UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
Form 10-KSB

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(No fee required)

For the Fiscal Year Ended May 31, 2002 Commission File No. 0-5920

LANCER ORTHODONTICS, INC.
(Name of small business issuer in its charter)

           CALIFORNIA                             95-2497155
(State or other jurisdiction of               (I.R.S. Employer
incorporation or organization)                Identification No.)

253 Pawnee Street, San Marcos, California         92069-2437
(Address of principal executive offices)          (Zip Code)

Issuer's telephone number, including area code:    (760) 744-5585
Securities Registered Pursuant to Section 12(b) of the Act:  NONE
Securities Registered Pursuant to Section 12(g) of the Act:
                                  Common Stock, Without Par Value
                                            (Title of Class)

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

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

Issuer's revenue for its most recent fiscal year $6,022,331.

The aggregate market value of the voting stock held by non-
affiliates of Issuer, based upon the closing sale price of the
common stock as reported on the OTC Bulletin Board, on August
14, 2002 was approximately $500,000.

The number of shares of Issuer's no par value common stock
outstanding as of August 14, 2002, was 2,196,223.

Documents Incorporated by Reference:
  1.  Portions of Issuer's Proxy Statement for the Annual Meeting
of Shareholders are incorporated by reference into Part III.




PART I

Item 1.  DESCRIPTION OF BUSINESS

General Development of Business

Lancer Orthodontics, Inc. ("Lancer") is engaged in the business
of manufacturing and marketing orthodontic products.  The Company
was incorporated in California on August 25, 1967.  Lancer
conducts its operations at two facilities, located at 253 Pawnee
Street, San Marcos, California 92069-2347 and in Mexicali, Mexico.

In May 1990, Lancer entered into a manufacturing subcontractor
agreement whereby the subcontractor agreed to provide
manufacturing services to Lancer through its affiliated entities
located in Mexicali, B.C., Mexico.  Effective April 1, 1996,
Lancer leased the Mexicali facility under a separate agreement.
In November 1998, Lancer extended the manufacturing agreement
through October 2000.

During fiscal 2002, the facility in Mexico was incorporated as
Lancer Orthodontics de Mexico, ("Lancer de Mexico"), a wholly-
owned subsidiary of the Company.  This subsidiary now
administers services previously provided by an independent
manufacturing contractor.  A new lease was negotiated in the
name of Lancer de Mexico, effective April 1, 2001, for the
16,000 square foot facility already in use for the Mexican
operations.  Mexican utilities and vendor obligations were also
converted to the Lancer de Mexico name.  This conversion
eliminated the expense of an administrative fee and is expected
to provide better control in meeting future obligations.
Should Lancer discontinue operations in Mexico, it is
responsible for accumulated employee seniority obligations as
prescribed by Mexican law.  At May 31, 2002, this obligation
was approximately $365,000.  Such obligation is contingent in
nature and accordingly has not been accrued in Lancer's
financial statements.

Lancer has undergone no material change in the mode of conducting
its business other than as described above and it did not dispose
of any material amount of its assets during the fiscal year ended
May 31, 2002.

Narrative Description of the Business

Principal Products and Industry Segments.  Lancer's manufactured
product line includes preformed bands, direct bonding brackets,
buccal tubes, arch wires, lingual attachments, related
accessories, and dental amalgams.  The foregoing are assembled
to the orthodontists' prescriptions or the specifications of
private label customers.  Lancer's manufactured products are
also sold to distributors worldwide.

In addition, Lancer markets products which are purchased and
resold to orthodontists, including sealants, adhesives,
elastomerics, headgear cases, retainer cases, orthodontic wire,
and preformed arches.
Lancer sells its products directly to orthodontists and dentists
through company-paid sales representatives in the United States.
At the end of its 2002 fiscal year, Lancer had seven sales
representatives, all in the United States, all of whom are
employees of Lancer.

In selected foreign countries, Lancer sells its products directly
to orthodontists through its international marketing division.
Lancer also sells its products through distributors in certain
foreign countries and to other companies on a private label basis.
Lancer has entered into a number of distributor agreements
whereby it granted the marketing rights to its products in
certain sales territories in Mexico, Central America, South
America, Europe, Canada, Australia, and Japan.  The distributors
complement the international marketing department which was
established in 1982 and currently employs three people.

For the fiscal years ended May 31, 2002 and 2001, sales by class
of product are:

  Class of Product                     2002           2001
  Manufactured Products           $4,143,000     $4,609,000
  Resale Products                  1,879,000      1,319,000
  TOTAL                           $6,022,000     $5,928,000

Lancer has only one industry segment, which is the manufacture
and distribution of orthodontic products.

Financial Information About Foreign and Domestic Operations and
Export Sales.  For the fiscal years ended May 31, 2002 and 2001:

                                        2002           2001
Sales to unaffiliated customers:
  United States                   $3,031,000     $3,018,000
  Europe                           1,813,000      1,852,000
  South America                      366,000        415,000
  Middle East                        334,000        226,000
  Other Foreign                      478,000        417,000
                                  $6,022,000     $5,928,000

No other geographic concentrations exist where net sales exceed
10% of total net sales.

                                        2002           2001
Long-lived assets:
  United States                     $ 21,000       $ 33,000
  Mexico                              27,000         45,000
                                    $ 48,000       $ 78,000

CE Certification.  Effective June 18, 1998, fifteen major
European countries are requiring a CE (European Community)
certification to sell products within their countries.  In order
to obtain this CE certification, Lancer retained British
Standards Institution (BSI) to evaluate Lancer's quality system.
Lancer's quality system is imaged under International Standards
Organization (ISO) 9002.  ISO 9002 is an internationally
recognized standard in which companies establish their methods
of operation and commitment to quality.  There are 20 clauses
for which Lancer has developed standard operating procedures in
accordance with these ISO 9002 requirements.

EN 46002 is the medical device directive (MDD) for the European
Community.  Strict standards and clauses within the MDD are
required to be implemented to sell within the European Community.
In order for Lancer's medical devices to be sold within the
European Community with a CE Mark, Lancer must fully comply with
the EN 46002 requirements.  Lancer has also constructed a
technical file that gives all certifications and risk
assessments for Lancer's products as a medical device (the
"Product Technical Files").

With ISO 9002, EN 46002, and the Product Technical Files, Lancer
applied for and was granted certification under ISO 9002,
EN 46002, and CE.  With the CE certification, Lancer is now
permitted to sell its products within the European Community.
The international ISO 9902 and EN 46002 standards will become
obsolete in December 2003.  As a result, Lancer is currently in
the process of updating its Quality Management System for
conformance to the new ISO 9000:2000 international quality
system standards, as well as the ISO 13485 standard for medical
devices.  Compliance with and certification to both ISO 9000:2000
and ISO 13485 is expected in the Spring of 2003.

Competition.  Lancer encounters intense competition in the sale
of orthodontic products.  Lancer's management believes that
Lancer's seven major competitors are Unitek, a subsidiary or
division of 3M; "A" Company and Ormco, subsidiaries or divisions
of Sybron Dental Specialties;  RMO, Inc., a private company;
American Orthodontics, a private company; GAC, a private company;
and Dentaurum, a foreign company.  Lancer estimates that these
seven competitors account for approximately 70-80% of the
orthodontic products manufactured and sold in the United States.
Lancer's management also believes that each of these seven
competitors is larger than Lancer, has more diversified product
lines, and has financial resources exceeding those of Lancer.
While there is no assurance that Lancer will be successful in
meeting the competition of its major competitors, Lancer has,
in the past, successfully competed in the orthodontic market and
has achieved wide recognition of both its name and its products.

