**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      DC 20549**

**FORM      10-QSB**

           ý   Quarterly      report under Section 13 or 15(d) of the Securities Exchange Act of      1934

           o   Transition      report under Section 13 or 15(D) of the Exchange Act

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| Nevada                                                                                                   |   | 20-0443575                                          |
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| (State                or OtherJurisdiction                ofIncorporation                orOrganization) |   | (I.R.S.                Employer Identification No.) |

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|   | Check                whether the issuer (1) filed all reports required to be filed by                Section                13 or 15(d) of the Exchange Act during the past 12 months (or for                such                shorter period that the registrant was required to file such reports),                and                (2) has been subject to such filing requirements for the past 90                days.Yes x   No                o  |
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|   | Indicate                by check mark whether the registrant is a shell company (as defined                in                Rule 12b-2 of the Exchange Act).Yes o   Nox   As      of      November 9, 2007, 5,867,945 shares of common stock were      outstanding.Transitional      Small Business Disclosure Format (check one):Yes o   Nox    Table      of      ContentsPagePART                I. FINANCIAL INFORMATION   Item                1. Condensed Financial Statements   Balance                Sheet as of September 30, 2007 (Unaudited)3  Statements                of Operations for the Three and Nine Months Ended September 30, 2007                (Unaudited) and September 30, 2006 (Unaudited)5  Statements                of Cash Flows for Nine Months Ended September 30, 2007                (Unaudited) and                September 30, 2006 (Unaudited)6  Notes                to Condensed Financial Statements (Unaudited)7  Item                2. Management’s Discussion and Analysis or Plan of                Operation9  Item                3. Controls and Procedures14  PART                I. OTHER INFORMATION   Item                1. Legal Proceedings15  Item                2. Unregistered Sales of Equity Securities and Use of                Proceeds15  Item                3. Defaults Upon Senior Securities15  Item                4. Submission of Matters to a Vote of Security Holders15  Item                5. Other Information15  Item                6. Exhibits15  Signatures16  Certifications17**PREMIER      ALLIANCE GROUP, INC.****BALANCE      SHEET****SEPTEMBER      30, 2007****(Unaudited)** **ASSETS**      **CURRENT                  ASSETS:**        Cash $104,046      Accounts                  receivable  996,874      Marketable                  securities  11,910      Prepaid                  expenses  53,097      Deferred                  income taxes  37,000                        Total                  current assets     $1,202,927                                     **PROPERTY                  AND EQUIPMENT** - at cost less          accumulated                  depreciation      24,584                   **OTHER                  ASSETS:**        **  **Goodwill  2,231,284       Investment                  in equity-method investee  218,439       Investment                  in cost-method investee  100,000       Cash                  surrender value of officers’ life insurance  598,363       Deferred                  income taxes  1,000       Deposits                  and other assets  4,049                     3,153,135                                                             $4,380,646                         **See            Notes to Financial            Statements**                        3                                  **LIABILITIES                  AND STOCKHOLDERS' EQUITY**             **CURRENT                  LIABILITIES:**        Note                  payable $695,782      Accounts                  payable  209,105      Income                  taxes payable  22,976      Accrued                  expenses  316,993                        Total                  current liabilities     $1,244,856                   **COMMITMENTS                  AND                  CONTINGENCIES                 **                           -                          **STOCKHOLDERS'                  EQUITY:**          Class                  A convertible preferred stock, $.001            par                  value 5,000,000 shares authorized,            560,746                  shares issued and outstanding  561       Common                  stock, $.001 par value, 45,000,000            shares                  authorized, 5,867,945 shares            issued                  and outstanding  5,868       Additional                  paid-in capital  3,238,639       Accumulated                  deficit                                (109,278)                             3,135,790                                   $4,380,646                   **See            Notes to Financial Statements****4**                                                                       **PREMIER      ALLIANCE GROUP, INC.