UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-Q

                                   (Mark One)

|X|   QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
                              EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2008

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

   For the transition period from ____________________ to ____________________
                        Commission file number 000-51168

                        DEVINE ENTERTAINMENT CORPORATION
             (Exact name of registrant as specified 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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 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 |_|

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated filer, a non-accelerated  filer, or a smaller reporting company. See
the   definitions   of   "large   accelerated   filer",   "accelerated   filer",
"non-accelerated  filer",  and "smaller  reporting company" in Rule 12b-2 of the
Exchange Act.

(Check one):

--------------------------------------------------------------------------------
Large accelerated filer                            Accelerated filer
--------------------------------------------------------------------------------
Non-accelerated filer                              Smaller reporting company |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|

As of November 13, 2008 the registrant had 45,980,549 shares of common stock, no
par value, issued and outstanding.

<PAGE>

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Item 1. Financial Statements                                                   3

Item 2. Management's Discussion and Analysis or Plan of Operation             44

Item 3. Quantitative and Qualitative Disclosures About Market Risk            70

Item 4T. Controls and Procedures                                              70

PART II OTHER INFORMATION

Item 1. Legal Proceedings                                                     72

Item 1A. Risk Factors                                                         72

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds           72

Item 3. Defaults Upon Senior Securities                                       72

Item 4. Submission of Matters to a Vote of Security Holders                   72

Item 5. Other Information                                                     72

Item 6. Exhibits and Reports on Form 8-K                                      72

Signatures                                                                    74


                                                                               2
<PAGE>

Item 1.

                        DEVINE ENTERTAINMENT CORPORATION

                    INTERIM CONSOLIDATED FINANCIAL STATEMENTS

                               September 30, 2008

                                    CONTENTS

                                                                           PAGE

Balance Sheet                                                               4

Statement of Shareholders' Equity                                           5

Statement of Operations                                                     6

Statement of Cash Flows                                                     7

Notes to Financial Statements                                             8 - 43


                                                                               3
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
                       INTERIM CONSOLIDATED BALANCE SHEET
                                   (Unaudited)
                         (expressed in Canadian dollars)

                               September 30, 2008

                                     ASSETS

                                                    September 30    December 31
                                                        2008            2007
                                                    ------------    ------------
Cash and cash equivalents                           $     39,254    $    245,872
Accounts receivable                                      196,650       1,028,705
Film tax credits receivable (Note 4)                     273,797       1,112,207
Inventory                                                 45,287          54,871
Prepaid expenses and sundry assets                        79,740         185,360
Advances receivable (Note 5)                             494,550         494,550
Investment in film, television
  programs and recordings (Note 6)                     2,103,557       5,355,327
Equipment (Note 7)                                        12,410          15,345
                                                    ------------    ------------

                                                    $  3,245,245    $  8,492,237
                                                    ============    ============

                                   LIABILITIES

Accounts payable and accrued liabilities            $  1,904,941    $  1,569,974
Film production loan (Note 8)                                 --       1,840,604
Loans payable (Note 9)                                 1,700,800       1,700,800
Preferred shares (Note 10)                               494,550         494,550
                                                    ------------    ------------

                                                       4,100,291       5,605,928
                                                    ============    ============

                        SHAREHOLDERS' EQUITY (DEFICIENCY)

Capital stock (Note 11)                               12,661,908     12,652,998
Warrants (Note 11(d))                                    772,283        708,456
Contributed surplus (Note 12)                          1,068,744        902,449
Deficit                                              (15,357,981)   (11,377,594)
                                                    ------------   ------------

                                                        (855,046)     2,886,309
                                                    ------------   ------------

                                                    $  3,245,245   $  8,492,237
                                                    ============   ============

See accompanying notes to interim consolidated financial statements.


                                                                               4
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

       INTERIM CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
                                   (Unaudited)

  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND YEAR ENDED DECEMBER 31, 2007

<TABLE>
<CAPTION>
                                                                                               Stock      Contributed
                                            Common Shares              Warrants               Options       Surplus      Deficit
                                      -----------------------   -----------------------     ----------    -----------  -----------
                                           #            $            #             $            #              $            $
                                                                                                           (Note 12)
                                      --------------------------------------------------------------------------------------------
<S>                                   <C>          <C>          <C>             <C>         <C>             <C>        <C>
BALANCE, as restated (note 2)
December 31, 2006                     39,313,699   12,268,006   6,069,166       335,544     4,245,000       707,165    (10,805,510)

- expired options                                                                            (905,000)
- settlement for services rendered        68,850       10,328
- settlement of accrued liabilities       63,600        9,540
- issuance of private placement        6,475,000      365,124   6,475,000       227,276
- grant of stock options                                                                    1,315,000       119,450
- modification of warrants                                                       16,256                     (16,256)
- grant of warrants                                             1,930,000       129,380
- proceeds from financings                                                                                  131,316
- subscription receivable, net                                                                              (39,226)
NET LOSS                                                                                                                  (572,084)
                                      --------------------------------------------------------------------------------------------
BALANCE,
December 31, 2007                     45,921,149   12,652,998  14,474,166       708,456     4,655,000       902,449    (11,377,594)
- subscription received
- settlement of accrued liabilities       59,400        8,910                                               229,747
- modification of warrants                                                       63,827                     (63,827)
- adjustment to proceeds from
  financings                                                                                                    375
NET LOSS                                                                                                                (3,980,387)
                                      --------------------------------------------------------------------------------------------
BALANCE,
September 30, 2008                    45,980,549   12,661,908  14,474,166       772,283     4,655,000     1,068,744    (15,357,981)
                                      --------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to interim consolidated financial statements.


                                                                               5
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                  INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
                      (Unaudited - Prepared by Management)

<TABLE>
<CAPTION>
                                                                         Three months ended                 Nine months ended
                                                                            September 30,                     September 30,
                                                                       2008              2007             2008              2007
                                                                   ------------      ------------     ------------      ------------
                                                                                       Restated                           Restated
                                                                                       (note 2)                           (note 2)
<S>                                                                <C>               <C>              <C>               <C>
REVENUE                                                            $    117,175      $  2,032,153     $    371,316      $  5,996,636
                                                                   ------------      ------------     ------------      ------------

EXPENSES
 Selling, general and administrative                                    273,684           346,826          682,747           734,646
Amortization
- film, television programs and recordings                               44,830         1,364,572          144,280         4,095,691
- equipment                                                                 908             1,215            2,935             3,930
Write-down of Investment in film, television programs
and recordings                                                               --                --        3,477,698                --
Interest (Note 13)                                                       20,575             9,982           44,043            54,877
                                                                   ------------      ------------     ------------      ------------
                                                                        339,997         1,722,595        4,351,703         4,889,144
                                                                   ------------      ------------     ------------      ------------

NET INCOME (LOSS) AND COMPREHENSIVE
INCOME (LOSS)                                                      $   (222,822)     $    309,558     $ (3,980,387)     $  1,107,492
                                                                   ------------      ------------     ------------      ------------

EARNINGS (LOSS) PER SHARE (Note 14)
Basic and diluted                                                  $       0.00      $       0.01     $      (0.09)     $       0.03
                                                                   ============      ============     ============      ============

WEIGHTED AVERAGE NUMBER OF SHARES
Basic and diluted                                                    45,944,129        39,376,529       45,980,549        39,355,816
                                                                   ============      ============     ============      ============
</TABLE>

See accompanying notes to interim consolidated financial statements.


                                                                               6
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                  INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                     Three months ended                    Nine months ended
                                                                        September 30,                        September 30,
                                                                  2008                2007               2008               2007
                                                               -----------        -----------        -----------        -----------
                                                                                    Restated                              Restated
                                                                                    (note 2)                              (note 2)
<S>                                                            <C>                <C>                <C>                <C>
OPERATING ACTIVITIES

Net income (loss) for the period                               $  (222,822)       $   309,558        $(3,980,387)       $ 1,107,492
Stock based compensation                                                --             94,050                 --            240,550
Amortization - film, television programs
               and recordings                                       44,830          1,364,572            144,280          4,095,691
             - equipment                                               908              1,215              2,935              3,930
Write-down of investment in film,
television programs and recordings                                      --                             3,477,698
Change in non-cash components of
     working capital (Note 20)                                     172,324         (1,795,502)         2,129,546         (3,161,494)
                                                               -----------        -----------        -----------        -----------
                                                                    (4,760)           (26,107)         1,774,072          2,286,169
                                                               -----------        -----------        -----------        -----------
FINANCING ACTIVITIES
Increase (decrease) of film production loans                            --            363,192         (1,840,604)          (313,822)
Advances                                                                --             90,000                                90,000
Issuance of shares  for services                                        --                 --                 --                 --
Proceeds from financing and
subscription receivable                                                375                 --            230,122                 --
                                                               -----------        -----------        -----------        -----------
                                                                       375            453,192         (1,610,482)          (223,822)
                                                               -----------        -----------        -----------        -----------

INVESTING ACTIVITIES
Investment in film, television programs
and recordings                                                     (86,378)          (364,606)          (370,208)        (2,113,877)
                                                               -----------        -----------        -----------        -----------

CHANGE IN CASH AND CASH EQUIVALENTS                                (90,763)            62,479           (206,618)           (51,530)

CASH AND CASH EQUIVALENTS                                          130,017            153,992            245,872            268,001
                                                               -----------        -----------        -----------        -----------
Beginning of period
CASH AND CASH EQUIVALENTS End of period                        $    39,254        $   216,471        $    39,254        $   216,471
                                                               ===========        ===========        ===========        ===========


SUPPLEMENTARY CASH FLOW INFORMATION
      Interest paid                                            $     1,005        $        --        $    32,596        $        --
      Income taxes paid                                        $        --        $        --        $        --        $        --
</TABLE>

See accompanying notes to interim consolidated financial statements.


                                                                               7
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

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 that 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 9), 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 the near future.

      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 (loss).


                                                                               8
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

2.    RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

      The Company is restating its previously  reported  consolidated  financial
      statements  for the 3 and 9 months ended  September 30, 2007. 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)    The Company has determined that the previously filed financial  statements
      for the 3 and 9 month periods ended  September 30, 2007  contained  errors
      resulting  from the  incorrect  accounting  related  to  interest  for the
      Company's  Investment in film,  television  programs and  recordings.  The
      interest  income was  incorrectly  accounted  for and should not have been
      included in the results for the 9 month period ended  September  30, 2007.
      In  addition,  the  transaction  should  have been  accounted  for and was
      addressed in the December 31, 2007 financial statements.

      The  Company has  restated  the  interest  income  from  interest  expense
      (income).  The  restatement  amounts  to  $30,312.  As  a  result  accrued
      liabilities  increased by $30,312 and net income  decreased by $30,312 for
      the 9 months ended September 30, 2007. The deficit increased by $30,312.

b)    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.  This change was reflected in
      the  Company's  December  31,  2007  financial   statements.   Accordingly
      dividends  amounting to $11,220 would be restated as interest  expense for
      the 3 month period ending  September  30, 2007 and dividends  amounting to
      $33,660  would be  restated as  interest  expense  for the 9 month  period
      ending September 30, 2007.

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 issued for the 3 and 9
      month  periods  ended  September  30, 2007.  As a result,  for the 3 month
      period ending September 30, 2007, contributed surplus decreased by $16,350
      and warrants  increased by $93,600.  This was offset by an increase to the
      deficit  of  $77,250   resulting   in  a  reduction   to  net  income  and
      comprehensive  income of $77,250.  For the 9 month period ending September
      30, 2007,  contributed surplus increased by $73,390 and warrants increased
      by  $121,100.  This was offset by an increase to the deficit of  $194,490,
      resulting  in a  reduction  to net  income  and  comprehensive  income  of
      $194,490.

      The following table summarizes the impact of the restatement adjustment on
      the previously  reported statements of operations and cash flows for the 3
      and 9 months ended September 30, 2007.


                                                                               9
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

2.    RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)

Statement of Operations

                                              3 months             9 months
                                         September 30, 2007   September 30, 2007

Net income and comprehensive income
  As previously reported                    $   398,028         $ 1,365,954
Interest expense (Note 2 a)                          --             (30,312)
Interest income (Note 2 b)                      (11,220)            (33,660)
Selling, general and administrative             (77,250)           (194,490)
                                            -----------         -----------
Net income and comprehensive income
  As restated                               $   309,558         $ 1,107,492
                                            ===========         ===========

Statement of Cash Flows

<TABLE>
<CAPTION>
                                                                                           3 months                 9 months
                                                                                      September 30, 2007       September 30, 2007

<S>                                                                                      <C>                      <C>
Cash flows (used in) provided by operating activities
     As previously reported                                                              $   (26,107)             $ 2,275,841
Adjustments to net income for the period                                                     (88,470)                (258,462)
Stock based compensation (Note 2 (c))                                                         77,250                  194,490
Accrued liabilities (Note 2 a and b)                                                          11,220                   63,972
Cash flows (used in) provided by operating activities
     As restated                                                                         $   (26,107)             $ 2,275,841

Cash flows (provided by) used in financing activities
     As previously reported                                                              $   453,192              $  (213,494)
Cash flows (provided by) used in financing activities
     As restated                                                                         $   453,192              $  (213,494)

Cash flows used in investing activities                                                  $  (364,606)             $(2,113,877)
Cash flows used in investing activities
     As restated                                                                         $  (364,606)             $(2,113,877)
</TABLE>

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      These  financial  statements  have been  prepared in  accordance  with the
      Canadian  Institute  of  Chartered   Accountants   standards  for  interim
      financial   statements.   These  financial   statements  follow  the  same
      accounting  policies and methods of their  application  as the most recent
      annual  financial  statements;  however,  they do not  include  all of the
      disclosure  requirements  for annual  financial  statements.  Accordingly,
      these interim financial  statements should be read in conjunction with the
      Company's  audited  financial  statements  for the year ended December 31,
      2007.


                                                                              10
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Note 22 describes and reconciles the significant  measurement  differences
      between Canadian GAAP and accounting  principles generally accepted in the
      United States ("US GAAP") affecting the accompanying  interim 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 license  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 license 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 when collection is reasonably assured.

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

      (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  ("VIEs").  All  inter-company
            transactions have been eliminated.


                                                                              11
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

            The  Company   adheres  to  the  Canadian   Institute  of  Chartered
            Accountants'    ("CICA")    Accounting    Guideline   15   (AcG-15),
            "Consolidation   of   Variable   Interest   Entities".   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 a 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,   and  teachers'  guides  of
            previously   released   productions   for  resale  through   various
            distribution  channels.  The Company uses an average  costing method
            for its inventory.

      (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.

            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.


