SECURITIES AND EXCHANGE COMMISSION

                              Washington DC 20549

                                  FORM 10-QSB

Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934

For Quarter Ended August 31, 1996                   Commission File No. 0-5920


                           LANCER ORTHODONTICS, INC.

       (Exact Name of Small Business Issuer as Specified 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

                    (Address of Principal Executive Offices)

Issuer's telephone number, including area code:                 (619) 744-5585

   Check whether the issuer:  (1) filed all reports required to be filed by
   Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
   months (or for such shorter period that the Registrant was required to file
   such reports, and (2) has been subject to such filing requirements for the
   past 90 days.

            Yes      X                                No

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:  14,879,884


Traditional small business disclosure format (check one):

            Yes      X                                No



PART I.   FINANCIAL INFORMATION


Item 1.     SUMMARIZED FINANCIAL INFORMATION


                           LANCER ORTHODONTICS, INC.

                 CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)


                                                 FOR THE THREE MONTHS ENDED
                                                 8/31/96            8/31/95


NET SALES                                      $1,485,282          $1,796,602

COST OF SALES                                     913,903           1,011,023


     Gross Profit                                 571,379             785,579


OPERATING EXPENSES:
     Selling, General & Administrative            515,932             608,619
     Product Development                           25,234              38,587


Total Operating Expenses                          541,166             647,206


INCOME FROM OPERATIONS                             30,213             138,373


OTHER INCOME (EXPENSE):
     Interest Expense                          (   16,803)         (   36,299)
     Other Income (Expense), net                      646               6,723


Total Other Income (Expense)                   (   16,157)         (   29,576)


INCOME BEFORE INCOME TAXES                         14,056             108,797

INCOME TAXES (NOTE H)                                 800                 800


NET INCOME                                     $   13,256          $  107,997



NET INCOME PER COMMON SHARE (NOTE I)           $     .001          $     .007





                           LANCER ORTHODONTICS, INC.

                      CONDENSED BALANCE SHEETS (UNAUDITED)

                                    8/31/96

                                     ASSETS

CURRENT ASSETS:
     Cash                                                          $  150,418
     Accounts Receivable, less allowances of $114,489 (Note D)      1,331,022
     Inventories (Note D)                                           1,675,801
     Prepaid Expenses                                                  17,271

        Total Current Assets                                        3,174,512


PROPERTY AND EQUIPMENT, at cost (Note D)                            2,535,901
     Less:  Accumulated depreciation                               (2,218,665)

                                                                      317,236

INTANGIBLE ASSETS:
     Marketing and Distribution Rights, net                           203,350
     Technology Use Rights, net                                       308,383

                                                                      511,733

OTHER ASSETS                                                            4,400

        Total Assets                                               $4,007,881



                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts Payable and Accrued Liabilities                      $  405,357
     Line of Credit (Note C)                                          250,000
     Current Portion of Note Payable to Bank (Note D)                 182,482
     Capital Lease Obligation (Note E)                                 22,266
        Total Current Liabilities                                     860,105


LONG TERM PORTION OF NOTE PAYABLE TO BANK (Note D)                    197,518
LONG TERM PORTION OF CAPITAL LEASE OBLIGATION (Note E)                 10,044
COMMITMENTS AND CONTINGENCIES (Note F)                                     --

STOCKHOLDERS' EQUITY (Note G):
     Redeemable Convertible Preferred Stock, Series C,
        $.06 noncumulative annual dividend $.75 par value:
        Authorized 250,000 shares; no shares issued and
        outstanding ($.75 liquidation preference)                          --
     Redeemable Convertible Preferred Stock, Series D,
        $.04 noncumulative annual dividend; $.50 par value:
        Authorized 500,000 shares; issued and outstanding
        370,483 shares ($.50 liquidation preference)                  185,242
     Common Stock, no par value: Authorized 50,000,000 shares;
        issued and outstanding 14,879,884                           4,710,614
     Accumulated Deficit                                           (1,955,642)

        Total Stockholders' Equity                                  2,940,214

        Total Liabilities and Stockholders' Equity                 $4,007,881



                           LANCER ORTHODONTICS, INC.

                 CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)


                                                   FOR THE THREE MONTHS ENDED
                                                     8/31/96          8/31/95


CASH FLOWS FROM OPERATING ACTIVITIES:
     Net Income                                    $  13,256         $107,997
     Adjustments to reconcile net income to net
        cash provided by operating activities:
        Depreciation and amortization                 54,219           73,923
        Changes in assets and liabilities:
           Decrease (increase) in accounts
           receivable, net                           134,395          (32,749)
           Increase in inventories                   (89,838)        (162,261)
           Decrease in prepaid expenses               24,239           29,485
           Increase (decrease) in accounts
            payable and accrued liabilities           26,917         (107,633)

CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES   163,188         ( 91,238)


CASH FLOWS FROM INVESTING ACTIVITIES:
     Additions to property and equipment            ( 12,316)        ( 34,797)

