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, 2005

|_|   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, 2005        $4,019,745

As of March 24,  2006,  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 NQB OTC Pink Sheets was $3,761,838

As of March 24, 2006,  the issuer had  outstanding  35,353,508  shares of common
stock.


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<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>

                                EXPLANATORY NOTE

      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 2005. 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.


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<PAGE>

                                     PART I

ITEM 1. BUSINESS

Overview

      The Company is a  Canadian-based  developer,  producer and  distributor of
high-quality  children's and family films for the worldwide television and cable
markets, and the international home video markets. 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 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>

      Devine  Entertainment is currently  developing  feature films,  television
series  and  movies of the week,  all  targeted  to family  audiences.  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$
is a key  project  that the  Company  believes  will  expand  its brand into new
markets.

      In August 2005, Bailey's Billion$ was released for theatrical distribution
in fifteen movie  theaters  located in the greater  Toronto  metropolitan  area,
twenty-four movie theaters located in the greater Atlanta metropolitan area, six
movie  theaters  located in the greater Las Vegas  metropolitan  area, and seven
movie theaters located in the greater Buffalo,  New York metropolitan area. This
film was shown at these theaters for periods ranging from one to three weeks.

      In addition,  Bailey's  Billion$ was exhibited during the third and fourth
quarters of 2005 at a total of seventeen Kids First!  Children's  Film Festivals
held at various locations throughout the United States (including Puerto Rico).

      Bailey's  Billion$ was also shown during the third and fourth  quarters of
2005 on a limited  engagement  basis at select  theaters  located in portions of
Europe,  Asia, South America and Australia,  and on Italian,  French and certain
other European television channels.

      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  particularly in the children's and family market,  presents
significant  opportunities  for  substantial  growth.  The  Company's  principal
markets currently are:


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<PAGE>

      (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

      (v) the markets for  products  complementary  to the  Company's  programs,
including  audio   soundtracks,   published  music  and  books  and  educational
interactive, multimedia, CD-ROM, 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,  TMN (The
Movie Network),  Movie Central, YTV, The Family Channel, HBO, The Disney Channel
and Disney Channel  International  (U.K., France and Australia),  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


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<PAGE>

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.

      The Company took a major step in expanding  its business and product lines
when it  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.  Since the
beginning of 2005, the Company has increased its staff by two in order to better
service its direct sale and catalog customers. During 2005, the Company attended
three new educational  sales  conventions.  The Company has recently printed new
catalogs and has licensed,  for the first time, third-party programs and related
teacher's  guides for inclusion in such catalogs.  The Company has also recently
completed new proprietary activity books and teacher's guides for The Inventors'
Specials and The Artists'  Specials to compliment the existing activity book and


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<PAGE>

teacher's  guide for The Composers'  Specials.  All of the foregoing  activities
were or will  be,  as the  case  may be,  self-funded  by the  Company  from its
operational cash flow.

      The  Company  is  further   developing   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.  The Company is currently in various
stages of  discussion  with  three  different  companies.  The first is a United
States-based,  publicly-traded  company which sells its  educational  children's
toys and other  products  to mass market  retailers,  such as  Wal-Mart,  in the
United States. The second is a Paris-based  distributor  interested in acquiring
rights for the Company's library outside of North America and participating with
the Company in the  development of a writers'  specials  series.  The third is a
European distributor  interested in specific foreign distribution rights for the
Company's  library.  Although  there can be no  assurance  that the Company will
enter into a formal  agreement  with any of the  foregoing  companies,  any such
agreement  would  benefit  the Company by  broadening  the  exploitation  of its
library and providing additional funding for new productions.

      The  Company  has  recently  engaged a New York based  investment  firm to
assist in raising funding in the range of $2.5 to $4 million. Such funding would
be used primarily for new production activities.  The remaining proceeds of such
funding  would  be used for  debt  settlement  and  marketing  and  distribution
activities.  Although  there  can be no  assurance  that  the  Company  will  be
successful, the Company expects to complete such funding prior to the end of the
first half of 2006.

      During the first  quarter of 2005,  the  Company  entered  into a services
agreement  with an  unaffiliated  partnership.  Under  this  agreement,  certain
expenses of the Company will be assumed by such  partnership.  See "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operation --
Limited Partnership."

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  2006 project  development  slate
includes  new  episodes  of its core  library  based on the  lives  and times of
groundbreaking  writers (The Writers' Specials), a rock and roll romantic comedy
targeted to the teen audience  (RED),  and three  feature films  targeted at the
international  family  audience  (The  Miracle  Journey,  October  7,  1944  and
Humchucker),  as well as  several  original  television  movies-of-the-week  and
episodic  television  dramas for  broadcast on major United  States and Canadian
television  networks.  Along with the recently completed feature film,  Bailey's
Billion$,  these  projects will continue to build the Company's  library of high
quality films in the years to come.


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<PAGE>

      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.

      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  Entertainment  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 the end
of the first  quarter of 2006, 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.


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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 Productions Ltd
Liszt's Rhapsody                            1996      Devine Productions Ltd
Rossini's Ghost                             1996      Devine Productions Ltd
Strauss: The King of 3/4 Time               1996      Devine Productions Ltd
Bizet's Dream                               1996      Devine Productions Ltd
Handel's Last Chance                        1996      Devine Productions Ltd

The Inventors' Specials

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

The Artists' Specials

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

Genre: Feature Film

Bailey's Billion$                           2005      AllianceAtlantis/Arclight

      The Company's film library has been actively  distributed in North America
and  internationally  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 has averaged approximately $900,000 per year.


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<PAGE>

Business Strategy

      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
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, CBC, 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  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, and new relationships established in 2004 with
Canal  Plus,  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  family 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.  The  Company's  first  full-length  feature film,
Bailey's  Billion$,  a family  comedy,  was  completed  in 2004 and was released
internationally in August 2005.


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<PAGE>

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 eight full-time  employees and no part-time
employees.

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."  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


                                       12
<PAGE>

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.

Certain Foreign Business Considerations

      At the end of  2001,  the  Company's  then-existing  Montreal-based  sales
agent,  Multi-Media  Group of Canada ("MMGC"),  informed the Company that MMGC's
sub-agent,  Daro Films Distribution GmbH ("Daro"),  had bought, in the second or
third quarter of 2001,  The Composers'  Specials and The Inventors'  Specials at
$570 per show for broadcast in Iran.  The license  resulting  from this purchase
commenced  in  November  2001 and ended in the second or third  quarter of 2005.
Daro  is a  Monaco-based  distributor/agent  specializing  in  African,  Eastern
European,  Australian,  Asian  and  Middle  Eastern  territories.  The  purchase
occurred  shortly prior to the Company's  termination of its  relationship  with
MMGC. The Daro purchase was not pre-approved by the Company and thus constituted
a violation of the Company's agreement with MMGC.

      In light of the foregoing,  The Daro purchase was a one-time event for the
Company and was reflected in the Company's 2001 financial  statements at a gross
value of less than $8,000 out of $973,000, or less than 1% of the Company's 2001
revenues.  As compared to overall  revenues from the  Company's  series of films
which  have  totaled  over  $34,000,000  since the  delivery  of The  Composers'
Specials in 1995, this purchase  reflects less that 3/100 of 1% of the Company's
revenues.  The Company believes that the Daro purchase had no material impact on
the Company's  costs and revenues in 2001 and no  significant  comparison can be
made to any other period.  In light of the foregoing,  the Company believes that
this purchase was not material to its business.

      Since the date of Daro's purchase,  Iran has been identified by the United
States Department as a terrorist-sponsoring  state. As a result, Iran is subject
to  restrictions  imposed by the United States Treasury Office of Foreign Assets
Control  ("OFAC").   Although  the  Company,  by  reason  of  being  a  Canadian
corporation, is not subject to the OFAC restrictions, the Company will take into
consideration  that its reputation may suffer if it does business in Iran or any
other  terrorist-sponsoring state in the future. Any such association could have
an adverse effect on the value of the Company's  equity.  The Company  currently
has  no  continuing  business  or  business  interests  in  Iran  or  any  other
terrorist-sponsoring state and does not foresee transacting business in any such
terrorist-sponsoring state in the future.


                                       13
<PAGE>

      Further,  certain  states  of the  United  States  have  recently  enacted
legislation  regarding investments by pension funds and other retirement systems
in companies that have business  activities or contacts with countries that have
been identified as  terrorist-sponsoring  states and similar  legislation may be
pending in other states. As a result, in the event that the Company has business
activities  or contacts  in or with a country  identified  by the United  States
government as a state sponsor of terrorism,  pension funds and other  retirement
systems may be subject to reporting  requirements with respect to investments in
Devine Entertainment or may be subject to limits or prohibitions with respect to
such investments that may adversely affect the value of the Company's equity. To
date,  the Company is unaware of any pension  fund and other  retirement  system
that has made a significant investment in the Company's equity.

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, 2008 and provides for annual rent of approximately  $55,000 during 2005.
The Company  believes that its  facilities  are sufficient to meet its operating
requirements for the foreseeable future.

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.


                                       14
<PAGE>

                                     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($)         Low($)
      ----------------------------------------------------------------------
      2003
      First Quarter                                   0.04            0.04
      Second Quarter                                  0.04            0.01
      Third Quarter                                   0.1125          0.01
      Fourth Quarter                                  0.08            0.08

      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

On March 24, 2006 the closing per share market price was 0.165.

Common Shares Subject to Options, Warrants and Convertible Securities

      As at March 24,  2006,  there  were  3,180,000  Common  Shares  subject to
outstanding options, 4,877,450 Common Shares subject to outstanding warrants and
3,301,600  Common Shares  issuable upon  conversion of  outstanding  convertible
securities.


                                       15
<PAGE>

Holders

      As at March 24,  2006,  there  were 54  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."

      Following  the  declaration  of the  effectiveness  of  this  registration
statement by the Securities and Exchange Commission, the Company intends to have
the Common  Shares  trade on the OTC  Bulletin  Board  service  of the  National
Association of Securities Dealers,  Inc. (the "OTC Bulletin Board"). The Company
expects that,  upon the  commencement of the trading of the Common Shares on the
OTC Bulletin Board,  the Common Shares will 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


                                       16
<PAGE>

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
dividends is a corporation resident in the United States which owns at least ten
percent (10%) of the voting shares of the corporation paying the dividends,  the
rate of withholding tax is reduced to ten percent (10%).

      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 five (5) years 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.


                                       17
<PAGE>

      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.

      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.  35,353,508 Common Shares and a series
of 494,550  Preferred  Shares (the "Series 1 Preferred  Shares") were issued and
outstanding as at February 1, 2006. 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 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.


                                       18
<PAGE>

      In December 2004, the Series 1 Preferred  Shares were created.  All of the
Series 1  Preferred  Shares were issued to the  Partnership.  See  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operation --
Devine Entertainment Limited Partnership." 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 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.


                                       19
<PAGE>

1995 Issuance of 7.5% Debentures

      In December 1995, the Company issued  $1,125,000  principal amount of 7.5%
redeemable  convertible  subordinated  debentures (the "7.5% Debentures").  Each
7.5%  Debenture  originally  matured on December 31, 2000. On December 19, 2000,
the Company  obtained the approval of the holders of the 7.5% Debentures to: (i)
extend the maturity  date of the 7.5%  Debentures  to December  31,  2002:  (ii)
reduce the conversion rate of the 7.5% Debentures from $1.50 to $0.50 per Common
Share;  (iii) increase the rate of interest on the 7.5%  Debentures to 10.5% per
annum; (iv) issue to the holders of the 7.5% Debentures one warrant  ("Extension
Warrant") for each $1.00  principal  amount of the 7.5%  Debentures held by such
holders; and (v) secure the 7.5% Debentures by way of a floating charge over all
of the Company's  assets,  such floating  charge being  subordinated  to certain
senior indebtedness of the Company.  The Extension Warrants expired unexercised.
The Company is currently  further  renegotiating the terms and conditions of the
7.5% Debentures with the holders thereof.

      In February  2002,  $915,000 of the 7.5%  Debentures  became  covered by a
security  interest  granted by the Company.  See  "Management's  Discussion  and
Analysis of  Financial  Condition  and Results of Operation -- Fiscal Year Ended
December 31, 2004.

1996 Issuance of 7.5% Debenture

      In  February  1996,  the  Company  issued  a 7.5%  redeemable  convertible
subordinated  debenture  (the  "1996  Debenture")  in the  principal  amount  of
$100,000 to Euro American  Mercantile  Corp.  The 1996  Debenture is convertible
into Common Shares at the rate of $1.50 per share. The 1996 Debenture originally
matured on December 31, 2000. On December 19, 2000, the Company renegotiated the
payment  terms of the 1996  Debenture and increased the interest rate thereon to
10% per annum.  As a result,  the principal  was  repayable  during 2001 in four
equal quarterly  payments.  The first installment  payment on the 1996 Debenture
was  made in  April  2001.  The  Company  failed  to make  the  three  remaining
installment payments due on the 1996 Debenture. The Company is currently further
renegotiating  the terms and conditions of the 1996 Debenture with Euro American
Mercantile   Corp.  The  1996  Debenture  is   subordinated  to  certain  senior
indebtedness of the Company.

10.5% Debentures and 10.5% Debenture Warrants

      On December 21, 2000,  the Company  issued  $550,000  principal  amount of
10.5% convertible subordinated debentures (the "10.5% Debentures") which matured
on December  31,  2005.  The  Company is  currently  in default  under the 10.5%
Debentures.  The Company is in the process of  negotiating  an  extension to the
maturity date of the 10.5%  Debentures.  The 10.5% Debentures bear interest at a
rate of 10.5% per annum payable  semi-annually and are convertible at the option
of the holder at any time on the basis of one Common  Share per $0.50  principal
amount of 10.5%


                                       20
<PAGE>

Debentures  outstanding.  The 10.5%  Debentures are secured by way of a floating
charge over all of the Company's assets, such floating charge being subordinated
to certain senior indebtedness of the Company.

      Each purchaser of the 10.5%  Debentures  also received a warrant (a "10.5%
Debenture  Warrant")  for each  $1.00  invested.  Each 10.5%  Debenture  Warrant
entitled  the  holder to  purchase  one Common  Share for $1.75 per share  until
December 31, 2005. All of the 10.5%  Debentures  Warrants  expired without being
exercised.

      Forvest  Trust  S.A.  acted  as  agent  for  the  issuance  of  the  10.5%
Debentures,  and was issued compensation  warrants entitling it to acquire up to
50,000  Common  Shares  at an  exercise  price of $0.50  per  share on or before
December 21, 2007. Forvest Trust S.A. also received a cash commission on closing
of $50,000.

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;

      (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 reapproved by
the Company's  stockholders at a stockholders meeting held on June 16, 2005. 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


                                       21
<PAGE>

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  reapproval  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  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.


                                       22
<PAGE>

      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  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 past three years without registering such securities
under the Securities Act of 1933, as amended (the "Securities Act").


                                       23
<PAGE>

      On April 5, 2004,  the  Company  settled  two term loans owing to Business
Development  Bank of Canada in  consideration  of (i) a cash payment of $125,000
and (ii) the issuance of 100,000 Common Shares. The aforesaid Common Shares were
offered and sold in reliance on the  exemptions  from  registration  afforded by
Section 4(2) and Regulation S of the Securities Act.

      Effective  April 7, 2004, the Company sold  5,160,000  units at a price of
$0.10 per unit for  aggregate  gross  proceeds of $516,000 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  ("Initial
Warrant").  Each  Initial  Warrant was  exercisable,  at any time on or prior to
April 7, 2005, to acquire one Common Share and one step-up Common Share purchase
warrant at an exercise price of $0.15 per Common Share. Substantially all of the
Initial  Warrants were exercised prior to their expiration date. The exercise of
the Initial Warrants  resulted in the issuance of 2,547,500 Common Shares in the
aggregate.  Each such  step-up  warrant  issued  upon  exercise  of the  Initial
Warrants is  exercisable,  at any time on or prior to April 7, 2006,  to acquire
one Common Share at an exercise price of $0.30.

      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.

