Starrex International : Management's Discussion & Analysis for the Period Ending September 30, 2021

Management's Discussion and Analysis

For the nine months ended September 30, 2021 and 2020

Management Discussion and Analysis

For the three and nine months ended September 30, 2021 (expressed in United States dollars)

Introduction

Starrex International Ltd. ("Starrex" or the "Company") is a publicly traded company, incorporated in 1982 under the Canada Business Corporations Act with its head office at is 639 5th Avenue S.W., Calgary, Alberta T2P 0M. Starrex's common shares trade on the Canadian Securities Exchange ("CSE") under the symbol "STX" and in the United States on the OTCQB market under the symbol "STXMF."

The following Management Discussion and Analysis ("MD&A") was prepared as of November 29, 2021 and should be read in conjunction with our unaudited condensed interim consolidated financial statements ("financial statements") for the nine months ended September 30, 2021 and our audited consolidated financial statements, including notes thereto, for the years ended December 31, 2020 and 2019. All amounts included in this MD&A are reported in U.S. dollars, unless otherwise stated, and have been prepared in accordance with International Financial Reporting Standards ("IFRS"). Throughout this MD&A, Starrex International Ltd. and its subsidiaries are referred to as ("Starrex") or ("the Company"), including the terms "we", "us" and "our". Additional information about the Company, including the Company's Annual Information Form for the year ended December 31, 2020, can be found on SEDAR under the Company's profile at www.sedar.com.

Overview

Starrex International Ltd. ("Starrex") is a national provider of real estate appraisal and credit reporting services to mortgage lenders and brokers in the United States of America. Our leading-edge technology platform and specialized business model provides a streamlined approach to our clients resulting in faster turnaround times.

We are committed to investing in our employees, delivering value to our customers, ethically managing our suppliers and professional networks, and supporting the outside communities within which we work. While each of our subsidiaries serves its own corporate purpose, they share a fundamental commitment to all of our shareholders - to deliver value, service and growth.

Credit Reporting Services

MFI Credit Solutions, LLC ("MFI") (www.mfidata.com) is a full-service credit reporting agency, with resources from all three national credit agencies - TransUnion, Equifax, and Experian. MFI has been providing consumer credit reports to Mortgage Lenders, Mortgage Brokers, and Credit Unions for homebuyers considering the purchase or refinance of a home for more than 17 years. We are nationally recognized as a trusted provider of not only credit services, but risk mitigation, flood and verification services. MFI Credit Solutions, LLC is governed by the Fair Credit Reporting Act (FCRA) and has the ability to provide credit reports to borrowers in all states.

Appraisal Services

Property Interlink, LLC ("Property Interlink") (www.propertyinterlink.com) is a full-service appraisal management company ("AMC"), managing a nationwide network of independent qualified real estate appraisers. An AMC provides a layer of oversight to the appraisal process assisting consumers in obtaining unbiased valuations for mortgage financing. Currently licensed in forty-one states, Property Interlink provides an innovative and comprehensive selection of valuation and commercial appraisal management services to the Mortgage Industry.

A residential real estate appraisal is a licensed appraiser's opinion of the market value of a residential property. The cost of an appraisal varies by type of appraisal conducted, property type and geographical location. The majority of our clients order residential appraisals for mortgage purchase or refinancing required by Government Sponsored Entity ("GSE") requirements.

Reliable Valuation Service, LLC ("RVS") (www.reliablevaluationservice.com) is a fully licensed staff appraisal company providing objective and comprehensive valuations of residential real estate to the mortgage industry with an employee appraiser model that provides a level of quality, control and consistency unmatched in the industry. We provide appraisals for appraisal management companies, including Property Interlink, Mortgage Brokers, Lenders and Banks. Pricing for these appraisal services is dependent upon location, property type, and type of appraisal requested.

From time to time, the mortgage industry will pass new regulations or amend existing regulations that impact the appraisal industry with respect to pricing. When this occurs, the Company's compliance personnel provide guidance relative to company-wide rate changes that may be needed to ensure financial viability and shareholder value. These changes are discussed and approved by Senior Management, then implemented accordingly.

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Management Discussion and Analysis

For the three and nine months ended September 30, 2021 (expressed in United States dollars)

Important Factors Affecting our Result from Operations

Our business is subject to a variety of risks and uncertainties. Please refer to the "Cautionary Note Regarding Forward-Looking Information" contained in this MD&A for a description of the risks that impact our business and that could cause our financial results to vary.

