UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                 AMENDMENT NO. 1
                                 TO FORM 10-KSB

(Mark One)

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

      For the fiscal year ended December 31, 2007

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

 For the transition period from______________________ to _______________________
 Commission file number_________________________________________________________

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

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

                          Suite 504, 2 Berkeley Street,
                        Toronto, Ontario, Canada, M5A 2W3
                                 (416) 364-2282
              (Address and telephone number of principal executive
                    offices and principal place of business)

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

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

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

                                  Common Shares
                                (Title of Class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|

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

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

      Yes |_| No |X|

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

As of April 11,  2008,  the  aggregate  market value of the voting stock held by
non-affiliates,  computed by  reference  to the average of the bid and ask price
shown on the NASD OTCBB was $4,411,620 CDN.

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

<PAGE>

The Annual  Report of Devine  Entertainment  Corporation  on Form 10-KSB for the
year ended December 31, 2007 is hereby amended as follows:

      1.    Page 1 after "the average of the bid and ask price shown on the NASD
            OTCBB was  $4,610,208" is hereby  amended by replacing  "$4,610,208"
            with "$4,411,620".

      2.    Page 28 - in the first bullet  point under the heading  "Fiscal 2007
            Highlights",  the first  sentence  is hereby  amended  by  replacing
            "5,720,618" with "$5,720,628".

      3.    Page 28 - the first sentence under the heading "Revenues", is hereby
            amended by replacing "5,720,618" with "$5,720,628".

      4.    Page 29 - the first sentence under the heading "Loss per share",  is
            hereby amended by replacing  "$2,001,043"  with  "$1,976,469" and by
            replacing "$547,510" with "$572,084".

      5.    Page 29 - the first column under the heading  "Net Loss,  2007",  is
            hereby amended by replacing "$547,510" with "$572,084".

      6.    Page  29 - the  first  sentence  under  the  heading  "Shareholders'
            Equity", is hereby amended by replacing  "$426,039" with "$381,104",
            by  replacing   "$3,211,526"  with  "$2,886,309"  and  by  replacing
            "$2,784,587" with "$2,505,205".

      7.    Page 36 - the last line under the heading  "Summary  of  Restatement
            Adjustments",  para (d), is hereby amended by replacing  "statement"
            with "statements".

      8.    Page 38 - the first column under the heading "Restated  Consolidated
            Statement...,  2006 As Reported",  "Interest (recovery)",  is hereby
            amended by replacing "36,865" with "36,864".

      9.    Page 38 - the fourth column under the heading "Restated Consolidated
            Statement...,  2006 As Restated",  "Interest (recovery)",  is hereby
            amended by replacing "51,557" with "51,556".

      10.   Page  53  -  the  first  line  of  paragraph  3  under  the  heading
            "Restatement  of  Previously  Reported  Canadian  GAAP  and US  GAAP
            Reconciliation",  is hereby  amended  by adding  "mezzanine"  to the
            phrase "classified as mezzanine equity".
            This reflects the same wording as in the  description  in Note 23 c)
            on page 99.

      11.   Page 61 - the page has been  amended by deleting  the address at the
            top of the page.

<PAGE>

      12.   Page 62 - the page has been  amended by deleting  the address at the
            top of the page.

      13.   Page  62  -  The  phrase  in  parenthesis  "(following  the  opinion
            paragraph)"  in the first  sentence  under the heading  "Comments by
            Independent Chartered Accountant..." has been deleted.

      14.   Page  62 - the  second  sentence  under  the  heading  "Comments  by
            Independent Chartered  Accountant..." has been amended by replacing"
            Our report to the Board of Directors and  Shareholders,  dated April
            11,  2008,  is  expressed  in  accordance  with  Canadian  reporting
            standards  which do not  require  a  reference  to such  changes  in
            accounting  principles in the auditors'  report when the changes are
            properly  accounted  for and  adequately  disclosed in the financial
            statements."  with  "Although we conducted  our audit in  accordance
            with both Canadian  generally  accepted  auditing  standards and the
            standards of the Public Company  Accounting  Oversight Board (United
            States), our report to the Board of Directors and Shareholders dated
            April 11, 2008 is expressed in accordance  with  Canadian  reporting
            standards  which do not permit a reference  to such  conditions  and
            events in the auditors'  report when these are adequately  disclosed
            in the financial statements."

