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1.	electing four (4) members of our board of directors;

2.	appointment of our auditors;

3.	to consider, and if thought fit, approve an ordinary resolution to amend the Corporation’s 1996 Stock Option Plan to increase the number of common share purchase options granted or to be granted thereunder by 3,000,000 common shares;

4.	to consider, and if thought fit, approve an ordinary resolution to amend the Corporation’s 1998 Stock Incentive Plan to increase the number of common share purchase options granted or to be granted thereunder by 3,000,000 common shares;

5.	to consider and confirm, by ordinary resolution, an amendment to Section 8.05 of our Bylaws, to clarify the requirements with respect to the registration of transfers of the Corporation’s shares for which a certificate has not been issued; and

6.	transacting any other business that may properly come before the meeting or any adjournment or adjournments thereof.

	By Order of the Board of Directors:
	Patrick H. Gaines
	President and CEO
	Dated:  July 6, 2007

The material terms of the 1996 Stock Option Plan are summarized below.  The following summary of certain provisions of the 1996 Stock Option Plan does not purport to be complete and is qualified in its entirety by reference to the full text of the 1996 Stock Option Plan, a copy of which was filed as Exhibit 99.2 to a Form S-8 filed by LML with the SEC on November 6, 2000 (which can be found at www.sec.gov).

 

If the amendment to the 1996 Stock Option Plan is approved by shareholders, the aggregate number of shares of our common stock that would be available for future issuance would be 3,176,000.  In the event of an equity restructuring of our Corporation that causes the per-share fair value of the our common stock to change (e.g., a stock dividend, stock split, spinoff, etc.), the committee will make equitable adjustments to the share limits described above, the number and type of shares subject to outstanding options, and the purchase or exercise price of outstanding options. In the case of any other corporate transaction or event, the committee may make adjustments in order to prevent dilution or enlargement of the benefits or potential benefits intended to be provided under the 1996 Stock Option Plan.

Shares that are subject to options that terminate, lapse or are cancelled or forfeited will be available again for grant under the 1996 Stock Option Plan.

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 Generally, employees, directors, officers and consultants of LML are eligible to receive options under the 1996 Stock Option Plan (except that under the terms of the plan, U.S. residents are not eligible to receive option grants).   As of June 15, 2007, approximately 10 employees, officers and directors of LML are eligible as a class to be selected by the committee to receive options under the 1996 Stock Option Plan.

Withholding of Taxes

       The Corporation may deduct, from any payment or distribution of shares under the 1996 Stock Option Plan, the amount of any tax required by law to be withheld with respect to such payment, or may require the participant to pay such amount to the Corporation prior to, and as a condition of, making such payment or distribution.

 

The 1996 Stock Option Plan became effective in 1996 and will continue until suspended or terminated by the Board of Directors, provided no such suspension or termination will adversely affect any then-outstanding options that have been granted under the plan. The Board of Directors may at any time amend the 1996 Stock Option Plan, provided that the Board will obtain shareholder approval of any amendment if required under any applicable laws or under the rules of any regulatory agency.

The following discussion of the principal U.S. federal income tax consequences of participation in the 1996 Stock Option Plan is based on statutory authority, as well as judicial and administrative interpretations as of the date of this proxy statement, all of which are subject to change at any time (possibly with retroactive effect).  The following discussion pertains only to the tax laws of the U.S. and does not pertain to the tax laws of any other jurisdiction (including Canada).

Grant of Stock Options

The grant of a stock option is not expected to result in any taxable income for the recipient.

Exercise of Stock Options  

Upon exercise of a non-qualified stock option, the option holder must recognize ordinary income equal to the excess of the fair market value of the shares of LML common stock acquired on the date of exercise over the exercise price, and the Corporation generally will be entitled at that time to an income tax deduction for the same amount. The holder of an incentive stock option generally will have no taxable income upon exercising the option (except that an alternative minimum tax liability may arise), and the Corporation will not be entitled to an income tax deduction.

