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 [ ]

The number of shares of the registrant's Common Stock outstanding as of January 31, 2002, was 19,435,061.

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

(Unaudited)

a) On July 9, 2000, the Corporation purchased all of the issued and outstanding shares of Phoenix EPS, Inc. ("Phoenix") in exchange for 220,857 shares of the Corporation's common stock with a fair market value of $4.5 million. Phoenix, located in Scottsdale, Arizona, engineered and marketed electronic payment system software solutions to the retail industry. Phoenix also provided selective routing, including real-time monitoring of check, debit, credit and EBT transactions for authorization and settlement through its transaction processing product REPS. In connection with the acquisition, the Corporation incurred transaction costs consisting primarily of professional fees of $126,205 and a finder's fee of 7,730 shares of the Corporation's common stock with a fair market value of $157,500, resulting in a total purchase price of $4,783,705. The acquisition was accounted for as a purchase business combination; accordingly, the results of operations of Phoenix have been included with the Corporation's results of operations since July 9, 2000.

The total purchase price paid for the Phoenix acquisition was allocated based on the estimated fair values of the assets acquired as determined by the cost and residual method valuation approaches as follows:

A total of approximately $4.2 million of the purchase consideration was allocated to software, which is being depreciated over 5 years. Goodwill is being amortized over ten years.

b) On July 22, 2000, the Corporation purchased all of the issued and outstanding shares of Check Technologies, Inc. ("Check Technologies"), a Dallas-based check verification and recovery business, in exchange for 22,987 shares of the Corporation's common stock with a fair market value of $250,000 and $250,000 cash. The Corporation also agreed to pay to certain former Check Technologies shareholders and a former employee a total of $150,010 pursuant to separate non-compete agreements having a maximum term of three (3) years. The former employee and one of the former shareholders of Check Technologies were each paid additional consideration of $25,000 in the first year upon satisfaction of certain conditions. The Corporation is obligated to pay additional consideration of $25,000 to each of these persons in each of the second and third years of the terms of their respective agreements. The non-compete agreement payments are recorded as other assets, and the carrying value net of accumulated amortization at March 31, 2001, was $160,722. In connection with the acquisition, the Corporation incurred transaction costs consisting primarily of professional fees of $43,088 and a finder's fee of $26,020, resulting in a total purchase price of $769,118. The acquisition was accounted for as a purchase business combination; accordingly, the results of operations of Check Technologies have been included with the Corporation's results of operations since July 22, 2000.

The total purchase price paid for the Check Technologies acquisition was allocated based on the estimated fair values of the assets acquired as follows:

c) The following summary, prepared on an unaudited pro forma basis, reflects the condensed consolidated results of operations for the nine months ended December 31, 2000 and 2001, assuming Phoenix and Check Technologies had been acquired as of April 1, 2000:

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The pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the periods presented and are not intended to be a projection of future results. During the nine months ended December 31, 2001 the Corporation had additional costs related to the development of the Corporation's data center. During the nine months ended December 31, 2000, Phoenix recorded software license and software development revenue associated with the REPS system. The Corporation has discontinued providing licensing of the REPS system and therefore recorded no revenue from this service.

d) The purchase price for each of Phoenix and Check Technologies was paid either entirely or partially with shares of the Corporation's common stock. As part of each transaction, the Corporation agreed to certain price protection covenants for the benefit of the former shareholders of the acquired companies. In the event the value of the shares of the Corporation's common stock exchanged for the shares of the acquired company's stock decreases below the deemed issue price per share of the Corporation's common stock, and the former shareholders of the acquired company sell such shares of the Corporation's common stock at a lower price after the expiration of any applicable hold period and within a specified period of time thereafter, such shareholders would have a right to receive additional shares of the Corporation's common stock. On June 27, 2001, the Corporation issued 679,134 shares of common stock to the former shareholders of Phoenix under the price protection covenants. On December 13, 2001, the Corporation issued 26,998 shares of common stock to the former shareholders of Check Technologies under the price protection covenants. The issuance of these shares did not result in additional purchase consideration, but only an increase in the Corporation's common shares outstanding. The Corporation has met its obligation in relation to the price protection covenants as stated above for each of Phoenix and Check Technologies.