      On June 29, 2004,  the Company  settled a portion of a loan initially made
by the Royal Bank of Canada in  consideration  of (i) a cash payment of $11,509;
(ii) the issuance of 2,042,055  Common  Shares;  and (iii)  warrants to purchase
1,830,000 Common Shares at a per share exercise price of $0.50 at any time on or
prior to February 26,  2007.  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.

      On June 30, 2004, the Company issued  1,100,000  units for aggregate gross
proceeds of $220,000 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,  (ii) 0.4545 of a
Series A Warrant  and (iii)  0.333 of a Series B Warrant.  Each  whole  Series A
Warrant is exercisable on or prior to December 31, 2006 into one Common Share at
an exercise  price of $0.20 per Common  Share.  Each whole  Series B Warrant was
automatically converted for no additional consideration into one Common Share on
December 31, 2004. Such automatic conversion resulted in the issuance of 366,666
Common Shares. 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.

      During the third quarter of 2004,  the Company  completed  settlements  of
past debt,  previously agreed to production financing fees and fees for services
from financial advisors, with the issuance of a total of 8,740,000 Common Shares
at $933,271. As a


                                       24
<PAGE>

result,   approximately  $1.4  million  of  the  Company's   payables,   accrued
liabilities  and current  expenses were settled.  The  settlements  included the
issuance of 6,000,000  Common Shares to David Devine and Richard  Mozer,  each a
director and executive officer of the Company,  to satisfy previous loans to the
Company  and unpaid  fees for  services  from 2001  through the end of the third
quarter of 2004.  The aforesaid  Common Shares were offered and sold in reliance
on the exemptions from registration afforded by Section 4(2) and Regulation S of
the Securities Act.

      During 2004,  the Company  issued 150,000 Common Shares to each of Messrs.
Devine and Mozer. These Common Shares were issued as part of a fee for providing
bridge  financing for Bailey's  Billion$  under the same terms and conditions as
unaffiliated  lenders.  The  aforesaid  Common  Shares were  offered and sold in
reliance  on the  exemptions  from  registration  afforded  by Section  4(2) and
Regulation S of the Securities Act.

      In September  2004,  the Company  issued  185,000 Common Shares to certain
employees of Mid South Capital Inc. in  consideration  for services  provided in
connection  with the  commencement  of the  trading of the Common  Shares in the
United States in the Pink  Sheets(R).  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 December  2004,  the Company  issued  380,450 Common Shares and 494,550
Series  1  Preferred  Shares  to the  Partnership.  See  "Item  2.  Management's
Discussion and Analysis of Financial  Condition and Results of Operation  Devine
Entertainment  Limited  Partnership."  The aforesaid  Common Shares and Series 1
Preferred  Shares  were  offered and sold in  reliance  on the  exemptions  from
registration afforded by Section 4(2) and Regulation S of the Securities Act.

      In January 2005, the Company issued 40,000 Common Shares to David Karas 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 January 2005, the Company issued 40,000 Common Shares to Anthony Golden
in consideration for investor  relation  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 May 2005,  the Company issued 350,000 Common Shares to the Canadian law
firm,  Wildeboer  Dellecle  LLP,  in partial  consideration  for legal  services
rendered to the Company from March 27, 2001 through May 31, 2005.  The aforesaid
Common  Shares  were  offered  and  sold  in  reliance  on the  exemptions  from
registration afforded by Section 4(2) and Regulation S of the Securities Act.


                                       25
<PAGE>

      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.

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 March
29,  2006 to  provide a review of current  activities  and a  comparison  of the
performance and financial position of Devine Entertainment Corporation ("Devine"
or the  "Company")  for the year ended  December  31, 2005 and 2004.  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 accounting
principles generally accepted in Canada that conforms, in all material respects,
with U.S. GAAP. 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

Devine is an integrated  developer and producer of high quality  children's  and
family films designed for the world-wide  theatrical motion picture,  television
broadcast and cable markets and the international home video and DVD markets.

The Company's  primary focus is the production of quality  children's and family
films,  including  broadly marketed  commercial  family films for the theatrical
release and broadcast internationally as well as specialty video and DVD markets
worldwide. Devine's library of films include 19 hours of award-winning broadcast
programs based on the lives of important  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. In 2004
the Company completed and delivered  Bailey's  Billion$,  its first feature film
targeted at a family audience that was released in theatres in the US and Canada
in August of 2005 and is currently in distribution worldwide.


                                       26
<PAGE>

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
library of original  programs;  (ii) increase its  production  and  distribution
through strategic alliances with major international distributors,  broadcasters
and co-producers.

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.

FISCAL 2005 HIGHLIGHTS

The positive trends that started in 2004 continued in 2005.

      o     The  Company's  revenues  increased by 6% to  $4,019,745  in 2005 as
            compared to $3,809,235 in 2004.

      o     The  Company's  proprietary  film  library of  completed  television
            programs  and  recordings   performed   well  in  2005,   generating
            $1,067,389  in revenues,  reflecting  an increase of 64% as compared
            with $648,955 in 2004.

      o     DVD,  video  and  ancillary  publishing  revenues  generated  by the
            Company's  library of completed  television  programs and recordings
            increased by  approximately  147% or $530,544 to $892,499 in 2005 as
            compared to $361,955 in 2004.


                                       27
<PAGE>

      o     The Company's feature film,  Bailey's Billion$,  which was delivered
            in 2004 was released  theatrically  in the United  States and Canada
            continued to generate  revenues  around the world of  $2,952,356,  a
            decrease of 7% as compared to $3,160,280 in 2004.

      o     EBITDA,  defined as earnings before interest,  taxes,  depreciation,
            amortization  and gains on  settlement  of debt  increased  by 5% to
            $3,150,327 in 2005, as compared to $3,007,389 in 2004.

Net loss in year ended  December 31, 2005,  was  ($233,409)  or (0.01) per share
reflecting the Company's  accelerated  amortization  of its Inventors'  Specials
television  series  which  totaled  $1,008,181  in 2005.  While  the  Inventors'
Specials  continues to be one of the  Company's  valued  library  assets and was
recently valued  independently as having a fair market value of over $2,000,000,
under SOP-002 all of the costs  related to a proprietary  program or series must
be expensed within ten years of it original delivery and exploitation. 2006 will
be the tenth year that the  Inventors'  Specials have been in  distribution  and
accordingly, the Company is accelerating amortization of the series.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2005

Revenues

In 2005,  the  Company's  revenues  increased by $210,510 or 6% to $4,019,745 in
2005 as compared to $3,809,235 in 2004.

The  Company's  proprietary  film library of completed  television  programs and
recordings performed well in 2005, generating $1,067,389 in revenues, reflecting
an increase of 64% as compared with $648,955 in 2004.  DVD,  video and ancillary
publishing  revenues generated by the Company's library of completed  television
programs and recordings  increased by approximately 147% or $530,544 to $892,499
in 2005 as  compared to $361,955 in 2004.  In  addition,  the library  generated
$174,600 in revenues from the sale of broadcast  licenses in 2005, a decrease of
$112,400 or approximately  39% as compared to $287,000 in 2004. Of the $174, 600
in Broadcast sales, $144,000 resulted from licenses to TVOntario and the British
Columbia based Knowledge Network,  two Canadian  broadcasters who have committed
to licensing the Company's  new series based on landmark  writers  scheduled for
production in 2006. An additional  broadcast  sale was concluded in September of
2005 to the Al Jazeera  Children's  Channel for $30,600.  Broadcast  revenues in
2004 reflected a single $287,000 broadcast license in France to TPS Jeunesse.

The Company's feature film,  Bailey's Billion$,  which was delivered in 2004 was
released  theatrically in the United States and Canada and continued to generate
revenues  around  the world of  $2,952,356,  a  decrease  of 7% as  compared  to
$3,160,280 in 2004. This


                                       28
<PAGE>

reflected a sale of foreign  distribution  rights to a UK based distributor that
generated an initial payment of  approximately  $2,659,000 in the second quarter
of 2005.

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

                                                    2005                 2004
                                                    ----                 ----
Canada                                           $  446,000           $2,768,000
United States                                       591,000              326,000
France                                               99,000              287,000
United Kingdom                                    2,659,000                    0
Europe - Other                                            0              305,000
Other foreign                                       225,000              123,000

Earnings (loss) per Common Share (EPS)

Net loss in year ended  December 31, 2005,  was  ($233,409)  or (0.01) per share
reflecting the Company's  accelerated  amortization  of its Inventors'  Specials
television  series  which  totaled  $1,008,181  in 2005.  While  the  Inventors'
Specials  continues to be one of the  Company's  valued  library  assets and was
recently valued  independently as having a fair market value of over $2,000,000,
under SOP-002 all of the costs  related to a proprietary  program or series must
be expensed within ten years of it original delivery and exploitation. 2006 will
be the tenth year that the  Inventors'  Specials have been in  distribution  and
accordingly, the Company is accelerating amortization of the series.

EBITDA

EBITDA, defined as earning before interest,  taxes,  depreciation,  amortization
and gains on  settlement  of debt  increased  by 5% to  $3,150,327  in 2005,  as
compared to $3,007,389 in 2004.

EBITDA is a  non-GAAP  financial  measure.  Management  believes  EBITDA 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.


                                       29
<PAGE>

Shareholders' Equity

Shareholders'  equity was  $5,172,024  reflecting  an increase of $213,735  from
$4,958,289 as at December 31, 2004.

SUMMARY OF QUARTERLY RESULTS:

<TABLE>
<CAPTION>
                             Dec.31,     Sept. 30,     June 30,       Mar. 31,    Dec. 31,     Sept. 30,     June. 30,     Mar. 31,
                              2005         2005          2005          2005         2004          2004         2004         2004
                             -------     ---------     --------       --------    --------     ---------     ---------     --------
<S>                         <C>           <C>         <C>             <C>          <C>        <C>             <C>          <C>
Revenues                    468,348       180,899     2,892,261       478,236      384,281    2,990,182       357,305        77,467


Operating Expenses          268,418       192,765       214,791       175,044      395,176       60,529       169,363        76,928


Earnings (loss) before
income taxes               (865,770)     (323,166)      933,050        22,477      156,458      556,853        65,307      (101,652)

Special Write Downs              --            --            --            --           --           --    (1,000,000)           --

Special Gains                    --            --            --            --           --           --     4,039,825            --

Income taxes                 12,189            --       (12,189)           --      306,000         (356)           --            --

Net earnings (loss)        (853,581)     (323,166)      920,861        22,477      614,296      681,141     3,105,132      (101,652)

Basic and diluted             (0.02)        (0.01)         0.03          0.00         0.02         0.03          0.16         (0.01)
earnings (loss) per
common share
</TABLE>

Operating expenses

The Company's  operating expenses for the year ended December 31, 2005 increased
by $149,022 or approximately  21% to $851,018,  as compared to $701,996 in 2004.
This increase reflects  increased  professional fees expended in relationship to
the  Company's SEC  registration  application  as well as the Company's  limited
partnership financing activities.

Production and Development Activity

The Company  continues to develop new projects in order to secure new production
activity. Projects which include initial participation and support of funds from
Telefilm Canada, Astral Communications and Corus Entertainment are feature films
and TV movies entitled Red,  Miracle  Journey,  and October 7, 1944. The Company
has also  acquired the rights and is actively  developing  additional  films and
series projects  targeted to the worldwide family audience  including  Revolving
Door, Quarterback, Fat Camp and


                                       30
<PAGE>

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.

Investment in Film and Television Programs and Recordings

The  Company  reviews  and  revises  the  estimated  fair  market  value  of its
investment in film,  television programs and recordings as required on a regular
basis.  Capitalized  film costs are stated at the lower of  unamortized  cost or
estimated fair value on an individual  film basis.  For the  proprietary  films,
television  programs and recordings produced by the company, a maximum period of
ten years after the delivery of the  production is used in  accordance  with SOP
00-2 to estimate  fair value.  Development  costs which are  expected to benefit
future periods are also  capitalized.  If the property under development has not
been set for  production  within three  years,  the costs  associated  with such
property are written off to income.

Amortization  expenses in 2005 for the Company's library of completed television
programs and recordings and motion picture  totaled  $3,325,049.  As at December
31, 2005, the Company's  investment in its proprietary film library of completed
television programs and recordings was estimated as $1,723,043 after accumulated
amortization.  The Company's  investment in its motion picture Bailey's Billion$
was estimated as $3,241,219  after  accumulated  amortization  and the Company's
investment  in projects in  development  was  estimated as $1,883,846 as per the
following table:

<TABLE>
<CAPTION>
                                                                                    Dec. 31, 2005             Dec. 31, 2004
                                                                                    -------------      -----------------------------
                                                                                    Accumulated
                                                                       Cost         Amortization           Net               Net
                                                                   -----------      -------------      -----------       -----------
<S>                                                                <C>               <C>               <C>               <C>
Completed television programs and recordings                       $16,015,097       $14,292,054       $ 1,723,043       $ 3,096,399
Completed Motion picture - Bailey's Billion$                         6,969,564         3,728,345         3,241,219         5,221,216
Projects in progress                                                 1,883,846                --         1,883,846           903,555
                                                                   -----------       -----------       -----------       -----------
                                                                   $24,868,507       $18,020,399       $ 6,848,108       $ 9,221,170
                                                                   ===========       ===========       ===========       ===========
</TABLE>

Ultimate revenue estimates for the Company's  completed motion picture are based
on in-depth  discussions with and estimates provided by experienced  third-party
distributors and sales agents,  including the contracted foreign sales agent and
United States distributor.  Each of these distributors has well over 20 years of
experience  in its  area of  sales  and  distribution.  The  third  party  sales
estimates  and the  agreements  have  been  reviewed  and  approved  the  motion
picture's  co-producers,  copyright  purchasers and production  lending bank and
them  discounted  by the  Company  in an  effort  to  provide  conservative  and
realizable ultimate revenue estimates.


                                       31
<PAGE>

In the  United  States,  management  has  used  the  Company's  twenty  years of
experience with broadcasters in conjunction with the United States distributor's
estimates  for three windows over ten years as a basis of its  television  sales
estimates.  With regard to DVD/video sales  estimates,  the Company has reviewed
distributors' estimates and compared them to the Company's historical sales. P&L
models based on these sales estimates and  incorporating  the distribution  fees
and expenses defined in the Company's  distribution  agreements assuming between
500,000 to  1,000,000  units  sales over ten years with  average  net revenue of
$4.26 (U.S.) per unit were discounted and support what  management  believes are
conservative ultimate revenue estimates.  The estimates were based on an initial
release at a retail pricing of $24.98 (U.S.) for rental and initial sell through
release and  subsequent  drops in pricing to $14.98  (U.S.) and $12.98 (U.S.) as
the DVD  release  migrates  to  distribution  in mass  market  sell-through  and
discount  markets over the ten-year  period.  The Company compared and supported
this figure with industry  standards and  published  unit sales for  comparative
family feature films and then  discounted  them  conservatively  and modeled the
estimates to incorporate the  distribution  fees and expense  limitations in its
various  distribution  agreements.  The models provided net revenue estimates of
approximately $5 million (U.S.),  which the Company then discounted to less than
fifty percent (50%),  which in effect reflects 750,000 unit sales over ten years
at the lowest price and margin.

For  estimates in the foreign  territories,  the Company has relied on its sales
agents  estimates on an all rights basis per territory.  The Company's  ultimate
revenue  estimates  were based on bank  approved  estimates  of initial  advance
payments  per  territory  which do not  take  into  account  any  second  window
television  license values and longer term  DVD/video  royalty  payments.  These
estimates were then  discounted to match the discounted  United States  ultimate
revenue  estimates,  conservatively  assuming that all of the other  territories
around the world would not exceed the revenues from the United States market.

The Company believes that ultimate revenue  estimates for Bailey's  Billion$ are
conservative and realizable,  notwithstanding  the fact that management  reviews
the estimates on a regular basis and may adjust them down  depending on changing
results and market  conditions  over the ten year period that  started  with the
delivery of the film in 2004.

