UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                  FORM 10-KSB

(Mark One)

|X|   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934

      For the fiscal year ended December 31, 2007

___   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934

      For the transition period from______________________to___________________
              Commission file number___________________________________________

                        DEVINE ENTERTAINMENT CORPORATION
                 (Name of small business issuer in its charter)

      Ontario, Canada                              Not Applicable
  (State or jurisdiction of                       (I.R.S. Employer
incorporation or organization)                  Identification Number)

                         Suite 504, 2 Berkeley Street,
                       Toronto, Ontario, Canada, M5A 2W3
                                 (416) 364-2282

          (Address and telephone number of principal executive offices
                        and principal place of business)

Securities registered under Section 12 (b) of the Exchange Act:

      Title of each class             Name of each exchange on which registered
        Not Applicable                              Not Applicable

Securities registered under Section 12 (g) of the Exchange Act:

                                 Common Shares
                                (Title of Class)

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___

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. _X_

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes___ No_X_

Issuer's revenues for the year ended December 31, 2007        $6,144,577

As of April 11,  2008,  the  aggregate  market value of the voting stock held by
non-affiliates,  computed by  reference  to the average of the bid and ask price
shown on the NASD OTCBB was $4,610,208 CDN.

As of April 11, 2008,  the issuer had  outstanding  45,921,149  shares of common
stock.


<PAGE>

                                TABLE OF CONTENTS

PART I

   ITEM 1.     BUSINESS
   ITEM 2.     PROPERTY
   ITEM 3.     LEGAL PROCEEDINGS
   ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


PART II

   ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
   ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
   RESULTS OF OPERATIONS
   ITEM 7.     FINANCIAL STATEMENTS
   ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
   FINANCIAL DISCLOSURE
   ITEM 8A.    CONTROLS AND PROCEDURES


PART III

   ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
   COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
   ITEM 10.   EXECUTIVE COMPENSATION
   ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
   ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
   ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K
   ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES


SIGNATURES


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<PAGE>

 Unless the context otherwise requires, all references in this Annual Report on
     Form 10-KSB to the "Company" or "Devine Entertainment" refer to Devine
Entertainment Corporation. Unless stated otherwise, all dollar amounts set forth
 in this report are stated in Canadian Dollars and all references to "$" are to
                               Canadian Dollars.

                     FACTORS THAT MAY AFFECT FUTURE RESULTS

      This Annual  Report on Form  10-KSB  contains  forward-looking  statements
within the  meaning of the  Federal  securities  laws,  about our  business  and
prospects,  including  without  limitation  statements  regarding  our  expected
revenues and revenue growth rate in 2008. The forward-looking  statements do not
include the  potential of any mergers,  acquisitions,  divestitures  or business
combinations that may be completed after the date hereof.  Readers are cautioned
that actual  results may differ  materially  from the results  projected  in any
"forward-looking"  statements  included  in this  report on Form  10-KSB,  which
involve a number  of risks and  uncertainties.  Forward-looking  statements  are
statements that are not historical  facts,  and include (but are not limited to)
statements  regarding the Company's  planned  production  slate and  development
activities, anticipated future profitability,  losses, revenues, expected future
expenditures,  the Company's  intention to raise new  financing,  sufficiency of
working  capital  for  continued  operations,  and  other  statements  regarding
anticipated  future events and the  Company's  anticipated  future  performance.
Forward-looking  statements generally can be identified by the words "expected",
"intends", "anticipates", "feels", "continues", "planned", "plans", "potential",
"with a view to", and similar  expressions or variations thereon, or that events
or conditions  "will",  "could",  or "should" occur,  or comparable  terminology
referring to future events or results.

The Company's actual results could differ  materially from those  anticipated in
these  forward-looking  statements  as a result of numerous  factors,  including
those  described in the section of this report titled  "Management's  Discussion
and  Analysis  of  Financial  Condition  and  Results  of  Operations-Risks  and
Uncertainties",  any of which could cause actual results to vary materially from
current results or the Company's anticipated future results. The Company assumes
no  responsibility  or  obligation  to  update  any  forward-looking  statements
contained herein after the date of this Annual Report.

                                EXPLANATORY NOTE

As  explained  on pages 35 through  39, and pages 69 through 73 in Note 2 to the
Company's 2007 Consolidated  Financial Statements,  of the Annual Report on Form
10-KSB,  the Company has restated its  financial  statements  for the year ended
December 31, 2006 to give effect to the correction of errors  resulting from the
incorrect  accounting  for  certain  transactions.  As a result,  the  impact of
corrections  for prior years have resulted in an increase in the deficit balance
by $181,510 and an additional  decrease in equity by $494,550 and which has been
offset by a total increase in liabilities by $676,060.

The  impact  of the  restatements  for the year  ended  December  31,  2006 have
resulted  in a decrease  in the  deficit by $10,602  and a total  reductions  of
$277,081 in shareholders'


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<PAGE>

equity and total  assets.  In addition  the Company  sustained a further loss of
$34,402 for December 31, 2006.

The following table summarizes the effects of the changes for 2006.

                                                       Summary of Changes
                                                       ------------------
Balance Sheet
                                                       As                 As
                                                    Reported          Restated
                                                    --------          --------
Assets                                           $ 12,934,759      $ 12,657,678
Liabilities                                         9,476,413        10,152,473

Capital Stock                                      12,330,949        12,268,006
Contributed Surplus                                 1,267,449           707,165
Warrants                                                --              335,544
Preferred Shares                                      494,550                --
Deficit                                           (10,634,602)      (10,805,510)
Shareholders' Equity                                3,458,346         2,505,205

Liabilities and Shareholders' Equity               12,934,759        12,657,678


Statement of Operations
                                                       As                 As
                                                    Reported          Restated
                                                    --------          --------
Revenue                                          $    423,959      $    423,959
Expenses                                            2,938,110         2,972,512
                                                 ------------      ------------
Net Loss                                            2,514,151         2,548,553


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<PAGE>

                                     PART I

ITEM 1. BUSINESS

Overview

      The Company is an  award-winning  Canadian-based  developer,  producer and
distributor of high-quality  feature films,  primetime drama, and children's and
family entertainment for the theatrical motion picture,  television and the home
DVD marketplace  worldwide.  The Company's  intention is to produce positive and
meaningful  films that emphasize human values and focus on art,  inspiration and
personal  expression  and  simultaneously  entertain  and educate its  principal
market of children aged six to fourteen  years.  The Company's  productions  are
designed to make viewing  films a compelling  family  activity  that  encourages
intellectual interaction.

      In the past twenty years,  the Company's films have been honored with over
110 international awards, including five Emmy Awards and five Gemini Awards. The
Company's DVDs, videos and CDs are distributed worldwide.

      Devine Entertainment's focus in family entertainment is the production and
distribution  of films based on historical and timeless  stories.  This strategy
began with the success of the Raffi videos (now  certified  multi-platinum)  and
Beethoven  Lives  Upstairs,  winner  of the  1993  Prime  Time  Emmy  Award  for
Outstanding Children's Program.

      In 1996, the Company won the CableACE award for Best Children's Series for
The Composers' Specials (Bizet, Bach, Strauss, Liszt, Rossini and Handel), a new
series of six one-hour  specials.  Broadcast  on Home Box Office  ("HBO") in the
United States and The Family Channel in Canada, the series has received numerous
awards and honors in recognition of the entertaining  and educational  values it
offers to children.

      In 1997 and 1998, Devine  Entertainment  produced The Inventors'  Specials
(Einstein,  Leonardo DaVinci, Galileo, Newton, Marie Curie and Edison), a series
of one-hour  specials that brings  history's great inventors and their creations
to life. In each special,  the true story of a visionary  genius is told through
his relationship with a young protege.  The Inventors' Specials premiered on HBO
and The Family Channel and garnered critical acclaim and  international  awards,
including nine Emmy nominations and three Emmy Awards.

      In 1999 and 2000,  Devine  Entertainment  created  The  Artists'  Specials
(Monet,  Degas,  Cassatt,  Goya,  Winslow Homer and  Rembrandt).  This series is
currently  airing  on HBO and the  Canadian  Broadcast  Corporation  ("CBC")  in
Canada. This series has received several accolades including the Humanitas Prize
for  writing of a  children's  program  that  promotes  human  values,  two Emmy
nominations and one Emmy Award, three American Library Association's Honors, and
two "Top 5 Video of the Year" designations by KidsFirst!


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<PAGE>

      Bailey's Billion$, a family comedy about a dog that inherits a fortune and
becomes the CEO of a renowned animal rights  foundation,  is the Company's first
feature film for  theatrical  release.  Bailey's  Billion$  stars Dean Cain, Tim
Curry,  Jennifer  Tilly,  Laurie Holden and Jon Lovitz (as the voice of Bailey).
Bailey's  Billion$,  was  released  in North  America  on  August 5, 2005 and is
currently being distributed, on television and DVD worldwide.

      In 2006,  the Company  continued  expanding  its  proprietary  library and
financed and began production of its first general audience  primetime  one-hour
mystery  series,  entitled  Across the River to Motor City for  broadcast  world
wide.  The initial six one-hour  episodes  were  completed and delivered to CHUM
Television in Canada in 2007.

      As a leader in providing culture, education and entertainment for children
and families around the world,  the Company remains  committed to broadening its
brand by  continuing  to pursue  international  motion  picture  and  television
projects, DVD and video sales, publishing and Internet opportunities worldwide.

      The Company was incorporated  under the laws of the Province of Ontario on
September  21, 1982 under the name "518104  Ontario  Limited"  and  subsequently
changed its name to "Devine  Videoworks  Corp." in January  1983. In April 1994,
the name of the Company was changed to its current name,  "Devine  Entertainment
Corporation." The Company's registered office and principal place of business is
located at Suite 504, 2 Berkeley Street, Toronto, Ontario M5A 2W3, its telephone
number is  416-364-2282,  its  facsimile  number is  416-364-1440,  its web site
address is www.devine-ent.com and its e-mail address is info@devine-ent.com.


Product Demand and Supply

The Company believes that the increasing demand for  entertainment  programming,
both in general and in the children's and family  market,  presents  significant
opportunities for substantial  growth. The Company's principal markets currently
are:

      (i) the worldwide theatrical motion picture marketplace;

      (ii) the worldwide home DVD and video markets, including the sell-through,
retail, rental, educational and institutional (schools and libraries) markets;

      (iii)  broadcasters  in  the  United  States  and  Canada,  including  the
conventional  television  networks,   specialty  broadcasters,   cable  and  pay
television  stations  and  first  run  syndication   (initial   distribution  to
independent television stations);

      (iv) international broadcasters; and


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<PAGE>

      (v) the markets for  products  complementary  to the  Company's  programs,
including  audio   soundtracks,   published  music  and  books  and  educational
interactive, multimedia, internet and new media products.

      As new delivery  systems are introduced,  creating more potential users of
entertainment programming,  the Company believes the market for its productions,
and the value of the rights to them, will increase. The Company's (i) success in
accessing and  exploiting its programs in the broadcast and video markets in the
United States; (ii) existing relationships with foreign producers, distributors,
and  broadcasters,  including  those in  France,  Germany,  the Czech and Slovak
Republics, the United Kingdom,  Hungary, Italy and Ireland; and (iii) ability to
supply programs satisfying  indigenous quota  requirements,  that are popular in
Canada and certain European countries, will enable the Company to supply markets
worldwide.

      Indigenous  quota  requirements  are part of  programs  adopted in certain
countries to support national or indigenous cultural content. Under such support
programs,  quotas have been established limiting, among other things, the number
of foreign motion pictures and television programs that may be exhibited.  These
support  programs  further  provide  government  subsidies and tax incentives to
domestic  producers,  distributors  and  broadcasters  of  motion  pictures  and
television  programming.   Canada  has  entered  into  multi-lateral  production
treaties with over 50 foreign  countries.  A production  covered by one of these
treaties qualifies as a national or indigenous  production of each country party
to such treaty.  Since 1994, all of the Company's  productions have been covered
by one or more Canadian  multi-lateral  production treaties.  See " - Regulatory
Considerations."

      The  Company's   established   relationships   with  major   distributors,
broadcasters  and funds  including,  TVA, Odeon Films,  Alliance/Atlantis,  CHUM
Television,  TMN (The Movie  Network),  Movie Central,  YTV, The Family Channel,
HBO,  The Disney  Channel and Disney  Channel  International  (U.K.,  France and
Australia),  Carrere  Group DA,  PBS,  CBC,  TPS,  MCA,  NHK  (Japan),  HBO Ole,
Discovery Channel International (Latin America,  Spain and Portugal),  SONY, The
Corus Feature Film Fund, Astral Media The Harold Greenberg Fund, The Independent
Production Fund and Telefilm Canada, are vital in maximizing the exploitation of
the Company's products internationally and financing new proprietary production.

Expansion of the Business

      The Company is committed to building its core library of quality films and
maximizing the  exploitation of its expanding  library by expanding its focus on
family  programming  to include  feature films and  primetime  drama for general
audiences.

      The Company  recently  completed  the $8.1  million  financing  of its new
primetime mystery series for Chum Television, Across the River to Motor City and
completed principal photography on the series on time and on budget in 2006. The
first six hour-


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<PAGE>

long  episodes  were  completed  and  delivered  for  distribution  to  Canadian
broadcaster  CHUM  Television in the first three quarters of 2007. In 2007, CHUM
Television committed additional funding for the development of new scripts for a
possible  second  season  of Across  the River to Motor  City.  The  Company  is
optimistic about the success of Across the River to Motor City.

      The Company took a major step in expanding  its business and product lines
when it financed and produced its first  feature film for  worldwide  theatrical
release,  entitled  Bailey's  Billion$  in 2004.  The  film,  budgeted  at $11.4
million, was co-produced with partners in the United Kingdom, equity investments
from  Astral  Media,  The Corus  Feature  Film Fund and  Telefilm  Canada,  with
distribution   in  Canada  in  conjunction   with  Odeon  Film  (a  division  of
Alliance/Atlantis)  and international  sales through Arclight Films. The Company
expects  that this film will  present the  Company  with new  opportunities  for
developing, financing and distributing proprietary films.

      The Company also recognizes that its business offers opportunities for the
integration  of new  activities.  With  The  Composers'  Specials,  the  Company
established  licensing  arrangements  for home  video and  broadcast  rights and
developed  licensing  arrangements  for  publishing  the  soundtracks of the six
programs and a teacher's  guide for school use.  The  Composers'  Specials,  The
Inventors'  Specials and The Artists'  Specials  now all have  companion  print,
audio,  video and DVD products.  The Company has initiated  marketing efforts in
non-traditional  markets.  These  non-traditional  markets consist  primarily of
schools,  boards of education,  parental home school instructors,  and libraries
and other educational and cultural  institutions.  The Company plans to increase
its  profitability  by  expanding  its own  distribution  operations  and taking
additional  steps to expand,  enhance and  complement  its core  business.  Such
additional  steps include  expanding  educational  distribution,  developing new
interactive and other media-based  products,  controlling the manufacture of the
Company's  products,   possibly  acquiring  product  libraries  or  distribution
capacity and further developing direct and cause-related marketing programs. The
Company has from time to time engaged in cause-related  marketing  programs with
schools,  hospitals  and  charity  organizations  whereby a portion of the sales
revenue is contributed to the co-participant.

      The Company is  continually  seeking to expand its business.  The specific
actions  taken by the Company in  furtherance  thereof  are varied.  The Company
completed an exclusive  distribution agreement with SONY BMG Music Entertainment
to distribute SONY BMG's acclaimed  Marsalis on Music series.  The Company began
distributing the series on DVD into the educational, institutional and specialty
retail trade throughout the USA, Canada and Mexico in August 2007. In July 2006,
the  Company  announced  its  new  multi-year   distribution  and  co-production
financing  agreements  with Carrere Group DA. For its new series of six one-hour
Writers'  Specials and its  award-winning  18 film library of historical  family
films,  The  Artists'  Specials,  The  Inventors'  Specials  and the  Composers'
Specials.  During 2007, the Company attended four educational  sales conventions
held in Washington, Houston, Atlanta and Toronto.


                                       8
<PAGE>

      The  Company   continues  to  develop   relationships   with   prospective
distributors,  co-producers  and sales agents that have expressed an interest in
marketing  and  otherwise  representing  the  Company's  products in markets not
currently accessed by the Company directly.

Development Activities

      The Company's development activities are primarily focused on the creation
of  intelligent  programs for children and their families for the United States,
Canadian  and global  markets.  The  Company's  2008 project  development  slate
includes  new  episodes  of its core  library  based on the  lives  and times of
groundbreaking writers (The Writers' Specials) with co-producer Carrere Group of
France,  as well as new  scripts  for the  second  season of Across the River to
Motor City and a number of feature films,  television movies and series targeted
at the international audience (Russell Sprout, Humchucker) and Rio Grande..

      The  Company's  ability to complete  these  productions  is subject to the
risks  inherent  in the  film  and  television  industry.  These  risks  include
dependence on new products, audience acceptance of new products, dependence upon
licensing and distribution  relationships,  competition,  technological  change,
dependence upon government incentive programs, changes in government regulation,
currency  exchange rate  fluctuations  and  availability of adequate  production
financing.

Distribution Activities

      The distribution  activities of Devine  Entertainment  include selling the
broadcast rights of its films to the global market.  Since 1990, the Company has
sold its programming to  broadcasters  and video licensees in over 50 countries.
Devine Entertainment has established  contractual  relationships with, and sales
have been made to, major international broadcasters,  including HBO Ole in Latin
America, HBO in the United States, Disney Channel in the United Kingdom,  France
and Australia,  TPS in France, the Discovery Channel in Spain, Portugal,  Mexico
and Latin America,  and NHK in Japan.  In addition,  the Company  entered into a
multi-year  distribution  agreement  with  Carrere  Group of Paris in the  third
quarter of 2006 for  territories  outside of North  America  which has generated
revenue from sales for the Company in 2007 of over $151,000.

      The Company  participates in major international  television program trade
shows and may attend other trade shows where  opportunities exist for management
to develop  areas of  interest  to the  Company.  Devine  also  distributes  its
programming through direct  communication with video distributors and television
broadcasters,  and through  selective  advertising in significant trade journals
and  strategic  media.  The  Company  also sells its  products  directly  to its
customers  through  its direct  toll free  telephone  marketing  campaign in the
United States and Canada (1-877-338-4633). The Company expects, by


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the end of the second  quarter of 2008, to be able to effect direct sales of its
products to customers via its Internet store at www.devine-ent.com.

      Devine  Entertainment's  distribution  activities  include  exploiting the
merchandising  potential  of its  programming.  The  Company  has  entered  into
licenses  for home  video  and  broadcasting.  The  Company  has also  developed
licensing  arrangements for DVDs,  books,  soundtrack  recordings,  and internet
applications,  based on The Composers' Specials, The Inventors' Specials and The
Artists'  Specials  series.  The  Inventors'  Specials  are also  available  for
distribution  as audio  books.  All three  series  are  close-captioned  and The
Inventors'  Specials  and The  Artists'  Specials  have been  described  for the
visually impaired.

The Company's Film Library

      The following table outlines Devine Entertainment's library of proprietary
productions.

Genre: Family and Children's Television

Title                                      Premiere           Distributor
--------------------------------------------------------------------------------
 A Young Children's Concert with Raffi       1985      Rounder
 Raffi in Concert with the Sunshine Band     1989      Rounder

 Beethoven Lives Upstairs                    1992      Naxos

 The Composers' Specials

 Bach's Fight for Freedom                    1996      Devine Entertainment
 Liszt's Rhapsody                            1996      Devine Entertainment
 Rossini's Ghost                             1996      Devine Entertainment
 Strauss: The King of 3/4 Time               1996      Devine Entertainment
 Bizet's Dream                               1996      Devine Entertainment
 Handel's Last Chance                        1996      Devine Entertainment

 The Inventors' Specials

 Einstein: Light to the Power of 2           1997      Devine Entertainment
 Leonardo: A Dream of Flight                 1997      Devine Entertainment
 Galileo: On the Shoulders of Giants         1998      Devine Entertainment
 Newton: A Tale of Two Isaacs                1998      Devine Entertainment
 Marie Curie: More than Meets the Eye        1998      Devine Entertainment
 Edison: The Wizard of Light                 1998      Devine Entertainment


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<PAGE>

 The Artists' Specials

 Degas and the Dancer                        1999      Devine Entertainment
 Mary Cassatt: American Impressionist        1999      Devine Entertainment
 Monet: Shadow and Light                     2000      Devine Entertainment
 Rembrandt: Fathers and Sons                 2000      Devine Entertainment
 Goya: Awakened in a Dream                   2000      Devine Entertainment
 Winslow Homer: An American Original         2000      Devine Entertainment

Genre: Feature Film


 Goya: Awakened in a Dream                   2000      Devine Entertainment


Genre: Primetime Television Drama

 Across the River to Motor City - season 1   2007      Devine Entertainment

      The Company's film library has been actively  distributed in North America
and over the past twelve years, generating in excess of $20 million in revenues.
Since 2000, the Company's  revenue derived from its proprietary  film library of
children's  television  programs and DVD's has averaged  over $800,000 per year.
Bailey's  Billion$,   the  company's  first  feature  film  has  generated  over
$6,000,000 since it was completed and delivered in 2004.

Business Strategy

      The Company's  business strategy is to: (i) focus on the production of its
high-quality  children's  and  family  films,  primetime  television  series and
feature films for general audiences in order to continue building its library of
original  programs;  (ii)  increase  its  production  and  distribution  through
strategic alliances with major  international  broadcasters and distributors and
co-producers,  including HBO, Canal Plus, TPS, France5 (France), Sony Classical,
The Family  Channel,  YTV, CBC, The Disney Channel (United  Kingdom,  France and
Australia),  PBS,  Carrere  Group DA, MCA, NHK (Japan),  HBO Ole (Mexico,  Latin
America),  Discovery Channel International (Latin America,  Spain and Portugal),
Warner  Electra  Atlantic,   Scholastic,   McGraw  Hill,  and  the  Hal  Leonard
Corporation;  (iii)  enhance its  long-term  return on  investment  by retaining
control  over  the  distribution,  merchandising  and  ancillary  rights  to its
proprietary  productions;  and (iv) increase its  profitability by expanding its
own distribution  division and taking  additional  steps to expand,  enhance and
complement  its  core  business.   Such  additional   steps  include   expanding
educational   distribution,   developing  direct  and  cause-related  marketing,
developing new interactive


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<PAGE>

and other  media-based  products,  controlling  the manufacture of the Company's
products and,  potentially,  acquiring  product  libraries  and/or  distribution
capacity.

      The  Company's  films  have to date  been  sold for  broadcast  in over 50
countries and are distributed in video and DVD formats across North America.  As
children  enter the  relevant  age  group,  the films in the  Company's  library
generate "evergreen" sales.

      The Company has identified  over 100 potential  international  markets for
the  Company's  products,  and  the  Company  believes  that  the  international
television  market is an  important  growth area for its  products.  The Company
plans to continue building its library of quality films with future series based
on great  writers  and world  leaders.  Recent  sales in  Europe,  to the French
specialty cable broadcaster,  TPS, among others in Europe and Asia, have brought
commitments  to  participate  with  Devine  Entertainment  in  co-producing  and
broadcasting new films and series.

      In order to expand  production  output  for the  worldwide  audience,  the
Company has  optioned  several  screenplays  and young adult  novels,  which the
Company will seek to develop as feature films, and television movies, series and
mini-series.   These  options  enable  the  Company  to  determine  whether  the
screenplays and novels are suitable for commercial  exploitation  without having
to pay the full cost to acquire all  development,  production  and  distribution
rights with respect thereto.

Competitive Conditions

      Substantially  all  of  the  Company's   revenues  are  derived  from  the
production and distribution of television and film  programming.  The production
and distribution of television  programs and home videos are highly  competitive
businesses.  The most important  competitive  factors  include  popular  appeal,
artistic excellence and cost effectiveness.  The Company competes with the major
motion  picture  studios,  as well as with  numerous  other  motion  picture and
television production companies, many of which have greater financial, technical
and marketing resources.  The Company believes its principal competitors include
Hallmark Entertainment, The Walt Disney Company and Sullivan Films.

Employees

      The Company currently employs three full-time  employees,  two Officers of
the Company (see "Item 10.  Executive  Services  Agreement"),  and one part-time
employee.


                                       12
<PAGE>

Key Man Life Insurance

      The Company's  success  depends,  in substantial  part, on the efforts and
abilities of David Devine, the Company's  President and Chief Executive Officer,
and Richard Mozer, the Company's Chief Financial Officer. See "Item 9. Directors
and Executive Officers, Promoters and Control Persons -- Directors and Executive
Officers." and "Item 10. Executive Services Agreement." The loss of the services
of either  of these  persons  could  have a  material  adverse  effect  upon the
Company. The Company maintains key man insurance on the lives of Messrs.  Devine
and Mozer with coverage in the amount of $500,000 each. The annual premiums paid
on Mr. Devine's policy and Mr. Mozer's policy are $1,134 and $540, respectively.

Regulatory Considerations

      Local cultural policies in many of the international entertainment markets
regulate  broadcast content and provide industry  incentives to local producers.
This  is   particularly   the  case  in  those   countries  where  control  over
communications  systems such as  television  broadcasting  has devolved from the
state  through  privatization.  The  relaxation  of state control over media has
given rise to  regulations  which  protect  indigenous  culture  through (i) the
establishment  of local  content  requirements  as a  pre-condition  to  issuing
broadcasting  licenses and (ii) the subsidization of productions by broadcasters
and  producers  indigenous  to the  particular  market  through  a system of tax
incentives or direct grants and  investments  by national or regional  agencies.
The  Company  believes  that there is an  increasing  desire on the part of many
countries to protect their cultural identities which they feel may be undermined
by the international popularity of American culture,  especially as communicated
through the  television  and motion  picture  media.  Incentives  are  available
through  programs  administered by government  agencies in many major countries,
including  Canada,  France,  Italy,  the United  Kingdom,  Germany and  Ireland.
Management   believes  that,  while  the  shape  and  details  of  the  programs
implemented  in  support of such  policies  may  change  from time to time,  the
economic  commitment of governments to those policies will not be  significantly
reduced in the foreseeable future.

ITEM 2. DESCRIPTION OF PROPERTY

      The Company leases its office and production facilities.  These facilities
consist of approximately 2,100 square feet and are located at 2 Berkeley Street,
Toronto,  Ontario,  Canada.  The lease in respect of these facilities expires on
May 31, 2009 and provides for annual rent of approximately  $58,000 during 2007.
The Company  believes that its  facilities  are sufficient to meet its operating
requirements for the foreseeable future.


                                       13
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

      Neither the Company nor any of its property is the subject of any material
pending legal proceeding.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      During the fourth quarter of the fiscal year covered by this Annual Report
on Form 10-KSB, no matters were submitted to a vote of security holders.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

      The Common Shares were delisted from the Toronto Stock Exchange (the "TSX"
in March 2004 as a result of the Company's  failure to meet the minimum  listing
requirements of the TSX. Currently,  the Common Shares are quoted for trading in
Canada on the Canadian Unlisted Board (the "CUB") under the symbol "DVNN" and in
the United States in the Pink Sheets(R)  under the symbol "DVNNF." The following
table sets forth for the periods  indicated the per share market price ranges of
the Common Shares. All over-the-counter market quotations contained in the table
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.

          Date                              High($)             Low($)
          ------------------------------------------------------------
          2004
          ----
          First Quarter                       0.08              0.08
          Second Quarter                      0.08              0.08
          Third Quarter                       0.26              0.01
          Fourth Quarter                      0.28              0.10

          2005
          ----
          First Quarter                       0.29              0.15
          Second Quarter                      0.25              0.15
          Third Quarter                       0.32              0.07
          Fourth Quarter                      0.15              0.10


                                       14
<PAGE>

          2006
          ----
          First Quarter                       0.18              0.11
          Second Quarter                      0.20              0.12
          Third Quarter                       0.23              0.11
           Fourth Quarter                     0.15              0.09

          2007
          ----
          First Quarter                       0.13              0.07
          Second Quarter                      0.13              0.08
          Third Quarter                       0.16              0.05
          Fourth Quarter                      0.25              0.10

On April 11, 2008 the closing per share market price was 0.13.

Common Shares Subject to Options, Warrants and Convertible Securities

      At  April  11,  2008,  there  were  4,655,000  Common  Shares  subject  to
outstanding   options  and  14,474,166  Common  Shares  subject  to  outstanding
warrants.

Holders

      As at April 11,  2008,  there  were 102  holders  of record of the  Common
Shares.

Dividends

      The Company has not made any  dividend  payment with respect to the Common
Shares. The Company has no current intention to pay cash dividends on the Common
Shares in the foreseeable future. In lieu thereof, the Company intends to retain
any future  earnings for  reinvestment in the Company's  business.  The Series 1
Preferred  Shares restrict the Company's  ability to pay dividends on the Common
Shares. See "Description of Securities"

Penny Stock Considerations

      The  United  States   Securities  and  Exchange   Commission  has  adopted
regulations applicable to broker/dealers who sell "penny stock." A "penny stock"
is  generally  defined to be any  equity  security  that has a market  price (as
defined)  of less than $5.00  (U.S.) per share,  subject to certain  exceptions.
These   regulations   impose   additional   sales   practice   requirements   on
broker/dealers  who  sell  "penny  stock"  to  persons  other  than  established
customers and accredited investors. These additional sales practice requirements
may have the effect of reducing the level of trading  activity in the  secondary
market for "penny stock."


                                       15
<PAGE>

      The Company's Common Shares trade on the OTC Bulletin Board service of the
National Association of Securities Dealers, Inc. (the "OTC Bulletin Board"). The
Common Shares of the Company fall within the  definition of "penny stock." There
can be no assurance  that the Common  Shares will trade for $5.00 (U.S.) or more
per share.

Exchange Controls and Other Limitations Affecting Security Holders.

      Canada  has  no  system  of  exchange  controls.  There  are  no  exchange
restrictions on borrowing from citizens or residents of foreign countries nor on
the remittance of dividends, interest, royalties or similar payments, management
fees, loan repayments, settlement of trade debts or the repatriation of capital.

      Under the  Investment  Canada  Act (the "ICA  Act"),  a  Canadian  federal
statute, certain "non-Canadian" individuals,  governments, corporations or other
entities who wish to acquire a "Canadian  business"  (as defined in the ICA Act)
or establish a "new Canadian  business" (as defined in the ICA Act) are required
to file either a notification  or an application  for review with a governmental
agency known as "Investment  Canada".  The ICA Act further requires that certain
acquisitions  of control  of a Canadian  business  by a  "non-Canadian"  must be
reviewed and approved by the Minister  responsible  for the ICA Act on the basis
that he is  satisfied  that the  acquisition  is "likely to be of net benefit to
Canada". Only acquisitions of control are reviewable under the ICA Act; however,
the ICA Act provides detailed rules for the determination of whether control has
been acquired and, pursuant to those rules, the acquisition of one-third or more
of the voting shares of the Company may, in some circumstances, be considered to
constitute  an  acquisition  of  control.  Failure  to  comply  with the  review
provisions of the ICA Act could result in, among other things,  an injunction or
a court order directing disposition of assets or shares.

      There are no  limitations  contained in the Articles of  Incorporation  or
By-Laws on the rights of non-Canadian residents or non-Canadian  shareholders to
hold or vote the Common Shares.


Taxation

      Dividends

      In  general,  dividends  paid  by a  corporation  resident  in  Canada  to
non-residents  of Canada are subject to Canadian  withholding  tax.  The rate of
withholding  tax under the Income Tax Act (Canada)  (the "Tax Act") on dividends
is twenty-five percent (25%). Such rate may be reduced under the provisions of a
relevant  international tax treaty to which Canada is a party. The Canada-United
States Income Tax Convention  (1980) (the "U.S.  Treaty") provides for a general
reduction in the rate of Canadian  withholding  tax to fifteen  percent (15%) on
dividends paid on shares of a corporation resident in Canada to residents of the
United States, and also provides that where the beneficial owner of the


                                       16
<PAGE>

dividends is a corporation  resident in the United States.  Notwithstanding  the
foregoing,  a reduced rate of (i) ten percent (10%) applies to dividends  from a
non-resident owned investment corporation if the recipient is a corporation that
is the  beneficial  owner of at least ten percent  (10%) of the voting shares of
the  corporation  paying the dividends and (ii) five percent (5%) applies if the
recipient is a corporation  resident in the United States that is the beneficial
owner of at least ten  percent  (10%) of the  voting  shares of the  corporation
paying the dividends.