Disposition of Shares Acquired Upon Exercise of Options

The tax consequence upon a disposition of shares acquired through the exercise of an option will depend on how long the shares have been held and whether the shares were acquired by exercising an incentive stock option or by exercising a non-qualified stock option. Generally, there will be no tax consequence to the Corporation in connection with the disposition of shares acquired under an option, except that the Corporation may be entitled to an income tax deduction in the case of the disposition of shares acquired under an incentive stock option before the applicable incentive stock option holding periods set forth in the Internal Revenue Code have been satisfied.

Income Tax Deduction  

Subject to the usual rules concerning reasonable compensation, including the Corporation's obligation to withhold or otherwise collect certain income and payroll taxes, the Corporation generally will be entitled to a corresponding income tax deduction at the time a participant recognizes ordinary income from option grants made under the 1996 Stock Option Plan.

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The table below shows the aggregate number of stock options granted under the 1996 Stock Option Plan during our fiscal year ended March 31, 2007 to (i) each Named Executive Officer named in the Summary Compensation Table in this proxy statement, (ii) each nominee for election as a director, and (iii) and each group specified below.  Additional information regarding grants of equity awards is contained in the "Equity Compensation Plan Information” and “Executive Compensation” sections in this proxy statement.  The amounts and types of options that will be granted in the future under the 1996 Stock Option Plan are not determinable because the committee in its discretion will make such determinations.

Name or Group		Number of Shares Subject to Stock Options
Patrick H. Gaines, President, CEO and a Director		50,000
Greg A. MacRae, Director		25,000
L. William Seidman, Director		0
Jacqueline Pace, Director		0
Richard R. Schulz, Controller and Chief Accounting Officer		25,000
Robert E. Peyton,  Executive Vice-President of Information Technologies of LML Payment Systems Corp.		0
All Current Executive Officers as a Group(1)		100,000
Non-Employee Directors as a Group(2)		25,000
All Employees Who Are Not Executive Officers, as a Group		0

(1)  Includes options granted to Messrs. Gaines and Schulz

(2)  Includes options granted to Mr. MacRae.

On June 15, 2007, the closing price of LML’s common stock on The NASDAQ Capital Market was $3.55 per share.

PROPOSAL FOUR – AMENDMENT OF 1998 STOCK INCENTIVE PLAN

Proposed Amendment to the 1998 Stock Incentive Plan

Our 1998 Stock Incentive Plan, which was first adopted by our Board of Directors and shareholders in 1998, provides for the grant of stock options, restricted stock and other stock-based awards to acquire our common stock to eligible participants.  The purpose of the 1998 Stock Incentive Plan is to attract and retain the best available personnel, to provide additional incentives to employees, officers, directors and consultants to achieve the goals of our corporation and our shareholders and to promote the success of our business.  The Board of Directors believes that the grant of stock options and other equity awards is a highly effective way to align the interests of management with those of our shareholders and provides a cost-effective means of recognizing employee contributions to the success of the Corporation.

At our annual meeting on September 18, 2000, our shareholders approved an amendment to our 1998 Stock Incentive Plan to increase the maximum number of common shares in our capital that may be issued pursuant to all awards granted under the 1998 Stock Incentive Plan from 1,000,000 common shares to 3,000,000 common shares.  As of June 15, 2007, a total of 1,518,033 stock options have been granted under the 1998 Stock Incentive Plan, of which 1,009,500 remain outstanding as of that date.  As of June 15, 2007, a total of 1,481,967 stock options and other awards remain available to be granted under the 1998 Stock Incentive Plan.

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The Board of Directors believes that increasing the number of shares of common stock available for grant under our 1998 Stock Incentive Plan will be important to our future success by allowing us to remain competitive in attracting and retaining highly qualified employees and executive officers.  Therefore, in June 2007, the Board of Directors approved an amendment to the 1998 Stock Incentive Plan to increase the number of common share purchase options and other stock-based awards granted or to be granted thereunder by 3,000,000 common shares , subject to shareholder approval.

Accordingly, the shareholders of the Corporation are now being asked to consider and, if thought fit, pass the following ordinary resolution:

“RESOLVED that the 1998 Stock Incentive Plan in the form approved by the directors of the Corporation, pursuant to which the maximum number of common shares which may be issued under the 1998 Stock Incentive Plan be increased by 3,000,000 common shares, be and the same is hereby approved, subject to any amendment thereto requested or required by the applicable regulatory authorities.”

