Registrant's Telephone Number, Including Area Code: (604) 689-4440

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.). Yes [X] No [ ]

The number of shares of the registrant's Common Stock outstanding as of July 31, 2003, was 19,593,061.

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In this Quarterly Report on Form 10-Q, unless otherwise indicated, all dollar amounts are expressed in United States Dollars.

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1. Under U.S. GAAP, the Corporation could not effect the reduction in deficit of $22,901,744 (performed in fiscal 2001 and disclosed in the Corporation's Form 10-K for the fiscal year ended March 31, 2001) by reducing the stated capital of the shares of the Corporation's common stock.

The following discussion and analysis should be read in conjunction with the consolidated audited financial statements and related notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2003, filed with the Securities and Exchange Commission on June 27, 2003 (file no. 0-13959). We believe that all necessary adjustments (consisting only of normal recurring adjustments) have been included in the amounts stated below to present fairly the following quarterly information. Quarterly operating results have varied significantly in the past and can be expected to vary in the future. Results of operations for any particular quarter are not necessarily indicative of results of operations for a full year.

All statements other than statements of historical fact contained herein are forward-looking statements. Forward-looking statements generally are accompanied by words such as "anticipate," "believe," "estimate," "intend," "project," "potential" or "expect" or similar statements. The forward-looking statements were prepared on the basis of certain assumptions which relate, among other things, to the demand for and cost of marketing our services, the volume and total value of transactions processed by merchants utilizing our services, the technological adaptation of electronic check conversion end-users, the renewal of material contracts in our business, our ability to anticipate and respond to technological changes, particularly with respect to financial payments and e-commerce, in a highly competitive industry characterized by rapid technological change and rapid rates of product obsolescence, our ability to develop and market new product enhancements and new products and services that respond to technological change or evolving industry standards, no unanticipated developments relating to previously disclosed lawsuits against us, and the cost of protecting our intellectual property. Even if the assumptions on which the forward-looking statements are based prove accurate and appropriate, the actual results of our operations in the future may vary widely due to technological change, increased competition, new government regulation or intervention in the industry, general economic conditions, other risks described in our filings with the Securities and Exchange Commission. Accordingly, the actual results of our operations in the future may vary widely from the forward-looking statements included herein. All forward-looking statements included herein are expressly qualified in their entirety by the cautionary statements in this paragraph.

LML Payment Systems Inc. is a financial payment processor that primarily provides consumer financial payment processing solutions to retailers and other clients in the United States. Our financial payment processing solutions include traditional check recovery, electronic check re-presentment, electronic check authorization and electronic check conversion. We also provide electronic fund transfer switching services to certain segments of the retail industry. We focus on providing our services to supermarkets, grocery stores, multi-lane retailers, convenience stores and other national, regional and local retailers in the United States.

Our strategic objective is to acquire electronic payment volume across all our financial payment processing services and strengthen our position as a financial payment processor. We also have as an objective the goal of developing revenue streams from the licensing of our intellectual property, specifically, the licensing of the intellectual property associated with our five patents regarding electronic check processing.

Other Operations

In a separate business segment, we owned and managed a 332-acre manufactured home retirement property known as Wildwood Estates, in Wildwood, Florida. Operations included the sale of manufactured homes and lots. In exchange for monthly maintenance fees, we provided the resident community with certain amenities and services commonly associated with similar developments. In June 2003, we sold the Wildwood Estates property for total gross proceeds of approximately $2.4 million cash. (See "Results of Operations - Discontinued Operations" located in "Management Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") and Note 3 to the Consolidated Financial Statements in Part I, Item 1).

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Total revenue was approximately $1.9 million for the three months ended June 30, 2003 as compared to approximately $1.9 million for the three months ended June 30, 2002. Revenue from our primary check collection business was approximately $850,000 for the three months ended June 30, 2003 as compared to approximately $976,000 for the three months ended June 30, 2002, a decrease of approximately 12.9%. This decrease was mainly attributable to us no longer providing electronic check recovery services to JC Penney, formerly one of our largest customers and responsible for approximately 18.3% of total revenue for the three months ended June 30, 2002. We are continuing to provide other primary collection services to JC Penney which resulted in revenue of approximately 7.8% of total revenue for the three months ended June 30, 2003. Revenue from our secondary check collection business was approximately $532,000 for the three months ended June 30, 2003 as compared to approximately $495,000 for the three months ended June 30, 2002, an increase of approximately 7.5%. Revenue from electronic check verification increased approximately 34.6% from approximately $247,000 for the three months ended June 30, 2002 to approximately $333,000 for the three months ended June 30, 2003. The increase is mainly attributable to the rollout of check processing services, including electronic check verification, to 49 multi-lane grocery stores with 268 locations in the Houston, Texas area during the third quarter of fiscal year 2003. Revenue from the licensing of certain modules of our software increased approximately $45,000 for the three months ended June 30, 2003. The increases in electronic check verification revenue and software licensing revenue is consistent with our strategic objective of acquiring electronic payment volume across all our financial payment processing services and strengthening our position as a financial payment processor.