****STATEMENTS      OF OPERATIONS****THREE      AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND      2006****(Unaudited)**          Three                      monthsendedSept                  30, 2007  Three                      monthsendedSept                  30, 2006  Nine                      monthsendedSept                  30, 2007  Nine                      monthsendedSept                  30, 2006              **NET                  REVENUE** $1,926,740  $2,006,922  $5,598,795  $6,809,574 **OPERATING                  EXPENSES:**                  Cost                  of revenues  1,380,408   1,443,498   4,017,713   5,005,684   Selling,                  general and administrative  485,141   507,706   1,544,774   1,650,396       Depreciation  3,979   4,757   9,855   13,743    Total                  operating expenses  1,869,528   1,955,961   5,572,342   6,669,823 **INCOME                  FROM OPERATIONS**  57,212   50,961   26,453   139,751                  **OTHER                  (EXPENSE) INCOME:**                **  **Interest                  expense, net  (12,550)  (10,080)  (34,276)  (23,082)  (Loss)                  gain on marketable securities  (4,290)  (150)  175   (2,550)  Officers’                  life insurance  (10,231)  23,455   48,528   16,303   Equity                  in net (loss) of                   equity-method                  investee  (3,125)  (861)  (13,956)  (1,153)  Other                  income (expense)  885   (324)  3,292   6,602    Total                  other (expense) income  (29,311)  12,040   3,763   (3,880)                 **NET                  INCOME BEFORE INCOME TAXES**  27,901   63,001   30,216   135,871 **INCOME                  TAX                  EXPENSE                    **  (18,097)  (16,686)  (1,560)  (58,722)                 **NET                  INCOME                       **  9,804   46,315   28,656   77,149 **PREFERRED                  STOCK DIVIDENDS EARNED**  -   -   (43,400)  (47,800)                 **NET                  INCOME (LOSS) AVAILABLE TO**                **  COMMON                  STOCKHOLDERS** **$**9,804  $46,315  $(14,744) $29,349 Net                  income (loss) per share, basic                  and                  diluted $0.00  $0.01  $(0.00) $0.01 Weighted                  average number of shares,                  basic                  and diluted  5,867,945   5,811,093   5,856,132   5,811,093                 **See            Notes to Financial Statements****5****PREMIER      ALLIANCE GROUP, INC.****STATEMENTS      OF CASH FLOWS****NINE      MONTHS ENDED SEPTEMBER 30, 2007 AND 2006****(Unaudited)**   2007  2006 **Cash                  flows from operating activities:**      Net                  income $28,656  $77,149   Adjustments                  to reconcile net income            to                  net cash used in operating activities:              Depreciation  9,855   13,742       Increase                  of cash surrender value of                officers’                  life insurance  (48,528)  (77,353)      Deferred                  income taxes  (10,000)  (96,000)      Equity                  in loss of equity-method investee  13,956   1,153     Changes                  in operating assets and liabilities:              (Increase)                  decrease in accounts receivable  (272,176)  163,153       (Increase)                  decrease in marketable securities  (175)  2,550       Increase                  in prepaid expenses  (4,305)  (36,176)      Decrease                  in deposits and other                  assets  175   275           Increase                  (decrease)in accounts payable  199,117   (105,593)      Increase                  (decrease) in accrued expenses  43,414   (70,983)      Increase                  in income taxes                  payable               11,439   58,847     Net                  cash used in operating activities  (28,572)  (69,236)                  **Cash                  flows from investing activities:**          Purchases                  of property and equipment  (1,421)  (6,347)    Net                  cash used in investing                  activities            (1,421)  (6,347)                  **Cash                  flows from financing activities:**          Preferred                  stock dividends  (43,400)  (47,800)  Proceeds                  from line of credit  128,000   304,000     Net                  cash provided by financing activities  84,600   256,200                   **Net                  increase in                  cash                      **  54,607   180,617                   **Cash**                  - beginning of                  period                           49,439   50,244                   **Cash**                  - end of                  period                               $104,046  $230,861                                   **See            Notes to Financial Statements** 6                                                     **PREMIER      ALLIANCE GROUP, INC.****NOTES      TO FINANCIAL STATEMENTS****THREE      AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006****(Unaudited)**  **Note      1 – Basis of Presentation:** The      accompanying unaudited interim financial statements of Premier Alliance Group,      Inc. (the “Company”) have been prepared in accordance with accounting principles      generally accepted in the United States of America and the rules of the      Securities and Exchange Commission (“SEC”) and should be read in conjunction      with the audited financial statements and notes thereto contained in the      Company’s Annual Report filed with the SEC on Form 10-KSB. In the opinion of      management, all adjustments, consisting of normal recurring adjustments,      necessary for a fair presentation of financial position and the results of      operations for the interim periods presented have been reflected      herein.  