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.
2. Under U.S. GAAP, the Corporation follows Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation" for options issued to a non-employee. The Corporation's policy is to record the compensation when the options vest. During the three months ended December 31, 2000, options to purchase 26,668 shares of the Corporation's common stock issued to a non-employee vested.

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The following discussion and analysis should be read in conjunction with the consolidated audited financial statements and related notes thereto contained in the Corporation's Annual Report on Form 10-K for the fiscal year ended March 31, 2001, filed with the Securities and Exchange Commission on June 29, 2001 (file no. 0-13959). The Corporation believes 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," "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 the Corporation's services, the volume and total value of transactions processed by merchants utilizing the Corporation's services, the technological adaptation of check verification end-users, the issuance of additional patents necessary to protect the business enterprise, the renewal of material contracts in the Corporation's business, the Corporation's 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, the Corporation's 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 the Corporation, and the cost of protecting the Corporation's intellectual property. Even if the assumptions on which the forward-looking statements are based prove accurate and appropriate, the actual results of the Corporation's operations in the future may vary widely due to technological change, increased competition, additional government regulation or intervention in the industry, general economic conditions, other risks described in the Corporation's filings with the Securities and Exchange Commission and other factors not yet known or anticipated. Accordingly, the actual results of the Corporation's 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.

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The Corporation's ECC services utilize the Corporation's proprietary system, including software, hardware and modes of interaction, known as the "ChequeMARK System." An objective of the Corporation is to increase transaction volume through internal growth and acquisitions, including the acquisition of business relationships through which the Corporation can integrate its ChequeMARK technology as a preferred service provider. During the past two fiscal years, the Corporation has begun to implement this objective through a number of acquisitions. These acquisitions give the Corporation a suite of retail point-of-sale check handling services and an infrastructure to further expand its offerings to include other forms of electronic payment systems in the future such as expansion into the e-commerce market.

The acquisitions that have been completed by the Corporation over the past two years have made the Corporation's results of operations not comparable period over period due to the increase in amortization as well as the acquisitions of Phoenix and Check Technologies, which were completed in fiscal year 2001, and were not included in the Corporation's results of operations until July 2000.

Effective April 1, 2001, CFDC Holdings Corp., CF Data Corp., Check Technologies, Check Center, National Process Servers, Inc. and Phoenix EPS merged operations and management into LML Payment Systems Corp. (formerly known as ChequeMARK Inc.), a Delaware corporation and a wholly-owned subsidiary of LML Corp. LML Payment Systems Corp. maintains operations in Dallas, Texas; Wichita, Kansas; and Phoenix, Arizona. The merger was designed to achieve certain economies related to costs and the elimination of redundant systems and services. It was also designed to take advantage of the growing recognition of the Corporation's brand name. The consolidation has allowed for a coordinated approach to the marketing of payment services under the Corporation's trademarks.

Other Operations. LHTW Properties Inc. owns and operates Wildwood Estates, a 332-acre residential community located in Wildwood, Florida. Operations have included sale of manufactured homes and lots. In exchange for monthly maintenance fees, LHTW Properties provides the resident community with certain amenities and services commonly associated with similar developments. The results of operations for LHTW Properties were not significant for the nine month period ended December 31, 2001, or December 31, 2000.

The Corporation's revenues consist primarily of fees from the Corporation's check verification and electronic processing business and check recovery business. Revenues are recognized in accordance with SEC Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition." Revenue from the Corporation's check verification and electronic processing business is recognized at the time the transactions are processed by the merchant, provided the fee is fixed and determinable and collectability is reasonably assured. Fees associated with the Corporation's check recovery business are contingent on successful recovery; accordingly, revenue is recognized as cash is received. Software license revenue is recognized upon shipment, provided fees are fixed and determinable and collection is probable, in accordance with Statement of Position ("SOP") 97-2, "Software Revenue Recognition." Software maintenance revenues are recognized over the term of the maintenance agreement. Any cash consideration received prior to meeting revenue recognition criteria is recorded as deferred revenue. Revenue regarding Wildwood Estates is recognized when sales of property lots and mobile homes are completed. Maintenance fees from the management of the property and from the maintenance of the common areas are recognized straight line over the service period.

