The Western Hemisphere has abundant extra heavy crude oil resources. Some of the largest resources are found in stable markets in the U.S., Canada, and Mexico. However, owners of extra heavy crude resources need economically competitive methods to upgrade and transport the heavy crudes from their fields.

Today, most extra heavy crude oils are blended with large quantities of diluents to lower their viscosity prior to shipment. RSC’s technology is designed to be used in field upgraders. These upgraders would typically be located at heavy crude oil batteries or on offshore platforms.

When first produced, Extra Heavy and Heavy crude can have high levels of impurities. Before it can go into a pipeline, these impurities must be reduced and the viscosity must be decreased so that it will flow. The “Battery” is where the cleaning and treating of heavy oil occurs.

Currently, extra heavy crude producers typically need to add between 25% to 50% diluents to the crude in order to decrease its viscosity to a point where it can flow to a refinery through a pipeline. Although the addition of diluents decreases the viscosity of the crude they do nothing to enhance the value of the crude. Since the quantities of diluents available are limited, and the cost of transporting them to and from the oil fields is high, most industry experts agree that they will need to be replaced by upgrading technologies in the near future.

In order to maximize the benefits the Company can derive from the technology, the Company also intends to own and operate, both the in-field upgrading facilities, and the oil fields that supply crude oil to its facilities; to enter into profit sharing, joint ventures and/or royalty agreements with existing oil producers to process their crude oil using the Company’s upgrading technology, and to process vacuum and residual bottom oils produced at refineries.

The Company has developed a low pressure, catalytic method for upgrading (converting) low value hydrocarbons, like heavy, sour crude oil into lighter, sweeter crude oil. The technology can also be used to convert low value, refinery vacuum and residual bottoms into lighter, more valuable products.

The Company has acquired exclusive rights to all petroleum refining, petroleum oil field applications, and petroleum production application (including production from oil sands, oil shale and coal), for 18, fundamental, material science and process patents. It also has an option to license one additional patent from the University of Texas at El Paso. The Company’s technology continues to be diligently explored and proven in the laboratory and in prototype applications.

The Company intends to implement a four-phase plan that includes the acquisition of a producing heavy oil field and the construction of an in-field, heavy crude oil upgrader. The plan provides revenue-generating opportunities to the Company throughout the development process, and leads to a complete field demonstration of the technology.

For the nine months ended September 30, 2006, operating expenses which includes consulting fees, professional fees and other selling, general and administrative, were $2.8 million compared to $71,679 for the nine months ended September 30, 2005, an increase of $2.7 million or 3770%.

Loss from operations of was $2.3 million for the nine months ended September 30, 2006 as compared to a loss from operations of $71,679 for the nine months ended September 30, 2005, an increase of $2.2 million or approximately 3,114%.

Total other expense increased to $17,126 for nine months ended September 30, 2006 as compared to other income of $156 for the nine months ended September 30, 2005.

Net loss for the nine months ended September 30, 2006 was $2.3 million compared to a net loss for the nine months ended September 30, 2005 of $71,523.