The results of operations for interim periods are not      necessarily indicative of the results expected for the full      year.  Notes to the financial statements which would substantially      duplicate the disclosure contained in the audited financial statements for      fiscal year 2006 as reported in the 10-KSB have been omitted. **Note      2 – Organization and Business:** Premier      Alliance Group, Inc. (“Old Premier”) was organized under the laws of North      Carolina in June, 1995.  Old Premier provided information technology      solutions and consulting services to customers operating in a variety of      industries throughout the United States. On      November 5, 2004, Old Premier and its shareholders consummated a share exchange      agreement with the Company.  The Company was an inactive public      company that was organized in Nevada in January, 2000.  Pursuant to      the exchange agreement, shareholders of Old Premier were issued 36,176,863      shares of common stock and 4,323,157 shares of Class A convertible preferred      stock in exchange for all of their outstanding common stock and preferred stock      in Old Premier.  As a result of the share exchange agreement, the      shareholders of Old Premier acquired a majority of the issued and outstanding      common and preferred stock of the merged company.  For accounting      purposes, the transaction was accounted for as a reverse merger.  Old      Premier was merged into the Company and immediately after the merger, the      Company was renamed Premier Alliance Group, Inc.    **See            Notes to Financial Statements**7    **Note      3 - Cash and Cash Equivalents:** Cash      equivalents consist of all highly liquid investments with an original maturity      of three months or less.  As a result of the Company's cash management      system, checks issued but not presented to the banks for payment may create      negative book cash balances.  Such negative balances are included in      trade accounts payable and totaled $111,704 at September 30, 2007. **Note      4 – Class A Convertible Preferred Stock:** The      Class      A Convertible Preferred Stock accrues 8 percent per annum dividends on a stated      “dividend value”.  “Dividend value” is the amount equal to $0.967 per      share for each share of Class A Convertible Preferred Stock      outstanding.  The dividends began accruing June 1, 2004 and are      cumulative.  Dividends are payable annually in      arrears.  During 2007 and 2006, the Company declared and paid      dividends of $43,400 and $47,800, ($0.07 per preferred share) respectively.      During the nine months ended September 30, 2007, 56,852 shares of Class A      Convertible Preferred shares were converted to common shares o        **See            Notes to Financial Statements** 8    **Item      2. Management’s Discussion and Analysis or Plan of      Operation** This      quarterly report on Form 10-QSB may include “forward-looking statements”. All      statements regarding our expected financial position and operating results,      our      business strategy, our financing plans, and the outcome of any contingencies      constitute forward-looking statements. All forward-looking statements are      subject to risks and uncertainties, including without limitation those described      in “Risk Factors” in our annual report on Form 10-KSB, that could cause actual      results to differ materially from described in or implied by any forward-looking      statements. The      following discussion should be read in conjunction with our financial statements      and the related notes included in this Form 10-QSB. ***Operations*** Our      business consists of providing information technology, or "IT," services to      our      clients. Our services typically encompass the IT business-solution software      development life cycle.  The IT business-solution software development      life cycle references industry standard steps typically followed in developing      or creating software (the blueprint methodology), including phases for planning,      developing, implementing, managing, and ultimately maintaining, the IT solution.      It is this process that creates quality software while minimizing issues for      customers.  A typical customer is an organization with complex      information and data-processing requirements.  Technology is crucial      in all industries and therefore we market and sell to many sectors of business.      We promote our services through our two delivery channels, IT Services and      IT      Solutions divisions.  These divisions operate as one from an      accounting and overall management perspective, however they are differentiated      from a marketing and customer presentation perspective      only.  Management reviews and oversees the divisions as one combined      entity, utilizes resources across both areas, and makes operational assessments      and plans together.  In light of this, Financial Accounting Standards      Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 131“Business segments” does not require separate financial reporting and the 2      channels are consolidated in all financial report presentations. ·  IT                Services Division—This division provides staffing and consulting services                across a broad range of skills and expertise. It assists our customers                by                providing skilled business and technical expertise to help lead and                train                our customers, and it can provide the manpower necessary to supplement                project efforts. In most cases                our                work is on a time–and-materials basis. Because of the type of expertise                and the complexity of technology, customers typically commit to long-term                contracts that                are typically a minimum of 9 months in which our staff work on site                at                client facilities under the daily direction of the client                management.  