Sources and Availability of Raw Materials.  The principal raw
materials used by Lancer in the manufacture of its products
include:  stainless steel, which is available from several
commercial sources; nickel titanium, which is available from
three sources; and lucolux translucent ceramic, which is
currently only available from one source, General Electric, and
is purchased on open account.  Ceramic material similar to
General Electric's lucolux translucent ceramic is available
from other sources.  Lancer had no difficulty in obtaining an
adequate supply of raw materials during its 2002 fiscal year,
and does not anticipate that there will be any interruption or
cessation of supply in the future.

Customers, Backlog, and Seasonality of Business.  Lancer sells
its products directly or indirectly through its sales
representatives, to a relatively large number of customers.  No
customer of Lancer's accounted for 10% or more of Lancer's sales
in the fiscal years ended May 31, 2002 and 2001.  Lancer's
backlog at May 31, 2002 and 2001, was $84,000 and $167,000,
respectively.  Lancer's business has not been subject to
significant seasonal fluctuations.

Patents and Trademarks, Licenses, Franchises, and Concessions
Held.  On April 4, 1989, Lancer was granted a patent on its
Counter Force design of a nickel titanium orthodontic archwire.
On August 1, 1989, Lancer was granted a patent on its bracket
design used in the manufacturing of Sinterline and Intrigue
orthodontic brackets.  On September 17, 1996, Lancer was granted
a patent on its method of laser annealing marking of orthodontic
appliances.  On March 4, 1997, Lancer was granted a patent on an
orthodontic bracket and method of mounting.  All of the patents
are for a duration of seventeen years.  Lancer has entered into
license agreements expiring in 2006 whereby, for cash
consideration, the counter party has obtained the rights to
manufacture and market certain products patented by Lancer.
Lancer has also entered into a number of license and/or royalty
agreements pursuant to which it has obtained rights to certain
of the products which it manufactures and/or markets.  The
patents and agreements have had a favorable effect on Lancer's
image in the orthodontic marketplace and Lancer's sales.

Lancer has made a practice of selling its products under
trademarks and of obtaining protection for those trademarks in
the United States and certain foreign countries.  Lancer
considers these trademarks to be of importance in the operation
of its business.

Product Development and Improvement.  Lancer is engaged in, and
intends to continue development programs directed toward
improving its orthodontic products and production techniques.
The total costs incurred by Lancer on product development
activities were approximately $4,000 and $72,000 for the fiscal
years ended May 31, 2002 and 2001, respectively.

Government Regulations.  Lancer is licensed to design,
manufacture, and sell orthodontic appliances and is subject to
the Code of Federal Regulations, Section 21, Parts 800-1299.
The Food and Drug Administration (the "FDA") is the governing
body that assesses and issues Lancer's license to assure that
it complies with these regulations.  Lancer is currently licensed,
and its last assessment was in November 1997.  Also, Lancer is
registered and licensed with the state of California's Department
of Health Services.

Effect of Environmental Regulations.  Compliance with Federal,
State, and local environmental regulations has not had a
material effect on Lancer's operations to date.

Employees.  As of August 14, 2002, Lancer had 35 employees,
1 part time.  Additionally, Lancer, through its Mexican
subsidiary, employed approximately 97 people in Mexico.

Item 2.  PROPERTIES

The Company leases its main facility under a non-cancelable
operating lease expiring December 31, 2003, as extended, which
requires monthly rentals that increase annually, from $2,900 per
month in 1994 to $6,317 per month in 2004. The lease expense is
being recognized on a straight-line basis over the term of the
lease. The excess of the expense recognized over the cash paid
aggregates $8,894 at May 31, 2002, and is included in accrued
liabilities in the accompanying balance sheet. Total rental
expense for this facility for each of the years ended May 31,
2002 and 2001 was approximately $69,000.

The Company has entered into a non-cancelable operating lease
for its Mexico facility which expires in March 2006 and
requires average monthly rentals of approximately $6,000.  Total
expense for his facility for the years ended May 31, 2002 and
2001, was approximately $69,000 and $74,000, respectively.

Future aggregate minimum annual cash lease payments are as
follows:

                    Years ending
                    May 31, 2003         $144,545
                    May 31, 2004          114,659
                    May 31, 2005           70,440
                    May 31, 2006           58,700
                                         $388,344

Item 3.  LEGAL PROCEEDINGS - Not applicable.

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

No matters were submitted to a vote of Lancer's security holders
during the quarter ended May 31, 2002.

PART II

Item 5.  MARKET FOR LANCER'S COMMON STOCK AND RELATED SECURITY
         HOLDER MATTERS

Approximate high and low sales prices for Lancer's common stock,
as reported by NASDAQ or based on a graph provided by MSN, for
the last two years are presented below.  The market for Lancer's
stock is limited and sporadic and is traded under the symbol LANZ.

  Quarter Ended                    High       Low
  August 31, 2000                 $1.43     $ .75
  November 30, 2000               $1.39     $ .39
  February 28, 2001               $1.50     $ .14
  May 31, 2001                    $ .54     $ .21
  August 31, 2001                 $ .30     $ .20
  November 30, 2001               $ .35     $ .21
  February 28, 2002               $ .30     $ .21
  May 31, 2002                    $ .38     $ .34

On February 5, 2001, the Board of Directors approved a reverse
stock split at a rate of 2 shares converted to 1 share.
Written consents from stockholders holding 1,100,246 shares of
Common Stock (approximately 52% of issued and outstanding stock)
were received on March 1, 2001 approving the split.  On the
record date of February 21, 2001, there were 2,098,619 shares
issued and outstanding.  A SEC Schedule 14C Information
Statement was mailed on March 26, 2001 to stockholders of record.

A hearing before a NASDAQ panel was held on March 23, 2001 in
Washington D.C. regarding the proposed delisting of the
Company's stock.  A letter dated March 30, 2001 stated that the
panel determined to delist the Company's securities from the
NASDAQ Stock Market effective with the open of business Monday,
April 2, 2001.  The Board of Directors voted on April 2, 2001,
to cancel the reverse stock split since the purpose of the
split was to prevent delisting.

The Company's stock is now traded on the OTC Bulletin Board.

The approximate number of beneficial holders of Lancer's common
stock at May 31, 2002, was 473.

No dividends have been declared or paid on Lancer's common stock
since its inception.

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

Except for historical information contained herein, the
statements in this Form 10-KSB are forward-looking statements
that are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995.  Forward-
looking statements involve known and unknown risks and
uncertainties which may cause Lancer's actual results in
future periods to differ from forecasted results.  These risks
and uncertainties include, among other things, the continued
demand for the Company's products, availability of raw materials
and the state of the economy.  These and other risks are
described in the Company's Annual Report on Form 10-KSB and in
the Company's other filings with the Securities and Exchange
Commission.

Result of Operations

For the fiscal year ended May 31, 2002, net sales increased
$94,728 (1.6%) from $5,927,603 in 2001 to $6,022,331 in 2002.
International net sales increased $81,963 (2.8%) from $2,909,265
in 2001 to $2,991,228 in 2002.  This increase is primarily in
Middle Eastern and Mexican sales.  Domestic net sales increased
$12,765 (0.4%) from $3,018,338 in 2001 to $3,031,103 in 2002.

Cost of sales, as a percentage of sales, increased 1.7% from
67.4% in fiscal 2001 to 69.1% in fiscal 2002.  The increase is
primarily attributable to increased sales to distributors and
managed care facilities which have a lower gross margin.

Selling expenses decreased $221,926 (14.3%) from $1,552,061 in
2001 to $1,330,135 in 2002.  The decrease is primarily
attributable to decreases in labor costs, travel expenses, and
show expenses.

General and Administrative expenses increased $22,307 (5.5%)
from $407,478 in 2001 to $429,785 in 2002.  The increase is
primarily attributable to an increase in labor costs, offset by
a decrease in other expenses.