In the  nine-year  period from 1997 to 2005,  The  Inventors'  Specials  revenue
totaled approximately $6,120,000 or $680,000 per annum. For the most recent five
years,  Inventors'  Specials revenue  averaged  $280,000 per annum. The Artists'
Specials generated  approximately  $5,543,000 in its first eight years after the
original  release,  which is an average of $693,000 per annum. For the last five
years,  Artists'  Specials revenue averaged  $249,000.  The Composers'  Specials
continues to generate significant revenues with $632,333 in 2005, but given that
the ten year period  since its delivery  has  expired,  the value of  Composers'
Specials is not  reflected as an asset as part of the  Company's  investment  in
film and television programs and recordings.

The Company  believes that these lower results for the  Inventors'  and Artists'
Specials in the most recent years reflect the  challenging  conditions  industry
wide in the  international


                                       32
<PAGE>

markets resulting from the collapse of investment  markets that had fuelled high
valuations  for  content,  the  overestimated  benefits  for the models of media
convergence  and the  promise  of  media  deregulation  in  Europe  that  proved
challenging  in the context of 9/11, as well as the challenges  associated  with
the Company's debt, equity and capital position which were respectively  settled
resulting  in  significant  gains,   improved   significantly  and  successfully
reorganized in 2004.

The Company  estimates average annual ultimate revenue for the Artists' Specials
at  $438,333  per year for the next three  years and  estimates  average  annual
ultimate revenue for the Inventors'  Specials at $380,000 per year for 2006. The
Company believes that its current  ultimate  revenue  estimates for the Artists'
Specials  and  Inventors'  Specials  are  reasonable  and  realizable  given the
multi-year nature of television contracts and that annual revenue can fluctuate.
The Company's new  agreements  recently  concluded with sales agents in Germany,
France,  Italy, Spain, Japan and Korea, point both to the renewed  opportunities
resulting from the Company's improved financial position and also to an industry
wide renewal of sales of broadcast licenses in international  markets.  As well,
the Company's experience supports the fact that when a new series of its branded
proprietary library of award-winning films is produced, sales for the previously
produced library of films are concluded  concurrent with commitments for the new
production  on a  territory-per-territory  basis.  The Company  expects to begin
production  of a new series  based on landmark  authors  entitled  The  Writers'
Specials in 2006 and has already  begun to pre-sell the  broadcast  licenses for
the Writers  Specials  and, in  conjunction,  license  the  Company's  completed
television programs as well.

While the  specific  revenues  for each series vary from year to year,  over the
long term, the Company's DVD and ancillary  product sales have averaged  between
$195,000 and $250,000 per series, per year.

DEVINE LIBRARY DVD/Video, publishing and Ancillary sales
(includes dvd and video sales, music publishing royalties, teachers guides,
stock footage rights, rentals of props etc.)
                                                         Inventors
                                      Composers - DVD       DVD      Artists DVD
                         Yr TOTAL        Ancillary       Ancillary    Ancillary
                         --------     ---------------    ---------   -----------
           2000          $731,837         $145,590       $397,147     $189,100
           2001          $748,178         $ 37,880       $354,253     $356,045
           2002          $602,443         $166,427       $241,577     $194,439
           2003          $623,918         $187,603       $230,907     $205,408
           2004          $346,712         $153,977       $ 94,566     $ 98,169
           2005          $868,574         $573,533       $168,610     $126,431
                         --------         --------       --------     --------
     6 year average      $653,610         $210,835       $247,843     $194,932
                         --------         --------       --------     --------
% increase 2005/2004         150%            272.%            78%          29%

There have been  significant  increases in the  Inventors (up 78% from 2004) and
Artists (up 29% from 2004) DVD sales in 2005,  but the most  dramatic  increases
have come in Composers  sales (up 272% from 2004) primarily as a result if a new
agreement in 2005


                                       33
<PAGE>

with a major  educational  publisher through our existing client Hal Leonard for
the  inclusion of our series in their Music  Catalogue.  The Company is pursuing
new DVD sales agreements with the same educational  publisher for the Inventors,
for inclusion starting in their Social Sciences Catalogue and for the Artists in
their Arts Catalogue  starting in 2006 and 2007. The Company estimates that this
distribution  arrangement  should result in the annual increase in sales of each
series  of about  $125,000,  based on the  results  achieved  by  Composers.  In
addition,  the Company is negotiating with a Utah based telemarketer who has had
great  success with the  Company's  titles in 2000 through  2002,  and a new VOD
agreement  in Italy as well as a DVD kiosk  distributor  in the Balkans that the
Company believes will be finalized in 2006.

The table below details  Inventors  DVD/ancillary  sales currently being pursued
and the  estimated  values - in addition to  existing  DVD  accounts in 2005 and
2006:

Year                                           2006
----                                           ----
Educational Science Catalogue                125,000
Utah telemarketer                             45,000
Italy VOD                                     90,000
Balkan DVD Kiosks                             90,000
New Foreign DVD sales                         25,000
                                             -------
Total additional expected                    375,000
Expected base                                200,000
Anticipated Annual DVD sales                 575,000

The table below details Artists  DVD/ancillary sales currently being pursued and
the estimated values - in addition to existing DVD accounts through 2008:

Year                                          2006        2007       2008
----                                          ----        ----       ----
Educational Art Catalogue                   125,000      125,000   125,000
Utah Telemarketer                            45,000       45,000    45,000
Italy VOD                                    90,000            0         0
Balkan DVD Kiosks                            90,000       90,000    90,000
New Foreign DVD sales                        25,000       25,000    25,000
                                            -------      -------   -------
Total additional expected                   375,000      285,000   285,000
Expected base                               150,000      150,000   150,000
                                            -------      -------   -------
Anticipated Annual DVD sales                525,000      435,000   435,000

In addition to the new DVD sales and agreements  currently  estimated above, the
Company is pursuing new broadcast  licenses that it expects will be finalized in
2006..  They include a new sale in France being  concluded by the  co-production
company  we are  working  with on our new series on Writers as well as a license
for all three series in the US, a license for French Canada,  Holland,  the U.K.
and licenses in the territories of Japan, Korea, Spain, Italy, and Germany noted
in our  previous  responses.  Note the  estimates  and  timing per series in the
following tables:


                                       34
<PAGE>

Expected  Inventors  Broadcast  sales  and  estimated  values - in  addition  to
existing DVD accounts in 2005 and 2006:

                                                         Amount            Year
                                                         ------            ----
US Broadcast                                             90,000            2006

French Canada Broadcast                                  90,000            2006
France Broadcast                                         67,500            2006
German Broadcast                                        120,000            2006
UK Broadcast                                            150,000            2006
Spain, Japan, Korea, Holland Italy Broadcast            150,000            2006
Other ex-North America Broadcast                         25,000            2006
                                                        -------
Anticipated total in 2006                               692,500

Expected Artists  Broadcast sales and estimated values - in addition to existing
DVD accounts in 2006 through 2008:

Years                                                    2006-2007       2008
-----                                                    ---------       ----
US Broadcast                                               90,000       60,000

English and French Canada Broadcast                        90,000       60.000
France Broadcast                                           67,500       75,000
German Broadcast                                          120,000            0
UK Broadcast                                              150,000       75,000
Spain, Japan, Korea, Holland Broadcast                    150,000       75,000
Other ex-North America Broadcast                          175,000       75,000
                                                          -------      -------
Anticipated total over 3 years                            842,500      345,000

For Inventors,  at the end of 2005, the Company used the following  estimates to
arrive at Ultimate Revenue:

-------------------------------------------------------------------------------
       Year           Total           Dvd sales        Broadcast licenses
-------------------------------------------------------------------------------
       2006         1,200,000           550,000               650,000
                    ---------           -------               -------
-------------------------------------------------------------------------------

Due to the short period  available to derive the  revenue,  the Company  further
discounted Total Revenue to $380,000 .

For Artists,  at the  beginning of fiscal 2005,  the Company used the  following
estimates to arrive at our Ultimate Revenue:

-------------------------------------------------------------------------------
       YEAR           Total           Dvd sales        Broadcast licenses
-------------------------------------------------------------------------------
       2006         1,150,000           500,000               525,000
-------------------------------------------------------------------------------
       2007           800,000           400,000               300,000
-------------------------------------------------------------------------------
       2008           800,000           400,000               325,000
                    ---------         ---------             ---------
-------------------------------------------------------------------------------
       Total        2,450,000         1,300,000             1,150,000
-------------------------------------------------------------------------------


                                       35
<PAGE>

As in prior  periods,  the Company used 75% to arrive at an Ultimate  Revenue of
$1,500,000.  The Company has further  discounted  Total Revenues and anticipates
using Ultimate Revenues  Estimates of $1,315,000 for the Artists through the end
of 2008.

The  Company  believes  that  specific   broadcast   licenses  and  distribution
agreements currently in place and negotiations for the Company to commence a new
production  of The Writers'  Specials in 2006 will support the renewed  sales of
the  Company's  film library in the near future.  Nonetheless,  if sales are not
concluded at the value and within the time period anticipated,  the Company will
revise  and  disclose  accordingly  the  ultimate  revenue  calculation  and the
corresponding amortization of the applicable programs.

Annually,  management  reviews the estimate of total remaining  ultimate revenue
and the fair value of the capitalized film costs. As a result of the review, the
Company  reduced the carrying value of its completed film,  television  programs
and recordings by $1,373,356  (2004 - $1,393,826) and reduced the carrying value
of its completed motion picture by $1,979,997  (2004 - $1,744,151).  The Company
expects to amortize approximately $770,000 for completed television programs and
recordings costs and $353,000 for completed motion picture costs during the next
fiscal year.

As at year end 2005 89% of competed  television  programs and recordings and 53%
of completed motion picture costs have been amortized.

The Company expects 100% of completed television programs and recordings and 70%
of completed motion picture costs will be amortized by December 31, 2008.

As at December  2011,  over 80% of the  completed  motion  picture costs will be
amortized.  The remaining  period of  amortization  for the  completed  projects
ranges from one to eight years at December 31, 2005.

Capital stock

At December 31, 2004 the Company had 32,251,008 common shares and 494,550 Series
1 Class A preferred shares outstanding.

The Company  issued  3,102,500  common shares in the first six months of 2005 as
part of the following transactions:

(i) In January  2005,  the Company  issued  80,000  common  shares for  services
rendered, valued at $18,400.

(ii) In February 2005, the Company issued 125,000 common shares to employees who
exercised their stock options, for cash consideration of $12,500.


                                       36
<PAGE>

(iii) On or before April 7, 2005,  2,547,500  warrants were exercised at a price
of $0.15 per unit for cash consideration of $382,125.

(iv) In May of 2005, the Company issued 350,000 common shares to settle accounts
payable for professional fees in the amount of $78,748.

At December 31, 2005 the Company had 35,353,508 common shares and 494,550 Series
1 Class A preferred shares outstanding.

Related Party Transactions

During the year ended  December 31, 2005 $337,417 (2004 - $493,837) of fees were
paid or accrued to corporations  controlled by two of the directors for writing,
directing and producing services.  Additionally, $Nil (2004 - $30,000) were paid
(by  issuance  of 300,000  common  shares) to the same  corporations  for bridge
financing provided in connection with Bailey's project.  These transactions have
been  measured  at  exchange  amount,  which  is  the  amount  of  consideration
established  and  agreed to by the  related  parties  and  which the  management
believes  reflect  prevailing  market  rates.  Included in accounts  payable and
accrued liabilities at December 31, 2005 was $32,477 (2004 - $Nil).

Limited Partnerships

During  2004  the  Company  entered  into  a  services   agreement  with  Devine
Entertainment  Limited  Partnership  ("Partnership").  Under  the  terms  of the
agreement, the Partnership will incur certain expenses, until December 31, 2004,
relating to the following  services  required in connection  with the conduct of
business of the Company:

      o     Labour, employment and all other "direct" services;

      o     Marketing  services,  including  production  and  placement  of  all
            required advertising;

      o     The incurring of other operating  expenses,  excluding  payments for
            the purchase of real property,

      o     Administrative services

      o     Certain  development   services  required  in  connection  with  new
            projects of the business

In return,  the  Partnership  is entitled to royalty  payments  equal to 0.8% of
gross  revenue of the Company for calendar  years from 2004 to 2014,  payable 60
days after the completion of each calendar year in connection  with the expenses
incurred during such year.


                                       37
<PAGE>

Under  the  terms  of the  services  agreement,  the 2004  Partnership  advanced
$846,350 to the Company for the 2004 services,  which was  originally  accounted
for as royalty interest payable. Included in the $846,350 was $494,550 which was
initially  loaned from the Company to an unrelated  company  which  subsequently
loaned these funds to the limited partners.

The 2004  Partnership  was also  granted  the right and option to  exchange  its
rights (including the 2004 royalties) under the services  agreement,  at anytime
until December 31, 2004, for 380,450 common shares and 494,550  preferred shares
of the Company.

On December  22, 2004 the  Partnership  exercised  its right under the  services
agreement and the royalty interest payable was reclassified to capital stock.

Included  in the cash,  as a  reduction,  is bank  indebtedness  of $Nil (2004 -
$94,665)  and in accounts  payable and accrued  liabilities  is $35,501  (2004 -
$108,151) of the Limited Partnership.

During the first quarter of 2005, the Company entered into a services  agreement
with  the QCF  2005  Limited  Partnership  ("QCF").,  which to date has not been
finalized.  Under the terms of the  agreement,  QCF incurred  certain  expenses,
until  December  31,  2005,  relating  to the  following  services  required  in
connection with the conduct of business of the Company.

      o     Labour, employment and all other "direct" services;

      o     Marketing  services,  including  production  and  placement  of  all
            required advertising;

      o     The incurring of other operating  expenses,  excluding  payments for
            the purchase of real property,

      o     Administrative services

      o     Certain  development   services  required  in  connection  with  new
            projects of the business

In return,  the Partnership would be entitled to a royalty equal to a percentage
of gross revenue of the Company in connection with the expenses  incurred during
such year. The accounts of this variable  interest  entity have been included in
the consolidated financial statements of the Company.

In December 2005, The Devine Entertainment Film Library Limited  Partnership,  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 for $6.8 million, as
valued by an outside  valuator.  The  Company  has  provided  financing  for the
transaction,  and has entered into a financing  agreement  and will enter into a
management  agreement  with the  Limited  Partnership  in order  to  manage  the
exploitation  and  expand  the  distribution  of  the  properties.  Under  these
agreements the Company will receive management fees and interest revenue and the
Company  will  maintain a call right for  between a minimum of 70% and a maximum
100%  interest in the library  assets.  The accounts of this  variable


                                       38
<PAGE>

interest entity have been included in the consolidated  financial  statements of
the Company.

Liquidity and Capital Resources

The  Company's  cash on hand as at December 31, 2005 was $239,990 as compared to
$104,727 as at December 31, 2004, an increase in cash position of $135,263.

The Company's bank film production loan for Bailey's Billion$ which was $919,664
as at  December  31,  2004 was repaid in full on May 24, 2005 and the Company no
longer has any bank debt.

The Company expects to maintain  renewed growth from operations and expects that
proceeds  from sales of Bailey's  Billion$ and its film  library  will  generate
additional revenues and positive cash flow through 2006.

The Company's working capital deficiency,  although reduced, remains significant
but is  mitigated by the fact that the Company is working  towards  successfully
converting  its  $1,519,290 of outstanding  convertible  debentures  into common
shares in 2006.

Nonetheless,  the Company remains unable to service its convertible debt and the
Company will require additional  working capital from its production  activities
or corporate  financing in 2006. The Company intends to actively seek additional
funding in calendar 2006.

Certain Foreign Business Considerations

At the end of 2001,  the  Company's  then-existing  Montreal-based  sales agent,
Multi  Media  Group  of  Canada  ("MMGC"),  informed  the  Company  that  MMGC's
sub-agent,  Daro Films Distribution GmbH ("Daro"),  had bought, in the second or
third quarter of 2001,  The Composers'  Specials and The Inventors'  Specials at
$570 per show for broadcast in Iran.  The license  resulting  from this purchase
commenced  in  November  2001 and ended in the second or third  quarter of 2005.
Daro  is a  Monaco-based  distributor/agent  specializing  in  African,  Eastern
European,  Australian,  Asian  and  Middle  Eastern  territories.  The  purchase
occurred  shortly prior to the Company's  termination of its  relationship  with
MMGC. The Daro purchase was not pre-approved by the Company and thus constituted
a violation of the Company's agreement with MMGC.

