Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This Quarterly Report on Form 10-Q contains a number of "forward-looking statements". Specifically, all statements other than statements of historical facts included in this Quarterly Report on Form 10-Q regarding our financial position, business strategy and plans and objectives of management for future operations are forward-looking statements. These forward-looking statements are based on the beliefs of management, as well as assumptions made by and information currently available to management. When used in this quarterly report, the words "anticipate," "believe," "estimate," "expect," "may," "will," "continue" and "intend," and words or phrases of similar import, as they relate to our financial position, business strategy and plans, or objectives of management, are intended to identify forward-looking statements. These statements reflect management's current view with respect to future events and are subject to risks, uncertainties and assumptions related to various factors including, without limitation, those described below the heading "Overview" and in our registration statements and periodic reports filed with the SEC under the Securities Act of 1933, as amended (the "Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Although management believes that its expectations are reasonable, we cannot assure you that such expectations will prove to be correct. Should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described in this Quarterly Report on Form 10-Q as anticipated, believed, estimated, expected or intended.

In this Item 2, references to the "Company," "Startech", "we," or "us" means Startech Environmental Corporation and its wholly-owned subsidiary.

Overview

We are an environmental technology company that fabricates and sells a recycling system for the global marketplace using components manufactured by third parties. We believe that our plasma processing technology, known as the Plasma Converter System ("PCS"), achieves closed-loop elemental recycling that destroys hazardous and non-hazardous waste and industrial by-products and is capable of converting them into useful commercial products. These products could include a synthesis gas called PCG (Plasma Converted Gas), surplus energy for power, hydrogen, metals and silicate for possible use and sale by users of the Plasma Converter System.

Until January 2004, we were engaged solely in the manufacture and sale of equipment for use by others. Since then, we have attempted to broaden the scope of our available revenues. This change was brought about by our decision to attempt to expand our market penetration strategies and opportunities. Rather than only market and sell our products for use by others, we are now seeking opportunities to become directly involved in the operation and use of our products.

We believe specific events will drive demand for our Plasma Converter System. They include:

o Increases in waste, and in particular hazardous waste, due to rising consumer/industrial consumption and population growth in most nations;

o Current waste disposal and remediation techniques such as landfills and incineration becoming regulatory, socially and environmentally less acceptable;

o A need for critical resources, such as power and water, to sustain local economies; and

o The emphasis being placed upon the production of distributed power and the need to provide alternatives to fossil fuels.

We believe that our core plasma technology addresses these waste and resource issues by offering remediation solutions that are integrated with a range of equipment solutions and services. We believe our products will add value to our potential customers' businesses as they could possibly realize revenue streams from disposal or processing fees, as well as from the sale of resulting commodity products and services.

We have been actively educating and promoting to our potential customers the benefits of the Plasma Converter System over other forms of waste remediation technologies. Our efforts to educate the public and governments are continuing.

Like most new technologies, we have been met with varying degrees of resistance. We believe that there is a rising comfort level with our Plasma Converter System technology, resulting in part from our educational and informational efforts.

Our business model and our market development strategies arise from our mission, which is to change the way the world views and employs discarded materials. We expect to achieve this objective by strategically marketing a series of products and services emanating from our core Plasma Converter System technology that could possibly produce saleable fossil fuel alternatives while possibly providing a safer and healthier environment. We expect to implement this strategy through sales of our Plasma Converter System with our providing after-sales support and service, build own and operate/build own and transfer of ownership facilities, joint development projects and engineering services.

Recognizing the increasing importance of alternative energy and power sources in general, and hydrogen in particular, in 2005, we expanded our product line to include StarCell(TM), a hydrogen separation technology. Working in conjunction with the Plasma Converter System, StarCell provides what we believe to be an environmentally friendly renewable source of hydrogen power.

