of
  Exercise Price2001$1.0 to 5.0
  
  470,162
  
  $
  2.43
  
  1.60
  
  340,562
  
  $
  1.91$5.1 to 10.0
  
  89,250
  
  $
  7.89
  
  2.53
  
  46,600
  
  $
  8.54$10.1 to 17.0
  
  43,000
  
  $
  14.88
  
  0.61
  
  40,700
  
  $
  14.952002$1.0 to 5.0
  
  234,100
  
  $
  3.88
  
  7.67
  
  128,100
  
  $
  3.84$5.1 to 10.0
  
  141,050
  
  $
  7.27
  
  8.10
  
  64,010
  
  $
  7.94$10.1 to 17.0
  
  11,500
  
  $
  13.52
  
  5.28
  
  11,500
  
  $
  13.522003$1.0 to 5.0
  
  197,166
  
  $
  3.85
  
  6.64
  
  154,799
  
  $
  3.87$5.1 to 10.0
  
  166,050
  
  $
  7.59
  
  7.69
  
  86,770
  
  $
  7.86$10.1 to 17.0
  
  11,500
  
  $
  13.52
  
  4.28
  
  11,500
  
  $
  13.52  F-20 
   Self-Insured Medical Plan  The Company maintains a self-insurance program for major medical and
hospitalization coverage for employees and their dependents, which is partially
funded by payroll deductions.  The
Company has provided for both reported, and incurred but not reported, medical
costs in the accompanying consolidated balance sheets.  The Company has a maximum liability of
$100,000 per participant per year. 
Amounts in excess of the stated maximum are covered under a separate
policy provided by an insurance company.  Workers Compensation Coverage  The Company is self-insured for all workers compensation claims
submitted by employees for on-the-job injuries.  The Company has provided for both reported, and incurred but not
reported, costs of workers compensation coverage in the accompanying
consolidated balance sheets.  In an effort to provide for catastrophic events, the Company carries an
excess indemnity policy for workers compensation claims.  All claims paid under the policy are subject
to a deductible of $500,000 to be paid by the Company.  Based upon the Companys past experience,
management believes that the Company has adequately provided for potential
losses.  However, multiple occurrences
of serious injuries to employees could have a material adverse effect on the
Companys financial position and its results of operations.  Employee Profit Sharing Plan  The Company has established an employee profit sharing and 401(k) plan,
which covers substantially all United States employees who meet the eligibility
requirements.  Participants may elect to
contribute up to 15% of their annual wages, subject to certain IRS limitations.  The Company matches employee 401(k)
contributions to the plan at a rate of 50% of the first 6% of the salary
contributed to the plan through salary deferral.  In addition, the Company, at the discretion of the Board of
Directors, may make profit sharing contributions to the plan.  The accompanying consolidated statements of
operations for the years ended December 31, 2003, 2002 and 2001 include
Company contributions to the plan of approximately $0.3 million, $0.5 million,
and $0.2 million, respectively.  The Company is also required to make contributions to a defined
contribution plan for the employees of its Australian subsidiary.  Contributions during 2003, 2002 and 2001
totaled approximately $0.1 million, $0.2 million, and $0.1 million,
respectively.  7.Fair
Value of Financial Instruments  The Company is required to disclose estimated fair value of its
financial instruments, including derivative financial instruments, for which it
is practicable to estimate fair value. 
The following methods and assumptions were used to estimate the fair
market value of each class of financial instrument for which it is practicable
to estimate that value.  Cash, Trade Receivables, and Trade Payables  The carrying amounts of the Companys cash, trade receivables and trade
payables approximate market value.  Long-term Receivables  The carrying amount of the Companys notes receivable approximates fair
market value based on the actual interest rates paid on the interest bearing
notes.  Long-term Investments  Long-term investments, excluding investment in joint ventures, are
stated at approximate market value based upon the current nature of the
investments. The Companys investment in Packaged Ice, Inc. was sold in 2003,
resulting in a gain of $0.2 million.  F-21 
   Debt  The carrying amount of the Companys long-term debt and short-term debt
approximate market value as the rates are variable or are fixed at current
market rates.  Swap Agreements  The carrying amount of the Companys interest rate swap agreements
approximates market value.  The fair
market value of interest rate swap agreements was approximately $ 50 thousand
as of December 31, 2002.  There
were no swap agreements outstanding as of December 31, 2003.  8.Acquisitions  During the second quarter of 2002, the Company acquired certain assets
and liabilities of BMS Refrigeration Pty. Ltd., an Australian company, for
approximately $0.252 million. The acquisition has been accounted for by the
purchase method, and accordingly, the results of operations of BMS have been included
in the Companys consolidated financial statements from the date of
acquisition. The excess of the purchase price over the fair value of the
identifiable assets acquired of $0.126 million has been recorded as goodwill.  The operating results of the Company would
not have been significantly different had the acquisition occurred at the
beginning of 2002.  F-22 
   9.Supplemental
Balance Sheet and Income Statement Information  Inventory components are as follows (Amounts in thousands):  2003
  