      Capital Gains

      A  non-resident  of  Canada  is not  subject  to tax  under the Tax Act in
respect of a capital gain realized upon the  disposition  of a share of a public
corporation  for  purposes  of the Tax Act unless the share  represents  taxable
Canadian property to the holder thereof. A share of a public corporation will be
taxable  Canadian  property  to the holder  thereof  if, at any time  during the
period  of  sixty  (60)  months   immediately   preceding  a  disposition,   the
non-resident,  persons with whom the  non-resident did not deal at arm's length,
or the  non-resident  together  with  persons with whom he did not deal at arm's
length, owned (or had an option in respect of or had an interest in) twenty-five
percent  (25%)  or more of the  issued  shares  of any  class or  series  of the
corporation  or if, upon ceasing to be a resident of Canada,  the holder elected
that the share be taxable Canadian property. The Company is a public corporation
for purposes of the Tax Act.

      The U.S. Treaty provides that, in general, a resident of the United States
will  not  be  subject  to  tax  on any  capital  gains  realized  by him on the
disposition  of  shares  that are  taxable  Canadian  property  unless  (i) such
resident has or had (within the twelve-month period preceding the disposition) a
permanent  establishment  in Canada and such shares  formed part of the business
property of that  permanent  establishment,  (ii) such shares formed part of the
personal property pertaining to a fixed base which is or was available (within a
twelve-month  period preceding the disposition) to such resident for the purpose
of performing  independent  personal services,  (iii) the value of the shares is
derived   principally  from  real  property  situated  in  Canada  or  (iv)  the
shareholder  is an  individual  who was resident in Canada for 120 months in any
twenty-year period preceding the disposition and at any time during the ten-year
period  immediately  preceding the  disposition  and who owned the shares of the
corporation at the time he or she ceased to be a resident of Canada.

      Estate and Gift Tax

      At present, Canada does not impose any estate or gift tax.


                                       17
<PAGE>

Description of Securities

Authorized Capital

      The  authorized  share  capital of the Company  consists  of an  unlimited
number  of Common  Shares  and an  unlimited  number of  preferred  shares  (the
"Preferred Shares"),  issuable in series.  45,921,149 Common Shares and a series
of 494,550  Preferred  Shares (the "Series 1 Preferred  Shares") were issued and
outstanding  as at April 11 2008.  Set forth below is a summary  description  of
certain  provisions  relating to the Company's  share  capital  contained in its
Articles  of  Incorporation   and  By-Laws,   and  under  the  Ontario  Business
Corporations  Act ("the  OBCA").  Such  summary is  qualified in its entirety by
reference to the Company's Articles of Incorporation and By-Laws, and the OBCA.

Preferred Shares

      The  Preferred  Shares are  issuable in one or more  series.  The board of
directors  of the Company is  permitted  under the  Articles  of  Incorporation,
without the approval of the  stockholders,  but subject to the provisions of its
corporate  legislation  (including  the  issuance of articles  of  amendment  in
prescribed  form), to designate,  fix the number of shares in, and determine the
rights, privileges,  restrictions and conditions attaching to the shares of each
series  of  Preferred  Shares  at or prior to the  date of their  issuance.  The
Preferred  Shares  could  be used  as a  method  of  discouraging,  delaying  or
preventing  a change in  control of the  Company.  In  addition,  the rights and
preferences  of the  Preferred  Shares may be  dilutive  of the  interest of the
holders of the Common Shares and otherwise  have an adverse effect on the rights
of the holders of the Common Shares.

      In December 2004, the Series 1 Preferred  Shares were created.  All of the
Series 1  Preferred  Shares  were  issued to the  Devine  Entertainment  Limited
Partnership.  See "Management's  Discussion and Analysis of Financial  Condition
and Results of  Operations  - Variable  Interest  Entities".  The holders of the
Series 1 Preferred Shares, in priority to the holders of the Common Shares,  are
entitled to receive a cumulative annual dividend of 9.1 cents per share.  Absent
the consent of all of the holders of the Series 1  Preferred  Shares,  dividends
may not be paid on the Common  Shares if dividends are then due and owing on the
Series 1 Preferred Shares.

      Except as  otherwise  required  by the OBCA,  the  holders of the Series 1
Preferred  Shares are entitled to vote only in the event the Company proposes to
dissolve or sell,  lease or exchange  all or  substantially  all of its property
other than in the ordinary course of business.

      Commencing on November 16, 2014 and  continuing on each  anniversary  date
thereafter,  the  holders of the  Series 1  Preferred  Shares  have the right to
require  the  Company to redeem on such date all or a portion of their  Series 1
Preferred Shares. The


                                       18
<PAGE>

redemption price (the  "Redemption  Price") for each Series 1 Preferred Share is
equal to the sum of $1 plus all accrued and unpaid dividends thereon.

      In the event the  Company is  liquidated,  dissolved  or  wound-up  or its
assets are  otherwise  distributed  among the Company's  stockholders  by way of
repayment  of capital,  whether  voluntary  or  involuntary,  the holders of the
Series 1 Preferred  Shares are  entitled to receive a per share  amount equal to
the  Redemption  Price before any  distribution  of the Company's  assets to the
holders of the Common Shares.

Common Shares

      All of the issued and outstanding Common Shares are validly issued,  fully
paid and  non-assessable.  Holders of the Common Shares are entitled to one vote
per  share at all  meetings  of  stockholders.  There is no right to  cumulative
voting;  thus,  the holders of a majority of the  outstanding  Common Shares can
elect all of the members of the Company's board of directors. A majority vote is
also sufficient for other actions that require the vote of stockholders,  except
in cases in which more than a majority is required by law. Holders of the Common
Shares are entitled to receive,  on a ratable  basis,  any dividends as and when
declared  by the  board of  directors  out of funds  legally  available  for the
payment of dividends.  Upon the liquidation,  dissolution,  or winding-up of the
Company, subject to the prior rights of the holders of the Preferred Shares, the
holders of Common  Shares are  entitled  to  receive,  on a ratable  basis,  the
remaining  assets  and  property  of the  Company.  The  Common  Shares  have no
preemptive rights or subscription, redemption or conversion privileges.

Other Warrants

      Information  concerning  additional  outstanding  warrants  issued  by the
Company  within  the  past  three  years  is  set  forth  in  "Recent  Sales  of
Unregistered Securities."

Capital Reorganization

      In order to  assist in  ensuring  that the  Company  remains  entitled  to
receive certain financial  incentives and assistance or any required licenses or
approvals from Canadian federal or provincial governments and agencies which are
available  only if the  ownership  of the equity  securities  of the  Company by
Canadian  residents  meets  certain  specified  requirements,  a resolution  was
adopted at a meeting of the board of  directors  of the Company  held on May 13,
2004  authorizing  the Company to seek all necessary  approvals to further amend
its Articles of  Incorporation  to effect the following  capital  reorganization
(the "Reorganization"):

      (a)   create two new classes of shares to be  designated as Class A voting
            shares (the  "Voting  Shares")  and Class B  non-voting  shares (the
            "Non-Voting Shares"), each in an unlimited number;


                                       19
<PAGE>

      (b)   exchange the issued and outstanding Common Shares into Voting Shares
            and  Non-Voting  Shares on the basis of one-half of one Voting Share
            and a one-half of one  Non-Voting  Share for each Common Share held;
            and

      (c)   cancel all the authorized Common Shares.

      The stockholders of the Company initially  approved the  Reorganization on
June 25, 2004 at a stockholders  meeting.  The reorganization was re-approved by
the Company's  stockholders at a stockholders meeting held on June 21, 2007. The
Company  expects  that the  Reorganization  will be effected at such time in the
future  as may be  required  in order to allow the  Company  to  continue  to be
eligible  to  receive  the  aforesaid  incentives,   assistance,   licenses  and
approvals.  As a general matter, in order for the Company to remain eligible, at
least a majority of the equity  ownership and voting control of the Company must
be held by Canadian  residents.  Canadian residents  currently hold in excess of
85% of the equity ownership and voting control of the Company. The OBCA does not
impose any time  limitation per se on when the  Reorganization  must be effected
following its approval by the Company's  stockholders.  However, until such time
as the  Reorganization  is  effected,  the  Company  will,  on an annual  basis,
continue to seek  re-approval  of the  Reorganization  at the  Company's  annual
meeting of stockholders.

      Pursuant to the terms of the Reorganization,  holders of Voting Shares and
Non-Voting  Shares will have the  following  rights and  privileges  and will be
subject to the following restrictions and conditions:

      (a)   subject to any  preference  as to  dividends  provided to any shares
            ranking in priority to the Voting Shares and the Non-Voting  Shares,
            to participate equally, share for share, in any dividend, whether in
            cash, in shares of the Company or  otherwise,  which may be declared
            or paid on either class of such shares;

      (b)   in the  event  of  liquidation,  dissolution  or  winding-up  of the
            Company or other  distribution  of assets for the purpose of winding
            up its  affairs,  to  receive  equally,  share  for  share,  all the
            remaining  property of the Company  after  payment of the  Company's
            liabilities and any amounts payable to holders of any shares ranking
            in priority to the Voting Shares and the Non-Voting Shares,  without
            preference or distinction;

      (c)   receive  notice  of,  attend (in person or by proxy) and be heard at
            all meetings of the stockholders of the Company; and

      (d)   in the event that an independent committee of the board of directors
            of the Company  reasonably  determines  that it is necessary for the
            Company to be Canadian  controlled or that there be  limitations  on
            the number of shares held by non-residents of Canada for the purpose
            of  determining   the  eligibility  of  the  Company  for  financial
            incentives  or assistance  or licenses or other


                                       20
<PAGE>

            approvals  from any Canadian  federal or  provincial  government  or
            agency or for any other regulatory  purpose,  the Company shall have
            the right, upon prior written notice to the holders of Voting Shares
            and Non-Voting Shares, to (i) refuse to allot or issue any shares of
            the  Company to any  non-resident  of Canada;  (ii)  direct that the
            voting rights,  if any,  attached to shares held by non-residents of
            Canada may not be exercised for such period or periods of time as is
            specified in such notice;  (iii)  authorize  and direct its transfer
            agent to  refuse  to  register  any  transfer  of  Voting  Shares or
            Non-Voting   Shares  to  any   non-resident  of  Canada;   and  (iv)
            automatically convert all Non-Voting Shares into Voting Shares.

      In  addition  to  the  rights,  privileges,  restrictions  and  conditions
described above, holders of Voting Shares shall be entitled to:

      (a)   vote at all meetings of the  stockholders of the Company (other than
            at meetings of the  holders of another  class or series  entitled to
            vote  separately  as a class or series in  respect  of a  particular
            matter); and

      (b)   convert,  at any  time,  each  Voting  Share  held by them  into one
            Non-Voting Share.

      Furthermore,  if an offer is made to purchase  Voting Shares which,  under
applicable  securities  legislation or the  requirements  of a stock exchange on
which the Voting Shares or the Non-Voting Shares are listed, must be made to all
or  substantially  all holders of Voting Shares in a province of Canada to which
the requirement  applies and an unconditional  offer is not concurrently made to
purchase  Non-Voting  Shares that is identical  with respect to price per share,
percentage  of  outstanding  shares for which the offer is made and in all other
material respects, each Non-Voting Share will become convertible,  at the option
of the holder,  within a specified  time  following  the offer,  into one Voting
Share.  The conversion right may only be exercised for the purpose of depositing
the resulting  Voting Share in response to the offer and the transfer  agent and
registrar of the Company will deposit the  resulting  Voting Shares on behalf of
the  stockholders.  If the  Voting  Shares  resulting  from the  conversion  are
subsequently  withdrawn from the bid by the  stockholders or not taken up by the
offeror or if the offer is abandoned  and  withdrawn by the offeror,  the Voting
Shares thus converted will be reconverted  into Non-Voting  Shares.  In no other
circumstances will the Non-Voting Shares be convertible into Voting Shares.

      In instances where the  Reorganization  would result in a holder of Common
Shares  receiving a fractional  Voting Share or a  fractional  Non-Voting  Share
(after  aggregating all Voting Shares or all Non-Voting  Shares, as the case may
be), such fractional shares will be rounded up to the next whole Voting Share or
Non-Voting Share (as the case may be).

      The  Reorganization  will affect all  stockholders  uniformly and will not
affect any  stockholder's  percentage  interest  in the  Company,  except to the
extent the


                                       21
<PAGE>

Reorganization  would  otherwise  result in a  stockholder  owning a  fractional
share.  In  addition,  the  Reorganization  will not  affect  any  stockholder's
proportionate  voting rights,  subject to the treatment of fractional  shares as
described above.

Recent Sales of Unregistered Securities

      Set forth below is certain  information  regarding all securities that the
Company has sold within the two most recently  completed  calendar years without
registering  such  securities  under the Securities Act of 1933, as amended (the
"Securities Act").

      In April  2006,  the  Company  extended  the  exercise  date of  2,547,500
warrants previously issued with the Company's April 2004 private placement. Each
warrant to acquire  one common  share at an exercise  price of $0.30  previously
exercisable  at any time prior to April 7, 2006 were extended to be  exercisable
at any time prior to April 7, 2007.

      Effective  May 31, 2006 the  Company  sold  3,383,331  units at a price of
$0.15 per unit for  aggregate  gross  proceeds of $507,500 to a group of private
investors.  Substantially  all of these  investors are residents of Canada.  The
remaining  investors are residents of the United States.  Each unit consisted of
(i) one Common Share and (ii)  one-half  Common  Share  purchase  warrant.  Each
warrant was exercisable, at any time on or prior to May 31, 2007, to acquire one
Common Share at an exercise price of $0.30 per Common Share.

      The aforesaid Common Shares and warrants were offered and sold in reliance
on the exemptions from registration afforded by Section 4(2) and Regulation S of
the Securities Act.

      In June 2006, the Company issued 150,000 Common Shares to Cameron  Thomson
Group Ltd. in  consideration  for financial  advisory  services  provided to the
Company.  The  aforesaid  Common Shares were offered and sold in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act.

      In June  2006,  the  Company  issued  114,560  Common  Shares to Mr.  Paul
Crossett  in  consideration  for  financial  advisory  services  provided to the
Company.  The  aforesaid  Common Shares were offered and sold in reliance on the
exemption from registration  afforded by Section 4(2) of the Securities Act.  In
June 2006,  the Company  issued  40,000  Common Shares to Mr. Thomas F. Weisz in
consideration  for  financial  advisory  services  provided to the Company.  The
aforesaid  Common Shares were offered and sold in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act.

      In June 2006,  the Company  issued 35,100 Common Shares equally to Flehr &
Associates Ltd. and Messrs F. Bryson Farrill and Kenneth Taylor in consideration
for


                                       22
<PAGE>

Board of Director services provided to the Company.  The aforesaid Common Shares
were offered and sold in reliance on the exemption from registration afforded by
Section 4(2) of the Securities Act.

      In September  2006,  the Company  issued  25,000 Common Shares to Boigon &
Hutchison Productions Inc. in consideration for stock options issued in 2004 for
post production  services  provided to the Company.  The aforesaid Common Shares
were offered and sold in reliance on the exemption from registration afforded by
Section 4(2) of the Securities Act.

      In October 2006,  the Company issued 67,200 Common Shares equally to Flehr
&  Associates   Ltd.  and  Messrs  F.  Bryson  Farrill  and  Kenneth  Taylor  in
consideration  for Board of  Director  services  provided  to the  Company.  The
aforesaid  Common Shares were offered and sold in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act.

      In October 2006, the Company issued 38,250 Common Shares to Baxter Capital
Advisors Inc. in consideration  for financial  advisory services provided to the
Company.  The  aforesaid  Common Shares were offered and sold in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act.

      In October  2006,  the  Company  issued  6,750  Common  Shares to Midsouth
Capital Inc. in consideration  for financial  advisory  services provided to the
Company.  The  aforesaid  Common Shares were offered and sold in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act.

      In November  2006,  the Company  issued 100,000 Common Shares to Friedland
Capital Advisors Inc. in consideration for financial  advisory services provided
to the Company. The aforesaid Common Shares were offered and sold in reliance on
the exemption from registration afforded by Section 4(2) of the Securities Act.

      In April 2007,  the Company issued 68,850 Common Shares equally to Flehr &
Associates Ltd. and Messrs F. Bryson Farrill and Kenneth Taylor in consideration
for Board of Director  services  provided to the Company.  The aforesaid  Common
Shares were  offered and sold in reliance  on the  exemption  from  registration
afforded by Section 4(2) of the Securities Act.

      In April  2007,  the  Company  extended  the  exercise  date of  2,547,500
warrants previously issued with the Company's April 2004 private placement. Each
warrant to acquire  one common  share at an exercise  price of $0.30  previously
exercisable  at any time prior to April 7, 2007 were extended to be  exercisable
at any time prior to April 7, 2008.

      In May 2007, the Company issued 550,000  warrants to Forvest Trust Inc. in
consideration  for  financial  advisory  services  provided to the Company.  The
warrants  are  exercisable  at any time on or prior to  December  31,  2009,  to
acquire one Common


                                       23
<PAGE>

Share at an exercise  price of $0.25 per Common Share.  The  aforesaid  warrants
were offered and sold in reliance on the exemption from registration afforded by
Section 4(2) of the Securities Act.

      In May 2007, the Company extended the exercise date of 1,691,666  warrants
previously  issued with the  Company's  May 31,  2006  private  placement.  Each
warrant to acquire  one common  share at an exercise  price of $0.30  previously
exercisable at any time prior to May 31, 2007 were extended to be exercisable at
any time prior to May 31, 2008.

      In August 2007, the Company issued  1,200,000  warrants to Trilogy Capital
Partners Inc. in consideration for Investor  Relations  services provided to the
Company.  The  warrants  are  exercisable  at any time on or prior to August 14,
2010,  to acquire  one  Common  Share at an  exercise  price of $0.10 per Common
Share. The aforesaid warrants were offered and sold in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act.

      In October 2007,  the Company issued 63,600 Common Shares equally to Flehr
&  Associates   Ltd.  and  Messrs  F.  Bryson  Farrill  and  Kenneth  Taylor  in
consideration  for Board of  Director  services  provided  to the  Company.  The
aforesaid  Common Shares were offered and sold in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act.

      Effective  October 11, 2007 the Company sold 6,475,000 units at a price of
$0.10 per unit for  aggregate  gross  proceeds of $647,500 to a group of private
investors.  Substantially  all of these  investors are residents of Canada.  The
remaining  investors are residents of the United States.  Each unit consisted of
(i) one Common Share and (ii) one Common Share purchase warrant. Each warrant is
exercisable,  at any time on or prior to April 11,  2009,  to acquire one Common
Share at an exercise price of $0.10 per Common Share.

      In October 2007, the Company issued 90,000 warrants to Christine Petraglia
in consideration for Investor  Relations  services provided to the Company.  The
warrants are  exercisable at any time on or prior to October 1, 2008, to acquire
one Common Share at an exercise  price of $0.10 per Common Share.  The aforesaid
warrants  were offered and sold in reliance on the exemption  from  registration
afforded by Section 4(2) of the Securities Act.

      In October  2007,  the  Company  issued  2,835  warrants  to David Rich in
consideration  for Investor  Relations  services  provided to the  Company.  The
warrants are  exercisable at any time on or prior to October 1, 2008, to acquire
one Common Share at an exercise  price of $0.10 per Common Share.  The aforesaid
warrants  were offered and sold in reliance on the exemption  from  registration
afforded by Section 4(2) of the Securities Act.


                                       24
<PAGE>

      In  October  2007,  the  Company  issued  38,475  warrants  to  Jeffrey H.
Auerbacker in  consideration  for Investor  Relations  services  provided to the
Company.  The  warrants  are  exercisable  at any time on or prior to October 1,
2008,  to acquire  one  Common  Share at an  exercise  price of $0.10 per Common
Share. The aforesaid warrants were offered and sold in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act.

      In October 2007, the Company issued 1,215 warrants to Robert Bookbinder in
consideration  for Investor  Relations  services  provided to the  Company.  The
warrants are  exercisable at any time on or prior to October 1, 2008, to acquire
one Common Share at an exercise  price of $0.10 per Common Share.  The aforesaid
warrants  were offered and sold in reliance on the exemption  from  registration
afforded by Section 4(2) of the Securities Act.

      In October 2007,  the Company  issued  38,475  warrants to Scott Shames in
consideration  for Investor  Relations  services  provided to the  Company.  The
warrants are  exercisable at any time on or prior to October 1, 2008, to acquire
one Common Share at an exercise  price of $0.10 per Common Share.  The aforesaid
warrants  were offered and sold in reliance on the exemption  from  registration
afforded by Section 4(2) of the Securities Act.

      In October 2007, the Company issued 9,000 warrants to vFinance Investments
Inc. in consideration for Investor  Relations  services provided to the Company.
The  warrants  are  exercisable  at any time on or prior to October 1, 2008,  to
acquire one Common  Share at an exercise  price of $0.10 per Common  Share.  The
aforesaid  warrants  were  offered and sold in reliance  on the  exemption  from
registration afforded by Section 4(2) of the Securities Act.

      Each  exemption  claimed  above  from  compliance  with  the  registration
provisions of the Securities Act by reason of Section 4(2) of the Securities Act
is based on the  grounds  that each  offer and sale did not  involve  any public
offering,   each  purchaser  was  sophisticated  with  access  to  the  kind  of
information  registration  would  provide and that such  purchaser  acquired the
securities at issue without a view towards distribution thereof.

      Each  exemption  claimed  above  from  compliance  with  the  registration
provisions of the  Securities Act by reason of Regulation S under the Securities
Act is based on the grounds that each offer and sale was effected by means of an
offshore transaction  involving one or more non-U.S.  persons in accordance with
all applicable  conditions and restrictions of Regulation S under the Securities
Act.


                                       25
<PAGE>

ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following management's discussion and analysis has been prepared as of April
11,  2008 to  provide a review of current  activities  and a  comparison  of the
performance and financial  position of Devine  Entertainment  for the year ended
December  31, 2007 and 2006.  Additional  information  related to the Company is
available on SEDAR at  www.sedar.com  The  financial  data in this document have
been  prepared  in  accordance  with  Canadian  generally  accepted   accounting
principles that conforms,  in all material respects,  with accounting principles
generally  accepted in the United States of America  except as described in Note
23 to the financial statements. References to Canadian dollars, Cdn$ or $ are to
the currency of Canada and references to U.S. dollars or US$ are to the currency
of the United States.

OVERVIEW

Five-time Emmy Award-winning Devine Entertainment Corporation develops, produces
and  distributes   feature  films,   primetime  drama,   children's  and  family
entertainment  for the theatrical  motion picture,  television and the Video/DVD
marketplace worldwide.

The Company's  proprietary library includes 19 award-winning  broadcast programs
based on the  lives of  landmark  international  historical  figures  and  other
classic  family  stories,  which  permit it access to sales in a wide variety of
outlets  encompassing  both  the  entertainment  and  educational  markets.  Its
landmark  Composers',  Inventors'  and Artists'  are  critically  acclaimed  and
broadcast in over 50 countries. The Company completed its first feature film for
theatrical  release,  Bailey's Billion$,  which was released in North America on
August  5,  2005  and is  currently  being  distributed  on  television  and DVD
worldwide.  In 2006 and 2007 the Company  continued  expanding  its  proprietary
library by financing  and producing and  delivering  its first general  audience
primetime  one-hour mystery series,  entitled Across the River to Motor City for
broadcast worldwide.

The  Company's  business  strategy  is to:  (i) focus on the  production  of its
high-quality  children's  and family  films in order to  continue  building  its
broadly based library of original  programs;  (ii) increase its feature film and
primetime drama production and  distribution  through  strategic  alliances with
major international  distributors,  broadcasters and co-producers and (iii) grow
by expanding its library through  acquisitions of third party film libraries and
the integration of third party productions and production companies.


                                       26
<PAGE>

FORWARD-LOOKING STATEMENTS

Readers are cautioned that actual results may differ materially from the results
projected in any  "forward-looking"  statements  included in this discussion and
analysis,  which  involve a number of risks and  uncertainties.  Forward-looking
statements are statements  that are not historical  facts,  and include (but are
not limited to) statements  regarding the Company's planned production slate and
development  activities,  anticipated future  profitability,  losses,  revenues,
expected future  expenditures,  the Company's  intention to raise new financing,
sufficiency of working capital for continued  operations,  and other  statements
regarding  anticipated  future  events  and  the  Company's  anticipated  future
performance. Forward-looking statements generally can be identified by the words
"expected", "intends", "anticipates",  "feels", "continues", "planned", "plans",
"potential", "with a view to", and similar expressions or variations thereon, or
that  events  or  conditions  "will",  "may",  "could"  or  "should"  occur,  or
comparable terminology referring to future events or results.

The Company's actual results could differ  materially from those  anticipated in
these  forward-looking  statements  as a result of numerous  factors,  including
those listed under  "Risks and  Uncertainties",  any of which could cause actual
results to vary  materially  from current  results or the Company's  anticipated
future results.  The Company assumes no responsibility to update the information
contained herein.

NON-GAAP  MEASURE  -  Earnings  (loss)  before  interest,  taxes,  depreciation,
amortization and write-down  ("EBITDA")

EBITDA  is a  non-GAAP  financial  measure  that  management  believes  to  be a
meaningful   indicator  of  the  Company's   performance  that  provides  useful
information to investors regarding the Company's financial condition and results
of  operations.  EBITDA is a non-GAAP  financial  measure  commonly  used in the
entertainment  industry  and by  financial  analysts  and  others who follow the
industry to measure operating performance.  While management considers EBITDA to
be an  important  measure of  comparative  operating  performance,  it should be
considered  in addition  to, but not as a  substitute  for, net income and other
measures of financial  performance reported in accordance with GAAP. EBITDA does
not  reflect  cash  available  to fund  cash  requirements.  Not  all  companies
calculate  EBITDA in the same  manner and the  measure as  presented  may not be
comparable to similarly-titled measures presented by other companies.  EBITDA is
not  used by the  Company  as a  performance  indicator  for the  evaluation  of
management or employee performance and any related remuneration or bonuses.


                                       27
<PAGE>

FISCAL 2007 HIGHLIGHTS

The  Company's  revenues  and EBITDA (a non-GAAP  financial  measure  defined as
earnings before  interest,  taxes,  depreciation,  amortization  and write-down)
increased  dramatically  year over year as a result of the Company's  completion
and delivery of the first  six-episode  season of the  Company's  new  primetime
mystery series for Chum Television, Across the River to Motor City and more than
20% growth in revenue from the Company's  proprietary film library.  2007 proved
to be among the Company's  strongest  ever, a truly landmark year that generated
the Company's highest revenues in the last ten years.

      o     Revenues  for  the  year  ended   December  31,  2007  increased  by
            $5,720,618  or  approximately  1349% to  $6,144,577  as  compared to
            $423,959 for the same period in 2006.  $5,612,427 of these  revenues
            was derived from the  delivery of the first season of the  Company's
            new series Across the River to Motor City.  $522,302 in revenues for
            2007  were  generated  from  the  Company's  library  of  films  and
            television programs.

      o     EBITDA,  increased by  $5,536,642 to $5,056,602 in 2007, as compared
            to ($480,040) in 2006.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2007

Revenues

The Company's Revenues in 2007 increased by $5,720,618 or approximately 1349% to
$6,144,577 as compared to $423,959 for the same period in 2006.

The majority of the Company's revenues in 2007, or $5,612,427,  was derived from
the  delivery of the  six-episode  first  season of its new series for  CITY-TV,
entitled Across the River to Motor City.

$522,302 in revenues for 2007 were generated from the Company's library of films
and  television  programs with the balance from an interactive  web  application
related to Across the River to Motor City. The Company's  library  revenues were
derived  from  DVD and  ancillary  product  sales  from the  Company's  in-house
distribution  activities in North America of $317,996 and $204,306 from the sale
of broadcast  licenses,  of which $200,861 was derived from foreign  territories
with  sales by the  Carrere  Group of  France.  Revenues  of  $522,302  from the
Company's  film library in 2007  increased by over 23% as compared with $423,959
for 2006.  This revenue growth  primarily  reflects new sales generated from the
Company's newly  established  foreign  distribution  agreement for the Company's
library of films with the Company's Carrere Group.  Revenues from sales in North
America in 2007 increased by  approximately 4% or $14,325,  reflecting  positive
growth in the United  States.  North  American sales would have increased by 10%
year


                                       28
<PAGE>

over year if the U.S.  dollar  exchange rate,  which  decreased in average value
against  the  Canadian  dollar  by over  $0.11  through  2007,  had not  changed
dramatically.

The  Company's  revenues  by  geographic  location,  based  on the  location  of
customers were as follows:

                                  2007       %                2006        %
                               ---------                    -------
                                   $                           $
Revenue
 Canada                        5,661,044   92.1              28,432      6.7
 United States                   260,661    4.2             273,901     64.6
 France                           71,000    1.2              68,723     16.2
 Europe - Other                  130,214    2.1              37,539      8.9
 Other foreign                    21,658    0.4              15,364      3.6
                               ---------                    -------
                               6,144,577                    423,959
                               =========                    =======

Loss per Share

Loss for 2007  decreased  by  $2,001,043  to  $547,510  or ($0.01)  per share as
compared to a Loss of $2,548,553 or ($0.07) per share for 2006.

EBITDA

EBITDA, a non-GAAP financial measure defined as earnings before interest, taxes,
depreciation, amortization and write-down, increased by $5,536,642 to $5,056,602
in 2007, as compared to ($480,040) in 2006.

                                                       2007             2006
Net Loss                                           $ (547,510)     $(2,548,553)
Amortization & write-down of film
   television programs and recordings               5,589,184        2,010,385
Amortization of property & Equipment                    5,060            6,572
Interest expense                                       34,442           51,556
                                                   ----------     ------------
EBITDA                                             $5,056,602      $  (480,040)
                                                   ----------     ------------

Shareholders' Equity

Shareholders'  equity  increased  year over year by $426,939 to $3,211,526 as at
December 31, 2007 as compared to $2,784,587 as at December 31, 2006.


                                       29
<PAGE>

SUMMARY OF QUARTERLY RESULTS:

<TABLE>
<CAPTION>
                                         Restated      Restated     Restated    Restated      Restated       Restated     Restated
                            Dec. 31,     Sept.  30,    June 30,     Mar. 31,    Dec. 31,      Sept. 30,      June 30,     Mar. 31,
                             2007           2007         2007         2007        2006           2006          2006          2006
                          ----------     ---------    ---------    ---------   ----------     ---------      --------      --------
<S>                          <C>         <C>          <C>          <C>             <C>           <C>          <C>          <C>
Revenues                     147,941     2,032,153    1,935,408    2,029,075       60,430        84,255       115,414      163,860

Operating Expenses           336,529       363,626      285,586      102,234      205,268       280,670       185,684      232,377

Earnings (loss)           (1,667,166)      303,978      267,214      523,900   (2,019,389)     (224,648)     (153,939)    (150,577)
before income taxes

Net earnings (loss)       (1,667,166)      303,978      267,214      523,900   (2,019,389)     (224,648)     (153,939)    (150,577)

Basic  earnings                (0.04)         0.01         0.01         0.01        (0.06)        (0.01)        (0.00)       (0.00)
(loss) per common share
</TABLE>

Operating expenses

The Company's  operating expenses for the year ended December 31, 2007 increased
by $183,976 or approximately 20% to $1,087,975 as compared to $903,999 in 2006.