      15.   Page 62 - the third  signature  line under the heading  "Comments by
            Independent  Chartered  Accountant..." has been amended by replacing
            "Pubic" with "Public".

      16.   Page 63 - the page has been  amended by deleting  the address at the
            top of the page.

      17.   Page  63 - under  the  heading  "Report  of  Independent  Registered
            Chartered   Accountants"  an  amendment  has  been  made  by  adding
            paragraph  4 "As  described  in  Notes 2 and 23 to the  consolidated
            financial  statements,   the  accompanying   consolidated  financial
            statements  of the Company as at December  31, 2006 and for the year
            then ended have been  restated.  We  therefore  amended our previous
            report dated March 26, 2007 on those financial  statements  based on
            our audit of the effect of the restatement to the Company's restated
            financial  statements  as of  December  31,  2006 for the year  then
            ended."

      18.   Page 63 - under the heading  "Comments  on Auditors on U.S. - Canada
            Reporting  Difference",  line 5, an  amendment  has been made  after
            "dated  March  26,  2007"  by  adding  "except  for  the  effect  of
            restatements  described  in Notes 2 and 23,  which  as of April  11,
            2008".

      19.   Page 64 - the second column under the heading "Assets, 2006 Restated
            (Note 2)", "(total)", has been amended by replacing  "$(12,657,678)"
            with "$12,657,678".

      20.   Page 65 - the description column, the line above "Net Loss" has been
            amended   by   replacing   "Subscription    receivable   net"   with
            "Subscription receivable, net".

<PAGE>

      21.   Page  70 - under  the  heading  "Restatement  of  Previously  Issued
            Financial  Statement  (continued)"  an  amendment  has been  made by
            adding a  sentence  to the end of  paragraph  2 (d);  "In  addition,
            proceeds  from  financing  and  subscriptions  receivable  have been
            grouped together in the statements of cash flows."

      22.   Page 72 - the first column under the heading "Restated  Consolidated
            Statement...,  2006 As Reported",  "Interest (recovery)",  is hereby
            amended by replacing "36,865" with "36,864".

      23.   Page 72 - the fourth column under the heading "Restated Consolidated
            Statement...,  2006 As Restated",  "Interest (recovery)",  is hereby
            amended by replacing "51,557" with "51,556".

      24.   Page 82 - the  second  sentence  under  the  heading  "Subscriptions
            Receivable",  is hereby amended by replacing "175,097 - see Note 2)"
            with "$175,097 (see Note 2)".

      25.   Page 96 - the first column under the heading "Numerator:  Net loss",
            is hereby amended by replacing "$(547,510)" with "(572,084)".

      26.   Page  97 -  the  third  sentence  under  the  heading  "20.  Limited
            Partnership Financing", is hereby amended by deleting "$171,520".

      27.   Page 99 - the second  column  under the heading  "For the Year Ended
            December  31,  2006  (restated)",  is hereby  amended  by  replacing
            "$(2,503,529)" with "$(2,503,549)".

      28.   Page  100  -  the  first  and  second   columns  under  the  heading
            "Liabilities:  Preferred  shares  (Note  B)",  have been  amended by
            replacing   "$(494,550)"  and  "$(494,550)"   with  "(494,550)"  and
            "(494,550)".

      29.   Page  100  -  the  first  and  second   columns  under  the  heading
            "Liabilities:  Liabilities  in accordance  with US GAAP",  have been
            amended by replacing  "5,111,378" and "9,657,923" with  "$5,111,378"
            and "$9,657,923".

      30.   Page  100  -  the  first  and  second   columns  under  the  heading
            "Shareholders'  Equity:  Equity in accordance  with Canadian  GAAP",
            have been  amended by replacing  "2,886,309"  and  "2,505,205"  with
            "$2,886,309" and "$2,505,205".

      31.   Page  100  -  the  first  and  second   columns  under  the  heading
            "Shareholders' Equity: Equity in accordance with US GAAP", have been
            amended by replacing  "3,380,859" and "2,999,755  with  "$3,380,859"
            and "$2,999,755".