  2002Finished goods
  
  $
  9,327
  
  $
  10,893Work in process
  
  6,504
  
  7,647Raw material and supplies
  
  8,671
  
  10,554$
  24,502
  
  $
  29,094  During 2003, the Company took a charge of approximately $1.2 million on
inventory unlikely to be used as intended in the production of a customers
beverage dispensing platform.  The
Company believes there are no significant alternative uses for the inventory.  Lancer is seeking reimbursement from the
customer, but can make no assurance that it will be successful in obtaining the
reimbursement.  If it were to receive
reimbursement in the future, Lancer would recognize income of approximately
$1.2 million.  Accrued expenses consist of the following (Amounts in thousands):  2003
  
  2002Payroll and related expenses
  
  $
  1,747
  
  $
  3,936Commissions
  
  314
  
  395Health and workers compensation
  
  502
  
  909Property taxes
  
  286
  
  539Interest
  
  703
  
  339Warranty
  
  586
  
  526Other taxes
  
  139
  
  140Investigation fees
  
  702
  
  Other accrued expenses
  
  1,985
  
  1,193$
  6,964
  
  $
  7,977  10.Product
Warranties  The Company generally warrants its products against certain
manufacturing and other defects.  These
product warranties are provided for specific periods of time from the date of
sale.  The Company has accrued for
estimated product warranty claims of $0.6 million and $0.5 million as of
December 31, 2003 and 2002, respectively. 
The accrued product warranty costs are based primarily on actual
warranty claims as well as current information on repair costs.  Warranty claims expense for each of the
years 2003, 2002 and 2001 was $0.8 million, $0.2 million and $0.2 million,
respectively.  (Amounts
  in thousands)January 1, 2003
  
  $
  526Liabilities accrued for warranties issued
  during the period
  
  735Warranty claims paid during the period
  
  (675
  )December 31, 2003
  
  $
  586  F-23 
   11.Commitments
and Contingencies  Leases  The Companys leases are primarily for manufacturing, warehouse and
office facilities, and to a lesser extent, for equipment.  At December 31, 2003, future minimum
lease payments required under all noncancelable operating leases are as follows
(Amounts in thousands):  2004
  