                                                                              12
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

            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)   Equipment

            Equipment  are  recorded  at  cost  less  accumulated  amortization.
            Amortization  is provided for on the declining  balance basis at the
            following annual rates:

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

      (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.


                                                                              13
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      (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 the Company has  persuasive  evidence to  determine  that it is
            probable 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 Company
            recognizes an expense  based on the fair value of the  consideration
            received,   or  the  fair  value  of  the  equity  instruments,   or
            liabilities incurred, whichever is more reliably measurable.

      (j)   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.

            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.


                                                                              14
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      (l)   Use of Estimates

            The preparation of financial  statements in conformity with Canadian
            generally  accepted  accounting  principles  and  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  include  equipment  and  investments  in  films,
            television  programs and  recordings.  Equipment is accounted for as
            per  SFAS 144 (see  Note  3(f)).  Investment  in  films,  television
            programs and  recordings  is accounted for as per SOP-00-2 (see Note
            6). Long-lived assets 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  Company's
            investment in films,  television  programs and recordings 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 at an amount equal to the
            estimated future discounted net cash flows 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.


                                                                              15
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      (p)   Adoption of new accounting standards

            vii)  Effective  January  1,  2008,  the  Company  adopted  the  new
                  recommendations   of  the  Canadian   Institute  of  Chartered
                  Accountants   (CICA)   Handbook   Section   3862,   "Financial
                  Instruments  -  Disclosure"  (Section  3862) and Section 3863,
                  "Financial  Instruments - Presentation"  (Section 3863), which
                  replaced  Handbook  Section  3861,  "Financial  Instruments  -
                  Disclosure and Presentation".  The objective of the disclosure
                  requirements of Section 3862 is to provide  information  about
                  the  significance  of financial  instruments  to the Company's
                  financial  position and performance,  the nature and extent of
                  risks arising from financial  instruments to which the Company
                  is exposed and how the Company  manages  those risks.  Section
                  3863 carries forward  standards for  presentation of financial
                  instruments,  from  the  perspective  of the  issuer,  between
                  liabilities  and  equity,   the   classification   of  related
                  interest,  dividends,  losses and gains, and  circumstances in
                  which financial assets and financial liabilities are offset.

                  The adoption of these  standards did not have an impact on the
                  classification and valuation of financial instruments. The new
                  disclosures  resulting  from  adoption of these  standards are
                  included in note 15.

                  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.


                                                                              16
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

3.    SUMMARY OF SIGNIFICANT 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  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
--------------------------------------------------------------------------------
Film tax credits receivable         Loans and receivables         Amortized cost
--------------------------------------------------------------------------------
Advances receivable                 Loans and receivables         Amortized cost
--------------------------------------------------------------------------------
Accounts payable and accrued        Other liabilities             Amortized cost
liabilities
--------------------------------------------------------------------------------
Accrued liabilities                 Other liabilities             Amortized cost
--------------------------------------------------------------------------------
Film production loan                Other liabilities             Amortized cost
--------------------------------------------------------------------------------
Preferred shares                    Other liabilities             Amortized cost
--------------------------------------------------------------------------------
Loans payable                       Other liabilities             Amortized cost
--------------------------------------------------------------------------------

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

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

            ii)   Effective  January  1,  2008,  the  Company  adopted  the CICA
                  Handbook Section 1535,  "Capital  Disclosures" which specifies
                  the  disclosure  of  an  entity's  objectives,   policies  and
                  processes  for  managing  capital and how it is meeting  those
                  objectives.  The new  disclosures  resulting  from adoption of
                  this   standard  are  included  in  note  16.


                                                                              17
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

            iii)  Effective  January 1, 2008, the Company  adopted CICA Handbook
                  Section  3031,  "Inventories",  which  replaced  Section 3030.
                  "Inventories". Under the new section, inventories are required
                  to be  measured  at the  "lower  of cost  and  net  realizable
                  value",  which is  different  from  existing  guidance  of the
                  "lower of cost and  market".  The new section  also  requires,
                  when  applicable,  the reversal of any  inventory  write-downs
                  previously  recognized.  The adoption of this standard did not
                  have an impact on the valuation of the Company's inventories.

            iv)   In  June  2007,  the  CICA  amended  Section  1400,   "General
                  Standards of financial  Statement  Presentation" to change the
                  guidance related to management's  responsibility to assess the
                  ability  of  the  entity  to  continue  as  a  going  concern.
                  Management  is required to make an  assessment  of an entity's
                  ability to  continue  as a going  concern and should take into
                  account all available  information about the future,  which is
                  at least but not limited to 12 months  from the balance  sheet
                  date. Disclosure is required of material uncertainties related
                  to events of conditions that may cast  significant  doubt upon
                  the  entity's  ability to  continue  as a going  concern.  The
                  amendments  to  Section  1400  apply  to  interim  and  annual
                  financial  statements relating to fiscal years beginning on or
                  after  January 1, 2008.  The adoption of this  standard had no
                  impact on the Company's presentation of its financial position
                  or consolidated results of operations as at September 30, 2008
                  and for the three month period ended.

                  -     Effective  January  1, 2007,  the  Company  adopted  the
                        recommendations   of  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,  these  resulting  changes in accounting
                        policies  have  been  applied  retrospectively  with  no
                        restatement to prior periods.

                  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.

            vi)   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
                  Company s financial statements.


                                                                              18
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      (q)   Recent Accounting Pronouncements

                  -     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
                        new standard is effective for the Company's  interim and
                        annual  consolidated  financial  statements  for periods
                        commencing January 1, 2009. The Company is assessing the
                        impact of the new standard on its consolidated financial
                        statements.

            ii)   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 September 30, 2008, the Company expects to
      receive  tax  credits  of nil  (December  31,  2007 -  $194,080)  from the
      Canadian  government  and nil  (December  31,  2007 -  $820,766)  from the
      Ontario government for its completed productions.  The Company has accrued
      $176,436  for tax credits  receivable  related to its projects in progress
      (December 31, 2007 - $97,361)

5.    ADVANCES RECEIVABLE

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

6.    INVESTMENT IN FILM, TELEVISION PROGRAMS AND RECORDINGS

      In  accordance  with  statement of position of the  American  Institute of
      Certified Public  Accountants  ("SOP 00-2"),  the Company's  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.


                                                                              19
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

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

      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").  For the
      proprietary  films,  television  programs and  recordings  produced by the
      company,  a  maximum  period  of  ten  years  after  the  delivery  of the
      production  is used in  accordance  with SOP 00-2 to estimate  fair value.
      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.  Capitalized  film costs are stated at the lower of
      unamortized cost or estimated fair value on an individual film basis.

      Development  costs which are expected to benefit  future  periods are also
      capitalized.  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.

      The net carrying  value for the Company's  Investment in Film,  Television
      Programs and  Recordings  totalled  $2,103,557  as at  September  30, 2008
      (December 31, 2007 - $5,335,327).

<TABLE>
<CAPTION>
                                                                                     September 30,                      December 31,
                                                                                         2008                               2007
                                                                                         ----                               ----
                                                                                                           Net               Net
                                                                                      Accumulated        Carrying         Carrying
                                                                       Cost          Amortization         Value            Value
                                                                   -----------       -----------       -----------      -----------
<S>                                                                <C>               <C>               <C>              <C>
Completed television programs and recordings                       $ 6,857,419       $ 6,818,871       $    38,548      $   265,000
Completed Motion picture - Bailey's Billion$                         6,972,580         6,972,580                --        2,034,919
Completed Television Drama Series                                    5,795,377         4,629,248         1,166,129        1,816,485
Projects in progress                                                   898,880                --           898,880        1,238,923
                                                                   -----------       -----------       -----------      -----------
                                                                   $20,524,256       $18,420,699       $ 2,103,557      $ 5,355,327
                                                                   ===========       ===========       ===========      ===========
</TABLE>

      Amortization  and write-down  expensed in the three months ended September
      30, 2008 for the  Company's  Investment in Film,  Television  Programs and
      Recordings   totalled  $44,830  (2007  -  $1,364,572).   Amortization  and
      write-down  expensed in the nine months ended  September  30, 2008 for the
      Company's Investment in Film,  Television Programs and Recordings totalled
      $3,621,978 (2007 - $4,095,691).


                                                                              20
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

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

      The following table summarizes the Company's amortization and write downs:

<TABLE>
<CAPTION>
      For the                                                                             Three months ended    Nine months ended
                                                                                          September 30, 2008    September 30, 2008
----------------------------------------------------------------------------------------------------------------------------------
                                                Completed
                                                films,
                                                television
                                                programs, &           Projects In
                                                recordings            Progress            Total                 Total
----------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                         <C>           <C>                   <C>
Amortization

-Artists Series                                 $   44,830                  --            $   44,830            $  144,280
----------------------------------------------------------------------------------------------------------------------------------
Write-down

-Artists Series                                         --                                        --                64,982
-Bailey's Billion$                                      --                                        --             2,034,919
-Across the River                                       --                                        --               760,134
-Writers Series                                         --                  --                    --               428,196
-Humchucker                                             --                  --                    --               189,467
----------------------------------------------------------------------------------------------------------------------------------
Total Write-down                                        --                  --                    --             3,477,698
----------------------------------------------------------------------------------------------------------------------------------
Total Amortization and
Write-down                                      $   44,830            $     --            $   44,830            $3,621,978
                                                ==========            ========            ==========            ==========
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                                                              21
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

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

      The following table summarizes Company's amortization expenses:

<TABLE>
<CAPTION>
                                                                         Three months ended                  Nine months ended
                                                                            September 30                        September 30
Amortization                                                           2008              2007              2008               2007
<S>                                                                 <C>               <C>               <C>               <C>
Completed television programs and recordings                        $   44,830        $  160,616        $  144,280        $  226,576
Completed Motion picture - Bailey's Billion$                                --                --                --                --
Completed Television Drama Series                                           --         1,203,956                --         3,869,115
                                                                    ----------        ----------        ----------        ----------

                                                                    $   44,830        $1,364,572        $  144,280        $4,095,691
                                                                    ==========        ==========        ==========        ==========
</TABLE>

The following table summarizes Company's write-downs:

<TABLE>
<CAPTION>
                                                                         Three months ended                  Nine months ended
                                                                            September 30                        September 30
Write-downs                                                            2008              2007              2008               2007
<S>                                                                 <C>               <C>               <C>               <C>
Completed television programs and recordings                        $       --        $       --        $   64,982        $       --
Completed Motion picture - Bailey's Billion$                                --                --         2,034,919                --
Completed Television Drama Series                                           --                --           760,134                --
Projects in progress                                                        --                --           617,663                --
                                                                    ----------        ----------        ----------        ----------

                                                                    $       --        $       --        $3,477,698        $       --
                                                                    ==========        ==========        ==========        ==========
</TABLE>

      Completed Television Programs and Recordings

      Amortization and write-down of the Company's completed television programs
      and  recordings,  which  include The  Composers  Specials,  The  Inventors
      Specials and The Artists Specials for the three months ended September 30,
      2008  totaled  $44,830  (2007 -  $160,616)  including a write down of $nil
      (2007 - $nil).  Amortization  and  write-down of the  Company's  completed
      television programs and recordings,  which include The Composers Specials,
      The Inventors  Specials and The Artists Specials for the nine months ended
      September 30, 2008 totaled  $209,263  (2007 - $226,576)  including a write
      down of $64,982 (2007 - $nil).

      At September  30, 2008  investment  in completed  television  programs and
      recordings totalled $38,548 (December 31, 2007 - $265,000).


                                                                              22
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

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

      In the nine-year period from 1999 to 2007, The Artists Specials,  the last
      series of films in its completed television programs and recordings with a
      net carrying value remaining,  generated  approximately  $5,850,000 in its
      first  eight  years  after the  original  release,  which is an average of
      $650,000 per annum.  The  Company's  ultimate  revenue  estimates  for The
      Artists' Specials in 2008 is approximately $300,000,  based on its history
      of sales in North  American  DVD  markets  and  estimates  from its recent
      distribution  agreement for the foreign  territories.  While,  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 will be expensed by the end of the
      proscribed ten year amortization period of The Artists Specials at the end
      of 2008.

      Completed Motion Picture - Bailey's Billion$

      At September  30,  2008,  the  Company's  investment  in completed  motion
      picture,   Bailey's   Billion$,   totalled  $nil   (December  31,  2007  -
      $2,034,919).

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

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


                                                                              23
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

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

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

      While actual  revenues of $6,140,000 from the Company's  Completed  Motion
      Picture in the first two years were above the Company's  original ultimate
      revenue  estimates and a drop-off was expected while certain  non-fundable
      advances in foreign territories were recouped by distributors, the Company
      revised its remaining  ultimate  revenues to approximately $27 million for
      the  next  six  years  in light  of  changing  market  conditions  and the
      declining  performance of its distributors and accordingly  wrote down the
      net carrying value of Bailey's  Billion$ by $856,159 in the fourth quarter
      of 2007.

      Although,  revenues exceeded the Company's  estimates in 2004 and 2005 and
      the motion picture  performed well in the  marketplace,  sales dropped off
      dramatically  in 2006 and  there  were no sales  reported  in 2007,  which
      reflected  a lack of  reporting  and a  dispute  between  the  U.K.  based
      co-producer and the master  distributor  which the co-producer,  through a
      related party, has a significant  ownership stake.  Although,  the Company
      has continued to pursue  resolution of the  distribution  of the completed
      motion picture and made effort to repatriate its exploitation  rights,  no
      new sales have been  reported,  although the Company  believes  sales have
      been made and revenues have been generated in the period,  and the Company
      no longer has any confidence in the  determinability  of revenues from its
      completed  motion picture.  Accordingly the Company wrote down the balance
      of its carrying value in the second quarter of 2008.

      Completed Television Drama Series

      In the three months  ended  September  30, 2008 there was no  amortization
      (2007 - $1,203,956)  of the Company's  investment in completed  television
      drama series.  In the nine months ended  September  30, 2008,  the Company
      wrote down its investment in completed television drama series by $760,134
      (2007 - $nil).  In the nine months ended  September  30, 2008 there was no
      amortization  (2007 -  $3,869,115)  of the  Company's  its  investment  in
      completed television drama series.

      As at September 30, 2008 the Company's  investment in completed television
      drama series totalled $1,164,350 (December 31, 2007 - $1,816,485).

      Ultimate  revenue  estimates  for the Company's  television  drama series,
      Across the River to Motor City, are based on the Company's 25 year history
      in the  television  industry  and the  distribution  in the  international
      broadcast and DVD marketplace and discussions  regarding  estimated values
      of broadcast licenses provided by experienced third-party distributors and
      sales agents. Each of these distributors and sales agents has well over 20
      years of experience in its area of sales and distribution.  Management has
      discounted  these  estimates  in an effort  to  provide  conservative  and
      realizable ultimate revenue estimates backed up by a conservative schedule
      of territory by territory broadcast sales estimates.