      32.   Page 103 - the "s" at the end of "years"  and the  ",2005,  2004 and
            2003" in the first  sentence  in the first  paragraph  under Item 8.
            CHANGES IN AND

<PAGE>

            DISAGREEMENTS   WITH   ACCOUNTANTS   ON  ACCOUNTING   AND  FINANCIAL
            DISCLOSURE have been deleted to reflect that Mintz and partners were
            the Company's auditors only in 2006.

      33.   Page 105 - the  second  sentence  in the third  paragraph  under the
            heading  "Disclosure  Controls and  Procedures"  has been amended by
            replacing  "to be  able  to  comply  in a  timely  manner  with  the
            requirements  of Canadian and US accounting  changes and  disclosure
            requirements"   with  "ensure   compliance  with  the   measurement,
            recognition and disclosure  requirements  under Canadian and US GAAP
            to certain transactions".

      34.   Page 115 - the first and second  columns under the heading of "Title
            of Class - Common  Shares",  "David  Devine",  have been  amended by
            replacing "7,120,545 (3)" and "16%" with "8,620,545 (3)" and "19%".

      35.   Page 115 - the first and second  columns under the heading of "Title
            of Class - Common  Shares",  "Richard  Mozer",  have been amended by
            replacing  "6,633,945  (4)" and  "14.4%"  with  "8,133,945  (4)" and
            "18%".

      36.   Page 115 - the first and second  columns under the heading of "Title
            of Class - Common Shares",  "Bryson  Farrill",  have been amended by
            replacing "287,750 (6)" with "278,750 (6)".

      37.   Page 115 - the first and second  columns under the heading of "Title
            of Class - Common Shares",  "All directors and executive officers (5
            individuals)", have been amended by replacing "14,698,740" and "32%"
            with "17,689,740" and "39%".

      38.   Page 116 - the  table  in item 11 under  the  heading  of  "Security
            Ownership of Certain Beneficial Owners and Management",  "note (3)",
            has been amended by replacing "250,000" with "1,000,000".

      39.   Page 116 - the  table  in item 11 under  the  heading  of  "Security
            Ownership of Certain Beneficial Owners and Management",  "note (4)",
            has been amended by replacing "250,000" with "1,000,000"

<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                        CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 2007

                         (expressed in Canadian dollars)

                                    CONTENTS

                                                                         PAGE

Report of Independent Registered Public Accounting Firm                 61 - 63

Consolidated Balance Sheets                                                64

Consolidated Statements of Shareholders' Equity                            65

Consolidated Statements of Operations and Comprehensive Loss               66

Consolidated Statements of Cash Flows                                      67

Notes to Consolidated Financial Statements                              68 - 102


                                       60
<PAGE>

[LOGO] Deloitte

             Report of Independent Registered Chartered Accountants

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

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

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

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

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

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

/s/ Deloitte & Touche LLP

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


                                       61
<PAGE>

[LOGO] Deloitte

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

The standards of the Public Company  Accounting  Oversight Board (United States)
require the addition of an explanatory  paragraph when the financial  statements
are  affected  by  conditions  and  events  that cast  substantial  doubt on the
Company's  ability to continue as a going  concern,  such as those  described in
Note 1 to the consolidated financial statements. Although we conducted our audit
in accordance with both Canadian  generally  accepted auditing standards and the
standards of the Public Company Accounting  Oversight Board (United States), our
report  to the Board of  Directors  and  Shareholders  dated  April 11,  2008 is
expressed in accordance with Canadian reporting  standards which do not permit a
reference to such  conditions and events in the auditors'  report when these are
adequately disclosed in the financial statements.

/s/ Deloitte & Touche LLP

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

                                               Member of
                                               Deloitte Touche Tohmatsu


                                       62
<PAGE>

[LOGO] Mintz & Partners LLP

             Report of Independent Registered Chartered Accountants

To the Board of Directors and Shareholders of

Devine Entertainment Corporation.