  $
  1,0902005
  
  6692006
  
  4202007
  
  3682008
  
  302Total minimum lease payments
  
  $
  2,849
  Total rental expense was approximately $1.2 million, $1.0 million, and
$1.3 million in 2003, 2002 and 2001, respectively.  The Company has been party to agreements to provide warehousing space
and services for certain of its customers, Rental income related to the
warehousing agreements totaled approximately $0, $0.2 million and $1.7 million
in 2003, 2002 and 2001 respectively. These agreements were terminated in 2002.  Other Guarantees  During 2003, Lancer FBD Partnership, Ltd., of which the Company owns
50%, obtained a $1.5 million revolving credit facility from a bank.  The Company guaranteed the repayment of the
debt.  In accordance with FASB
Interpretation (FIN) No. 45, the Company has recorded a liability of $22,500,
which represents the estimated value of the guaranty.  Additionally, the Company guaranteed a $0.75 million revolving
credit facility payable by Moo Technologies, LLC (50% owned by the Company) to
a bank.  The Company recorded a
liability of $11,250 in 2003, which represents the estimated value of the
guaranty.  Moo Technologies, LLC is a
developmental stage company that reported an operating loss and no operating
revenue in 2003.  Litigation  In August of 2003, the US Attorneys Office informed the Company
that it was conducting an investigation arising from allegations raised in a
lawsuit against The Coca-Cola Company by a former Coca-Cola employee, Matthew
Whitley and requested certain information, which the Company supplied. On
January 13, 2004, the Company received written notice that the SEC had
issued a formal order of investigation, dated December 2, 2003, that
appears to concern matters which were the subject of the Audit Committee investigation,
including allegations contained in the Matthew Whitley lawsuit against the
Coca-Cola Company. The Company is unable at this point to predict the scope or
outcome of these investigations. The Company has cooperated, and intends to
continue to cooperate, with both the US Attorneys Office and the SEC
investigations.  On May 14, 2004, a purported class action, cause number 04-CV-427,
naming as defendants the Company, George F. Schroeder, David F. Green and The
Coca-Cola Company was filed in the United States District Court for the Western
District of Texas by TDH Partners. The action alleges that the defendants
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder. Specifically, the complaint alleges that
during the period October 26, 2000 to February 4, 2004, the
defendants engaged in a pattern of fraudulent conduct involving the issuance of
a series of false and misleading statements because they materially described
inaccurately the nature of Lancers revenue, with a goal of manipulating the
sales of fountain products. The action also alleges that Lancers public
statements failed to fully reveal that it had major manufacturing problems,
which  F-24 
   resulted in a high defect rate in its products and that Lancer engaged
in a fraudulent scheme with its largest customer, to artificially create demand
for a new line of soda machine dispensers that Lancer was manufacturing for the
customer to sell to its commercial customers. No specific amount of damages has
been claimed. Neither the Company nor George F. Schroeder has been served with
the lawsuit as of the date of this filing.  The Company intends to vigorously defend itself against Plaintiffs claims.
Due to the uncertainty of litigation, and the early stage of the proceedings,
the Company is unable to express an opinion as to the probably or likely
outcome of this litigation or an estimate of the amount or range of potential
loss in the event of an unfavorable outcome.  12.Quarterly
Financial Information (Unaudited)  The fourth quarter of 2003 includes an impairment of $1.2 million of
inventory related to a specific product line, and impairment of the investment
in a joint venture and certain assets of $1.2 million. The fourth quarter of
2002 includes a $0.9 million reversal of sale for product to be returned by a
customer in 2003. The following table reflects the quarterly results for 2003
and 2002 (in thousands except for share data):  Three Months
  Ended2003
  
  March
  31
  
  June
  30
  
  September
  30
  
  December
  31Net sales
  
  $
  26,874
  
  $
  29,370
  
  $
  30,237
  
  $
  27,019Gross profit
  
  5,794
  
  7,690
  
  8,382
  
  6,656Net (loss) earnings
  
  (317
  )
  230
  
  574
  
  (1,254
  )Earnings per share:Basic
  
  $
  (0.03
  )
  $
  0.02
  
  $
  0.06
  
  $
  (0.14
  )Diluted
  
  $
  (0.03
  )
  $
  0.02
  
  $
  0.06
  
  $
  (0.14
  )Three
  Months Ended2002
  
  March
  31
  
  June
  30
  
  September
  30
  
  December
  31Net sales
  
  $
  30,250
  
  $
  37,306
  
  $
  37,298
  
  $
  34,161Gross profit
  
  7,209
  
  9,732
  
  11,031
  
  9,118Net earnings
  
  503
  
  582
  
  1,876
  
  1,045Earnings per share:Basic
  
  $
  0.05
  
  $
  0.06
  
  $
  0.20
  
  $
  0.11Diluted
  
  $
  0.05
  
  $
  0.06
  
  $
  0.20
  
  $
  0.11  F-25 
   13.Segment
and Geographic Information  The Company and its subsidiaries are engaged in the manufacture and
distribution of beverage dispensing equipment and related parts and
components.  The Company manages its
operations geographically.  Sales are
attributed to a region based on the ordering location of the customer.  Amounts in thousands
  