The affirmative vote of a majority of the common shares represented in person or by proxy at our annual and special meeting is required to approve this proposal.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" INCREASING THE NUMBER OF COMMON SHARE PURCHASE OPTIONS OR OTHER STOCK-BASED AWARDS GRANTED OR TO BE GRANTED UNDER OUR 1998 STOCK INCENTIVE PLAN BY 3,000,000 COMMON SHARES.

Summary of the 1998 Stock Incentive Plan

 

The material terms of the 1998 Stock Incentive Plan are summarized below.  The following summary of certain provisions of the 1998 Stock Incentive Plan does not purport to be complete and is qualified in its entirety by reference to the full text of the 1998 Stock Incentive Plan, a copy of which was filed as Exhibit 99.1 to a Form S-8 filed by LML with the SEC on November 6, 2000 (which can be found at www.sec.gov).

Administration and General Terms

 

Our 1998 Stock Incentive Plan is currently administered by our stock option plan administration committee.  The committee considers recommendations from the corporation’s compensation committee as to the granting of stock options or other awards and has sole discretion as to the interpretation and construction of any provision of the 1998 Stock Incentive Plan, and the determination of the terms and conditions of awards granted pursuant to the 1998 Stock Incentive Plan.  Awards will be evidenced by a written agreement or other document containing the terms and conditions of the awards.

The maximum number of shares with respect to which options or SARs may be granted in any fiscal year to any grantee who is a director, officer or employee of our corporation or any of its subsidiaries is 500,000 shares, subject to certain adjustments. The term of each award shall not exceed that permitted by any applicable regulator (presently 10 years from the date of grant), provided that the term of any incentive stock option shall not exceed 10 years, and provided further that if an incentive stock option is granted to a grantee who, at the time of the grant, owns stock representing more than 10% of the voting power of all classes of stock of our corporation or any of its subsidiaries, the term of the incentive stock option shall not exceed 5 years. The right to exercise awards is limited in the event the participant ceases, for any reason, to be a director, employee or consultant of our corporation. Awards are generally not transferable or assignable, other than by will or by the laws of descent and distribution upon the demise of the award holder.

The committee has the discretion to determine the exercise or purchase price for any awards under the 1998 Stock Incentive Plan, except that: (a) the exercise or purchase price of any incentive stock option or any award intended to qualify as "Performance-Based Compensation" under Section 162(m) of the Internal Revenue Code may not be less than 100% of the fair market value of our common stock on the date of grant; and the exercise price of an incentive stock option granted to a grantee whose holdings exceed 10% of the voting power must be at least 110% of the fair market value on the date of grant.  The committee does not intend to grant any stock options for an exercise price less than 100% of the fair market value of our common stock on the date of grant.

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Types of Awards

The 1998 Stock Incentive Plan permits the granting of:

 

·	stock options (including both incentive and non-qualified stock options),

 

·	stock appreciation rights ("SARs"),

 

·	restricted stock,

 

·	dividend equivalents rights,

 

·	performance awards (which may be "qualified performance-based compensation" within the meaning of Section 162(m) of the Internal Revenue Code), and

 

·	other stock-based awards.

 

Stock options may be granted as either "Incentive Stock Options" under Section 422 of the Internal Revenue Code of 1986 or options which do not qualify as incentive stock options (which are commonly referred to as non-qualified stock options).  Stock appreciation rights generally entitle the grantee to acquire such number of common shares or such cash compensation as will be determined by reference to any appreciation in the value of our common shares in accordance with terms established by the committee.  Shares of restricted stock are generally issuable for such consideration (if any) and subject to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as are established by the committee.  Dividend equivalent rights generally entitle the grantee to compensation measured by any dividends paid on our common shares.  Performance awards include “Performance Shares" that may be earned in whole or in part upon attainment of performance criteria established by the committee and "Performance Units" that may be earned in whole or in part upon attainment of performance criteria established by the committee and which may be settled in cash, common shares or other securities, or a combination of cash, common shares or other securities, as established by the committee.