Impact of COVID-19

Operations

Our operations have not experienced any significant adverse effects as a result of COVID-19. During the third quarter of 2021, mortgage originations for refinances and purchases of residential real estate remained strong with 954 million in mortgage originations1. The "MBA Mortgage Finance Forecast" has projected $3.92 billion in mortgage originations for 2021 compared to an actual of $4.1 billion for 2020. The average fixed 30-year mortgage remained steady at 3.0% - a historical low, which continues to strengthen mortgage refinance activity. Today, the refinance market remains high, which will continue to benefit our appraisal and credit services activity despite the COVID-19 pandemic.

In March 2020, the Federal Housing Agency ("FHA") directed the GSEs to relax certain property appraisal and income verification standards considering COVID-19. Appraisers are allowed to complete drive-by or desktop appraisals in certain circumstances when an interior inspection was not practical. This guidance has not changed as of September 30, 2021.

Customers and Communities

The health and well-being of our employees and clients, as well as our community, is our top priority. We have integrated social distancing in our processes in recognition of the significant impact COVID-19 has had on our employees, clients and the field professionals in our network and actively monitor the current situation, taking every step to help ensure a safe working environment.

As an essential service provider, our appraisers continue to provide the high level of service our clients expect. While some homeowners postponed valuation of their homes during this pandemic, most transactions are still being completed, while practicing social distancing to mitigate physical contact. We have not experienced a significant impact to volume or our ability to complete appraisals as of today.

Workforce

Currently, 95% of our employees have returned to the corporate office environment.

Financial Condition

Starrex provides services to the financial services industry which has been deemed by the United States Department of Homeland Security to be an essential service. Accordingly, COVID-19 has not had a material adverse impact on our financial condition. The United States housing market is the primary driver of financial performance which is greatly influenced by cyclical trends and seasonality in mortgage originations and refinancing. Revenues are also impacted by the seasonal nature of the residential mortgage industry, with volumes surging higher during the second and third calendar quarters of the year as homebuyers typically purchase more homes during those months than any other.

Starrex continues to review and evaluate merger and/or acquisition ("M&A") transactions in an ongoing effort to increase market share and geographic footprint in the real estate and mortgage services industries.

Our current assets are primarily comprised of cash and trade and other receivables. Our foremost risk associated with current assets is the risk of credit losses attributable to receivables with large accounts and the potential impact of COVID-19. We performed a thorough review of amounts due, current customer volume and credit policy. To date, we have not changed our accounting policy for credit losses and a provision of loss is not required. The potential impact of COVID-19 is subject to significant uncertainty and while our activity in credit and appraisal services remains strong, we realize the pandemic could have a substantial impact on our clientele. Our focus on collections has increased to mitigate credit risk as well as assess potential financial deficiencies.

Our long-term assets are primarily comprised of property and equipment, intangibles and goodwill. We assess the carrying value of property and equipment and intangibles as of each reporting period to determine if impairment is required in accordance with IFRS.

1 Mortgage Bankers Association, November 22, 2021.

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Management Discussion and Analysis

For the three and nine months ended September 30, 2021 (expressed in United States dollars)

Based upon our financial condition as at September 30, 2021, and as of the date of this Management's Discussion and Analysis, we have determined the carrying value of these assets did not exceed its recoverable amount and have not recorded an impairment charge.

Goodwill is not amortized but is evaluated for impairment annually or when indicators for potential impairment are present. The Company's impairment testing is based on valuation models that incorporate assumptions and internal projections of expected future cash flows. Due to the COVID-19 pandemic, we evaluated goodwill as at September 30, 2021, and have determined there is no indication of impairment of goodwill.

Capital and financial resources

We do not currently have any concerns regarding our ability to fulfill our financial obligations and while we do not anticipate the need to draw on our revolving credit facility, we will maintain the line to support working capital and potential acquisitions, if needed.

Because of the uncertainty of the impact COVID-19 may have on our operations, two of the U.S. subsidiaries participated in the CARES Act Paycheck Protection Program, which provided additional liquidity and ensures stability for our associates during the pandemic.

We continue to review our approach to capital on an ongoing basis, as well as monitor our credit risk from a client concentration perspective. We are not subject to externally exposed capital requirements and have not changed our capital risk management strategy in the past year.