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

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

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

As described in Notes 2 and 23 to the  consolidated  financial  statements,  the
accompanying consolidated financial statements of the Company as at December 31,
2006 and for the year then ended have been  restated.  We therefore  amended our
previous report dated March 26, 2007 on those financial  statements based on our
audit of the  effect of the  restatement  to the  Company's  restated  financial
statements as of December 31, 2006 for the year then ended.

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

In Canada,  reporting  standards  for  auditors do not permit the addition of an
explanatory  paragraph when the financial  statements  account for, disclose and
present in accordance with generally accepted accounting  principles  conditions
and events that cast substantial doubt on the company's ability to continue as a
going concern.  Although our audit was conducted in accordance  with both Public
Company  Accounting  Oversight  Board  (United  States) and  Canadian  generally
accepted auditing standards, our report to the shareholders dated March 26, 2007
except for the effect of restatements  described  in Notes 2 and 23, which as of
April 11, 2008, 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.

                                    Mintz & Partners LLP

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


                                       63
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                           CONSOLIDATED BALANCE SHEETS

                                DECEMBER 31, 2007
                         (expressed in Canadian dollars)

<TABLE>
<CAPTION>
                                     ASSETS

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

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


                                                                                                  5,605,928              10,152,473
                                                                                               ------------            ------------

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

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

                                                                                               $  8,492,237            $ 12,657,678
                                                                                               ============            ============
</TABLE>

See accompanying notes to consolidated financial statements.

APPROVED ON BEHALF OF THE BOARD:

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


                                       64
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

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

<TABLE>
<CAPTION>
                                                                                                    Stock   Contributed
                                      Common Shares       Preferred Shares        Warrants         Options    Surplus     Deficit
                                 ----------------------  ------------------  -------------------  ---------  ---------  -----------
                                      #           $          #         $          #         $         #          $          $
                                                                                                             (Note 18)
------------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>         <C>          <C>       <C>       <C>        <C>      <C>        <C>         <C>
BALANCE, as previously reported
January 1, 2006                  35,353,508  11,745,545   494,550   494,550   4,877,450           3,180,000  1,007,376   (8,075,447)
Restatement (Note 2) reallocate
warrants from contributed
surplus                                  --          --        --                    --  199,046         --   (199,046)
Effect of reclassification of
preferred shares (Note 2)                                (494,550) (494,550)
Effect of restated loans
payable (Note 2)                                                                                                           (181,510)
                                 ---------------------------------------------------------------------------------------------------
BALANCE, as restated
January 1, 2006                  35,353,508  11,745,545        --        --   4,877,450  199,046  3,180,000    808,330   (8,256,957)
-issuance of stock options
    (Note 16c)                                                                                    1,090,000     31,185
-Modification of warrants
   (Note 2 c)                                                                            110,512              (110,512)
-shares issued on settlement
   for services rendered and
   accounts  payable (Note 16
   b, v, vii, viii & 16 c)          551,860      74,904
-issuance of private placement
   (Note 16 b iv) and effect
   of  fair value of warrants
   (Note 2)                       3,383,331     444,557                       1,691,666   62,943
-exercise of stock options
   (Note 16 b vi)                    25,000       3,000                                             (25,000)      (500)
-expired warrants (Note 16)                                                    (499,950) (36,957)               36,957
-proceeds from financings
   (Note 18 & 20)                                                                                              249,098
Subscription receivable
(Note 6)                                                                                                      (307,393)
Net Loss as restated (Note 2)                                                                                            (2,548,553)
                                 ---------------------------------------------------------------------------------------------------
BALANCE, as restated
December 31, 2006                39,313,699  12,268,006        --        --   6,069,166  335,544  4,245,000    707,165  (10,805,510)
-expired options (Note 16 c)                                                                       (905,000)
-settlement for services
   rendered (Note 16 b i)            68,850      10,328
-settlement of accrued
   liabilities
   (Note 16 b iii)                   63,600       9,540
-issuance of private placement
   (Note 16 b ii & 16 d)          6,475,000     365,124                       6,475,000  227,276
-grant of stock options
   (Note 16 c)                                                                                    1,315,000    119,450
-modification of warrants
 (Note 16 d)                                                                              16,256               (16,256)
-grant of warrants (Note 16 d)                                                1,930,000  129,380
- Proceeds from financings
   (Note 18 & 20)                                                                                              131,316
Subscription receivable, net
(Note 6)                                                                                                       (39,226)
                                 ---------------------------------------------------------------------------------------------------
NET LOSS                                                                                                                   (572,084)
                                 ===================================================================================================
BALANCE,                         45,921,149  12,652,998        --        --  14,474,166  708,456  4,655,000    902,449  (11,377,594)
December 31, 2007
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.