Shares Available for Award Grants

 

If the amendment to the 1998 Stock Incentive Plan is approved by shareholders, the aggregate number of shares of our common stock that would be available for future issuance would be 4,481,967.  In the event of an equity restructuring of our Corporation that causes the per-share fair value of the our common stock to change (e.g., a stock dividend, stock split, spinoff, etc.), the committee will make equitable adjustments to the share limits described above, the number and type of shares subject to outstanding awards, and the purchase or exercise price of outstanding awards. In the case of any other corporate transaction or event, the committee may make adjustments in order to prevent dilution or enlargement of the benefits or potential benefits intended to be provided under the 1998 Stock Incentive Plan.

Shares that are subject to options or other awards that terminate, lapse or are cancelled or forfeited will be available again for grant under the 1998 Stock Incentive Plan.

Eligibility

 

Generally, employees, directors, officers and consultants of LML and its subsidiaries are eligible to receive options and other awards under the 1998 Stock Incentive Plan.  Incentive stock options may only be granted to employees and officers of the Corporation and its subsidiaries.  The committee currently intends to grant options and/or other awards to both eligible participants who are residents of the United States and those who are residents of Canada.  As of June 15, 2007, approximately 51 employees, officers and directors of LML are eligible as a class to be selected by the committee to receive options or other awards under the 1998 Stock Incentive Plan.

 

Withholding of Taxes

The Corporation may deduct, from any payment or distribution of shares under the 1998 Stock Incentive Plan, the amount of any tax required by law to be withheld with respect to such payment, or may require the participant to pay such amount to the Corporation prior to, and as a condition of, making such payment or distribution.

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Termination and Amendment

The 1998 Stock Incentive Plan became effective in 1998 and may be suspended or terminated by the Board of Directors at any time, provided no such suspension or termination will adversely affect any then-outstanding options or other awards that have been granted under the plan.  The Board of Directors may at any time amend the 1998 Stock Incentive Plan, provided that the Board will obtain shareholder approval of any amendment if required under any applicable laws or under the rules of any regulatory agency.  Under applicable U.S. tax laws, a material amendment to a stock incentive plan (such as an amendment increasing the number of shares to be granted thereunder) effectively constitutes a re-adoption of the plan.  Accordingly, the 1998 Stock Incentive Plan will continue for a term of ten (10) years from the date of the last material amendment of the plan.

Federal Income Tax Consequences

The following discussion of the principal U.S. federal income tax consequences of participation in the 1998 Stock Incentive Plan is based on statutory authority, as well as judicial and administrative interpretations as of the date of this proxy statement, all of which are subject to change at any time (possibly with retroactive effect).  The following discussion pertains only to the tax laws of the U.S. and does not pertain to the tax laws of any other jurisdiction (including Canada).

Grant of Options and SARs

The grant of a stock option or SAR is not expected to result in any taxable income for the recipient.

Exercise of Options and SARs

Upon exercise of a non-qualified stock option, the option holder must recognize ordinary income equal to the excess of the fair market value of the shares of LML common stock acquired on the date of exercise over the exercise price, and the Corporation generally will be entitled at that time to an income tax deduction for the same amount. The holder of an incentive stock option generally will have no taxable income upon exercising the option (except that an alternative minimum tax liability may arise), and the Corporation will not be entitled to an income tax deduction. Upon exercise of an SAR, the amount of any cash received and the fair market value on the exercise date of any shares of LML common stock received are taxable to the recipient as ordinary income and generally deductible by the Corporation.

Disposition of Shares Acquired Upon Exercise of Options and SARs

The tax consequence upon a disposition of shares acquired through the exercise of an option or SAR will depend on how long the shares have been held and whether the shares were acquired by exercising an incentive stock option or by exercising a non-qualified stock option or SAR. Generally, there will be no tax consequence to the Corporation in connection with the disposition of shares acquired under an option or SAR, except that the Corporation may be entitled to an income tax deduction in the case of the disposition of shares acquired under an incentive stock option before the applicable incentive stock option holding periods set forth in the Internal Revenue Code have been satisfied.