Internal Controls

Our operations have remained largely unchanged as a result of COVID-19. Our financial reporting systems, internal control over financial reporting and disclosure controls and procedures remain unchanged as well. We have not experienced a significant change in our control environment that would have a material impact on our internal controls over financial reporting since last year.

Financial Performance

The following is a discussion of our consolidated financial condition and results of operations for the three and nine months ended September 30, 2021 and 2020.

Review of Operations for the three and nine months ended September 30, 2021

We conduct our business in the United States in four reportable segments:

Property Interlink, LLC		Appraisal Management Services
Reliable Valuation Service, LLC	Staff Appraisal Services
MFI Credit Solutions, LLC		Credit Reporting Services
Starrex International, LLC		Corporate
Consolidated
				Nine months ended September 30
							Three months ended September 30
		2021		2020			Change	% Change		2021		2019		Change % Change
Revenue	$	15,889,659	$	12,013,452	$		3,876,207	32.3%	$	5,366,494	$	4,879,901	$	486,593	10.0%
Transaction costs	$	10,675,251	$	7,757,409	$		2,917,842	37.6%	$	3,594,692	$	3,213,662	$	381,030	11.9%
Payroll expense	$	2,073,808	$	1,772,626	$		301,182	17.0%	$	753,077	$	762,883	$	(9,806)	(1.3%)
General and administrative	$	1,397,028	$	976,024	$		421,004	43.1%	$	479,552	$	259,018	$	220,534	85.1%
Professional fees	$	298,950	$	206,531	$		92,419	44.7%	$	111,202	$	83,822	$	27,380	32.7%
Management and corporate	$	157,920	$	157,920	$		-	0.0%	$	52,640	$	52,640	$	-	0.0%
Shareholder services	$	16,909	$	8,688	$		8,221	94.6%	$	2,534	$	2,309	$	225	9.7%
Government and filing fees	$	19,296	$	17,282	$		2,014	11.7%	$	5,968	$	5,908	$	60	1.0%
Interest expense	$	6,761	$	17,827	$		(11,066)	(62.1%)	$	3,675	$	3,231	$	444	13.7%
Depreciation and amortization	$	262,239	$	264,551	$		(2,312)	(0.9%)	$	83,436	$	77,856	$	5,580	7.2%
Share-based payments	$	-	$	53,053	$		(53,053)	(100.0%)	$	-	$	53,053	$	(53,053)	(100.0%)
Tax expense	$	93,542	$	46,083	$		47,459	103.0%	$	37,281	$	15,638	$	21,643	138.4%

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Management Discussion and Analysis

For the three and nine months ended September 30, 2021 (expressed in United States dollars)

Nine months ended September 30, 2021

Revenues

Consolidated revenues for the period ended September 30, 2021 increased 32.3% over the first three quarters of 2020, due to higher mortgage refinancing and mortgage purchase applications in the United States. All three of the wholly owned subsidiaries also reported increases in new customer accounts due to the efforts of our sales team.

Transaction costs

Transaction costs include expenses directly associated with a contractual revenue transaction. This includes appraisal costs and commissions as well as expenses directly correlated with producing credit reports. On a consolidated basis, as a percentage of revenue, these costs stabilized over the three and nine months ended September 30, 2021 after reporting a quarter over quarter increase of 4% as at September 30, 2021. This is expected in the appraisal subsidiaries as appraisal costs are significantly higher for the Appraisal Management Company "AMC" model than the staff model. As volumes increase, appraisals not assigned to staff appraisers must be assigned to independent contractors.

Operating expenses

On a consolidated basis, operating expenses, which includes Management and corporate services, shareholder services and government and regulatory filing fees, increased $431,239 for the nine months ended September 30, 2021, when compared to the same period in 2020. This increase is directly proportionate to the increase in revenue and is attributable to higher merchant processing fees and software platform expenses in support of the business.

Depreciation and Amortization

Depreciation and amortization of fixed and intangible assets declined slightly due to fully depreciated or amortized assets acquired through the purchase of subsidiaries in previous years. During the third quarter of 2021, the Company purchased $153,607 of furniture and equipment along with $24,543 in leasehold improvements. As at September 30, 2021, the Company reported year to date additions to furniture and equipment in the amount of $221,875. These capitalized expenses are directly related to the Company's headquarters during the second and third quarter of 2021.

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