This report presents the results of work conducted under the DOE Proof of Concept Program in direct coal liquefaction at Hydrocarbon Research, Inc. in Lawrenceville, New Jersey, from October 1992 through April 1994. The work included extensive modifications to HRl's existing 3 ton per day Process Development Unit (PDU) and completion of the first PDU run (PaC Run 1) under the Program. The 58-day pac Run 1 demonstrated scale up of the Catalytic Two-Stage Uquefaction (CTSL Process) on Illinois No.6 coal to produce distillate liquid products at a rate of up to 5 barrels per ton of moisture-ash-free coal. During the first fiscal year, the major effort was to modify the PDU to improve reliability and to provide the flexibility to operate in several alternate modes. The Kerr McGee Rose-SRsM unit from Wilsonville, Alabama, was redesigned and installed next to the U.S. Filter installation to allow a comparison of the two solids removal systems. Also included was a new enclosed reactor tower, upgraded computer controls and a data acquisition system, an alternate power supply, a newly refurbished reactor, an in-line hydrotreater, interstage sampling system, coal handling unit, a new ebullating pump, load cells and improved controls and remodeled preheaters. The 58-day CTSL Illinois coal demonstration run achieved several milestones in the effort to further reduce the cost of liquid fuels from coal. This was the first demonstration of HRl's Catalytic Two Stage Uquefaction technology at the 3 ton per day scale and featured many improvements over the earlier testing conducted at the Wilsonville, Alabama Pilot Plant. Distillate liquid yields of 5 barrels per ton of moisture ash free coal (about 75 work on MAF coal) were achieved. Coal slurry recycle rates were reduced from the 2-2.5 to 1 ratio demonstrated at Wilsonville to as low as 0.9 to 1 during the recent test. This greatly improves the process efficiency, process performance and economics. Coal feed rates were increased during the test by 50% while maintaining process performance at a marginally higher reactor severity. This offers the potential for further reduction of commercial plant investment per unit of coal feed. Sulfur in the coal was reduced from 4 wt% to about 0.02 wt% sulfur in the clean distillate fuel product. More than 3500 gallons of distillate fuels were collected for evaluation and upgrading studies by DOE and their contractors. The ROSE-SRsM Process was operated for the first time with a pentane solvent in a steady-state mode. The energy rejection of the ash concentrate was consistently below prior data, being as low as 12%, allowing improved liquid yields and recovery.