Product Development expenses decreased $67,663 (94.6%) from
$71,505 in 2001 to $3,842 in 2002.  The decrease is primarily
attributable to a transfer of personnel from product
development to operations.

Interest expense decreased $2,392 (12.0%) from $19,931 in 2001
to $17,539 in 2002.  The decrease is primarily attributable to
a decrease in the average line of credit balance.

Other expense increased $44,665 from other income of $1,370 in
2001 to other expense of $43,295 in 2002.  The increase is
primarily attributable to investor relations costs and financing
costs associated with the line of credit and exploring other
financing options.

Financial Condition, Liquidity, and Capital Resources

During fiscal 2002, management negotiated a new line of credit
with a financial institution through October 24, 2003.  The
line of credit allows for borrowing up to $400,000 and is
limited to specified percentages of eligible accounts
receivable.  The outstanding balance at May 31, 2002 was
$65,669.  The unused portion available under the line of credit
at May 31, 2002, was approximately $229,000.  Borrowings bear
interest at prime plus 2.00% per annum (8.0% at May 31, 2002),
but never less than 8.0%.

The line of credit is collateralized by substantially all the
assets of the Company, including inventories, receivables, and
equipment.  The lending agreement for the line of credit
requires, among other things, that the Company maintain a
tangible net worth of $2,100,000, which was met, and that
receivables payments be sent to a controlled lockbox.  In
addition to interest, a management fee of 0.25% of the average
monthly outstanding loan balance and an unused balance fee of
0.0425% on the average monthly unused portion available are
required.  The Company is not required to maintain compensating
balances in connection with this lending agreement.

Lancer's inventory and sales practices affect its financing
requirements, however, management believes that the working
capital relating to these are within normal ranges for Lancer's
business.


Working capital increased $142,791 (5.3%) from $2,697,500 in 2001
to $2,840,291 in 2002.  The increase is primarily attributable to
a decrease in the line of credit and accounts payable, and an
increase in accounts receivable.

Lancer's management believes that it will be able to finance
Lancer's operations through cash flow and available borrowings
for the foreseeable future.

Insurance Claim Receivable

Management of the Company completed an assessment of two
occurrences of theft of inventory located at its wholly-owned
and consolidated subsidiary, Lancer de Mexico, in January and
April of 2002.  The carrying value of the inventory stolen
approximated $82,000, valued at standard cost, which has been
reflected in the accompanying financial statements as a
reduction in inventories and an addition to insurance claim
receivable.  Subsequent to year end, the Company received
$51,000 as an initial payment on the claim.  The Company
expects to receive an amount above cost representing the value
of the stolen inventory at net average selling price, less
commissions and royalties.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 141
("SFAS 141"), "Business Combinations", which eliminates the
pooling method of accounting for business combinations initiated
after June 30, 2001.  In addition, SFAS 141 addresses the
accounting for intangible assets and goodwill acquired in a
business combination. This portion of SFAS 141 is effective for
business combinations completed after June 30, 2001. The Company
does not expect SFAS 141 will have a material impact on the
Company's financial position or results of operations.

In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Intangible
Assets", which revises the accounting for purchased goodwill
and intangible assets. Under SFAS 142, goodwill and intangible
assets with indefinite lives will no longer be amortized and
will be tested for impairment annually.  SFAS 142 is effective
for fiscal years beginning after December 15, 2001, with
earlier adoption permitted.  Management has not yet determined
the impact of the adoption of SFAS 142 on the Company's
financial position or results of operations.

In August 2001, the FASB issued FAS No. 143, "Accounting for
Asset Retirement Obligations."  This statement addresses
financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the
associated asset retirement costs.  It applies to all entities
and legal obligations associated with the retirement of long-
lived assets that result from the acquisition, construction,
development and/or normal operation of long-lived assets,
except for certain obligations of lessees.  This statement
amends FAS No. 19, "Financial Accounting and Reporting by Oil
and Gas Producing Company," and is effective for financial
statements issued for fiscal years beginning after June 15, 2002.
Management has not yet determined the impact of the adoption of
FAS No. 143 on the Company's financial position or results of
operations.

In October 2001, the FASB issued FASB Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived
Assets," or SFAS 144.  SFAS No. 144 requires that those long-
lived assets be measured at the lower of carrying amount or
fair value less cost to sell, whether reported in continuing
operations or in discontinued operations.  Therefore,
discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that
have not yet occurred.  SFAS No. 144 is effective for financial
statements issued for fiscal years beginning after December 15,
2001 and, generally, is to be applied prospectively.

In April 2002, the Financial Accounting Standards Board ("FASB")
issued FASB Statement No. 145, "Rescission of FASB Statements
No. 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections," to update, clarify and simplify existing
accounting pronouncements.  FASB Statement No. 4, which required
all gains and losses from debt extinguishment to be aggregated
and, if material, classified as an extraordinary item, net of
related tax effect, was rescinded.  Consequently, FASB Statement
No. 64, which amended FASB Statement No. 4, was rescinded
because it was no longer necessary.  We do not expect the
adoption of this statement to have a material effect on our
financial statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities."  SFAS 146
addresses accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task
Force Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)."
SFAS No. 146 requires that a liability for a cost associated
with a exit or disposal activity be recognized and measured
initially at fair value when the liability is incurred.  SFAS
No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002, with early application
encouraged.  We do not expect the adoption of this statement
to have a material effect on our financial statements.

Critical Accounting Policies

The discussion and analysis of our financial condition and
results of operations are based on the consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
Note 2 of the Notes to Consolidated Financial Statements
describes the significant accounting policies essential to the
consolidated financial statements.  The preparation of these
financial statements requires estimates and assumptions that
affect the reported amounts and disclosures.

We believe the following to be critical accounting policies as
they require more significant judgments and estimates used in the
preparation of our consolidated financial statements.  Although
we believe that our judgments and estimates are appropriate and
correct, actual future results may differ from our estimates.

In general, the critical accounting policies that may require
judgments or estimates relate specifically to the Allowance for
Doubtful Accounts, Inventory Reserves for Obsolescence and
Declines in Market Value, Impairment of Long-Lived Assets, Stock
Based Compensation, and Income Tax Accruals.

We recognize product revenues when an arrangement exists,
delivery has occurred, the price is determinable and collection
is reasonably assured.  Sales of manufactured and resale products
comprise approximately 69% and 31% of total sales, respectively,
for fiscal 2002.  Accordingly, we do not recognize revenue for
estimated returns from all amounts sold to these distributors
until the right of exchange has expired.

The Allowance for Doubtful Accounts is established for estimated
losses resulting from the inability of our customers to make
required payments.  The assessment of specific receivable
balances and required reserves is performed by management and
discussed with the audit committee.  We have identified specific
customers where collection is probable and have established
specific reserves, but to the extent collection is made, the
allowance will be released.  Additionally, if the financial
condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional
allowances may be required.

Reserves are provided for excess and obsolete inventory, which
are estimated based on a comparison of the quantity and cost of
inventory on hand to management's forecast of customer demand.
Customer demand is dependent on many factors and requires us to
use significant judgment in our forecasting process.  We must
also make assumptions regarding the rate at which new products
will be accepted in the marketplace and at which customers will
transition from older products to newer products.  Once a reserve
is established, it is maintained until the product to which it
relates is sold or otherwise disposed of, even if in subsequent
periods we forecast demand for the product.

In general, we are in a loss position for tax purposes, and have
established a valuation allowance against deferred tax assets,
as we do not believe it is likely that we will generate
sufficient taxable income in future periods to realize the
benefit of our deferred tax assets.  Predicting future taxable
income is difficult, and requires the use of significant judgment.
At May 31, 2002, all of our deferred tax assets were reserved.
Accruals are made for specific tax exposures and are generally
not material to our operating results or financial position, nor
do we anticipate material changes to these reserves in the near
future.