The Daro purchase was a one-time  event for the Company and was reflected in the
Company's 2001 financial  statements at a gross value of less than $8,000 out of
$973,000, or less than 1% of the Company's 2001 revenues. As compared to overall
revenues from the Company's  series of films which have totaled over $34,000,000
since the delivery of The Composers'  Specials in 1995,  this purchase  reflects
less that 3/100 of 1% of the Company's  revenues.  The Company believes that the
Daro purchase had no material impact on the Company's costs and revenues in 2001
and no significant  comparison can be made to any other period.  In light of the
foregoing, the Company believes that the Daro purchase had no


                                       39
<PAGE>

material  impact on the Company's  costs and revenues in 2001 and no significant
comparison  can be made to any  other  period.  In light of the  foregoing,  the
Company believes that this purchase was not material to its business.

Since the date of Daro's purchase, Iran has been identified by the United States
Department  as a  terrorist-sponsoring  state.  As a result,  Iran is subject to
restrictions  imposed by the United  States  Treasury  Office of Foreign  Assets
Control  ("OFAC").   Although  the  Company,  by  reason  of  being  a  Canadian
corporation, is not subject to the OFAC restrictions, the Company will take into
consideration  that its reputation may suffer if it does business in Iran or any
other  terrorist-sponsoring state in the future. Any such association could have
an adverse effect on the value of the Company's  equity.  The Company  currently
has  no  continuing  business  or  business  interests  in  Iran  or  any  other
terrorist-sponsoring state and does not foresee transacting business in any such
terrorist-sponsoring state in the future.

Further,  certain states of the United States have recently enacted  legislation
regarding investments by pension funds and other retirement systems in companies
that  have  business  activities  or  contacts  with  countries  that  have been
identified as terrorist-sponsoring states and similar legislation may be pending
in other  states.  As a  result,  in the event  that the  Company  has  business
activities  or contacts  in or with a country  identified  by the United  States
government as a state sponsor of terrorism,  pension funds and other  retirement
systems may be subject to reporting  requirements with respect to investments in
Devine Entertainment or may be subject to limits or prohibitions with respect to
such investments that may adversely affect the value of the Company's equity. To
date,  the Company is unaware of any pension  fund and other  retirement  system
that has made a significant investment in the Company's equity.

OUTLOOK

As 2006  begins,  the  Company is  optimistic  about the  successful  commercial
exploitation of Bailey's Billion$, which was released theatrically in the United
States  and  Canada on August 5,  2005 and the  growing  sales of the  Company's
proprietary film library of completed  television  programs and recordings,  for
which revenues increased in 2005 by 64%.

The Company  expects that the  successful  settlement and  restructuring  of the
majority of the Company's debt and the successful  financings  completed in 2004
and 2005 will bring new  opportunities  for  additional  corporate  and  limited
partnership financings in 2006 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.


                                       40
<PAGE>

The Company  continues  to move forward with a  significantly  improved  balance
sheet and the  opportunity  to attract  new  capital  resources  for its ongoing
business  objectives.  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 2006 and into the future.

CONTROLS AND PROCEDURES

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 concluded
(based upon their  evaluation  of these  controls  and  procedures  as of a date
within 90 days of filing of this report) that the Company's  disclosure controls
and procedures are effective to ensure that information required to be disclosed
by the Company in this report is accumulated  and  communicated to the Company's
management,  including its Certifying  Officers as appropriate,  to allow timely
decisions  regarding  required  disclosure.  The  Certifying  Officers also 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
with regard to significant deficiencies and material weaknesses.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These  consolidated  financial  statements have been prepared in accordance with
accounting  principles  generally  accepted  in  Canada  that  conforms,  in all
material  respects,  with U.S.  GAAP,  except as described in the Note 20 to the
financial statements.

Basis of Consolidation

In October  2005 the Company  amalgamated  its  operation  with its wholly owned
subsidiaries.

The December 31, 2005 consolidated  financial statements include the accounts of
Devine  Entertainment  Corporation with Variable Interest Entities ("VIE").  The
December 31, 2004 consolidated financial statements include Devine Entertainment
Corporation, all its wholly owned subsidiaries and Verifiable Interest Entity.

Inventory

Inventory  consists of finished  products and is stated at the lower of cost and
net realizable value


                                       41
<PAGE>

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 SOP 00-2. 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 and  distribution
fees is recognized when received.  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 collectibility  of proceeds.  Revenue from the
sale of home videos and DVDs are  recognized  at the time of  shipment.  Amounts
received and not recognized as revenue are recorded as deferred revenue.

Investment in Film, Television Programs and Recordings

Investment in film,  television  programs and recordings  represent  projects in
progress and the unamortized costs of film,  television programs and recordings,
net of anticipated  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.  Under SOP
00-2 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. Projects in progress are
written off at the earlier of the date  determined not to be recoverable or when
projects in progress are abandoned, and three years from the date of the initial
investment.

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 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.


                                       42
<PAGE>

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.

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%

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 rates  prevailing  at the times of the
transactions.  The  gains  or  losses  resulting  from  these  translations  are
reflected in the statements of operations.

Government and Other Assistance

The  Company  has access to various  government  programs  that are  designed to
assist film,  television programs and recordings  production and distribution in
Canada.  Effective January 1, 2004,  amounts receivable in respect of production
assistance  are recorded as a reduction  of  investment  in film and  television
programs.   Government  assistance  towards  current  expenses  is  included  in
earnings.  Investment  tax credits are recorded as a reduction to  investment in
film,  television  programs and recordings,  when the ultimate collection of the
credits are assured.

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 and consultants  with an exercise price equal to the fair value of the
shares at the date of grant. The Company recognizes compensation expense for the
stock-based  compensation  plan  when  stock  or stock  options  are  issued  to
employees.  Any consideration  paid by employees on exercise of stock options or
purchase of stock is credited to share capital.

If stock or stock options are  repurchased  from employees or  consultants,  the
excess of the consideration  paid over the carrying amount of the stock or stock
option cancelled is charged to retained earnings.

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  income  tax  assets  and
liabilities  for each  temporary


                                       43
<PAGE>

difference  based on the tax rates  which are  expected to be in effect when the
underlying items of income and expenses are expected to be realized.  The effect
of future  income  tax assets  and  liabilities  of a change in the tax rates is
included in income in the period that the rate changes.

Earnings Per Share

Basic  earnings per share is computed by dividing  earnings  available to common
shareholders by the weighted average number of common shares  outstanding during
the year.  The treasury stock method is used to calculate  diluted  earnings per
share. Diluted earnings per share is similar to basic earnings per share, except
that the  denominator  is increased to include the number of  additional  common
shares that would have been outstanding  assuming that options and warrants with
an average  market  price for the year  greater  than their  exercise  price are
exercised and the proceeds used to repurchase common shares.

Measurements Uncertainty

The preparation of financial  statements in conformity  with Canadian  generally
accepted  accounting  principles  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
deferred  revenue related to future sales,  amortization  of Long-Lived  Assets,
valuation of stock compensation, recoverability of tax credits and estimation of
future income tax assets and valuation  allowances.  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.

Impairment of Long-Lived Assets

Long-Lived  Assets,  Including  property and  equipment,  Investments  in Films,
Television  programs  and  recording  and  deferred  charges  are  reviewed  for
impairment when significant  events or circumstances  indicate that the carrying
amount of an asset may not be  recoverable.  Impairment  exist when the carrying
value of the assets is greater than the future  undiscounted 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

Sales of rights and  licences  related to projects in progress  are  recorded as
deferred revenue until revenue recognition parameters have been met.

Deferred  Charges

Deferred charges costs are being amortized using the straight-line method over a
five year period.


                                       44
<PAGE>

Recent Accounting Pronouncements

i)    Effective  January  1, 2006 the  Company  will  adopt a recent  accounting
      pronouncement of the Financial Accounting Standards Board ("FASB"), issued
      SFAS No. 123R,  "Share- Based  Payments"  ("SFAS  123R"),  which  requires
      companies  to measure and  recognize  compensation  expenses for all share
      based  payments at a fair value.  The Company does not expect the adoption
      of SFAS  123R to have a  material  impact  on its  financial  consolidated
      statements.

ii)   In May 2005 the FASB issued  SFAS  No.154,  "Accounting  Changes and Error
      Corrections"  (SFAS 154"),  which is providing  guidance on the accounting
      for, and reporting of, accounting  changes and error of corrections.  This
      Statement  replaces  APB  Opinion  No. 20,  Accounting  Changes,  and FASB
      Statement  No.  3,  Reporting  Accounting  Changes  in  Interim  Financial
      Statements,  and  changes  the  requirements  for the  accounting  for and
      reporting of a change in accounting  principle.  This Statement applies to
      all voluntary changes in accounting principle.  It also applies to changes
      required by an accounting  pronouncement  in the unusual instance that the
      pronouncement  does not include  specific  transition  provisions.  When a
      pronouncement  includes specific transition  provisions,  those provisions
      should be followed. The provisions of SFAS 154 is effective for accounting
      changes  and  corrections  of error  made in the  period  beginning  after
      December  31,  2005.  We do not expect the  adoption of SFAS 154 to have a
      material impact on our financial position or result of operations.

iii)  Effective December 1, 2004, the Company was required to adopt the Canadian
      Institute   of  Chartered   accountants'   (CICA)   Accounting   Guideline
      15(AcG-15),  "Consolidation of Variable Interest Entities" ("VIP"). 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 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.  In January  2003,  the FASB  issued  Interpretation  No.
      ("FIN")  46,  "Consolidation  of  Variable  Interest  Entities",  which is
      effective for financial  statements of public  companies that have special
      purpose entities for periods ending after December 15, 2003 and for public
      companies  without special purpose entities for periods ending after March
      15, 2004. Accordingly,  the Company has included the results of operations
      of  the  Devine  Limited   Partnership   (Note  13)  in  its  consolidated
      operations.

iv)   In  January  2005,  the CICA  issued  Handbook  Section  3855,  "Financial
      Instruments - Recognition and Measurement".  The section prescribes when a
      financial  instrument is to be recognized on the balance sheet and at what
      amount. It also specifies how financial instrument gains and losses are to
      be  presented.  This new standard will be effective for interim and annual
      financial  statements  relating  to fiscal  years  commencing  on or after
      October 1, 2006.  The Company is assessing the impact of this new standard
      on its consolidated financial statements.


                                       45
<PAGE>

v)    In January 2005,  the CICA issued  Handbook  Section 3865,  "Hedges".  The
      Section provides alternative treatments to Section 3855 for entities which
      choose to  designate  qualifying  transactions  as hedges  for  accounting
      purposes.  It replaces and expands on Accounting Guideline AcG-13 "Hedging
      Relationships", and the hedging guidance in Section 1650 "Foreign Currency
      Translation"  by  specifying  how hedge  accounting  is  applied  and what
      disclosures  are necessary  when it is applied.  This new standard will be
      effective for interim and annual financial  statements  relating to fiscal
      years commencing on or after October 1, 2006. The Company is assessing the
      impact of this new standard on its consolidated financial statements.

vi)   In January 2005,  the CICA issued  Handbook  Section 1530,  "Comprehensive
      Income".  The section introduces a new requirement to temporarily  present
      certain  gains and losses from  changes in fair value  outside net income,
      but in a  transparent  manner.  This new standard  will be  effective  for
      interim  and  annual  financial   statements   relating  to  fiscal  years
      commencing  on or after  October 1, 2006.  The  Company is  assessing  the
      impact of this new standard on its consolidated financial statements.

RECONCILIATION TO UNITED STATES GAAP

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 U.S. GAAP are disclosed
below  in  accordance  with  the  provisions  of  the  Securities  and  Exchange
Commission.

      a)    Under  Canadian  GAAP,  the  conversion  feature on the  convertible
            debentures  is  valued  at  $181,510  and  has  been  classified  as
            contributed  surplus.  Under U.S. GAAP the conversion feature is not
            accounted  separately  and thus would not flow  through  contributed
            surplus. This transaction occurred in 2000.

      b)    Under Canadian GAAP, the exchange of convertible  debentures for new
            convertible  debentures and subsequent gain on settlement of the new
            convertible   debentures  were  valued  at  $284,803  and  has  been
            classified as contributed  surplus.  Under U.S. GAAP, the conversion
            and subsequent  settlement is not accounted for through  contributed
            surplus and would be recorded  through the  statement of  operations
            thus reducing the deficit. This transaction occurred in 2000.

      c)    Under  Canadian  GAAP,  the  Company's  preferred  shares  have been
            included  in  shareholders'  equity  as the  Company  considers  the
            likelihood  of  redemption  by the holders to be remote.  Under U.S.
            GAAP,  the preferred  shares would be classified as a liability.  In
            addition,  cumulative  dividends  are part of the  liability for the
            shares.


                                       46
<PAGE>

      d)    Financial   Accounting   Standards   Board  Statement  of  Financial
            Accounting Standards No. 130 "Reporting  Comprehensive Income" (SFAS
            130) requires the disclosure of comprehensive income, which includes
            reported net earnings adjusted for other comprehensive income. Other
            comprehensive  income  is  defined  as the  change  in  equity  of a
            business  enterprise  during a period  from  transactions  and other
            events and  circumstances  from non-owner  sources.  During 2005 and
            2004, there were no other comprehensive income.

December 31, 2005                                   CDN GAAP          U.S. GAAP
-----------------                                   --------          ---------
Convertible debentures                             1,519,290          1,700,800

Contributed surplus                                1,007,376            541,063

Deficit                                            8,075,447          7,790,644

Other liabilities                                          0            494,673

Capital stock                                     12,240,095         11,745,422

Interest Expense                                      50,832             95,836

December 31, 2004
-----------------
Convertible debentures                             1,519,290          1,700,800

Contributed surplus                                1,051,886            585,573

Deficit                                            7,797,034          7,512,354

Other liabilities                                          0            494,673

Capital stock                                     11,703,437         11,208,887

Interest Expense (recovered)                         (30,371)           (30,248)


                                       47
<PAGE>

Impact of Newly Issued United States Accounting Standards

i)    In December 2004, the Financial Accounting Standards Board ("FASB") issued
      SFAS No. 123 (revised), "Share-Based Payment," which establishes standards
      related to the accounting for  transactions  in which an entity  exchanges
      its equity  instruments for goods or services.  This revised standard also
      addresses  transactions in which an entity incurs  liabilities in exchange
      for goods or  services  that are based on the fair  value of the  entity's
      equity  instruments or that may be settled by the issuance of these equity
      instruments.  SFAS No. 123 (revised)  focuses  primarily on accounting for
      transactions in which an entity obtains  employee  services in share-based
      payment  transactions.  This standard requires a public entity measure the
      cost of employee  services  received  in  exchange  for an award of equity
      instruments  based on the grant-date fair value of the award and recognize
      the cost over the period  during  which an employee is required to provide
      service in  exchange  for the award.  In April  2005,  the SEC amended the
      effective  date to allow  companies  to  implement  this  standard  at the
      beginning of their next fiscal year beginning after June 15, 2005.  Devine
      believes  that  this  statement  will not have a  material  impact  on its
      consolidated statement of operations.

ii)   In May 2005, the FASB issued SFAS No. 154,  "Accounting  Changes and Error
      Corrections - a replacement  of APB Opinion No. 20 and FASB  Statement No.
      3." Under SFAS No. 154, changes in accounting principles will generally be
      made by the retrospective  application of the new accounting  principle to
      the  financial  statements of prior periods  unless it is  impractical  to
      determine  the effect of the change on prior  periods.  The reporting of a
      change in accounting principle as a cumulative adjustment to net income in
      the period of the change,  as was previously  permitted  under APB Opinion
      No. 20, will no longer be permitted  unless it is impractical to determine
      the effect of the change on prior  periods.  Correction of an error in the
      application  of  accounting  principles  will  continue  to be reported by
      retroactively restating the affected financial statements.  The provisions
      of SFAS No. 154 will not apply to new  accounting  standards  that contain
      specific transition  provisions.  SFAS No. 154 is applicable to accounting
      changes made in fiscal years  beginning on or after December 15, 2005. The
      Company does not expect SFAS No. 154 to have a material effect, if any, on
      its consolidated financial statements.