During the three months ended June 30, 2003, revenue from and associated with our two largest customers amounted to approximately 36% of total revenue. We may be economically dependent on revenue from these customers.

On March 31, 2003, Fleming Retail Group ("Fleming"), one of our customers we previously provided transaction switching services to, filed for Chapter 11 reorganization in the United States Bankruptcy Court. During the three months ended June 30, 2003, Fleming notified us of its intention to commence closing and selling their remaining grocery retail store locations and by the conclusion of the three months ended June 30, 2003, Fleming had finalized the closing and selling of these remaining grocery retail store locations. Consequently, the transaction switching services previously provided by us to Fleming is no longer required and, therefore, the resulting impact on future revenue is a reduction of approximately $90,000 per quarter or approximately 4% of our total revenue.

Costs of operations increased from approximately $1.6 million for the three months ended June 30, 2002, to approximately $1.8 million for the three months ended June 30, 2003, an increase of approximately 12.5%. Cost of operations consist of transaction processing costs, personnel costs, equipment related costs and telecommunication costs. The increase was partially attributable to an increase in traditional collection services versus a decrease in electronic check recovery services resulting from the removal of the electronic check recovery services previously provided to JC Penney. Services such as electronic check recovery, provide us with a greater gross margin due to

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utilization of more cost efficient electronic check recovery methods as compared to more labor-intensive traditional check recovery methods. The increase was also attributable to a provision for losses on accounts receivable from Fleming Retail Group of approximately $42,000 resulting from their recent bankruptcy. We continue to seek ways to reduce costs of operations.

Sales, general and administrative expenses consist primarily of personnel costs, commissions, office facilities, travel, promotional events such as trade shows, seminars and technical conferences and public relations. Sales, general and administrative expenses decreased to approximately $613,000 from approximately $715,000 for the three months ended June 30, 2003 and 2002, respectively, a decrease of approximately 14.3%. The decrease in sales, general and administrative expense is primarily attributable to lower costs associated with the reduction of personnel costs and general corporate expenses.

Amortization and depreciation decreased to approximately $572,000 from approximately $615,000 for the three months ended June 30, 2003 and 2002, respectively. The decrease was primarily attributable to certain capital assets, acquired through previous years' acquisitions, which had become fully depreciated.

For the three months ended June 30, 2003 we had other expenses of approximately $16,000 compared to other income of approximately $6,000 for the three months ended June 30, 2002. The other expenses were attributed to foreign exchange losses from current liabilities due in Canadian currency. Other income for the three months ended June 30, 2002 was attributed to a foreign exchange gain from cash and cash equivalents held in Canadian currency.

Interest expense decreased to approximately $5,000 from approximately $8,000 for the three months ended June 30, 2003 and 2002, respectively. This decrease was due to the decrease in long-term debt. Interest income decreased to approximately $14,000 from approximately $20,000 for the three months ended June 30, 2003 and 2002, respectively. This decrease in interest earned was primarily attributed to a decrease in funds placed in term deposits or short-term commercial paper, as well as the decrease in interest rates from an average of approximately 1.7% to approximately 1% for the three months ended June 30, 2003 and 2002, respectively.

Loss from continuing operations increased to approximately $1.1 million from approximately $1 million for the three months ended June 30, 2003 and 2002, respectively. The increase was primarily attributable to an increase in cost of operations resulting from an increase in traditional check collection services as well as an increase in our provision for losses on accounts receivable.

Basic and diluted loss per share from continuing operations were both approximately ($0.05) for the three months ended June 30, 2003, as compared to approximately ($0.05) for the three months ended June 30, 2002.

During the three months ended June 30, 2003, we sold our Wildwood Estates property, previously reported in a separate business segment, for total gross proceeds of approximately $2.4 million cash. We recorded net profit of approximately $599,000, which was primarily attributed to a net gain of approximately $625,000 from the sale of real property and capital assets offset by a net loss of approximately $26,000 from discontinued operations. The decision to discontinue operations of this business segment resulted from an opportunity to sell the property and consequently remove a business segment which was no longer consistent with our business strategy.