Factors That May Affect Future Results

You should read the following factors in conjunction with the
factors discussed elsewhere in this and our other filings with
the SEC and in materials incorporated by reference in these
filings.  The following is intended to highlight certain factors
that may affect the financial condition and results of
operations of Lancer and are not meant to be an exhaustive
discussion of risks that apply to companies such as Lancer.
Like other businesses, Lancer is susceptible to macroeconomic
downturns in the United States or abroad, as were experienced in
fiscal year 2002, that may affect the general economic climate
and performance of Lancer or its customers.

Item 7.  FINANCIAL STATEMENTS

Reference is made to Exhibit A attached hereto wherein Lancer's
financial statements are contained which are incorporated herein
by reference.

Item 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURES - Not Applicable

PART III

Item 9.  DIRECTORS AND EXECUTIVE OFFICERS OF LANCER

Information regarding directors, set forth under the caption
"Election of Directors" in Lancer's annual proxy statement for
the annual meeting of shareholders, which will be filed with
the Commission not later than 120 days after the end of
Lancer's fiscal year period ended May 31, 2002, is incorporated
herein by reference.  Information regarding executive officers,
set forth under caption "Executive Compensation and Other
Information" in the annual proxy statement for the annual
meeting of shareholders which will be filed with the Commission
not later than 120 days after the end of Lancer's fiscal year
ended May 31, 2002, is also incorporated herein by reference.
Information regarding Section 16 compliance, set forth under
caption "Section 16 Compliance" in the annual proxy statement
for the annual meeting of shareholders, which will be filed with
the Commission not later than 120 days after the end of Lancer's
fiscal year ended May 31, 2002, is incorporated herein by
reference.

Item 10.  EXECUTIVE COMPENSATION

Information regarding executive compensation, set forth under
the caption "Compensation Committee Report on Executive
Compensation" in Lancer's annual proxy statement for the annual
meeting of shareholders, which will be filed with the
Commission not later than 120 days after the end of Lancer's
fiscal year ended May 31, 2002, is incorporated herein by
reference.



Item 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

Information regarding security ownership, set forth under the
caption "Beneficial Ownership of the Company's Securities" in
Lancer's annual proxy statement for the annual meeting of
shareholders, which will be filed with the Commission not
later than 120 days after the end of Lancer's fiscal year ended
May 31, 2002, is incorporated herein by reference.

Item 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
           Not applicable.

Item 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Documents filed as a part of the report
     1.  Financial Statements
         See Index to Financial Statements Exhibit A, attached
         hereto, wherein Lancer's financial statements are
         contained.
     2.  Exhibits Required to be Filed by Item 601 of
         Regulation S-B
         3(i)  Articles of Incorporation as amended -
               Incorporated herein by reference to Exhibit 4.5
               of Lancer's S-8 filed March 8, 1994.
         3(ii) By-laws as amended - Incorporated herein by
               reference to Exhibit 4.6 of Lancer's S-8 filed
               March 8, 1994.
         10    1993 Stock Option Plan as amended - Incorporated
               herein by reference to Exhibit 4.1 of Lancer's
               S-8 filed March 8, 1994.

(b)  Reports on Form 8-K

No reports on Form 8-K were filed in the year ended May 31, 2002.
























SIGNATURES

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

Dated:  August 29, 2002

LANCER ORTHODONTICS, INC.


By:   /s/ Zackary Irani                    /s/ Catherine Wyss
          Zackary Irani                        Catherine Wyss
          Chief Executive Officer,             Accounting Manager
          Chairman of the Board,
          and Director


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 on
the dates indicated.

Signature                  Title                  Date


/s/ Zackary Irani                                 August 29, 2002
      Zackary Irani        CEO, Chairman of
                           the Board& Director

/s/ Janet Moore                                   August 29, 2002
      Janet Moore          Secretary & Director

/s/ Dr. Robert Orlando                            August 29, 2002
      Dr. Robert Orlando   Director

/s/ Dr. Francis Cano                              August 29, 2002
      Dr. Francis Cano     Director





















Lancer Orthodontics, Inc.
Consolidated Financial Statements
As of May 31, 2002 and
For Each of the Two Fiscal Years Then Ended



Report of Independent Certified Public Accountants          FS-2


Consolidated Financial Statements

Consolidated Balance Sheet                                  FS-3

Consolidated Statements of Operations                       FS-4

Consolidated Statements of Stockholders' Equity             FS-5

Consolidated Statements of Cash Flows                       FS-6


Notes to Consolidated Financial Statements          FS-7 - FS-18



































Report of Independent Certified Public Accountants


The Board of Directors
Lancer Orthodontics, Inc.


We have audited the accompanying consolidated balance sheet of
Lancer Orthodontics, Inc. (the "Company") and its wholly-owned
subsidiary as of May 31, 2002, and the related consolidated
statements of operations, stockholders' equity and cash flows
for each of the two fiscal years then ended.  These consolidated
financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Lancer Orthodontics, Inc. as of May 31, 2002, and
the results of its operations and its cash flows for each of the
two fiscal years then ended in conformity with accounting
principles generally accepted in the United States of America.




BDO SEIDMAN, LLP




Orange County, California
July 26, 2002







May 31,                                                     2002

Assets

Current assets
  Cash                                                $  128,585
  Accounts receivable, net of allowance for
   doubtful accounts of $180,000                       1,121,935
  Insurance claim receivable                              81,758
  Inventories, net of reserve of $188,608              2,087,759
  Prepaid expenses                                        54,275

Total current assets                                   3,474,312

Property and equipment, net                               47,586
Intangible assets, net                                    88,556
Other assets                                              35,546

                                                      $3,646,000

Liabilities and Stockholders' Equity

Current liabilities
  Accounts payable                                    $  419,353
  Accrued payroll and related benefits                    94,993
  Other current liabilities                               54,006
  Line of credit                                          65,669

Total current liabilities                                634,021

Commitments and contingencies

Mandatorily Redeemable convertible preferred stock,
 Series C, $0.06 noncumulative annual dividend;
 $0.75 par value; 250,000 shares authorized;
 0 shares issued and outstanding in 2002
 ($0.75 liquidation preference)                                -

Stockholders' equity

 Redeemable convertible preferred stock,
  Series D, $0.04 noncumulative annual dividend;
  $0.50 par value; 500,000 shares authorized;
  0 shares issued and outstanding in 2002
  ($0.50 liquidation preference per share)                     -

 Common stock, no par value; 50,000,000 shares
  authorized;   2,098,628 shares issued and
  outstanding, and   62,595 shares subscribed          4,832,095
 Accumulated deficit                                  (1,820,116)

Total stockholders' equity                             3,011,979

                                                      $3,646,000



Years ended May 31,                         2002            2001

Net sales                             $6,022,331      $5,927,603

Cost of sales                          4,159,048       3,994,161

Gross profit                           1,863,283       1,933,442

Operating expenses:
  Selling                              1,330,135       1,552,061
  General and administrative             429,785         407,478
  Product development                      3,842          71,505

Total operating expenses               1,763,762       2,031,044

Operating income (loss)                   99,521         (97,602)

Other income (expense):
  Interest expense                       (17,539)        (19,931)
  Interest income                            357             104
  Other income (expense), net            (43,295)          1,370

Total other expense                      (60,477)        (18,457)

Income (loss) before income taxes         39,044        (116,059)

Income taxes                               1,260             800

Net income (loss)                      $  37,784       $(116,859)

Per share data:

  Basic                                $    0.02       $   (0.06)

  Diluted                              $    0.02       $   (0.06)
