Recent Developments

Renegotiation of Sales Agreement Payment Schedule-

On May 10, 2007, we entered into a purchase agreement with EnviroSafe Industrial Services Corporation ("EnviroSafe") whereby we sold to EnviroSafe two 10 ton-per-day (rated capacity), or TPD, and one 5 TPD (rated capacity) Plasma Converter Systems to process various solid, liquid and gaseous feeds, including hazardous waste for a total purchase price of $19,275,000. On May 23, 2007, we received a down payment in the amount of $1,927,500, or 10% of the purchase price. The remainder of the purchase price was scheduled to be paid in installments, the last of which is scheduled to be paid upon the issuance of a certificate of completion following installation of the Plasma Converter Systems. The Company received aggregate payments under this sales agreement of $9,155,500 through January 31, 2009. As of January 31, 2009, payments aggregating $3,373,250 were past due. There can be no assurance that these payments or other payments contemplated by this contract will be made or that the Company will deliver the Plasma Converter Systems covered by the contracts. The Company understands that the delays in payment have been the result of a combination of factors, including the relocation of the installation site for the Plasma Converter Systems (as described below), changes to EnviroSafe's business plans in connection with the relocation and the impact of the global economic crisis on EnviroSafe's resources.

As described above, EnviroSafe elected to relocate the site of installation for the Plasma Converter Systems from Barcelonita, Puerto Rico to a former Schering Plough pharmaceutical industry facility located in Maneti, Puerto Rico, which has resulted in delays in fabricating and assembling the Plasma Converter Systems. The Company is completing those items in the fabrication and assembly process that can be completed within the requirements of imposed reduced resources. On December 9, 2008, the Company announced that EnviroSafe acquired the new site where it plans to install the Plasma Converter Systems at its new Recycling and Energy-recovery, Environmental Center. Representatives of the Company have visited the new site and have been in discussions with EnviroSafe about revising the contract to change the final delivery date and payment schedule; however, the terms have not been finalized. The Company currently expects the project to continue forward with a delivery date targeted for late 2009.

On August 10, 2007, the Company entered into a purchase agreement with a customer for the purchase of a Plasma Converter System for an aggregate sales price of $5,400,000. Through January 31, 2009, the Company received $1,350,000 in payments relating to this agreement. The balance of the purchase price is scheduled to be paid in installments. On March 5, 2008, the Company agreed to a revised payment schedule with the customer to extend the $540,000 payment originally due on May 15, 2008. The Company has not yet received this payment nor has this revised payment schedule been implemented There can be no assurance that these payments or other payments contemplated by this contract will be made or that the Company will deliver the Plasma Converter Systems covered by this purchase agreement. Management has indicated that the Company is currently in discussion with the customer with respect to a revised delivery schedule related to past due payments.

On January 23, 2009, the Company entered into an agreement with an entity, as its exclusive distributor for the Republic of Slovenia, the Republic of Croatia, the Federation of Bosnia-Herzegovina, the Republic of Serbia, the Republic of Macedonia, the Republic of Montenegro and also the Republic of Austria, effective February 1, 2009. The Company received a cash payment of $250,000 on January 23, 2009 in connection with this agreement, which also requires the entity to purchase certain Plasma Converter Systems during the following years as a minimum requirement to maintain the possession of the distributorship rights.

Results of Operations

Comparison of three months ended January 31, 2009 and 2008

Operations

Revenues. Total revenues were $0 for the three months ended January 31, 2009, compared to $107,988 for the same fiscal period in 2008. During the three months ended January 31, 2008, the Company recognized revenue of $32,988, related to distributorship agreements that have now been fully amortized. Unamortized distributorship agreements were $250,000 at January 31, 2009, compared to $0 at October 31, 2008. The Company will begin to amortize the distributorship agreement effective February 1, 2009.

Gross Profit. Gross profit was $0 for the three months ended January 31, 2009, compared to $4,940 in the same period in fiscal 2008. Gross profit decreased due to the Company not recognizing any revenue from the amortization of distributorship agreements during the three months ended January 31, 2009.

Selling Expenses. Selling expenses for the three months ended January 31, 2009 were $178,858, compared to $191,644 for the same period in the prior year, a decrease of $12,786, or 6.67%, primarily due to lower marketing and consulting expenses.