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


                                       48
<PAGE>

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.

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.


                                       49
<PAGE>

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.

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.


                                       50
<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 March 24, 2006 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: 35,353,508
Series 1 preferred shares issued and outstanding: 494,550
Options: 3,180,000 outstanding options to purchase 3,180,000 common shares
Warrants: 4,877,450 outstanding to purchase 4,877,450 common shares
Debentures:  1,519,290 convertible into 3,301,600 common shares


                                       51
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

                        DEVINE ENTERTAINMENT CORPORATION

                        CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 2005

                         (expressed in Canadian dollars)


                                       52
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                                DECEMBER 31, 2005

                                    CONTENTS

                                                                     PAGE

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM              I

CONSOLIDATED FINANCIAL STATEMENTS

      Balance Sheet                                                  55

      Statement of Shareholders' Equity                              56

      Statement of Operations                                        57

      Statement of Cash Flows                                        58

      Notes to Financial Statements                                  59-86


                                       53
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Shareholders of
DEVINE ENTERTAINMENT CORPORATION

We  have  audited  the  consolidated  balance  sheets  of  DEVINE  ENTERTAINMENT
CORPORATION as at December 31, 2005 and 2004 and the consolidated  statements of
shareholders'  equity,  operations  and cash flows for years ended  then.  These
consolidated  financial  statements  are  the  responsibility  of the  company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States) and with generally accepted auditing
standards in Canada.  Those standards  require that we plan and perform an audit
to obtain  reasonable  assurance  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 audits  provide a  reasonable  basis for our
opinion.

In our opinion,  these consolidated  financial statements present fairly, in all
material  respects,  the  consolidated  financial  position of the company as at
December  31,  2005 and 2004 and the  consolidated  results  of its  operations,
changes in its  shareholders'  equity and its cash flows for years then ended in
conformity with accounting principles generally accepted in Canada.

           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 February 24,
2006 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/ Kraft, Berger, Grill, Schwartz, Cohen & March LLP

                KRAFT, BERGER, GRILL, SCHWARTZ, COHEN & MARCH LLP
                              Chartered Accountants

Toronto, Ontario
February 24, 2006

<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                           CONSOLIDATED BALANCE SHEETS

                                DECEMBER 31, 2005
                         (expressed in Canadian dollars)

                                     ASSETS
                                                       2005             2004
                                                  ------------     ------------
Current
Cash                                              $    239,990     $    104,727
Accounts receivable                                    229,581          841,888
Inventory                                               88,140           26,013
Film tax credits receivable (Note 3)                        --          299,097
Prepaid and sundry assets                               26,312           42,066
                                                  ------------     ------------
                                                       584,023        1,313,791

Advances receivable (Note 4)                           494,550          494,550
Investment in film, television programs
  and recordings (Note 5)                            6,848,108        9,221,170
Deferred financing charges                                  --           36,123
Property and equipment (Note 6)                         23,872           31,727
                                                  ------------     ------------
                                                  $  7,950,553     $ 11,097,361
                                                  ============     ============

                                  LIABILITIES

Current
Accounts payable and accrued liabilities          $  1,259,239     $  1,041,147
Bank film production loan (Note 7)                          --          919,664
Current portion of Convertible
  Debentures (Note 8)                                1,519,290        1,519,290
Deferred revenue                                            --        2,658,971
                                                  ------------     ------------
                                                     2,778,529        6,139,072
                                                  ------------     ------------

                              SHAREHOLDERS' EQUITY

Capital stock (Note 14)                             12,240,095       11,703,437
Contributed surplus (Note 16)                        1,007,376        1,051,886
Deficit                                             (8,075,447)      (7,797,034)
                                                  ------------     ------------
                                                     5,172,024        4,958,289
                                                  ------------     ------------
                                                  $  7,950,553     $ 11,097,361
                                                  ============     ============

See accompanying notes to consolidated financial statements.

APPROVED ON BEHALF OF THE BOARD:

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


                                       55
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

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

<TABLE>
<CAPTION>
                                                                          Stock                          Contributed
                                   Common Shares           Warrants      Options       Preferred Shares    Surplus        Deficit
                              ------------------------    ----------    ----------    -----------------  -----------    -----------
                                   #            $             #             #            #         $          $             $
                                                                                                          (Note 16)
<S>                           <C>           <C>            <C>           <C>          <C>       <C>        <C>           <C>
BALANCE,
December 31, 2003             14,261,838     9,393,316       550,000            --         --        --      466,313    (12,095,951)

ISSUED
- on settlement
   of bank loans                 100,000        10,000            --            --         --        --           --             --
- on settlement
   of long-term
   debt                        2,042,054       204,205     1,830,000            --         --        --       18,300             --
- pursuant to
   private placement           1,100,000       121,000       866,616            --         --        --       99,000             --
- pursuant to
   private placement           5,160,000       464,400     2,580,000            --         --        --       51,600             --
- for cash consideration         100,000        10,000            --            --         --        --           --             --
- on settlement of
   advances from
   related parties             4,717,082       471,708            --            --         --        --           --             --
- on settlements of
   accounts payable and
   accruals                    4,022,918       461,569            --            --         --        --      371,823             --
- Less: share issuance
   costs                              --       (28,111)           --            --         --        --           --             --
- on conversion of
   warrants                      366,666        55,000      (366,666)           --         --        --      (55,000)            --
- issued to Devine
   Limited Partnership           380,450       351,800            --            --    494,550   494,550           --             --
- tax benefits utilized
   by limited
   partnership                        --      (306,000)           --            --         --        --           --             --
- on issuance of stock
   options                            --            --            --     3,440,000         --        --       99,850             --

NET INCOME                            --            --            --            --         --        --           --      4,298,917
                              -----------------------------------------------------------------------------------------------------

BALANCE,
December 31, 2004             32,251,008    11,208,887     5,459,950     3,440,000    494,550   494,550    1,051,886     (7,797,034)
- on conversion of
   warrants                    2,547,500       433,450    (2,547,500)           --         --        --      (50,950)            --
- on issuance of step
   up warrants                        --       (10,190)    2,547,500            --         --        --       10,190             --
- on exercise
   of stock options              125,000        16,250            --      (125,000)        --        --       (3,750)            --
- on settlement for
   services rendered
   and accounts payable          430,000        97,148            --            --         --        --           --             --
- expired
   options/warrants                   --            --      (582,500)     (135,000)        --        --           --             --
- dividend distribution                                                                                                     (45,004)
NET LOSS                                                                                                                   (233,409)
                              -----------------------------------------------------------------------------------------------------
BALANCE
December 31, 2005             35,353,508    11,745,545     4,877,450     3,180,000    494,550   494,550    1,007,376     (8,075,447)
                              =====================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       56
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS

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

                                                     2005              2004
                                                 ------------      ------------

REVENUE                                          $  4,019,745      $  3,809,235
                                                 ------------      ------------


EXPENSES (Income)
  Operating                                           851,018           701,996
  Amortization - film, television
                 programs and
                 recordings                         3,325,049         2,076,357
               - equipment                              7,855             7,955
  Stock-based compensation                             18,400            99,850
  Interest (recovered) (Note 9)                        50,832           (30,371)
  Write-down of investment in film,
    television programs and
    recordings (Note 5)                                    --         1,000,000
  Gain on settlement of debt (Note 10)                     --        (4,039,825)
                                                 ------------      ------------

                                                    4,253,154          (184,038)
                                                 ------------      ------------

INCOME (LOSS) BEFORE INCOME TAXES                    (233,409)        3,993,273

INCOME TAXES (RECOVERED) (Note 11)                         --          (305,644)
                                                 ------------      ------------

NET INCOME (LOSS) FOR THE YEAR                   $   (233,409)     $  4,298,917
                                                 ============      ============

EARNINGS PER COMMON SHARE (Note 15)

Basic                                            $      (0.01)     $       0.22
                                                 ============      ============

Fully Diluted                                    $      (0.01)     $       0.22
                                                 ============      ============

THE WEIGHTED AVERAGE SHARES

    -BASIC                                         34,649,419        19,223,507

    -FULLY DILUTED                                 34,649,419        19,365,367

See accompanying notes to consolidated financial statements.


                                       57
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

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

                                                         2005           2004
                                                     -----------    -----------
OPERATING ACTIVITIES
  Net income (loss) for the year                     $  (233,409)   $ 4,298,917
  Gain on settlement of debt                                  --     (4,039,825)
  Stock-based compensation                                18,400         99,850
  Amortization - film, television programs
                 and recordings                        3,325,049      2,076,357
               - property and equipment                    7,855          7,955
               - financing charges                        36,123         31,960
  Write-down of investment in film, television
    programs and recordings                                   --      1,000,000
  Change in non-cash components of working
    capital (Note 18)                                 (1,497,100)    (3,045,288)
                                                     -----------    -----------
                                                       1,656,918        429,926
                                                     -----------    -----------
FINANCING ACTIVITIES
  Decrease in bank loans                                (919,664)    (1,359,721)
  Decrease in long term debt                                  --       (445,000)
  Issuance of shares and warrants                             --        746,000
  Issuance of shares on conversion of warrants           382,500             --
  Issuance of shares on exercise of options               12,500             --
  Payment of share issuance costs                             --        (28,111)
  Funds received from Limited Partnership                     --        846,350
  Preferred share dividends paid                         (45,004)            --
                                                     -----------    -----------
                                                        (569,668)      (240,482)
                                                     -----------    -----------
INVESTING ACTIVITIES
  Investment in film, television programs
    and recordings                                      (951,987)      (314,998)
  Purchase of property and equipment                          --        (17,600)
  Increase in advances receivable                             --       (494,550)
                                                     -----------    -----------

                                                        (951,987)      (827,148)
                                                     -----------    -----------

CHANGE IN CASH                                           135,263       (637,704)

CASH, BEGINNING OF YEAR                                  104,727        742,431
                                                     -----------    -----------

CASH, END OF YEAR                                    $   239,990    $   104,727
                                                     ===========    ===========
SUPPLEMENTAL CASH FLOW INFORMATION

Interest paid                                        $    21,171    $    40,844
                                                     ===========    ===========
Income taxes paid                                    $        --    $       356
                                                     ===========    ===========

See accompanying notes to consolidated financial statements.


                                       58
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (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.

      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
      of 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.

      The Company has a significant working capital deficiency and its continued
      existence is dependent upon its ability to restore and maintain profitable
      operations and to successfully convert convertible  debentures,  which are
      currently in default.  Management  is in constant  communication  with the
      debenture  holders and expects that the Company will be able to settle the
      debentures in the normal course of operations.

      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.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      These consolidated  financial  statements have been prepared in accordance
      with accounting  principles generally accepted in Canada that conforms, in
      all material  respects,  with U.S. GAAP, except as described in Note 20 to
      the financial statements.

      (a)   Basis of Consolidation

            In October  2005 the  Company  amalgamated  its  operation  with its
            wholly owned subsidiaries.

            The December 31, 2005 consolidated  financial statements include the
            accounts of Devine Entertainment  Corporation with Variable Interest
            Entities  ("VIE").  The  December  31, 2004  consolidated  financial
            statements includes Devine Entertainment  Corporation and all of its
            wholly-owned subsidiaries and Variable Interest Entity.

      (b)   Inventory

            Inventory  consists of finished  goods and is stated at the lower of
            cost and net realizable value.


                                       59
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      (c)   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 SOP 00-2.
            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 and distribution fees is recognized when received. 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 collectibility of proceeds. Revenue from the
            sale of home videos and DVDs are recognized at the time of shipment.
            Amounts  received  and not  recognized  as revenue  are  recorded as
            deferred revenue.

      (d)   Investment in Film, Television Programs and Recordings

            Investment in film,  television  programs and  recordings  represent
            projects in progress and the unamortized  costs of film,  television
            programs and recordings,  net of anticipated  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. Under
            SOP 00-2  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.  Projects in progress are written off
            at the earlier of the date  determined not to be recoverable or when
            projects in progress are abandoned, and three years from the date of
            the initial investment.

            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 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.


                                       60
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      (e)   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%

      (f)   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 rates
            prevailing  at the  times of the  transactions.  The gains or losses
            resulting from these translations are reflected in the statements of
            operations.

      (g)   Government and Other Assistance

            The  Company  has access to  various  government  programs  that are
            designed  to  assist  film,   television   programs  and  recordings
            production and  distribution in Canada.  Effective  January 1, 2004,
            amounts receivable in respect of production  assistance are recorded
            as a  reduction  of  investment  in film  and  television  programs.
            Government  assistance  towards  current  expenses  is  included  in
            earnings.  Investment  tax  credits are  recorded as a reduction  to
            investment in film,  television  programs and  recordings,  when the
            ultimate collection of the credits are assured.

      (h)   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 and consultants with an exercise price
            equal to the fair  value of the  shares  at the date of  grant.  The
            Company   recognizes   compensation   expense  for  the  stock-based
            compensation  plan  when  stock  or  stock  options  are  issued  to
            employees.  Any consideration paid by employees on exercise of stock
            options or purchase of stock is credited to share capital.

            If  stock  or  stock  options  are  repurchased  from  employees  or
            consultants,  the excess of the consideration paid over the carrying
            amount of the stock or stock option cancelled is charged to retained
            earnings.


                                       61
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      (i)   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 income tax assets and  liabilities  for
            each temporary  difference based on the tax rates which are expected
            to be in effect when the underlying items of income and expenses are
            expected to be realized.  The effect of future income tax assets and
            liabilities  of a change in the tax rates is  included  in income in
            the period that the rate changes.

      (j)   Earnings Per Share

            Basic earnings per share is computed by dividing earnings  available
            to common  shareholders  by the  weighted  average  number of common
            shares  outstanding  during the year.  The treasury  stock method is
            used to calculate  diluted earnings per share.  Diluted earnings per
            share is  similar  to basic  earnings  per  share,  except  that the
            denominator is increased to include the number of additional  common
            shares that would have been  outstanding  assuming  that options and
            warrants  with an average  market  price for the year  greater  than
            their  exercise  price  are  exercised  and  the  proceeds  used  to
            repurchase common shares.

      (k)   Measurements Uncertainty

            The preparation of financial  statements in conformity with Canadian
            generally accepted accounting principles 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  sales,   amortization  of  Long-Lived   Assets,
            valuation of stock  compensation,  recoverability of tax credits and
            estimation  of future  income tax assets and  valuation  allowances.
            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.


                                       62
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      (l)   Impairment of Long-Lived Assets

            Long-Lived Assets, Including property and equipment,  Investments in
            Films,   Television   programs  and   recordings  are  reviewed  for
            impairment 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
            future undiscounted 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.

      (m)   Deferred revenue

            Sales of rights and  licences  related to projects  in progress  are
            recorded as deferred  revenue until revenue  recognition  parameters
            have been met.

      (n)   Deferred charges

            Deferred  financing fees are being amortized using the straight-line
            method over a five year period.