Production and Development Activity

The Company  continues to develop new projects in order to secure new production
activity.  The  Company  has  acquired  the  rights and is  actively  developing
additional  films and series projects  targeted to the worldwide family audience
including Russell Sprout, October 7, 1944, Fat Camp and Humchucker.  The Company
has also entered into an initial  agreement  to  co-develop,  with the intent of
co-producing in the future, a new series of Writers' Specials with a co-producer
in France.  The  Company  has also  commissioned  four new  scripts for a second
season of its new primetime mystery series, Across the River to Motor City, with
the  participation  and  support  of its  Canadian  broadcaster  and  the  Cable
Television  Fund.  In  addition,  the  Company  is  preparing  to  expand on the
primetime drama  franchise  established by Across the River to Motor City with a
new series set on the US/Mexico border and is presenting this new series concept
to US broadcasters.

Investment in Film and Television Programs and Recordings

The Company  determines  amortization  of its  investment in film and television
programs and recordings based on the ratio that current gross film revenues bear
to management's  estimate of total  remaining  ultimate gross film revenue as of
the  beginning  of the current  fiscal  year on a program by program  basis (the
"individual film forecast method").


                                       30
<PAGE>

Revenue and film  carrying  costs are  continually  reviewed by  management  and
revised when warranted by changing conditions.  When estimates of total revenues
and costs  indicate that a feature film or television  program will result in an
ultimate loss, a reduction in the carrying value of the investment is recognized
to the extent that capitalized film costs exceed estimated fair value.

Amortization  and  write-down  expensed in 2007 for the Company's  Investment in
Film,  Television  Programs and Recordings were $3,989,087 (2006 - $251,643) and
$1,600,097  (2006  -  $1,758,742)  respectively,  totaling  $5,589,184  (2006  -
$2,010,385).

Amortization and write-down of the Company's  completed  television programs and
recordings totaled $619,973 (2006 - $826,983) including a write down of $500,332
(2006 -  $575,340).  The  Company  believes  that  its  proprietary  library  of
completed  television programs and recordings are evergreen and will continue to
generate revenues in the future. In accordance with Statement of Position of the
American  Institute  of  Certified  Public  Accountants  (SOP  00-2)  all of the
Company's carrying value for its completed television programs and recording are
required  to be  expensed  by the end of the  prescribed  ten year  amortization
period  in  2008.  At  December  31,  2007,  the  Company's  investment  in  its
proprietary  film library of completed  television  programs and  recordings was
estimated  as $265,000  (2006 - $930,318)  after  accumulated  amortization  and
write-downs.

The Company's  investment in its motion picture Bailey's  Billion$ was estimated
at $2,034,919 (2006 - $2,891,078) after accumulated  amortization in prior years
and a write-down in 2007 of $856,159 (2006 - $300,254).

Amortization  expenses for the  Company's  completed  television  drama  series,
Across the River to Motor City, in 2007 was $3,869,114  (2006 - $0). At December
31, 2007, the Company's  investment in its completed television drama series was
estimated at $1,816,485 (2006 - $0).

Development costs for properties that are expected to benefit future periods are
capitalized.  If the property under  development has not been set for production
within three years, or if upon review  management  determines that certain costs
are  unrecoverable,  the costs  associated with such property are written off to
income.  The Company wrote off $243,606 of its investment  costs in 2007 (2006 -
$883,148).

The net carrying value for the Company's Investment in Film, Television Programs
and  Recordings  totaled  $5,355,327  as at  December  31,  2007 as  compared to
$9,444,813 at December 31, 2006, as per the following table:


                                       31
<PAGE>

<TABLE>
<CAPTION>
                                                                                       As at   December 31, 2007
                                                                                       -------------------------
                                                                                                                       Net
                                                                                           Accumulated              Carrying
                                                                          Cost             Amortization               Value
                                                                      -----------          ------------            ----------
<S>                                                                   <C>                   <C>                    <C>
Completed television programs and recordings                          $ 6,874,607           $ 6,609,607            $  265,000
Completed Motion picture - Bailey's Billion$                            6,972,580             4,937,661             2,034,919
Completed Television Drama Series                                       5,685,599             3,869,114             1,816,485
Projects in progress                                                    1,238,923                    --             1,238,923
                                                                      -----------           -----------            ----------
                                                                      $20,771,709           $15,416,382            $5,355,327
                                                                      ===========           ===========            ==========

<CAPTION>
                                                                                       As at December 31, 2006
                                                                                       -----------------------
                                                                                                                       Net
                                                                                           Accumulated              Carrying
                                                                          Cost             Amortization               Value
                                                                      -----------          ------------            ----------
<S>                                                                   <C>                   <C>                    <C>
Completed television programs and recordings                          $15,996,453           $15,066,135            $  930,318
Completed Motion picture - Bailey's Billion$                            6,972,580             4,081,502             2,891,078
Projects in progress                                                    5,623,417                    --             5,623,417
                                                                      -----------           -----------            ----------
                                                                      $28,592,450           $19,147,637            $9,444,813
                                                                      ===========           ===========            ==========
</TABLE>

At year end 2007 96% of completed  television  programs and  recordings,  71% of
completed  motion  picture  costs and 68% of completed  television  drama series
costs have been amortized.

The remaining period of amortization for the completed  projects ranges from one
to nine years at December 31, 2007.  100% of completed  television  programs and
recordings will be amortized in 2008. The Company expects  approximately  42% of
the remaining completed motion picture costs will be amortized in the next three
years and expects 84% will have been amortized by 2012.  The Company  expects to
amortize 79% of the  remaining  completed  television  drama series costs in the
next three years and expects 84% will have been amortized by 2011. The remaining
period of amortization for the completed  projects ranges from one to nine years
at December 31, 2007.

Interest  incurred on funds borrowed  during  productions  of films,  television
programs and recordings is capitalized as a cost of the  production.  During the
year the Company  capitalized  interest in connection  with various  productions
amounting to $272,087 (2006 - $169,863).


                                       32
<PAGE>

Capital stock

At December 31, 2006 the Company had 39,313,699 common shares,  494,550 Series 1
preferred shares and 6,069,166 warrants outstanding.

o     On April 16, 2007 the Company  issued  68,850  common  shares for services
      rendered  valued  at  $10,328  (based  on the fair  value  of the  service
      provided which approximates the fair value of the consideration  given) to
      the  Company's  three  outside   directors   pursuant  to  the  director's
      compensation  plan,  set at  US$1,500  per quarter for each of the outside
      directors, for the fourth quarter 2006 and the first quarter 2007.

o     In April  2007,  the  Company  extended  the  exercise  date of  2,547,500
      warrants   previously   issued  with  the  Company's  April  2004  private
      placement.  Each warrant to acquire one common share at an exercise  price
      of $0.30  previously  exercisable  at any time prior to April 7, 2007 were
      extended to be  exercisable  at any time prior to April 7, 2008.  The fair
      value of the  modification  was $7,931 that was allocated to warrants from
      contributed surplus.

o     In May 2007, the Company extended the exercise date of 1,691,666  warrants
      previously issued with the Company's 2006 private placement. Each warrant
      to  acquire  one common  share at an  exercise  price of $0.30  previously
      exercisable  at any  time  prior  to May  31,  2007  were  extended  to be
      exercisable  at any time  prior  to May 31,  2008.  The fair  value of the
      modification  was $8,325 that was allocated to warrants  from  contributed
      surplus.

o     As resolved by the Board of Directors,  on May 11, 2007 the Company issued
      a number of employees,  officers, directors and consultants to the Company
      a total of 1,300,000  options to purchase the Company's common shares at a
      price of $0.15 per share pursuant to its shareholder approved option plan.

o     Also on May 11, 2007, the board approved the issuance of 550,000  warrants
      to an unrelated  investor for financial  advisory services rendered (based
      on the fair value of the  service  provided  which  approximates  the fair
      value of the  consideration  given).  The warrants are  exercisable at any
      time on or prior to December 31,  2009,  to acquire one Common share at an
      exercise price of $0.25.

o     On July 30, 2007,  the Company  issued a consultant to the Company a total
      of 15,000  options to purchase the  Company's  common shares at a price of
      $0.15 per share pursuant to its shareholder approved option plan.

o     On August 14, 2007, the Company issued  consultants to the Company a total
      of 1,200,000 warrants at $0.10 pursuant to agreement.

o     On October 1, 2007, the Company issued  consultants to the Company a total
      of 180,000 warrants at $0.10 pursuant to agreements.


                                       33
<PAGE>

o     On  October  11,  2007,  the  Company  completed  a private  placement  of
      6,475,000  units,  each  consisting  of one common  share and one purchase
      warrant of $0.10 per unit. Each warrant is exercisable,  at any time on or
      prior to April 10, 2009, to acquire one common share at an exercise  price
      of $0.10 per share.  Net  proceeds  totalled  $592,400  and  $365,124  was
      proportionately  allocated  based on relative  fair value to Capital Stock
      and the $227,276 was allocated to warrants.

o     On October 11, 2007 the Company  issued  63,600 common shares for services
      rendered,  valued  at  $9,540  (based  on the fair  value  of the  service
      provided which approximates the fair value of the consideration given).

At December 31, 2007 the Company had 45,921,149 common shares,  494,550 Series 1
Class A preferred shares outstanding and 14,474,166 warrants outstanding.

Related Party Transactions

During the year ended December 31, 2007, $407,283 (2006 - $299,280) of fees were
paid or accrued to corporations  controlled by the two directors and officers of
the Company for writing,  directing and producing services on the Company's film
and television productions. Included in accounts payable and accrued liabilities
at December 31, 2007 was $137,500  (2006 - $73,750).  These  transactions  occur
during the normal course of business and have been measured at exchange  amount,
which is the amount of  consideration  established  and agreed to by the related
parties and which management believes reflect prevailing market rates.

Variable Interest Entities

A Variable  Interest  Entity  ("VIE")  is an entity  that  either  does not have
sufficient  equity  at risk  to  finance  its  activities  without  subordinated
financial  support or wherein the equity investors lack the  characteristic of a
controlling  financial  interest.  Pursuant  to CICA AcG-15 and FIN 46, VIEs are
consolidated  by a company if that company is deemed the primary  beneficiary of
the VIE. Accordingly, the Company has consolidated the VIE's in the December 31,
2007 financial statements as discussed herein.

During  2004  the  Company  entered  into  a  services   agreement  with  Devine
Entertainment Limited Partnership ("the Partnership").  On December 22, 2004 the
Company issued  380,450  Common Shares and 494,550 Series 1 preferred  shares of
the Company. The Company recorded the common shares as equity and classified the
preferred shares as a liability.

In December  2005, The Devine  Entertainment  Film Library  Limited  Partnership
("DEFL  LP"),  a limited  partnership  formed and  registered  under the Limited
Partnerships  Act  (Ontario)  on March 8, 2004,  acquired  Devine  Entertainment
Corporation's  interest  in a defined  part of the  Company's  proprietary  film
library. In 2007, the Company received proceeds net of costs of $131,316 (2006 -
$249,098)  recorded as contributed  surplus and  subscriptions  receivable (net)
$39,226 of $153,555 (2006 - $307,393).


                                       34
<PAGE>

Restatement

The  Company  is  restating  its  previously  reported  consolidated   financial
statements  for the fiscal year ended December 31, 2006. A summary of the impact
of the restatement  adjustments on the previously reported  consolidated balance
sheet, statement of operations cash flows amounts is as follows:

Summary of Restatement Adjustments

(a)   In prior years, the Company issued convertible debentures.  The fair value
      of the conversion feature was recorded as part of contributed surplus. The
      Company did not record the accretion of interest  during the term of these
      convertible  debentures.  As a result the  convertible  debentures and the
      deficit balance were understated by $181,510. These convertible debentures
      were  not  renewed  upon  maturity  in  prior  years.   Accordingly  these
      debentures have been recorded as loans payable.

      The Company has corrected this error retroactively. As a result the loans
      payable (previously recorded as convertible debentures) and deficit
      balance at January 1, 2006 has increased been by $181,510.

(b)   The Company has determined that the previously filed financial  statements
      contained  errors  resulting  from the  incorrect  accounting  related  to
      interest for the  Company's  Investment in film,  television  programs and
      recordings. The interest expense should have been capitalized.

      The Company has restated the loan interest paid in 2006 from interest
      expense and capitalized it to Investment in film, television programs and
      recordings. The restatement amounts to $30,312. As a result investment in
      film, television programs and recordings increased by $30,312 and deficit
      decreased by $30,312 for 2006.

(c)   The Company has determined that the previously filed financial  statements
      contained errors resulting from the incorrect volatility  calculation used
      to  determine  the fair value of  warrants  and options for the year ended
      December  31,  2006.  As a result,  capital  stock has been  decreased  by
      $62,943  and  warrants  have  been  increased  by  $62,943.  In  addition,
      contributed surplus,  operating & general expenses, loss and comprehensive
      loss and deficit for the year ended  December 31, 2006 have been increased
      by $19,710.

      Stock  based   compensation  of  $26,784  was  reclassified  to  operating
      expenses.

      The Company had previously included warrants as a component of contributed
      surplus. The Company has determined that the correct presentation would be
      to  disclose  warrants  separately.  As a result  contributed  surplus was
      reduced by


                                       35
<PAGE>

      $199,046 and warrants were  increased by $199,046.  In addition,  the fair
      value  of  warrants  $36,957  which  expired  in 2006 was  reallocated  to
      contributed surplus.

      The  Company  reissued  2,547,500  warrants  which had expired on April 7,
      2006. The warrants were extended for an additional year and the fair value
      of $110,512 was allocated to warrants from contributed surplus.

(d)   The Company  had  previously  recorded  subscriptions  receivables  on the
      balance sheet as a current and long term asset. Under EIC-132, the Company
      is required to present subscriptions  receivables as a reduction in equity
      until such time that the receivable is collected. The Company has restated
      subscription  receivables  accordingly  and the effect of the  restatement
      resulted  in a  decrease  to  subscriptions  receivables  of  $132,296,  a
      decrease  to  long  term   receivable  of  $175,097  and  a  reduction  to
      contributed  surplus of  $307,393  at  December  31,  2006.  In  addition,
      proceeds from  financing and  subscriptions  receivable  have been grouped
      together in the statement of cash flows.

(e)   The company  restated its preferred  shares from an equity  component to a
      liability as it was determined  that under the CICA Handbook  Section 3861
      and  following the guidance  under  EIC-149,  as the preferred  shares are
      redeemable,  retractable and have a preferential priority participation in
      the residual equity of the company. The effect of the restatement resulted
      in a  reclassification  from preferred shares in the equity section of the
      balance  sheet in the  amount  of  $494,550  to  preferred  shares  in the
      liability  section in the amount of  $494,550  and  accordingly  dividends
      amounting  to  $45,004  (2006-  $45,004)  would be  restated  as  interest
      expense.

(f)   The company has restated its Investment in film,  television  programs and
      recordings  to include an accrual for future tax credits  associated  with
      its cost of projects in progress. This restatement resulted in an increase
      in Film tax credits  receivable  and a reduction  in  Investment  in film,
      television programs and recordings of $76,000.

(g)   Stock based  compensation  was  reclassified  as  operating  expenses  and
      $106,090  was  reallocated  from stock  based  compensation  to  operating
      expenses.  In the  following  table  "restated  consolidated  statement of
      operations",  the 2006 "as reported"  amounts for  operating  expenses and
      stock based  compensation  have been adjusted to reflect a reallocation of
      $52,846 from operating expenses to stock based compensation.

The  Company  is  restating  its  previously  reported  consolidated   financial
statements  for the fiscal  year ended  December  31,  2006 and  presenting  its
balance sheet as unclassified because its business cycle is more than one year.

The following table  summarizes the impact of the restatement  adjustment on the
previously reported consolidated balance sheet, statement of operations and cash
flows for the year ended December 31, 2006.


                                       36
<PAGE>

                      Restated Consolidated Balance Sheet
                               December 31, 2006
                      -----------------------------------

<TABLE>
<CAPTION>
                                       2006       Affecting periods        2006                             2006
                                   As Reported      prior to 2006      Restatement        Ref           As Restated
                                   -----------      -------------      -----------        ---           -----------
<S>                               <C>                <C>             <C>                  <C>           <C>

Subscriptions
  receivable                      $    132,296                       $  (132,296)         (d)           $       --

Investment in film,
  television programs,
  and recordings                     9,490,501                            30,312          (b)
                                                                         (76,000)         (f)              9,444,813

Film tax credits
  Receivable                         2,051,568                            76,000          (f)
                                                                                                           2,127,568

Long term receivable                   175,097                          (175,097)         (d)                   --

Total assets                      $ 12,934,759                       $  (277,081)                         12,657,678

Convertible debentures               1,519,290        181,510                             (a)
                                                   (1,700,800)                            (a)                   --
Loans payable                                       1,700,800                             (a)              1,700,800

Preferred shares                                      494,550                             (e)                494,550

Total liabilities                 $  9,476,413        676,060                --                           10,152,473

Capital Stock                       12,330,949                           (62,943)         (c)             12,268,006
Contributed surplus                  1,267,449                          (199,046)         (c)
                                                                          19,710          (c)
                                                                        (307,393)         (d)
                                                                        (110,512)         (c)
                                                                          36,957          (c)                707,165
Warrants                                              199,046                             (c)
                                                                          62,943          (c)
                                                                         110,512          (c)
                                                                         (36,957)         (c)                335,544
Preferred Shares                       494,550       (494,550)                            (e)                   --
Deficit                            (10,634,602)                           30,312          (b)
                                                     (181,510)                            (a)
                                                                         (19,710)         (c)
                                                                                                         (10,805,510)
Shareholders' equity                 3,458,346       (676,060)          (277,081)                          2,505,205

Total liabilities and
  Shareholders'
    Equity                        $ 12,934,759       $-                ($277,081)                       $ 12,657,678
</TABLE>



                                       37
<PAGE>

                  Restated Consolidated Statement of Operations
                      For the Year ended December 31, 2006
                  ---------------------------------------------
<TABLE>
<CAPTION>
                                                    2006              2006                        2006
                                                As Reported        Restatement        Ref      As Restated
                                                -----------        -----------        ---      -----------
<S>                                            <C>                  <C>               <C>       <C>

Revenues                                       $   423,959               --                      $ 423,959

Operating expenses                                 857,505
                                                                       26,784         (c)
                                                                       19,710         (c)          903,999

Stock based compensation                            26,784            (26,784)        (c)             --

Interest (recovery)                                 36,865            (30,312)        (b)
                                                                       45,004         (e)           51,557

Amortization and
  write downs                                    2,016,957                                       2,016,957
                                                 ---------                                       ---------
Expenses                                         2,938,110             34,402                    2,972,512
                                                 ---------                                       ---------
Loss
   Comprehensive
     income (loss)                             $(2,514,151)       $   (34,402)                 $(2,548,553)
                                               ===========        -----------                  ===========

Earnings (loss) per
  Common share
Basic                                              ($ 0.07)              --                        ($ 0.07)
                                               ===========        ===========                  ===========
Diluted                                            ($ 0.07)              --                        ($ 0.07)
                                               ===========        ===========                  ===========
</TABLE>

                  Restated Consolidated Statement of Cash Flows
                      For the Year ended December 31, 2006
                  ---------------------------------------------
<TABLE>
<CAPTION>

                                                    2006              2006                        2006
                                                As Reported        Restatement        Ref      As Restated
                                                -----------        -----------        ---      -----------
<S>                                            <C>                  <C>               <C>       <C>

OPERATING ACTIVITIES
Loss for the year                              $(2,514,151)         (19,710)          (c)
                                                                     30,312           (b)
                                                                    (45,004)          (e)       (2,548,553)
Stock-based compensation                            86,380           19,710           (c)          106,090
Amortization - film, television
              programs and recordings              251,643                                         251,643
             - property and equipment                6,572                                           6,572

Write-down of investment in film,
    television programs and recordings           1,758,742                                       1,758,742
Change in non-cash operating
    assets and liabilities                       2,566,481
                                                                    (76,000)          (f)        2,490,481
                                                                                                 ---------
Cash flows provided by
    operating activities                         2,155,667          (90,692)                     2,064,975
                                                                                               -----------
</TABLE>


                                       38
<PAGE>

                  Restated Consolidated Statement of Cash Flows
                      For the Year ended December 31, 2006
                  ---------------------------------------------

<TABLE>
<CAPTION>
                                                          2006         2006                              2006
                                                     As Reported     Restatement        Ref          As Restated
                                                     -----------     -----------        ---          -----------
<S>                                                 <C>                <C>             <C>           <C>

FINANCING ACTIVITIES
    Increase (decrease) in film
         production loans                             2,121,527         (30,312)        (b)          2,091,215
    Long term receivable                               (175,097)        175,097         (d)               --
    Subscription receivable                            (132,296)        132,296         (d)               --
    Issuance of shares on exercise of options             2,500                                          2,500
    Net change in proceeds from financing and              --          (307,393)        (d)
    subscription receivable                                --           249,098         (d)            (58,295)
    Preferred share dividends paid                      (45,004)         45,004         (e)               --
    Shares issued on private placement                  507,500         (62,943)        (c)            444,557
    Contributed surplus                                 249,098        (249,098)        (d)               --
    Warrants                                               --            62,943         (c)             62,943
                                                                                                        ------

    Cash flows provided by
          financing activities                        2,528,228                                      2,542,920
                                                      ---------                                      ---------

INVESTING ACTIVITIES
  Investment in film, television
             programs and recordings                 (4,652,779)         76,000         (f)         (4,576,779)
  Purchase of property and equipment                     (3,105)                                        (3,105)
                                                         ------                                         ------
  Cash flows used in investing activities            (4,655,884)                                    (4,579,884)
                                                     ----------                                     ----------

CHANGE IN CASH AND
   CASH EQUIVALENTS                                      28,011                                         28,011

CASH AND CASH EQUIVALENTS,
   BEGINNING OF YEAR                                    239,990                                        239,990
                                                        -------                                        -------

CASH AND CASH EQUIVALENTS,
    END OF YEAR                                     $   268,001                                    $   268,001
                                                    -----------                                    -----------
</TABLE>


                                       39
<PAGE>

Loans Payable

Loans payable (see Note 2 to the Company's  consolidated  financial  statements)
outlined  below  reflects  the  Company's  1995,   1996  and  2000   Convertible
debentures,  which bear interest at 10.5 %, have matured, have not been extended
and carry no fixed term,  accordingly  the Company has re-stated the outstanding
amount of $1,700,800  (2006 -  $1,700,800)  as a current loan as at December 31,
2007.  The  creditors  have a general  security  assignment on the assets of the
Company. Accrued interest as at December 31, 2007 was $846,505 (2006 - $668,298)
and included in Accounts payable and Accrued  liabilities.  In 2007, the Company
deposited  $60,000 in trust  related to the loans and included the amount on the
balance sheet with prepaid expenses and sundry assets.

The Company is working  towards  settling  the  outstanding  current loan and no
action has been taken by the debt holders and none is expected. Management is in
constant  communication  with the holders of the majority of this debt, who have
consistently  supported  the Company in the past,  and expects  that the Company
will be able to settle the debt in the normal course of operations.

Liquidity and Capital Resources

The  Company's  cash on hand as at December 31, 2007 was $245,872 as compared to
$268,001 as at December 31, 2006, an decrease in cash position of $22,129.

A demand loan bearing  interest at prime plus 1%,  repayable in full by June 30,
2008 was  arranged  for the  financing of 6 episodes of a new one hour TV series
entitled  Across the River to Motor City,  which was  produced by the  Company's
wholly owned  subsidiary,  Across the River Productions Ltd. The loan is secured
by all receipts  including all  commercialization  or exploitation of the series
worldwide including pre-sale and funding agreements and various tax credits. The
loan is not secured by the parent  company's  assets and is  non-recourse to the
parent company.  As at December 31, 2007 the production loan totalled $1,840,604
(December 31, 2006 - $2,121,527). Interest due and paid on the above demand loan
totalled $132,907 in the year ended December 31, 2007 (2006 - $30,312).

The Company  completed a private  placement of 6,475,000 units. Each unit of the
private  placement  consists of one common share and one purchase warrant with a
purchase  price of $0.10 per unit.  Each warrant is exercisable at anytime on or
prior to April 11,  2009,  to acquire one common  share at an exercise  price of
$0.10.  Proceeds from the private  placement,  net of $55,100 of share  issuance
costs, totalled $592,400. $365,124 of the proceeds was proportionately allocated
based on relative  fair value to Capital Stock and the $227,276 was allocated to
warrants.  The proceeds are earmarked for  investment in the  development of the
Company's marketing and distribution activities and general working capital.


                                       40
<PAGE>

The Company expects to maintain  renewed growth from operations and expects that
proceeds  from sales of Across the River to Motor City and its film library will
generate additional revenues and positive cash flow through 2008 and beyond.

The Company's working capital deficiency,  although reduced, remains significant
but is  mitigated by the fact that the Company is working  towards  settling its
$1,700,800 of outstanding  current loans payable related to the matured 1995 and
2000 convertible  debentures.  Management is in constant communications with the
holders  of the  majority  of this debt,  who have  consistently  supported  the
Company in the past,  and expects  that the  Company  will be able to settle the
debt in the normal course of operations.

Nonetheless,  the Company  remains  unable to service  this loan and the Company
will require  additional  working  capital  from its  production  activities  or
corporate financing in 2008. The Company continues to seek additional funding.

OUTLOOK

The Company is optimistic  about the successful  commercial  exploitation of its
new one hour  primetime  mystery  Across the River to Motor City and growing its
library of motion pictures and television  programs and  recordings.  With total
cumulative revenues surpassing $6,000,000 coming from the first season of Across
the River to Motor City and increased  revenues from the Company's film library,
2007 was among the Company's strongest ever. If new episodes of Across the River
to Motor City are ordered and  additional  project  financing can be obtained to
expand the  Company's  core library the Company will be on track to  consolidate
its gains and continue to grow into the future.

The Company is actively pursuing new opportunities for additional  corporate and
production  financings and the Company is actively pursuing financing to produce
new films,  develop its marketing and  distribution  activities in North America
and abroad and for its general working capital requirements.

While many business risks remain and the success of these  strategies  cannot be
guaranteed, the Company expects that the successful completion of all or some of
these  strategic  objectives  will  assist  with the  continued  renewal  of the
Company's growth through 2008 and into the future.

CONTROLS AND PROCEDURES

Management's Responsibility For Financial Reporting

The  Company's  consolidated  financial  statements  are the  responsibility  of
management  and have been approved by the board of directors.

The  consolidated  financial  statements  have been  prepared by  management  in
accordance  with  Canadian  generally  accepted  accounting  principles.   These
statements include some


                                       41
<PAGE>

amounts that are based on estimates and judgment. Management has determined such
amounts on a reasonable  basis in order to ensure that the financial  statements
are presented fairly, in all material respects.

The  Company's  policy  is  to  maintain  systems  of  internal  accounting  and
administrative  controls of high quality,  consistent with reasonable cost. Such
systems  are  designed  to  provide  reasonable  assurance  that  the  financial
information is relevant, accurate and reliable and that the Company's assets are
appropriately accounted for and adequately safeguarded.

The board of directors is responsible for ensuring that management  fulfills its
responsibilities  for  financial  reporting and is  ultimately  responsible  for
approving the financial  statements.  The board carries out this  responsibility
principally through its Audit Committee.

The Audit  Committee is  appointed by the board and is comprised  two of outside
directors and the Chief Financial Officer. The committee meets periodically with
management  and the  external  auditors to discuss  internal  controls  over the
financial reporting process,  auditing matters and financial reporting issues to
satisfy itself that each party is properly discharging its responsibilities. The
Audit committee reviews the Company's annual consolidated  financial statements,
the report of the independent registered chartered accountants,  the comments by
independent  registered chartered accountants on Canada-United States of America
reporting  difference and other information in the Annual Report.  The committee
reports  findings to the board for  consideration  by the board when it approves
the financial statements for issuance to the shareholders.

On behalf of the  shareholders,  the financial  statements  have been audited by
Deloitte and Touche LLP, the external  auditors,  in  accordance  with  Canadian
generally accepted auditing standards. Deloitte and Touche LLP has full and free
access to the Audit Committee.

Disclosure Controls And Procedures

Disclosure  controls  and  procedures  are  designed to ensure that  information
required  to be  disclosed  by the  Company  in reports  filed  with  securities
regulatory agencies is recorded, processed,  summarized and reported on a timely
basis and is accumulated and communicated to the Company's management, including
the  Company's  Chief  Executive  Officer  and  Chief  Financial   Officer,   as
appropriate,  to allow  timely  decisions  regarding  required  disclosure.  The
Company's Chief Executive Officer and Chief Financial Officer (collectively, the
"Certifying   Officers")  are  responsible  for   establishing  and  maintaining
disclosure controls and procedures for the Company. Such officers have evaluated
these  controls  and  procedures  as of a date  within 90 days of filing of this
report.

Internal  controls  include those  policies and  procedures  that pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the Company's  assets,  provide  reasonable
assurance that  transactions are


                                       42
<PAGE>

recorded as  necessary to permit the  preparation  of  financial  statements  in
accordance with generally  accepted  accounting  principles,  provide reasonable
assurance  that  receipts  and  expenditures  are made only in  accordance  with
authorization of management and the board of directors,  and provide  reasonable
assurance   regarding  the  prevention  or  timely   detection  of  unauthorized
acquisition,  use or  disposition  of the  Company's  assets  that  could have a
material   impact  on  the  financial   statements.   Because  of  its  inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements.

As a result of a thorough review of the Company's  prior financial  disclosures,
the  Company has  determined  that the  previously  filed  financial  statements
contained  errors  requiring  restatement as reflected in Note 2 to the December
31, 2007 and 2006 consolidated  financial statements.  The Company has concluded
that there are  material  weaknesses  in the  internal  control  over  financial
reporting as of December  31, 2007 and that the Company did not have  sufficient
in-house  expertise to ensure  compliance with the measurement,  recognition and
disclosure requirements under Canadian and US GAAP for certain transactions.

Plan for Remediation of Material Weaknesses

The  Company is  undertaking  efforts  to  improve  its  internal  control  over
financial reporting and to remediate the material  weaknesses  identified above.
The Company  intends to design,  implement  and  maintain an  effective  control
environment  over  financial  reporting.  The Company has taken or will take the
following  actions:


The Company is  committed  to enhance its  internal  controls.  When  complex or
unusual  transactions  surface,  management  is  committed  to  actively  seek a
solution   in-house  and  then  consulting  third  party   consultants  for  the
resolution.

In addition,  the Company is committed to update its Canadian and United  States
generally  accepted  accounting  principles  knowledge and establish a number of
control procedures  designed to strengthen its capabilities to both identify and
address any potential  errors  before they are reported in the future.

With the implementation of these corrective  actions,  the Company believes that
the above noted  material  weaknesses  will,  over time,  address  the  material
weaknesses that were identified in its internal control over financial reporting
as of December 31, 2007. However,  the effectiveness of these procedures remains
to be  tested in 2008 and  several  fiscal  quarters  may be  required  prior to
management  being  able to  conclude  that the  material  weaknesses  have  been
remediated.  The Company will  continue to  periodically  review its  disclosure
controls and  procedures and internal  control over financial  reporting and may
make modifications from time to time as considered necessary or desirable.

Changes In Internal Control Over Financial Reporting

The Certifying Officers have indicated that there were no significant changes in
the Company's internal controls or other factors that could significantly affect
such controls


                                       43
<PAGE>

subsequent  to the  date of  their  evaluation,  and  there  were no  corrective
actions,  other  than  the  action  noted  above,  with  regard  to  significant
deficiencies and material weaknesses.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are those that are, in management's view, important
to the  portrayal  of our  financial  condition  and results of  operations  and
require  management's  judgment.  The Company's  discussion  and analysis of its
financial  statements,  which have been  prepared in  accordance  with  Canadian
generally  accepted  accounting   principles  ("Canadian  GAAP")  describes  and
reconciles the  significant  measurement  differences  between Canada and United
States  generally  accepted  accounting  principles  (US  GAAP")  effecting  the
accompanying consolidated financial statements.