                                       65
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

                                                       2007            2006
                                                                     Restated
                                                                     (Note 2)
                                                   ------------    ------------
REVENUE                                            $  6,144,577    $    423,959
                                                   ------------    ------------

EXPENSES
  Operating & general                                 1,087,975         903,999
  Amortization & write-down of film, television
    programs and recordings (Note 7)                  5,589,184       2,010,385
  Amortization of property and equipment                  5,060           6,572
  Interest expense - net (Note 12)                       34,442          51,556
                                                   ------------    ------------

                                                      6,716,661       2,972,512
                                                   ------------    ------------

LOSS AND COMPREHENSIVE LOSS                        $   (572,084)   $ (2,548,553)
                                                   ============    ============

LOSS PER SHARE (Note 17)

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

WEIGHTED AVERAGE NUMBER OF SHARES

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

See accompanying notes to consolidated financial statements.


                                       66
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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

     Cash flows provided by operating activities                                                     1,134,002            2,064,975
                                                                                                   -----------          -----------

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

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

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

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

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

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

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

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

SUPPLEMENTAL CASH FLOW INFORMATION

Interest paid                                                                                      $   133,229          $    71,519
                                                                                                   ===========          ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       67
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1. NATURE OF BUSINESS AND GOING CONCERN

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

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

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

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

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

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

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


                                       68
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2.    RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

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

Summary of Restatement Adjustments

(a)   In prior years, the Company issued convertible debentures.  The fair value
      of the conversion feature was recorded as part of contributed surplus. The
      Company did not record the accretion of interest  during the term of these
      convertible  debentures.  As a result the  convertible  debentures and the
      deficit balance were understated by $181,510. These convertible debentures
      were not renewed upon maturity prior to 2006. Accordingly these debentures
      have been recorded as loans payable.

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

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

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

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

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

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

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


                                       69
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2.    RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)

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

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

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

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


                                       70
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2.    RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)

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

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

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

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

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

Preferred shares                                                   494,550                            (e)            494,550

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

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

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


                                       71
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

Interest (recovery)                                                          36,864         (30,312)         (b)
                                                                                             45,004          (e)             51,556
Amortization and write downs                                              2,016,957                                       2,016,957
                                                                        -----------                                     -----------
Expenses                                                                  2,938,110          34,402                       2,972,512
                                                                        -----------        --------                     -----------

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

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

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

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


                                       72
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2.    RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)

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

  Warrants                                                                       --           62,943         (c)             62,943
                                                                                                                        -----------
  Cash flows provided by
    financing activities                                                  2,528,228                                       2,542,920
                                                                        -----------                                     -----------
INVESTING ACTIVITIES
  Investment in film, television
    programs and recordings                                              (4,652,779)          76,000         (f)         (4,576,779)
  Purchase of property and equipment                                         (3,105)                                         (3,105)
                                                                        -----------                                     -----------
  Cash flows used in investing activities                                (4,655,884)                                     (4,579,884)
                                                                        -----------                                     -----------

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

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

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


                                       73
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

      (a)   Revenue Recognition

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

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

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

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

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

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


                                       74
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      (b)   Basis of Consolidation

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

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

            Accordingly,  the Company has included the results of  operations of
            certain limited partnerships.