  North
  America
  
  Latin
  America
  
  Asia/Pacific
  
  Brazil
  
  Europe
  
  Corporate
  
  TotalYear ended December 31, 2003Total revenues
  
  $
  75,924
  
  7,690
  
  21,645
  
  
  
  8,241
  
  
  
  $
  113,500Depreciation and Amortization
  
  4,928
  
  28
  
  304
  
  
  
  68
  
  
  
  5,328Operating income
  
  10,517
  
  117
  
  3,660
  
  
  
  27
  
  (13,835
  )
  486Identifiable assets at December 31,
  2003
  
  54,511
  
  11,529
  
  13,401
  
  
  
  2,837
  
  
  
  82,278Capital expenditures
  
  2,679
  
  989
  
  409
  
  
  
  68
  
  
  
  4,145Year ended December 31, 2002Total revenues
  
  $
  97,575
  
  13,351
  
  18,555
  
  
  
  9,534
  
  
  
  $
  139,015Depreciation and Amortization
  
  4,525
  
  164
  
  222
  
  
  
  48
  
  
  
  4,959Operating income
  
  17,430
  
  1,979
  
  1,785
  
  
  
  1,360
  
  (12,999
  )
  9,555Identifiable assets at December 31,
  2002
  
  66,668
  
  10,194
  
  12,538
  
  322
  
  3,033
  
  
  
  92,755Capital expenditures
  
  2,591
  
  487
  
  535
  
  
  
  45
  
  
  
  3,658Year ended December 31, 2001Total revenues
  
  $
  87,770
  
  9,816
  
  15,303
  
  
  
  9,856
  
  
  
  $
  122,745Depreciation and Amortization
  
  4,132
  
  170
  
  317
  
  136
  
  61
  
  
  
  4,816Operating income
  
  11,115
  
  587
  
  1,446
  
  
  
  1,601
  
  (10,116
  )
  4,633Identifiable assets at December 31,
  2001
  
  67,721
  
  13,677
  
  9,080
  
  1,798
  
  4,328
  
  
  
  96,604Capital expenditures
  
  3,292
  
  471
  
  221
  
  12
  
  2
  
  
  
  3,998  All intercompany revenues are eliminated in computing revenues and
operating income.  The corporate
component of operating income represents corporate general and administrative
expenses.  Identifiable assets are those
assets identified with the operations in each geographic area.  The revenues and operating income from
Brazil have been included in discontinued operations.  During 2002, the Company placed the Asia region and the Pacific
region under common management.  The two
regions are now combined for segment reporting purposes.  Substantially all revenues result from the sales of products and
services associated with beverage dispensing. 
The products can be divided into four major categories: (i) fountain
soft drink and citrus dispensers; (ii) post-mix dispensing valves; (iii) beer
dispensing systems; and (iv) other products and services as follows (Amounts in
thousands):  2003
  
  2002
  
  2001Soft drink, citrus and frozen beverage
  dispensers
  
  $
  42,135
  
  $
  62,470
  
  $
  50,703Post mix dispensing valves
  
  12,394
  
  13,452
  
  13,725Beer dispensing systems
  
  11,364
  
  8,757
  
  5,887Other
  
  47,607
  
  54,336
  
  52,430Total revenue
  
  $
  113,500
  
  $
  139,015
  
  $
  122,745  F-26 
   The following provides information regarding net sales to major
customers, domestically and internationally (Amounts in thousands):  2003
  