      (o)   Recent Accounting Pronouncements

                  (i)   In May 2005,  the FASB issued SFAS No. 154,  "Accounting
                        Changes and Error Corrections" ("SFAS No. 154), which is
                        providing  guidance on the accounting for, and reporting
                        of,  accounting  changes  and  error  corrections.  This
                        Statement   replaces  APB  Opinion  No.  20,  Accounting
                        Changes,  and FASB Statement No. 3, Reporting Accounting
                        Changes in Interim Financial Statements, and changes the
                        requirements  for the  accounting for and reporting of a
                        change in accounting  principle.  This Statement applies
                        to all  voluntary  changes in accounting  principle.  It
                        also  applies  to  changes  required  by  an  accounting
                        pronouncement   in  the   unusual   instance   that  the
                        pronouncement  does  not  include  specific   transition
                        provisions.   When  a  pronouncement  includes  specific
                        transition   provisions,   those  provisions  should  be
                        followed.  The  provisions  of SFAS 154 is effective for
                        accounting  changes and corrections of error made in the
                        period  beginning  after  December 31,  2005.  We do not
                        expect  the  adoption  of SFAS  154 to  have a  material
                        impact  on  our   financial   position   or  results  of
                        operations


                                       63
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

      (o)   Recent Accounting Pronouncements (Continued)

                  (ii)  Effective  December 1, 2004, the Company was required to
                        adopt the Canadian  Institute of Chartered  accountants'
                        (CICA) Accounting Guideline  15(AcG-15),  "Consolidation
                        of Variable Interest Entities" ("VIE").  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  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. In January 2003, the
                        FASB    issued    Interpretation    No.    ("FIN")   46,
                        "Consolidation of Variable Interest Entities",  which is
                        effective for financial  statements of public  companies
                        that have special  purpose  entities for periods  ending
                        after December 15, 2003 and for public companies without
                        special purpose  entities for periods ending after March
                        15,  2004.  Accordingly,  the Company has  included  the
                        results  of  operations  of  the  Devine   Entertainment
                        Limited   Partnership  (Note  13)  in  its  consolidated
                        operations.

                  (iv)  In January 2005, the CICA issued Handbook  Section 3855,
                        "Financial  Instruments - Recognition and  Measurement".
                        The section prescribes when a financial instrument is to
                        be  recognized  on the balance sheet and at what amount.
                        It also  specifies  how financial  instrument  gains and
                        losses are to be  presented.  This new standard  will be
                        effective  for interim and annual  financial  statements
                        relating to fiscal years  commencing on or after October
                        1, 2006. The Company is assessing the impact of this new
                        standard on its consolidated financial statements.

                  (v)   In January 2005, the CICA issued Handbook  Section 3865,
                        "Hedges". The Section provides alternative treatments to
                        Section  3855 for  entities  which  choose to  designate
                        qualifying   transactions   as  hedges  for   accounting
                        purposes.   It  replaces   and  expands  on   Accounting
                        Guideline  AcG-13  "Hedging   Relationships",   and  the
                        hedging  guidance  in  Section  1650  "Foreign  Currency
                        Translation"  by  specifying  how  hedge  accounting  is
                        applied and what  disclosures  are necessary  when it is
                        applied. This new standard will be effective for interim
                        and annual financial statements relating to fiscal years
                        commencing on or after  October 1, 2006.  The Company is
                        assessing  the  impact  of  this  new  standard  on  its
                        consolidated financial statements.


                                       64
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

      (o)   Recent Accounting Pronouncements (Continued)

                  (vi)  In January 2005, the CICA issued Handbook  Section 1530,
                        "Comprehensive  Income".  The section  introduces  a new
                        requirement  to  temporarily  present  certain gains and
                        losses  from  changes in fair value  outside net income,
                        but in a transparent  manner.  This new standard will be
                        effective  for interim and annual  financial  statements
                        relating to fiscal years  commencing on or after October
                        1, 2006. The Company is assessing the impact of this new
                        standard on its consolidated financial statements.

3.    FILM TAX CREDITS RECEIVABLE

      Tax credits  receivable are federal and provincial  refundable tax credits
      related to specific film 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, 2004, the Company had received a partial refund of $1,555,033
      from the federal and provincial government.  The provincial government has
      fully completed their review of the tax credit and a balance  amounting to
      $323,097 was received during the year ended December 31, 2005.

4.    ADVANCES RECEIVABLE

      Advances to an unrelated  company bears interest at 6.5% per annum and are
      due December 16, 2014. Note 18 (a).

5.    INVESTMENT IN FILM, TELEVISION PROGRAMS AND RECORDINGS

<TABLE>
<CAPTION>
                                                                           2005                           2004
                                                                           ----                           ----
                                                                       Accumulated
                                                          Cost         Amortization          Net           Net
                                                          ----         ------------          ---           ---

<S>                                                   <C>              <C>              <C>            <C>
      Completed television programs and recordings    $ 16,015,097     $ 14,292,054     $ 1,723,043    $ 3,096,399
      Completed Motion picture - Bailey's Billions       6,969,564        3,728,345       3,241,219      5,221,216
      Projects in progress                               1,883,846          --            1,883,846        903,555
                                                      ------------     ------------     -----------    -----------
                                                      $ 24,868,507     $ 18,020,399     $ 6,848,108    $ 9,221,170
                                                      ============     ============     ===========    ===========
</TABLE>

      Annually,  management  reviews the  estimate of total  remaining  ultimate
      revenue and the fair value of the  capitalized  film costs. As a result of
      the review,  the Company reduced the carrying value of its completed film,
      television programs and recordings by $NIL (2004 - $1,000,000).


                                       65
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

5.    INVESTMENT IN FILM, TELEVISION PROGRAMS AND RECORDINGS (Continued)

      The  Company  expects to amortize  approximately  $770,000  for  completed
      television programs and recordings costs and $353,000 for completed motion
      picture costs during the next fiscal year.

      The Company expects 100% of completed  television  programs and recordings
      and 70% of completed  motion  picture  costs will be amortized by December
      31, 2008.

      As at December 2011 over 80% of the completed motion picture costs will be
      amortized.

      The remaining  period of  amortization  for the completed  projects ranges
      from one to eight years at December 31, 2005.

6.    PROPERTY AND EQUIPMENT

                                                   2005                   2004
                                                   ----                   ----
                                               Accumulated
                                       Cost    Amortization      Net       Net
                                       ----    ------------      ---       ---

Computer and editing equipment      $177,922      $160,112     $17,810   $24,284
Furniture and fixtures                58,193        52,131       6,062     7,443
                                    --------      --------     -------   -------
                                    $236,115      $212,243     $23,872   $31,727
                                    ========      ========     =======   =======


                                       66
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

7.    BANK FILM PRODUCTION LOAN

      Term loan bearing  interest at a fluctuating        2005          2004
      per annum  rate equal to 1.25% plus the Base        ----          ----
      Rate  of the  Comerica  Bank,  repayable  on
      November  30,  2004,  secured  by a  general
      security agreement against all the assets of
      one of the 100% owned subsidiaries of Devine
      Entertainment  Corporation.  On December 10,
      2004 the loan was extended to April 4, 2005.
      This loan was used for the  financing of the     $       --   $   919,664
      motion picture "Bailey's Billion$". The loan     ==========   ===========
      was repaid on May 24, 2005.

      Interest  on the above  term loan and other  term  loans in 2004  totalled
      $18,423 (2004 - $63,313).

8.    CONVERTIBLE DEBENTURES

         Principal                                        2005          2004
         ---------                                        ----          ----
           Issued
         - February 1996 (i)                          $    75,000   $    75,000

      - December 2000 (ii)                                550,000       550,000
           - December 2000 (iii)                          835,800       835,800
           - Capitalized interest (iv)                    240,000       240,000
                                                      -----------   ------------

                                                        1,700,800     1,700,800
         Less - equity component                         (181,510)     (181,510)
                                                      -----------   ------------
                                                      $ 1,519,290   $ 1,519,290
                                                      ===========   ============

                  (i)   The   Company   issued   a  7.5%   $100,000   redeemable
                        convertible  subordinated  debenture  in February  1996.
                        This  debenture was to mature on December 31, 2000.  The
                        debenture was  convertible  at the holder's  option into
                        common  shares  at  any  time  prior  to  maturity  at a
                        conversion rate of $1.50 per share.

                        Management   renegotiated   repayment   terms   of  this
                        debenture  at an  increased  interest  rate of 10%.  The
                        principal  was  re-payable  in four  quarterly  payments
                        during  2001  of  $25,000  plus   interest.   The  first
                        instalment  was made in April 2001. The Company is still
                        in default on the second,  third and fourth instalments.
                        As at December 31, 2005,  there  remains an  outstanding
                        balance of $75,000  plus  $37,500  (December  31, 2004 -
                        $30,000)  in accrued  interest on this  debenture.  As a
                        result of the default,  the debenture is classified as a
                        current liability on the balance sheet. Management is in
                        constant communication with the debenture


                                       67
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

8.    CONVERTIBLE DEBENTURES (Continued)

                        holders  and expects  that the  Company  will be able to
                        settle  the   debentures   in  the   normal   course  of
                        operations.

                  (ii)  The  Company  issued  550,000  units of  debentures  and
                        warrants in  December  2000 for  $550,000  less costs of
                        $85,000 for net  proceeds  to the  Company of  $465,000.
                        Each  unit   consists  of  a  $1.00   debenture   and  1
                        immediately    separable    warrant.    The   redeemable
                        convertible  subordinated debentures matured on December
                        31,  2005,  bear  interest  at 10.5% per annum,  and are
                        payable semi-annually. The debentures are convertible at
                        the holders' option into common shares at any time prior
                        to maturity  on the basis of one common  share per $0.50
                        principal  amount  of  debenture.   The  debentures  are
                        subordinated  to  certain  senior  indebtedness  of  the
                        Company.  As at  December  31,  2005 the  Company  is in
                        default of an outstanding  balance of $165,463 (December
                        31,  2004 -  $107,713)  in  accrued  interest  on  these
                        debentures. As a result of the default, the debenture is
                        classified  as current  liability on the balance  sheet.
                        Management  is  in  constant   communication   with  the
                        debenture  holders and expects  that the Company will be
                        able to settle the  debentures  in the normal  course of
                        operations.

                  (iii) On December 19, 2000, the Company  obtained the approval
                        of the holders of the 7.5% debentures  issued  December,
                        1995 to: (i) extend the  maturity  date to December  31,
                        2002;  (ii)  reduce  the  conversion  rate to $0.50  per
                        common  share;  (iii)  increase  the  rate  of  interest
                        applicable to 10.5% per annum; (iv) issue to the holders
                        of the debentures  one warrant for each $1.00  principal
                        amount held by such  holder;  and (v) to secure the 7.5%
                        debentures  by way of a floating  charge over all of the
                        Company's   assets,   such   floating   charge   to   be
                        subordinated   to  all  existing   and  future   "Senior
                        Indebtedness"  and "Permitted  Encumbrances" and to rank
                        pari  passu  with  identical  security  to be granted to
                        holders  of  up  to  $1,000,000   principal   amount  of
                        convertible debentures issued by the Company on December
                        21, 2000.  The Company is in default on the repayment of
                        the debentures.  As at December 31, 2005,  there remains
                        an outstanding  balance of $249,328 (December 31, 2004 -
                        $161,569) in accrued interest on these debentures.  As a
                        result of the default,  the debenture is classified as a
                        current liability on the balance sheet. Management is in
                        constant  communication  with the debenture  holders and
                        expects  that the  Company  will be able to  settle  the
                        debentures in the normal course of operations.

                  (iv)  As part of the  settlement  of the  long-term  debt  the
                        Company has granted the same  conversion  privileges  to
                        $240,000   portion  of  the  interest   accrued  on  the
                        debentures described in notes 8(ii) and 8(iii) and as on
                        the related debentures. As at December 31, 2005 there is
                        an  outstanding  amount of $37,800  (December 31, 2004 -
                        $12,600)  in  accrued  interest.  As  a  result  of  the
                        default,   the   debenture  is   classified  as  current
                        liability  on  the  balance  sheet.   Management  is  in
                        constant  communication  with the debenture  holders and
                        expects  that the  Company  will be able to  settle  the
                        debentures in the normal course of operations.


                                       68
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

9.    INTEREST EXPENSE (RECOVERED)                        2005          2004
                                                       ----------    ----------

      Interest on convertible debentures               $  214,332    $  215,547
      Bank film production loan                            18,629        63,313
                                                       ----------    ----------
                                                          232,961       278,860
      Interest income                                     (39,208)      (20,562)
      Adjustment to prior period estimates                  --         (164,076)
                                                       ----------    ----------
                                                          193,753        94,222
      Less: amounts capitalized to projects              (142,921)     (124,593)
                                                       ----------    ----------
                                                       $   50,832    $  (30,371)
                                                       ==========    ===========

10.   GAIN ON SETTLEMENT OF DEBT

      During the year ended December 31, 2004, the Company  settled certain bank
      film production loans which resulted in an overall gain of $4,039,825.

11.   INCOME TAXES

                                                             2005        2004
                                                             ----        ----

      Current                                               $  --    $      356
      Future recovery                                       $  --      (306,000)
                                                            -----    -----------
                                                            $  --    $ (305,644)
                                                            =====    ===========

      (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.


                                       69
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

11.   INCOME TAXES (Continued)

                                                           2005          2004
                                                           ----          ----

      Income tax (recovery) based on combined
      Statutory income tax rates                        $ (85,000)  $ 1,442,000
      Expenses renounced to Variable Interest Entities    491,000       305,500
      Non-deductible items                                     --        17,356
      Recognition of tax benefits as a result of
      utilization of tax loss carryforward               (406,000)   (2,070,500)
                                                        ---------    ----------
                                                        $      --   $  (305,644)
                                                        =========   ===========

      (b)   Future tax assets

                                                          2005           2004
                                                          ----           ----

      Net operating loss carryforward                $ 2,805,000    $ 3,300,000
      Investment in film, television programs
      and recordings                                     295,000        120,000
                                                     -----------    -----------
                                                       3,100,000      3,420,000
                                                     -----------    -----------
      Valuation allowance                             (3,100,000)    (3,420,000)
                                                     -----------    -----------
      Net Future Tax Assets                          $        --    $       --
                                                     ===========    ===========

      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.

      The valuation  allowance was provided against the net future tax assets at
      December  31,  2005  and 2004 due to  uncertainties  as to their  ultimate
      realization.


                                       70
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

11.   INCOME TAXES (Continued)

            (c)   Tax Loss Carryforwards

                           2007                                          421,000
                           2008                                        3,105,000
                           2009                                        1,390,000
                           2010                                          950,000
                           2014                                        1,898,000
                                                                     -----------
                                                                     $ 7,764,000
                                                                     ===========

12.   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, accounts  receivable,  film tax credits
            receivable,  bank loans,  convertible  debenture  issued in February
            1996  (Note  8(i)  and  accounts  payable  and  accrued  liabilities
            approximate fair value due to their  short-term  maturity and normal
            credit terms.

            The carrying value of Advances  Receivable  approximates  their fair
            value because the interest rate is at market rate.

            The fair value of the convertible debentures issued in December 2000
            has been  estimated by first  calculating  the present  value of the
            liability  component  using a discount  factor and then assigning to
            the equity  component  the  difference  between the  proceeds of the
            debenture  and  the  fair  value  of the  liability  component.  The
            estimated  discount  factor used  approximated  the market  interest
            rates at  December  31,  2005 and 2004.  Accordingly,  the  carrying
            amounts of the convertible debentures approximate fair value.


                                       71
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

12.   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 DVDs.

      (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 actively 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 enter into  forward  exchange  contracts to mitigate
            the associated  risks.  On the Comerica bank loan there was a hedged
            rate of 1.3158  in which  the  Company's  Canadian  repayments  were
            exchanged at. There were no forward exchange  contracts  outstanding
            at December 31, 2005 and 2004.

13.   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:

                        2006                                   $ 27,000
                        2007                                     28,000
                        2008                                     29,000
                        2009                                     13,000
                                                               --------
                                                               $ 97,000

      (b)   The  Company  has  employment   agreements  with  various  principal
            officers and employees.  The  agreements  provide for minimum salary
            levels.

      (c)   The Company has entered  into  contractual  agreements  for creative
            talent related to future film production.

      (d)   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 up to 42%.  Subsequent to the priority  distribution,
            all the amounts would be distributed  pari passu in accordance  with
            the percentage ownership acquired.


                                       72
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

13.   COMMITMENTS AND CONTINGENCIES (Continued)

      (e)   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 $2,908,971.  Subsequent to the priority distribution,  all
            the amounts would be distributed in accordance  with the contractual
            agreements.

      (f)   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.

14.   CAPITAL STOCK

      (a)   Authorized

            An unlimited number of common shares and Class "A" shares
            494,550 of Series 1 preferred shares.