The preparation of these  statements  requires the Company to make estimates and
judgments that affect the reported amounts of assets,  liabilities,  revenue and
expenses.  The  Company  bases  its  estimates  on  experience  and  on  various
assumptions that we believe are reasonable under the circumstances,  the results
of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from those estimates. Our critical accounting policies include:

Revenue Recognition

Revenue is derived from broadcast licensing agreements,  royalties, distribution
fees, the sale of distribution  rights, sale of copyright interests and the sale
of  home  videos.  All  revenue  is  recognized  upon  meeting  all  recognition
requirements  of Statement  of Position of the  American  Institute of Certified
Public  Accountants  ("SOP 00-2").  Revenue from the sale of film and television
programming  rights and licence  arrangements is recognized only when persuasive
evidence of a sale or arrangement with a customer  exists,  the film is complete
and the  contractual  delivery  arrangements  have been  satisfied,  the licence
period has commenced,  the arrangement fee is fixed or determinable,  collection
of the arrangement fee is reasonably assured,  and other conditions as specified
in the respective agreements have been met.

Revenue from broadcast  licensing  agreements,  together with related costs, and
revenue from the sale of copyright  interests are recognized  once the licensing
periods have commenced,  the programs are delivered and collection is reasonably
assured.

Revenue  from  royalties  is  recognized  when  reported  and  received  or when
collection is reasonably assured.

Revenue  from the sale of  distribution  rights is  recognized  when the film or
television programs are substantially  complete,  the investors have irrevocably
committed to acquire distribution rights and collection is reasonably assured.


                                       44
<PAGE>

Revenue  from the sale of home  videos and DVD's are  recognized  at the time of
shipment and collection is reasonable assured.

Amounts  received in advance are recorded as deferred  revenue until the revenue
recognition criteria are met.

Investment in Film, Television Programs and Recordings

In  accordance  with SOP  00-2,  investment  in film,  television  programs  and
recordings  represent  projects in progress and the  unamortized  costs of film,
television  programs  and  recordings,   net  of  federal  and  provincial  film
production tax credits, which have been produced by the Company or for which the
Company has acquired a copyright interest or the rights to future revenue.  Such
costs include development and production expenditures,  capitalized overhead and
financing  costs and other costs,  which are expected to benefit future periods.
Exploitation  costs,  including  advertising  and  marketing  costs,  are  being
expensed as incurred.  The Company also has an interest in programs,  which have
been  fully  amortized  in  prior  years  and  have no  carrying  value in these
financial statements.

Projects in  progress  include  the costs of  acquiring  film rights to original
screenplays and costs to adapt such projects.  Such costs are  capitalized  and,
upon  commencement  of production,  are added to investment in film,  television
programs, and recordings.  Advances or contributions received from third parties
to assist in  development  are deducted from these costs.  If the property under
development  has not been set for  production  within  three  years,  or if upon
review  management  determines that certain costs are  unrecoverable,  the costs
associated with such property are written off to income.

Amortization  is determined  based on the ratio that current gross film revenues
bear to management's  estimate of total remaining ultimate gross film revenue as
of the  beginning of the current  fiscal year on a program by program basis (the
"individual  film  forecast  method").  Revenue  and  film  carrying  costs  are
continually  reviewed by  management  and  revised  when  warranted  by changing
conditions.  When  estimates of total revenues and costs indicate that a feature
film or television  program will result in an ultimate  loss, a reduction in the
carrying  value of the  investment is recognized to the extent that  capitalized
film costs exceed estimated fair value.  Such adjustments  could have a material
effect on the results of operations in future periods.

Production  financing provided by third parties that acquire  substantive equity
participation is recorded as a reduction of costs of the production.

Capitalized  film costs are stated at the lower of unamortized cost or estimated
fair  value on an  individual  film  basis.  Fair  market  value is based on the
discounted projected net cash flows. The determination of the projected net cash
flows and discount rates are subjective in nature and involve  uncertainties and
matters of significant judgement by management.


                                       45
<PAGE>

Government and Other Assistance

The Company has access to various government programs, including refundable film
and television tax credits that are designed to assist film, television programs
and recordings production and distribution in Canada. Refundable tax credits are
recorded as a reduction of the cost of related films. Tax credits are recognized
when there is reasonable assurance that the amount claimed will be received.

Stock-Based Compensation

The Company  accounts for all  stock-based  payments  using the fair value based
method.  The  Company  grants  stock  options  for a fixed  number  of shares to
employees  with an  exercise  price equal to the fair value of the shares at the
date of grant,  and vesting  immediately.  The Company  recognizes  compensation
expense for the  stock-based  compensation  plan when stock or stock options are
issued.  Any consideration  received from employees on exercise of stock options
or purchase  of stock is  credited to share  capital and the fair value of stock
options is transferred from contributed surplus to share capital.

For stock based compensation issued to non employees, the Corporation recognizes
an expense based on the fair value of the equity instrument issued.

Future Income Taxes

The Company uses the asset and liability method to account for income taxes. The
asset and  liability  method  requires  that income  taxes  reflect the expected
future tax consequences of temporary differences between the carrying amounts of
assets or liabilities and their tax bases. Future tax assets and liabilities are
measured using enacted or substantively enacted tax rates expected to apply when
the asset is realized or the  liability is settled.  When the  realization  of a
future  tax asset is  determined  to not be more  likely  than not  realized,  a
valuation allowance is provided

Use of Estimates

The preparation of financial  statements in conformity  with Canadian  generally
accepted  accounting  principles and United States Generally accepted accounting
principles  ("US GAAP")  requires  management to make estimates and  assumptions
that  affect  the  reported  amounts  on assets and  liabilities,  revenues  and
expenses and disclosures of contingent assets and liabilities. Significant areas
requiring the use of significant  judgment  include the  measurement of ultimate
revenue  related to future  revenues  from film  distribution,  amortization  of
Investment  in film,  television  programs  and  recordings,  valuation of stock
compensation,  inventory, recoverability of tax credits and estimation of future
income tax assets,  valuation  allowances  and other project  related  accruals.
Actual results could differ from these estimates.

These estimates are reviewed  periodically and, as adjustments become necessary,
they are reported in earnings in the period in which they become known.


                                       46
<PAGE>

Impairment of Long-Lived Assets

Long-Lived  Assets,  Including  property and  equipment,  Investments  in Films,
Television  programs and  recordings  are reviewed for  impairment  on an annual
basis at year end or when significant events or circumstances  indicate that the
carrying amount of an asset may not be recoverable.  Impairment  exists when the
carrying value of the assets is greater than the undiscounted  future cash flows
expected to be provided by the asset.  The amount of  impairment  loss,  if any,
which is in excess of net carrying  value over fair value,  is charged to income
for the period.  Fair value is generally  measured equal to the estimated future
discounted net cash from the asset.

Deferred Revenue

Revenue  received  from sales of rights and  licences  related  to  projects  in
progress is recorded as deferred  revenue until revenue  recognition  parameters
have been met.

Adoption of New Accounting Policies

i)    Effective January 1, 2007, the Corporation  adopted the recommendations of
      the CICA Handbook Sections 1530, Comprehensive Income; 3251, Equity; 3855,
      Financial  Instruments  -  Recognition  and  Measurement;   Section  3861,
      Financial  Instruments -  Measurement,  Disclosure and  Presentation;  and
      Section 3865, Hedges. As required by the standards, the change in policies
      have been applied retrospectively with no restatement to prior periods.

      a.    Comprehensive   Income:   Section  1530  establishes  standards  for
            reporting and display of comprehensive  income.  Unrealized gains or
            losses on available-for-sale  investments, and the effective portion
            of gains or losses on derivatives designated as cash flow hedges and
            hedges of the net investment in  self-sustaining  foreign operations
            are included in other  comprehensive  income ("OCI" and  accumulated
            other  comprehensive  income  ("AOCI")  is  included  as a  separate
            component  of  equity.  The  Corporation  had no  such  OCI or  loss
            transactions  for the year ended December 31, 2007 and there were no
            opening or closing balances for AOCI.

      b.    Financial  Instruments:  Under  the  new  standards,  all  financial
            instruments   are   classified   into  one  of  the  following  five
            categories:     held-for-trading     (assets    and    liabilities),
            available-for-sale   financial   assets,   loans  and   receivables,
            held-to-maturity  financial assets, and other financial liabilities.
            Transaction  costs are  included in the initial  carrying  amount of
            financial  instruments  except for  held-for-trading  items in which
            case they are expensed as incurred.  All financial  instruments  are
            initially measured at fair value.  Measurement in subsequent periods
            depends on the classification of the financial instrument.


                                       47
<PAGE>

Under the standards:

Held-for-trading (assets or liabilities)

This  category  is  comprised  of  certain   investments   in  equity  and  debt
instruments,  stand-alone  derivatives,  other than those  designated as hedging
items, and embedded derivatives  requiring  separation.  They are carried in the
balance  sheet at fair  value  with  changes  in fair  value  recognized  in the
statement of operations.

Loans and receivables

These assets are non-derivative  financial assets resulting from the delivery of
cash or other  assets by a lender to a borrower in return for a promise to repay
on a specified date or dates, or on demand.  They arise principally  through the
provision  of goods and services to customers  (accounts  receivable),  but also
incorporate  other types of  contractual  monetary  assets.  They are  initially
recognized at fair value and  subsequently  carried at amortized cost, using the
effective interest rate method, less any provision for impairment.

Available-for-sale investments

Non-derivative  financial  assets  not  included  in the  above  categories  are
classified as  available-for-sale  and comprises  certain  investments in equity
instruments,  including a company's investments in private companies.  When they
have a quoted market price in an active  market,  they are carried at fair value
with  changes  in  fair  value  recognized  as a  separate  component  of  other
comprehensive  income.  When they do not have a quoted market price in an active
market,  they  are  carried  at  cost.  Where a  decline  in the  fair  value is
determined  to be other than  temporary,  the amount of the loss is removed from
other comprehensive income and recognized in the statement of operations.

Other financial liabilities

Other financial  liabilities includes all financial liabilities other than those
classified as  held-for-trading  and comprises trade payables,  other short-term
monetary   liabilities,   and  the  debt  element  of  convertible  debt.  These
liabilities are initially  recognized at fair value and subsequently  carried at
amortized cost using the effective interest rate method.

The adoption of these standards had no impact on the opening  retained  earnings
and therefore did not result in a transitional adjustment as of January 1, 2007.


                                       48
<PAGE>

      The  Corporation's  financial  assets and  liabilities  are  recorded  and
      measured as follows:

      Asset/Liability                Category                  Measurement
      Accounts receivable            Loans and receivables     Amortized cost
      Subscription receivable        Loans and receivables     Amortized cost
      Accounts payable and accrued   Other liabilities         Amortized cost
      liabilities
      Accrued Liabilities            Other liabilities         Amortized cost
      Loans payable                  Other liabilities         Amortized cost

      No derivative  financial  instruments  existed for the periods  presented.
      Based on the preceding information, the application of these new standards
      had a limited  impact on the financial  statements  of the Company.  Other
      balance sheet accounts, such as prepaid expenses,  property and equipment,
      intangible assets, deferred costs, and deferred revenue are not within the
      scope  of  the  new  accounting   standards  as  they  are  not  financial
      instruments.

ii)   On  January  1,  2007,  the  Company  adopted  Section  1506,  "Accounting
      Changes",  from the CICA Handbook.  This Section  establishes  criteria to
      satisfy the accounting treatment to adopt and disclosure  requirements for
      accounting changes made, revision of accounting  estimates and corrections
      of errors.  The adoption of these new standards had no material  impact on
      the financial statements of the Company.

Recent Accounting Pronouncements

i)    In 2006 the CICA issued  Handbook  Section 3862,  Financial  Instruments -
      Disclosures,   and  Handbook   Section  3863,   Financial   Instruments  -
      Presentation. These standards enhance existing disclosure requirements and
      place  greater   emphasis  on   disclosures   related  to  recognized  and
      unrecognized  financial  instruments  and how  those  risks  are  managed.
      Section 3863 carries  forward the same  presentation  standards as Section
      3861.  These new standards are effective for interim and annual  financial
      statements relating to fiscal years commencing on or after October 1, 2007
      on a prospective  basis.  Disclosures  required by these standards will be
      included  in the  Company's  interim  and  annual  consolidated  financial
      statements commencing January 1, 2008.

ii)   In 2006, the CICA issued Handbook Section 1535, Capital Disclosures ("CICA
      1535").  CICA 1535  requires  that an  entity  disclose  information  that
      enables  users  of  its  financial  statements  to  evaluate  an  entity's
      objectives,   policies  and  processes  for  managing  capital,  including
      disclosures  of  any  externally  imposed  capital  requirements  and  the
      consequences for non-compliance.  Disclosures required by


                                       49
<PAGE>

      the new  standard  will be  included in the  Company's  interim and annual
      consolidated financial statements commencing January 1, 2008.

iii)  In August of 2006,  the CICA issued  Handbook  Section 3031 ("CICA 3031").
      "Inventories",  which must be applied  for fiscal  years  beginning  on or
      after January 1, 2008. CICA 3031 prescribes the measurement of inventories
      at the  lower of cost  and net  realizable  value,  with  guidance  on the
      determination of cost including allocation of overheads and other costs to
      inventory.  Reversals of previous  write-downs to net realizable value are
      permitted when there is a subsequent increase on the value of inventories.
      The Company is  evaluating  the  potential  impact of the adoption of this
      standard.

iv)   In 2008, the CICA issued  Handbook  Section 3064,  Goodwill and Intangible
      Assets ("CICA 3064"). CICA 3064, which replaces Section 3062, Goodwill and
      Intangible  Assets,  and Section  3450,  Research and  Development  Costs,
      establishes  standards for the recognition,  measurement and disclosure of
      goodwill and intangible assets. The provisions  relating to the definition
      and  initial  recognition  of  intangible  assets,   including  internally
      generated   intangible   assets,   are  equivalent  to  the  corresponding
      provisions  for  IFRS  IAS 38,  Intangible  Assets.  The new  standard  is
      effective  for the  Company's  interim and annual  consolidated  financial
      statements commencing January 1, 2009. The Company is assessing the impact
      of the new standard on its consolidated financial statements.

iv)   International Financial Reporting Standards

      In May 2007, the CICA published an updated version of its  "Implementation
      Plan  for  Incorporating   International   Financial  Reporting  Standards
      ("IFRS")  into  Canadian  GAAP".  This plan includes an outline of the key
      decisions  that the CICA will need to make as it implements  the Strategic
      Plan for publicly  accountable  enterprises  that will  converge  Canadian
      generally  accepted  accounting  principles with IFRS. The changeover date
      from Canadian GAAP to IFRS is for annual and interim financial  statements
      relating to fiscal years beginning on or after January 1, 2011.

CANADIAN GAAP AND US GAAP RECONCILIATION

      The consolidated financial statements of the Company have been prepared in
      accordance  with  Canadian  GAAP.  The  material  differences  between the
      accounting  policies used by the Company  under  Canadian GAAP and US GAAP
      are disclosed below.

      a)    Under US GAAP, FIN 48 requires the Company to evaluate whether a tax
            position  taken  by the  Company  will  "more  likely  than  not" be
            sustained upon examination by the appropriate tax authority. It also
            provides  guidance  on how a company  should  measure  the amount of
            benefit that the Company is to


                                       50
<PAGE>

            recognize in its financial statements.  There was no material impact
            on the Company's  financial  statements as a result of  implementing
            FIN 48.

      b)    In  accordance  with US GAAP,  the preferred  shares are  classified
            outside of permanent  equity as they are redeemable at the option of
            the holders.  These  preferred  shares are classified as liabilities
            under Canadian GAAP. This results in a US GAAP  reconciling  item to
            reflect the different classification.

      c)    As noted  in b)  above,  the  preferred  shares  are  classified  as
            mezzanine  equity  under US GAAP,  the  dividends  on the  preferred
            shares would  therefore be recorded as a reduction to deficit  under
            shareholders' equity.

Consolidated statements of operations:

The loss as reported in the accompanying  consolidated  statements of operations
would  have  been  different  had the  financial  statements  been  prepared  in
accordance with US GAAP:

                                                                    2006
FOR THE YEARS ENDED DECEMBER 31,                      2007        (restated)
                                                  -----------    ------------
Loss in accordance with Canadian GAAP
and US GAAP                                       $  (572,084)   $(2,548,553)

Interest on preferred shares (Note c)                  45,004         45,004
                                                       ------         ------
Loss in accordance with US GAAP                   $  (527,080)   $(2,503,549)
                                                  ===========    ===========
                                    Basic &
Loss per share                      Diluted       $     (0.01)   $     (0.07)


                                       51
<PAGE>

Effects of these adjustments  described below on the consolidated  Balance Sheet
are as follows:

                                                                      2006
AS AT DECEMBER 31,                                   2007          (restated)
                                              ------------------ --------------

ASSETS
----------------
Assets in accordance with Canadian GAAP             $  8,492,237   $ 12,657,678

Assets in accordance with US GAAP                   $  8,492,237   $ 12,657,678
                                              ================== ==============

LIABILITIES
----------------
Liabilities in accordance with Canadian GAAP        $  5,605,928   $ 10,152,473

Preferred shares (Note b)                           $   (494,550)  $   (494,550)
                                                        --------       --------
Liabilities in accordance with US GAAP                 5,111,378      9,657,923

SHAREHOLDERS' EQUITY
--------------------
Equity in accordance with Canadian GAAP             $  2,886,309   $  2,505,205

Preferred Shares (Note b)                                494,550        494,550

Effect of interest on preferred shares on deficit
(Note c )                                                 45,004         45,004

Dividends on preferred shares (Note c)                   (45,004)       (45,004)

                                              ------------------ --------------
Equity in accordance with US GAAP                   $  3,380,859   $  2,999,755
                                              ------------------ --------------

RESTATEMENT OF PREVIOUSLY REPORTED CANADIAN GAAP AND US GAAP RECONCILIATION

The Company has  restated  its  previously  reported  Canadian  GAAP and US GAAP
reconciliation.

In prior years, the Company  classified the preferred shares as liabilities and,
therefore, reported interest on preferred shares.


                                       52
<PAGE>

The Company has  determined  that the  preferred  shares should be classified as
equity  under US GAAP as  noted  in b) and  therefore  restated  its  previously
reported  Canadian  GAAP and US GAAP  reconciliation.  As noted in c) above  the
Company reported  dividends on the preferred shares instead of interest reported
in prior year.

Certain  differences  between  Canadian GAAP and US GAAP reported in prior years
are not reflected as they have been adjusted for in the items  described in Note
2 and, therefore are no longer differences between Canadian GAAP and US GAAP.

Impact of Newly Issued United States Accounting Standards

i)    In June 2006,  the FASB  issued FIN 48,  "Accounting  for  Uncertainty  in
      Income Taxes - an  interpretation  of FASB  Statement No. 109" ("FIN 48").
      FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in an  entity's  financial  statements  in  accordance  with SFAS No. 109,
      "Accounting for Income Taxes" ("SFAS 109"). The interpretation  prescribes
      a  recognition  threshold  and  measurement  attribute  for the  financial
      statement  recognition and measurement of a tax position taken or expected
      to be taken in a tax return. FIN 48 also provides  accounting  guidance on
      de-recognition,  classification,  interest and  penalties,  accounting  in
      interim  periods,   disclosure  and  transition.  The  evaluation  of  tax
      positions  under FIN 48 is a two-step  process,  whereby  (1) the  Company
      determines  whether it is more likely than not that the tax positions will
      be  sustained  based on the  technical  merits of the position and (2) for
      those  tax  positions  that  meet  the  more-likely-than-not   recognition
      threshold.  There  was  no  material  impact  on the  Company's  financial
      statements as a result of implementing FIN 48.

ii)   In  September  2006,  the SEC issued  Staff  Accounting  Bulletin No. 108,
      "Considering  the  Effects of Prior Year  Misstatements  when  Quantifying
      Misstatements in Current Year Financial  Statements"  ("SAB 108"). SAB 108
      provides  guidance on how prior year  misstatements  should be  considered
      when quantifying  misstatements in the current year financial  statements.
      The SAB  requires  registrants  to  quantify  misstatements  using  both a
      balance sheet and an income statement approach and evaluate whether either
      approach  results in  quantifying a misstatement  that,  when all relevant
      quantitative and qualitative factors are considered,  is material. SAB 108
      does not change the guidance in SAB 99, "Materiality", when evaluating the
      materiality of misstatements. SAB 108 is effective for fiscal years ending
      after  November 15,  2006.  Upon  initial  application,  SAB 108 permits a
      one-time  cumulative  effect  adjustment to beginning  retained  earnings.
      There was no  material  impact  on the  Company's  consolidated  financial
      statements as a result of the adoption of SAB 108.

iii)  In  September  2006,  the FASB issued SFAS No. 157 "Fair Value  Measures."
      (SFAS No. 157),  SFAS No. 157 defines fair value,  establishes a framework
      for  measuring  fair  value and  enhances  disclosures  about  fair  value
      measures  required  under other  accounting  pronouncements,  but does not
      change existing  guidance as to whether or not an instrument is carried at
      fair value.  SFAS No. 157 is effective  for fiscal years  beginning  after
      November 15, 2007. The Company is currently evaluating the impact


                                       53
<PAGE>

      that the  adoption  of SFAS  No.  157 will  have on our  future  financial
      statements.  The Company  does not expect the  adoption of SFAS No. 157 to
      have a material effect on the Company's financial statements.

iv)   In February  2007, the FASB issued FASB Statement NO. 159, "The Fair Value
      Option  for  Financial  Assets  and  Financial  Liabilities  Including  an
      Amendment of FASB  Statement No. 115" ("SFAS 159").  The fair value option
      established by SFAS 159 permits all entities to choose to measure eligible
      items at fair value at specified  election  dates. A business  entity will
      report  unrealized gains or loses on items for which the fair value option
      has been elected in earnings  (or another  performance  indication  if the
      business  entity does not report  earnings) at each  subsequent  reporting
      date. The fair value option:  (a) may be applied instrument by instrument,
      with a few exceptions,  such as investments otherwise accounted for by the
      equity method; (b) is irrevocable (unless a new election date occurs); and
      (c)  is  applied  only  to  entire  instruments  and  not to  portions  of
      instruments.  FASB No. 159 is effective as of the  beginning of the fiscal
      years  beginning after November 15, 2007. The adoption of SFAS 159 did not
      have a material effect to the Company's financial statements.

v)    In December 2007, the FASB issued SFAS No. 160, Non-controlling  Interests
      in  Consolidated  Financial  Statements-an  amendment  of ARB No. 21 ("No.
      160").  This  statement  amends  ARB No. 51 to  establish  accounting  and
      reporting standards for the  non-controlling  interest in a subsidiary and
      for the  deconsolidation  of a subsidiary.  The provisions of SFAS No. 160
      are effective for fiscal years,  and interim  periods  within those fiscal
      years,  beginning on or after  December 15, 2008. As of December 31, 2007,
      management  believes that SFAS No. 160 will not have a material  effect on
      our financial position, results of operations and cash flows.

vi)   In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
      Instruments  and Hedging  Activities--an  amendment of FASB  Statement No.
      133"  ("FAS  161").  FAS  161  changes  the  disclosure  requirements  for
      derivative  instruments and hedging  activities.  Entities are required to
      provide  enhanced  disclosures  about  (a)  how  and  why an  entity  uses
      derivative instruments,  (b) how derivative instruments and related hedged
      items  are   accounted   for   under   Statement   133  and  its   related
      interpretations,  and (c) how  derivative  instruments  and related hedged
      items affect an entity's financial position,  financial  performance,  and
      cash flows. The guidance in FAS 161 is effective for financial  statements
      issued for fiscal years and interim  periods  beginning after November 15,
      2008, with early application  encouraged.  This Statement encourages,  but
      does not require,  comparative  disclosures for earlier periods at initial
      adoption.  The Company is  currently  assessing  the impact of FAS 161 and
      does  not  anticipate  any  material  effect  on the  Company's  financial
      statements.

vii)  In  December  2007,  FASB  issued SFAS No. 141  (revised  2007),  Business
      Combinations ("No. 141R"). This statement establishes requirements for (i)
      recognizing and measuring in an acquiring company's  financial  statements
      the  identifiable  assets  acquired,  the  liabilities  assumed,  and  any
      noncontrolling  interest in the acquiree,  (ii)  recognizing and measuring
      the goodwill acquired in the business


                                       54
<PAGE>

      combination or a gain from a bargain purchase,  and (iii) determining what
      information  to disclose to enable users of the  financial  statements  to
      evaluate the nature and financial effects of the business combination.

      The  provisions of SFAS No. 141R are  effective for business  combinations
      for which the  acquisition  date is on or after the beginning of the first
      annual  reporting  period  beginning on or after  December 15, 2008. As of
      December 31, 2009,  management believes that SFAS No. 141R will not have a
      material effect on the financial position,  results of operations and cash
      flows.

RISK AND UNCERTAINTIES

In  evaluating  the  Company  and its  business,  shareholders  should  consider
carefully  the  following  risk factors and  uncertainties  in addition to other
information contained herein:

Risks Related to the Nature of the Entertainment Industry

The  entertainment  industry  historically has involved a substantial  degree of
risk. Acceptance of entertainment  programming represents a response not only to
the  programming's  artistic  components,  but also to the  review  of  critics,
promotion by the  distributor,  the quality and  acceptance  of other  competing
programs   released  into  the  marketplace  at  or  near  the  same  time,  the
availability of alternative  forms of entertainment and leisure time activities,
general  economic  conditions,  public  tastes  generally  and other  intangible
factors,  all of which  could  change  rapidly  and  cannot  be  predicted  with
certainty.  There is a risk that some or all of the Company's  programming  will
not be successful,  possibly  resulting in a portion of costs not being recouped
or anticipated profits not being realized. While Devine continually endeavors to
develop new programming, there can be no assurance that revenue from existing or
future  programming will replace a possible loss of revenue  associated with the
cancellation of any particular production.

Fluctuating Results of Operations

Results of operations for any period are  significantly  dependent on the number
and timing of home video programs  delivered or made available to various media.
Consequently,  the Company's results of operations may fluctuate materially from
period  to  period  and the  results  of any  one  period  are  not  necessarily
indicative of results for future periods.  Cash flows may also fluctuate and are
not  necessarily  closely  correlated  with  revenue  recognition.  Results from
operations  fluctuate materially from quarter to quarter and the results for any
one quarter are not necessarily indicative of results for future quarters.

Additional Financing

There is no assurance that additional  financing will be available when required
or if  available  that it could be obtained  on  favorable  terms.  This lack of
additional  financing  will affect the  Company's  ability to continue  with its
contemplated plan of operations.


                                       55
<PAGE>

Competition

Substantially all of the Company's  revenues are derived from the production and
distribution of television and film  programming.  The business of producing and
distributing  film and home video  programs is highly  competitive.  The Company
faces intense  competition from other producers and  distributors,  many of whom
are  substantially  larger and have greater creative,  financial,  technical and
marketing  resources than the Company.  The Company competes with other film and
home  video  production  companies  for ideas and  storylines  created  by third
parties as well as for actors,  directors  and other  personnel  required  for a
production.

Government Incentive Programs

The Company attempts to defray a significant  portion of the production costs of
most of its  programming  by  obtaining,  prior  to  commencement  of  principal
photography, advances and guarantees from distributors and licensees in exchange
for distribution  and broadcasting  rights to the production and, in some cases,
investments from third parties. In addition to fees from broadcasters, financial
contributions  by  co-producers  and presales of distribution  rights,  Canadian
industry  incentive  programs  represent  a financing  source for the  Company's
productions.  There  can be no  assurance  that  individual  incentive  programs
available to the Company will not be reduced, amended or eliminated.

International Operations

The  Company's  international  operations  depend,  in part,  on local  economic
conditions,  currency  fluctuations,  changes in local regulatory  requirements,
compliance with a variety of foreign laws and regulations and cultural barriers.
In addition,  political instability in a foreign nation may adversely affect the
ability of the Company to distribute its product in that country. As a result of
the foregoing international risks, the Company's international operations may be
adversely affected.

Risks related to US Regulations

Section 404 of the  Sarbanes-Oxley  Act 2002 and related  regulations  presently
requires that the Company  perform an  evaluation  of our internal  control over
financial  reporting  for years  ending  after  December  15,  2007 and have our
auditors  attest to such  evaluations  on an annual basis for years ending after
December 15, 2009. There can be no assurance that we will complete the necessary
work to comply  with all aspects of Section  404 and  related  regulations  in a
timely manner.

As a result of a thorough review of the Company's prior financial disclosures by
management,  the Company has  determined  that the  previously  filed  financial
statements  contained  errors  resulting  from the incorrect  classification  of
liabilities and assets and shareholders'  equity.  This review made apparent the
risk that the Company may not have sufficient  in-house  expertise to be able to
comply in a timely manner with the  requirements  of US  accounting  changes and
disclosure  regulations  in the  future  which  would be  considered  a material
weakness.   Accordingly,   management  is  evaluating  the  Company's  need  for
additional resources to be applied to engage ingoing advice from


                                       56
<PAGE>

experts  in US  accounting  changes  and in  order  to  maintain  the  Company's
effective disclosure control and procedures.

The Company may be unable to comply in a timely manner with the  requirements of
the  Sarbanes-Oxley Act relating to the assessment by us of the effectiveness of
our internal controls over financial reporting,  and our assessment may identify
material  weaknesses  and may result in an attestation  with an adverse  opinion
from our auditors, each of which could adversely affect our reputation and share
price.

Importance of Management Estimates in Reported Revenues and Earnings

The Company makes numerous estimates as to its revenues and matching  production
and direct distribution  expenses on a project-by-project  basis. As a result of
this  accounting  policy,  earnings can widely  fluctuate if management  has not
accurately forecast the revenue potential of a production.

Exchange Rates

The  return  to  the  Company  from  foreign  commercial  exploitations  of  its
properties is customarily  paid in U.S.  currency and as such may be affected by
fluctuations in the exchange rate of the U.S.  dollar.  Currency  exchange rates
are  determined by market factors beyond the control of the Company and may vary
substantially during the course of a production period. In addition, the ability
of the Company to repatriate to Canada funds arising in connection  with foreign
exploitation  of its properties  may also be adversely  affected by currency and
exchange control  regulations  imposed by the country in which the production is
exploited.  At  present,  the Company is not aware of any  existing  currency or
exchange  control  regulations  in any  country in which the  Company  currently
contemplates  exploiting its  properties,  which would have an adverse effect on
the Company's ability to repatriate such funds.

Canadian Content and Ownership

Canadian conventional,  specialty,  pay and pay-per-view television services are
required to devote a certain amount of their  programming  schedules,  including
prime time, to Canadian  productions.  In addition to  scheduling  requirements,
such  Canadian  television  services  are  typically  required  to invest in, or
acquire,  Canadian  programs based on the nature of the  particular  service and
financial  performance.  Under  regulations  and policies of the CRTC, a program
will qualify as a Canadian production if, among other things, (i) it is produced
by Canadians with the involvement of Canadians in principal functions,  and (ii)
a substantial  portion of the budget is spent on Canadian elements.  The Company
believes it will continue to qualify as a Canadian  producer for this purpose so
long as, among other things,  more than 50% of the combined  voting power of its
outstanding  shares is  beneficially  owned by Canadian  nationals.  The Company
cannot be certain of the total  percentage of the Company's stock currently held
in Canada because the Company has no way of determining the beneficial ownership
of its outstanding Common Shares.


                                       57
<PAGE>

Proprietary Rights

To the extent  practicable,  the  Company  attempts  to retain and  protect  all
proprietary  and  intellectual   property  rights  to  its  productions  through
international  copyright laws and licensing and distribution  arrangements  with
reputable  international  companies  for  specified  territories  and  media for
limited  durations.  Despite these  precautions,  existing copyright laws afford
only limited  practical  protection in certain  jurisdictions  and, in fact, the
Company  operates  in  other  jurisdictions  in  which  there  is  no  copyright
protection.  As a result,  it may be possible for unauthorized  third parties to
copy  and   distribute  the  Company's   productions  or  certain   portions  or
applications  of  the  Company's  productions.  In  addition,  there  can  be no
assurance  that other  companies  will not  independently  develop  and  produce
programs  that are  similar  to or  imitate  those of the  Company  but  legally
circumvent the Company's intellectual property rights.