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Total revenues decreased to approximately $2.2 million for the three months ended December 31, 2001 from approximately $2.6 million for the three months ended December 31, 2000, a decrease of approximately 18%. The decrease was mainly attributable to a decrease in revenues from the financial payment processing services. The decrease was also attributable to a decrease in revenues derived from software consulting fees associated with licensed clients and the REPS system, which decreased approximately 87.3% from approximately $250,000 for the three months ended December 31, 2000 to approximately $32,000 for the three months ended December 31, 2001. The Corporation has discontinued further licensing of the REPS system and therefore recorded no revenue from this service.

During the three months ended December 31, 2001, revenue from and associated with the Corporation's three largest customers amounted to approximately 59% of the Corporation's total sales volume. The Corporation may be economically dependent on sales volume to these customers.

During the year ended March 31, 2001, one of the Corporation's three largest customers moved its check verification processing in house. Verification transactions started being transferred in February 2001 and were completed by the end of the Corporation's second quarter of fiscal 2002. This customer also moved its primary check collections in house. The Corporation is continuing to provide secondary check collection services to this customer and expanded this service to include volume from a portion of the customer's affiliated companies. As a result of the expansion of the secondary collection services to affiliated companies, the Corporation did not experience a significant reduction in the revenue received from this customer during this period.

Costs of operations decreased from approximately $2 million for the three months ended December 31, 2000, to approximately $1.8 million for the three months ended December 31, 2001, a decrease of approximately 10%. The decrease was principally attributable to the Corporation's Financial Payment Processing operations implementation of electronic check recovery methods, which allowed the Corporation to commence migration from labor-intensive traditional check recovery methods to more cost efficient automated electronic check recovery methods. The Corporation was able to reduce staffing levels and related costs in late September 2001, which has had a positive impact on the reduction of costs of operations during the third quarter of fiscal 2002. Costs of operations consist of transaction processing costs, personnel costs, equipment related costs and telecommunication costs. For the three months ended December 31, 2001, costs of operations as a percentage of sales increased to approximately 85% compared to approximately 77% for the three months ended December 31, 2000. The increase is largely attributed to a decrease in revenue during the three months ended December 31, 2001.The Corporation continues to seek ways to reduce costs of operations.

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Amortization and depreciation increased to approximately $820,000 from approximately $777,000 for the three months ended December 31, 2001 and 2000, respectively. Depreciation expenses for capital assets increased to approximately $560,000 from approximately $523,000 for the three months ended December 31, 2001 and 2000, respectively. These increases are principally associated with amortization of the Corporation's Intellectual Property Estate, depreciation of the ChequeMARK system software and the software acquired in the acquisition of Phoenix.

For the three months ended December 31, 2001 the Corporation had other income of approximately $102,000 compared to other expenses of approximately $126,000 for the three months ended December 31, 2000. The other income was attributed to the reconciliation of outstanding trade payables, which was a non-cash item of approximately $61,000 and an employee tax refund of approximately $41,000. The decrease in other expenses was primarily attributed to costs for potential acquisitions that the Corporation had determined would not be completed during the three months ended December 31, 2000.

Interest expense decreased to approximately $5,000 from approximately $15,000 for the three months ended December 31, 2001 and 2000, respectively. Interest income decreased to approximately $17,000 from approximately $166,000 for the three months ended December 31, 2001 and 2000, 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 3.5% to 1.58% for the three months ended December 31, 2000 and 2001, respectively.

Net loss decreased to approximately $1 million from approximately $1.2 million for the three months ended December 31, 2001 and 2000, respectively. The decrease was principally attributable to the Corporation's Financial Payment Processing operations implementation of electronic check recovery methods, which enabled the Corporation to reduce staffing levels and related costs. The decrease was also attributed to a reduction in legal and general corporate expenses.

Basic and diluted loss per share were both ($0.05) for the three months ended December 31, 2001, as compared to ($0.10) for the three months ended December 31, 2000.