      (c)   Inventory

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

      (d)   Investment in Film, Television Programs and Recordings

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


                                       75
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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

      (e)   Cash and Cash Equivalents

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

      (f)   Property and Equipment

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

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


                                       76
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      (g)   Foreign Currency Translation

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

      (h)   Government and Other Assistance

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

      (i)   Stock-Based Compensation

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

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

      (j)   Future Income Taxes

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

      (k)   Earnings Per Share

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


                                       77
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      (k)   Earnings Per Share (continued)

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

      (l)   Use of Estimates

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

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

      (m)   Impairment of Long-Lived Assets

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

      (n)   Deferred Revenue

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

      (o)   Basis of Presentation

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


                                       78
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      (p)   Adoption of new accounting policies

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

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

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

      Under these standards:

      Held-for-trading (assets or liabilities)

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

      Loans and receivables

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


                                       79
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      (p)   Adoption of new accounting policies (continued)

      Available-for-sale investments

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

      Other financial liabilities

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

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

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

Asset/Liability                           Category                Measurement

Accounts receivable                       Loans and receivables   Amortized cost

Subscription receivable                   Loans and receivables   Amortized cost

Accounts payable and accrued liabilities  Other liabilities       Amortized cost

Accrued Liabilities                       Other liabilities       Amortized cost

Loans payable                             Other liabilities       Amortized cost

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

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


                                       80
<PAGE>


                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      (p)   Adoption of new accounting policies (continued)

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

      (q)   Recent Accounting Pronouncements

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

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

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

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


                                       81
<PAGE>


                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      (q)   Recent Accounting Pronouncements (continued)

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

4.    FILM TAX CREDITS RECEIVABLE

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

5.    ADVANCES RECEIVABLE

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

6.    SUBSCRIPTIONS RECEIVABLE

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

7.    INVESTMENT IN FILM, TELEVISION PROGRAMS AND RECORDINGS

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


                                       82
<PAGE>


                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

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

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


                                       83
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

      The following tables summarize the Company's amortization and write downs:
      For the Year Ended December 31, 2007

--------------------------------------------------------------------------------
                                          Completed
                                          films,
                                          television
                                          programs, &    Projects
                                          recordings    In Progress     Total
--------------------------------------------------------------------------------
Amortization                              $3,989,087            --    $3,989,087
--------------------------------------------------------------------------------
Write-down
-Artists Series                              500,332            --       500,332
-Bailey's Billions                           856,159                     856,159
-Miracle Journey                                  --    $  234,586       234,586
-October 7th                                      --         7,500         7,500
-Quarterback                                                 1,110         1,110
-Revolving Door                                                410           410
--------------------------------------------------------------------------------
Total Write-down                           1,356,491       243,606     1,600,097
--------------------------------------------------------------------------------
Total Amortization and
Write-down                                $5,345,578    $  243,606    $5,589,184
                                          ----------    ----------    ----------
--------------------------------------------------------------------------------

      For the Year Ended December 31, 2006

--------------------------------------------------------------------------------
                                          Completed
                                          films,
                                          television
                                          programs, &    Projects
                                          recordings    In Progress     Total
--------------------------------------------------------------------------------
Amortization                              $  251,643            --    $  251,643
--------------------------------------------------------------------------------
Write-down                                                                    --
-Bailey's Billions                           300,254            --       300,254
-Artists Series                              297,639            --       297,639
-Inventors Series                            277,701            --       277,701
-Red                                              --    $  498,348       498,348
-October 7th                                      --       384,800       384,800
--------------------------------------------------------------------------------
Total Write-down                             875,594       883,148     1,758,742
--------------------------------------------------------------------------------
Total Amortization &
Write-down                                $1,127,237    $  883,148    $2,010,385
--------------------------------------------------------------------------------


                                       84
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

8.    PROPERTY AND EQUIPMENT

                                                            2007
                                            ------------------------------------
                                                                          Net
                                                        Accumulated     Carrying
                                              Cost      Amortization     Amount
                                            --------    ------------    --------
Computer and editing equipment              $181,028      $169,701      $ 11,327
Furniture and fixtures                        58,193        54,175         4,018
                                            --------      --------      --------

                                            $239,221      $223,876      $ 15,345
                                            ========      ========      ========

                                                            2006
                                            ------------------------------------
                                                                          Net
                                                        Accumulated     Carrying
                                              Cost      Amortization     Amount
                                            --------    ------------    --------
Computer and editing equipment              $181,028      $165,556      $ 15,472
Furniture and fixtures                        58,193        53,260         4,933
                                            --------      --------      --------