                                                                              24
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

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

      In Canada,  management's  estimates reflect contracted sales of $5,612,500
      receivable  on delivery of the series  (covering  67% of overall  Ultimate
      revenues for the ten year  proscribed  period in compliance with FASB 53).
      The balance of Canadian  revenues  total $360,000 over the ten year period
      covering three broadcast windows in French Canada,  one window after seven
      years in  English  Canada,  and all  revenues  from VOD,  DVD and  digital
      distribution marketplaces.

      In the United States,  management  has used the Company's  twenty years of
      experience with  broadcasters in conjunction with its sales agent's review
      of broadcast license values for three windows over ten years as a basis of
      its television sales estimates and then discounted these estimates.  As an
      example,  the Company's first window (averaging 36 months) cable broadcast
      license for 18 of its programs  have  averaged  just over CDN $325,000 and
      overall  Management's  estimates reflect a conservative  value of $160,000
      over three windows over ten years.

      For estimates in the foreign territories,  the Company has relied on sales
      agents' estimates for a first window sale in France of between $50,000 and
      $150,000 per episode and reviewed  broadcast values for first window sales
      in  the 7  major  territories  as  well  as  estimates  in  25  of 75  key
      international territories and discounted its estimates to $300,000 for all
      territories outside of North America for multiple windows over ten years.

      With regard to DVD/VOD and digital media sales estimates,  the Company has
      reviewed and compared them to the Company's  historical sales. The Company
      compared  and  supported  these  estimates  with  industry  standards  and
      published  unit  sales  for  comparative   television  programs  and  then
      discounted  them  conservatively  and modeled the estimates to incorporate
      its  experience  with  distributor's  fees and expense  limitations in its
      various  distribution  agreements.  Management notes that its estimate for
      all DVD, VOD and digital  distribution  of the series  world-wide  for ten
      years is a conservative $20,000 per episode.

      Management believes that market changes, which have resulted from a series
      of related  broadcaster and investor  consolidations in Canada that became
      evident in the second  quarter of 2008  have,  in the  Company's  opinion,
      negatively impacted future revenue estimates for Across the River to Motor
      City. The broadcaster  (CHUM Television) who commissioned the mini-series,
      licensed  Canadian  broadcast  rights  and holds an equity  investment  in
      Across the River to Motor  City,  was bought and sold twice in 2007.  This
      dramatic and un-forecasted change in the rights ownership and promotion of
      the series has,  in the  opinion of  management,  impaired  the  potential
      future revenues for the mini series.  This event, in combination  with the
      effect of the changes in the US currency exchange and the general downturn
      in the public markets,  the economy and the investment  environment,  have
      negatively   impacted   the  future   revenues  and  of  the  program  and
      accordingly,  in compliance  with SOP 00-2, the Company wrote down the net
      carrying value of its investment in its completed  television drama series
      by $760,134 in the period ended June 30, 2008.

      The Company believes that current  ultimate  revenue  estimates for Across
      the River to Motor City are conservative  and realizable,  notwithstanding
      the fact that management  reviews the estimates on a regular basis and may
      adjust them down  depending on changing  results and market  conditions in
      the future.


                                                                              25
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

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

      Projects in Progress

      Development  costs for  properties  that are  expected  to benefit  future
      periods are  capitalized.  If the property under  development has not been
      set for  production  within  three  years,  or if upon  review  management
      determines that certain costs are unrecoverable, the costs associated with
      such  property  are  written  off to  income.  In the three  months  ended
      September  30, 2008 $nil (2007 - nil) of projects in progress  was written
      off to income. In the nine months ended September 30, 2008, $617,663 (2007
      - nil) of projects in progress was written off to income.

      At  September,  2008,  the  Company's  investment  in projects in progress
      totaled $898,880 (December 31, 2007 - $1,238,923).

      Participation and Exploitation Costs

      Participation  expenses and exploitation  costs,  including  manufacturing
      costs and third party  distribution  fees and expenses related to sales of
      Company's  library  of films,  television,  programs  and  motion  picture
      totaled  $40,260 for the three months ended  September 30, 2008 decreasing
      by $20,093 or approximately  33% as compared to $60,353 in the same period
      in 2007.  For the nine  month  ended  September  30,  2008,  participation
      expenses and exploitation costs,  including  manufacturing costs and third
      party distribution fees and expenses related to sales of Company's library
      of  films,  television,  programs  and  motion  picture  totaled  $129,141
      decreasing by $59,662 or approximately  32% as compared to $188,803 in the
      same period in 2007.

      There  were  no  participation  and  exploitation  costs  related  to  the
      Company's  completed  motion picture - Bailey's  Billion$ or its completed
      television drama series and the Company does not expect any  participation
      and  exploitation  expenses  related to these  films in 2008.  The Company
      estimates  approximately  $190,000 in participation and exploitation costs
      related to it library of completed  television  programs and recordings in
      2008,  of which  approximately  $50,000  or 26% are costs  related  to the
      Artists  Specials  series,  the only  series  of the  Company's  completed
      television programs and recordings with a net carry cost remaining.

      The following table summarizes  Company's  participation  and exploitation
      expenses:  related to its library of  completed  television  programs  and
      recordings:

<TABLE>
<CAPTION>
                                                                      Three months  ended                    Nine months ended
                                                                          September 30                          September 30
Participation and Exploitation costs                                 2008               2007               2008               2007
<S>                                                                <C>                <C>                <C>                <C>
Participation Costs                                                $  3,277           $  4,223           $ 10,802           $ 10,439
Manufacturing Costs                                                  20,057             22,747             52,105             90,981
Distribution fees and expenses                                       16,926             33,383             66,234             87,383
                                                                   --------           --------           --------           --------

                                                                   $ 40,260           $ 60,353           $129,141           $188,803
                                                                   ========           ========           ========           ========
</TABLE>

      Interest

      Interest   incurred  on  funds  borrowed  during   productions  of  films,
      television  programs  and  recordings  is  capitalized  as a  cost  of the
      production.  In the three  months  ended  September  30,  2008 the Company
      capitalized  $nil (2007 - $31,239) of interest in connection with the film
      production for its completed  television series. In the three months ended
      September 30, 2008 the Company capitalized interest in


                                                                              26
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

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

      connection with various productions amounting to $27,683 (2007 - $37,527).
      In the nine months  ended  September  30,  2008,  the Company  capitalized
      $31,591  (2007  -  $97,008)  of  interest  in  connection  with  the  film
      production for its completed  television  series. In the nine months ended
      September 30, 2008, the Company  capitalized  interest in connection  with
      various productions amounting to $70,118 (2007 - $87,443).

      At  September  30,  2008,  99%  (December  31,  2007 - 96%)  of  completed
      television  programs and  recordings,  100%  (December  31, 2007 - 71%) of
      completed  motion  picture  costs  and 80%  (December  31,  2007 - 68%) of
      completed television drama series costs have been amortized. The remaining
      period of amortization for the completed  projects ranges from one to nine
      years at December 31,  2007.  100% of  completed  television  programs and
      recordings  will be amortized in 2008. The Company expects to amortize 69%
      of the remaining completed television drama series costs in the next three
      years and expects 88% will have been amortized by 2012.

7.    EQUIPMENT

<TABLE>
<CAPTION>
                                                               September 30                                             December 31,
                                                                   2008                                                    2007
                                                               ------------                                             ------------
                                                                                   Accumulated
                                                                   Cost           Amortization            Net                Net
                                                                 --------         ------------         --------           --------
<S>                                                              <C>                <C>                <C>                <C>
Computer and editing equipment                                   $181,028           $172,063           $  8,965           $ 11,327
Furniture and fixtures                                             58,193             54,748              3,445              4,018
                                                                 --------           --------           --------           --------

                                                                 $239,221           $226,811           $ 12,410           $ 15,345
                                                                 ========           ========           ========           ========
</TABLE>

8.     FILM PRODUCTION LOAN
                                                               2008        2007
                                                               ----        ----

      A demand loan  bearing  interest at prime plus 1%
      per annum, repayable in full by June 30, 2008 was
      arranged  for  the  financing  of 6  episodes  of
      Across  the  River  to  Motor  City,   which  was
      produced by the Company's wholly-owned subsidiary
      Across the River  Productions  Ltd.  The loan was
      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 was
      not  secured by the parent  company's  assets and
      was non-recourse to parent company.                      $nil   $1,807,705
                                                               ====   ==========

      Interest on the above demand loan totalled $nil for the three month period
      ended  September 30, 2008 (three months ended Dec. 31, 2007 - $32,899) and
      was capitalized to projects in progress.


                                                                              27
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

9.    LOANS PAYABLE

      Loans payable  consist of the Company's  1995,  1996 and 2000  convertible
      debentures,  which bear interest at 10.5 % per annum,  have matured,  have
      not been  extended  and carry no fixed  term,  accordingly  the Company is
      carrying the  outstanding  amount of $1,700,800  (2007 - $1,700,800)  as a
      loan payable.  The  creditors  have a general  security  assignment on the
      assets of the  Company.  Accrued  interest  as at  September  30, 2008 was
      $980,162  (December  31,  2007 -  $846,505)  and is  included  in accounts
      payable and accrued liabilities. In 2007, the Company deposited $60,000 in
      trust  related to the loans,  to show that the  Company was  committing  a
      portion of its cash flow towards  settlement of its liability and included
      the amount on the balance sheet with prepaid expenses and sundry assets.

      The Company is working towards  settling the outstanding  current loan and
      no  action  has  been  taken  by the debt  holders  and none is  expected.
      Management is in constant  communication  with the holders of the majority
      of this debt, who have consistently supported the Company in the past, and
      expects  that the  Company  will be able to settle  the debt in the normal
      course of operations from a combination of proceeds from equity,  debt and
      VIE  financing,  the  Company's  ongoing  operating  cash flow and through
      possible conversion of a portion of the debt to equity in the Company.

      Nonetheless,  the Company is currently in default of the loans payable and
      the debt holders have the right to demand on their  secured  loan.  If the
      shareholders demand on the Company's  obligation,  they can force the sale
      of the Company's  assets to satisfy the  obligation.  Although  management
      believes,  and is supported by independent  valuations,  that the value of
      the Company's  assets surpass the value of the loan  obligation on a going
      forward basis, a demand by the Company's  secured creditors may negatively
      affect the market  value of the  Company's  assets and the  Company may be
      required to significantly reduce or limit operations.

10.   PREFERRED SHARES

      The Series 1 preferred  shares (no par value) are non-voting,  cumulative,
      non-participating, $1 redeemable and retractable. The shares pay dividends
      at the rate of 9.1% per annum  payable in annual  instalments  on the 15th
      day of  December in each year  accruing  and  cumulative  from the date of
      issue. As at September 30, 2008 dividends in arrears amounted to $33,660.

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

      Issued - Series 1 preferred shares (no par value)       Number      Amount

         Balance, September 30, 2008 and 2007                494,550    $494,550
                                                             =======    ========


                                                                              28
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

11.   CAPITAL STOCK

      (a)   Authorized

            Unlimited number of common shares and class "A" shares.

      (b)   Issued - common shares (no par value)

                                                          Number        Amount
                                                          ------        ------

            Balance, September 30, 2008                 45,980,549   $12,661,908
            Balance, December 31, 2007                  45,921,149   $12,652,998
                                                        ==========   ===========

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

            The outstanding and exercisable stock options are as follows:

                                                                        Weighted
                                                                         Average
                                                             Number     Exercise
            Outstanding and Exercisable                  of Options        Price
            --------------------------------------------------------------------
            Balance, September 30, 2008 and
              December 31, 2007                           4,655,000        $0.16
                                                          =========        =====

            The Company has granted stock options as follows:

                                                                        Weighted
                                                         Outstanding    Average
                                    Number    Exercise       and       Remaining
Expiry Date       Grant Date      of Options   Price     Exercisable      Life
--------------------------------------------------------------------------------
May 11, 2009      May 11, 2007       200,000    0.15        200,000       0.61
June 25, 2009    June 25, 2004     3,000,000    0.10      3,000,000       0.73
Dec.29, 2009      Dec.29, 2006       240,000    1.00        240,000       1.25
April 24, 2010  April 25, 2006       100,000    0.10        100,000       1.57
May 11, 2012      May 11, 2007     1,100,000    0.15      1,100,000       3.61
July 29, 2012    July 30, 2007        15,000    0.15         15,000       3.83
                                   ---------              ---------

                                   4,655,000              4,655,000       1.46
                                   =========              =========       ====


                                                                              29
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

11.   CAPITAL STOCK (continued)

      (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.

Issue date                         May 11, 2007    May 11, 2007    July 30, 2007
--------------------------------------------------------------------------------
Number of options                       200,000       1,100,000           15,000
Expected life                         1.5 years         5 years          5 years
Price volatility                           118%            260%             290%
Dividend yield                               --              --               --
Risk-free interest rate of return         4.56%           4.54%            4.64%
Fair value                               $9,000        $110,000             $450

      (d)   Warrants

      Balance, at December 31, 2007                                $708,456
      Modification of Warrants                                       63,827
                                                                   --------
      Balance, at September 30, 2008                               $772,283
                                                                   ========

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

                                                                        Weighted
                                                                         Average
                                                                        Exercise
            Outstanding and Exercisable                # of Warrants      Price
            --------------------------------------------------------------------
            Balance, September 30, 2008
            and December 31, 2007                       14,474,166        $0.18
                                                        ==========        =====

      The Company has granted warrants as follows:

<TABLE>
<CAPTION>
                                                                            Weighted
                                                              Outstanding    Average
                                         Number    Exercise       and       Remaining
Expiry Date            Grant Date     of Warrants   Price     Exercisable      Life
-------------------------------------------------------------------------------------
<S>                         <C>          <C>         <C>         <C>           <C>
October 1, 2008     October 1, 2007      180,000     0.10        180,000       0.00
April 7, 2009         April 7, 2004    2,547,500     0.30      2,547,500       0.52
April 11, 2009     October 11, 2007    6,475,000     0.10      6,475,000       0.53
May 31, 2009           May 31, 2006    1,691,666     0.30      1,691,666       0.67
December 31, 2009     June 30, 2004    1,830,000     0.25      1,830,000       1.25
December 31, 2009      May 11, 2007      550,000     0.25        550,000       1.25
August 14, 2010     August 14, 2007    1,200,000     0.10      1,200,000       1.87

                                      14,474,166              14,474,166       0.76
                                      ==========              ==========       ====
</TABLE>


                                                                              30
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

11.   CAPITAL STOCK (continued)

      (d)   Warrants

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

Grant date                      May 11, 2007   August 14, 2007   October 1, 2007
Number of warrants                   550,000         1,200,000           180,000
Expected life                      2.5 years           3 years         1.7 years
Price volatility                        118%              256%              125%
Dividend yield                            --                --                --
Risk-free interest
  rate of return                       4.56%             4.28%             4.22%
Fair value                           $27,500           $93,600            $8,280

Grant date                  October 11, 2007
Number of warrants                 6,475,000
Expected life                      1.5 years
Price volatility                        113%
Dividend yield                            --
Risk-free interest
  rate of return                       4.22%
Fair value                          $604,566

      During  the  second  quarter of 2008 the board of  directors  approved  an
      extension of 2,547,500  warrants to April 7, 2009 that were  originally to
      expire in April  2008 and  1,691,666  warrants  to May 31,  2009 that were
      originally  to  expire  in May  2008.  As a  result  of the  modification,
      Warrants  increased  by  $63,827  and  Contributed  Surplus  decreased  by
      $63,827.