<TABLE>
<CAPTION>
               Series D                          Common Stock
            Preferred Stock     Common Stock      -Subscribed   Accumulated
             Shares Amount   Shares      Amount  Shares Amount     Deficit       Total
<S>            <C>   <C>   <C>        <C>           <C>   <C>   <C>            <C>
Balances,
May 31, 2000     -   $ -   2,098,618  $4,815,074      -   $  -   $(1,741,041)  3,074,033

Share
Adjustment       -     -           2           -      -      -            -           -

Net loss                                                            (116,859)   (116,859)
Balances,
May 31, 2001     -     -   2,098,620   4,815,074      -      -    (1,857,900)  2,957,174

Share
Adjustment       -     -           8           -      -      -            -           -

Common stock
subscribed for
services         -     -           -           -  62,595  17,021          -       17,021

Net income       -     -           -           -      -      -        37,784      37,784

Balances,
May 31, 2002     -   $ -   2,098,628  $4,815,074  62,595 $17,021 $(1,820,116) $3,011,979
</TABLE>

















Years Ended May 31,                         2002            2001

Cash flows from operating activities:
  Net (loss) income                     $ 37,784       $(116,859)
  Adjustment to reconcile net (loss)
   income to net cash provided by
   operating activities:
   Depreciation and amortization         107,770         121,699
   Provision for losses on accounts
    Receivable                             5,000               -
   Provision for inventory                     -         129,034
   Common stock subscribed for services   17,021               -
   Net change in operating assets and
    liabilities:
     Accounts receivable                  34,016          71,819
     Inventories                          52,084        (255,632)
     Prepaid expenses                     (9,657)          2,082
     Insurance claim receivable          (81,758)              -
     Accounts payable                    (41,999)        111,228
     Accrued payroll                     (22,732)         16,162
     Other current liabilities            (6,379)         (9,295)

Net cash provided by operating activities 91,150          70,238

Cash flows from investing activities:
  Purchases of property and equipment    ( 3,387)         (9,306)
  Other assets                           (16,397)        (12,589)

Net cash used in investing activities    (19,784)        (21,895)

Cash flows from financing activities:
  Net decrease in line of credit
   agreement                             (74,331)        (20,000)

Net cash used in financing activities    (74,331)        (20,000)

Net change in cash                        (2,965)         28,343

Cash, beginning of period                131,550         103,207

Cash, end of period                     $128,585        $131,550

Supplemental disclosures of cash flow information:
  Cash paid during the year for:

    Interest                            $ 17,539        $ 19,931

    Income taxes                        $  1,260        $    800









1.  Organization

Lancer Orthodontics, Inc. (the "Company") was incorporated on
August 25, 1967, in the state of California, for the purpose of
engaging in the design, manufacture, and distribution of
orthodontic products. The Company had a manufacturing facility
in Mexico where a majority of its inventory is manufactured
(Note 7).  During fiscal 2002, the facility in Mexico was
incorporated and became a wholly-owned and consolidated
subsidiary of the Company.  This subsidiary now also
administers services previously provided by an independent
manufacturing contractor (Note 7).  The Company also purchases
certain orthodontic and dental products for purposes of resale.
Sales of manufactured and resale products comprise approximately
69% and 31% of total sales, respectively, for fiscal 2002 and
78% and 22% of total sales, respectively, for fiscal 2001.

Sales are made directly to orthodontists worldwide through
Company representatives and independent distributors, with
approximately 42% and 51% during fiscal 2002 and 2001,
respectively, being domestic in nature. The Company also sells
certain of its products on a private label basis.

The Company is a partially owned and consolidated subsidiary of
Biomerica, Inc. ("Biomerica"). Biomerica exercises significant
financial control over the Company and its operations.

2.  Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the
financial statements of Lancer Orthodontics, Inc. and its
wholly-owned subsidiary, Lancer Orthodontics de Mexico
("Lancer de Mexico").  The consolidated financial statements
have been prepared in accordance with accounting principles
generally accepted in the United States of America.  All
significant intercompany accounts and transactions have been
eliminated in consolidation.

Accounting Methods

The Company uses the accrual method of accounting for financial
and income tax reporting purposes.

Fair Value of Financial Instruments

The Company has financial instruments whereby the fair value of
the financial instruments could be different than that recorded
on a historical basis on the accompanying balance sheet. The
Company's financial instruments consist of cash, accounts
receivable, accounts payable, and a line of credit. The
carrying amounts of the Company's financial instruments
generally approximate their fair values at May 31, 2002.



Use of Estimates in the Preparation of Financial Statements

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 the 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. Significant estimates made by the Company's management
include, but are not limited to, allowances for doubtful
accounts, allowances for sales returns, the valuation of
inventories, and the realizeability of property and equipment
through future operations. Actual results could materially
differ from those estimates.

Concentrations of Credit Risk

Cash Balances - The Company, at times, maintains cash balances
at certain financial institutions in excess of the federally
insured deposits.

Customers - The Company performs periodic credit evaluations of
its customers and maintains allowances for potential credit
losses and returns. The Company estimates credit losses and
returns based on management's evaluation of historical
experience and current industry trends. Although the Company
expects to collect amounts due, actual collections may
materially differ from the estimated amounts. As of May 31, 2002,
reserves for credit losses totaled $130,000.  Reserves for
sales returns totaled $50,000.  At May 31, 2002, one customer
accounted for approximately 12.6% of gross accounts receivable.
At May 31, 2001, three customers accounted for approximately
13.8%, 13.6% and 10.2% of gross accounts receivable.  No one
customer accounted for 10% or more of revenues for the years
ended May 31, 2002 and 2001.

Suppliers - At May 31, 2002, one company accounted for 35.4% of
accounts payable.  At May 31, 2001, no one company accounted for
more than 10% of accounts payable.  No company accounted for more
than 10% of purchases for the years ended May 31, 2002 and 2001.

Risks and Uncertainties

License Agreements - Certain of the Company's sales of products
are governed by license agreements with outside third parties.
All of such license agreements to which the Company currently
is a party, are for fixed terms which will expire after ten
years from the commencement of the agreement or upon the
expiration of the underlying patents. After the expiration of
the agreements or the patents, the Company is free to use the
technology that had been licensed.  There can be no assurance
that the Company will be able to obtain future license
agreements as deemed necessary by management. The loss of some
of the current licenses or the inability to obtain future
licenses could have an adverse affect on the Company's
financial position and operations. Historically, the Company
has successfully obtained all the licenses it believed
necessary to conduct its business.

Distribution - The Company has entered into various exclusive
and non-exclusive distribution agreements (the "Agreements")
which generally specify territories of distribution. The
Agreements range in term from one to five years. The Company
may be dependent upon such distributors for the marketing and
selling of its products worldwide during the terms of these
agreements. Such distributors are generally not obligated to
sell any specified minimum quantities of the Company's product.
There can be no assurance of the volume of product sales that
may be achieved by such distributors.

Government Regulations - The Company's products are subject to
regulation by the FDA under the Medical Device Amendments of
1976 (the "Amendments").  The Company has registered with the
FDA as required by the Amendments.  There can be no assurance
that the Company will be able to obtain regulatory clearances
for its current or any future products in the United States or
in foreign markets.

European Community - The Company is required to obtain
certification in the European community to sell products in
those countries.  The certification requires the Company to
maintain certain quality standards.  The Company has been
granted certification.  However, there is no assurance that the
Company will be able to retain its certification in the future.

Risk of Product Liability - Testing, manufacturing and marketing
of the Company's products entail risk of product liability.
The Company currently has product liability insurance.  There
can be no assurance, however, that the Company will be able to
maintain such insurance at a reasonable cost or in sufficient
amounts to protect the Company against losses due to product
liability.  An inability could prevent or inhibit the
commercialization of the Company's products.  In addition, a
product liability claim or recall could have a material adverse
effect on the business or financial condition of the Company.