                                            $239,221      $218,816      $ 20,405
                                            ========      ========      ========

9.    FILM PRODUCTION LOAN

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

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


                                       85
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

10.   LOANS PAYABLE

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

11.   PREFERRED SHARES

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

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

      Issued - Series 1 preferred shares

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

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

12.   INTEREST (INCOME) EXPENSE

                                                                      Restated

                                                       2007             2006
                                                    ---------         ---------
Interest on loans payable                           $ 178,209         $ 178,209
Bank film production loan                             132,907            30,312
Interest on preferred shares                           45,004            45,004
Other interest expense                                    321             2,548
                                                    ---------         ---------
                                                      356,441           256,073
Interest income                                       (49,912)          (34,654)
                                                    ---------         ---------
                                                      306,529           221,419

Less amounts capitalized                             (272,087)         (169,863)
                                                    ---------         ---------

                                                    $  34,442         $  51,556
                                                    =========         =========

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


                                       86
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

13.   INCOME TAXES

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

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

                                                      $      --       $      --
                                                      =========       =========


(b)   Future tax assets

                                                        2007            2006
                                                      ---------       ---------
Net operating loss carryforward                       $ 366,000         610,000
Investment in film, television programs
and recordings                                          263,000         (92,000)
                                                      ---------       ---------

                                                        629,000         518,000

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

Net Future Tax Assets                                 $      --       $      --
                                                      =========       =========

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

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


                                       87
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

13.   INCOME TAXES (continued)

      (c)   Tax Loss Carry-forwards

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

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

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

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

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

14.   FINANCIAL INSTRUMENTS

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

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

      (i)   Fair Value

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

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

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


                                       88
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

14.   FINANCIAL INSTRUMENTS (continued)

      (ii)  Credit Risk

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

      (iii) Currency Risk

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

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

15.   COMMITMENTS AND CONTINGENCIES

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

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

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

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

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


                                       89
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

15.   COMMITMENTS AND CONTINGENCIES (continued)

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

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

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

16.   CAPITAL STOCK

      (a)   Authorized

            Unlimited number of common shares and Class "A" shares

      (b)   Issued - common shares
                                                          Number        Amount
                                                        ----------    ----------
            Balance, January 1, 2006                    35,353,508    11,745,545
                                                        ----------    ----------

            Common shares issued for settlement
            of accounts payable and services
            rendered (note 16 (iv, vi and vii))            551,860        74,904

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

            Common shares issued on exercise of
            stock options                                   25,000         3,000
                                                        ----------    ----------

            Balance, as re-stated December 31, 2006     39,313,699    12,268,006
                                                        ==========    ==========

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

            Common shares issued on private
            placement (ii)                               6,475,000       365,124
                                                        ----------    ----------

            Balance, December 31, 2007                  45,921,149    12,652,998
                                                        ==========    ==========


                                       90
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

16.   CAPITAL STOCK (continued)

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

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

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

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

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

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

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

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


                                       91
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

16.   CAPITAL STOCK (continued)

      (c)   Stock Option Plan

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

            The outstanding and exercisable stock options are as follows:

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

              Granted                                      1,090,000        0.34

              Exercised                                      (25,000)       0.10
                                                           ---------        ----

            Balance, December 31, 2006                     4,245,000        0.16
                                                           =========        ====

              Granted                                      1,315,000        0.15

              Expired                                       (905,000)       0.15
                                                           ---------        ----

            Balance, December 31, 2007                     4,655,000        0.16
                                                           =========        ====

            The Company has granted stock options as follows:

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


                                       92
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

16.   CAPITAL STOCK

      (c)   Stock Option Plan (continued)

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

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

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

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

      (d)   Warrants

      Balance as restated, January 1, 2006                            $199,046
        Restatement (Note 2 (c))                                        62,943
        Restatement (Note 2 (c))                                       (36,957)
        Restatement (Note 2 (c))                                       110,512
                                                                      --------

      Balance as restated, January 1, 2007                            $335,544
        Modification of warrants                                        16,256
        Warrants issued in private placement (note 16 (b) ii)          227,276
        Grant of warrants in exchange for Services                     129,380
                                                                      --------

      Balance at December 31, 2007                                    $708,456
                                                                      ========