12.   CONTRIBUTED SURPLUS

      Balance, December 31, 2007                                     $  902,449
      Subscription receivable                                           229,747
      Modification of Warrants                                          (63,827)
      Adjustment to proceeds from financing                                 375
                                                                     ----------
      Balance, September 30, 2008                                    $1,068,744
                                                                     ==========

      The  Company  has  entered  into  financing   arrangements   with  limited
      partnerships  (see Note 18 Limited  Partnership  Financings)  As a part of
      this  financing  the Company  has a  subscriptions  receivable  balance of
      $116,872  (December 31, 2007 - $346,619) which is receivable over a period
      of two years ending 2010.


                                                                              31
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

13.   INTEREST EXPENSE (INCOME)

<TABLE>
<CAPTION>
                                                                      Three months ended                     Nine months ended
                                                                         September 30                           September 30
                                                                                     Restated                              Restated
                                                                    2008               2007               2008               2007
                                                                 ---------          ---------          ---------          ---------
<S>                                                              <C>                <C>                <C>                <C>
Interest on convertible debentures                               $  44,552          $  44,552          $ 133,656          $ 133,656
Bank film production loan                                               --             31,239             31,591             97,008
Other Interest                                                       1,005                 33              1,005                 33
Interest on preferred shares                                        11,220             11,220             33,660             33,660
                                                                 ---------          ---------          ---------          ---------
                                                                    56,777             87,044            199,912            264,357
Interest income                                                     (8,519)            (8,296)           (54,160)           (25,029)
                                                                 ---------          ---------          ---------          ---------
                                                                    48,258             78,748            145,752            239,328
Less: amounts capitalized to projects                              (27,683)           (68,766)          (101,709)          (184,451)
                                                                 ---------          ---------          ---------          ---------

                                                                 $  20,575          $   9,982          $  44,043          $  54,877
                                                                 =========          =========          =========          =========
</TABLE>

14.   EARNINGS (LOSS) PER SHARE

            For the 3 and 9 months ended September 30, 2008 and 2007, options to
            purchase  4,655,000  and  4,655,000  common  shares and  warrants to
            purchase  14,474,166 and 7,819,166 common shares,  respectively were
            not included in the  computation of diluted  earnings (loss) in 2007
            because the exercise  prices were  greater  than the average  market
            price of the common shares and in 2008 because of the loss position.

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

                Period                                               Outstanding
                ------                                               -----------
                September 30, 2008                                    45,980,549
                September 30, 2007                                    39,382,549


                                                                              32
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

14.   EARNINGS (LOSS) PER SHARE (Continued)

<TABLE>
<CAPTION>
                                                                    Three months ended                      Nine Months Ended
                                                                       September 30,                          September 30,
                                                                 2008                2007                2008               2007
Numerator:                                                                         Restated                               Restated
<S>                                                          <C>                 <C>                <C>                 <C>
Net income (loss) and comprehensive
Income (loss) for the period, basic
and diluted                                                  $   (222,822)       $    309,558       $ (3,980,387)       $  1,107,492

Denominator:
Weighted average number of shares - basic                      45,944,129          39,376,529         45,980,549          39,355,816
                                                             ============        ============       ============        ============
Effect of dilutive securities:
Stock options and Warrants                                             --                  --                 --                  --
Weighted average number of shares - diluted                    45,944,129          39,376,529         45,980,549          39,355,816
                                                             ============        ============       ============        ============

Net income (loss) per share

Basic and diluted                                            $       0.00        $       0.01       $       0.03        $       0.03
                                                             ============        ============       ============        ============
</TABLE>

15.   FINANCIAL INSTRUMENTS

      Classification

                                                                    As at
                                                              September 30, 2008

Financial assets:
  Held for trading, measured at fair value
     Cash and cash equivalents                                    $   39,254

  Loans and receivables, measured at amortized cost
     Accounts receivable                                          $  196,650
     Other receivables                                               768,347

Financial liabilities, measured at amortized cost:
  Loans payable                                                   $1,700,800
  Preferred shares                                                $  494,550
  Accounts payable and accrued liabilities                        $1,904,941

The aging of accounts receivable is as follows:    Current        $  181,350
                                                   30 days        $    8,500
                                                   60 days        $    2,900
                                                   90 days        $    1,200
                                                   120 + days     $    2,700


                                                                              33
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

15.   FINANCIAL INSTRUMENTS (continued)

      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,   preferred   shares,   accounts  payable  and  accrued
            liabilities  approximate fair value due to their short-term maturity
            and normal credit terms.

            The fair value of 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 the
            market rate.

      (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. The Company believes that
            there is no credit risk  associated  with tax  credits and  advances
            receivable as counterparties are both credit worthy.

      (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 September 30, 2008.

            The Company is exposed to foreign  currency  exchange rate risk as a
            result of sales of its  products in various  foreign  countries  and
            production  operations  conducted  in other  countries.  In order to
            minimize the risks  associated with foreign  currency  fluctuations,
            most sales contracts are issued in either Canadian or U.S.  dollars.
            The Company  constantly  monitors the exchange rate between the U.S.
            dollar and the Canadian dollar to determine if any adverse  exposure
            exists  relative to its costs of production.  The Company  maintains
            funds in both U.S. and Canadian currency. At September 30, 2008, 28%
            of the Company's cash was in U.S. funds.


                                                                              34
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

16.   CAPITAL MANAGEMENT

      The Company's  capital  management  objectives  are to maintain  financial
      flexibility  in order  to  preserve  its  capacity  to meet its  financial
      commitments,  to pay  dividends  and to  meet  its  potential  obligations
      resulting from internal growth and acquisitions.

      The Company defines capital as:

            viii) Shareholders' equity (deficit)

            ix)   Loans payable

            x)    Preferred shares

            xi)   Cash and cash equivalents

      Total managed capital was as follows:

                                                 As at               As at
                                          September 30, 2008   December 31, 2007

Shareholders' equity (deficit)                 $ (855,046)         $2,886,309
Loans payable                                   1,700,800           1,700,800
Preferred shares                                  494,550             494,550
Cash and cash equivalents                         (39,254)           (245,872)
                                               ----------          ----------
                                               $1,301,050          $4,835,787
                                               ==========          ==========

      The Company  manages its capital  structure in accordance  with changes in
      economic conditions. In order to maintain or adjust its capital structure,
      the Company may elect to adjust the amount of debt outstanding, adjust the
      amount  of  dividends  paid  to   shareholders'   return  capital  to  its
      shareholders'  repurchase  its  shares  in the  marketplace  or issue  new
      shares.

      Loans payable  consist of the Company's  1995,  1996 and 2000  convertible
      debentures,  which bear interest at 10.5 % per annum,  have matured,  have
      not been  extended  and carry no fixed  term,  accordingly  the Company is
      carrying the  outstanding  amount of $1,700,800  (2007 - $1,700,800)  as a
      loan payable.  The  creditors  have a general  security  assignment on the
      assets of the  Company.  Accrued  interest  as at  September  30, 2008 was
      $980,162  (December  31,  2007 -  $846,505)  and is  included  in accounts
      payable and accrued liabilities. In 2007, the Company deposited $60,000 in
      trust  related to the loans,  to show that the  Company was  committing  a
      portion of its cash flow towards  settlement of its liability and included
      the amount on the balance sheet with prepaid expenses and sundry assets.

      The Company is working towards  settling the outstanding  current loan and
      no  action  has  been  taken  by the debt  holders  and none is  expected.
      Management is in constant  communication  with the holders of the majority
      of this debt, who have consistently supported the Company in the past, and
      expects  that the  Company  will be able to settle  the debt in the normal
      course of operations from a combination of proceeds from equity,  debt and
      VIE  financing,  the  Company's  ongoing  operating  cash flow and through
      possible conversion of a portion of the debt to equity in the Company.

      Nonetheless,  the Company is currently in default of the loans payable and
      the debt holders have the right to demand on their  secured  loan.  If the
      debtholders demand on the Company's obligation, they


                                                                              35
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

16.   CAPITAL MANAGEMENT (continued)

      can force the sale of the  Company's  assets to  satisfy  the  obligation.
      Although management believes, and is supported by independent  valuations,
      that the  value of the  Company's  assets  surpass  the  value of the loan
      obligation on a going  forward  basis,  a demand by the Company's  secured
      creditors may negatively  affect the market value of the Company's  assets
      and  the  Company  may  be  required  to  significantly  reduce  or  limit
      operations.

      The  Company's  cash on hand as at  September  30,  2008  was  $39,254  as
      compared to $245,872 as at December 31, 2007, a decrease in cash  position
      of $206,618.

      The Company has no bank debt. A demand loan bearing interest at prime plus
      1%, repayable in full by June 30, 2008 that was arranged for the financing
      of 6  episodes  of a new one hour TV series  entitled  Across the River to
      Motor City, which was produced by the Company's  wholly owned  subsidiary,
      Across the River  Productions Ltd. was repaid in full in the quarter ended
      June 30, 2008 (September 2007 - $1,807,705).  Interest on the above demand
      loan  totalled  $nil for the three month period ended  September  30, 2008
      (three  months  ended Dec.  31,  2007 - $32,899)  and was  capitalized  to
      projects in progress.

      The  Company's  working  capital  deficiency  remains  significant  but is
      mitigated  by the fact that the Company is working  towards  settling  its
      $1,700,800 of  outstanding  current  loans payable  related to the matured
      1995,  1996 and 2000  convertible  debentures.  Management  is in constant
      communications  with the holders of the  majority  of this debt,  who have
      consistently  supported  the  Company in the past,  and  expects  that the
      Company  will  be  able  to  settle  the  debt  in the  normal  course  of
      operations.

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

      The Company expects to renew profitability and generate positive cash flow
      from new  productions  and operations and expects that proceeds from sales
      of  Across  the River to Motor  City and its film  library  will  generate
      additional  revenues through 2008 and beyond.  The Company requires and is
      actively  seeking  financing  for  working  capital  and  new  production;
      however,  there is no assurance that the Company will be successful in its
      financing  efforts and in achieving  sufficient  cash flows from operating
      activities.

      The  Company's  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,  which are  currently in
      default.

      The Company is working towards  settling the outstanding  current loan and
      no  action  has  been  taken  by the debt  holders  and none is  expected.
      Management is in constant  communication  with the holders of the majority
      of this debt, who have consistently supported the Company in the past, and
      expects  that the  Company  will be able to settle  the debt in the normal
      course of operations from a combination of proceeds from equity,  debt and
      VIE  financing,  the  Company's  ongoing  operating  cash flow and through
      possible conversion of a portion of the debt to equity in the Company.


                                                                              36
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

16.   CAPITAL MANAGEMENT (continued)

      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.

      There have been no changes in the Company's approach to capital management
      during the period.

17.   COMMITMENTS AND CONTINGENCIES

      (a) Minimum  annual rent  commitments  for premises,  excluding  occupancy
      costs, are as follows:

              For the three months ending December 31, 2008              $ 7,250
              For the year ending December 31, 2009                       13,000
                                                                         -------
                                                                         $27,500
                                                                         =======

      (b)   The Company has entered  into  contractual  agreements  for creative
            talent related to future film production. The agreements provide for
            a minimum fee to be paid for the  creative  work with an  additional
            fee to be 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'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 Bailey's  Billion$  are entitled to a priority
            distribution  of the future  revenue  earned from the film 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.

      (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 (Note19)
            the Company may be obligated to issue up to 408,000 common shares to
            the partners of such partnerships.

      (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


                                                                              37
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

17.   COMMITMENTS AND CONTINGENCIES (continued)

      g)    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.

18.   RELATED PARTY TRANSACTIONS

            During  the  3  month  period  ended   September  30,  2008  $73,750
            (September  30, 2007 - $98,332) and 9 month  period ended  September
            30, 2008 $221,250  (September 30, 2007 - $323,526) of fees were paid
            or accrued to  corporations  controlled  by two of the directors for
            writing,  directing and producing services on the Company's film and
            television productions.  These transactions are in the normal course
            of business and have been measured at exchange amount,  which is the
            amount of  consideration  established  and agreed to by the  related
            parties and which  management  believes  reflect  prevailing  market
            rates.

19.   LIMITED PARTNERSHIP FINANCING

            The Company has entered into tax  preferred  financing  arrangements
            with limited  partnerships.  These limited partnerships are VIEs. In
            connection with these financings the Company  received  proceeds net
            of costs of $380,414 to date  recorded  as  contributed  surplus and
            subscriptions receivable (net) of $116,872 at September 30, 2008. In
            connection with the limited  partnership  financings the Company may
            be obligated to issue up to 408,000 common shares to the partners of
            such  partnerships  who have the right to convert their  interest in
            the  partnership's  revenue  stream  into  a  fixed  number  of  the
            Company's common shares.