OTHER INFORMATION

Additional information relating to Devine Entertainment  Corporation is on SEDAR
at www.sedar.com

Disclosure of outstanding share data

As of April 11, 2008 the Company has the following  voting or equity  securities
or  securities  convertible  or  exercisable  into voting or equity  securities,
issued and outstanding:

Common shares issued & outstanding: 45,921,149.
Series 1 preferred shares issued and outstanding: 494,550
Options: 4,655,000 outstanding options to purchase 4,655,000 common shares
Warrants: 14,474,166 outstanding to purchase 14,474,166 common shares


                                       58
<PAGE>

ITEM 7.

                        DEVINE ENTERTAINMENT CORPORATION

                        CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 2007


                         (expressed in Canadian dollars)


                                       59
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                        CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 2007


                         (expressed in Canadian dollars)

                                    CONTENTS

                                                                           PAGE

Report of Independent Registered Public Accounting Firm                     61

Consolidated Balance Sheets                                                 64

Consolidated Statements of Shareholders' Equity                             65

Consolidated Statements of Operations and Comprehensive Loss                66

Consolidated Statements of Cash Flows                                       67

Notes to Consolidated Financial Statements                            68 - 102


                                       60
<PAGE>

[LOGO]Deliotte                                              Mintz & Partners LLP
                                                            1 Concorde Gate
                                                            Suite 200
                                                            Toronto, ON M3C 4G4
                                                            Canada

                                                            Tel: 416-391-2900
                                                            Fax: 416-391-2748
                                                            www.deloitte.ca

Report of Independent Registered Chartered Accountants

To the Board of Directors and Shareholders of
Devine Entertainment Corporation.

We  have  audited  the  accompanying   consolidated   balance  sheet  of  Devine
Entertainment  Corporation  (the  "Company")  as at  December  31,  2007 and the
related   consolidated   statements  of  operations  and   comprehensive   loss,
shareholders'  equity and cash flows for the year then  ended.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We  conducted  our audit in  accordance  with the  Canadian  generally  accepted
auditing standards and the standards of the Public Company Accounting  Oversight
Board  (United  States).  Those  standards  require that we plan and perform the
audit to obtain reasonable  assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audit provides a reasonable  basis
for our opinion.

In our opinion,  these consolidated  financial statements present fairly, in all
material  respects,  the  financial  position of the Company as at December  31,
2007,  and the  results of its  operations  and its cash flows for the year then
ended in accordance with Canadian generally accepted accounting principles.

The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting.  Our audit included consideration
of internal  control over  financial  reporting as a basis for  designing  audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing  an  opinion  on  the  Company's   internal  control  over  financial
reporting. Accordingly, we express no such opinion.

The consolidated  financial  statements as at December 31, 2006 and for the year
then ended (as  restated)  were audited by Mintz & Partners LLP who expressed an
opinion  without  reservation  with  a  comment  on US  and  Canadian  reporting
differences on those  statements in their report dated March 26, 2007 except for
the effect of restatement  described in Notes 2 and 23, which is as of April 11,
2008.


/s/ Deloitte & Touch LLP

Independent Registered Chartered Accountants
Licensed Public Accountants
Toronto, Canada
April 11, 2008


                                       61
<PAGE>

[LOGO]Deliotte                                              Mintz & Partners LLP
                                                            1 Concorde Gate
                                                            Suite 200
                                                            Toronto, ON M3C 4G4
                                                            Canada

                                                            Tel: 416-391-2900
                                                            Fax: 416-391-2748
                                                            www.deloitte.ca


Comments by Independent Registered Chartered Accountants on Canada-United States
of America Reporting Difference

The standards of the Public Company Accounting Oversight Board (United States)
require the addition of an explanatory paragraph (following the opinion
paragraph) when the financial statements are affected by conditions and events
that cast substantial doubt on the Company's ability to continue as a going
concern, such as those described in Note 1 to the consolidated financial
statements. Our report to the Board of Directors and Shareholders, dated April
11, 2008, is expressed in accordance with Canadian reporting standards which do
not require a reference to such changes in accounting principles in the
auditors' report when the changes are properly accounted for and adequately
disclosed in the financial statements.


/s/ Deloitte & Touche LLP

Independent Registered Chartered Accountants
Licensed Pubic Accountants
Toronto, Canada
April 11, 2008


                                       62
<PAGE>

[LOGO]Mintz & Partners
                                                     200 - 1 Concorde Gate
                                                     North York, ON MBC 4G4

                                                     T: 416-391-2900
                                                     F: 416-644-4303
                                                     www.mintzca.com

Report of Independent Registered Chartered Accountants

To the Board of Directors and Shareholders of
Devine Entertainment Corporation.

We  have  audited  the  accompanying   consolidated   balance  sheet  of  Devine
Entertainment  Corporation  (the  "Company")  as at  December  31,  2006 and the
related   consolidated   statements  of  operations  and   comprehensive   loss,
shareholders'  equity and cash flows for the year then  ended.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit in accordance with Canadian  generally  accepted auditing
standards and the standards of the Public  Company  Accounting  Oversight  Board
(United States).  These standards  require that we plan and perform the audit to
obtain reasonable  assurance about whether the financial  statements are free of
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

In our opinion,  these consolidated  financial statements present fairly, in all
material respects, the financial position of Devine Entertainment Corporation as
at December 31, 2006,  and the results of its  operations and its cash flows for
the year then ended in accordance with Canadian  generally  accepted  accounting
principles.

           COMMENTS BY AUDITORS ON U.S. - CANADA REPORTING DIFFERENCE

In Canada,  reporting  standards  for  auditors do not permit the addition of an
explanatory  paragraph when the financial  statements  account for, disclose and
present in accordance with generally accepted accounting  principles  conditions
and events that cast substantial doubt on the company's ability to continue as a
going concern.  Although our audit was conducted in accordance  with both Public
Company  Accounting  Oversight  Board  (United  States) and  Canadian  generally
accepted auditing standards, our report to the shareholders dated March 26, 2007
is expressed in accordance with Canadian reporting standards which do not permit
a  reference  to  such   uncertainties   in  the  auditor's   report  when  such
uncertainties are adequately disclosed in the financial statements.


                                    /s/ Mintz & Partner LLP

Toronto, Ontario                    Independent Registered Chartered Accountants
March 26, 2007 except for           Licensed Public Accountants
the effect of restatement
described in Notes 2 and 23,
which is as of April 11, 2008


                                       63
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                           CONSOLIDATED BALANCE SHEETS

                                DECEMBER 31, 2007
                         (expressed in Canadian dollars)

                                     ASSETS

                                                      2007              2006
                                                                       Restated
                                                                       (Note 2)
                                                  ------------     ------------
Cash and cash equivalents                         $    245,872     $    268,001
Accounts receivable                                  1,028,705           23,170
Film tax credits receivable (Note 4)                 1,112,207        2,127,568
Inventory                                               54,871           88,236
Prepaid and sundry assets                              185,360          190,935
Advances receivable (Note 5 & 20)                      494,550          494,550
Investment in film, television
  programs and recordings (Note 7)                   5,355,327        9,444,813
Property and equipment (Note 8)                         15,345           20,405
                                                  ------------     ------------
                                                  $  8,492,237     $(12,657,678)
                                                  ============     ============

                                  LIABILITIES
Accounts payable and accrued liabilities          $  1,569,974     $  1,492,953
Film production loan (Note 9)                        1,840,604        2,121,527
Loans payable (Note 10)                              1,700,800        1,700,800
Deferred revenue (Note 3 (n))                             --          4,342,643
Preferred shares (Note 11)                             494,550          494,550
                                                  ------------     ------------
                                                     5,605,928       10,152,473
                                                  ------------     ------------

                              SHAREHOLDERS' EQUITY
Capital stock (Note 16)                             12,652,998       12,268,006
Contributed surplus (Note 18)                          902,449          707,165
Warrants (Note 16(d)                                   708,456          335,544
Deficit                                            (11,377,594)     (10,805,510)
                                                  ------------     ------------

                                                     2,886,309        2,505,205
                                                  ------------     ------------

                                                  $  8,492,237     $ 12,657,678
                                                  ============     ============

See accompanying notes to consolidated financial statements.

APPROVED ON BEHALF OF THE BOARD:

    /s/ David Devine                          /s/ Richard Mozer
--------------------------               --------------------------
        [signed]           Director               [signed]          Director
       David Devine                            Richard Mozer


                                       64
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                 FOR THE YEARS ENDED DECEMBER 31, 2007 and 2006
                        (expressed in Canadian dollars)

<TABLE>
<CAPTION>
                                                                                                   Stock    Contributed
                                    Common Shares        Preferred Shares        Warrants         Options    Surplus      Deficit
                                    -------------        ----------------      -------------      -------    -------      -------
                                    #           $         #         $           #           $        #          $            $
                                                                                                            (Note 18)
------------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>         <C>         <C>       <C>       <C>         <C>     <C>        <C>         <C>
BALANCE, as previously
reported
January 1, 2006                 35,353,508  11,745,545  494,550   494,550   4,877,450            3,180,000  1,007,376    (8,075,447)
Restatement (Note 2)
reallocate warrants  from
contributed surplus                     --          --       --                    --   199,046         --   (199,046)
Effect of reclassification
of preferred shares (Note 2)                           (494,550) (494,550)
Effect of restated loans
payable (Note 2)                                                                                                           (181,510)
                                ----------------------------------------------------------------------------------------------------
BALANCE, as restated
January 1, 2006                 35,353,508  11,745,545       --        --   4,877,450   199,046  3,180,000    808,330    (8,256,957)
-issuance of stock options
    (Note 16c)                                                                                   1,090,000     31,185
-Modification of warrants
   (Note 2 c)                                                                           110,512              (110,512)
-shares issued on settlement
   for services rendered and
   accounts payable (Note 16
   b, v, vii, viii & 16 c)         551,860      74,904
-issuance of private placement
   (Note 16 b iv) and effect
   of fair value of warrants
   (Note 2)                      3,383,331     444,557                      1,691,666    62,943
-exercise of stock options
   (Note 16 b vi)                   25,000       3,000                                             (25,000)      (500)
-expired warrants (Note 16)                                                  (499,950)  (36,957)               36,957
-proceeds from financings
   (Note 18 & 20)                                                                                             249,098
Subscription receivable
  (Note 6)                                                                                                   (307,393)
Net Loss as restated (Note 2)                                                                                            (2,548,553)
                                ----------------------------------------------------------------------------------------------------
BALANCE, as restated
December 31, 2006               39,313,699  12,268,006       --        --   6,069,166   335,544  4,245,000    707,165   (10,805,510)

-expired options (Note 16 c)                                                                      (905,000)
-settlement for services
   rendered (Note 16 b i)           68,850      10,328
-settlement of accrued
   liabilities
   (Note 16 b iii)                  63,600       9,540
-issuance of private
   placement (Note 16 b
   ii & 16 d)                    6,475,000     365,124                      6,475,000   227,276
-grant of stock options
   (Note 16 c)                                                                                   1,315,000    119,450
-modification of warrants
 (Note 16 d)                                                                             16,256               (16,256)

-grant of warrants (Note 16 d)                                              1,930,000   129,380
- Proceeds from financings
   (Note 18 & 20)                                                                                             131,316
Subscription receivable net                                                                                   (39,226)
   (Note 6)
                                ----------------------------------------------------------------------------------------------------
NET LOSS                                                                                                                   (572,084)
BALANCE,
                                ----------------------------------------------------------------------------------------------------
December 31, 2007               45,921,149  12,652,998       --        --  14,474,166   708,456  4,655,000    902,449   (11,377,594)
                                ----------  ----------       --        --  ----------   -------  ---------    -------   -----------

</TABLE>

See accompanying notes to consolidated financial statements.


                                       65
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

                        FOR THE YEARS ENDED DECEMBER 31,
                        (expressed in Canadian dollars)

                                                       2007             2006
                                                                      Restated
                                                                      (Note 2)
                                                   ------------    ------------
REVENUE                                            $  6,144,577    $    423,959
                                                   ------------    ------------
EXPENSES
  Operating & general                                 1,087,975         903,999
  Amortization & write-down of film, television
    programs and recordings (Note 7)                  5,589,184       2,010,385
  Amortization of property and equipment                  5,060           6,572
  Interest expense - net (Note 12)                       34,442          51,556
                                                   ------------    ------------
                                                      6,716,661       2,972,512
                                                   ------------    ------------
LOSS AND COMPREHENSIVE LOSS                        $   (572,084)   $ (2,548,553)
                                                   ============    ============

LOSS PER SHARE (Note 17)

Basic and Diluted                                  $      (0.01)   $      (0.07)
                                                   ============    ============

WEIGHTED AVERAGE NUMBER OF SHARES

Basic and Diluted                                    40,813,586      37,575,373
                                                   ============    ============

See accompanying notes to consolidated financial statements.


                                       66
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                        FOR THE YEARS ENDED DECEMBER 31,
                        (expressed in Canadian dollars)

                                                        2007            2006
                                                                      Restated
                                                                      (Note 2)
                                                     -----------    -----------
OPERATING ACTIVITIES
   Loss for the year                                 $  (572,084)   $(2,548,553)
   Stock-based compensation (Note 16 e)                  259,158        106,060
  Amortization - film, television programs
                 and recordings                        3,989,087        251,643
               - property and equipment                    5,060          6,572
   Write-down of investment in film,
     television programs and recordings                1,600,097      1,758,742
   Change in non-cash operating assets
     & liabilities (Note 21)                          (4,147,316)     2,490,481
                                                     -----------    -----------
  Cash flows provided by operating activities          1,134,002      2,064,975
                                                     -----------    -----------

FINANCING ACTIVITIES
   Prepaid and sundry assets                             (60,000)            --
   Increase (decrease) in film production loans         (280,923)     2,091,215
   Issuance of shares on exercise of options                  --          2,500
   Net change in proceeds from financing and
     subscription receivable                              92,090        (58,295)
   Shares issued on private placement                    365,124        444,557

   Warrants                                              227,276         62,943
                                                     -----------    -----------

   Cash flows provided by financing activities           343,567      2,542,920
                                                     -----------    -----------

INVESTING ACTIVITIES
  Investment in film, television programs
    and recordings                                    (1,499,698)    (4,576,779)
  Purchase of property and equipment                          --         (3,105)
                                                     -----------    -----------

 Cash flows used in investing activities              (1,499,698)    (4,579,884)
                                                     -----------    -----------

CHANGE IN CASH AND CASH EQUIVALENTS                      (22,129)        28,011

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR             268,001        239,990
                                                     -----------    -----------

CASH AND CASH EQUIVALENTS, END OF YEAR                   245,872    $   268,001
                                                     ===========    ===========

SUPPLEMENTAL CASH FLOW INFORMATION

Interest paid                                        $   133,229    $    71,519
                                                     ===========    ===========


See accompanying notes to consolidated financial statements.


                                       67
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

1. NATURE OF BUSINESS AND GOING CONCERN

      Devine   Entertainment   Corporation  ("the  Company")  is  an  integrated
      developer  and producer of  children's  and family  programs for worldwide
      television and film broadcast and home video markets.

      Television and film production and distribution is highly  speculative and
      inherently  risky.  There can be no assurance  of the economic  success of
      such television and film  programming  since the revenues derived from the
      production  and  distribution  (which  do not  necessarily  bear a  direct
      correlation  to the  production or  distribution  costs  incurred)  depend
      primarily upon their acceptance by the public.  Furthermore,  the industry
      has long operating  cycles which require cash injections into new projects
      significantly  ahead  of  the  delivery  and  exploitation  of  the  final
      production.

      The success of the Company's  television and film  programming also may be
      impacted by, among other factors,  prevailing advertising rates, which are
      subject to fluctuation.  Therefore,  there is a substantial risk that some
      or all of the  Company's  television  projects  will  not be  commercially
      successful,  resulting in costs not being recouped or anticipated  profits
      not being realized.

      These  financial  statements have been prepared on the basis of accounting
      principles  applicable to a going concern,  which presumes the realization
      of assets and settlement of liabilities in the normal course of operations
      in the foreseeable future.

      While the Company  continues to maintain  its  day-to-day  activities  and
      produce  and  distribute  films  and  television  programming,  it  has  a
      significant  working  capital  deficiency  and its continued  existence is
      dependent upon its ability to restore and maintain  profitable  operations
      and  to  successfully  extinguish  loans  payable  (Note  10),  which  are
      currently in default.  Management  is in constant  communication  with the
      loan holders and expects that the Company will be able to settle the loans
      in the normal  course of  operations.  Nonetheless,  the  Company  remains
      unable  to  service  this loan and the  Company  will  require  additional
      working capital from its production  activities or corporate  financing in
      2008.

      The Company is pursuing various financing  initiatives;  however, there is
      no assurance that the Company will be successful in its financing  efforts
      and in achieving sufficient cash flows from operating  activities.  If the
      Company is  unsuccessful,  the Company  may be  required to  significantly
      reduce or limit operations.  The application of the going concern basis is
      dependent  upon the Company  obtaining  additional  financing  to fund its
      continuing operations and meet its obligations as they come due.

      If the going concern  assumption  were not appropriate for these financial
      statements,  then adjustments would be necessary in the carrying values of
      assets and liabilities and the reported net income.


                                       68
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The  Company  is  restating  its  previously  reported  consolidated   financial
statements  for the fiscal year ended December 31, 2006. A summary of the impact
of the restatement  adjustments on the previously reported  consolidated balance
sheet, statement of operations cash and flows amounts is as follows:

Summary of Restatement Adjustments

(a)   In prior years, the Company issued convertible debentures.  The fair value
      of the conversion feature was recorded as part of contributed surplus. The
      Company did not record the accretion of interest  during the term of these
      convertible  debentures.  As a result the  convertible  debentures and the
      deficit balance were understated by $181,510. These convertible debentures
      were  not  renewed  upon  maturity  in  prior  years.   Accordingly  these
      debentures have been recorded as loans payable.

      The Company has corrected this error retroactively.  As a result the loans
      payable  (previously  recorded  as  convertible  debentures)  and  deficit
      balance at January 1, 2006 and  December  31, 2006 has  increased  been by
      $181,510.

(b)   The Company has determined that the previously filed financial  statements
      contained  errors  resulting  from the  incorrect  accounting  related  to
      interest for the  Company's  Investment in film,  television  programs and
      recordings. The interest expense should have been capitalized.

      The Company has  restated  the loan  interest  paid in 2006 from  interest
      expense and capitalized it to Investment in film,  television programs and
      recordings.  The restatement amounts to $30,312. As a result investment in
      film,  television programs and recordings increased by $30,312 and deficit
      decreased by $30,312 for 2006.

(c)   The Company has determined that the previously filed financial  statements
      contained errors resulting from the incorrect volatility  calculation used
      to  determine  the fair value of  warrants  and options for the year ended
      December  31,  2006.  As a result,  capital  stock has been  decreased  by
      $62,943  and  warrants  has  been  increased  by  $62,943.   In  addition,
      contributed surplus,  operating & general expenses, loss and comprehensive
      loss and deficit for the year ended  December 31, 2006 have been increased
      by $19,710.

      Stock  based   compensation  of  $26,784  was  reclassified  to  operating
      expenses.

      The Company had previously included warrants as a component of contributed
      surplus. The Company has determined that the correct presentation would be
      to disclose warrants separately.  As a result contributed surplus has been
      reduced by $199,046 and  warrants  have been  increased  by  $199,046.  In
      addition,  the fair value of warrants  $36,957  which  expired in 2006 was
      reallocated to contributed surplus.

      The  Company  reissued  2,547,500  warrants  which had expired on April 7,
      2006. The warrants were extended for an additional year and the fair value
      of $110,512 was allocated to warrants from contributed surplus.


                                       69
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

2.    RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)

(d)   The Company  had  previously  recorded  subscriptions  receivables  on the
      balance sheet as a current and long term asset. Under EIC-132, the Company
      is required to present subscriptions  receivables as a reduction in equity
      until such time that the receivable is collected. The Company has restated
      subscriptions  receivables  accordingly  and the effect of the restatement
      resulted  in a  decrease  to  Subscriptions  receivables  of  $132,296,  a
      decrease  to  long  term   receivable  of  $175,097  and  a  reduction  to
      contributed surplus of $307,393 at December 31, 2006.

(e)   The company  restated its preferred  shares from an equity  component to a
      liability as it was determined that under the CICA Handbook  Section 3861,
      and  following  the  guidance  under  EIC-149.  The  preferred  shares are
      redeemable,  retractable and have a preferential priority participation in
      the residual equity of the company, accordingly preferred shares have been
      restated  as a  liability.  The effect of the  restatement  resulted  in a
      reclassification  from  preferred  shares  in the  equity  section  of the
      balance  sheet in the  amount  of  $494,550  to  preferred  shares  in the
      liability  section in the amount of  $494,550  and  accordingly  dividends
      amounting to $45,004 would be restated as interest expense.

(f)   The company has restated its Investment in film,  television  programs and
      recordings  to include an accrual for future tax credits  associated  with
      its cost of projects in progress. This restatement resulted in an increase
      in Film tax credits  receivable  and a reduction  in  Investment  in film,
      television programs and recordings of $76,000.

The following table  summarizes the impact of the restatement  adjustment on the
previously reported consolidated balance sheet, statement of operations and cash
flows for the year ended December 31, 2006.


                                       70
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

2.    RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)

<TABLE>
<CAPTION>
                                                     Restated Consolidated Balance Sheet
                                                              December 31, 2006
                                  --------------------------------------------------------------------------
                                      2006      Affecting periods       2006                        2006
                                  As Reported     prior to 2006      Restatement        Ref      As Restated
                                  -----------     -------------      ---------------------------------------
<S>                                 <C>             <C>              <C>                 <C>       <C>
Share subscription
  receivable                        $132,296                         $(132,296)          (d)    $         --

Investment in film,
  television programs,
  and recordings                   9,490,501                            30,312           (b)
                                                                       (76,000)          (f)       9,444,813
Film tax credits
 Receivable                        2,051,568                            76,000           (f)       2,127,568

Long term receivable                 175,097                          (175,097)          (d)              --

Total assets                     $12,934,759                         $(277,081)                   12,657,678

Convertible debentures             1,519,290           181,510                           (a)
                                                    (1,700,800)                          (a)              --
Loans payable                                        1,700,800                           (a)       1,700,800

Preferred shares                                       494,550                           (e)         494,550

Total liabilities                 $9,476,413           676,060              --                    10,152,473

Capital Stock                     12,330,949                           (62,943)          (c)      12,268,006
Contributed surplus                1,267,449          (199,046)                          (c)
                                                                        19,710           (c)
                                                                      (307,393)          (d)
                                                                      (110,512)          (c)
                                                                        36,957           (c)         707,165
Warrants                                               199,046                           (c)
                                                                        62,943           (c)
                                                                       110,512           (c)
                                                                       (36,957)          (c)         335,544
Preferred Shares                     494,550          (494,550)                          (e)              --
Deficit                          (10,634,602)                           30,312           (b)
                                                      (181,510)                          (a)
                                                                       (19,710)          (c)
                                                                                                 (10,805,510)
Shareholders' equity               3,458,346          (676,060)       (277,081)                    2,505,205

Total liabilities and
 Shareholders'
 Equity                          $12,934,759       $        --       ($277,081)                  $12,657,678
</TABLE>


                                       71
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

<TABLE>
<CAPTION>
                                          Restated Consolidated Statement of Operations
                                               For the Year ended December 31, 2006
                                 --------------------------------------------------------------
                                     2006             2006                              2006
                                 As Reported      Restatement         Ref           As Restated
                                 -----------      -----------         ---           -----------
<S>                              <C>                <C>                          <C>
Revenues                            $423,959              --                         423,959

Operating expenses                   857,505
                                                      26,784          (c)
                                                      19,710          (c)            903,999

Stock based compensation              26,784         (26,784)         (c)                 --

Interest (recovery)                   36,865         (30,312)         (b)
                                                      45,004          (e)             51,557
Amortization and
 write downs                       2,016,957                                       2,016,957
                                 -----------                                     -----------
Expenses                           2,938,110          34,402                       2,972,512
                                 -----------        --------                     -----------

Loss
 Comprehensive
 income (loss)                   $(2,514,151)       $(34,402)                    $(2,548,553)
                                 ===========        ========                     ===========

Earnings (loss) per
 Common share
Basic                                 ($0.07)             --                          ($0.07)
                                      ======           =====                          ======
Diluted                               ($0.07)             --                          ($0.07)
                                      ======           =====                          ======
</TABLE>

<TABLE>
<CAPTION>
                                                 Restated Consolidated Statement of Cash Flows
                                                      For the Year ended December 31, 2006
                                           --------------------------------------------------------
                                              2006            2006                          2006
                                           As Reported     Restatement        Ref       As Restated
                                           -----------     -----------        ---       -----------
<S>                                       <C>                <C>              <C>       <C>
OPERATING ACTIVITIES
 Loss for the year                        $(2,514,151)       (19,710)         (c)
                                                              30,312          (b)
                                                             (45,004)         (e)        (2,548,553)
 Stock-based compensation                      86,380         19,710          (c)           106,090
 Amortization - film, television
                programs and recordings       251,643                                       251,643
              - property and equipment          6,572                                         6,572

Write-down of investment in film,
  television programs and recordings        1,758,742                                     1,758,742
Change in non-cash operating
  assets and liabilities                    2,566,481
                                                             (76,000)         (f)         2,490,481
                                                                                          ---------
Cash flows provided by
  operating activities                      2,155,667        (90,692)                     2,064,975
                                                                                          ---------
</TABLE>


                                       72
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

2.    RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)

<TABLE>
<CAPTION>
                                                          Restated Consolidated Statement of Cash Flows
                                                              For the Year ended December 31, 2006
                                                  ---------------------------------------------------------
                                                      2006           2006                          2006
                                                  As Reported     Restatement         Ref       As Restated
                                                  -----------     -----------         ---       -----------
<S>                                                <C>              <C>                           <C>
FINANCING ACTIVITIES
   Increase (decrease) in film
       production loans                             2,121,527       $(30,312)         (b)          2,091,215
   Long term receivable                              (175,097)       175,097          (d)                 --
   Subscription receivable                           (132,296)       132,296          (d)                 --
   Issuance of shares on exercise of options            2,500                                          2,500
   Net change in proceeds from financing and               --       (307,393)         (d)
   subscription receivable                                 --        249,098          (d)            (58,295)
   Preferred share dividends paid                     (45,004)        45,004          (e)                 --
   Shares issued on private placement                 507,500        (62,943)         (c)            444,557
   Contributed surplus                                249,098       (249,098)         (d)                 --
   Warrants                                                --         62,943          (c)             62,943
                                                                                                   ---------

   Cash flows provided by
       financing activities                         2,528,228                                      2,542,920
                                                    ---------                                      ---------

INVESTING ACTIVITIES
   Investment in film, television
       programs and recordings                     (4,652,779)        76,000          (f)         (4,576,779)
   Purchase of property and equipment                  (3,105)                                        (3,105)
                                                    ---------                                      ---------
   Cash flows used in investing activities         (4,655,884)                                    (4,579,884)
                                                    ---------                                      ---------
CHANGE IN CASH AND
   CASH EQUIVALENTS                                    28,011                                         28,011

CASH AND CASH EQUIVALENTS,
   BEGINNING OF YEAR                                  239,990                                        239,990
                                                    ---------                                      ---------
CASH AND CASH EQUIVALENTS,
   END OF YEAR                                       $268,001                                       $268,001
                                                    ---------                                      ---------
</TABLE>


                                       73
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      These consolidated  financial  statements have been prepared in accordance
      with Canadian generally accepted accounting  principles ("Canadian GAAP").
      Note 23 describes and reconciles the significant  measurement  differences
      between Canadian generally accepted accounting  principles (Canadian GAAP)
      and  accounting  principles  generally  accepted in the United States ("US
      GAAP") affecting the accompanying  consolidated  financial  statements.  A
      summary of significant accounting principles is set below:

      (a)   Revenue Recognition

            Revenue is derived from broadcast licensing  agreements,  royalties,
            distribution  fees,  the  sale  of  distribution   rights,  sale  of
            copyright  interests  and the sale of home  videos.  All  revenue is
            recognized upon meeting all recognition requirements of Statement of
            Position of the American  Institute of Certified Public  Accountants
            ("SOP  00-2").   Revenue  from  the  sale  of  film  and  television
            programming rights and licence  arrangements is recognized only when
            persuasive evidence of a sale or arrangement with a customer exists,
            the film is complete and the contractual delivery  arrangements have
            been  satisfied,  the licence period has commenced,  the arrangement
            fee is fixed or  determinable,  collection of the arrangement fee is
            reasonably  assured,  and  other  conditions  as  specified  in  the
            respective agreements have been met.

            Revenue from broadcast licensing  agreements,  together with related
            costs,  and  revenue  from  the  sale  of  copyright  interests  are
            recognized once the licensing  periods have commenced,  the programs
            are delivered and collection is reasonably assured.

            Revenue from  royalties is recognized  when reported by the Licensee
            and collection is reasonably assured.

            Revenue from the sale of distribution  rights is recognized when the
            film  or  television  programs  are  substantially   complete,   the
            investors have irrevocably  committed to acquire distribution rights
            and there is reasonable assurance of the collectability of proceeds.

            Revenue from the sale of home videos and DVD's are recognized at the
            time of shipment and collection is reasonably assured.

            Amounts  received in advance are recorded as deferred  revenue until
            the revenue recognition criteria are met.


                                       74
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      (b)   Basis of Consolidation

            These  consolidated  financial  statements  include the  accounts of
            Devine  Entertainment  Corporation,  its  wholly-owned  subsidiaries
            Across the River  Productions  and Across the River II  Productions,
            and  Variable   Interest   Entities   ("VIE").   All   inter-company
            transactions have been eliminated.

            The  Company   adheres  to  the  Canadian   Institute  of  Chartered
            accountants' (CICA) Accounting Guideline 15 (AcG-15), "Consolidation
            of Variable  Interest  Entities"  ("VIE").  AcG-15 is  substantially
            similar to the Financial  Accounting  Standards Board interpretation
            No.46R ("FIN 46R")  "Consolidation of Variable  Interest  Entities".
            AcG-15  provides  guidance  that  addresses  when a  company  should
            consolidate in its financial statements the assets,  liabilities and
            operating  results of another  entity.  Under previous  guidance,  a
            company  generally  included  another  entity  in  its  consolidated
            financial  statements  only if it  controlled  the entity  through a
            controlling   voting   interest.   AcG-15   requires  a  VIE  to  be
            consolidated   by  the  Company  if  that  company  is  the  primary
            beneficiary of that entity.

            Accordingly,  the Company has included the results of  operations of
            certain  limited   partnerships   (Note  20)  in  its   consolidated
            operations  for the years ended  December  31, 2007 and December 31,
            2006.

      (c)   Inventory

            The Company's  inventory consists of finished goods and is stated at
            the  lower of cost and net  realizable  value.  Finished  goods  are
            comprised  mainly of DVD's,  videos  teachers  guides of  previously
            released   productions  for  resale  through  various   distribution
            channels.

      (d)   Investment in Film, Television Programs and Recordings

            In accordance with SOP 00-2, Investment in film, television programs
            and recordings  represent  projects in progress and the  unamortized
            costs of film,  television  programs and recordings,  net of federal
            and provincial film production tax credits, which have been produced
            by the  Company or for which the  Company  has  acquired a copyright
            interest  or the  rights  to  future  revenue.  Such  costs  include
            development and production  expenditures,  capitalized  overhead and
            financing  costs and other  costs,  which are  expected  to  benefit
            future  periods.   Exploitation  costs,  including  advertising  and
            marketing  costs,  are being expensed as incurred.  The Company also
            has an  interest in  programs,  which have been fully  amortized  in
            prior  years  and  have  no  carrying   value  in  these   financial
            statements.


