Memo to Shareholders

TO: Shareholders of Startec, Inc.

FROM: Ed Wheeler, President

As most of you know, the business of Startec has been involved with the technology for the synthetic fuel industry which depends heavily upon the subsidy created by tax credits granted by the government to encourage research and operation of facilities designed to better utilize non-petroleum sources of energy. As such, the program (known as Section 29 in reference to the relevant Internal Revenue Code section) contains certain limiting factors related to the price of crude oil. When the cost of oil was $20/barrel a short time ago, the Section 29 projects were very popular and very profitable. Back in the 1980s, when the Section 29 program was created, no one considered the possibility of $70/barrel crude.

Because the intent of the program is to encourage industry to compete with petroleum for energy uses, when the cost of oil reached $60/barrel, the tax credits granted by Congress began to phase out. At current oil prices, Section 29 cash flow has basically ceased.

There has been a bill in the House for some time now that is stalled and not being voted on. As I write, lobbyists are working to get the bill before a vote. If and when the bill will be signed is unknown. The bill, in part, would, for the purposes of tax credits, allow the formula for calculating the tax credits to be rolled back to the average 2005 oil prices. This would keep the tax credit in place for 2006.

The Section 29 programs are all scheduled to terminate December 31, 2007, but for practical purposes, the program has ended early unless either oil prices return to levels around $60/barrel or Congress takes action to change the benchmark.

Management will make every effort to keep the company alive through the end of 2007 in order to be available in the event of a change in circumstances which would allow the company to take advantage of such change and produce further income. The current governmental situation causes the “I” machine possibility to also be stalled until a settlement is reached with the house bill.

No one can predict the future with certainty; however there are those in the industry who feel confident that a settlement will be reached on the tax bill issue. All we can do is hope.

It is my intent, as always, to keep you, the shareholder, informed as issues surface that affects your shareholder value.