20.   CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                     Three months ended                    Nine months ended
                                                                        September 30,                        September 30,

                                                                   2008               2007               2008               2007
                                                               -----------        -----------        -----------        -----------
<S>                                                            <C>                <C>                <C>                <C>
Change in non-cash working capital
Accounts receivable                                            $   (54,534)       $  (932,848)       $   832,055        $  (781,198)
Tax credits receivable                                             (61,436)                --            838,410          1,837,284
Advances receivable                                                     --                 --                               (59,529)
Inventory                                                            7,076              9,494              9,584             23,413
Prepaid expenses and sundry receivable                              60,758              4,730            105,620             50,732
Accounts payable and accrued liabilities                           220,460             (3,573)           343,877            110,447
Deferred revenue                                                        --           (873,305)                --         (4,342,643)
                                                               -----------        -----------        -----------        -----------

                                                               $   172,324        $(1,795,502)       $ 2,129,546        $(3,161,494)
                                                               -----------        -----------        -----------        -----------

Non-cash transactions

Shares issued on settlement of
Accrued director's fees                                                 --                 --        $     8,910        $    10,328
</TABLE>


                                                                              38
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

21.   GEOGRAPHIC SALES INFORMATION

            The Company is considered by its chief  operating  decision maker to
            operate  in one  geographic  and  industry  segment,  and  generates
            revenue  from  film   productions  and  film  library.   Revenue  by
            geographic  location,  based on the  location  of  customers,  is as
            follows:

<TABLE>
<CAPTION>
                                           Three months ended                          Nine months ended
                                              September 30                                September 30
Revenue                           2008         %         2007       %        2008          %        2007        %
<S>                            <C>             <C>   <C>           <C>    <C>              <C>   <C>           <C>
Canada                         $    7,231      6     $1,881,809    92     $   19,575       5     $5,643,960    94
United States                      60,042     51         79,344     4        176,981      48        182,084     3
France                                 --                71,000     4         23,868       6         71,000     1
Russia                                 --                    --                   --                 83,442     1
Other foreign                      49,902     43             --              150,892      41         16,150     1
                               ----------            ----------           ----------             ----------
                               $  117,175            $2,032,153           $  371,316             $5,996,636
                               ==========            ==========           ==========             ==========
</TABLE>

22.   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
            and US GAAP, and their effect on the interim consolidated  financial
            statements of the Company, 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.    Under  US  GAAP,  FASB  150,  if  the  preferred   shares  are
                  redeemable  at the  option  of the  holders,  they  should  be
                  presented  as  mezzanine  equity.  The  preferred  shares  are
                  retractable by the holder but are not mandatoraly  redeemable.
                  Under US GAAP,  the  preferred  shares may not be presented as
                  permanent  equity  and/or  within  the  shareholders'   equity
                  (deficiency)  section of the balance sheet.  Preferred  shares
                  are presented as a separate line item between  liabilities and
                  shareholders' equity (deficiency) as required by EITF D-98.

            c.    Under US GAAP  preferred  shares are  classified  as mezzanine
                  equity  and  the  interest  on   preferred   shares  would  be
                  classified  as a dividend  and  recorded as a reduction to the
                  deficit under  shareholders'  equity.  Under Canadian GAAP the
                  preferred shares are classified as a liability and interest is
                  expensed accordingly.

            d.    Under US GAAP  cumulative  dividends are part of the liability
                  for the shares and declared or cumulative dividends which have
                  not been  declared  should  reduce  net  income to arrive at a
                  figure representing earnings (loss) per share.


                                                                              39
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

22.   CANADIAN GAAP AND US GAAP RECONCILIATION (continued)

            Consolidated statements of operations:

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

<TABLE>
<CAPTION>
                                                                         Three months ended                  Nine months ended
FOR THE THREE AND NINE                                                                Restated                             Restated
MONTHS ENDED SEPTEMBER 30,                                             2008              2007              2008              2007
                                                                   -----------       -----------       -----------       -----------
<S>                                                                <C>               <C>               <C>               <C>
Net income (loss) in accordance with
Canadian GAAP                                                      $  (222,822)      $  (309,558)      $(3,980,387)      $ 1,107,492

Interest (dividends) on preferred shares (Note c)                       11,220            11,220            33,660            33,660
                                                                   -----------       -----------       -----------       -----------

Net income (loss) in accordance with US GAAP                       $  (234,042)      $  (320,778)      $(4,014,047)      $ 1,073,832
                                                                   -----------       -----------       -----------       -----------

Preferred share dividends (Note d)                                      11,220            11,220            33,660            33,660
                                                                   -----------       -----------       -----------       -----------

Net income (loss) in accordance
with US GAAP for earnings per share                                   (222,822)         (309,558)       (3,980,387)        1,107,492

Net income (loss) per share - Basic
and Diluted                                                        $      0.00       $     (0.01)      $     (0.09)      $      0.03
                                                                   ===========       ===========       ===========       ===========
</TABLE>


                                                                              40
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

22.   CANADIAN GAAP AND US GAAP RECONCILIATION (continued)

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

<TABLE>
<CAPTION>
AS AT SEPTEMBER 30, 2008
AND DECEMBER 31, 2007                                                                  September 30, 2008          December 31, 2007
                                                                                       ------------------          -----------------
<S>                                                                                        <C>                        <C>
ASSETS
Assets in accordance with Canadian GAAP                                                    $ 3,245,245                $ 8,492,237

Assets in accordance with U.S. GAAP                                                        $ 3,245,245                $ 8,492,237
                                                                                           ===========                ===========

LIABILITIES

Liabilities in accordance with Canadian GAAP                                               $ 4,100,291                $ 5,605,928

Preferred Shares (Note b)                                                                     (494,550)                  (494,550)
                                                                                           -----------                -----------
Liabilities in accordance with U.S. GAAP                                                   $ 3,605,741                $ 5,111,378
                                                                                           ===========                ===========

Preferred Shares in accordance with US
GAAP (Note b)                                                                              $   494,550                $   494,550
                                                                                           -----------                -----------
</TABLE>

<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY (DEFICIENCY)                                                      September 30, 2008          December 31, 2007
                                                                                       ------------------          -----------------
<S>                                                                                        <C>                        <C>
Shareholders' Equity in accordance
with Canadian GAAP                                                                         $  (855,046)               $ 2,886,309

Effect on deficit of treatment of dividends on
Preferred Shares (Note c)
                                                                                           -----------                -----------
Shareholders' equity (deficiency) in accordance
with US GAAP                                                                               $  (855,046)               $ 2,886,309
                                                                                           ===========                ===========
</TABLE>


                                                                              41
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

22.   CANADIAN GAAP AND US GAAP RECONCILIATION

      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.
      There was no  material  impact  on the  Company's  consolidated  financial
      statements as a result of the adoption of SFAS No. 157.

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


                                                                              42
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                               SEPTEMBER 30, 2008

22.   CANADIAN GAAP AND US GAAP RECONCILIATION (continued)

            Impact  of  Newly  Issued   United   States   Accounting   Standards
            (continued)

      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.
      Management  believes that SFAS No. 141R will not have a material effect on
      the financial position, results of operations and cash flows.


                                                                              43
<PAGE>

Item 2.

                 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

The  following  management's  discussion  and analysis  has been  prepared as of
November 12, 2008 to provide a review of current  activities and a comparison of
the performance and financial position of Devine Entertainment for the three and
nine month periods ended  September  30, 2008 and 2007.  Additional  information
related to the Company is available  on SEDAR at  www.sedar.com.  The  financial
data  in  this  document  have  been  prepared  in  accordance  with  accounting
principles generally accepted in Canada that conforms, in all material respects,
with U.S.  GAAP  except as  described  in Note 21 to the  financial  statements.
References  to  Canadian  dollars,  Cdn$ or $ are to the  currency of Canada and
references to U.S. dollars or US$ are to the currency of the United States.

OVERVIEW

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

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

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

FORWARD-LOOKING STATEMENTS

Readers are cautioned that actual results may differ materially from the results
projected in any  "forward-looking"  statements  included in this discussion and
analysis,  which  involve a number of risks and  uncertainties.  Forward-looking
statements are statements  that are not historical  facts,  and include (but are
not limited to) statements  regarding the Company's planned production slate and
development  activities,  anticipated future  profitability,  losses,  revenues,
expected future  expenditures,  the Company's  intention to raise new financing,
sufficiency of working capital for continued  operations,  and other  statements
regarding  anticipated  future  events  and  the  Company's  anticipated  future
performance. Forward-looking statements


                                                                              44
<PAGE>

generally can be identified by the words "expected",  "intends",  "anticipates",
"feels", "continues",  "planned",  "plans",  "potential",  "with a view to", and
similar  expressions or variations thereon, or that events or conditions "will",
"may", "could" or "should" occur, or comparable  terminology referring to future
events or results.

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

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

As  explained  on pages 54  through  55, and pages 9 through 10 in Note 2 to the
Company's September 30, 2008 Interim Consolidated  Financial Statements,  of the
Interim Report on Form 10-Q,  the Company is restating its  previously  reported
consolidated  financial statements for the three and nine months ended September
30, 2007.

THIRD QUARTER 2008 HIGHLIGHTS

      o     Reflecting the lack of new  productions  being  delivered to date in
            2008, the Company's total revenues decreased by approximately 94% or
            $1,914,978 to $117,175 for the quarter  ended  September 30, 2008 as
            compared to $2,032,153 for the same period in 2007.

      o     Revenues  from the  Company's  core library of completed  television
            programs  and  recordings,  which  include the  Company's  Artist's,
            Inventors'  and Composers'  Specials,  as well as Marsalis on Music,
            Shakespeare 4 Kids,  Beethoven  Lives  Upstairs,  its Raffi programs
            continued to perform well,  although decreasing by $44,169 or 27% to
            $117,175 for the quarter  ended  September 30, 2008 as compared with
            $161,344 for the same period in 2007.

      o     Net Loss for the quarter ended September 30, 2008 totaled  $222,822,
            or ($0.00)  per share,  an  increase  of $532,380 as compared to net
            earnings of $309,558 or $0.01 per share for the same period in 2007.

RESULTS OF OPERATIONS FOR THE THIRD QUARTER AND NINE MONTHS ENDED  SEPTEMBER 30,
2008 AND 2007

Revenues

Reflecting  the lack of new  productions  being  delivered to date in 2008,  the
Company's  total  revenues  decreased  by  approximately  94% or  $1,914,978  to
$117,175 for the quarter ended  September 30, 2008 as compared to $2,032,153 for
the same period in 2007.

Total  revenues for the nine month period ended  September 30, 2008 decreased by
approximately  93% or $5,625,320  to $371,316 as compared to $5,996,636  for the
same period in 2007.

Revenues from the Company's  core library of completed  television  programs and
recordings,  which include the Company's  Artist's,  Inventors'  and  Composers'
Specials,  as well as Marsalis on Music,  Shakespeare  4 Kids,  Beethoven  Lives
Upstairs,  its Raffi programs continued to perform well,  although decreasing by
$44,169 or 27% to $117,175 for the quarter ended  September 30, 2008 as compared
with $161,344 for the same period in 2007.

For the nine month period ended September 30, 2008,  revenues from the Company's
core library of completed  television programs and recordings decreased modestly
by $12,893 or  approximately  3% to $371,316 as compared  with  $384,209 for the
same period in 2007.


                                                                              45
<PAGE>

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

<TABLE>
<CAPTION>
                                          Three months ended                      Nine months ended
                                             September 30                            September 30
Revenue                           2008        %      2007        %       2008        %       2007        %

<S>                            <C>            <C> <C>           <C>  <C>             <C>  <C>           <C>
Canada                         $    7,231     6   $1,881,809    92   $   19,575      5    $5,643,960    94
United States                      60,042    51       79,344     4      176,981     48       182,084     3
France                                 --             71,000     4       23,868      6        71,000     1
Russia                                 --                 --                 --               83,442     1
Other foreign                      49,902    43           --            150,892     41        16,150     1
                               ----------         ----------         ----------           ----------

                               $  117,175         $2,032,153         $  371,316           $5,996,636
                               ==========         ==========         ==========           ==========
</TABLE>

Earnings (loss) per Common Share (EPS)

Net Loss for the three months ended  September  30, 2008  totaled  $222,822,  or
($0.00) per share,  an  increase  of  $532,380  as  compared to net  earnings of
$309,558 or $0.01 per share for the same period in 2007.

Net Loss for the nine months ended September 30, 2008 increased by $5,087,879 to
$3,980,387  or ($0.09) per share as compared to net  earnings of  $1,107,492  or
$0.03 per share for the same period in 2007, primarily reflecting non-cash write
downs and amortization of the Company's investment in film,  television programs
and recordings of $3,552,774 in the second quarter of 2008.

Shareholders'Equity (Deficiency)

Shareholders'   equity  (deficiency)  was  ($855,046)  at  September  30,  2008,
reflecting a decrease of  $3,741,355  as compared to  $2,886,309 at December 31,
2007.

SUMMARY OF QUARTERLY RESULTS

<TABLE>
<CAPTION>
                                                                                   Restated     Restated     Restated      Restated
                         Sept. 30,       June 30,     Mar. 31,       Dec. 31,     Sept. 30,     June 30,     Mar. 31,      Dec. 31,
                              2008           2008         2008           2007          2007         2007         2007          2006
                              ----           ----         ----           ----          ----         ----         ----          ----
<S>                      <C>          <C>            <C>          <C>            <C>          <C>          <C>          <C>
Revenues                 $ 117,175    $   149,587    $ 104,554    $   147,941    $2,032,153   $1,935,408   $2,029,075   $    60,430
Selling, general
and administrative         273,684        212,650      196,413        276,957       346,826      285,586      132,546       216,911


Amortization:

-Film, television
programs, and
recordings                  44,830         75,076       24,374       (106,604)    1,364,572    1,354,414    1,376,705        52,135
-Equipment                     908            977        1,050          1,130         1,215        1,308        1,407         1,514
Write Downs                     --      3,477,698           --      1,600,097            --           --           --     1,758,742
Interest                    20,575         23,403           65         43,537         9,982        8,846        5,737        51,067
Net income (loss)        $(222,822)   $(3,640,217)   $(117,348)   $(1,667,176)   $  309,558   $  285,254   $  512,680    $(2,01,939)
Basic earnings
(loss) per
common share             $   (0.00)   $     (0.08)   $   (0.00)   $     (0.04)   $     0.01   $     0.01   $     0.01   $     (0.06)
</TABLE>


                                                                              46
<PAGE>

Selling, general and administrative expenses

The Company's selling,  general and administrative expenses for the three months
ended September 30, 2008 decreased by $73,142 or  approximately  21% to $273,684
as compared to $346,826 in the same period in 2007.

The Company's selling,  general and administrative  expenses for the nine months
ended September 30, 2008 decreased by $51,899 or  approximately  7% to $682,747,
as compared to $734,646 in the same period in 2007.

Selling,  general and administrative  expenses include  participation costs, and
exploitation  costs,  which include and manufacturing and distribution costs for
the  Company's  film library.  Participation  expenses and  exploitation  costs,
including  manufacturing  costs and third party  distribution  fees and expenses
related to sales of Company's library of films, television,  programs and motion
picture totaled $40,260 for the three months ended September 30, 2008 decreasing
by $20,093 or  approximately  33% as  compared  to $60,353 in the same period in
2007. For the nine month ended  September 30, 2008,  participation  expenses and
exploitation costs,  including  manufacturing costs and third party distribution
fees and expenses  related to sales of Company's  library of films,  television,
programs  and  motion  picture  totaled   $129,141   decreasing  by  $59,662  or
approximately 32% as compared to $188,803 in the same period in 2007.