      (b)   Issued - common shares                          Number     $ Amount
                                                          ----------   ---------
            Balance, December 31, 2003                    14,261,838   9,393,316

            Common shares issued                          17,989,170   1,815,571
                                                          ----------   ---------

            Balance, December 31, 2004                    32,251,008  11,208,887

            Common shares issued for services rendered        80,000      18,400

            Common shares issued on conversion
            of warrants                                    2,547,500     423,260

            Common shares issued for settlement
            of payables                                      350,000      78,748

            Common shares issued on exercise
            of stock options                                 125,000      16,250
                                                          ----------   ---------

            Balance, December 31, 2005                    35,353,508  11,745,545
                                                          ==========  ==========


                                       73
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

14.   CAPITAL STOCK (Continued)

            (i)   In January 2005,  the Company  issued 80,000 common shares for
                  services rendered, valued at $18,400.

            (ii)  In February  2005, the Company issued 125,000 common shares to
                  employees  who  exercised   their  stock  options,   for  cash
                  consideration of $12,500.

            (iii) On or before April 7, 2005,  2,547,500 warrants were exercised
                  at a price  of  $0.15  per  unit  for  cash  consideration  of
                  $382,125.

            (iv)  In May of 2005,  the Company  issued  350,000 common shares to
                  settle accounts payable for professional fees in the amount of
                  $78,748

            (v)   On June 30, 2004, the Company  issued  1,100,000  units,  each
                  unit  consisting of 1 common share,  0.4545 a series A warrant
                  and 1/3 of a series B warrant at $0.20 per unit.

            (vi)  Each whole series A warrant is  exercisable  at any time until
                  June 30,  2006  into one  common  share at an  exercise  price
                  ranging  from $0.15 to $0.20 per common  share,  depending  on
                  trading price of shares.

            (vii) Each whole series B warrant shall be  automatically  exercised
                  on December 31, 2004 into one common  share for no  additional
                  consideration,  but shall  expire  unexercised  if the  volume
                  weighted average trading price of the common share is equal to
                  or  greater  than  $0.50  per  share  during a  period  of ten
                  consecutive  trading  days ending  prior to December 31, 2004.
                  These series B warrants  were  converted  into 366,666  common
                  shares on December 31, 2004, since the volume weighted average
                  trading  price of the  common  share was less  than  $0.50 per
                  shares  during  the  period of ten  consecutive  trading  days
                  ending prior to December 31, 2004.

            (viii) On April 7, 2004, the Company issued  5,160,000  units,  each
                  consisting of one common share and one-half  purchase  warrant
                  at $0.10 per unit. Corporations controlled by certain officers
                  subscribed for 1,000,000 of the above units.

            (ix)  Each  warrant  is  exercisable,  at any time prior to April 7,
                  2005,  to  acquire  one  common  share  and one  common  share
                  purchase warrant (a "step-up warrant") at an exercise price of
                  $0.15 per unit. Each step-up  warrant will be exercisable,  at
                  any time on or prior to April 7,  2006,  to  acquire  a common
                  share at an exercise price of $0.30.


                                       74
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

14.   CAPITAL STOCK (Continued)

            (x)   On June 29, 2004, the Company issued  2,042,054 common shares,
                  valued at $204,206 on the  settlement of long-term  debt (Note
                  10(b)).

            (xi)  On April 5, 2004,  the Company  issued  100,000 common shares,
                  valued at $10,000 as part of  settlement  of bank loans  (Note
                  9).

            (xii) On May 26, 2004 the Company  issued  100,000 common shares for
                  cash consideration of $10,000.

            (xiii) On  September   2004,   the  advances,   of  $471,708,   from
                  corporations controlled by certain officers were settled by an
                  issuance of  4,717,082  common  shares of the Company at $0.10
                  per share.

            (xiv) During  the year the  Company  settled  accounts  payable  and
                  accrued  liabilities  for  4,022,918  common shares for prices
                  ranging from $0.10 per share to $0.22 per share.

      (c)   Issued - Series 1 preferred shares                 Number   $ Amount
                                                               -------  --------
            Balance, December 31, 2004 and December 31, 2005   494,550   494,550
                                                               =======   =======

      The   Series   1   preferred    shares   are    non-voting,    cumulative,
      non-participating,  $1 redeemable and retractable The shares pay dividends
      at the rate of 9.1% per annum  payable in annual  instalments  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  dividends  totalling
      $45,004. As of December 31, 2005 and 2004 dividends in arrears amounted to
      $123.

      (d)   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 others
      options to purchase  common  shares at prices based on the market price of
      shares as determined on the date of grant.


                                       75
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

14.   CAPITAL STOCK (Continued)

      (c)   Stock Option Plan (Continued)

      The outstanding and exercisable stock options are as follows:

<TABLE>
<CAPTION>
                                                                                                             Weighted
                                                                                                              Average
                                                                          Number           Allocated         Exercise
            Outstanding and Exercisable                                 of Options           Value             Price
            ---------------------------------------------------------------------------------------------------------
<S>         <C>                                                         <C>                  <C>                <C>
            Balance, December 31, 2003                                   1,927,000             --               0.41
                Issued                                                   3,440,000           99,850             0.10
                Expired                                                   (570,000)            --               0.50
                Cancelled                                               (1,357,000)            --               0.37
                                                                         ---------           ------             ----

            Balance, December 31, 2004                                   3,440,000           99,850             0.10
                Exercised                                                 (125,000)          (3,750)            0.10
                Expired                                                   (135,000)             --              0.15
                                                                         ---------           ------             ----

            Balance, December 31, 2005                                   3,180,000           96,100             0.10
                                                                         =========           ======             ====
</TABLE>

            On June 25, 2004 the Company granted stock options as follows:

<TABLE>
<CAPTION>
                                                 Number      Exercise    Outstanding and    Weighted Average
            Expiry Date        Grant Date      of Options      Price        Exercisable       Remaining Life
            ---------------------------------------------------------------------------------------------------------
<S>         <C>               <C>               <C>              <C>          <C>                  <C>
            June 25, 2005     June 25, 2004       135,000        0.10             --                --
            June 25, 2006     June 25, 2004       180,000        0.10           180,000            0.50
            June 25, 2009     June 25, 2004     3,125,000        0.10         3,000,000            3.50
                                                ---------                     ---------            ----

                                                3,440,000                     3,180,000            3.34
                                                =========                     =========            ====
</TABLE>

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

<TABLE>
<CAPTION>
            Issue date                              June 25, 2004       June 25, 2004       June 25, 2004
<S>         <C>                                        <C>                 <C>                 <C>
            Number of options                          3,125,000           180,000             135,000
            Expected life                                5 years           2 years              1 year
            Price volatility                                 50%               50%                 50%
            Dividend yield                                    --                --                  --
            Risk-free interest rate of return                 5%                5%                  5%
            Amount recorded                              $93,750            $6,000                $100
</TABLE>

            The Company did not grant any options during the year ended December
            31, 2005.


                                       76
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollar)

14.   CAPITAL STOCK (Continued)

      (e)   Warrants

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

<TABLE>
<CAPTION>
            Outstanding and Exercisable                            of Warrants          Value              Price
            ----------------------------------------------------------------------------------------------------
<S>         <C>                                                     <C>                <C>           <C>
            Balance, December 31, 2003                                 550,000            --                0.50

              Issued on private placement                              499,950          44,000       0.15 - 0.20
              Issued on private placement                              366,666          55,000                --
              Issued pursuant to debt settlement                     1,830,000          18,300              0.50
              Issued on private placement                            2,580,000          51,600              0.15
              Converted to common shares                              (366,666)        (55,000)               --
                                                                     ---------          ------      ------------

            Balance, December 31, 2004                               5,459,950         113,900              0.37

               Converted to common shares                           (2,547,500)        (50,950)             0.15
               Issuance of step up warrants                          2,547,500          10,190              0.30
               Expired                                                (582,500)           --                0.48
                                                                     ---------          ------      ------------

                  Balance, December 31, 2005                         4,877,450          73,140      $       0.36
                                                                     =========          ======      ============
</TABLE>

            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>
April 7, 2005                    April 7, 2004        2,580,000           0.15                --                  --
December 31, 2005            December 31, 2000          550,000           0.50                --                  --
September 26, 2006               June 30, 2004          499,950           0.15 - 0.20        499,950             0.72
February 26, 2007                June 30, 2004        1,830,000           0.50             1,830,000             0.27
April 7, 2006                    April 7, 2005        2,547,500           0.30             2,547,500             1.17
                                                      ---------                            ---------             ----

                                                      8,007,450                            4,877,450             0.65
                                                      =========                            =========             ====
</TABLE>

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

<TABLE>
<CAPTION>
            Grant date                              April 7, 2004             June 30, 2004            June 30, 2004
<S>                                                     <C>                      <C>                    <C>
            Number of warrants                          2,580,000                 1,830,000             (i)  866,616
            Expected life                                  1 year                2.67 years                  2 years
            Price volatility                                  40%                       60%                      50%
            Dividend yield                                     --                        --                       --
            Risk-free interest rate of return                  5%                        5%                       5%

            Amount  recorded                              $51,600                   $18,300                  $99,000
</TABLE>

(i) Of the 866,616  warrants  issued 366,666 have been converted and 499,950 are
outstanding and exercisable.


                                       77
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

14.   CAPITAL STOCK (Continued)

      (e)   Warrants (Continued)

            The Company  granted  2,547,500 step up warrants on April 7, 2005 to
            holders of  previously  issued  warrants  upon  conversion to common
            shares.

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

            Grant date                              April 7, 2005
            Number of warrants                          2,547,500
            Expected life                                  1 year
            Price volatility                                  30%
            Dividend yield                                     --
            Risk-free interest rate of return                  5%

            Amount recorded                               $10,190

15.   EARNINGS PER COMMON SHARE

      (a)   Basic:  Earnings per share are calculated using the weighted average
            number of shares  outstanding  during each of the years presented in
            the  consolidated  financial  statements.  The following  table sets
            forth the weighted  average number of common shares  outstanding for
            each of those years.

<TABLE>
<CAPTION>
            Year                                                                                       Outstanding
            ----                                                                                       -----------
<S>         <C>                                                                    <C>                <C>
            2004                                                                                        32,251,008
            2005  (Note 14)                                                                             35,353,508

                                                                                           2005               2004
            Numerator:                                                             ------------       ------------
            ----------
            Net income (loss) as reported for basic EPS                            $   (233,409)      $  4,298,917
            Less: Preferred share dividends paid and in arrears                         (45,004)               123
                                                                                   ------------       ------------

            Net Income (Loss)                                                      $   (278,413)      $  4,298,794
                                                                                   ------------       ------------
            Denominator:
            ------------
            Weighted average shares for basic EPS                                    34,649,419         19,223,507
                                                                                   ============       ============

            Basic diluted Income (loss) per share                                  $      (0.01)      $       0.22
                                                                                   ------------       ------------
</TABLE>


                                       78
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

15.   EARNINGS PER COMMON SHARE (Continued)

      (b)   Fully  Diluted:  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,
            2005 and 2004 the assumed exercise of outstanding  stock options and
            warrants  would have a dilutive  effect on EPS. The following  table
            sets forth the weighted average number of common shares  outstanding
            for the  computation of dilutive EPS for each of the years presented
            in the consolidated financial statements.

<TABLE>
<CAPTION>
                                                                                            2005           2004
                                                                                   -------------   ------------
            Numerator:
            ----------
<S>         <C>                                                                    <C>             <C>
            Net income (loss) as reported for basic EPS                            $   (233,409)   $  4,298,917
            Less: Preferred share dividends paid and in arrears                         (45,004)            123
                                                                                   ------------    ------------

            Net Income (loss)                                                      $   (278,413)   $  4,298,794
                                                                                   ------------    ------------

            Denominator:
            ------------
            Weighted average shares for basic EPS                                    34,649,419      19,223,507
            Effect of dilutive securities:
                Stock options                                                                --         141,860

                Warrants                                                                     --              --
                                                                                   ------------    ------------
      Adjusted weighted average shares and assumed
            conversions for dilutive EPS                                             34,649,419      19,365,367
                                                                                   ============    ============

            Fully diluted income (loss) per share                                  $      (0.01)   $       0.22
                                                                                   ============    ============
</TABLE>

      (c)   Anti-dilutive:  Options to purchase  3,180,000 and nil common shares
            and warrants of 4,877,450 and 5,459,950 for the years ended December
            31,  2005  and  2004,   respectively,   were  not  included  in  the
            computation  of  diluted  earnings  per  share  because  of the loss
            position  in 2005 and the option and  warrant  exercise  prices were
            greater than the average market price of the common shares in 2004.

16.   CONTRIBUTED SURPLUS

      Balance, December 31, 2004                            $ 1,051,886
      Less:  Stock Options exercised                             (3,750)
      Less:  Warrants converted into common shares              (50,950)
      Add:    Step up warrants issued                            10,190
                                                            -----------
                                                            $ 1,007,376


                                       79
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

16.   CONTRIBUTED SURPLUS (Continued)                     2005           2004
                                                      -----------    -----------
      Settlement of debt instruments                  $   656,626    $   656,626
      Equity portion of long-term debt                    181,510        181,510
      Stock Options(Note 14(d))                            96,100         99,850
      Warrants (Note 14(e))                                73,140        113,900
                                                      -----------    -----------

                                                      $ 1,007,376    $ 1,051,886
                                                      ===========    ===========

      (a)   On September  30, 2004,  amounts due to  corporations  controlled by
            certain  officers,  in the  amount of  $280,325,  were  settled  for
            282,918  common shares of the Company at $0.10 per share.  The $0.10
            per share  cost was  determined  by using the  trading  value of the
            shares as of the date of  issuance.  A gain of $252,033 was recorded
            as contributed surplus.

      (b)   On September 30, 2004,  amounts due to a  corporation  controlled by
            certain  officers,  in the amount of $119,790,  were forgiven for no
            compensation.  This  forgiveness  has been  recorded as  contributed
            surplus

17.   RELATED PARTY TRANSACTIONS

      a.    On September 30, 2004, the advances, of $471,708,  from corporations
            controlled  by  certain  officers  were  settled by an  issuance  of
            4,717,082 common shares of the Company at $0.10 per share. The $0.10
            per share  cost was  determined  by using the  trading  value of the
            shares as of the date of issuance.  These advances were non-interest
            bearing and due on demand.

      b.    On September  30, 2004,  amounts due to  corporations  controlled by
            certain  officers,  in the  amount of  $280,325,  were  settled  for
            282,918 common shares of


                                       80
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

17.   RELATED PARTY TRANSACTIONS (Continued)

      c.    the  Company  at $0.10 per  share.  The  $0.10  per  share  cost was
            determined  by using the trading  value of the shares as of the date
            of issuance.  A gain of $252,033 was recorded as contributed surplus
            (Note 16).

      d.    During the year ended  December 31, 2005 $337,417  (2004 - $493,837)
            of fees were paid or accrued to  corporations  controlled  by two of
            the  directors  for  writing,   directing  and  producing  services.
            Additionally,  $Nil  (2004 -  $30,000)  were  paid (by  issuance  of
            300,000 common shares) to the same corporations for bridge financing
            provided in connection  with Bailey's  project.  These  transactions
            have  been  measured  at  exchange  amount,  which is the  amount of
            consideration  established  and agreed to by the related parties and
            which the  management  believes  reflect  prevailing  market  rates.
            Included in accounts payable and accrued liabilities at December 31,
            2005 was $32,477 (2004 - $Nil).

      e.    On September 30, 2004,  amounts due to a  corporation  controlled by
            certain  officers,  in the amount of $119,790,  were forgiven for no
            compensation.  This  forgiveness  has been  recorded as  contributed
            surplus (Note 16).

      f.    During the year ended December 31, 2004,  corporations controlled by
            certain officers subscribed for 1,000,000 units of the Company (Note
            14).

      In total,  during the year ended December 31, 2004,  related  parties were
      issued 6,300,000 common shares of the Company.