                                       75
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      (d)   Investment in Film, Television Programs and Recordings (continued)

            Projects in progress  include the costs of acquiring  film rights to
            original  screenplays  and costs to adapt such projects.  Such costs
            are capitalized and, upon  commencement of production,  are added to
            investment in film, television programs, and recordings. Advances or
            contributions  received from third parties to assist in  development
            are deducted from these costs. If the property under development has
            not been set for  production  within three years,  or if upon review
            management  determines  that certain  costs are  unrecoverable,  the
            costs associated with such property are written off to income.

            Amortization  is  determined  based on the ratio that current  gross
            film  revenues  bear to  management's  estimate  of total  remaining
            ultimate  gross film  revenue  as of the  beginning  of the  current
            fiscal  year on a program by program  basis  (the  "individual  film
            forecast  method").  Revenue and film carrying costs are continually
            reviewed  by  management  and  revised  when  warranted  by changing
            conditions. When estimates of total revenues and costs indicate that
            a feature  film or  television  program  will  result in an ultimate
            loss,  a  reduction  in the  carrying  value  of the  investment  is
            recognized  to  the  extent  that   capitalized  film  costs  exceed
            estimated fair value.  Such adjustments could have a material effect
            on the results of operations in future periods.

            Production   financing   provided  by  third  parties  that  acquire
            substantive equity participation is recorded as a reduction of costs
            of the production.

            Capitalized  film costs are stated at the lower of unamortized  cost
            or estimated  fair value on an  individual  film basis.  Fair market
            value is based  on the  discounted  projected  net cash  flows.  The
            determination of the projected net cash flows and discount rates are
            subjective  in nature  and  involve  uncertainties  and  matters  of
            significant judgement by management.

      (e)   Cash and Cash Equivalents

            Cash and cash equivalents include cash and all investments purchased
            with an  original  maturity  of three  months or less at the date of
            purchase.  Cash  and  Cash  equivalents  are  held  in  three  major
            financial institutions located in Canada.

      (f)   Property and Equipment

            Property  and  equipment  are  recorded  at  cost  less  accumulated
            amortization.  Amortization  is being  provided for on the declining
            balance basis at the following annual rates.

                            Computer and editing equipment              - 30%
                            Furniture and fixtures                      - 20%


                                       76
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      (g)   Foreign Currency Translation

            Monetary assets and liabilities denominated in currencies other than
            Canadian dollars are translated at year-end exchange rates. Revenue,
            expenses and film  production  costs are  translated at the exchange
            rates in  effect  at the  times of the  transactions.  The  gains or
            losses  resulting  from  these  translations  are  reflected  in the
            consolidated statements of operations.

      (h)   Government and Other Assistance

            The Company  has access to various  government  programs,  including
            refundable  film and  television  tax credits  that are  designed to
            assist film,  television  programs  and  recordings  production  and
            distribution  in Canada.  Refundable  tax credits are  recorded as a
            reduction of the cost of related  films.  Tax credits are recognized
            when there is reasonable  assurance  that the amount claimed will be
            received.

      (i)   Stock-Based Compensation

            The Company  accounts for all  stock-based  payments  using the fair
            value based  method.  The Company  grants stock  options for a fixed
            number of shares to  employees  with an exercise  price equal to the
            fair  value  of the  shares  at  the  date  of  grant,  and  vesting
            immediately.  The Company  recognizes  compensation  expense for the
            stock-based  compensation  plan  when  stock  or stock  options  are
            issued.  Any  consideration  received from  employees on exercise of
            stock  options or purchase of stock is credited to share capital and
            the fair value of stock  options  is  transferred  from  contributed
            surplus to share capital.

            For  stock  based   compensation   issued  to  non  employees,   the
            Corporation  recognizes  an  expense  based on the fair value of the
            equity instrument issued.

      (j)   Future Income Taxes

            The  Company  uses the asset and  liability  method to  account  for
            income taxes.  The asset and liability  method  requires that income
            taxes  reflect the  expected  future tax  consequences  of temporary
            differences  between the carrying  amounts of assets or  liabilities
            and their tax bases.  Future tax assets and liabilities are measured
            using enacted or  substantively  enacted tax rates expected to apply
            when the  asset  is  realized  or the  liability  settled.  When the
            realization  of a  future  tax  asset is  determined  to not be more
            likely than not realized, a valuation allowance is provided

      (k)   Earnings Per Share

            Earnings  per share are  computed in  accordance  with  Section 3500
            ("Earnings per Share") of the CICA Handbook,  which directs that the
            treasury stock and if-converted  method be used to calculate diluted
            earnings per share.


                                       77
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      (k)   Earnings Per Share (continued)

            Diluted  earnings per share  considers  the  dilutive  impact of the
            exercise of outstanding stock options,  warrants,  and conversion of
            preferred  shares, as if the events had occurred at the beginning of
            the  period or at a time of  issuance,  if later.  Diluted  loss per
            share is not presented when the effect would be anti dilutive.

      (l)   Use of Estimates

            The preparation of financial  statements in conformity with Canadian
            generally accepted accounting principles and United States Generally
            accepted  accounting  principles ("US GAAP") requires  management to
            make estimates and assumptions  that affect the reported  amounts on
            assets and  liabilities,  revenues and expenses and  disclosures  of
            contingent  assets and liabilities.  Significant areas requiring the
            use of  significant  judgment  include the  measurement  of ultimate
            revenue   related  to  future   revenues  from  film   distribution,
            amortization  of  Investment  in  film,   television   programs  and
            recordings,    valuation   of   stock    compensation,    inventory,
            recoverability  of tax credits and  estimation  of future income tax
            assets,  valuation  allowances and other project  related  accruals.
            Actual results could differ from these estimates.

            These estimates are reviewed periodically and, as adjustments become
            necessary, they are reported in earnings in the period in which they
            become known.

      (m)   Impairment of Long-Lived Assets

            Long-Lived Assets, Including property and equipment,  Investments in
            Films,   Television   programs  and   recordings  are  reviewed  for
            impairment on an annual basis at year end or when significant events
            or  circumstances  indicate that the carrying amount of an asset may
            not be recoverable. Impairment exists when the carrying value of the
            assets is greater than the  undiscounted  future cash flows expected
            to be provided by the asset.  The amount of impairment loss, if any,
            which is in excess of net carrying value over fair value, is charged
            to income for the period.  Fair value is generally measured equal to
            the estimated future discounted net cash from the asset.

      (n)   Deferred Revenue

            Revenue  received  from  sales of rights  and  licences  related  to
            projects in progress is recorded as deferred  revenue  until revenue
            recognition parameters have been met.

      (o)   Basis of Presentation

            The  Company is  presenting  its  balance  sheet as an  unclassified
            balance sheet as its normal operating cycle is more than one year.


                                       78
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      (p)   Adoption of new accounting policies

            Effective  January 1, 2007, the Company adopted the  recommendations
            of the CICA Handbook  Sections  1530,  Comprehensive  Income;  3251,
            Equity; 3855,  Financial  Instruments - Recognition and Measurement;
            Section 3861,  Financial  Instruments - Measurement,  Disclosure and
            Presentation;   and  Section  3865,   Hedges.  As  required  by  the
            standards,  the change in policies have been applied retrospectively
            with no restatement to prior periods.

            i.    Comprehensive  Income:  Section 1530 establishes standards for
                  reporting  and  display of  comprehensive  income.  Unrealized
                  gains or losses  on  available-for-sale  investments,  and the
                  effective portion of gains or losses on derivatives designated
                  as cash  flow  hedges  and  hedges  of the net  investment  in
                  self-sustaining  foreign  operations  are  included  in  other
                  comprehensive    income   ("OCI"   and    accumulated    other
                  comprehensive  income  ("AOCI")  is  included  as  a  separate
                  component  of  equity.  The  Company  had no such  OCI or loss
                  transactions  for the year ended  December  31, 2007 and there
                  were no opening or closing balances for AOCI.

            ii.   Financial Instruments:  Under the new standards, all financial
                  instruments  are  classified  into one of the  following  five
                  categories:   held-for-trading   (assets   and   liabilities),
                  available-for-sale  financial  assets,  loans and receivables,
                  held-to-maturity   financial   assets,   and  other  financial
                  liabilities.  Transaction  costs are  included  in the initial
                  carrying   amount  of   financial   instruments   except   for
                  held-for-trading  items in which  case  they are  expensed  as
                  incurred.  All financial instruments are initially measured at
                  fair value.  Measurement in subsequent  periods depends on the
                  classification of the financial instrument.

      Under these standards:

      Held-for-trading (assets or liabilities)

      This  category  is  comprised  of certain  investments  in equity and debt
      instruments,  stand-alone  derivatives,  other  than those  designated  as
      hedging items, and embedded  derivatives  requiring  separation.  They are
      carried in the  balance  sheet at fair  value  with  changes in fair value
      recognized in the statement of operations.

      Loans and receivables

      These  assets  are  non-derivative  financial  assets  resulting  from the
      delivery of cash or other assets by a lender to a borrower in return for a
      promise to repay on a specified  date or dates,  or on demand.  They arise
      principally  through the  provision  of goods and  services  to  customers
      (accounts  receivable),  but also  incorporate  other types of contractual
      monetary  assets.  They  are  initially   recognized  at  fair  value  and
      subsequently  carried at amortized cost, using the effective interest rate
      method, less any provision for impairment.


                                       79
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      (p)   Adoption of new accounting policies (continued)

      Available-for-sale investments

      Non-derivative  financial  assets not included in the above categories are
      classified as  available-for-sale  and comprises  certain  investments  in
      equity   instruments,   including  a  company's   investments  in  private
      companies.  When they have a quoted market price in an active market, they
      are  carried  at fair value with  changes  in fair value  recognized  as a
      separate component of other comprehensive  income. When they do not have a
      quoted market price in an active market, they are carried at cost. Where a
      decline in the fair value is  determined to be other than  temporary,  the
      amount  of the  loss  is  removed  from  other  comprehensive  income  and
      recognized in the statement of operations.

      Other financial liabilities

      Other financial  liabilities includes all financial liabilities other than
      those classified as held-for-trading  and comprises trade payables,  other
      short-term monetary liabilities, and the debt element of convertible debt.
      These liabilities are initially  recognized at fair value and subsequently
      carried at amortized cost using the effective interest rate method.

      The  adoption of these  standards  had no impact on the  opening  retained
      earnings and therefore did not result in a  transitional  adjustment as of
      January 1, 2007.

      The  Corporation's  financial  assets and  liabilities  are  recorded  and
      measured as follows:

      Asset/Liability          |   Category               |    Measurement
      Accounts receivable      |   Loans and receivables  |    Amortized cost
      Subscription receivable  |   Loans and receivables  |    Amortized cost
      Accounts payable and     |   Other liabilities      |    Amortized cost
      accrued liabilities      |                          |
      Accrued Liabilities      |   Other liabilities      |    Amortized cost
      Loans payable            |   Other liabilities      |    Amortized cost

      No derivative  financial  instruments  existed for the periods  presented.
      Based on the preceding information, the application of these new standards
      had a limited impact on the financial statements of the Company.

      Other  balance  sheet  accounts,  such as prepaid  expenses,  property and
      equipment, intangible assets, deferred costs, and deferred revenue are not
      within the scope of the new accounting standards as they are not financial
      instruments.


                                       80
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      (p)   Adoption of new accounting policies (continued)

            iii.  On  January  1,  2007,  the  Company   adopted  Section  1506,
                  "Accounting  Changes",  from the CICA  Handbook.  This Section
                  establishes  criteria  related to the accounting  treatment to
                  adopt and disclosure requirements for accounting changes made,
                  revision of accounting estimates and correction of errors. The
                  adoption of these new standards had no material  impact on the
                  financial statements of the Company.

      (q)   Recent Accounting Pronouncements

            i)    In 2006 the  CICA  issued  Handbook  Section  3862,  Financial
                  Instruments  -   Disclosures,   and  Handbook   Section  3863,
                  Financial Instruments - Presentation.  These standards enhance
                  existing disclosure requirements and place greater emphasis on
                  disclosures  related to recognized and unrecognized  financial
                  instruments  and how those  risks are  managed.  Section  3863
                  carries  forward the same  presentation  standards  as Section
                  3861. These new standards are effective for interim and annual
                  financial statements relating to fiscal years commencing on or
                  after  October  1, 2007 on a  prospective  basis.  Disclosures
                  required by these  standards will be included in the Company's
                  interim   and   annual   consolidated   financial   statements
                  commencing January 1, 2008.

            ii)   In 2006,  the  CICA  issued  Handbook  Section  1535,  Capital
                  Disclosures  ("CICA 1535").  CICA 1535 requires that an entity
                  disclose  information  that  enables  users  of its  financial
                  statements  to evaluate an entity's  objectives,  policies and
                  processes for managing capital,  including  disclosures of any
                  externally  imposed capital  requirements and the consequences
                  for non-compliance.  Disclosures  required by the new standard
                  will  be  included  in  the   Company's   interim  and  annual
                  consolidated financial statements commencing January 1, 2008.

            iii)  In August  of 2006,  the CICA  issued  Handbook  Section  3031
                  ("CICA 3031"). "Inventories", which must be applied for fiscal
                  years  beginning  on or  after  January  1,  2008.  CICA  3031
                  prescribes the measurement of inventories at the lower of cost
                  and net realizable  value,  with guidance on the determination
                  of cost  including  allocation of overheads and other costs to
                  inventory. Reversals of previous write-downs to net realizable
                  value are permitted when there is a subsequent increase on the
                  value of inventories.  The Company is evaluating the potential
                  impact of the adoption of this standard.

            iv)   In 2008, the CICA issued Handbook  Section 3064,  Goodwill and
                  Intangible  Assets ("CICA  3064").  CICA 3064,  which replaces
                  Section  3062,  Goodwill and  Intangible  Assets,  and Section
                  3450,  Research and Development Costs,  establishes  standards
                  for the  recognition,  measurement  and disclosure of goodwill
                  and  intangible  assets.   The  provisions   relating  to  the
                  definition  and  initial  recognition  of  intangible  assets,
                  including   internally   generated   intangible   assets,  are
                  equivalent to the  corresponding  provisions  for IFRS IAS 38,
                  Intangible  Assets.  The new  standard  is  effective  for the
                  Company's interim and annual consolidated financial statements
                  commencing  January 1, 2009.  The  Company  is  assessing  the
                  impact  of the  new  standard  on its  consolidated  financial
                  statements.


                                       81
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      (q)   Recent Accounting Pronouncements (continued)

            v)    In May 2007,  the CICA  published  an  updated  version of its
                  "Implementation Plan for Incorporating International Financial
                  Reporting  Standards  ("IFRS") into Canadian GAAP".  This plan
                  includes  an outline of the key  decisions  that the CICA will
                  need to make as it implements  the Strategic Plan for publicly
                  accountable  enterprises that will converge Canadian generally
                  accepted accounting  principles with IFRS. The changeover date
                  from Canadian GAAP to IFRS is for annual and interim financial
                  statements  relating  to fiscal  years  beginning  on or after
                  January 1, 2011.

4.    FILM TAX CREDITS RECEIVABLE

      Film tax credits  receivable  are federal and  provincial  refundable  tax
      credits  related to specific film and  television  productions  in Canada.
      Amounts  recorded  represent  management's  best  estimate  of the amounts
      recoverable; however all amounts are subject to final determination by the
      relevant tax authorities.  As at December 31, 2007, the Company expects to
      receive  tax  credits  of  $194,080   (2006-$543,389)   from  the  federal
      government and $820,766  (2006-$1,508,179) from the provincial government.
      for its  completed  productions.  The Company has accrued  $97,361 for tax
      credits  receivable related to its projects in progress (2006 - $76,000 as
      restated, (Note 2 (f))

5.    ADVANCES RECEIVABLE

      Advances to an unrelated  company are unsecured and bears interest at 6.5%
      per annum and are due on December 16, 2014.

6.    SUBSCRIPTIONS RECEIVABLE

      The  Company  has  entered  into  financing   arrangements   with  limited
      partnerships (see Note 20 Limited  Partnership  Financings).  As a part of
      this  financing  the Company  has a  subscriptions  receivable  balance of
      $346,619 (2006 - $307,393), which was previously presented as subscription
      receivable of $132,296 and long-term  receivable  of  175,097-See  Note 2)
      which is receivable  over a period of 3 years.  Therefore the Company,  in
      accordance  with  EIC-132,  the  subscription  receivable  related  to the
      limited partnership  financing has been presented as a reduction in equity
      until such time the receivable is collected.

7.    INVESTMENT IN FILM, TELEVISION PROGRAMS AND RECORDINGS

      The  Company  determines  amortization  of  its  investment  in  film  and
      television  programs and recordings  based on the ratio that current gross
      film revenues bear to management's  estimate of total  remaining  ultimate
      gross film  revenue as of the  beginning  of the current  fiscal year on a
      program by program basis (the "individual film forecast method").  Revenue
      and film carrying costs are continually reviewed by management and revised
      when  warranted by changing  conditions.  When estimates of total revenues
      and costs  indicate that a feature film or television  program will result
      in an ultimate loss, a reduction


                                       82
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

7.    INVESTMENT IN FILM, TELEVISION PROGRAMS AND RECORDINGS (continued)

      in the carrying  value of the  investment is recognized to the extent that
      capitalized film costs exceed estimated fair value.

      The net carrying  value for the Company's  Investment in Film,  Television
      Programs and Recordings  totaled $5,355,327 as at December 31, 2007 (2006-
      $9,444,813)

<TABLE>
<CAPTION>
                                                                                  2007
                                                                                  ----             Net
                                                                               Accumulated       Carrying
                                                                 Cost         Amortization        Value
                                                                 ----         ------------       --------
<S>                                                          <C>              <C>               <C>
      Completed television programs and recordings           $ 6,874,607     $  6,609,607     $   265,000
      Completed Motion picture - Bailey's Billions             6,972,580        4,937,661       2,034,919
      Completed Television Drama Series                        5,685,599        3,869,114       1,816,485
      Projects in progress                                     1,238,923           --           1,238,923
                                                             -----------     ------------     -----------
                                                             $20,771,709     $ 15,416,382     $ 5,355,327
                                                             ===========     ============     ===========
<CAPTION>
                                                                                  2006
                                                                                  ----             Net
                                                                               Accumulated       Carrying
                                                                 Cost         Amortization        Value
                                                                 ----         ------------       --------
<S>                                                         <C>              <C>                <C>
      Completed television programs and recordings           $15,996,453     $ 15,066,135     $   930,318
      Completed Motion picture - Bailey's Billions             6,972,580        4,081,502       2,891,078
      Projects in progress                                     5,623,417           -            5,623,417
                                                             -----------     ------------     -----------
                                                             $28,592,450     $ 19,147,637     $ 9,444,813
                                                             ===========     ============     ===========
</TABLE>

      Amortization and write-down expensed in 2007 for the Company's  Investment
      in Film,  Television  Programs  and  Recordings  were  $3,989,087  (2006 -
      $251,643)  and  $1,600,097  (2006  -  $1,758,742)  respectively,  totaling
      $5,589,184 (2006 - $2,010,385).

      Amortization and write-down of the Company's completed television programs
      and recordings  totaled $619,973 (2006 - $826,983)  including a write down
      of $500,332 (2006 - $575,340).  The Company  believes that its proprietary
      library of completed  television programs and recordings are evergreen and
      will continue to generate  revenues in the future.  In accordance with SOP
      00-2 all of the  Company's  carrying  value for its  completed  television
      programs  and  recording  are  required  to be  expensed by the end of the
      proscribed ten year amortization period in 2008. At December 31, 2007, the
      Company's   investment  in  its  proprietary  film  library  of  completed
      television  programs and  recordings  was  estimated  as $265,000  (2006 -
      $930,318) after accumulated amortization and write-downs of $620,305 (2006
      - $774,080).

      The  Company's  investment  in its motion  picture  Bailey's  Billion$ was
      estimated at $2,034,919 (2006 - $2,891,078) after accumulated amortization
      in prior years and a write-down in 2007 of $856,159 (2006 - $300,254).


                                       83
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

7.    INVESTMENT IN FILM, TELEVISION PROGRAMS AND RECORDINGS (continued)

      Amortization expenses for the Company's completed television drama series,
      Across the River to Motor  City,  in 2007 was  $3,869,114  (2006 - $0). At
      December 31, 2007,  the Company's  investment in its completed  television
      drama series was estimated at $1,816,485 (2006 - $0).

      Development  costs for  properties  that are  expected  to benefit  future
      periods are also  capitalized.  If the property under  development has not
      been set for production  within three years, or if upon review  management
      determines that certain costs are unrecoverable, the costs associated with
      such property are written off to income. The Company wrote off $243,606 of
      its investment costs in 2007 (2006 - $883,148).

      The following tables summarize the Company's amortization and write downs:

      For the Year Ended December 31, 2007

                                  Completed films,
                                  television         Projects
                                  programs, &        In
                                  recordings         Progress           Total

      Amortization                $3,989,087              --        $3,989,087
      Write-down
      -Artists Series                500,332              --           500,332
      -Bailey's Billions             856,159                           856,159
      -Miracle Journey                  --            $234,586         234,586
      -October 7th                      --               7,500           7,500
      -Quarterback                                       1,110           1,110
      -Revolving Door                                      410             410

      Total Write-down             1,356,491           243,606       1,600,097
      Total Amortization and
      Write-down                  $5,345,578          $243,606      $5,589,184
                                  ==========          ========      ==========

      For the Year Ended December 31, 2006

                                  Completed films,
                                  television         Projects
                                  programs, &        In
                                  recordings         Progress           Total

      Amortization                  $251,643              --          $251,643
      Write-down                                          --
      -Bailey's Billions             300,254              --           300,254
      -Artists Series                297,639              --           297,639
      -Inventors Series              277,701              --           277,701
      -Red                              --            $498,348         498,348
      -October 7th                      --             384,800         384,800

      Total Write-down               875,594           883,148       1,758,742
      Total Amortization &
      Write-down                  $1,127,237          $883,148      $2,010,385


                                       84
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

7.    INVESTMENT IN FILM, TELEVISION PROGRAMS AND RECORDINGS (continued)

      At year end 2007 96% of completed television programs and recordings,  71%
      of completed  motion picture costs and 68% of completed  television  drama
      series costs have been amortized. The remaining period of amortization for
      the completed  projects ranges from one to six years at December 31, 2007.
      100% of completed  television programs and recordings will be amortized in
      2008. The Company  expects  approximately  42% of the remaining  completed
      motion picture costs will be amortized in the next three years and expects
      84% will have been amortized by 2012. The Company  expects to amortize 79%
      of the remaining completed television drama series costs in the next three
      years and  expects 84% will have been  amortized  by 2011.  The  remaining
      period of amortization  for the completed  projects ranges from one to six
      years at December 31, 2007.

      Interest   incurred  on  funds  borrowed  during   productions  of  films,
      television  programs  and  recordings  is  capitalized  as a  cost  of the
      production. During the year the Company capitalized interest in connection
      with various productions amounting to $272,087 (2006 - $169,863).

8.    PROPERTY AND EQUIPMENT

                                                           2007         Net
                                                        Accumulated   Carrying
                                               Cost     Amortization   Amount
                                               ----     ------------  --------

      Computer and editing equipment         $181,028     $169,701    $11,327
      Furniture and fixtures                   58,193       54,175      4,018
                                             --------     --------    -------
                                             $239,221     $223,876    $15,345
                                             ========     ========    =======

                                                           2006
                                                        Accumulated   Carrying
                                               Cost     Amortization   Amount
                                               ----     ------------  --------
      Computer and editing equipment         $181,028     $165,556    $15,472
      Furniture and fixtures                   58,193       53,260      4,933
                                             --------     --------    -------
                                             $239,221     $218,816    $20,405
                                             ========     ========    =======

9.    FILM PRODUCTION LOAN

      A Demand loan bearing interest at prime plus          2007         2006
      1%, repayable in full by June 30, 2008 was            ----         -----
      arranged for the financing of 6 episodes of
      a one hour TV series entitled Across the
      River to Motor City, which was produced by
      the Company's wholly owned subsidiary Across
      the River Productions Ltd. The loan is
      secured by all receipts including all
      commercialization or exploitation of the
      series worldwide including pre-sale and
      funding agreements and various tax credits.
      The loan is not secured by the parent
      company's assets and is non-recourse to
      parent company.
                                                        $1,840,604    $2,121,527
                                                        ==========    ==========

      Interest due and paid on the above demand loan totalled  $132,907  (2006 -
      $30,312)


                                       85
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

10.   LOANS PAYABLE

      Loans payable  consist of the Company's  1995,  1996 and 2000  Convertible
      debentures,  which bear  interest at 10.5 %, have  matured,  have not been
      extended and carry no fixed term, accordingly the Company has restated the
      outstanding  amount of $1,700,800 (2006 - $1,700,800) as a loan payable as
      at December 31, 2007. The creditors have a general security  assignment on
      the assets of the  Company.  Accrued  interest as at December 31, 2007 was
      $846,505 (2006 - $668,298) and is included in accounts payable and accrued
      liabilities.  In 2007, the Company  deposited  $60,000 in trust related to
      the loans and  accounted  for the amount on the  balance  sheet as prepaid
      expenses and sundry assets.

11.   PREFERRED SHARES

      The   Series   1   preferred    shares   are    non-voting,    cumulative,
      non-participating,  $1 redeemable and retractable. The shares pay interest
      at the rate of 9.1% per annum payable in annual  installments  on the 15th
      day of December in each year and shall accrue and be  cumulative  from the
      date of  issue.  During  the  year the  Company  paid  interest  totalling
      $45,004. (2006 - $45,004)

      Under CICA Handbook Section 3861 and following the guidance under EIC-149,
      the Company has classified this series of preferred shares as a liability.

      Issued - Series 1 preferred shares

                                                      Number            $ Amount
                                                      ------            --------

         Balance, December 31, 2007 and 2006          494,550            494,550
                                                      =======            =======

12.   INTEREST (INCOME) EXPENSE

                                                                       Restated
                                                        2007             2006
                                                        ----             ----

      Interest on loans payable                      $ 178,209        $ 178,209
      Bank film production loan                        132,907           30,312
      Interest on preferred shares                      45,004           45,004
      Other interest expense                               321            2,548
                                                     ---------        ---------

                                                       356,441          256,073

      Interest income                                  (49,912)         (34,654)
      Less                                             306,529          221,419
                                                     ---------        ---------
      Less amounts capitalized                        (272,087)        (169,863)
                                                     ---------        ---------
                                                     $  34,442        $  51,556
                                                     =========        =========

      Capitalized  interest  consists of $132,907 (2006 - $30,312)  allocated to
      Across the River to Motor City and $139,180 (2006 - $139,551) allocated to
      projects in progress.


                                       86
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

13.   INCOME TAXES

      (a)   The following table sets forth reconciliation between prescribed tax
            rates and the  effective  tax rate for the  Company's  total  income
            expense in each of the years presented in the consolidated financial
            statements.

<TABLE>
<CAPTION>
                                                                            2007          2006
                                                                            ----          ----
<S>               <C>                                                    <C>           <C>
                   Income tax (recovery) based on combined
                   Statutory income tax rates of 36.12%                  $(206,637)    (920,537)
                   Expenses renounced to
                   Variable Interest Entities (Note 20)                       --            917
                   Recognition of tax benefits as a result of tax loss
                   carryforward                                            305,000
                   Valuation allowance                                    (111,000)     911,000
                   Other                                                    12,637        8,620
                                                                            ------        -----
                                                                         $      --     $     --
                                                                         =========     ========
</TABLE>

      (b)   Future tax assets

<TABLE>
<CAPTION>
                                                                            2007          2006
                                                                            ----          ----
<S>               <C>                                                    <C>           <C>
              Net operating loss carryforward                          $ 366,000      610,000
              Investment in film, television programs and recordings     263,000      (92,000)
                                                                         -------      -------
                                                                         629,000      518,000

              Valuation allowance                                       (629,000)    (518,000)
                                                                         -------      -------

              Net Future Tax Assets                                    $      --    $      --
                                                                       =========     ========
</TABLE>

      In assessing the  realizability  of future  assets,  management  considers
      whether it is more likely than not that some  portion or all of the future
      tax assets will not be realized.  The ultimate  realization  of future tax
      assets is dependent  upon the  generation of future  taxable income during
      the periods in which those temporary differences become deductible.

      When the  realization  of a future tax asset is  determined to not be more
      likely than not realized, a valuation allowance is provided


                                       87
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

13.   INCOME TAXES (continued)

      (c)   Tax Loss Carry-forwards

      The Company has non-capital  losses  carry-forward for income tax purposes
      in the amount of  $1,238,832  which may be applied  against  future  years
      taxable income. The losses expire as follows:

                           2014                                    397,879
                           2015                                    490,527
                           2026                                    375,000
                                                                 ---------
                                                                 1,263,406
                                                                 =========

            The Company has however accounted for and expects to receive Federal
            film tax  credits of  $194,080  and  Provincial  film tax credits of
            $820,766. Refundable film tax credits are recorded as a reduction of
            costs.

            The  Company  does  not  anticipate  any  significant  increases  or
            decreases in the total amounts of  unrecognized  tax benefits within
            the next 12 months.

            The Company's  primary tax  jurisdiction is the Province of Ontario.
            Currently, the tax years of 2004 through 2007 are subject to Federal
            examination  and the tax years of 2003  through  2007 are subject to
            examination by the Province of Ontario.

14.   FINANCIAL INSTRUMENTS

      Fair values  approximate  amounts at which financial  instruments could be
      exchanged   between  willing   parties,   based  on  current  markets  for
      instruments  of the same risk,  principal and remaining  maturities.  Fair
      values  are  based on  estimates  using  valuation  techniques,  which are
      significantly  affected by the assumptions  used concerning the amount and
      timing of estimated  future cash flows,  which reflect  varying degrees of
      risk.

      Therefore,  due to the use of subjective judgement and uncertainties,  the
      aggregate fair value amount should not be interpreted as being  realizable
      in an immediate settlement of the instruments.

      (i)   Fair Value

            The  carrying  values  of  cash  and  cash   equivalents,   accounts
            receivable,  film tax credits  receivable for which  application has
            been filed,  subscription  receivables due within one year, accounts
            payable and accrued liabilities  approximate fair value due to their
            short-term maturity and normal credit terms.

            The fair value of subscription receivables due in over one year, and
            accrued film tax credits  receivable  are recorded at the fair value
            using an appropriate discount rate.

            The  carrying  value  of  advances   receivable  and  loans  payable
            approximates their fair value because the interest rate is at market
            rate.


                                       88
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

14.   FINANCIAL INSTRUMENTS (continued)

      (ii)  Credit Risk

            The Company's  accounts  receivable  are subject to credit risk. The
            Company  continually  monitors its positions with and credit quality
            of  the  organizations,   which  are  counterpart  to  its  accounts
            receivable and does not anticipate non-performance.  The majority of
            the  accounts  receivable  are  amounts  due from  sales of  foreign
            distribution   rights  and  a  limited   number  of   licenses   and
            distributors of video cassettes and DVD's.

      (iii) Currency Risk

            The Company is subject to currency  risk through its  activities  in
            the United States and other countries.  Unfavourable  changes in the
            exchange rate may affect the operating results of the Company.

            The  Company  does not use  derivative  instruments  to  reduce  its
            exposure to foreign currency risk. However, dependent on the nature,
            amount and timing of foreign  currency  receipts and  payments,  the
            Company may consider  entering  into forward  exchange  contracts to
            mitigate any associated  risks. The Company did not have any forward
            exchange contracts outstanding at December 31, 2007 and 2006.

15.   COMMITMENTS AND CONTINGENCIES

      (a)   In February  2004,  the Company  renewed the lease for its premises.
            The agreement expires May 31, 2009.  Minimum annual rent commitments
            excluding occupancy costs are as follows:

                            2008                                  $ 29,000
                            2009                                    13,000
                                                                  --------
                                                                  $ 42,000
                                                                  ========

      (b)   The Company has entered  into  contractual  agreements  for creative
            talent related to future film production. The agreements provide for
            a  minimum  fee  paid  to be  paid  for the  creative  work  with an
            additional fee paid if the work goes into production. The additional
            fee would be based on a percentage of revenues.