Inventories

Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method. Costs include
materials, direct labor, and an allocable portion of direct
and indirect manufacturing overhead. Market is determined by
comparison with recent sales prices or net realizable value.

Property and Equipment

Property and equipment are recorded at cost and are depreciated
using straight-line method over the estimated useful lives,
generally five years, of the related assets.  Leasehold
improvements are amortized over the lesser of the estimated
useful life of the asset or the term of the lease.


Maintenance and repairs are charged to expense as incurred.
Major renewals and improvements are capitalized.  At the time
of retirement or other disposition of property and equipment
the cost and accumulated depreciation are removed from the
accounts and any resulting gains or losses are reflected in
income.

Intangible Assets

Assets are being amortized using the straight-line method over
18 years for the marketing and distribution rights.  Marketing
and distribution rights include repurchased sales territories.
Technology use rights include the 1985 purchase of the assets
and technology of Titan Research Associates, Ltd.

Impairment of Long-Lived Assets

The Company assesses the recoverability of long-lived assets
by determining whether the depreciation and amortization of
the asset's balance over its remaining life can be recovered
through projected undiscounted future cash flows. The amount
of impairment, if any, is measured based on fair value and
charged to operations in the period in which the impairment is
determined by management.  Management has determined that
there is no impairment of long-lived assets as of May 31, 2002.

Stock Based Compensation

The Company accounts for stock based compensation under
Statement of Financial Accounting Standards No. 123 ("SFAS
123").  SFAS 123 defines a fair value based method of
accounting for stock based compensation.  However, SFAS 123
allows an entity to continue to measure compensation cost
related to stock and stock options issued to employees using
the intrinsic method of accounting prescribed by Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for
Stock Issued to Employees."  Entities electing to remain with
the accounting method of APB 25 must make pro forma disclosures
of net income and earnings per share, as if the fair value
method of accounting defined in SFAS 123 had been applied.
The Company has elected to account for its stock based
compensation to employees under APB 25 (Note 8).

Revenue Recognition

Revenues from product sales are recognized at the time the
product is shipped, at which point title passes.  An allowance
is established for estimated returns as revenue is recognized.

Research and Development

Research and development expenses are expensed as incurred.
The Company expensed approximately $4,000 and $72,000 of
research and development expenses during the years ended
May 31, 2002 and 2001, respectively.


Income Taxes

The Company accounts for income taxes using the asset and
liability approach under Statement of Financial Accounting
Standards No. 109, ("SFAS 109").  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.  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. Under SFAS 109, 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.
A valuation allowance is provided for certain deferred tax
assets if it is more likely than not that the Company will
not realize tax assets through future operations.

Net Income per Common Share and Dividends

The Company discloses earnings per share in accordance with
Statement of Financial Accounting Standards ("SFAS 128").
SFAS 128 replaced the presentation of primary and fully diluted
earnings per share with the presentation of basic and diluted
earnings per share.  Basic earnings per share excludes dilution
and is calculated by dividing income available to common
stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock
that then shared in the earnings of the entity.

Net income per common share is computed based on the weighted
average number of shares of common stock and, if applicable,
common stock equivalents outstanding during the year.
Potential common shares, which relate to shares issuable upon
the exercise of common stock purchase options, were not
included in the per share calculations for fiscal 2002 and 2001
as their effect was anti-dilutive.  As of May 31, 2002, there
was a total of 239,000 potential dilutive shares of common stock.

Earnings per share for the years ended May 31, 2002 and 2001
are as follows:

May 31,                                     2002            2001
Basic income (loss) per share:
Net income (loss)                      $  37,784       $(116,859)

Net income (loss) applicable to
 common shareholders                   $  37,784       $(116,859)

Weighted average number of common
 shares                                2,098,792       2,098,620

Basic income (loss) per share          $    0.02       $   (0.06)

Diluted income (loss) per share:

Net income (loss) from primary
 income per common share               $  37,784       $(116,859)

Net income (loss) for diluted
 earnings per share                    $  37,784       $(116,859)

Weighted average number of shares
 used in calculating basic earnings
 per common share                      2,098,792       2,098,620

Add:
  Stock options                               -                -
  Convertible preferred stock                 -                -

Weighted average number of shares
 used in calculating diluted earnings
 per share                            2,098,792        2,098,620

Diluted income (loss) per share       $    0.02        $   (0.06)

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 141
("SFAS 141"), "Business Combinations", which eliminates the
pooling method of accounting for business combinations initiated
after June 30, 2001.  In addition, SFAS 141 addresses the
accounting for intangible assets and goodwill acquired in a
business combination. This portion of SFAS 141 is effective for
business combinations completed after June 30, 2001. The
Company does not expect SFAS 141 will have a material impact on
the Company's financial position or results of operations.

In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Intangible Assets",
which revises the accounting for purchased goodwill and
intangible assets. Under SFAS 142, goodwill and intangible
assets with indefinite lives will no longer be amortized and
will be tested for impairment annually.  SFAS 142 is effective
for fiscal years beginning after December 15, 2001, with earlier
adoption permitted. Management has not yet determined the impact
of the adoption of FAS No. 142 on the Company's financial
position or results of operations.

In August 2001, the FASB issued FAS No. 143, "Accounting for
Asset Retirement Obligations."  This statement addresses
financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the
associated asset retirement costs.  It applies to all entities
and legal obligations associated with the retirement of
long-lived assets that result from the acquisition,
construction, development and/or normal operation of
long-lived assets, except for certain obligations of lessees.
This statement amends FAS No. 19, "Financial Accounting and
Reporting by Oil and Gas Producing Companies," and is
effective for financial statements issued for fiscal years
beginning after June 15, 2002.  Management has not yet
determined the impact of the adoption of FAS No. 143 on the
Company's financial position or results of operations.

In October 2001, the FASB issued FASB Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets,"
or SFAS 144. SFAS No. 144 requires that those long-lived assets
be measured at the lower of carrying amount or fair value less
cost to sell, whether reported in continuing operations or in
discontinued operations. Therefore, discontinued operations
will no longer be measured at net realizable value or include
amounts for operating losses that have not yet occurred. SFAS
No. 144 is effective for financial statements issued for fiscal
years beginning after December 15, 2001 and, generally, is to
be applied prospectively. The Company does not expect SFAS 144
will have a material impact on the Company's financial position
or results of operations.

In April 2002, the Financial Accounting Standards Board ("FASB")
issued FASB Statement No. 145, "Rescission of FASB Statements
No. 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections," to update, clarify and simplify existing
accounting pronouncements. FASB Statement No. 4, which required
all gains and losses from debt extinguishment to be aggregated
and, if material, classified as an extraordinary item, net of
related tax effect, was rescinded. Consequently, FASB Statement
No. 64, which amended FASB Statement No. 4, was rescinded
because it was no longer necessary.  We do not expect the
adoption of this statement to have a material effect on our
financial statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." SFAS 146
addresses accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task
Force Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring).
" SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized and measured
initially at fair value when the liability is incurred. SFAS
No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002, with early application
encouraged. We do not expect the adoption of this statement
to have a material effect on our financial statements.










3.  Inventories

The components of inventories at May 31, 2002 are as follows:

Raw materials                                         $  422,975
Work in progress                                          99,592
Finished products                                      1,753,800
Inventory reserves                                      (188,608)

Total                                                 $2,087,759

Approximately $1,858,000 of gross inventory is located at the
Company's wholly-owned subsidiary manufacturing facility in
Mexico (Note 8).