Awards Other than Options and SARs

As to other awards granted under the 1998 Stock Incentive Plan that are payable either in cash or shares of LML common stock that are either transferable or not subject to substantial risk of forfeiture, the holder of the award must recognize ordinary income equal to (a) the amount of cash received or, as applicable, (b) the excess of the (i) fair market value of the shares received (determined as of the date of receipt) over (ii) the amount (if any) paid for the shares by the holder of the award. The Corporation generally will be entitled at that time to an income tax deduction for the same amount.

As to an award that is payable in shares of LML common stock that are restricted as to transferability and subject to substantial risk of forfeiture, unless a special election is made by the holder of the award pursuant to the Internal Revenue Code, the holder must recognize ordinary income equal to the excess of (i) the fair market value of the shares received (determined as of the first time the shares become transferable or not subject to substantial risk of forfeiture, whichever occurs earlier) over (ii) the amount (if any) paid for the shares by the holder of the award. The Corporation generally will be entitled at that time to an income tax deduction for the same amount.

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Income Tax Deduction

Subject to the usual rules concerning reasonable compensation, including the Corporation's obligation to withhold or otherwise collect certain income and payroll taxes, and assuming that, as expected, stock options, SARs and certain other performance awards paid under the 1998 Stock Incentive Plan are "qualified performance-based compensation" within the meaning of Section 162(m) of the Internal Revenue Code, the Corporation generally will be entitled to a corresponding income tax deduction at the time a participant recognizes ordinary income from awards made under the Plan.

Special Rules

 Special rules may apply to individuals subject to Section 16 of the Securities Exchange Act of 1934. In particular, unless a special election is made by the holder of the award pursuant to the Internal Revenue Code, shares received through the exercise of a stock option or SAR may be treated as restricted as to transferability and subject to a substantial risk of forfeiture for a period of up to six months after the date of exercise. Accordingly, the amount of any ordinary income recognized and the amount of the Corporation's income tax deduction will be determined as of the end of that period.

Plan Benefits

The table below shows the aggregate number of awards granted under the 1998 Stock Incentive Plan during our fiscal year ended March 31, 2007 to (i) each Named Executive Officer named in the Summary Compensation Table in this proxy statement, (ii) each nominee for election as a director, and (iii) and each group specified below.  Additional information regarding grants of equity awards is contained in the "Equity Compensation Plan Information” and “Executive Compensation” sections in this proxy statement.  The amounts and types of options and other awards that will be granted in the future under the 1998 Stock Incentive Plan are not determinable because the committee in its discretion will make such determinations.

		Number of Shares Subject to Awards
Name or Group		Stock Options	Other Stock  Based Awards
Patrick H. Gaines, President, CEO and a Director		0	0
Greg A. MacRae, Director		0	0
L. William Seidman, Director		25,000	0
Jacqueline Pace, Director		25,000	0
Richard R. Schulz,  Controller and Chief Accounting Officer		0	0
Robert E. Peyton,  Executive Vice-President of Information Technologies of LML Payment Systems Corp.		50,000	0
All Current Executive Officers as a Group(1)		50,000	0
Non-Employee Directors as a Group(2)		50,000	0
All Employees Who Are Not Executive Officers, as a Group		535,000	0

(1)  Includes options granted to Mr. Peyton

(2)  Includes options granted to Mr. Seidman and Ms. Pace

On June 15, 2007, the closing price of LML’s common stock on The NASDAQ Capital Market was $3.55 per share.

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PROPOSAL FIVE – AMENDMENT OF BY-LAWS

Effective January 1, 2008, all securities listed on NASDAQ are required to be eligible for a Direct Registration System (“DRS”).  This listing requirement applies to all listed issuers including Canadian incorporated issuers such as the Corporation.  DRS enables an investor to have securities registered in the investor’s name without having a physical certificate issued to the investor and also allows the investor to transfer securities electronically to its broker-dealer in order to effect a transaction without the risk of delays associated with the use of physical certificates.

Our board of directors has approved, and recommends that our shareholders confirm, an amendment to Section 8.05 of our Bylaws to clarify the requirements with respect to the registration of transfers of the Corporation’s shares for which a certificate has not been issued.