Production and Development Activity

The Company  continues to develop new projects in order to secure new production
activity.  The  Company  has  acquired  the  rights and is  actively  developing
additional  films and series projects  targeted to the worldwide family audience
including Russell Sprout, Quarterback,  Fat Camp and Humchucker. The Company has
also  entered  into an  initial  agreement  to  co-develop,  with the  intent of
co-producing in the future, a new series of Writers' Specials with a co-producer
in France.  In addition,  the Company is  preparing  to expand on the  primetime
drama franchise  established by Across the River to Motor City with a new series
set on the US/Mexico  border and began  presenting this new series concept to US
and Foreign broadcasters in the third quarter of 2008.

Investment in Film and Television Programs and Recordings

In accordance with statement of position of the American  Institute of Certified
Public  Accountants ("SOP 00-2"), the Company's  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.

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").  For the  proprietary  films,  television
programs and recordings  produced by the company,  a maximum period of ten years
after the  delivery of the  production  is used in  accordance  with SOP 00-2 to
estimate fair value. 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.  Capitalized  film costs are stated at the lower of  unamortized  cost or
estimated fair value on an individual film basis.


                                                                              47
<PAGE>

Development  costs  which  are  expected  to  benefit  future  periods  are also
capitalized.  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.

The net carrying value for the Company's Investment in Film, Television Programs
and Recordings  totaled $2,103,557 as at September 30, 2008 (December 31, 2007 -
$5,335,327).

<TABLE>
<CAPTION>
                                                                                    September 30,                       December 31,
                                                                                        2008                                2007
                                                                                        ----                                ----
                                                                                                           Net               Net
                                                                                     Accumulate         Carrying           Carrying
                                                                       Cost         Amortization          Value              Value
                                                                       ----         ------------          -----              -----
<S>                                                                <C>               <C>               <C>               <C>
Completed television programs and recordings                       $ 6,857,419       $ 6,818,871       $    38,548       $   265,000
Completed Motion picture - Bailey's Billion$                         6,972,580         6,972,580                --         2,034,919
Completed Television Drama Series                                    5,795,377         4,629,248         1,166,129         1,816,485
Projects in progress                                                   898,880                --           898,880         1,238,923
                                                                   -----------       -----------       -----------       -----------

                                                                   $20,524,256       $18,420,699       $ 2,103,557       $ 5,355,327
                                                                   ===========       ===========       ===========       ===========
</TABLE>

Amortization  and  write-down  expensed in the three months ended  September 30,
2008 for the Company's  Investment in Film,  Television  Programs and Recordings
totaled $44,830 (2007 - $1,364,572). Amortization and write-down expensed in the
nine months  ended  September  30, 2008 for the  Company's  Investment  in Film,
Television Programs and Recordings totaled $3,621,978 (2007 - $4,095,691).


                                                                              48
<PAGE>

The following table summarizes the Company's amortization and write downs:

<TABLE>
<CAPTION>
           For the                                                                      Three Months Ended   Nine Months Ended
                                                                                           Sept. 30, 2008      Sept. 30, 2008
------------------------------------------------------------------------------------------------------------------------------
                                                          Completed films,
                                                          television
                                                          programs, &        Projects In
                                                          recordings         Progress        Total              Total
------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                     <C>        <C>                <C>
Amortization

-Artists Series                                           $   44,830              --         $   44,830         $  144,280
------------------------------------------------------------------------------------------------------------------------------
Write-down

-Artists Series                                                   --                                 --             64,982
-Bailey's Billion$                                                --                                 --          2,034,919
-Across the River                                                 --                                 --            760,134
-Writers Series                                                   --              --                 --            428,196
-Humchucker                                                       --              --                 --            189,467
------------------------------------------------------------------------------------------------------------------------------
Total Write-down                                                  --              --                 --          3,477,698
------------------------------------------------------------------------------------------------------------------------------
Total Amortization and
Write-down                                                $   44,830         $    --         $   44,830         $3,621,978
                                                          ==========         =======         ==========         ==========
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The following table summarizes Company's amortization expenses:

<TABLE>
<CAPTION>
                                                                         Three months ended                   Nine months ended
                                                                            September 30                         September 30
Amortization                                                            2008             2007              2008              2007

<S>                                                                 <C>               <C>               <C>               <C>
Completed television programs and recordings                        $   44,830        $  160,616        $  144,280        $  226,576
Completed Motion picture - Bailey's Billion$                                --                --                --                --
Completed Television Drama Series                                           --         1,203,956                --         3,869,115
                                                                    ----------        ----------        ----------        ----------

                                                                    $   44,830        $1,364,572        $  144,280        $4,095,691
                                                                    ==========        ==========        ==========        ==========
</TABLE>

The following table summarizes Company's write-downs:

<TABLE>
<CAPTION>
                                                                  Three months ended     Nine months ended
                                                                     September 30           September 30
Write-downs                                                      2008          2007        2008       2007
<S>                                                            <C>           <C>       <C>           <C>
Completed television programs and recordings                   $    --       $    --   $    64,982   $    --
Completed Motion picture - Bailey's Billion$                        --            --     2,034,919        --
Completed Television Drama Series                                   --            --       760,134        --
Projects in progress                                                --            --       617,663        --
                                                               -------       -------   -----------   -------

                                                               $    --       $    --   $ 3,477,698   $    --
                                                               =======       =======   ===========   =======
</TABLE>


                                                                              49
<PAGE>

Completed Television Programs and Recordings

Amortization and write-down of the Company's  completed  television programs and
recordings, which include The Composers Specials, The Inventors Specials and The
Artists  Specials for the three months ended  September 30, 2008 totaled $44,830
(2007 - $160,616) including a write down of $nil (2007 - $nil). Amortization and
write-down of the Company's completed television programs and recordings,  which
include The Composers Specials,  The Inventors Specials and The Artists Specials
for the nine months ended September 30, 2008 totaled  $209,263 (2007 - $226,576)
including a write down of $64,982 (2007 - $nil).

At September 30, 2008 investment in completed television programs and recordings
totaled $38,548 (December 31, 2007 - $265,000).

In the nine-year period from 1999 to 2007, The Artists Specials, the last series
of films in its completed television programs and recordings with a net carrying
value  remaining,  generated  approximately  $5,850,000 in its first eight years
after the  original  release,  which is an average of  $650,000  per annum.  The
Company's  ultimate  revenue  estimates  for The  Artists'  Specials  in 2008 is
approximately  $300,000,  based on its  history of sales in North  American  DVD
markets and  estimates  from its recent  distribution  agreement for the foreign
territories.  While,  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 will be expensed
by the  end of the  proscribed  ten  year  amortization  period  of The  Artists
Specials at the end of 2008.

Completed Motion Picture - Bailey's Billion$

At September 30, 2008,  the Company's  investment in completed  motion  picture,
Bailey's Billion$, totaled $nil (December 31, 2007 - $2,034,919).

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

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

For  estimates in the foreign  territories,  the Company has relied on its sales
agents' estimates on an all rights basis per territory.  The Company's  ultimate
revenue  estimates  were based on bank  approved  estimates  of initial  advance
payments  per  territory  which do not  take  into  account  any  second  window
television  license values and longer term  DVD/video  royalty  payments.  These
estimates were then


                                                                              50
<PAGE>

discounted to match the discounted  United States  ultimate  revenue  estimates,
conservatively assuming that all of the other territories around the world would
not exceed the revenues from the United States market.

While actual revenues of $6,140,000 from the Company's  Completed Motion Picture
in the first two  years  were  above the  Company's  original  ultimate  revenue
estimates  and a drop-off was expected  while certain  non-fundable  advances in
foreign  territories  were  recouped by  distributors,  the Company  revised its
remaining  ultimate revenues to approximately $27 million for the next six years
in light of changing  market  conditions  and the declining  performance  of its
distributors  and  accordingly  wrote down the net  carrying  value of  Bailey's
Billion$ by $856,159 in the fourth quarter of 2007.

Although,  revenues  exceeded the  Company's  estimates in 2004 and 2005 and the
motion picture performed well in the marketplace, sales dropped off dramatically
in 2006 and there were no sales  reported  in 2007,  which  reflected  a lack of
reporting  and a dispute  between  the U.K.  based  co-producer  and the  master
distributor  which the  co-producer,  through a related party, has a significant
ownership stake. Although, the Company has continued to pursue resolution of the
distribution  of the completed  motion picture and made effort to repatriate its
exploitation  rights,  no new sales have been  reported,  although  the  Company
believes  sales have been made and revenues  have been  generated in the period,
and the Company no longer has any confidence in the  determinability of revenues
from its  completed  motion  picture.  Accordingly  the  Company  wrote down the
balance of its carrying value in the second quarter of 2008.

Completed Television Drama Series

In the three months ended September 30, 2008 there was no  amortization  (2007 -
$1,203,956) of the Company's investment in completed television drama series. In
the nine months ended  September 30, 2008, the Company wrote down its investment
in  completed  television  drama series by $760,134  (2007 - $nil).  In the nine
months ended September 30, 2008 there was no amortization (2007 - $3,869,115) of
the Company's investment in completed television drama series.

As at September 30, 2008 the Company's  investment in completed television drama
series totaled $1,164,350 (December 31, 2007 - $1,816,485).

Ultimate revenue estimates for the Company's television drama series, Across the
River  to  Motor  City,  are  based  on the  Company's  25 year  history  in the
television industry and the distribution in the international  broadcast and DVD
marketplace and discussions  regarding  estimated  values of broadcast  licenses
provided by experienced third-party distributors and sales agents. Each of these
distributors  and sales agents has well over 20 years of  experience in its area
of sales and  distribution.  Management  has  discounted  these  estimates in an
effort to provide  conservative and realizable ultimate revenue estimates backed
up  by a  conservative  schedule  of  territory  by  territory  broadcast  sales
estimates.

In  Canada,  management's  estimates  reflect  contracted  sales  of  $5,612,500
receivable on delivery of the series (covering 67% of overall Ultimate  revenues
for the ten year  proscribed  period in compliance with FASB 53). The balance of
Canadian  revenues  total  $360,000  over the ten  year  period  covering  three
broadcast  windows in French  Canada,  one window  after  seven years in English
Canada, and all revenues from VOD, DVD and digital distribution marketplaces.

In the  United  States,  management  has  used  the  Company's  twenty  years of
experience  with  broadcasters  in conjunction  with its sales agent's review of
broadcast  license  values  for three  windows  over ten years as a basis of its
television sales estimates and then discounted  these estimates.  As an example,
the Company's first window  (averaging 36 months) cable broadcast license for 18
of its programs have  averaged  just over CDN $325,000 and overall  Management's
estimates  reflect a conservative  value of $160,000 over three windows over ten
years.

For  estimates  in the  foreign  territories,  the  Company  has relied on sales
agents'  estimates  for a first  window  sale in France of between  $50,000  and
$150,000 per episode and reviewed broadcast values for first window sales in the
7  major  territories  as  well  as  estimates  in 25 of  75  key  international
territories and discounted its estimates to $300,000 for all territories outside
of North America for multiple windows over ten years.


                                                                              51
<PAGE>

With  regard to DVD/VOD  and  digital  media  sales  estimates,  the Company has
reviewed  and  compared  them to the  Company's  historical  sales.  The Company
compared and supported  these  estimates  with industry  standards and published
unit  sales  for  comparative  television  programs  and  then  discounted  them
conservatively  and modeled the estimates to  incorporate  its  experience  with
distributor's  fees  and  expense   limitations  in  its  various   distribution
agreements.  Management  notes that its  estimate  for all DVD,  VOD and digital
distribution  of the series  world-wide for ten years is a conservative  $20,000
per episode.

Management  believes that market  changes,  which have resulted from a series of
related broadcaster and investor consolidations in Canada that became evident in
the second quarter of 2008 have, in the Company's opinion,  negatively  impacted
future  revenue  estimates for Across the River to Motor City.  The  broadcaster
(CHUM Television) who commissioned the mini-series,  licensed Canadian broadcast
rights and holds an equity  investment  in Across the River to Motor  City,  was
bought and sold twice in 2007.  This  dramatic and  un-forecasted  change in the
rights  ownership and promotion of the series has, in the opinion of management,
impaired the  potential  future  revenues for the mini  series.  This event,  in
combination  with the effect of the changes in the US currency  exchange and the
general  downturn  in  the  public  markets,  the  economy  and  the  investment
environment, have negatively impacted the future revenues and of the program and
accordingly,  in  compliance  with SOP  00-2,  the  Company  wrote  down the net
carrying  value of its  investment in its completed  television  drama series by
$760,134 in the period ended June 30, 2008.

The Company  believes  that current  ultimate  revenue  estimates for Across the
River to Motor City are  conservative and realizable,  notwithstanding  the fact
that  management  reviews the  estimates on a regular  basis and may adjust them
down depending on changing results and market conditions in the future.

Projects in Progress

Development costs for properties that are expected to benefit future periods are
capitalized.  If the property under  development has not been set for production
within three years, or if upon review  management  determines that certain costs
are  unrecoverable,  the costs  associated with such property are written off to
income.  In the three  months  ended  September  30,  2008 $nil  (2007 - nil) of
projects  in  progress  was  written  off to income.  In the nine  months  ended
September  30, 2008,  $617,663  (2007 - nil) of projects in progress was written
off to income.

At September 30, 2008, the Company's  investment in projects in progress totaled
$898,880 (December 31, 2007 - $1,238,923).

Participation expenses and exploitation costs, including manufacturing costs and
third party distribution fees and expenses related to sales of Company's library
of films, television,  programs and motion picture totaled $40,260 for the three
months ended  September 30, 2008 decreasing by $20,093 or  approximately  33% as
compared  to  $60,353  in the same  period in 2007.  For the nine  months  ended
September 30, 2008,  participation  expenses and exploitation  costs,  including
manufacturing  costs and third party  distribution  fees and expenses related to
sales of Company's  library of films,  television,  programs and motion  picture
totaled  $129,141  decreasing  by $59,662 or  approximately  32% as  compared to
$188,803 in the same period in 2007.

There were no  participation  and  exploitation  costs  related to the Company's
completed motion picture - Bailey's  Billion$ or its completed  television drama
series  and the  Company  does not  expect any  participation  and  exploitation
expenses  related to these films in 2008.  The Company  estimates  approximately
$190,000  in  participation  and  exploitation  costs  related to its library of
completed  television  programs and  recordings in 2008, of which  approximately
$50,000 or 26% are costs related to the Artists Specials series, the only series
of the Company's  completed  television programs and recordings with a net carry
cost remaining.