Total revenues decreased to approximately $6.9 million for the nine months ended December 31, 2001 from approximately $7.2 million for the nine months ended December 31, 2000, a decrease of approximately 4%. The decrease was mainly attributable to a decrease in revenues derived from software license revenue, software maintenance revenue and consulting fees associated with licensed clients and the REPS system, which decreased approximately 48% from approximately $617,000 for the nine months ended December 31, 2000 to approximately $321,000 for the nine months ended December 31, 2001. The Corporation has discontinued further licensing of the REPS system and therefore recorded no revenue from this service.

During the nine months ended December 31, 2001, revenue from and associated with the Corporation's three largest customers amounted to approximately 56% of the Corporation's total sales volume. The Corporation may be economically dependent on sales volume to these customers.

During the year ended March 31, 2001, one of the Corporation's three largest customers moved its check verification processing in house. Verification transactions started being transferred in February 2001 and were completed by the end of the Corporation's second quarter of fiscal 2002. This customer also moved its primary check collections in house. The Corporation is continuing to provide secondary check collection services to this customer and expanded this service to include volume from a portion of the customer's affiliated companies. As a result of the expansion of the secondary collection services to affiliated companies, the Corporation did not experience a significant reduction in the revenue received from this customer during this period.

1 EBITDA is earnings before income taxes, interest and depreciation and amortization. The Corporation believes that, in addition to cash flows from operations and net income, EBITDA is a useful financial performance measure for assessing operating performance as it provides an additional basis to evaluate the ability of the Corporation to incur and service debt and to fund capital expenditures. To evaluate EBITDA, the components of EBITDA such as revenue and operating expenses and the variability of such components over time should also be considered. EBITDA should not be construed, however, as an alternative to operating income (as determined in accordance with accounting principles generally accepted in Canada or the United States of America ("GAAP")) as an indicator of the Corporation's operating performance or to cash flows from operating activities (as determined in accordance with GAAP) as a measure of liquidity. The Corporation's method of calculating EBITDA may differ from methods used by other companies, and as a result, EBITDA measures disclosed herein may not be comparable to other similarly titled measures used by other companies.

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Amortization and depreciation increased to approximately $2.4 million from approximately $1.9 million for the nine months ended December 31, 2001 and 2000, respectively. Depreciation expenses for capital assets increased to approximately $1.6 million from approximately $1.2 million for the nine months ended December 31, 2001 and 2000, respectively. These increases are principally associated with amortization of goodwill from all of the Corporation's acquisitions and amortization of the Corporation's Intellectual Property Estate, depreciation of the ChequeMARK system software and the software acquired in the acquisition of Phoenix, and depreciation of capital assets acquired in all of the Corporation's acquisitions.

For the nine months ended December 31, 2001 the Corporation had other income of approximately $54,000 compared to other expenses of approximately $222,000 for the nine months ended December 31, 2000, respectively. Other income was attributed to the reconciliation of outstanding trade payables, which was a non-cash item of approximately $61,000, an employee tax refund of approximately $41,000 offset by merger costs of approximately $41,000. Other expenses for the nine months ended December 31, 2000 were attributed to costs incurred in September 2000 to relocate the Jacksonville, Florida office to Dallas, Texas and potential acquisitions that the Corporation had determined would not be completed.

Interest expense decreased to approximately $21,000 from approximately $98,000 for the nine months ended December 31, 2001 and 2000, respectively. This decrease was due to the payment of long-term debt during the nine months ended December 31, 2000. Interest income decreased to approximately $137,000 from approximately $557,000 for the nine months ended December 31, 2001 and 2000, 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 6.3% to 1.58% for the nine months ended December 31, 2000 and 2001, respectively.

Earnings before income taxes, interest, depreciation and amortization, or "EBITDA," increased to a loss of approximately $2.4 million from a loss of approximately $1.2 million for the nine months ended December 31, 2001 and 2000, respectively. The increase is primarily due to increased costs associated with the development of the Corporation's data center, increased costs associated with the development of marketing and sales activity, and other general corporate expenses. During September 2001 the Corporation's Financial Payment Processing operations implemented electronic check recovery methods, which enabled the Corporation to reduce staffing levels and related costs along with reducing legal and general corporate expenses.