The full text of the amendment to Section 8.05 of our Bylaws is as follows:

8.05           Registration of Transfer

Subject to the provisions of the Act, no transfer of shares shall be registered in a securities register except upon presentation of the certificate representing such shares with a transfer endorsed thereon or delivered therewith duly executed by the registered holder or by his attorney or successor duly appointed, or upon proper instructions from the holder of uncertificated shares, in each case together with such reasonable assurances or evidence of signature, identification and authority to transfer as the board may from time to time prescribe, upon payment of all applicable taxes and any fees prescribed by the board, upon compliance with such restrictions on transfer as are authorized by the articles and upon satisfaction of any lien referred to in Clause 8.11.

The foregoing amendment to our Bylaws became effective upon its adoption by our board of directors on June 20, 2007, but pursuant to the Business Corporations Act (Yukon), is subject to confirmation by our shareholders.  If the amendment is confirmed, or if it is confirmed with such further amendments as the shareholders may approve, it will continue in effect in the form in which it was so confirmed.  If the amendment is rejected by the shareholders, it will cease to be effective as at the date of our annual and special meeting.

 

The affirmative vote of a majority of the common shares represented in person or by proxy at our annual and special meeting is required to approve this proposal.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" AMENDING SECTION 8.05 OF OUR BYLAWS, TO CLARIFY THE REQUIREMENTS WITH RESPECT TO THE REGISTRATION OF TRANSFERS OF THE CORPORATION’S SHARES FOR WHICH A CERTIFICATE HAS NOT BEEN ISSUED.

INCLUSION OF FUTURE SHAREHOLDER PROPOSALS IN PROXY MATERIALS

All proposals of shareholders intended to be included in our proxy statement and form of proxy relating to our annual meeting of shareholders for the year ending March 31, 2008 (the "2008 Annual Meeting") must be received by our corporation no later than March 10, 2008 (assuming that the 2008 Annual Meeting is held on a date that is within 30 days from the date of our annual and special meeting of shareholders to be held on August 8, 2007).  All such proposals must comply with the requirements of Rule 14a-8 of Regulation 14A of the Securities Exchange Act of 1934 and Section 138 of the Business Corporations Act (Yukon), both of which set forth specific requirements and limitations applicable to nominations and proposals at annual meetings of shareholders.

For any shareholder proposal that is not submitted for inclusion in our proxy statement and form of proxy relating to the 2008 Annual Meeting pursuant to the processes of Rule 14a-8 of the Securities Exchange Act of 1934 or any proposal that is submitted under Section 138 of the Business Corporations Act (Yukon), notice of such proposal must be received by our corporation no later than May 22, 2008 (assuming that the 2008 Annual Meeting is held on a date that is within 30 days from the anniversary date of our annual and special meeting of shareholders to be held on August 8, 2007); otherwise, we may exercise, pursuant to Rule 14a-4(c)(1) of the Securities Exchange Act of 1934, discretionary voting authority under proxies we solicit for the 2008 Annual Meeting.

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All shareholder proposals, notices and requests should be made in writing and sent via registered, certified or express mail, to our corporation at Suite 1680, 1140 West Pender Street, Vancouver, British Columbia V6E 4G1 Attention:  Carolyn Gaines, Corporate Secretary.

With respect to business to be brought before the 2007 annual and special meeting to be held on August 8, 2007, we have not received any notices from shareholders that we were required to include in this proxy statement.

“HOUSEHOLDING” OF PROXY MATERIAL

The Securities and Exchange Commission has adopted rules that permit companies and intermediaries (e.g. brokers) to satisfy the delivery requirements for proxy statements and annual reports to shareholders with respect to two or more shareholders sharing the same address by delivering a single copy of those documents addressed to those shareholders.  This process, which is commonly referred to as “householding”, potentially means extra conveniences for security holders and cost savings for companies.

This year, a number of brokers with accountholders who are shareholders of our corporation will be “householding” our proxy materials.  As indicated in the notice previously provided by these brokers to shareholders of our corporation, a single proxy statement and a single annual report to shareholders will be delivered to multiple shareholders sharing an address unless contrary instructions have been received from an affected shareholder.  Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent.  If at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and/or a separate annual report to shareholders, please notify your broker, or call us at 604-689-4440 or write to us at LML Payment Systems Inc., Suite 1680, 1140 West Pender Street, Vancouver, British Columbia, Canada, V6E 4G1, Attn: Corporate Secretary.  We will deliver promptly upon written or oral request a separate copy of the proxy statement and/or a separate annual report to shareholders, as applicable, to a shareholder at a shared address to which a single copy of the documents was delivered.