                                                                              52
<PAGE>

The  following  table  summarizes   Company's   participation  and  exploitation
expenses:   related  to  its  library  of  completed   television  programs  and
recordings:

<TABLE>
<CAPTION>
                                                                       Three months ended                    Nine months ended
                                                                           September 30                         September 30
Participation and Exploitation costs                                  2008              2007               2008               2007
<S>                                                                <C>                <C>                <C>                <C>
Participation Costs                                                $  3,277           $  4,223           $ 10,802           $ 10,439
Manufacturing Costs                                                  20,057             22,747             52,105             90,981
Distribution fees and expenses                                       16,926             33,383             66,234             87,383
                                                                   --------           --------           --------           --------

                                                                   $ 40,260           $ 60,353           $129,141           $188,803
                                                                   ========           ========           ========           ========
</TABLE>

Interest  incurred on funds borrowed  during  productions  of films,  television
programs and recordings is capitalized as a cost of the production. In the three
months ended September 30, 2008 the Company capitalized $nil (2007 - $31,239) of
interest in connection  with the film  production  for its completed  television
series.  In the three months ended  September  30, 2008 the Company  capitalized
interest in  connection  with various  productions  amounting to $27,683 (2007 -
$37,527).  In the nine months ended September 30, 2008, the Company  capitalized
$31,591 (2007 - $97,008) of interest in connection  with the film production for
its completed  television  series.  In the nine months ended September 30, 2008,
the  Company  capitalized   interest  in  connection  with  various  productions
amounting to $70,118 (2007 - $87,443).

At September 30, 2008,  99%  (December  31, 2007 - 96%) of completed  television
programs and  recordings,  100%  (December  31, 2007 - 71%) of completed  motion
picture costs and 80% (December  31, 2007 - 68%) of completed  television  drama
series costs have been amortized.  The remaining  period of amortization for the
completed  projects  ranges from one to nine years at December 31, 2007. 100% of
completed  television  programs and  recordings  will be amortized in 2008.  The
Company  expects to amortize 69% of the  remaining  completed  television  drama
series costs in the next three years and expects 88% will have been amortized by
2012.

Capital stock

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

On June 16, 2008,  the Company  issued 59,400  Common Shares  equally to Flehr &
Associates Ltd. and Messrs F. Bryson Farrill and Kenneth Taylor in consideration
for Board of Director services provided to the Company.

At September 30, 2008 the Company had 45,980,549 common shares, 494,550 Series 1
Class A preferred shares outstanding and 14,474,166 warrants outstanding.

Related Party Transactions

During the 3 month period ended September 30, 2008 $73,750 (September 30, 2007 -
$98,332) and 9 month period ended  September  30, 2008 $221,250  (September  30,
2007 - $323,526) of fees were paid or accrued to corporations  controlled by two
of the directors for writing,  directing and producing services on the Company's
film and television productions.  These transactions are in the normal course of
business  and have been  measured  at  exchange  amount,  which is the amount of
consideration  established  and  agreed  to by the  related  parties  and  which
management believes reflect prevailing market rates.


                                                                              53
<PAGE>

Variable Interest Entities

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

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

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

Restatement

The  Company  is  restating  its  previously  reported  consolidated   financial
statements  for the 3 and 9 months  ended  September  30, 2007. 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)    The Company  has  determined  that the  previously  filed  financial
            statements  for the 3 and 9 month periods  ended  September 30, 2007
            contained errors resulting from the incorrect  accounting related to
            interest for the Company's  Investment in film,  television programs
            and recordings.  The interest  income was incorrectly  accounted for
            and should not have been  included  in the  results  for the 9 month
            period ended September 30, 2007. In addition, the transaction should
            have been  accounted  for and was addressed in the December 31, 2007
            financial statements.

            The Company has restated the interest  income from interest  expense
            (income).  The restatement  amounts to $30,312.  As a result accrued
            liabilities increased by $30,312 and net income decreased by $30,312
            for the 9 months ended September 30, 2007. The deficit  increased by
            $30,312.

      b)    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.  This  change  was
            reflected in the Company's  December 31, 2007 financial  statements.
            Accordingly  dividends  amounting  to $11,220  would be  restated as
            interest  expense for the 3 month period  ending  September 30, 2007
            and  dividends  amounting  to $33,660  would be restated as interest
            expense for the 9 month period ending September 30, 2007.

      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
            issued for the 3 and 9 month periods ended  September 30, 2007. As a
            result,   for  the  3  month  period  ending   September  30,  2007,
            contributed  surplus decreased by $16,350 and warrants  increased by
            $93,600.  This was offset by an  increase  to the deficit of $77,250
            resulting in a reduction to net income and  comprehensive  income of
            $77,250.   For  the  9  month  period  ending  September  30,  2007,
            contributed  surplus increased by $73,390 and warrants  increased by


                                                                              54
<PAGE>

            $121,100. This was offset by an increase to the deficit of $194,490,
            resulting in a reduction to net income and  comprehensive  income of
            $194,490.

            The  following  table  summarizes  the  impact  of  the  restatement
            adjustment on the previously  reported  statements of operations and
            cash flows for the 3 and 9 months ended September 30, 2007.

            Statement of Operations

                                             Three months        Nine months
                                         September 30, 2007   September 30, 2007

Net income and comprehensive income
  As previously reported                     $   398,028         $ 1,365,954
Interest expense (Note 2 a))                          --             (30,312)
Interest income (Note 2 b)                       (11,220)            (33,660)
Selling, general and administrative              (77,250)           (194,490)
                                             -----------         -----------
Net income and comprehensive income
  As restated                                $   309,558         $ 1,107,492

Statement of Cash Flows

<TABLE>
<CAPTION>
                                                                                   Three months             Nine months
                                                                                September 30, 2007       September 30, 2007

<S>                                                                                 <C>                      <C>
Cash flows (used in) provided by operating activities
     As previously reported                                                         $   (26,107)             $ 2,275,841
Net income for the period                                                               (88,470)                (258,462)
Stock based compensation (Note 2 (c)                                                     77,250                  194,490
Accrued liabilities (Note 2 a and b)                                                     11,220                   63,972
                                                                                    -----------              -----------
Cash flows (used in) provided by operating activities
     As restated                                                                    $   (26,107)             $ 2,275,841

Cash flows (provided by) used in financing activities
     As previously reported                                                         $   453,192              $  (213,494)
Cash flows (provided by) used in financing activities
     As restated                                                                    $   453,192              $  (213,494)

Cash flows used in investing activities                                             $  (364,606)             $(2,113,877)
Cash flows used in investing activities
     As restated                                                                    $  (364,606)             $(2,113,877)
</TABLE>

Loans Payable

Loans  payable  consist  of  the  Company's  1995,  1996  and  2000  convertible
debentures, which bear interest at 10.5 % per annum, have matured, have not been
extended  and carry no fixed  term,  accordingly  the  Company is  carrying  the
outstanding  amount of  $1,700,800  (2007 - $1,700,800)  as a loan payable.  The
creditors  have a general  security  assignment  on the  assets of the  Company.
Accrued  interest as at  September  30, 2008 was $980,162  (December  31, 2007 -
$846,505) and is included in accounts payable and accrued liabilities.  In 2007,
the Company  deposited  $60,000 in trust related to the loans,  to show that the
Company was  committing  a portion of its cash flow  towards  settlement  of its
liability and included the amount on the balance sheet with prepaid expenses and
sundry assets.

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


                                                                              55
<PAGE>

Company will be able to settle the debt in the normal course of operations  from
a combination of proceeds from equity, debt and limited  partnership  financing,
the Company's ongoing  operating cash flow and through possible  conversion of a
portion of the debt to equity in the Company.

Nonetheless,  the Company is currently  in default of the loans  payable and the
debt holders have the right to demand on their secured loan. If the shareholders
demand on the  Company's  obligation,  they can force the sale of the  Company's
assets to satisfy the obligation. Although management believes, and is supported
by independent  valuations,  that the value of the Company's  assets surpass the
value of the loan obligation on a going forward basis, a demand by the Company's
secured creditors may negatively affect the market value of the Company's assets
and the Company may be required to significantly reduce or limit operations.

Liquidity and Capital Resources

The  Company's  cash on hand as at September 30, 2008 was $39,254 as compared to
$245,872 as at December 31, 2007, a decrease in cash position of $206,618.

The Company has no bank debt. A demand loan  bearing  interest at prime plus 1%,
repayable  in full by June 30, 2008 that was  arranged  for the  financing  of 6
episodes  of a new one hour TV series  entitled  Across the River to Motor City,
which was produced by the Company's  wholly owned  subsidiary,  Across the River
Productions  Ltd.  was  repaid  in full  in the  quarter  ended  June  30,  2008
(September  2007 - $1,807,705).  Interest on the above demand loan totalled $nil
for the three month period ended September 30, 2008 (three months ended Dec. 31,
2007 - $32,899) and was capitalized to projects in progress.

The Company's working capital deficiency remains significant but is mitigated by
the fact  that the  Company  is  working  towards  settling  its  $1,700,800  of
outstanding  current  loans payable  related to the matured 1995,  1996 and 2000
convertible  debentures.  Management  is in  constant  communications  with  the
holders  of the  majority  of this debt,  who have  consistently  supported  the
Company in the past,  and expects  that the  Company  will be able to settle the
debt in the normal course of operations.

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

The Company expects to renew  profitability and generate positive cash flow from
new  productions  and  operations and expects that proceeds from sales of Across
the River to Motor City and its film library will generate  additional  revenues
through 2008 and beyond.  The Company requires and is actively seeking financing
for working capital and new production;  however, there is no assurance that the
Company will be successful in its financing efforts and in achieving  sufficient
cash flows from operating activities.

The Company's 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, which are currently in default.

The Company is working  towards  settling  the  outstanding  current loan and no
action has been taken by the debt holders and none is expected. Management is in
constant  communication  with the holders of the majority of this debt, who have
consistently  supported  the Company in the past,  and expects  that the Company
will be able to  settle  the debt in the  normal  course  of  operations  from a
combination  of proceeds  from equity,  debt and VIE  financing,  the  Company's
ongoing operating cash flow and through possible  conversion of a portion of the
debt to equity in the Company.

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


                                                                              56
<PAGE>

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.

OUTLOOK

The Company is optimistic  about the successful  commercial  exploitation of its
new six hour primetime mystery miniseries Across the River to Motor City and its
library of motion pictures and television programs and recordings.

Nonetheless, the Company requires additional financing to finance new production
and  to  address  its  working  capital  deficiency.  Although  there  can be no
assurance,  the Company is pursuing new opportunities  for additional  corporate
and  production  financings  and the Company is actively  pursuing  financing to
produce new films,  develop its marketing and  distribution  activities in North
America and abroad and for its general working capital requirements.

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

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures are designed to provide
reasonable assurance that information required to be disclosed by the Company in
reports  filed with  securities  regulatory  agencies  is  recorded,  processed,
summarized and reported on a timely basis and is accumulated and communicated to
the Company's  management,  including the Company's Chief Executive  Officer and
Chief Financial  Officer,  as appropriate,  to allow timely decisions  regarding
required disclosure.

The Company has carried out an evaluation, in accordance with Exchange Act Rules
13a-15 and 15d-15 and under the  supervision  of and with the  participation  of
management,  including the Company's Chief  Executive  Officer ("CEO") and Chief
Financial Officer ("CFO"),  of the effectiveness of our disclosure  controls and
procedures  at the end of the period  covered by this  report.  The  Company has
determined  that the previously  filed  financial  statements  contained  errors
requiring  restatement as reflected in Note 2 to the September 30, 2008 and 2007
consolidated  financial  statements  and that there are material  weaknesses  in
disclosure  controls and the internal  control  over  financial  reporting as of
September  30,  2007 and  that the  Company  did not  have  sufficient  in-house
expertise to ensure compliance with the measurement,  recognition and disclosure
requirements under Canadian and US GAAP for certain transactions and accordingly
the Company's internal controls over financial reporting and disclosure controls
and procedures have been ineffective.

Management's Plan for Remediation of Material Weaknesses

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

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


                                                                              57
<PAGE>

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

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

Changes In Internal Control Over Financial Reporting

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

These  financial  statements  have been prepared in accordance with the Canadian
Institute of Chartered  Accountants  standards for interim financial statements.
These financial  statements  follow the same accounting  policies and methods of
their application as the most recent annual financial statements;  however, they
do  not  include  all  of  the  disclosure  requirements  for  annual  financial
statements.  Accordingly,  these interim financial  statements should be read in
conjunction with the Company's audited  financial  statements for the year ended
December 31, 2007.

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

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

Revenue Recognition

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

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

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


                                                                              58
<PAGE>

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 when  collection  is  reasonably
assured.

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

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

Investment in Film, Television Programs and Recordings

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

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

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

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

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

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 the Company has  persuasive  evidence to determine that it is probable that
the amount claimed will be received.


                                                                              59
<PAGE>

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.

Income Taxes

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

Use of Estimates

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

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

Impairment of Long-Lived Assets

Long-lived  assets  include  equipment  and  investments  in  films,  television
programs and  recordings.  Equipment is accounted  for as per SFAS 144 (see Note
3(f)to the financial statements).  Investment in films,  television programs and
recordings  is  accounted  for  as per  SOP-00-2  (see  Note 6 to the  financial
statements). Long-lived assets 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 Company's  investment in films,  television programs and recordings
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 flows
from the asset.

Deferred Revenue

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

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.


                                                                              60
<PAGE>

Adoption of New Accounting Policies

      i)    Adoption of new accounting standards

            Effective   January   1,  2008,   the   Company   adopted   the  new
            recommendations of the Canadian  Institute of Chartered  Accountants
            (CICA) Handbook Section 3862,  "Financial  Instruments - Disclosure"
            (Section   3862)  and  Section   3863,   "Financial   Instruments  -
            Presentation"  (Section 3863), which replaced Handbook Section 3861,
            "Financial Instruments - Disclosure and Presentation". The objective
            of  the  disclosure  requirements  of  Section  3862  is to  provide
            information  about the significance of financial  instruments to the
            Company's financial position and performance,  the nature and extent
            of risks arising from financial  instruments to which the Company is
            exposed  and how the  Company  manages  those  risks.  Section  3863
            carries forward standards for presentation of financial instruments,
            from the perspective of the issuer,  between liabilities and equity,
            the classification of related interest, dividends, losses and gains,
            and   circumstances   in  which   financial   assets  and  financial
            liabilities are offset.