                                       93
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

16.   CAPITAL STOCK

      (d)   Warrants (continued)

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

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

  Granted on Private Placement                      1,691,666         0.30
  Expired                                            (499,950)        0.15
                                                   ----------         ----

Balance, December 31, 2006                          6,069,166         0.28

  Granted in exchange for Services                  1,930,000         0.14

  Granted on Private Placement                      6,475,000         0.10
                                                   ----------         ----

Balance, December 31, 2007                         14,474,166         0.18
                                                   ==========         ====

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

The Company has granted warrants as follows:

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


                                       94
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

16.   CAPITAL STOCK

      (d)   Warrants (continued)

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

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

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

      (e)   Stock-based Compensation

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

17.   EARNINGS (LOSS) PER SHARE

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

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


                                       95
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

17.   EARNINGS (LOSS) PER SHARE (continued)

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

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

                                                    2007           Restated 2006
                                                ------------       ------------
Numerator:
----------
Net loss                                        $   (572,084)      $ (2,548,553)
                                                ------------       ------------

Denominator:
------------
Weighted average shares                           40,813,586         37,575,373
                                                ============       ============

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

18.   CONTRIBUTED SURPLUS

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

      Balance as restated, January 1, 2007                              707,165
        Reissuance of warrants                                          (16,256)
        Grant of stock options                                          119,450
        Subscriptions receivable                                        (39,226)
        Proceeds from financing (Note 20)                               131,316
                                                                     ----------
      Balance at December 31, 2007                                   $  902,449
                                                                     ==========


                                       96
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

19.   RELATED PARTY TRANSACTIONS

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

20.   LIMITED PARTNERSHIP FINANCING

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

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

                                                                     Restated
                                                      2007             2006
                                                   -----------      -----------
Accounts receivable                                $(1,005,535)         206,411
Film tax credits receivable                          1,015,361       (2,127,568)
Inventory                                               33,365              (96)
Prepaid and sundry assets                               65,575         (164,623)
Accounts payable and accrued liabilities                86,561          233,714
Deferred revenue                                    (4,342,643)       4,342,643
                                                   -----------      -----------

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

The supplemental cash flow information
are as follows:                                          2007             2006
                                                        ------           ------
Non-cash transactions
Settlement of accrued liabilities by share
Issuance (Note 16 (b) iii)                               9,540           69,790

Directors fees paid by share issuance
  (Note 16 (b)(i)                                       10,328            5,115


                                       97
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

22.   GEOGRAPHIC SALES INFORMATION

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

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

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

      (b)   Major Customers

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

23.   CANADIAN GAAP AND US GAAP RECONCILIATION

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

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

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


                                       98
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

23.   CANADIAN GAAP AND US GAAP RECONCILIATION (continued)

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

            Consolidated statements of operations:

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

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

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

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

Loss in accordance with US GAAP                      $  (527,080)   $(2,503,549)
                                                     ===========    ===========

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


                                       99
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

ASSETS
------

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

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

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

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

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

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

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

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

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

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

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

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

RESTATEMENT OF PREVIOUSLY REPORTED CANADIAN GAAP AND US GAAP RECONCILIATION

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

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


                                      100
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

      Impact of Newly Issued United States Accounting Standards

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

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

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


                                      101
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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


                                      102
<PAGE>

                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        DEVINE ENTERTAINMENT CORPORATION

                                        By _____________________________________
                                                        David Devine
                                           Director, Chairman of the Board
                                           President and Chief Executive Officer

Dated: March 26, 2008

      Pursuant to the  requirements of the Securities  Exchange Act, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.

Signature                 Title                                       Date
--------------------------------------------------------------------------------
/s/ David Devine          Director, Chairman of the Board         April 11, 2008
                          President and Chief Executive Officer

/s/ Richard Mozer         Director, Vice-Chairman of the          April 11, 2008
                          Board, Chief Financial Officer,
                          Treasurer and Secretary

/s/ Kenneth D. Taylor     Director                                April 11, 2008

/s/ Bryson Farrill        Director                                April 11, 2008

/s/ Ron Feddersen         Director                                April 11, 2008


                                      119