4.  Property and Equipment

The components of property and equipment at May 31, 2002 are
as follows:

Machinery and equipment                               $1,891,949
Dies, tools, and patterns                                375,518
Furniture and fixtures                                   120,063
Leasehold improvements                                    15,492
Construction in progress                                   7,400
                                                       2,410,422

Less accumulated depreciation and amortization        (2,362,836)

Total                                                 $   47,586

Approximately $26,500 of property and equipment, net of
accumulated depreciation and amortization, is located at
the Company's wholly-owned subsidiary in Mexico (Note 7).

Depreciation expense for the years ended May 31, 2002 and 2001,
totaled $30,787 and $48,103, respectively.

5.  Intangible Assets

The components of intangible assets at May 31, 2002 are as
follows:

Marketing and distribution rights                     $  442,750

Technology use rights                                    858,328

Subtotal                                               1,301,078

Less accumulated amortization                         (1,212,522)

Total                                                 $   88,556

Amortization expense for each of the years ended May 31, 2002
and 2001 was $73,596.


6.  Line of Credit

At May 31, 2001, the Company had a line of credit with a bank
for borrowings up to $300,000.  The line of credit bears
interest at prime plus 1.25% per annum (8.25% at May 31, 2001).
Allowable borrowings are limited to specified percentages of
eligible accounts receivable.  The line of credit terminated on
October 24, 2001.

Effective October 24, 2001, the Company obtained a new line of
credit with a different financial institution for borrowing up
to $400,000, which is limited to specified percentages of
eligible accounts receivable.  The outstanding balance at May
31, 2002 was $65,669.  The initial drawings were used to pay
off in full the outstanding balance on the previous line of
credit.  The unused portion available under the line of credit
at May 31, 2002 was approximately $229,000.  The new line of
credit bears interest at prime plus 2% per annum (8.0% at
May 31, 2002) but never less than 8.0%.  The line of credit
expires on October 24, 2003.

The line of credit is collateralized by substantially all the
assets of the Company, including inventories, receivables, and
equipment.  The lending agreement for the line of credit
requires, among other things, that the Company maintain a
tangible net worth of $2,100,000.  In addition to interest, a
management fee of 0.25% of the average monthly outstanding loan
balance and an unused balance fee of 0.0425% on the average
monthly unused portion available are required.  The Company is
not required to maintain compensating balances in connection
with this lending agreement.  The Company was in compliance with
its debt covenants at May 31, 2002.

The following summarizes information on short-term borrowings
for the year ended May 31, 2002:

May 31,                                                    2002

Average month end balance                              $165,125

Maximum balance outstanding at any month end           $223,103

Weighted average interest rate (computed by dividing
 interest expense by average monthly balance)             10.6%

Interest rate at year end                                  8.0%

7.  Commitments and Contingencies

Leases

The Company leases its main facility under a non-cancelable
operating lease expiring December 31, 2003, as extended, which
requires monthly rentals that increase annually, from $2,900
per month in 1994 to $6,317 per month in 2004. The lease
expense is being recognized on a straight-line basis over the
term of the lease. The excess of the expense recognized over
the cash paid aggregates $8,894 at May 31, 2002, and is
included in accrued liabilities in the accompanying
consolidated balance sheet. Total rental expense for this
facility for each of the years ended May 31, 2002 and 2001 was
approximately $69,000.

The Company entered into a non-cancelable operating lease for
its Mexico subsidiary which expires March 2006, which requires
average monthly rentals of approximately $6,000.  Total expense
for this facility was approximately $69,000 and $74,000 during
the years ended May 31, 2002 and 2001, respectively.

The Company entered into a non-cancelable operating lease for
a copier in February 2002 which expires February 2006, which
requires monthly rentals of $189.  Total expense for the copier
was approximately $2,000 during the year ended May 31, 2002.

At May 31, 2002, future aggregate minimum lease payments are
as follows:

Years Ending May 31,                                 Amount

2003                                               $144,545
2004                                                114,659
2005                                                 70,440
2006                                                 58,700

Total                                              $388,344

Manufacturing Agreement

In May 1990, the Company entered into a manufacturing
subcontractor agreement (the "Manufacturing Agreement"),
whereby the subcontractor agreed to provide manufacturing
services to the Company through its affiliated entities located
in Mexicali, B.C., Mexico.  Effective April 1, 1996, the
Company leased the Mexicali facility under a separate
arrangement, as discussed in above under Leases.  Since
October 2000, the manufacturing agreement was operated on a
month-to-month basis.  During fiscal 2002, the facility in
Mexico was incorporated as Lancer Orthodontics de Mexico,
("Lancer de Mexico"), a wholly-owned subsidiary of the Company.
This subsidiary now administers services previously provided by
an independent manufacturing contractor.  A new lease was
negotiated in the name of Lancer de Mexico, effective April 1,
2001, for the 16,000 square foot facility already in use for the
Mexican operations.  Mexican utilities and vendor obligations
were also converted to the Lancer de Mexico name.  This
conversion eliminated the expense of an administrative fee and is
expected to provide better control in meeting future obligations.
Should Lancer discontinue operations in Mexico, it is responsible
for accumulated employee seniority obligations as prescribed by
Mexican law.  At May 31, 2002, this obligation was approximately
$365,000. Such obligation is contingent in nature and accordingly
has not been accrued in Lancer's financial statements.


Lancer has undergone no material change in the mode of conducting
its business other than as described above and it did not dispose
of any material amount of its assets during the fiscal year ended
May 31, 2002.

License and Royalty Agreements

The Company has entered into various license and/or royalty
agreements pursuant to which it has obtained rights to
manufacture and market certain products. The agreements are for
various durations expiring through 2007 and they require the
Company to make payments based on the sales of the individual
licensed products.

The Company has entered into license agreements expiring in
2006 whereby, for cash consideration, the counter party has
obtained the rights to manufacture and market certain products
patented by the Company.

Litigation

The Company is, from time to time, involved in legal
proceedings, claims and litigation arising in the ordinary
course of business.  While the amounts claimed may be
substantial, the ultimate liability cannot presently be
determined because of considerable uncertainties that exist.
Therefore, it is possible the outcome of such legal
proceedings, claims and litigation could have a material
effect on quarterly or annual operating results or cash
flows when resolved in a future period.  However, based on
facts currently available, management believes such matters
will not have a material adverse affect on the Company's
consolidated financial position, results of operations or
cash flows.

8.  Stockholders' Equity

Mandatorily Redeemable Convertible Preferred Stock - Series C

The Company has authorized 250,000 shares of Series C preferred
stock. Each share is entitled to a $0.06 non-cumulative dividend
and is convertible at the option of the holder into common stock
at the rate of seven shares of preferred stock for one and one-
half shares of common stock. The Company, at its option, or by
request of a holder, can redeem outstanding shares of the
preferred stock for cash at $0.75 per share after December 31,
1994.  At May 31, 2002, there were no shares issued and
outstanding. There were no dividends declared or paid in 2002
or 2001.

Redeemable Convertible Preferred Stock - Series D

The Company has authorized 500,000 shares of Series D preferred
stock.  Each share is entitled to a $0.04 non-cumulative dividend
and is convertible at the option of the holder into common stock
at the rate of seven shares of preferred stock for one share of
common stock.  The Company, at its option, can redeem outstanding
shares of the preferred stock for cash at $0.50 per share after
December 31, 1994.  In May 2000, all 370,483 issued and
outstanding shares were converted into 52,926 shares of common
stock.  At May 31, 2002, there were no shares issued and
outstanding.  There were no dividends declared or paid in 2002
or 2001.

Common Stock

The Company has agreed to issue 37,595 shares of its common
stock valued at $8,271 to Biomerica for certain management and
consulting services.

The Company has agreed to issue 25,000 shares of its common
stock valued at $8,750 to its Chief Executive Officer for
certain management services.