      (c)   The purchasers of the copyright  interest are entitled to a priority
            distribution  of the future  revenue  earned from the motion picture
            "Bailey's  Billion$" up to the original amount of the purchase price
            of  $2,477,500.  Subsequent  to the priority  distribution,  all the
            amounts  would be  distributed  pari  passu in  accordance  with the
            percentage ownership acquired.

      (d)   The distributors of the film are entitled to a priority distribution
            of the  future  revenue  earned  from the motion  picture  "Bailey's
            Billion$"  up to the original  amount of the  purchase  price in the
            amount  of  approximately  $2,900,000.  Subsequent  to the  priority
            distribution,  all the amounts  would be  distributed  in accordance
            with the contractual agreements.


                                       89
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

15.   COMMITMENTS AND CONTINGENCIES (continued)

      (e)   In the  normal  course of  operations  the  Company is  involved  in
            negotiations,  grievances  and  arbitrations  with guilds and unions
            related to the film production  industry.  Management estimates that
            the  grievances  will not  result in any future  material  financial
            obligation.   No  amount  has  been  recorded  in  the  consolidated
            financial statements with regard to this matter.

      (f)   In connection with certain Limited Partnership  financings (Note 20)
            the Company may be obligated to issue up to 408,000 common shares to
            the participants.

      (g)   The Company is eligible for various grants and government  incentive
            programs that are designed to assist film and television  production
            and  distribution  in Canada.  The Company has received  $240,661 in
            forgivable  development  funding and grants which have been recorded
            as a reduction of  development  costs in Projects in  Progress.  The
            Company  could be required  to repay up to $200,000 of this  funding
            and grants in case the  projects  are fully  funded and  produced or
            sold by the  Company to a third party in the  future,  The  ultimate
            liability   related  to  the   repayment   of  these  funds  is  not
            determinable.  The Company will record the  liability or repay these
            funds once the actual liability is known or determinable.


16.   CAPITAL STOCK

      (a)   Authorized

            Unlimited number of common shares and Class "A" shares

      (b)   Issued - common shares

<TABLE>
<CAPTION>
                                                                          Number           $ Amount
<S>                                                                     <C>               <C>
            Balance, January 1, 2006                                    35,353,508        11,745,545
                                                                        ----------        ----------
            Common shares issued for settlement of accounts
            payable and services rendered (note 16 (iv, vi, vii))          551,860            74,904

            Common shares issued on private placement (iv)               3,383,331           444,557

            Common shares issued on exercise of stock options               25,000             3,000
                                                                        ----------        ----------
            Balance, as re-stated December 31, 2006                     39,313,699        12,268,006
                                                                        ==========        ==========

            Common shares issued for settlement of accounts
            payable and services rendered (i, iii)                         132,450            19,868

            Common shares issued on private placement (ii)               6,475,000           365,124
                                                                        ----------        ----------
            Balance, December 31, 2007                                  45,921,149        12,652,998
                                                                        ==========        ==========
</TABLE>


                                       90
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

16.   CAPITAL STOCK (continued)

        (i)     In April  2007 the  Company  issued  68,850  common  shares  for
                services  rendered valued at $10,328 (based on the fair value of
                the service  provided which  approximates  the fair value of the
                consideration  given) to the Company's  three outside  directors
                pursuant to the  director's  compensation  plan, set at US$1,500
                per quarter for each of the  outside  directors,  for the fourth
                quarter 2006 and the first quarter 2007.

        (ii)    In October  2007 the Company  completed a private  placement  of
                6,475,000  units,  each  consisting  of one common share and one
                purchase warrant of $0.10 per unit. Each warrant is exercisable,
                at any time on or prior to April 10, 2009, to acquire one common
                share at an exercise  price of $0.10 per share.  Proceeds net of
                $55,100 for costs of issuance  totalled  $592,400.  $365,124 was
                proportionately  allocated  based on fair value to Capital Stock
                and the 227,276 was allocated to warrants.

        (iii)   On October 11, 2007 the Company  issued 63,600 common shares for
                services rendered,  valued at $9,540 (based on the fair value of
                the service  provided which  approximates  the fair value of the
                consideration  given).  This amount was  outstanding at December
                31,  2006 and was  allocated  to  accrued  liabilities  prior to
                settlement.

        iv)     In May 2006, the Company issued 3,383,331 units, each consisting
                of one common share and one-half  purchase  warrant at $0.15 per
                unit. Of the $507,500 in proceeds,  $444,557 was proportionately
                allocated  based on  relative  fair value to  Capital  stock and
                $62,943 was allocated to warrants.  Each warrant is exercisable,
                at any time on or prior to May 31,  2007,  to acquire one common
                share at an  exercise  price of $0.30 per share.  In March 2007,
                the term of warrants were extended to be exercisable at any time
                on or prior to May 31, 2008.

        (v)     In June 2006,  the  Company  issued  339,660  common  shares for
                services rendered, valued at $43,074 (based on the fair value of
                the service  provided which  approximates  the fair value of the
                consideration given).

        (vi)    In September  2006,  the Company issued 25,000 common shares for
                stock options exercised, for cash consideration of $2,500.

        (vii)   In October 2006,  the Company  issued  112,200 common shares for
                services rendered, valued at $16,830 (based on the fair value of
                the service  provided which  approximates  the fair value of the
                consideration  given) to  consultants  and the  Company's  three
                outside directors pursuant to the director's compensation plan.

        (viii)  In November  2006,  the Company issued 100,000 common shares for
                Investor Relations services rendered,  valued at the contractual
                amount  of  $15,000,  (based  on the fair  value of the  service
                provided which  approximates the fair value of the consideration
                given).


                                       91
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

16.   CAPITAL STOCK (continued)

      (c)   Stock Option Plan

            Under the terms of a stock option plan approved by the shareholders,
            the Company is authorized to grant  directors,  officers,  employees
            and non-employees  options to purchase common shares at prices based
            on the market  price of shares as  determined  on the date of grant.
            All of the Company's  stock options vest  immediately.  Accordingly,
            the Company does not have unvested stock options outstanding.

            The outstanding and exercisable stock options are as follows:

                                                                    Weighted
                                                                     Average
                                                        Number      Exercise
      Outstanding and Exercisable                   of Options         Price
      ----------------------------------------------------------------------
      Balance, January 1, 2006                       3,180,000          0.10

        Granted                                      1,090,000          0.34

        Exercised                                      (25,000)         0.10
                                                    ----------        ------
      Balance, December 31, 2006                     4,245,000          0.16
                                                    ==========        ======
        Granted                                      1,315,000          0.15

        Expired                                       (905,000)         0.15
                                                    ----------        ------
      Balance, December 31, 2007                     4,655,000          0.16
                                                    ==========        ======

      The Company has granted stock options as follows:

<TABLE>
<CAPTION>
                                           Number      Exercise      Outstanding     Weighted Average
      Expiry Date        Grant Date      of Options     Price      and Exercisable    Remaining Life
      -----------------------------------------------------------------------------------------------
<S>                     <C>                <C>           <C>          <C>                  <C>
      June 25, 2009     June 25, 2004      3,000,000     0.10         3,000,000            1.48
      April 24, 2010    April 25, 2006       100,000     0.10           100,000            2.32
      Dec.29, 2009      Dec.29, 2006         240,000     1.00           240,000            2.00
      May 10, 2009      May 11,2007          200,000     0.15           200,000            1.36
      May 10, 2012      May 11,2007        1,100,000     0.15         1,100,000            4.36
      July 29, 2012     July 30, 2007         15,000     0.15            15,000            4.58
                                           ---------     ----         ---------            ----
                                           4,655,000     0.16         4,655,000            2.21
                                           =========     ====         =========            ====
</TABLE>


                                       92
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

16.   CAPITAL STOCK

      (c)   Stock Option Plan (continued)

            The  Company  has  recorded  the fair  value of  options  using  the
            Black-Scholes options pricing model with the following assumptions.

<TABLE>
<CAPTION>
            Issue date                             April 25, 2006           June 11, 2006     June 11,2006
            ----------------------------------------------------------------------------------------------
<S>                                                       <C>                     <C>              <C>
            Number of options                             100,000                 375,000          375,000
            Expected life                                 4 years               0.6 years        0.6 years
            Price volatility                                 247%                     51%              51%
            Dividend yield                                     --                      --               --
            Risk-free interest rate of return               4.34%                   4.49%            4.49%
            Fair value                                     $9,900                     750             $375


            Issue date                           December 29,2006            May 11, 2007     May 11, 2007
            ----------------------------------------------------------------------------------------------
            Number of option                              240,000                 200,000        1,100,000
            Expected life                                 3 years               1.5 years          5 years
            Price volatility                                 215%                    118%             260%
            Dividend yield                                     --                      --
            Risk-free interest rate of return               3.94%                   4.56%            4.54%
            Fair value                                    $20,160                  $9,000         $110,000


            Issue date                              July 30, 2007
            -----------------------------------------------------
            Number of option                               15,000
            Expected life                                 5 years
            Price volatility                                 290%
            Dividend yield                                     --
            Risk-free interest rate of return               4.64%
            Fair value                                        450
</TABLE>

      (d)   Warrants

      Balance as restated, January 1, 2006                           $ 199,046
           Restatement (Note 2 (c))                                     62,943
           Restatement (Note 2 (c))                                    (36,957)
           Restatement (Note 2 (c))                                    110,512
                                                                     ---------
      Balance as restated, January 1, 2007                           $ 335,544
           Modification of warrants                                     16,256
           Warrants issued in private placement (note 16 (b) ii)       227,276
           Grant of warrants in exchange for Services                  129,380
                                                                     ---------
      Balance at December 31, 2007                                   $ 708,456
                                                                     =========


                                       93
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

16.   CAPITAL STOCK

      (d)   Warrants (continued)

            Common  shares have been  reserved  for  warrants  on the  following
            basis:

                                                                      Weighted
                                                                       Average
                                                                      Exercise
            Outstanding and Exercisable            # of Warrants        Price
            -------------------------------------------------------------------
            Balance, January 1, 2006                 4,877,450          $0.36

               Granted on Private Placement          1,691,666           0.30
               Expired                                (499,950)          0.15
                                                    ----------           ----
            Balance, December 31, 2006               6,069,166           0.28

                Granted in exchange for Services     1,930,000           0.14

                Granted on Private Placement         6,475,000           0.10
                                                    ----------           ----
            Balance, December 31, 2007              14,474,166           0.18
                                                    ==========           ====

      The Company reissued 2,547,500 and 1,691,666 warrants which had expired on
      April 7, 2007 and May 31, 2007, respectively totalling 4,239,166 warrants.
      The warrants were  extended for an  additional  year and the fair value of
      $16,256 was allocated to warrants from contributed surplus.

      The Company has granted warrants as follows:

<TABLE>
<CAPTION>
                                                       Number      Exercise     Outstanding       Weighted Average
Expiry Date                     Grant Date           of Warrants      Price   and Exercisable      Remaining Life
-------------------------------------------------------------------------------------------------------------------
<S>                             <C>                  <C>              <C>        <C>                   <C>
December 31, 2009               June 30, 2004         1,830,000       0.25       1,830,000               2.0
April 7, 2008                   April 7, 2007         2,547,500       0.30       2,547,500              0.27
May 31, 2008                    May 31, 2007          1,691,666       0.30       1,691,666              0.39
December 31, 2009               May 11, 2007            550,000       0.25         550,000               2.0
August 14, 2010                 August 14, 2007       1,200,000       0.10       1,200,000              2.62
April 11, 2009                  October 11, 2007      6,475,000       0.10       6,475,000              1.28
October 1, 2008                 October 1, 2007         180,000       0.10         180,000              0.78
                                                     ----------                 ----------              ----
                                                     14,474,166                 14,474,166              1.22
                                                     ==========                 ==========              ====
</TABLE>


                                       94
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

16.   CAPITAL STOCK

      (d)   Warrants (continued)

            The  Company  has  recorded  the fair  value of  warrants  using the
            Black-Scholes options pricing model with the following assumptions.

<TABLE>
<CAPTION>
<S>                                                  <C>                   <C>             <C>
            Grant date                               May 31, 2006          May 11, 2007    August 14, 2007
            Number of warrants                          1,691,666               550,000          1,200,000
            Expected life                                  1 year              2.5 year            3 years
            Price volatility                                 144%                  118%               256%
            Dividend yield                                     --                    --                 --
            Risk-free interest rate of return               4.22%                 4.56%              4.28%
            Fair value                                    $62,943               $27,500            $93,600

<CAPTION>
<S>                                              <C>                    <C>
            Grant date                           October 11, 2007       October 1, 2007
            Number of warrants                          6,475,000               180,000
            Expected life                               1.5 years              1.7 year
            Price volatility                                 113%                  125%
            Dividend yield                                      -                     -
            Risk-free interest rate of return               4.22%                 4.22%
            Fair value                                   $604,566                $8,280
</TABLE>


      (e)   Stock-based Compensation

            In 2007,  the Company  granted a total of  stock-based  compensation
            valued at $259,158 (2006 - 106,090).  The  Stock-based  compensation
            was  comprised of shares  issued in exchange  for services  rendered
            valued at $10,328  (2006 - $74,905) as  described  in Note 16 (b)(i)
            (2006 - Notes  16  (b)(v),  16  b)vii,  and  16b)viii),  options  in
            exchange for services rendered valued at $119,450 (2006 - $31,185 as
            restated) as described in note 16 c) (2006 - Note 16 c) and warrants
            in exchange for services  rendered valued at $129,380 (2006 - $0.00)
            as described in note 16(d).

17.   EARNINGS (LOSS) PER SHARE

      Earnings (loss) per share is calculated  using the weighted average number
      of  shares   outstanding  during  each  of  the  years  presented  in  the
      consolidated  financial  statements.  The Company  follows  CICA  Handbook
      Section  3500,  "Earnings  per Share",  effective  January 31,  2003.  The
      statement  requires the  presentation  of both basic and diluted  earnings
      (loss)  per  share  ("EPS")  in the  statement  of  operations,  using the
      "treasury  stock"  method to compute the dilutive  effect of stock options
      and warrants  and the "if  converted"  method for the  dilutive  effect of
      convertible instruments.

      For the years  ended  December  31,  2007 and 2006,  options  to  purchase
      4,655,000 and 4,245,000 common shares and warrants to purchase  14,474,166
      and  6,069,166  common  shares,  respectively  were  not  included  in the
      computation of fully diluted earnings (loss) per share because in 2007 and
      2006 the affect would have been anti-dilutive.


                                       95
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

17.   EARNINGS (LOSS) PER SHARE (continued)

      The  following  table sets  forth the  weighted  average  number of common
      shares outstanding for each of those years.

                                                                     Number of
                                                                   Common Shares
            Year                                                    Outstanding
            ----                                                   -------------
            2007                                                    45,921,149
            2006                                                    39,313,699

                                                         2007      Restated 2006
                                                         ----      -------------

            Numerator:
            ----------
            Net  loss                               $  (547,510)   $(2,548,553)
                                                    -----------    -----------
            Denominator:
            ------------
            Weighted average shares                  40,813,586     37,575,373
                                                    ===========    ===========

            Basic and diluted loss per share        $     (0.01)   $     (0.07)
                                                    ===========    ===========

18. CONTRIBUTED SURPLUS

               Balance as reported January 1, 2006                  1,007,376
                     Restatement (Note 2)                            (199,046)
                                                                     --------
               Balance as restated, January 1, 2006                   808,330
                        Issuance of stock options (Note 16 (c))        31,185
                    Fair value of stock options exercised                (500)
                    Proceeds from financing (Note 20)                 249,098
                    Fair value of expired warrants                     36,957
                    Subscriptions receivable                         (307,393)
                    Restatement (Note 2 (c))                         (110,512)
                                                                     --------
               Balance at December 31, 2006                       $   707,165
                                                                  ===========



               Balance as restated, January 1, 2007                   707,165
                     Reissuance of warrants                           (16,256)
                     Grant of stock options                           119,450
                     Subscriptions receivable                         (39,226)
                     Proceeds from financing (Note 20)                131,316
                                                                      -------

                Balance at December 31, 2007                      $   902,449
                                                                  ===========


                                       96
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

19.   RELATED PARTY TRANSACTIONS

      During the year ended December 31, 2007 $407,283 (2006 - $299,280) of fees
      were paid or accrued to  corporations  controlled  by two of the directors
      and officers of the Company for writing,  directing and producing services
      on the Company's  film and  television  productions.  Included in accounts
      payable and accrued  liabilities at December 31, 2007 was $137,500 (2006 -
      $73,750).  The above  related party  transactions  occur during the normal
      course of business for a  consideration  established and agreed to between
      related parties.

20.   LIMITED PARTNERSHIP FINANCING

      The Company has entered into tax  preferred  financing  arrangements  with
      limited  partnerships.  These limited  partnerships  meet the criteria for
      variable interest entities and are consolidated.  In connection with these
      financings the Company received  proceeds net of costs of $131,316 (2006 -
      $249,098)  recorded as contributed  surplus and  subscriptions  receivable
      (net) of $39,226 $171,520 (2006 -307,393).  In connection with the limited
      partnership  financing the Company may be obligated to issue up to 408,000
      common shares to the participants.

21.   CHANGE IN  NON-CASH  OPERATING  ASSETS AND  LIABILITIES  AND  SUPPLEMENTAL
      INFORMATION

                                                                   Restated
                                                    2007             2006
                                                    ----             ----

      Accounts receivable                        $(1,005,535)       206,411
      Film tax credits receivable                  1,015,361     (2,127,568)
      Inventory                                       33,365            (96)
      Prepaid and sundry assets                       65,575       (164,623)
      Accounts payable and accrued liabilities        86,561        233,714
      Deferred revenue                            (4,342,643)     4,342,643
                                                 -----------    -----------

                                                 $(4,147,316)    $2,490,481
                                                 ===========    ===========

The supplemental cash flow information are as follows:      2007           2006
                                                            ----           ----
Non-cash transactions
Settlement of accrued liabilities by share
Issuance (Note 16 (b) iii)                                  9,540         69,790
Directors fees paid by share
issuance (Note 16 (b)(i)                                   10,328          5,115


                                       97
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

22.   GEOGRPAHIC SALES INFORMATION

      (a)   The Company is considered by its Chief  Operating  Decision Maker to
            operate in one industry  segment,  and  generates  revenue from film
            productions and film library.  Revenue by geographic location, based
            on the location of customers, is as follows:

                                          %        2007          %       2006
                                         ---       ----         ---      ----
                                                     $                     $
      Revenue
         Canada                          92.1    5,661,044      6.7     28,432
         United States                    4.2      260,661     64.6    273,901
         France                           1.2       71,000     16.2     68,723
         Europe - Other                   2.1      130,214      8.9     37,539
         Other foreign                    0.4       21,658      3.6     15,364
                                        -----    ---------    -----    -------

                                        100.0    6,144,577    100.0    423,959
                                        =====    =========    =====    =======

      (b)   Major Customers

            During the year,  the Company had one major  customer  that licensed
            the Company's new drama series in Canada,  that  represented  63% of
            total  revenues.  In  2006,  the  Company  did not  have  any  major
            customers.

23.   CANADIAN GAAP AND US GAAP RECONCILIATION

      The consolidated financial statements of the Company have been prepared in
      accordance with Canadian GAAP. The material differences between the
      accounting policies used by the Company under Canadian GAAP and US GAAP
      are disclosed below.

      a)    Under US GAAP, FIN 48 requires the Company to evaluate whether a tax
            position taken by the Company will "more likely than not" be
            sustained upon examination by the appropriate tax authority. It also
            provides guidance on how a company should measure the amount of
            benefit that the Company is to recognize in its financial
            statements. There was no material impact on the Company's financial
            statements as a result of implementing FIN 48.

      b)    In  accordance  with US GAAP,  the preferred  shares are  classified
            outside of permanent  equity as they are redeemable at the option of
            the holders.  These  preferred  shares are classified as liabilities
            under Canadian GAAP. This results in a US GAAP  reconciling  item to
            reflect the different classification.


                                       98
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

23.   CANADIAN GAAP AND US GAAP RECONCILIATION (continued)

      c)    As noted  in b)  above,  the  preferred  shares  are  classified  as
            mezzanine  equity  under US GAAP,  the  dividends  on the  preferred
            shares would  therefore be recorded as a reduction to deficit  under
            shareholders' equity.

            Consolidated statements of operations:

            The loss as reported in the accompanying consolidated statements of
            operations would have been different had the financial statements
            been prepared in accordance with US GAAP:

                                                                        2006
FOR THE YEARS ENDED DECEMBER 31,                          2007       (restated)
                                                       ----------   ------------

Loss in accordance with Canadian GAAP and US GAAP      $(572,084)   $(2,548,553)

Interest on preferred shares (Note c)                     45,004         45,004
                                                       ---------    -----------

Loss in accordance with US GAAP                        $(527,080)   $(2,503,529)
                                                       =========    ===========

Loss per share                    Basic & Diluted      $   (0.01)   $     (0.07)


                                       99
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

23.   CANADIAN GAAP AND US GAAP RECONCILIATION (continued)

            Effects of these adjustments described above on the consolidated
            Balance Sheet are as follows:

                                                                   2006
FOR THE YEARS ENDED DECEMBER 31,                    2007        (restated)
                                               ------------    ------------
ASSETS
------

Assets in accordance with Canadian GAAP        $  8,492,237    $ 12,657,678

Assets in accordance with US GAAP              $  8,492,237    $ 12,657,678
                                               ============    ============

LIABILITIES
-----------

Liabilities in accordance with Canadian GAAP   $  5,605,928    $ 10,152,473

Preferred shares (Note b)                      $   (494,550)   $   (494,550)
                                               ------------    ------------

Liabilities in accordance with US GAAP            5,111,378       9,657,923

SHAREHOLDERS' EQUITY
--------------------

Equity in accordance with Canadian GAAP           2,886,309       2,505,205

Preferred Shares (Note b)                           494,550         494,550

Effect of interest on preferred shares
on deficit (Note c)                                  45,004          45,004

Dividends on preferred shares (Note c)              (45,004)        (45,004)

                                               ------------    ------------
Equity in accordance with US GAAP                 3,380,859       2,999,755
                                               ------------    ------------

RESTATEMENT OF PREVIOUSLY REPORTED CANADIAN GAAP AND US GAAP RECONCILIATION

The Company has  restated  its  previously  reported  Canadian  GAAP and US GAAP
reconciliation.

In prior years, the Company  classified the preferred shares as liabilities and,
therefore, reported interest on preferred shares.


                                      100
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

RESTATEMENT  OF PREVIOUSLY  REPORTED  CANADIAN  GAAP AND US GAAP  RECONCILIATION
(continued)

The Company has  determined  that the  preferred  shares should be classified as
equity  under US GAAP as  noted  in b) and  therefore  restated  its  previously
reported  Canadian  GAAP and US GAAP  reconciliation.  As noted in c) above  the
Company reported  dividends on the preferred shares instead of interest reported
in prior year.

Certain  differences  between  Canadian GAAP and US GAAP reported in prior years
are not reflected as they have been adjusted for in the items  described in Note
2 and, therefore are no longer differences between Canadian GAAP and US GAAP.

            Impact of Newly Issued United States Accounting Standards

      i)    In June 2006, the FASB issued FIN 48, "Accounting for Uncertainty in
            Income Taxes - an  interpretation  of FASB  Statement No. 109" ("FIN
            48").  FIN 48 clarifies the  accounting  for  uncertainty  in income
            taxes recognized in an entity's  financial  statements in accordance
            with SFAS No. 109,  "Accounting for Income Taxes" ("SFAS 109").  The
            interpretation  prescribes a recognition  threshold and  measurement
            attribute for the financial statement recognition and measurement of
            a tax position taken or expected to be taken in a tax return. FIN 48
            also provides accounting guidance on de-recognition, classification,
            interest and penalties,  accounting in interim  periods,  disclosure
            and  transition.  The evaluation of tax positions  under FIN 48 is a
            two-step process,  whereby (1) The Company  determines whether it is
            more likely than not that the tax positions will be sustained  based
            on the  technical  merits  of the  position  and (2) for  those  tax
            positions that meet the more-likely-than-not  recognition threshold.
            There was no material impact on the Company's consolidated financial
            statements as a result of implementing FIN 48.

      ii)   In September 2006, the SEC issued Staff Accounting Bulletin No. 108,
            "Considering   the   Effects  of  Prior  Year   Misstatements   when
            Quantifying  Misstatements  in Current  Year  Financial  Statements"
            ("SAB  108").   SAB  108   provides   guidance  on  how  prior  year
            misstatements should be considered when quantifying misstatements in
            the current year financial statements.  The SAB requires registrants
            to quantify  misstatements  using both a balance sheet and an income
            statement  approach and evaluate  whether either approach results in
            quantifying a misstatement that, when all relevant  quantitative and
            qualitative  factors are considered,  is material.  SAB 108 does not
            change the guidance in SAB 99,  "Materiality",  when  evaluating the
            materiality of misstatements.  SAB 108 is effective for fiscal years
            ending after November 15, 2006.  Upon initial  application,  SAB 108
            permits  a  one-time   cumulative  effect  adjustment  to  beginning
            retained  earnings.  There was no material  impact on the  Company's
            consolidated financial statements as a result of the adoption of SAB
            108.

      iii)  In  September  2006,  the FASB  issued  SFAS  No.  157  "Fair  Value
            Measures."  (SFAS  No.  157),  SFAS  No.  157  defines  fair  value,
            establishes  a  framework  for  measuring  fair  value and  enhances
            disclosures   about  fair  value   measures   required  under  other
            accounting pronouncements,  but does not change existing guidance as
            to whether or not an instrument  is carried at fair value.  SFAS No.
            157 is effective for fiscal years beginning after November 15, 2007.
            The Company is currently  evaluating the impact that the adoption of
            SFAS No.  157 will  have on our  future  financial  statements.  The
            Company is currently  evaluating the potential  impact, if any, that
            the adoption of SFAS No. 157 will have on our consolidated financial
            statements.


                                      101
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006
                         (expressed in Canadian dollars)

      iv)   In February  2007, the FASB issued FASB Statement NO. 159, "The Fair
            Value  Option  for  Financial   Assets  and  Financial   Liabilities
            Including an Amendment of FASB Statement No. 115" ("SFAS 159").  The
            fair value  option  established  by SFAS 159 permits all entities to
            choose to measure eligible items at fair value at specified election
            dates. A business  entity will report  unrealized  gains or loses on
            items for which the fair value  option has been  elected in earnings
            (or another  performance  indication if the business entity does not
            report  earnings) at each subsequent  reporting date. The fair value
            option:  (a) may be applied  instrument  by  instrument,  with a few
            exceptions,  such  as  investments  otherwise  accounted  for by the
            equity  method;  (b) is  irrevocable  (unless  a new  election  date
            occurs);  and (c) is applied only to entire  instruments  and not to
            portions  of  instruments.  FASB  No.  159  is  effective  as of the
            beginning of the fiscal years beginning after November 15, 2007. The
            adoption  of  SFAS  159  will  not  have a  material  effect  to the
            Company's financial statements.

      v)    In December  2007,  the FASB  issued  SFAS No. 160,  Non-controlling
            Interests in Consolidated Financial  Statements-an  amendment of ARB
            No. 21 ("No.  160").  This statement  amends ARB No. 51 to establish
            accounting and reporting standards for the non-controlling  interest
            in a subsidiary  and for the  deconsolidation  of a subsidiary.  The
            provisions  of SFAS No.  160 are  effective  for fiscal  years,  and
            interim  periods  within those fiscal  years,  beginning on or after
            December 15, 2008. As of December 31, 2007, management believes that
            SFAS  No.  160  will not have a  material  effect  on our  financial
            position, results of operations and cash flows.

      vi)   In March 2008,  the FASB issued  SFAS No.  161,  "Disclosures  about
            Derivative Instruments and Hedging Activities--an  amendment of FASB
            Statement  No. 133" ("FAS  161").  FAS 161  changes  the  disclosure
            requirements  for  derivative  instruments  and hedging  activities.
            Entities are required to provide enhanced  disclosures about (a) how
            and why an entity uses  derivative  instruments,  (b) how derivative
            instruments  and  related  hedged  items  are  accounted  for  under
            Statement  133  and  its  related   interpretations,   and  (c)  how
            derivative  instruments  and related hedged items affect an entity's
            financial  position,  financial  performance,  and cash  flows.  The
            guidance in FAS 161 is effective for financial statements issued for
            fiscal years and interim periods  beginning after November 15, 2008,
            with early application  encouraged.  This Statement encourages,  but
            does not require,  comparative  disclosures  for earlier  periods at
            initial adoption.  The Company is currently  assessing the impact of
            FAS 161 and does not anticipate any material effect on the Company's
            financial statements.

      vii)  In December 2007, FASB issued SFAS No. 141 (revised 2007),  Business
            Combinations ("No. 141R"). This statement  establishes  requirements
            for  (i)  recognizing  and  measuring  in  an  acquiring   company's
            financial   statements  the  identifiable   assets   acquired,   the
            liabilities  assumed,   and  any  noncontrolling   interest  in  the
            acquiree,  (ii)  recognizing and measuring the goodwill  acquired in
            the  business  combination  or a gain from a bargain  purchase,  and
            (iii)  determining  what  information to disclose to enable users of
            the  financial  statements  to  evaluate  the nature  and  financial
            effects of the business combination.

            The   provisions  of  SFAS  No.  141R  are  effective  for  business
            combinations  for  which  the  acquisition  date is on or after  the
            beginning of the first annual reporting period beginning on or after
            December 15, 2008. As of December 31, 2009, management believes that
            SFAS No.  141R  will not have a  material  effect  on the  financial
            position, results of operations and cash flows.


                                      102
<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
        ACCOUNTING AND FINANCIAL DISCLOSURE

Effective January 29, 2008, the public  accounting  practice of Mintz & Partners
LLP ("Mintz"), our independent accountant who audited our consolidated financial
statements for our fiscal years ending  December 31, 2006,  2005,  2004 and 2003
was  acquired  by  Deloitte & Touche LLP  ("Deloitte")  and will be  carrying on
business as Deloitte.

The Company's future audit opinions will be provided by the Deloitte. Previously
issued audit opinions will be re-issued or consent to include  previously issued
Mintz  opinions in Securities  Exchange  Commission  filings will be provided by
Mintz.  Therefore Mintz, with the consent of Deloitte,  effectively  resigned as
our  independent  accountant of record on January 28, 2008. The  resignation was
approved by the board of directors and the audit committee.

Mintzs' report on the financial statements for the years ended December 31, 2006
did not  contain  an adverse  opinion  or  disclaimer  of  opinion,  and was not
modified as to uncertainty,  audit scope, or accounting principal. There were no
disagreements with Mintz,  whether or not resolved,  on any matter of accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure, which, if not resolved to Mintz's satisfaction,  would have caused it
to make reference to the subject matter of the  disagreement  in connection with
its report.

During the year ended  December  31,  2007,  the Company  did not  consult  with
Deloitte  regarding  the  application  of  accounting  principles  to a specific
completed  or  contemplated  transaction,  or the type of opinion  that might be
rendered  on our  financial  statements  and we did not  obtain  written or oral
advice in reaching a decision as to accounting,  auditing or financial reporting
issues.

ITEM 8A. CONTROLS AND PROCEDURES

Management's Responsibility For Financial Reporting

The  Company's  consolidated  financial  statements  are the  responsibility  of
management  and have been approved by the board of directors.

The  consolidated  financial  statements  have been  prepared by  management  in
accordance  with  Canadian  generally  accepted  accounting  principles.   These
statements  include  some  amounts  that are based on  estimates  and  judgment.
Management has determined such amounts on a reasonable  basis in order to ensure
that the financial statements are presented fairly, in all material respects.