18.   VARIABLE INTEREST ENTITIES

      a) During the year ended  December  31, 2004,  the Company  entered into a
      services agreement with Devine Entertainment Limited Partnership ("DELP").
      Under the terms of the  agreement,  the DELP will incur certain  expenses,
      until December 31, 2004,  relating to the following  services  required in
      connection with the conduct of business of the Company:

            o     Labour, employment and all other "direct" services;

            o     Marketing services,  including production and placement of all
                  required advertising;

            o     The incurring of other operating expenses,  excluding payments
                  for the purchase of real property,

            o     Administrative services

            o     Certain  development  services required in connection with new
                  projects of the business


                                       81
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

18.   VARIABLE INTEREST ENTITIES (Continued)

      In return,  DELP is  entitled to royalty  payments  equal to 0.8% of gross
      revenue of the Company for  calendar  years from 2004 to 2014,  payable 60
      days after the  completion of each  calendar  year in connection  with the
      expenses incurred during such year.

      Under the terms of the services agreement, the 2004 DELP advanced $846,350
      to the Company for the 2004 services,  which was originally  accounted for
      as royalty interest  payable.  Included in the $846,350 was $494,550 which
      was  initially  loaned from the Company to an unrelated  company (Note 5),
      which subsequently loaned these funds to the limited partners.

      DELP was also  granted  the  right  and  option  to  exchange  its  rights
      (including the 2004 royalties)  under the services  agreement,  at anytime
      until December 31, 2004,  for 380,450 common shares and 494,550  preferred
      shares of the Company.

      On  December  22,  2004,  DELP  exercised  its right  under  the  services
      agreement and the royalty  interest  payable was  reclassified  to capital
      stock.

      b) During the first quarter of 2005,  the Company  entered into a services
      agreement with the QCF 2005 Limited  Partnership  ("QCF").,  which to date
      has not been finalized.  Under the terms of the agreement, the Partnership
      incurred  certain  expenses,  until  December  31,  2005,  relating to the
      following  services required in connection with the conduct of business of
      the Company.

            o     Labour, employment and all other "direct services;

            o     Marketing services,  including production and placement of all
                  required advertising;

            o     The incurring of other operating expenses,  excluding payments
                  for the purchase of real property,

            o     Administrative services;

            o     Certain  development  services required in connection with new
                  projects of the business

      In return,  QCF would be entitled to a royalty  equal to a  percentage  of
      gross  revenue of the Company in  connection  with the  expenses  incurred
      during such year.

      The accounts of these  variable  interest  entities  have been included in
      these consolidated financial statements of the Company.


                                       82
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

18.   VARIABLE INTEREST ENTITIES (Continued)

      c) In  December  2005,  The  Devine  Entertainment  Film  Library  Limited
      Partnership ("DEFLLP"),  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  for $6.8  million,  as  valued  by an  outside
      valuator. The Company has provided financing for the transaction,  and has
      entered  into a  financing  agreement  and will  enter  into a  management
      agreement with DEFLLP in order to manage the  exploitation  and expand the
      distribution  of the properties.  Under these  agreements the Company will
      receive management fees and interest revenue and the Company will maintain
      a call right for between a minimum of 70% and a maximum  100%  interest in
      the library  assets.  The accounts of this variable  interest  entity have
      been included in the consolidated financial statements of the Company.

19.   CHANGE IN NON-CASH WORKING CAPITAL AND SUPPLEMENTAL INFORMATION

                                                        2005           2004
                                                    ------------   ------------
      Accounts receivable                           $    612,307   $   (642,017)
      Film tax credits receivable                        299,097       (299,097)
      Inventory                                          (62,127)       (26,013)
      Prepaid and sundry assets                           15,754        125,629
      Accounts payable and accrued liabilities           296,840       (164,040)
      Deferred revenue                                (2,658,971)    (2,039,750)
                                                    ------------   ------------

                                                   $  (1,497,100)  $ (3,045,288)
                                                   =============   ============

The supplemental cash flow information are as follows:          2005      2004
                                                                ----      ----
  Non-cash transactions
     Settlement of long-term debt by share issuance           $    --   $204,206
     Accrued interest converted to long-term debt principal        --    240,000
     Settlement of accounts payable by share issuance          78,748    461,569
     Settlement of loans from related parties by
       share issuance                                              --    471,708


                                       83
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

20.   SEGMENTED INFORMATION

      The  Company  is  considered  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:

                                                          2005           2004
                                                       ---------      ---------
                                                            $              $
      Revenue
             Canada                                      446,000      2,768,000
             United States                               591,000        326,000
             United Kingdom                            2,659,000           --
             France                                       99,000        287,000
             Europe - Other                                --           305,000
             Other foreign                               225,000        123,000
                                                       ---------      ---------

                                                       4,020,000      3,809,000
                                                       =========      =========

21.   RECONCILIATION TO UNITED STATES GAAP

      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 U.S. GAAP
      are disclosed  below in accordance  with the  provisions of the Securities
      and Exchange Commission.

      (a)   Under  Canadian  GAAP,  the  conversion  feature on the  convertible
            debentures  (Note 8), is valued at $181,510 and had been  classified
            as contributed  surplus.  Under U.S. GAAP the conversion  feature is
            not accounted separately and thus would not flow through contributed
            surplus. This transaction occurred in 2000.

      (b)   Under Canadian GAAP, the exchange of convertible  debentures for new
            convertible  debentures and  subsequent  gain on settlement of a the
            new  convertible  debentures  were valued at  $284,803  and had been
            classified as  contributed  surplus.  Under U.S. GAAP the conversion
            and subsequent  settlement is not accounted for through  contributed
            surplus and would be recorded  through the  statement of  operations
            thus reducing the deficit. This transaction occurred in 2000.

      (c)   Under  Canadian  GAAP,  the  Company's  preferred  shares  have been
            included  in  shareholders'  equity as the  Company  considered  the
            likelihood  of  redemption  by the holders to be remote.  Under U.S.
            GAAP,  the preferred  shares would be classified as a liability.  In
            addition,  cumulative  dividends  are part of the  liability for the
            shares.



                                       84
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

21.   RECONCILIATION TO UNITED STATES GAAP (Continued)

      (d)   Financial   Accounting   Standards   Board  Statement  of  Financial
            Accounting Standards No. 130 "Reporting  Comprehensive Income" (SFAS
            130) requires the disclosure of comprehensive income, which includes
            reported net earnings adjusted for other comprehensive income. Other
            comprehensive  income  is  defined  as the  change  in  equity  of a
            business  enterprise  during a period  from  transactions  and other
            events and  circumstances  from non-owner  sources.  During 2005 and
            2004, there were no other comprehensive income.

            December 31, 2005                        CDN GAAP        U.S. GAAP
            -----------------                        --------        ---------

            Convertible Debentures                   1,519,290       1,700,800

            Contributed Surplus                      1,007,376         541,063

            Deficit                                  8,075,447       7,790,644

            Other liabilities                                0         494,673

            Capital stock                           12,240,095      11,745,422

            Interest expense                            50,832          95,836

            December 31, 2004
            -----------------

            Convertible Debentures                   1,519,290       1,700,800

            Contributed Surplus                      1,051,886         585,573

            Deficit                                  7,797,034       7,512,231

            Other liabilities                                0         494,673

            Capital stock                           11,703,437      11,208,764

            Interest expense                           (30,371)        (30,248)

Impact of Newly Issued United States Accounting Standards

            (ii)  Effective  January 1, 2006,  the  Company  will adopt a recent
                  accounting pronouncement of the Financial Accounting Standards
                  Board ("FASB"),  SFAS No. 123R,  "Share-Based Payments" ("SFAS
                  123R"),  which  requires  companies  to measure and  recognize
                  compensation  expenses for all share based  payments at a fair
                  value.  The Company  does not expect the adoption of SFAS 123R
                  to  have  a  material  impact  on its  consolidated  financial
                  statements.


                                       85
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2005 AND 2004
                         (expressed in Canadian dollars)

21.   RECONCILIATION TO UNITED STATES GAAP (Continued)

      (ii)  In May 2005, the FASB issued SFAS No. 154,  "Accounting  Changes and
            Error  Corrections  - a  replacement  of APB Opinion No. 20 and FASB
            Statement  No.  3."  Under  SFAS  No.  154,  changes  in  accounting
            principles will generally be made by the  retrospective  application
            of the new accounting principle to the financial statements of prior
            periods  unless it is  impractical  to  determine  the effect of the
            change on prior  periods.  The  reporting of a change in  accounting
            principle as a cumulative  adjustment to net income in the period of
            the change,  as was previously  permitted  under APB Opinion No. 20,
            will no longer be permitted  unless it is  impractical  to determine
            the effect of the change on prior periods. Correction of an error in
            the  application  of  accounting  principles  will  continue  to  be
            reported  by   retroactively   restating   the  affected   financial
            statements.  The  provisions  of SFAS No.  154 will not apply to new
            accounting  standards that contain specific  transition  provisions.
            SFAS No. 154 is  applicable  to  accounting  changes  made in fiscal
            years  beginning on or after December 15, 2005. The Company does not
            expect  SFAS  No.  154 to have a  material  effect,  if any,  on its
            consolidated financial statements.

22.   COMPARATIVE FIGURES

      Certain of the comparative  figures have been reclassified to conform with
      the current year's presentation.

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

      None.

ITEM 8A. CONTROLS AND PROCEDURES

      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 concluded  (based upon their evaluation of these controls and procedures as
of a date within 90 days of filing of this report) that the Company's disclosure
controls and procedures are effective to ensure that information  required to be
disclosed by the Company in this report is accumulated  and  communicated to the
Company's management, including its Certifying Officers as appropriate, to allow
timely decisions  regarding required  disclosure.  The Certifying  Officers also
have indicated that there were no significant  changes in the Company's internal
controls  or  other  factors  that  could  significantly  affect  such  controls
subsequent


                                       86
<PAGE>

to the date of their  evaluation,  and there  were no  corrective  actions  with
regard to significant deficiencies and material weaknesses.

                                    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                    53       Director, Chairman of the Board,
                                         President and Chief Executive
                                         Officer

Richard Mozer (1)               47       Director, Vice-Chairman of the
                                         Board, Chief Financial Officer,
                                         Treasurer and Secretary

Kenneth D. Taylor (2)           70       Director

Bryson Farrill (1) (2)          76       Director

Ron Feddersen (1) (2)           61       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 five years.


                                       87
<PAGE>

      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 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


                                       88
<PAGE>

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 "OBCA"),  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.

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.


                                       89
<PAGE>

      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.

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."


                                       90
<PAGE>

Summary Compensation Table

      The following table sets forth all compensation  earned during each of the
last three fiscal years ended December 31, 2005 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,                2005            ___          ___         195,150               $    --
Chairman, President          2004            ___          ___         271,610                1,000,000
& Chief Executive            2003            ___          ___         356,952                  460,000
Officer
-----------------------------------------------------------------------------------------------------------

<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,               2005            ___          ___         166,170               $    --
Vice-Chairman,               2004            ___          ___         222,226                1,000,000
Chief Financial              2003            ___          ___         273,582                  460,000
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.


                                       91
<PAGE>

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, 2007.
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. 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  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


                                       92
<PAGE>

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.

      A total of 4,500,000  Common Shares were  reserved for issuance  under the
Option  Plan.  As at March 24,  2006,  the number of Common  Shares which remain
available for issuance  under the Option Plan is 4,250,000,  of which  3,180,000
are subject to currently outstanding options.

Option Grants in Last Fiscal Year

      The  Company  did not grant  any  options  to  purchase  Common  Shares to
Executive Officers during the fiscal year ended December 31, 2005.

      The following table sets forth  information  regarding options to purchase
Common Shares  granted during the fiscal year ended December 31, 2004 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>


                                       93
<PAGE>

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, 2005.

      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, 2005.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
      Name              Securities         Value            Unexercised           Value of Unexercised
                       Acquired on       Realized           Options at           In-the-Money Options at
                       Exercise (#)                       December 31, 2005        December 31,  2005
                                                                (#)

                                                             Exercisable/               Exercisable/
                                                            Unexercisable              Unexercisable
--------------------------------------------------------------------------------------------------------
<S>                         <C>              <C>              <C>                         <C>
David Devine               -0-               $0               1,000,000                   $20,000
--------------------------------------------------------------------------------------------------------

Richard Mozer              -0-               $0               1,000,000                   $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, 2006,  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.

      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.

      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."


                                       94
<PAGE>

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 $22,572  (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.

ITEM  11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The  following  table  sets  forth,  as  at  February  1,  2006,   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.                3,570,000(2)               9.7%
6, Place Chevelu
1211 Geneva 1
Switzerland

David Devine                      6,920,545(3)               19.1%

Richard Mozer                     6,433,945(4)               17.7%


                                       95
<PAGE>

Kenneth D. Taylor                 150,000(5)              Less than 1%

Bryson Farrill                    160,000(6)              Less than 1%

Ron Feddersen                     250,000(7)              Less than 1%

All directors and executive       13,905,490                 36.4%
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  warrant to purchase  50,000  Common Shares and warrant to purchase
1,830,000 Common Shares.  See "Description of Securities -- 10.5% Debentures and
10.5% Debenture Warrants" and "Recent Sales of Unregistered Securities."

(3) Includes option to purchase  1,000,000 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  1,000,000 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   150,000  Common  Shares.   See  "Executive
Compensation -- Compensation of Directors."

(6)  Includes  option  to  purchase   150,000  Common  Shares.   See  "Executive
Compensation -- Compensation of Directors."

(7)  Includes  option  to  purchase   250,000  Common  Shares.   See  "Executive
Compensation -- Compensation of Directors."


                                       96
<PAGE>

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."

      Effective  April 7, 2004, the Company sold  5,160,000  units at a price of
$0.10 per unit for aggregate gross proceeds of $516,000.  Each unit consisted of
(i) one Common Share and (ii) one-half Common Share purchase  warrant.  In order
to facilitate the sale of the aforesaid units, Messrs. Devine and Mozer, each of
whom is a director and an executive officer of the Company, sold an aggregate of
554,000  Common  Shares  at a price of $0.10 per and used the  proceeds  of such
sale, in part, to purchase 500,000 such units. See "Recent Sales of Unregistered
Securities."

      During the third quarter of 2004,  the Company  completed  settlements  of
past debt,  previously agreed to production financing fees and fees for services
from financial advisors, with the issuance of a total of 8,740,000 Common Shares
at $933,271. As a result,  approximately $1.4 million of the Company's payables,
accrued liabilities and current expenses were settled.  The settlements included
the issuance of 6,000,000 Common Shares to David Devine and Richard Mozer,  each
a director and executive  officer of the Company,  to satisfy  previous loans to
the Company and unpaid fees for services  from 2001 through the end of the third
quarter of 2004.

      During 2004,  the Company  issued 150,000 Common Shares to each of Messrs.
Devine and Mozer in  consideration  for the provision of bridge  financing.  See
"Recent Sales of Unregistered Securities."

      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.


                                       97
<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

a.) Exhibits

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

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

--------------------------------------------------------------------------------
  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.


                                       98
<PAGE>

b.) Reports on Form 8-K

      No reports  were  filed on Form 8-K during the last  quarter of the fiscal
year.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Summary  of Kraft,  Berger,  Grill,  Schwartz,  Cohen and March  LLP,  Chartered
Accountants for Professional Services Rendered

                                             Years Ended December 31,
                                             ------------------------
                                               2005             2004
                                             ---------         ------
Audit Fees (1)                                $129,300         63,500
Audit-Related Fees                               2,940         16,500
Tax Fees                                            --          8,000
All Other Fees
                                               132,240         88,000
                                               =======         ======

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, 2005 and 2004, 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.


                                       99
<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 24, 2006

      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            March 24, 2006
                       President and Chief Executive Officer

/s/ Richard Mozer      Director, Vice-Chairman of the             March 24, 2006
                       Board, Chief Financial Officer,
                       Treasurer and Secretary

/s/ Kenneth D. Taylor  Director                                   March 24, 2006

/s/ Bryson Farrill     Director                                   March 24, 2006

/s/ Ron Feddersen      Director                                   March 24, 2006


                                      100