It is very common that we obtain contract                extensions with our clients for our consulting resources.  ***·  ***IT                Solutions Division—This division handles advanced technologies and                solutions and provides expertise in project management, architecture,                and                project methodology. Its focus is to service customers on a project                or                deliverable basis. The work can be performed at customer facilities                or at                our facilities. With this type of work the customer typically enters                into                a contract with us for a fixed price bid that provides for delivery                of a                given service or delivery at a stated time. Services provided by                this                group range from helping clients assess their business needs and                identifying the right technology solution, to helping customers select                and                implement packaged software, to designing, constructing, and testing                new                systems and integrating them with the customer’s existing                technology.  9 ***Results      of Operations*** Net      revenue for the three months ended September 30, 2007, was $1,927,000, a      decrease of 4%, compared to $2,007,000 for the same period in      2006.  For the 2007 year-to-date period, revenue was $5,599,000      compared to $6,810,000 for the 2006 year-to-date period, a decrease of 17%.       We attribute the overall decline in revenue to a decrease in billable      hours during the year resulting from a decrease in billable staff for these      two      periods.  The decrease in staff was related to an aggressive effort by      customers leading to a significant number of conversions of staff to client      staff (a process in our industry called contract to hire) especially during      the      3rd and 4th      quarter periods of      2006.  We have recovered from this and reversed that trend as each      quarter of 2007 has been an increase over the prior quarter, beginning with      the      4th quarter      of      2006. Cost      of      revenues, defined as all costs for billable staff, were $1,380,000 or 71.6%      of revenue for the three months ended September 30, 2007, as compared to      $1,443,000 or 71.9% of revenue for the same period in 2006. For the 2007      year-to-date period costs were 71.8% of revenue and for the 2006 year-to-date      period, costs were 73.5% of revenue. General      and administrative (G&A) expenses were $489,000 or 25.4% of revenue for      the three months ended in September 30, 2007, as compared to $512,000 or 25.5%      for the same period in 2006. For the 2007 year-to-date period, it was 27.8%      as      compared to 24.4% for the 2006 year-to-date period. G&A expenses were      comparable as increases in rent and business insurance were offset by decreases      in professional fees and expenses (legal, accounting, consulting). We have      established uniform controls and automated processes and are able to perform      most general functions internally and minimize what outside agencies must      do. Operating      income for the three months ended in September 30, 2007, was $57,000 as compared      to $51,000 for the same period in 2006.  For the 2007 year-to-date      period, operating income was $26,000 compared to $140,000 for the 2006      year-to-date period. Other      income and expense, net, consisted of a loss of $29,000 for the three months      ended in September 30, 2007, compared to income of $12,000 for the same period      in 2006.  For the 2007 year-to-date period, there was income of $4,000      compared to a loss of $4,000 for the 2006 year-to-date period.  The      gain in 2007 is mostly attributable to a gain in value of officer’s life      insurance due to market changes. The      effective income tax expense for the first nine months of 2007 is 5.16% compared      to an effective income tax expense of 43% for the same period in      2006. Net      Income for the three months ended in September 30, 2007, was $9,800 or $.01      per      diluted share, compared with net income of $46,000 for the same period in 2006,      or $.01 per diluted share. For the 2007 year-to-date period, net income was      $29,000 compared to net income of $77,000 for the 2006 year-to-date      period. 10 ***Dividend*** On      June      7, 2004, North Carolina Premier issued 597,500 shares of Class A preferred      stock in a private placement. The holders of shares of preferred stock were      entitled to receive an 8% annual dividend until the earlier of (1) the      third anniversary of the date of issuance or (2) automatic conversion of      shares of Class A preferred stock into shares of common stock. A dividend      was declared and distributed in July 2007 in the amount of      $43,400.  