Stock Option Agreements

The Company has incentive stock option and non-qualified stock
option plans for directors, officers, and key employees.  The
plans provide for the granting of options for common shares at
exercise prices equal to or exceeding the fair market value at
the date of grant, as determined by the Board of Directors.
Options may become exercisable over a period of up to four
years from the date of grant and may be exercised over a period
of three to seven years from the date of the grant, as
determined by the Board of Directors. The Company's shareholders
have authorized a total of 357,143 shares to be available for
grant under the Company's stock option plan.  Options granted
prior to May 31, 1995, generally vested on the date of grant
and expired through August 1999.

During the year ended May 31, 2001, the Company granted 20,000
options to purchase shares of the Company's common stock at an
exercise price of $0.25 to a director of the Company, which
vest ratably over one year and have a term of five years.

During the year ended May 31, 2001, the Company granted 157,000
options to purchase shares of the Company's common stock at an
exercise price of $0.875 to certain employees of the Company,
which vest ratably over one year and have a term of five years.

During the year ended May 31, 2002, the Company granted 20,000
options to purchase shares of the Company's common stock at an
exercise price of $0.40 to a non-employee of the Company, which
have a term of one year.

SFAS 123 Pro Forma Information

Pro forma information regarding net income (loss) and income
(loss) per share is required by SFAS 123, and has been determined
as if the Company had accounted for its employee stock options
under the fair value method of SFAS 123. The fair value for these
options was estimated at the date of grant using the Black
Scholes option pricing model with the following weighted average
assumptions for the year ended May 31, 2001: risk free interest
rate of 4.5%; dividend yield of 0%; expected life of the option
of three years; and volatility factor of the expected market
price of the Company's common stock of 100%.

The Black Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable.  In addition,
option valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company's employee stock options have
characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee
stock options.  For purposes of pro forma disclosure, the
estimated fair value of the options is amortized to expense
over the options vesting period. Adjustments are made for
options forfeited prior to vesting.  The effect on
compensation expense, net loss, and net loss per common share
had compensation costs for the Company's stock option plans
been determined based on a fair value at the date of grant
consistent with the provisions of SFAS 123, for the years
ended May 31, 2002 and 2001, are as follows:

May 31,                                     2002           2001

Net income (loss), as reported           $37,784      $(116,059)
Adjustment to compensation expense
 under SFAS 123                                -        (57,126)

Net income (loss), pro forma             $37,784      $(173,185)

Net income (loss), per common and
 common equivalent share, as reported    $  0.02      $   (0.06)

Net income (loss), per common and
 common equivalent share, pro forma      $  0.02      $   (0.08)

The following summary presents the options granted, exercised,
expired, and outstanding as of May 31, 2002:
                                                       Weighted
                    Number of Shares                    Average
                                Non-                   Exercise
                  Employee    Employee        Total       Price
Outstanding,
 May 31, 2000      164,786      29,000      193,786       $1.04
  Granted          177,000           -      177,000        0.80
  Exercised              -           -            -           -
  Expired          (19,000)          -      (19,000)       0.93
Outstanding,
 May 31, 2001      322,786      29,000      351,786        0.93
  Granted                -      20,000       20,000        0.40
  Exercised              -           -            -           -
  Expired         (132,786)          -     (132,786)       1.03
Outstanding,
 May 31, 2002      190,000      49,000      239,000       $0.83

The following table sets forth the exercise prices, the number
of options outstanding and exercisable, and the remaining
contractual lives of the Company's stock options at May 31, 2002:

                                           Weighted  Contractual
                     Number of Options      Average         Life
                                           Exercise    Remaining
Exercise Price  Outstanding  Exercisable      Price        Years

$0.25                20,000       20,000      $0.25         0.92
$0.40                20,000       20,000      $0.40         0.42
$0.85-0.875         109,000      109,000      $0.87         3.13
$1.00                90,000       90,000      $1.00         1.25

    Total           239,000      239,000      $0.83

9.  Retirement Savings Plan

Effective September 1, 1986, the Company established a 401(k)
plan for the benefit of its employees. The plan permits eligible
employees to contribute to the plan up to the maximum percentage
of total annual compensation allowable under the limits of
Internal Revenue Code Sections 415, 401(k), and 404.  The
Company, at the discretion of its Board of Directors, may make
contributions to the plan in amounts determined by the Board
each year. No contributions by the Company have been made since
the plan's inception.

10.  Income Taxes

The provision for income taxes for the years ended May 31, 2002
and 2001 were $1,260 and $800, respectively, consisting
primarily of minimum state taxes.

The tax effect of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities
at May 31, 2002 are presented below:

May 31,                                                     2002

Deferred tax assets:
  Accounts receivable, principally due to allowance
   for doubtful accounts and sales returns               $72,000
  Inventories, principally due to additional costs
   inventoried for tax purposes pursuant to the
   Tax Reform Act of 1986 and allowance for
   inventory obsolescence                                104,000

  Compensated absences principally due to accrual
   for financial reporting                                14,000

  Employee bonuses paid                                    2,000

  Net operating loss carryforwards                       710,000

  Business tax credit carryforwards                      104,000

  Less valuation allowance                              (982,000)

Net deferred tax assets                                   24,000

Deferred tax liabilities:
  Unamortized marketing rights                           (24,000)

Net deferred tax liabilities                          $        -

Lancer has provided a valuation allowance with respect to
substantially all of its deferred tax assets as of May 31, 2002.
Management provided such allowance as it is currently more
likely than not that tax-planning strategies will not generate
taxable income sufficient to realize such assets in foreseeable
future reporting periods.

Income tax expense for the years ended May 31, 2002 and 2001
differed from the amounts computed by applying the U.S. Federal
income tax rate of 35% to pre-tax income as a result of:

May 31,                                     2002            2001

Computed "expected" tax expense          $13,665        $(40,621)
Increase (decrease) in income taxes
 resulting from:
  Meals and expenses                       5,363           4,662
  Change in beginning of the year
   balance of the valuation allowance
   for deferred tax assets allocated
   to income tax expense                 (19,028)         35,959
  State and local income taxes, net
   of tax benefit                          1,260             800

                                         $ 1,260        $    800

As of May 31, 2002, the Company has net tax operating loss
carryforwards of approximately $2,037,000 and business tax
credits of approximately $80,000 available to offset future
Federal taxable income and tax liabilities, respectively. The
Federal carryforwards expire in varying amounts through the
year 2021.  As of May 31, 2002, the Company has net tax
operating loss carryforwards of approximately $185,000 and
business tax credits of approximately $24,000 available to
offset future state income tax liabilities.  The state
carryforwards expire through the year 2011.











11.  Export Sales

The Company has significant export sales. The net sales and
operating activities are as follows:

May 31,                                     2002            2001

Net Sales
  Domestic                            $3,031,000      $3,018,000
  Europe                               1,813,000       1,852,000
  South America                          366,000         415,000
  Middle East                            334,000         226,000
  Other                                  478,000         417,000

Total                                 $6,022,000      $5,928,000

Long-lived Assets
  Domestic                            $   21,000      $   33,000
  Mexico                                  27,000          45,000

Total                                 $   48,000      $   78,000

12.  Insurance Claim Receivable

Management of the Company completed an assessment of two
occurrences of theft of inventory located at its wholly-owned
and consolidated subsidiary, Lancer De Mexico, in January and
April of 2002.  The carrying value of the inventory stolen
approximated $82,000, valued at standard cost, which has been
reflected in the accompanying financial statements as a
reduction in inventories and an addition to insurance claim
receivable. Subsequent to year-end, the Company received $51,000
as an initial payment on the claim. The Company expects to
receive an aggregate amount above cost representing the value
of the stolen inventory at net average selling price, less
commissions and royalties.