Shareholders who currently receive multiple copies of the proxy statement and/or a separate annual report to shareholders at their address and would like to request “householding” of their communications should contact their broker.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Other than as described under the heading “Executive Compensation”, since the beginning of the fiscal year ended March 31, 2007, we have not been a party to any transaction, proposed transaction, or series of transactions in which the amount involved exceeds $120,000, and in which, to our knowledge, any of the following persons had, or will have, a direct or indirect material interest: any director or executive officer of our corporation; any nominee for election as a director of our corporation; any beneficial owner of more than five percent of the outstanding shares of our common stock; or any member of the immediate family of any of the foregoing persons.

All transactions with related persons are reviewed, approved and ratified by the Audit Committee of our board of directors.  The Audit Committee is in the process of adopting a written policy with respect to the review, approval and ratification of transactions with related persons.

ANNUAL REPORT AND FINANCIAL STATEMENTS

Attention is directed to the financial statements contained in our Annual Report to Shareholders on Form 10-K for the year ended March 31, 2007.  A copy of the Annual Report to Shareholders on Form 10-K has been sent, or is concurrently being sent, to all shareholders of record as of June 26,2007.

AVAILABILITY OF FORM 10-K

A copy of our Annual Report on Form 10-K for the fiscal year ended March 31, 2007, which has been filed with the Securities and Exchange Commission, including the financial statements, but without exhibits, is available on our website at www.lmlpayment.com by clicking on “investor relations” and will be provided without charge to any shareholder or beneficial owner of our common shares upon written request to Carolyn L. Gaines, Corporate Secretary, LML Payment Systems Inc., Suite 1680 - 1140 West Pender Street, Vancouver, British Columbia V6E 4G1.

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REGISTRAR AND TRANSFER AGENT

Our registrar and transfer agent is Computershare Investor Services Inc., 6th Floor, 530 - 8th Avenue, S.W., Calgary, Alberta, Canada, T2P 3S8 (facsimile (403) 267-6529).

SUBMITTING A PROXY VIA THE INTERNET OR BY TELEPHONE

For Shares Directly Registered in the Name of the Shareholder

Shareholders with shares registered directly with Computershare Investor Services Inc. may submit a proxy to vote those shares telephonically or via the Internet by following the instructions on the proxy card that they receive.

For Shares Registered in the Name of a Broker or a Bank

A number of brokers and banks are participating in a program provided through Broadridge Financial Solutions, Inc. (formerly known as ADP Investor Communication Services) in the United States and Broadridge Investor Communications Solutions, Canada (formerly known as ADP Investor Communications Canada) that offers telephone and Internet voting options.  This program is different from the program provided by Computershare for shares registered directly in the name of shareholders.  If your shares are held in an account with a broker or a bank participating in the Broadridge Solutions program, you may provide voting instructions to the broker or bank holding your shares telephonically by calling the telephone number shown on the voting form received from your broker or bank, or via the Internet at Broadridge Solutions’ website (www.proxyvote.com).

OTHER MATTERS TO COME BEFORE THE MEETING

In addition to the matters to be voted upon by the shareholders of our common shares, we will receive and consider both the Report of the Board of Directors to the Shareholders, and the financial statements of our corporation for the years ended March 31, 2007, March 31, 2006 and March 31, 2005, together with the auditors report thereon. These matters do not require shareholder approval, and therefore shareholders will not be required to vote upon these matters.

Except for the above-noted matters, our board of directors does not intend to bring any other matters before the meeting and does not know of any matters that will be brought before the meeting by others.  If other matters properly come before the meeting, it is the intention of the persons named in the solicited proxy to vote the proxy on such matters in accordance with their good judgment.

IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.  THEREFORE, SHAREHOLDERS ARE URGED TO MARK, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY.

	By Order of the Board of Directors:
	Patrick H. Gaines
	President and CEO
	Dated:  July 6, 2007