CASH FLOWS USED IN INVESTING ACTIVITIES             ( 12,316)        ( 34,797)


CASH FLOWS FROM FINANCING ACTIVITIES:
     Principal payments on note payable to bank     ( 60,000)        (105,000)
     Principal payments of long-term debt and
     capital leases                                 (  5,185)        (  6,699)

CASH FLOWS USED IN FINANCING ACTIVITIES             ( 65,185)        (111,699)


INCREASE (DECREASE) IN CASH                           85,687         (237,734)
CASH AT BEGINNING OF PERIOD                           64,731         554,604

CASH AT END OF PERIOD                               $150,418         $316,870



Supplemental disclosure of non-cash financing activities:

In fiscal 1997, the Registrant issued 27,988 shares of its common stock in
satisfaction of $9,432 in accrued royalties.


                           LANCER ORTHODONTICS, INC.


NOTES TO FINANCIAL STATEMENTS

(A) BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions to Form 10-QSB and therefore do not include all
information and notes necessary for a fair presentation of financial position,
results of operations, and cash flow in conformity with generally accepted
accounting principles.  The unaudited condensed financial statements include the
accounts of Lancer Orthodontics, Inc. (the "Company").  The operating results
for interim periods are unaudited and are not necessarily an indication of the
results to be expected for the full fiscal year.  In the opinion of management,
the results of operations as reported for the interim period reflect all
adjustments which are necessary for a fair presentation of operating results.

(B) ORGANIZATION

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 has a manufacturing facility in Mexico where
a majority of its inventory is manufactured (Note I).  The Company also
purchases certain orthodontic and dental products for purposes of resale.  Sales
are made directly to orthodontists world-wide through Company representatives
and independent distributors.  The Company also sells certain of its products on
a private label basis.

(C) LINE OF CREDIT

At August 31, 1996, the Company had a $500,000 line of credit with a bank.
Borrowings are made at prime plus 1% (9.25% at August 31, 1996) and are limited
to specified percentages of eligible accounts receivable.  The unused portion
available under the line of credit at August 31, 1996 was $140,000.  The line of
credit expires on November 1, 1996.  The Company is not required to maintain
compensating balances in connection with this borrowing arrangement.

(D) NOTE PAYABLE TO BANK

Effective October 10, 1995, the Company arranged for a restructuring of its note
payable.  The note was divided into a new term note, with an original balance of
$645,000 and a line of credit with an original balance of $400,000 (Note C).
The new note payable is for a term of two years and requires monthly principal
and interest payments of $18,889.  Interest is at prime plus 1% (9.25% at August
31, 1996).  All unpaid principal and accrued interest is due and payable on
November 1, 1997.

The loan is collateralized by inventories, receivables, and equipment.  The
lending agreement requires, among other things, that the Company maintain a
tangible net worth of $2,000,000, a debt to tangible net worth ratio of no more
than 1.25 to 1, and a current ratio of at least 1.5 to 1.  The Company is not
required to maintain compensating balances in connection with this lending
agreement.

                           LANCER ORTHODONTICS, INC.


NOTES TO FINANCIAL STATEMENTS - continued

(E) CAPITAL LEASE

The Company is the lessee of equipment under a capital lease which expires in
the year 1998.  The assets and liabilities under the capital lease are recorded
at the lower of the present value of the minimum lease payments or the fair
market value of the asset.  The asset is depreciated over its estimated useful
life.  Depreciation of the asset is included in depreciation expense for the
periods ended August 31, 1996 and 1995.

(F) COMMITMENTS AND CONTINGENCIES

MANUFACTURING AGREEMENT - In May, 1990, the Company entered into a manufacturing
subcontractor agreement whereby, the subcontractor agreed to provide
manufacturing services to the Company through its affiliated entities located in
Mexicali, B.C., Mexico.  The Company has moved the majority of its manufacturing
operations to Mexico.  Under the terms of the original agreement, the
subcontractor manufactured the Company's products based on an hourly rate per
employee based on the number of employees in the subcontractor's workforce.  As
the number of employees increased, the hourly rate decreased.  In December 1992,
the Company renegotiated the agreement changing from an hourly rate per employee
to a pass through of actual costs plus a weekly administrative fee.  The amended
agreement gives the Company greater control over all costs associated with the
manufacturing operation.,  In July, 1994, the Company again renegotiated the
agreement, reducing the administrative fee and extending the agreement through
June 30, 1998.  After June 30, 1996, either party may terminate the agreement
with three months written notice.  The Company has retained the option to
convert the manufacturing operation to a wholly-owned subsidiary at any time.
Should the Company discontinue operations in Mexico, it is responsible for the
accumulated employee seniority obligation as prescribed by Mexican law for
employees dismissed at the request of the Company.