The  Company's  policy  is  to  maintain  systems  of  internal  accounting  and
administrative  controls of high quality,  consistent with reasonable cost. Such
systems  are  designed  to  provide  reasonable  assurance  that  the  financial
information is relevant, accurate and


                                      103
<PAGE>

reliable  and that the  Company's  assets are  appropriately  accounted  for and
adequately safeguarded.

The board of directors is responsible for ensuring that management  fulfills its
responsibilities  for  financial  reporting and is  ultimately  responsible  for
approving the financial  statements.  The board carries out this  responsibility
principally through its Audit Committee.

The Audit  Committee is  appointed by the board and is comprised  two of outside
directors and the Chief Financial Officer. The committee meets periodically with
management  and the  external  auditors to discuss  internal  controls  over the
financial reporting process,  auditing matters and financial reporting issues to
satisfy itself that each party is properly discharging its responsibilities. The
Audit committee reviews the Company's annual consolidated  financial statements,
the report of the independent registered chartered accountants,  the comments by
independent  registered chartered accountants on Canada-United States of America
reporting  difference and other information in the Annual Report.  The committee
reports  findings to the board for  consideration  by the board when it approves
the financial statements for issuance to the shareholders.

On behalf of the  shareholders,  the financial  statements  have been audited by
Deloitte and Touche LLP, the external  auditors,  in  accordance  with  Canadian
generally accepted auditing standards. Deloitte and Touche LLP has full and free
access to the Audit Committee.

Disclosure Controls And Procedures

Disclosure  controls  and  procedures  are  designed to ensure that  information
required  to be  disclosed  by the  Company  in reports  filed  with  securities
regulatory agencies is recorded, processed,  summarized and reported on a timely
basis and is accumulated and communicated to the Company's management, including
the  Company's  Chief  Executive  Officer  and  Chief  Financial   Officer,   as
appropriate,  to allow  timely  decisions  regarding  required  disclosure.  The
Company's Chief Executive Officer and Chief Financial Officer (collectively, the
"Certifying   Officers")  are  responsible  for   establishing  and  maintaining
disclosure controls and procedures for the Company. Such officers have evaluated
these  controls  and  procedures  as of a date  within 90 days of filing of this
report.

Internal  controls  include those  policies and  procedures  that pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the Company's  assets,  provide  reasonable
assurance that  transactions are recorded as necessary to permit the preparation
of  financial  statements  in  accordance  with  generally  accepted  accounting
principles, provide reasonable assurance that receipts and expenditures are made
only in accordance with  authorization of management and the board of directors,
and provide reasonable assurance regarding the prevention or timely detection of
unauthorized acquisition,  use or disposition of the Company's assets that could
have a material impact on the financial statements. Because of its inherent


                                      104
<PAGE>

limitations, internal control over financial reporting may not prevent or detect
misstatements.

As a result of a thorough review of the Company's  prior financial  disclosures,
the  Company has  determined  that the  previously  filed  financial  statements
contained  errors  requiring  restatement as reflected in Note 2 to the December
31, 2007 and 2006 consolidated  financial statements.  The Company has concluded
that there are  material  weaknesses  in the  internal  control  over  financial
reporting as of December  31, 2007 and that the Company did not have  sufficient
in-house expertise to be able to comply in a timely manner with the requirements
of Canadian and US accounting changes and disclosure requirements.

Plan for Remediation of Material Weaknesses

The  Company is  undertaking  efforts  to  improve  its  internal  control  over
financial reporting and to remediate the material  weaknesses  identified above.
The Company  intends to design,  implement  and  maintain an  effective  control
environment  over  financial  reporting.  The Company has taken or will take the
following actions:

The Company is  committed  to enhance its  internal  controls.  When  complex or
unusual  transactions  surface,  management  is  committed  to  actively  seek a
solution   in-house  and  then  consulting  third  party   consultants  for  the
resolution.

In addition,  the Company is committed to update its Canadian and United  States
generally  accepted  accounting  principles  knowledge and establish a number of
control procedures  designed to strengthen its capabilities to both identify and
address any potential  errors  before they are reported in the future.

With the implementation of these corrective  actions,  the Company believes that
the above noted  material  weaknesses  will,  over time,  address  the  material
weaknesses that were identified in its internal control over financial reporting
as of December 31, 2007. However,  the effectiveness of these procedures remains
to be  tested in 2008 and  several  fiscal  quarters  may be  required  prior to
management  being  able to  conclude  that the  material  weaknesses  have  been
remediated.  The Company will  continue to  periodically  review its  disclosure
controls and  procedures and internal  control over financial  reporting and may
make modifications from time to time as considered necessary or desirable.

Changes In Internal Control Over Financial Reporting

The Certifying Officers have indicated that there were no significant changes in
the Company's internal controls or other factors that could significantly affect
such  controls  subsequent  to the date of their  evaluation,  and there were no
corrective  actions,   other  than  the  action  noted  above,  with  regard  to
significant deficiencies and material weaknesses.

ITEM 8B. OTHER INFORMATION

        None.


                                      105
<PAGE>

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

The following table sets forth the names and ages of the members of the Board of
Directors  and our executive  officers,  and sets forth the position with Devine
held by each:

Directors and Executive Officers

   Name                         Age                 Positions
--------------------------------------------------------------------------
David Devine                    55        Director, Chairman of the Board,
                                          President and Chief Executive
                                          Officer

Richard Mozer(1)                49        Director, Vice-Chairman of the
                                          Board, Chief Financial Officer,
                                          Treasurer and Secretary

Kenneth D. Taylor(2)            72        Director

Bryson Farrill(1)(2)            78        Director

Ron Feddersen(1)(2)             64        Director


(1)   Member of the Audit Committee.

(2)   Member of the Compensation Committee.

      Set forth  below are brief  biographies  of the  Company's  directors  and
officers.  Except for Mr. Feddersen, all of the directors and executive officers
of the Company have held their  principal  occupations  indicated  below for the
past six years.

      David Devine, Chairman of the Board, President and Chief Executive Officer
of the  Company,  is a film and  television  producer/director  with over twenty
years of experience and a co-founder of the Company.  Mr. Devine  graduated with
an Honours B.A. from Victoria  College at the University of Toronto and received
his Masters of Fine Arts in film production from the University of California at
Los Angeles Film School. He has been a director of the Company since 1982.

      Richard Mozer,  Vice-Chairman  of the Board,  Chief Financial  Officer and
Secretary of the Company,  is a film and television  producer with over 20 years
of  experience  and a co-founder  of the Company.  Mr.  Mozer  attended  Cornell
University and received his


                                      106
<PAGE>

Bachelors  Masters  of Fine  Arts in film  production  from  the  University  of
Southern  California  Film School.  He has been a director of the Company  since
1982.

      Kenneth D. Taylor is Chairman  of Taylor and Ryan Inc.,  a public  affairs
consulting  company,  and is currently  Chancellor of Victoria University at the
University  of Toronto.  Mr. Taylor was  appointed  Chancellor in May 1998.  Mr.
Taylor is and has been a director of several private  corporations,  foundations
and other  organizations in Canada and the United States. Mr. Taylor serves as a
director  of the  following  publicly-traded  companies:  Cenuco  Inc.,  Sivault
Systems Inc., Desert Sun Mining Corp.,  Hydro One Inc.,  Rockwater Capital Corp.
and Taylor Gas Liquids Fund. Mr. Taylor was the Canadian Ambassador to Iran from
1977 to 1980. Mr. Taylor is the recipient of a United States  Congressional Gold
Medal and is an Officer of the Order of  Canada.  He has been a director  of the
Company since April 1994.

      Since 1989,  Bryson Farrill has been an independent  financial  consultant
and  businessman,   engaged  in  personal  investing   activities  and  advising
businesses  with  respect to various  manufacturing,  resource  and  commodities
ventures.  Mr. Farrill has had a long career in the securities industry, and was
formerly Chairman of McLeod, Young, Weir International,  an investment dealer in
Toronto,  Ontario,  Canada from 1974 to 1978.  Mr.  Farrill was also Chairman of
Scotia McLeod (USA) Inc.  from 1978 to 1989.  Since 1997,  Mr.  Farrill has also
served as a director of HomeLife, Inc., a publicly-traded company which provides
a broad  range of real  estate  services.  He has been a director of the Company
since April 1994.

      Ron Feddersen has been  Executive  Principal of The Atticus Group Inc., an
interim management  services company,  since 2003. Prior thereto,  Mr. Feddersen
was the President of Flehr Associates Limited, a business consulting company. He
has been a director of the Company since February 2004.

Board of Directors

      The  Company's  Articles of  Incorporation,  as amended (the  "Articles of
Incorporation"),  require that the  Company's  board of directors  consist of no
less than  three and no more than ten  members.  The board of  directors  of the
Company  currently  consists of five members.  Directors  serve for terms of one
year and until their successors are duly elected and have qualified.  Subject to
the Business  Corporations  Act  (Ontario),  the  shareholders  may, by ordinary
resolution passed at a meeting of shareholders  called for such purpose,  remove
any director  from office  before the  expiration  of his term of office and the
vacancy created by such removal may be filled at the same meeting, failing which
it may be filled by the remaining directors.

      The Company's By-Laws,  as amended (the "By-Laws"),  require that at least
(i) a majority of the directors be Canadian  residents and (ii) one-third of the
directors not serve as officers of, or be employed by, the Company.


                                      107
<PAGE>

Committees of the Board of Directors

      As a public company,  the Company has established an Audit Committee and a
Compensation Committee of the board of directors.

      Audit Committee

      The Audit Committee consists of Messrs. Mozer, Farrill and Feddersen,  and
is responsible for reviewing the Company's financial statements and its internal
controls, reviewing the work of the Company's independent auditors and reporting
thereon to the board of directors.  Neither Mr. Farrill nor Mr.  Fedderson is or
has ever been an officer or employee of the Company or any of its subsidiaries.

      Audit Committee Financial Expect

      The board of directors  does not currently  have any member who is both an
audit committee financial expert as defined by Item 401(h) of Regulations S-K of
the  Securities  Exchange Act of 1934, as amended,  and  independent  within the
meaning of Item 7(d)(3)(iv) of Schedule 14A of such Act.

      Compensation Committee

      The  Compensation  Committee  consists  of  Messrs.  Taylor,  Farrill  and
Feddersen,  and is responsible  for reviewing the level and form of compensation
payable to the  executive  officers of the Company,  and making  recommendations
with respect thereto to the board of directors.  The  Compensation  Committee is
also  responsible  for making  recommendations  to the board of  directors  with
respect to the  granting of stock  options  pursuant to the Option Plan (as such
term is  defined in  "Executive  Compensation").  No member of the  Compensation
Committee  is or has ever been an officer or  employee  of the Company or any of
its subsidiaries.

Compliance with Section 16(a) of the Exchange Act

      Compliance  with  Section  16(a)  ("Section  16(a)") of the  Exchange  Act
requires our executive officers, directors, and persons who own more than 10% of
our  Common  Stock  (collectively,  "Reporting  Persons")  to  file  reports  of
ownership  on Form 3 and  changes  in  ownership  on  Form 4 or Form 5 with  the
Commission.  Such  Reporting  Persons are also  required by the  Securities  and
Exchange  Commission  rules to furnish us with copies of all Section 16(a) forms
that they file.  We believe  that  during  fiscal year 2005,  all the  Reporting
Persons complied with all applicable filing requirements.


                                      108
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

      The  compensation  payable to the  executive  officers  of the  Company is
established  by the  Compensation  Committee,  no member of which is or has ever
been an officer or  employee  of the  Company  or any of its  subsidiaries.  The
Compensation  Committee  recognizes  that  the  Company's  business  is  largely
dependent    on    attracting    and    retaining    motivated,    skilled   and
achievement-oriented personnel. By compensating the Company's executive officers
at levels which, on an annual basis, are commensurate with established  industry
standards but expending  their salaries to the Company over the entire  duration
of a  particular  production  as  production,  direction,  writing  and  similar
services,  the Company's executive  compensation  program is structured to align
each  executive   officer's  financial  interests  with  the  Company's  overall
objectives of maximizing and sustaining  shareholder  value. The Company is able
to achieve this alignment due to its receipt of Canadian  federal and provincial
labor tax credits for  salaries  paid by the Company to its  executive  officers
when such officers act as a producer or director in connection  with  qualifying
film and television productions. See "Executive Services Agreement."

Summary Compensation Table

      The following table sets forth all compensation  earned during each of the
last three fiscal years ended December 31, 2006 by the Chief  Executive  Officer
and the  Chief  Financial  Officer  of the  Company  (collectively,  the  "Named
Executive Officers"),  such individuals being the only executive officers of the
Company whose total annual salary, bonus and other annual compensation  exceeded
$100,000 (U.S.).

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Name and                 Year            Annual Compensation                 Long Term
Principal                                                                   Compensation
Position
-----------------------------------------------------------------------------------------------
                                                       Other Annual      Securities Underlying
                                      Salary   Bonus   Compensation            Options(#)
                                        ($)    ($)       ($)(1)
-----------------------------------------------------------------------------------------------
<S>                       <C>           <C>     <C>       <C>                   <C>
David Devine,             2007          ___     ___       218,333                  --
Chairman, President       2006          ___     ___       164,276                  --
& Chief Executive         2005          ___     ___       195,150               1,200,000
Officer
-----------------------------------------------------------------------------------------------
</TABLE>


                                      109
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Name and                 Year            Annual Compensation                 Long Term
Principal                                                                   Compensation
Position
-----------------------------------------------------------------------------------------------
                                                       Other Annual      Securities Underlying
                                      Salary   Bonus   Compensation            Options(#)
                                        ($)    ($)       ($)(1)
-----------------------------------------------------------------------------------------------
<S>                       <C>           <C>     <C>       <C>                   <C>
Richard Mozer             2007          ___     ___       188,947                  --
Vice-Chairman,            2006          ___     ___       135,000                  --
Chief Financial,          2005          ___     ___       166,170               1,200,000
Officer, Treasurer
& Secretary
-----------------------------------------------------------------------------------------------
</TABLE>

(1) In accordance with the executive  services  agreement  described below under
"Executive  Services   Agreement,"  the  Company  pays  fees  to  a  corporation
controlled  jointly by Messrs.  Devine and Mozer as  compensation  for  writing,
directing  and producing  services  provided to the Company.  Messrs.Devine  and
Mozer were also issued Common Shares during 2004. See "Certain Relationships and
Material Transactions."

      The Company does not have a long-term  incentive  plan or pension plan and
has never granted stock appreciation rights to any of its directors, officers or
employees.

Executive Services Agreement

      Since April 1994,  the Company has been a party to an  executive  services
agreement with Messrs. Devine and Mozer, and 1078459 Ontario Inc., a corporation
wholly-owned by Messrs.  Devine and Mozer.  Under the current executive services
agreement dated as of January 1, 2005, Messrs.  Devine and Mozer are required to
provide senior  management  services to the Company  through  December 31, 2008.
From time to time,  Messrs.  Devine  and Mozer may  participate  in  production,
direction,  writing  and  similar  activities,  depending  on the  needs  of the
Company. Under this agreement,  the base fee payable to 1078459 Ontario Inc. and
other corporations  controlled by Messes. Devine and Mozer, is determined by the
board of  directors of the Company  from time to time.  1078459  Ontario Inc. is
also entitled to additional fees and/or equity-based incentives in consideration
of the services performed and provided by it, as determined to be appropriate by
the board of  directors  of the  Company  in view of any (i)  bonus  paid by the
Company  to its  executive  officers  or (ii)  film  or  video  development  and
production project undertaken by the Company.

      Under the  executive  services  agreement,  Messrs.  Devine  and Mozer are
entitled to participate in any incentive  compensation or other employee benefit
plan or  program  generally  maintained  at the  Company  from  time to time and
offered to the Company's employees generally or executive officers. The services
of these  executives  may be  terminated  by the  Company  at any  time.  If the
services of Messrs.  Devine and Mozer are terminated without cause (as such term
is defined in the executive services


                                      110
<PAGE>

agreement),  the Company is required to continue to pay to 1078459  Ontario Inc.
its base fee  entitlement  until the expiry of the greater of (i) the  remaining
term of the agreement or (ii) eighteen months.  The executive services agreement
also includes confidentiality and non-competition provisions.

Option Plan

      The board of  directors  of the Company  adopted a stock  option plan (the
"Option  Plan")  on  May  13,  2004,  which  was  subsequently  ratified  by the
stockholders  of the Company on June 25, 2004. In  connection  with the adoption
and  ratification of the Option Plan, the Company  terminated its  then-existing
stock option plan and cancelled all outstanding options issued thereunder.

      The Option Plan is for the benefit of  employees,  officers and  directors
and certain  consultants of the Company and its subsidiaries and is administered
by the board of directors of the Company.  The board of directors  may from time
to time designate  individuals to whom options to purchase shares of the capital
stock of the  Company  may be granted and the number of shares to be optioned to
each.  The exercise  price of options issued under the Option Plan will be fixed
by the board of  directors  when such  options  are granted  provided  that such
exercise price shall not be less than the market price of the shares at the time
the options are granted.  The period during which an option is  exercisable  may
not exceed  five years from the date the option is granted  and the  options may
not be assigned,  transferred  or pledged,  except in limited  circumstances  as
permitted under applicable securities  legislation.  Subject to any grace period
allowed  under the  policies of any stock  exchange on which the shares are then
listed for trading, the options will expire 60 days following the termination of
the employment or office with the Company or any of its subsidiaries or death of
an individual.

      Pursuant to the terms of the Plan:  the (i) number of shares  reserved for
issuance under options granted to related persons (as such term is defined under
applicable  securities  legislation) under the Option Plan and any similar plans
may not exceed 10% of the aggregate  number of issued and outstanding  shares of
the Company;  (ii) issuance to related  persons,  within a 12 month  period,  of
shares  under the 2004 Plan and any  similar  plans  may not  exceed  10% of the
aggregate number of issued and outstanding  shares of the Company;  (iii) number
of shares  reserved for issuance  under options to acquire shares granted to any
related  person under the Option Plan and any similar plans may not exceed 5% of
the aggregate number of issued and outstanding  shares of the Company;  and (iv)
issuance to any one related person and the related person's associates, within a
12 month  period,  of shares  under the 2004 Plan and any similar  plans may not
exceed  5% of the  aggregate  number  of issued  and  outstanding  shares of the
Company.


                                      111
<PAGE>

      In June 2006 the Company's  stock option plan was amended as follows;  The
determination regarding the aggregate number of Voting Shares subject to options
in favour of any  Participant  will take into  consideration  the  Participant's
present and potential  contribution  to the success of the Corporation and shall
be  determined   from  time  to  time  by  the  Board  of  Directors   upon  the
recommendation  of the Compensation  Committee.  The aggregate maximum number of
Voting  Shares  reserved  for  issuance at any time upon the exercise of options
issued pursuant to this Plan and any other Share Compensation Arrangements shall
be equal to fifteen percent (15%) of the aggregate  number of Voting Shares then
issued  and  outstanding  or  such  other  number  as  the  shareholders  of the
Corporation shall approve in accordance with the requirements of any Exchange."

      Any officer or director of the Corporation be and is hereby authorized for
and on behalf of the Corporation to execute, whether under the corporate seal of
the  Corporation or otherwise,  and deliver all such documents and  instruments,
and to do all such acts or things,  as may be  necessary  or  desirable  to give
effect to the foregoing."

      As at April 11, 2008,  6,888,172  Common Shares were reserved for issuance
under the  Option  Plan and  4,655,000  are  subject  to  currently  outstanding
options.

Option Grants in Last Fiscal Year

      The  Company  granted  options  to  purchase  Common  Shares to  Executive
Officers during the fiscal year ended December 31, 2007.

      The following table sets forth  information  regarding options to purchase
Common  Shares  granted  during the  fiscal  year ended  December  31,  2004 and
December 31, 2007 to each of the Named Executive Officers.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                          Number of          % of Total            Exercise
      Name               Securities        Options Granted      Price/Common         Expiration Date
                         Underlying        to Employees in         Share)
                           Options         Fiscal Year 2004
                         Granted (#)
------------------------------------------------------------------------------------------------------
<S>                      <C>                     <C>                <C>                   <C>
David Devine             1,000,000               29.1%              $0.10                 09.29.09
------------------------------------------------------------------------------------------------------

Richard Mozer            1,000,000               29.1%              $0.10                 09.29.09
------------------------------------------------------------------------------------------------------
</TABLE>


                                      112
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                          Number of          % of Total            Exercise
      Name               Securities        Options Granted      Price/Common         Expiration Date
                         Underlying        to Employees in         Share)
                           Options         Fiscal Year 2004
                         Granted (#)
------------------------------------------------------------------------------------------------------
<S>                      <C>                     <C>                <C>                   <C>

David Devine             200,000                 21.1%              $0.15                 05.10.12
------------------------------------------------------------------------------------------------------

Richard Mozer            200,000                 21.1%              $0.15                 05.10.12
------------------------------------------------------------------------------------------------------
</TABLE>

Aggregated  Option  Exercises  in Last  Fiscal Year and Fiscal  Year-End  Option
Values

      The Executive Officers of the Company did not exercise options to purchase
Common Shares during the fiscal year ended December 31, 2007.

      The following  table sets forth  information  concerning  each exercise of
options to purchase  Common Shares by the Named  Executive  Officers  during the
fiscal year ended December 31, 2007.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
         Name                Securities       Value                  Unexercised              Value of Unexercised
                             Acquired on      Realized                Options at             In-the-Money Options at
                             Exercise(#)                           December 31, 2007             December 31, 2007
                                                                         (#)

                                                                       Exercisable/                  Exercisable/
                                                                      Unexercisable                 Unexercisable

---------------------------------------------------------------------------------------------------------------------
<S>                               <C>           <C>                    <C>                             <C>
David Devine                     -0-            $0                     1,200,000                       $20,000
---------------------------------------------------------------------------------------------------------------------

Richard Mozer                    -0-            $0                     1,200,000                       $20,000
---------------------------------------------------------------------------------------------------------------------
</TABLE>

Compensation of Directors

      As of January 1, 2006, Directors of the Company who are not employees, are
paid $1,500 per quarter,  payable in common shares of the Company or cash. Prior
to January 1, 2008,  Directors  did not receive an annual  retainer or any other
cash compensation for their services as members of the board of directors of the
Company.  Directors  of the  Company,  are  entitled  to  reimbursement  for any
expenses incurred for each meeting of the board of directors or of any committee
of the board of directors that they attend.


                                      113
<PAGE>

      During  2004,  Messrs.  Taylor,  Farrill and  Feddersen  were each granted
options  under the Option Plan to purchase up to 150,000  Common Shares at a per
share exercise price of $0.10 on or before September 29, 2009.

      During  2007,  Messrs.  Taylor,  Farrill and  Feddersen  were each granted
options  under the Option Plan to purchase up to 50,000  Common  Shares at a per
share exercise price of $0.15 on or before May 10, 2012.

      In April 2005,  Mr.  Feddersen was granted an option under the Option Plan
to purchase up to 100,000  Common Shares at a per share  exercise price of $0.10
on or before April 20, 2010.

      The  Atticus  Group  Inc.,  a company  for which Mr.  Feddersen  serves as
Executive Principal,  is party to an interim management and consultancy services
agreement   with  the   Company.   See  "Certain   Relationships   and  Material
Transactions."

Indemnification of Directors

      The Company has agreed to indemnify  each of its  directors to the fullest
extent permitted by the OBCA for all costs, liabilities and expenses incurred by
each director, including legal fees, in respect of claims to which each director
is made a party by reason of being or having  been a director  of the Company or
any subsidiary thereof,  provided such director acted honestly and in good faith
with a view to the best  interests of the Company and, in the case of a criminal
or administrative  proceeding  enforced by monetary  penalty,  such director had
reasonable grounds for believing that his conduct was lawful.

Directors' and Officers' Liability Insurance

      The  Company  maintains  insurance  for the benefit of its  directors  and
officers  against  liability in their  respective  capacities  as directors  and
officers. The annual premium payable by the Company in respect of such insurance
is $15,582.  (inclusive of  applicable  taxes) and the total amount of insurance
purchased for the directors and officers as a group is $1,000,000. The directors
and officers  are not  required to pay any premium in respect of the  insurance.
The Company is liable to the extent of $50,000 per claim under the deductibility
provisions of the policy.


                                      114
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth,  as at March 26, 2008 certain  information
as to (i) each person,  who to the knowledge of the Company,  is the  beneficial
owner of more  than  five  percent  (5%) of any  class of the  Company's  voting
securities and (ii) each class of equity securities of the Company or any of its
subsidiaries (other than directors  qualifying shares) beneficially owned by (A)
each director of the Company and the Named  Executive  Officers (as such term is
defined  in  "Executive  Compensation")  and (B)  all  directors  and  executive
officers of the Company as a group.

                         Title of Class - Common Shares

                                         Amount and
      Name and Address of           Nature of Beneficial
       Beneficial Owner(1)                Ownership            Percent of Class
      --------------------          --------------------       ----------------
      Forvest Trust S.A.                  4,120,000(2)               9%
      6, Place Chevelu
      1211 Geneva 1
      Switzerland

      David Devine                        7,120,545(3)               16%

      Richard Mozer                       6,633,945(4)               14.4%

      Kenneth D. Taylor                     278,250(5)            Less than 1%

      Bryson Farrill                        287,750(6)            Less than 1%

      Ron Feddersen                         378,250(7)            Less than 1%

      All directors and executive        14,698,740                   32%
      officers (5 individuals)

      The  following  table sets forth certain  information  with respect to the
directors and executive officers of Devine Entertainment.

(1) The  address  for each  beneficial  owner  listed in the  table,  other than
Forvest  Trust  S.A.,  is c/o  Devine  Entertainment  Corporation,  Suite 504, 2
Berkeley Street, Toronto, Ontario, Canada M5A 2W3.

(2) Includes  warrants to purchase  50,000 Common Shares and warrant to purchase
1,830,000 Common Shares and warrants to purchase 550,000 Common Shares.


                                      115
<PAGE>

(3) Includes option to purchase  1,200,000 Common Shares and warrant to purchase
250,000 Common  Shares.  See  "Executive  Compensation  -- Option Grants in Last
Fiscal Year" and "Certain Relationships and Material Transactions."

(4) Includes option to purchase  1,200,000 Common Shares and warrant to purchase
250,000 Common  Shares.  See  "Executive  Compensation  -- Option Grants in Last
Fiscal Year" and "Certain Relationships and Material Transactions."

(5)  Includes  option  to  purchase   200,000  Common  Shares.   See  "Executive
Compensation -- Compensation of Directors."

(6)  Includes  option  to  purchase   200,000  Common  Shares.   See  "Executive
Compensation -- Compensation of Directors."

(7)  Includes  option  to  purchase   300,000  Common  Shares.   See  "Executive
Compensation -- Compensation of Directors."

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The Company has entered into an executive  services  agreement dated as of
January 1, 2005 with  Messrs.  Devine and Mozer,  and 1078459  Ontario  Inc.,  a
corporation  wholly-owned  by Messrs.  Devine and Mozer.  Under this  agreement,
Messrs.  Devine and Mozer are required to provide  services to the Company.  See
"Executive Compensation -- Executive Services Agreement."

      Mr. Feddersen, a director of the Company, is the principal interim manager
under an interim  management  and  consultancy  services  agreement  between the
Company and The Atticus  Group Inc. The Atticus Group Inc. is paid a fee of $560
per month for Mr.  Feddersen's  services  under such  agreement.  Mr.  Feddersen
serves as Executive Principal for the Atticus Group Inc.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

--------------------------------------------------------------------------------
                                                                 Sequential Page
  Exhibit No.    Description of Exhibit                               Number
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
  3.1            Articles of Incorporation of the Company,              **
                   as amended
--------------------------------------------------------------------------------


                                      116
<PAGE>

--------------------------------------------------------------------------------
                                                                 Sequential Page
  Exhibit No.    Description of Exhibit                               Number
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
  3.2            By-Laws of the Company                                 *
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
  4.1            Specimen Form of Common Share Certificate              **
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
  10.1           Option Plan of the Company                             *
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
  10.2           Executive Services Contract dated as of
                   January 1, 2005 among 1078459 Ontario Inc.,
                   the Company, David B. Devine and Richard Mozer       **
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
  21.1        Subsidiaries of the Company                               ***
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
  99.1        Form F-X of the Company                                   *
--------------------------------------------------------------------------------

*     Incorporated by reference to the exhibit of the same number filed with the
      Registration  Statement  on Form 10-SB of the Company  dated  February 16,
      2005.

**    Incorporated  by  reference  to the exhibit of the same number  filed with
      Amendment No. 1 to the Registration Statement on Form 10-SB of the Company
      dated May 26, 2005.

***   filed herewith

b.)   Reports on Form 8-K

      (i) The Company filed a current report on Form 8-K dated October 11, 2007.
      Under item 8.01 of that 8-K the Company  announced that it had completed a
      private placement of Devine's equity securities

      (ii) The  Company  filed a current  report on Form 8-K dated  November  1,
      2007. Under item 8.01 of that 8-K the Company announced the updated market
      valuation of Devine's proprietary film and television library.


                                      117
<PAGE>

      (iii) The  Company  filed a current  report on Form 8-K dated  November 9,
      2007  Under  item  8.01 of that 8-K the  Company  issued  a press  release
      announcing  that  Devine had become  listed for  trading on the  Frankfurt
      Stock Exchange.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Summary of Deloitte & Touche LLP for Professional  Services rendered in 2007 and
Mintz & Partners LLP in 2006

                                                   Years Ended December 31,
                                                   ------------------------
                                                      2007           2006

Audit Fees (1)                                      $55,000        $45,000
Audit-Related Fees                                     --             --
Tax Fees                                              3,000           --
All Other Fees
                                                    $58,000        $45,000
                                                    =======        =======

1)    Services   relating  to  audit  of  the  annual   consolidated   financial
      statements,  review  of  quarterly  financial  statements,   consents  and
      assistance with the review of documents filed with the SEC.

      All  engagements  for  audit  services,  audit  related  services  and tax
services  are approved in advance by the Audit  Committee  and the full Board of
Directors. The Audit Committee and the Board of Directors has considered whether
the provision of the services described above for the fiscal year ended December
31, 2007 and 2006, is compatible with maintaining the auditor's independence.

      All audit and  non-audit  services  that may be provided by our  principal
accountant to us shall require  pre-approval by the Audit Committee and Board of
Directors.  Further,  our  auditor  shall  not  provide  those  services  to  us
specifically  prohibited by the SEC,  including  bookkeeping  or other  services
related to the accounting  records or financial  statements of the audit client;
financial information systems design and implementation;  appraisal or valuation
services, fairness opinion, or contribution-in-kind reports; actuarial services;
internal audit  outsourcing  services;  management  functions;  human resources;
broker-dealer,  investment  adviser,  or investment  banking services and expert
services  unrelated  to the audit;  and any other  service  that Public  Company
Oversight Board determines, by regulation, is impermissible.


                                      118
<PAGE>

                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        DEVINE ENTERTAINMENT CORPORATION

                                        By _____________________________________
                                                    David Devine
                                           Director, Chairman of the Board
                                           President and Chief Executive Officer

Dated: March 26, 2008

      Pursuant to the  requirements of the Securities  Exchange Act, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.

Signature                Title                                        Date
--------------------------------------------------------------------------------

/s/ David Devine         Director, Chairman of the Board          April 11, 2008
                         President and Chief Executive Officer

/s/ Richard Mozer        Director, Vice-Chairman of the           April 11, 2008
                         Board, Chief Financial Officer,
                         Treasurer and Secretary

/s/ Kenneth D. Taylor    Director                                 April 11, 2008


/s/ Bryson Farrill       Director                                 April 11, 2008


/s/ Ron Feddersen        Director                                 April 11, 2008


                                      119
<PAGE>

Exhibit 21.1 -

Certificate of Incorporation for ACROSS THE RIVER PRODUCTIONS LTD.
Incorporated  under the laws of the  Province  of  Ontario,  Canada on April 26,
2006.

Certificate of Incorporation for ACROSS THE RIVER II PRODUCTIONS LTD.
Incorporated  under the laws of the  Province of Ontario,  Canada on February 5,
2007


                                      120