Net loss increased to approximately $4.7 million from approximately $2.7 million for the nine months ended December 31, 2001 and 2000, respectively. The increase in the Corporation's net loss is due primarily to increased costs associated with the development of the Corporation's data center, increased costs associated with the development of marketing and sales activity, the increased amortization of intangibles, depreciation of capital assets, and other general corporate expenses. During September 2001 the Corporation's Financial Payment Processing operations implemented electronic check recovery methods, which enabled the Corporation to reduce staffing levels and related costs along with reducing legal and general corporate expenses.

Basic and diluted loss per share were both ($0.24) for the nine months ended December 31, 2001, as compared to ($0.20) for the nine months ended December 31, 2000.

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Management believes that existing cash and cash equivalent balances, and potential cash flows from operations should satisfy the Corporation's 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 the Corporation to obtain additional equity or debt financing. There can be no assurance that such financing would be available on acceptable terms, if at all.

In July 2001, the Financial Accounting Standards Board issued the accounting rules governing business combinations, goodwill and intangible assets. These rules are Statement of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. With the adoption of Statement 142, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value-based test at the reporting units level. Impairment loss would be recognized to the extent the carrying amount of goodwill exceeds the implied fair value. Under the new rules, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer's intent to do so. Determining the useful lives of intangible assets will require considerable judgment and fact-based analysis. The Corporation plans to adopt the provisions of this standard in fiscal 2003, beginning April 1, 2002. Upon its adoption, the Corporation plans to conform its accounting policy to the requirements in this standard.

Management believes this standard will have a material non-cash impact on the Corporation's financial statements, as it will not allow for amortization of goodwill, which currently approximates $830,000 annually. At this time the Corporation has not determined how goodwill will be allocated to specific reporting units as of April 1, 2002, as the Corporation is in the process of evaluating its reporting units. Accordingly, the Corporation has not made a determination about whether or not an impairment charge will be necessary upon adoption of the new standard.

In addition to the legal matters previously reported in the Corporation's Annual Report filed on Form 10-K for the year ended March 31, 2001, as filed with the Securities and Exchange Commission on June 29, 2001 (file no. 0-13959), and in the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, as filed with the Securities and Exchange Commission on November 14, 2001 (file no. 0-13959) the Corporation is party from time to time to ordinary litigation incidental to its business, none of which is expected to have a material adverse effect on the results of operations, financial position or liquidity of the Corporation.

From March 31, 2001, until December 31, 2001, there were no material changes from the information concerning market risk contained in the Corporation's Annual Report on Form 10-K for the year ended March 31, 2001, as filed with the Securities and Exchange Commission on June 29, 2001 (file no. 0-13959).

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On December 13, 2001, the Corporation issued 26,998 restricted shares of its common stock, with no par value, to the former shareholders of Check Technologies in consideration of the modification and satisfaction in full of certain price protection covenants included in the July 22, 2000, purchase agreement (See Note 2(d) to the consolidated financial statements, included herein). The Corporation believes that the issuance of such securities was exempt under the Securities Act of 1933 as a transaction not involving a public offering. This issuance was made without general solicitation or advertising. The Check Technologies shareholders represented that they were acquiring the shares without a view to distribute and that they were afforded the opportunity to review all publicly filed documents and to ask questions, and receive answers from, officers of the Corporation.

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1. Exhibits:

Exhibit

Number Description of Document

3.1 Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for the period ended September 30, 2000, of LML Payment Systems Inc. (File No. 0-13959)).

3.2 Bylaws (incorporated by reference to Exhibit 1.2 to the Annual Report on Form 20-F for the fiscal year ended March 31, 1998, of LML Payment Systems Inc. (File No. 0-13959)).

3.3 Amendment to Bylaws of LML Payment Systems Inc. (incorporated by reference to Exhibit 3.3 to the Quarterly Report on Form 10-Q for the period ended September 30, 2001, of LML Payment Systems Inc. (File No. 0-13959)).

____________

2. Reports on Form 8-K

LML PAYMENT SYSTEMS INC.

By: /s/ Wendy J. Ogilvie

Wendy J. Ogilvie

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

Date: February 14, 2002

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