  Percent of
  
  Net Sales
  
  2002
  
  Percent of
  Net Sales
  
  2001
  
  Percent of
  Net SalesUnited States:The Coca-Cola Company
  
  $
  31,318
  
  28
  %
  $
  49,241
  
  35
  %
  $
  44,163
  
  36
  %Other
  
  40,725
  
  36
  
  45,998
  
  33
  
  42,025
  
  3472,043
  
  64
  
  95,239
  
  68
  
  86,188
  
  70Outside of United States:Other
  
  41,457
  
  36
  
  43,776
  
  32
  
  36,557
  
  30$
  113,500
  
  100
  %
  $
  139,015
  
  100
  %
  $
  122,745
  
  100
  %  In addition to sales made directly to The Coca-Cola Company,
substantially all sales to other entities are significantly influenced by The
Coca-Cola Company.  Any disruption or
change in the relationship with The Coca-Cola Company could have a material
adverse effect on the results of operations of the Company.  The Coca-Cola Company had accounts receivable outstanding of $0.6
million and  $3.5 million for the years
ended December 31, 2003 and 2002 respectively.  14.Related
Party Transactions  Leases  The Company rents a building, in which portions of its manufacturing
facilities are located, under an operating lease from a partnership controlled
by certain shareholders.  The
month-to-month agreement provides for monthly rental payments of $7,400, and
the payment of real estate taxes, insurance and maintenance expenses.  Long-term
Receivables  Long-term receivables are interest bearing and include approximately $0
and $0.1 million due from officers as of December 31, 2003 and 2002,
respectively.  Joint Venture
Transactions  As outlined in Note-3 Investment in Joint Ventures, the Company has
sales, purchases and commission transactions between the Company and Lancer FBD
Partnership. Ltd.  15.Other
Matters  In June 2003, the Audit Committee of the Companys Board of
Directors (the Audit Committee) began conducting an internal investigation
(the Investigation). The Investigation was related to allegations raised by a
lawsuit against The Coca-Cola Company by a former Coca-Cola employee, Matthew
Whitley. Although the Company was not a defendant to the lawsuit, certain
allegations contained in the lawsuit specifically involved the Company. The
Investigation was later expanded to include allegations raised in certain press
articles.  The Companys former independent auditors, KPMG LLP, advised that,
until the Investigation was complete, they would not be able to complete their
review of the Companys consolidated financial statements for the second and
third quarters of 2003. Therefore, the Company was unable to file its quarterly
reports for the second and third quarters with the Securities and Exchange
Commission (the SEC). On December 5, 2003, the Company provided
financial information for the second and third quarters of 2003 in exhibits to
a Form 8-K, in order to provide information to the investing public while the
Investigation continued.  F-27 
   The Companys inability to file its quarterly report for the second
quarter of 2003 with the SEC on a timely basis violated the American Stock
Exchange (AMEX) continued listing standards, specifically
Section 1003(d) of the AMEX Company Guide. The Company submitted a formal
action plan to regain compliance with AMEX on September 30, 2003 and AMEX
accepted the plan on October 8, 2003. Since the initial acceptance, the
Company has had to revise the plan with the approval of AMEX in order to accommodate
new developments, including the Companys inability to file its annual report
on Form 10-K for 2003 and its quarterly report on Form 10-Q for the first
quarter 2004. The plan currently indicates that the Company expects to regain
compliance with the listing standards on or near June 30, 2004. By
accepting the plan and its revisions, AMEX has provided the Company with an
extension of time in order to regain compliance and is allowing the Company to
maintain its listing, subject to periodic progress reviews by the AMEX staff.
If the Company does not make progress consistent with the plan or regain
compliance in a time and manner acceptable to AMEX, the AMEX staff could
initiate delisting procedures. The Company intends to make all efforts to
comply fully with the plan, although no assurance can be made that it will
achieve compliance by the target date or otherwise progress in a manner
acceptable to AMEX.  In August of 2003, the United States Attorneys Office for the
Northern District of Georgia (the US Attorneys Office) informed the Company
that it was conducting an investigation arising from allegations raised in a
lawsuit against The Coca-Cola Company by a former Coca-Cola employee, Matthew