This is the last dividend under this      arrangement. Attached      with each preferred share was a warrant entitling the holder to purchase one      share of common stock at an exercise price of $2.00. The warrants were      immediately exercisable and had a term of three years. On      consummation of the share exchange, holders of these shares of preferred stock      were issued in exchange shares of our Class A preferred stock having      substantially identical terms, as well as warrants with substantially identical      terms, except that the exercise price of the warrants was adjusted to      $1.96. ***Critical      Accounting Policies*** **Revenue      Recognition** The      Company follows the guidance of the Securities and Exchange Commission’s Staff      Accounting Bulletin No. 104 for revenue recognition.  In general, the      Company records revenue when persuasive evidence of any agreement exists,      services have been rendered, and collectibility is reasonably assured,      therefore, revenue is recognized when the Company invoices customers for      completed services at contracted rates and terms. **Income      Taxes** We      make      certain estimates and judgments in determining income tax expense for financial      statement purposes. These estimates and judgments occur in calculating tax      credits, tax benefits, and deductions that arise from differences in the timing      of recognition of revenue and expense for tax and financial-statement      purposes. We      assess      the likelihood that we will be able to recover deferred tax assets. If recovery      is unlikely, we must increase the provision for taxes by recording a valuation      allowance against the estimated deferred tax assets that will not ultimately      be      recoverable. As of September 30, 2007, we believed that all of the deferred      tax      assets recorded on our balance sheet would ultimately be recovered. However,      should there be a change in our ability to recover our deferred tax assets,      our      tax provision would increase in the period in which we determine that the      recovery is unlikely.  11 ***Financial      Condition and Liquidity*** As      of      September 30, 2007, we had cash and cash equivalents of $104,000, representing      a      decrease of $127,000 from September 30, 2006. Net working capital at      September 30, 2007, was ($42,000), as compared to $50,000 on September 30,      2006. Current assets at September 30, 2007, were $1,202,000. We had no      long-term debt.  Shareholders’ equity as of September 30, 2007, was      $3,153,000, which represented 72% of total assets. During      the nine months ended September 30, 2007, the net cash used by operating      activities was $28,000 and was primarily a result of increases in the cash      surrender value of officers’ life insurance of $48,000, deferred income tax of      $10,000, accounts receivable of $272,000, accounts payable of $199,000, income      taxes payable of $11,000, and accrued expenses of $43,000. Cash      flows from investing activities used $1,400. Financing      activities provided $84,600 of cash for the nine months ended September 30,      2007. Of that increase, $128,000 was due to borrowings on our revolving line      of      credit. We borrow or repay this revolving debt as needed based upon our working      capital obligations. We distributed a dividend of $43,400 to preferred      shareholders in the quarter. We believe that internally generated funds, current      cash on hand, and available borrowings under our revolving credit line will      be      adequate to meet foreseeable liquidity needs. ***Outlook*** Our      business has been affected by the following major trends. First, customers      are      consolidating their primary vendor lists. Second, the surge in offshore and      outsourced development work is forcing us to focus on handling earlier and      later      phases of the development cycle, which in turn has increased our need for      expertise in the areas of project management, business analysis, and quality      assurance and testing.  These trends are discussed in greater detail      below. Many      customers working with the computer services industry are reducing the number      of      primary vendors they use and are instead working with a smaller number of      pre-approved vendors. This trend could have a significant impact on the rates      we      charge and the amount of business we do. We propose to address these issues      from      two perspectives. First      we      are laying the foundation to diversify and enhance our business model      geographically in increased size as well as in the way we package our      services.  By servicing more geographic markets and increasing our      overall size we will more effectively maintain approved primary vendor or sub      vendor status, factors that clients have told us are important to      them.  The ability to service large customers in multiple locations as      well as provide more resources and capability adds value while minimizing      customer risk.  To accomplish this we are looking at organic growth as      well as merger and acquisition strategies. Secondly      we are retooling our sales efforts to increase our focus on mid-level      customers.  This market is not as advanced in the use of or      consolidation of primary vendor processes.  Premier has typically      focused on large corporate customers and is expanding our marketing focus to      include the mid-level customer segment.  12 With      the      surge in off-shore work, we had to choose to adjust either by providing offshore      services or by focusing on that work that is less susceptible to being sent      offshore.  