Our liquidity and financial position consisted of approximately $5.2 million in working capital as of June 30, 2003, compared to approximately $3.6 million in working capital as of March 31, 2003. The increase in working capital was attributable to cash flows provided by discontinued operations of approximately $2.2 million offset by cash used in operating activities of continuing operations of approximately $585,000. Cash used in operating activities of continuing

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operations related to normal operating activities and a decrease in accounts payable and accrued liabilities of approximately $228,000, a decrease of prepaid expenses of approximately $82,000 and a decrease in accounts receivable of approximately $60,000. Cash flows used in continuing operations were approximately $586,000 as compared to approximately $599,000 for the three months ended June 30, 2003 and 2002, respectively. Cash used in investing activities of continuing operations was approximately $14,000 as compared to approximately $40,000 for the three months ended June 30, 2003 and 2002, respectively. The decrease during the three months ended June 30, 2003 was due mainly to a reduction in capital asset expenditures. Cash used in financing activities of continuing operations was approximately $41,000 for the three months ended June 30, 2003, as compared to approximately $86,000 for the three months ended June 30, 2002. The decrease in cash used in financing activities is primarily due to the decrease in payments on capital leases.

We believe that existing cash and cash equivalent balances, and potential cash flows from operations should satisfy our working capital and capital expenditure requirements in the foreseeable future. However, any material acquisitions of complementary businesses, products or technologies, other arrangements, unexpected losses, or a further economic slowdown in the retail industry could require us to obtain additional equity or debt financing. There can be no assurance that such financing would be available on acceptable terms, if at all.

There have been no changes to our critical accounting policies since March 31, 2003. For a description of our critical accounting policies, see our Annual Report on Form 10-K for the year ended March 31, 2003 filed with the Securities and Exchange Commission.

In addition to the legal matters previously reported in our Annual Report filed on Form 10-K for the year ended March 31, 2003, as filed with the Securities and Exchange Commission on June 27, 2003 (file no. 0-13959), we are party from time to time to ordinary litigation incidental to our business, none of which is expected to have a material adverse effect on our results of operations, financial position or liquidity.

From March 31, 2003, until June 30, 2003, there were no material changes from the information concerning market risk contained in our Annual Report on Form 10-K for the year ended March 31, 2003, as filed with the Securities and Exchange Commission on June 27, 2003 (file no. 0-13959).

The Corporation's disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and the conclusions of the principal executive and principal financial officers are that the controls and procedures are effective at the reasonable assurance level.

There are no material changes with respect to the information concerning legal proceedings contained in our Annual Report on Form 10-K for the year ended March 31, 2003, as filed with the Securities and Exchange Commission on June 27, 2003 (file no. 0-13959). In addition to the legal matters as described herein and as previously reported in our most recent report on Form 10-K, we are party from time to time to ordinary litigation incidental to our business, none of which is expected to have a material adverse effect on our results of operations, financial position or liquidity.

We filed the following Current Reports on Form 8-K with the Securities and Exchange Commission during the quarter ended June 30, 2003:

i) A current report on Form 8-K, dated May 7, 2003, was filed on May 7, 2003 (Item 7)

ii) A current report on Form 8-K, dated May 13, 2003, was filed on May 29, 2003 (Item 5)

iii) A current report on Form 8-K, dated June 4, 2003, was filed on June 19, 2003 (Item 5)

iv) A current report on Form 8-K, dated June 27, 2003, was filed on June 30, 2003 (Item 5)

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LML PAYMENT SYSTEMS INC.

By: /s/ Richard R. Schulz

Chief Accounting Officer (Duly Authorized Officer and Chief Accounting Officer)

Date: August 14, 2003

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Exhibit 31.1

I, Patrick H. Gaines, certify that:

Exhibit 31.2

I, Richard R. Schulz, certify that:

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.

In connection with the Quarterly Report of LML Payment Systems Inc. (the "Corporation") on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and Exchange commission on the date hereof (the "Report"), I, Patrick H. Gaines, Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Corporation.

/s/ Patrick H. Gaines

Patrick H. Gaines

Chief Executive Officer

August 14, 2003

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Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.

In connection with the Quarterly Report of LML Payment Systems Inc. (the "Corporation") on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard R. Schulz, Controller and Chief Accounting Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Corporation.

/s/ Richard R. Schulz

Richard R. Schulz

Controller and Chief Accounting Officer

August 14, 2003

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