Whitley, and requested certain information, which the Company supplied. In
January 2004, the Company received written notice that the SEC had issued
a formal order of investigation that appeared to concern matters which were the
subject of the Investigation. The Company has fully cooperated, and intends to
continue to cooperate fully, with both the US Attorneys Office and the SEC
investigations. Although the Company is unable at this point to predict the
scope or outcome of these investigations, it is possible that it could result
in the institution of administrative, civil injunctive or criminal proceedings,
the imposition of fines and penalties, and/or other remedies and
sanctions.  The conduct of these
proceedings could adversely affect the Companys business. In addition, the
Company expects to continue to incur expenses associated with responding to
these agencies, regardless of the outcome, and the efforts and attention of our
management team may be diverted from normal business operations. This could
adversely affect our business, financial condition, operating results, and cash
flow.  On January 30, 2004, the Company announced that the Investigation
had concluded and the Audit Committee released a general summary of the
Investigation findings. On February 2, 2004, KPMG resigned from its
position as independent auditors of the Company. In addition, KPMG withdrew its
December 31, 2002, 2001 and 2000 audit reports and advised the Company
that the financial statements and related audit reports should no longer be
relied upon. KPMG stated in a letter to the Company that they had determined
that likely illegal acts, which had been the subject of the Investigation, had
come to their attention and that these likely illegal acts would have a
material effect on the Companys financial statements. Additionally, KPMG
indicated that information had come to their attention that caused them to
conclude that the Companys accounting for revenue recognition in connection
with sales of equipment to Coca Cola North America Fountain in the years ended
December 31, 2001 and 2002 is not correct and has raised concerns that the
accounting is not correct in each of the three quarters of fiscal year 2003.
The Company has filed the letters from KPMG which outline these assertions and
have responded to them in a Form 8-K, filed with the SEC on February 10,
2004, and two subsequent amendments to that Form 8-K, filed with the SEC on
February 24, 2004 and March 10, 2004, which has also been filed
hereto as Exhibits 99.1, 99.2 and 99.3.  On May 14, 2004, a purported class action, cause number 04-CV-427, naming
as defendants the Company, George F. Schroeder, David F. Green and The
Coca-Cola Company was filed in the United States District Court for the Western
District of Texas by TDH Partners. The action alleges that the defendants
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder. Specifically, the complaint alleges that
during the period October 26, 2000 to February 4, 2004, the
defendants engaged in a pattern of fraudulent conduct involving the issuance of
a series of false and misleading statements because they materially described
inaccurately the nature of Lancers revenue, with a goal of manipulating the
sales of fountain products. The action also alleges that Lancers public
statements failed to fully reveal that it had major manufacturing problems,
which resulted in a high defect rate in its products and that Lancer engaged in
a fraudulent scheme with its largest customer, to artificially create demand
for a new line of soda machine dispensers that Lancer was manufacturing for the
customer to sell to its commercial customers. No specific amount of damages has
been claimed. Neither the Company nor George F. Schroeder has been served with
the lawsuit as of the date of this filing.  F-28 
   SCHEDULE II  RESERVE ACCOUNTS  Amounts Reported in Thousands  Description
  
  Balance at
  Beginning of Year
  
  Additions
  Charged to Expense
  
  Deductions
  from Account
  
  Balance at
  End of YearAllowance for doubtful accountsDecember 31, 2003
  
  $
  979
  
  $
  258
  
  $
  492
  
  $
  745December 31, 2002
  
  $
  467
  
  $
  622
  
  $
  110
  
  $
  979December 31, 2001
  
  $
  379
  
  $
  122
  
  $
  34
  
  $
  467Inventory reserve accountDecember 31, 2003
  
  $
  3,752
  
  $
  2,316
  
  $
  2,441
  
  $
  3,627December 31, 2002
  
  $
  1,478
  
  $
  3,916
  
  $
  1,642
  
  $
  3,752December 31, 2001
  
  $
  1,483
  
  $
  489
  
  $
  494
  
  $
  1,478  F-29