LEASES - The Company leases its main facility under an operating lease expiring
December 31, 1998, which requires monthly rental payments that increase
annually.  As of May 31, 1996, future minimum annual cash rental payments under
the Company's facility lease are as follows:

                      Fiscal Year                     Amount
                          1997                       $48,300
                          1998                        51,400
                          1999                        30,800


                           LANCER ORTHODONTICS, INC.


NOTES TO FINANCIAL STATEMENTS - continued

(G) STOCKHOLDER'S EQUITY

Common Stock Reserved


Shares of the Company's common stock reserved for issuance at August 31, 1996
and May 31, 1996, were as follows:

                                                       8/31/96        5/31/96

Stock Options:
     Outstanding                                     1,540,000      1,440,000
     Future Issuance                                   888,000        988,000

Warrants issued in conjunction with loans
and convertible debt                                 1,404,167      1,404,167

For conversion of preferred stock                      370,483        370,483
                                                     4,202,650      4,202,650



(H) INCOME TAXES

At May 31, 1996, the Company had net tax operating loss carryforwards of
approximately $2,688,000 and business tax credits of approximately $175,000
available to offset future Federal taxable income and tax liabilities,
respectively, expiring at varying dates between 1996 and 2008.  The Company also
had net tax operating loss carryforwards of approximately $546,000 and business
tax credits of approximately $23,000 available to offset future California
taxable income and tax liabilities, respectively, expiring at varying dates
between 1997 and 1998.

(I) EARNINGS PER COMMON SHARE

Net income per common share is computed based on the weighted average number of
common shares and common equivalent shares outstanding (15,892,931 and
15,447,474 for the three months ended August 31, 1996 and August 31, 1995
respectively).  Outstanding stock options, warrants, and convertible preferred
stock are considered in the determination of common stock equivalents and where
appropriate, they have been included in the weighted average number of shares
outstanding for the three months ended August 31, 1996 and August 31, 1995.


Item 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

            RESULTS OF OPERATIONS


RESULTS OF OPERATIONS
For the three months ended August 31, 1996, net income decreased $94,741 as
compared to the year earlier period.  The decrease in net income is primarily
attributable to the reduction in sales, partially offset by a reduction in
operating and interest expenses.

Net sales decreased $311,320 (17.3%) compared to the year earlier period.  The
decrease is attributable to a manufacturing processing problems and mold
problems, which have resulted in lost sales and delayed deliveries.  The
manufacturing processing problems have been identified and are being corrected.
The mold problems are being addressed through replacement of badly worn molds
and repairing of other mold.  The Company continues to search for and add new
distributors, private label customers, and sales representatives.  The Company
remains very active in investigating new products to  add to its growing product
line, believing that a larger and more diverse product line will appeal to a
wider range of customers.

Cost of sales as a percentage of sales increased from 56.3% to 61.5% as compared
to the year earlier period.  The decline in gross margin is attributable to
manufacturing processing problems and mold problems experienced in the first
quarter.  The Company believes that the manufacturing problems have been
identified and that aggressive actions are being taken to correct the problems.
The elimination of the process and mold problems improve the Company's ability
to meet sales demand.

Selling and general and administrative expenses decreased $92,687 (15.2%)
compared to the year earlier period.  The decrease is attributable to a decrease
in wage costs, professional fees, samples and catalog costs, partially offset by
an increase in postage and advertising.

Product development expenses decreased $13,353 (34.6%) compared to the year
earlier period.  The decrease is attributable to a decrease in wage costs.
Interest expense decreased $19,496 (53.7%) compared to the year earlier period,
reflecting reduced debt and interest rates.


FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES


The Company's financial condition at August 31, 1996 and its previous two year
ends was as follows:

                                       08/31/96       05/31/96       05/31/95


Current Assets                       $3,174,512     $3,157,621     $3,383,867
Current Liabilities                     860,105        836,714        971,283
Working Capital                       2,314,407      2,320,907      2,412,584
Bank Debt & Capitalized Leases          662,310        727,495      1,243,902
Shareholder Equity                    2,940,214      2,917,526      2,527,489
Total Assets                          4,007,881      4,032,893      4,389,267

Working capital decreased $6,500 during the three months, primarily because of
the paydown of bank debt, partially offset by profitability and non-cash
expenses.  The Company is currently considering investing from $200,000 to
$300,000 in replacement equipment.  Funds for this investment will come from
cash flow and new borrowings.  The Company expects to meet the rest of its cash
requirements out of its cash reserves, cash flow, and line of credit.

Item 6.     EXHIBITS AND REPORTS ON FORM 8-K


There were no Form 8-k reports filed during the quarter.
                                   SIGNATURES


Pursuant to the requirements 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 ORTHODONTICS, INC.

                                                        Registrant

Date October 4 , 1996                        By /s/ Douglas D. Miller

                                                Douglas D. Miller,
                                                President and Chief Operating
                                                Officer


                                             By /s/ Scott R. Striblen

                                                Scott R. Striblen,
                                                Vice President, Finance