Offshore and outsourced efforts are typically focused on      the core development (middle phases) of a software development      cycle.  By contrast, on-site consulting resources typically handle the      early and later phases of the development cycle.  This has greatly      increased the focus on the following expertise for onsite work: project      management, business analysis, quality assurance and testing. We believe that      we      can be more competitive if we focus on providing on-site consulting, and so      we      have focused our recruiting and sales efforts in that area. Our      top      priority is to broaden the range of services we offer and build a more diverse      client base, both geographically and in terms of industry segments represented.      We believe that achieving this goal will require a combination of merger      activity and organic growth. Our ability to achieve this goal will depend,      in      part, on continued improvement in the U.S. jobs market and our ability to      attract top talent in the IT field*.* ***Off-Balance-Sheet      Arrangements*** The      Class      A preferred stock accrues 8 % per annum dividends on a stated “dividend      value”.  “Dividend value” is the amount equal to $0.98 per share for      each share of Class A preferred stock outstanding.  The dividends      began accruing June 1, 2004, and are cumulative.  Dividends are      payable annually in arrears.  During 2005, the Company declared and      paid dividends of $47,800 ($.07 per preferred share).  A dividend was      declared and distributed in July 2006 in the amount of $47,800. The final      dividend was declared and distributed in July 2007 in the amount of      $43,400. As      of      September 30, 2007, and during the prior three months then ended, there were      no      other transactions, agreements or other contractual arrangements to which an      unconsolidated entity was a party under which we (1) had any direct or      contingent obligation under a guarantee contract, derivative instrument, or      variable interest in the unconsolidated entity, or (2) had a retained or      contingent interest in assets transferred to the unconsolidated      entity. 13 **Item      3. Controls and Procedures** We      maintain disclosure controls and procedures that are designed to ensure that      information required to be disclosed in our Exchange Act reports is recorded,      processed, summarized and reported within the time periods specified in the      Securities and Exchange Commission’s rules and forms and that such information      is accumulated and communicated to this company’s management, including our      Chief Executive Officer and Chief Financial Officer, as appropriate, to allow      for timely decisions regarding required disclosure. In designing and evaluating      the disclosure controls and procedures, management recognizes that any controls      and procedures, no matter how well designed and operated, can provide only      reasonable assurance of achieving the desired control objectives, and management      is required to apply its judgment in evaluating the cost-benefit relationship      of      possible controls and procedures.As      required by Securities and Exchange Commission Rule 13a-15(b), we carried out      an      evaluation, under the supervision and with the participation of the Company’s      management, including our Chief Executive Officer, of the effectiveness of      the      design and operation of our disclosure controls and procedures as of the end      of      the quarter covered by this report. Based on the foregoing, our Chief Executive      Officer concluded that our disclosure controls and procedures are effective      to      ensure the information required to be disclosed in our reports filed or      submitted under the Exchange Act is timely recorded, processed and reported      within the time periods specified in the Securities and Exchange Commission      rules and forms. There      has      been no change in our internal control over financial reporting during our      most      recent fiscal quarter that has materially affected, or is reasonably likely      to      materially affect, our internal control over financial reporting.  14**PART      II****OTHER      INFORMATION****Item      1. Legal Proceedings** None. **Item      2. Unregistered Sales of Equity Securities and Use of      Proceeds** None. **Item      3. Defaults Upon Senior Securities** None. **Item      4. Submission of Matters to Vote of Security Holders** None. **Item      5. Other Information** None. **Item      6. Exhibits** 31.1Certification                of Principal Executive and Principal Financial Officer Pursuant to                Section                302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Sec.                1350). 32.1Written                Statement of Chief Executive and Financial Officer Pursuant to Section                906                of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section                1350). 15**SIGNATURES** In      accordance with the requirements of the Exchange Act, the registrant caused      this      report to be signed on its behalf by the undersigned, thereunto duly      authorized.     PREMIER                ALLIANCE GROUP, INC.(Registrant)   DATE:              November 13, 2007 By:           /s/                Mark S. Elliott______________Mark                S. ElliottPresident                (Chief Executive Officerand                Acting Chief Financial                Officer)16  |
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