            The  adoption  of  these  standards  did not have an  impact  on the
            classification  and  valuation  of  financial  instruments.  The new
            disclosures  resulting from adoption of these standards are included
            in note 15 to the financial statements.

            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.

            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.


                                                                              61
<PAGE>

            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 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
--------------------------------------------------------------------------------
Film tax credits receivable         Loans and receivables         Amortized cost
--------------------------------------------------------------------------------
Advances receivable                 Loans and receivables         Amortized cost
--------------------------------------------------------------------------------
Accounts payable and accrued        Other liabilities             Amortized cost
liabilities
--------------------------------------------------------------------------------
Accrued liabilities                 Other liabilities             Amortized cost
--------------------------------------------------------------------------------
Film production loan                Other liabilities             Amortized cost
--------------------------------------------------------------------------------
Preferred shares                    Other liabilities             Amortized cost
--------------------------------------------------------------------------------
Loans payable                       Other liabilities             Amortized cost
--------------------------------------------------------------------------------

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

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

      ii)   Effective  January 1, 2008,  the Company  adopted the CICA  Handbook
            Section 1535,  "Capital  Disclosures" which specifies the disclosure
            of an entity's  objectives,  policies  and  processes  for  managing
            capital and how it is meeting those objectives.  The new disclosures
            resulting from adoption of this standard are included in note 16.

      iii)  Effective January 1, 2008, the Company adopted CICA Handbook Section
            3031,  "Inventories",  which replaced  Section 3030.  "Inventories".
            Under the new  section,  inventories  are required to be measured at
            the "lower of cost and net  realizable  value",  which is  different
            from  existing  guidance of the "lower of cost and market".  The new
            section  also  requires,  when  applicable,   the  reversal  of  any
            inventory write-downs  previously  recognized.  The adoption of this
            standard did not have an impact on the  valuation  of the  Company's
            inventories.

      iv)   In June 2007, the CICA amended Section 1400,  "General  Standards of
            financial Statement  Presentation" to change the guidance related to
            management's  responsibility  to assess the ability of the entity to
            continue  as a going  concern.  Management  is  required  to make an
            assessment of an entity's ability to continue as a going concern and
            should take into account all available information about the future,
            which is at least  but not  limited  to 12 months  from the  balance
            sheet date. Disclosure is required of material uncertainties related
            to events of  conditions  that may cast  significant  doubt upon the
            entity's  ability to continue as a going concern.  The amendments to
            Section  1400  apply to  interim  and  annual  financial  statements
            relating to fiscal years  beginning on or after January 1, 2008. The
            adoption  of  this   standard   had  no  impact  on  the   Company's


                                                                              62
<PAGE>

            presentation of its financial  position or  consolidated  results of
            operations  as at September  30, 2008 and for the three month period
            ended.

      v)    Effective  January 1, 2007, the Company adopted the  recommendations
            of 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,  these resulting changes in accounting policies have been
            applied retrospectively with no restatement to prior periods.

            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.

      vi)   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  Company  s  financial
            statements.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These  consolidated  financial  statements have been prepared in accordance with
accounting  principles  generally  accepted  in  Canada  that  conforms,  in all
material  respects,  with  U.S.  GAAP,  except  as  described  in Note 22 to the
financial statements.

There have been no significant changes in the Company's  accounting policies and
estimates since December 31, 2007. Refer to Management's Discussion and Analysis
in the Company's December 31, 2007 Annual Report.

Recent Accounting Pronouncements

      i)    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
            new  standard  is  effective  for the  Company's  interim and annual
            consolidated  financial statements for periods commencing January 1,
            2009. The Company is assessing the impact of the new standard on its
            consolidated financial statements.

      ii)   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.


                                                                              63
<PAGE>

RECONCILIATION TO UNITED STATES GAAP

Canada and United States Accounting Policy Difference

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 and US GAAP, and their effect on the
interim consolidated financial statements of the Company, are disclosed below.

e.    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.

f.    Under US GAAP,  FASB 150, if the  preferred  shares are  redeemable at the
      option of the holders,  they should be presented as mezzanine equity.  The
      preferred  shares are  retractable  by the holder but are not  mandatoraly
      redeemable.  Under US GAAP,  the preferred  shares may not be presented as
      permanent  equity  and/or  within the  shareholders'  equity  (deficiency)
      section of the balance sheet. Preferred shares are presented as a separate
      line item between  liabilities and  shareholders'  equity  (deficiency) as
      required by EITF D-98.

g.    Under US GAAP preferred  shares are classified as mezzanine equity and the
      interest  on  preferred  shares  would be  classified  as a  dividend  and
      recorded as a reduction to the deficit under shareholders'  equity.  Under
      Canadian  GAAP the  preferred  shares are  classified  as a liability  and
      interest is expensed accordingly.

h.    Under  US GAAP  cumulative  dividends  are part of the  liability  for the
      shares and declared/or  cumulative  dividends which have not been declared
      should  reduce  net  income to arrive  at a figure  representing  earnings
      (loss) per share.

      Consolidated statements of operations:

The  following  table  reconciles  net  loss  as  reported  in the  accompanying
consolidated  statements  of loss to net loss that would have been  reported had
the financial statements been prepared in accordance with U.S. GAAP:

<TABLE>
<CAPTION>
                                                                      Three months ended                    Nine months ended
                                                                                    Restated                              Restated
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,                  2008               2007               2008               2007
                                                               -----------        -----------        -----------        -----------
<S>                                                            <C>                <C>                <C>                <C>
Net income (loss) in accordance
with Canadian GAAP                                             $  (222,822)       $  (309,558)       $(3,980,387)       $ 1,107,492

Interest (Dividends) on
Preferred Shares (Note c)                                           11,220             11,220             33,660             33,660
                                                               -----------        -----------        -----------        -----------
Net Income (Loss) in accordance
with U.S. GAAP                                                 $  (234,042)       $  (320,778)       $(4,014,047)       $ 1,073,832
                                                               -----------        -----------        -----------        -----------

Preferred share dividends (Note d)                                 (11,220)           (11,220)           (33,660)           (33,660)
                                                               -----------        -----------        -----------        -----------

Net income (loss) in accordance with US
GAAP for earnings per share                                       (222,822)          (309,558)        (3,980,387)         1,107,492
                                                               ===========        ===========        ===========        ===========
Net income (loss) per
share - Basic and Diluted                                      $     (0.00)       $      0.01        $     (0.09)       $      0.03
                                                               -----------        -----------        -----------        -----------
</TABLE>


                                                                              64
<PAGE>

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

<TABLE>
<CAPTION>
AS AT SEPTEMBER 30, 2008                                                                      September 30              December 31
AND DECEMBER 31, 2007                                                                              2008                     2007
                                                                                              ------------              -----------
<S>                                                                                            <C>                      <C>
ASSETS
Assets in accordance with Canadian GAAP                                                        $ 3,245,245              $ 8,492,237

Assets in accordance with U.S. GAAP                                                            $ 3,245,245              $ 8,492,237
                                                                                               ===========              ===========

LIABILITIES

Liabilities in accordance with Canadian GAAP                                                   $ 4,100,291              $ 5,605,928

Preferred Shares (Note b)                                                                         (494,550)                (494,550)
                                                                                               -----------              -----------
Liabilities in accordance with U.S. GAAP                                                       $ 3,605,741              $ 5,111,378
                                                                                               ===========              ===========

Preferred Shares (Note b)                                                                      $   494,550              $   494,550
                                                                                               -----------              -----------
</TABLE>

<TABLE>
<CAPTION>
                                                                                              September 30              December 31
SHAREHOLDERS' EQUITY (DEFICIENCY)                                                                  2008                     2007
                                                                                              ------------              -----------
<S>                                                                                            <C>                      <C>
Shareholders' Equity in accordance with
Canadian GAAP                                                                                  $  (855,046)             $ 2,886,309

Effect on deficit of treatment of dividends on Preferred
Shares (Note c)                                                                                         --                       --

Shareholders' equity (deficiency) in accordance with
US GAAP                                                                                           (855,046)               2,886,309
                                                                                               -----------              -----------
</TABLE>

Impact of Newly Issued United States Accounting Standards

ii)   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


                                                                              65
<PAGE>

      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.
      There was no  material  impact  on the  Company's  consolidated  financial
      statements as a result of the adoption of SFAS No. 157.

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


                                                                              66
<PAGE>

RISK AND UNCERTAINTIES

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

Risks Related to the Nature of the Entertainment Industry

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

Fluctuating Results of Operations

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

Additional Financing

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

Competition

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

Government Incentive Programs

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

International Operations

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


                                                                              67
<PAGE>

Risks related to US Regulations

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

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

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

Importance of Management Estimates in Reported Revenues and Earnings

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

Exchange Rates

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

Canadian Content and Ownership

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

Proprietary Rights

To the extent  practicable,  the  Company  attempts  to retain and  protect  all
proprietary  and  intellectual   property  rights  to  its  productions  through
international  copyright laws and licensing and distribution  arrangements  with
reputable  international  companies  for  specified  territories  and  media for
limited  durations.  Despite these  precautions,  existing copyright laws afford
only limited  practical  protection in certain  jurisdictions  and, in fact, the
Company  operates  in  other  jurisdictions  in  which  there  is  no  copyright


                                                                              68
<PAGE>

protection.  As a result,  it may be possible for unauthorized  third parties to
copy  and   distribute  the  Company's   productions  or  certain   portions  or
applications of the Company's productions.

In  addition,   there  can  be  no  assurance  that  other  companies  will  not
independently  develop and produce programs that are similar to or imitate those
of the  Company but  legally  circumvent  the  Company's  intellectual  property
rights.

OTHER INFORMATION

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

Disclosure of outstanding share data

As of  November  12,  2008  the  Company  has the  following  voting  or  equity
securities  or  securities  convertible  or  exercisable  into  voting or equity
securities, issued and outstanding:

Common shares issued & outstanding: 45,980,549.

Series 1 preferred shares issued and outstanding: 494,550

Options: 4,655,000 outstanding options to purchase 4,655,000 common shares

Warrants: 14,474,166 outstanding to purchase 14,474,166 common shares


                                                                              69
<PAGE>

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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 the market rate.

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.

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 the end of the period covered
by this report.

The  Company is exposed to foreign  currency  exchange  rate risk as a result of
sales of its products in various  foreign  countries and  production  operations
conducted in other  countries.  In order to minimize the risks  associated  with
foreign  currency  fluctuations,  most  sales  contracts  are  issued  in either
Canadian or U.S.  dollars.  The Company  constantly  monitors the exchange  rate
between the U.S.  dollar and the  Canadian  dollar to  determine  if any adverse
exposure exists relative to its costs of production. The Company maintains funds
in both U.S. and Canadian currency.

Item 4T. Controls and Procedures.

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures are designed to provide
reasonable assurance that information required to be disclosed by the Company in
reports  filed with  securities  regulatory  agencies  is  recorded,  processed,
summarized and reported on a timely basis and is accumulated and communicated to
the Company's  management,  including the Company's Chief Executive  Officer and
Chief Financial  Officer,  as appropriate,  to allow timely decisions  regarding
required disclosure.

The Company has carried out an evaluation, in accordance with Exchange Act Rules
13a-15 and 15d-15 and under the  supervision  of and with the  participation  of
management,  including the Company's Chief  Executive  Officer ("CEO") and Chief
Financial Officer ("CFO"),  of the effectiveness of our disclosure


                                                                              70
<PAGE>

controls and  procedures  at the end of the period  covered by this report.  The
Company has determined that the previously filed financial  statements contained
errors  requiring  restatement  as reflected in Note 2 to the September 30, 2008
and  2007  consolidated   financial  statements  and  that  there  are  material
weaknesses  in  disclosure  controls  and the internal  control  over  financial
reporting as of September 30, 2007 and that the Company did not have  sufficient
in-house  expertise to ensure  compliance with the measurement,  recognition and
disclosure  requirements under Canadian and US GAAP for certain transactions and
accordingly  the  Company's  internal  controls  over  financial  reporting  and
disclosure controls and procedures have been ineffective.

Management's Plan for Remediation of Material Weaknesses

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

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

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

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

Changes In Internal Control Over Financial Reporting

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


                                                                              71
<PAGE>

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors

      There have been no material changes in the Company's risk factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

      (a)   Not applicable.

      (b)   Not applicable.

      (c)   Not applicable.

Item 3. Defaults Upon Senior Securities.

      (a)   Note 9 to  the  interim  consolidated  financial  statements  of the
            Company dated June 30, 2006 filed herewith is incorporated herein by
            reference.

      (b)   Not applicable

Item 4. Submission of Matters to a Vote of Security Holders.

(a)   Not applicable.

(b)   Not applicable.

(c)   Not applicable.

(d)   Not applicable.

Item 5. Other Information.

(a)   Not applicable.

(b)   Not applicable.

Item 6. Exhibits and Reports on Form 8-K.

(a)   Exhibits

            i.    31.1  Certification  of Chief  Executive  Officer  pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002


                                                                              72
<PAGE>

            ii.   31.2  Certification  of Chief  Financial  Officer  pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002

            iii.  32.1   Certification   pursuant   to   Section   906   of  the
                  Sarbanes-Oxley Act of 2002

(b)   Reports on Form 8-K

                  (i) The  Company  filed a  current  report  on Form 8-K  dated
                  August  15,  2008.  Under  Items 4.01 and 9.01 In that 8-K the
                  Company  filed  an  amendment  to  the  Item  4.01  disclosure
                  contained  in the 8-K  filed on  August  1,  2008 in which the
                  Company  announced  changes  in  the  registrant's  certifying
                  accountant.

                  (ii) The  Company  filed a  current  report  on Form 8-K dated
                  October  28,  2008.  Under  Item 4.01 of that 8-K the  Company
                  announced changes in the registrants  certifying accountant as
                  a result of the  Company's  previous  independent  accountants
                  being acquired by Deloitte effective January 29, 2008.

                  (iii) The  Company  filed a  current  report on Form 8-K dated
                  October  30,  2008.  Under items 4.02 and 9.01 of that 8-K the
                  Company announced  Non-Reliance on previously issued financial
                  statements  related to the filing of  restatements in its year
                  end financial statements filed April 18, 2008.


                                                                              73
<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          /s/ David Devine
                                           -------------------------------------
                                                        David Devine
                                           Director, Chairman of the Board
                                           President and Chief Executive Officer

Dated: November 13, 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         November 13, 2008
                       President and Chief Executive Officer

/s/ Richard Mozer      Director, Vice-Chairman of the          November 13, 2008
                       Board, Chief Financial Officer,
                       Treasurer and Secretary


                                                                              74