Research and Development Expenses. Research and development expenses for the three months ended January 31, 2009 were $47,543, compared to $51,115 for the same period in the prior year, an decrease of $3,572 or 6.99%, primarily due to a decrease in salary expenses.

General and Administrative Expenses. General and administrative expenses for the three months ended January 31, 2009 were $746,512, compared to $1,214,733 for the same period in 2008, an decrease of $468,221, or 38.5%. This was primarily due to a decrease in professional fees including accounting, consultants, legal and stock compensation by $466,510, from $648,042 to $181,532. In addition, insurance, utilities, placement fees and related expenses increased by $60,430 from $61,932 to $122,362 during the three months ended January 31, 2009, and the Company made contributions to its 401(k) plan in the amount of $95,088, compared to an aggregate contribution of $26,398 for the same period in the prior year. Stock compensation for the three months ended January 31, 2009 was $0, compared to $84,300 for the three months ended January 31, 2008.

Depreciation and Amortization Expenses. Depreciation and amortization expenses for the three months ended January 31, 2009 were $58,386, compared to $55,235 for the same period in the prior year, an increase of $3,151, or 5.7%, primarily due to higher depreciation expenses on the equipment at our facility in Bristol, Connecticut.

Other Income (Expense)

Interest Income. Interest income for the three months ended January 31, 2009 was $8,993, compared to $107,352 in the same fiscal period in 2008, a decrease of 91.6%, due to lower cash balances and lower interest rates on our money market investments.

Liquidity and Capital Resources

For the three months ended January 31, 2009, net cash used in operating activities was $989,188, primarily due to a net loss of $1,022,306, offset by $173,201 of non-cash charges. During the three months ended January 31, 2009 the Company received $250,000 from a distributorship agreement. As of January 31, 2009, we had cash and cash equivalents of $3,653,289 and a working capital deficiency of $3,648,640.

Investing activities resulted in $15,692 of cash outflows during the three months ended January 31, 2009 due to the purchase of equipment.

Going Concern

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not purport to represent realizable or settlement values. The Company has no significant revenue, has suffered significant recurring operating losses and needs to raise additional capital in order to be able to accomplish its business plan objectives. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

The Company incurred a net loss of $1,022,306 during the three months ended January 31, 2009. For the three months ended January 31, 2009, net cash used by operating activities was $989,188. As of January 31, 2009, the Company had cash and cash equivalents of $3,653,289 and had negative working capital of $3,648,640. The Company has historically obtained funds to operate its business through the sale of equity and debt instruments, through the receipt of installment payments in respect of sales of its products and through the receipt of payments in connection with entering into distributorship agreements. During

the three months ended January 31, 2009, the Company received a payment of $250,000 in connection with a Distribution Agreement from an entity relating to the Republic of Slovenia, the Republic of Croatia, the Federation of Bosnia-Herzegovina, the Republic of Serbia, the Republic of Macedonia, the Republic of Montenegro and also the Republic of Austria. The Company has been and continues to be dependent upon the deposits and installment payments from the execution of distributorship agreements, sales of its products and sales of its securities.

The Company's ability to continue to operate as a going concern depends on its ability to generate sufficient revenue from the sale of its products, payments in connection with entering into distributorship agreements and/or the receipt of additional capital from one or more financing sources. Due to the fact that the Company has been unsuccessful in consummating additional sales of its products or otherwise raising additional capital, it has relied on a portion of the funds the Company received as non-refundable customer deposits in connection with the two sales agreements for products to cover operating expenses. Management is continuing its efforts to sell the Company's products and to secure additional funds through the receipt of additional capital. However, there can be no assurance that the Company will be able to sell its products or that the Company will be able to raise additional capital on terms acceptable to it or at all. If the Company is unable to sell its products or raise additional capital, the Company will be forced to utilize the remaining balance of its non-refundable customer deposits to remain a viable entity and accordingly, the Company might need to significantly restrict or discontinue its operations.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements.