3PEA INTERNATIONAL, INC.

The decrease in total revenues of $4,297,045 for the three months ended March 31, 2021 compared to the same period in the prior year consisted primarily of a $1,960,259 reduction in Plasma revenue and a $2,137,547 reduction in Pharma revenue. The decrease in Plasma revenue was primarily due to a decrease in plasma donations, and, consequently, dollars loaded to cards and cardholder fees, which were significantly impacted by COVID-19 related donation center closures and mobility restrictions. Pharma revenue decreased $2,137,547 primarily due to the constraining of revenue on all Pharma programs for settlement income whereby the unspent balances will be recognized as revenue at the expiration of the cards and the respective program. Pharma programs were also negatively impacted by COVID-19 as new pharmaceutical medicines were delayed and individuals limited their exposure to pharmacies and doctor offices.

Cost of revenues for the three months ended March 31, 2021 decreased $1,407,898 compared to the same period in the prior year. Cost of revenues is comprised of transaction processing fees, data connectivity and data center expenses, network fees, bank fees, card production and postage costs, customer service, program management, application integration setup, and sales and commission expense. Cost of revenues decreased primarily due to the decline in Plasma transactions as many of the Plasma transaction costs are variable in nature which are provided by third-parties who charge us based on the number of transactions that occurred during the period.

Conversion Rates on Gross Dollar Volume Loaded on Cards – Comprised of revenues, gross profit and net income conversion rates of gross dollar volume loaded on cards which are calculated by taking our total revenues, gross profit or net income (loss), respectively, as a numerator and dividing by the gross dollar volume loaded on cards as a denominator. As we derive a number of our financial results from cardholder fees, we utilize these metrics as an indication of the amount of money that is added to cards and will eventually be converted to revenues, gross profit and net income. Our revenue conversion rates for the three months ended March 31, 2021 and 2020 were 2.27% or 227 basis points (“bps”), and 3.24% or 324 bps, respectively, of gross dollar volume loaded on cards. Our gross profit conversion rates for the three months ended March 31, 2021 and 2020 were 1.02% or 102 bps, and 1.75% or 175 bps, respectively, of gross dollar volume loaded on cards. Our net income conversion rates for the three months ended March 31, 2021 and 2020 were (0.59)% or (59) bps, and 0.47% or 47 bps, respectively, of gross dollar volume loaded on cards.

Cash provided by operating activities decreased $844,534 for the three months ended March 31, 2021, as compared to the same period in the prior year. The decrease is primarily due to the decrease in net income (loss) partially offset by a net increase in cash flows from changes in operating assets and liabilities, particularly the customer card funding liability, offset by decreases related to prepaid expenses, accounts payable and accrued liabilities. The increase in the cash provided by the customer card funding liability is mainly due to the increase in customer card funding restricted cash during the period. The cash flow related to the increase in prepaid expenses is due to prepaid insurance premiums in March of 2021 and the cash flow related to an increase in accounts payable and accrued liabilities in March of 2020 is due to the timing of expenditures related to our office relocation.

Disclosure controls and procedures means controls and other procedures that are designed to ensure that the information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed by us in those reports is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our chief executive officer and chief financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of March 31, 2021. Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of March 31, 2021, the end of the period covered by this Quarterly Report on Form 10-Q.