UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

(Mark One)

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

      For the quarterly period ended September 30, 2007

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

  For the transition period from______________________to_______________________
  Commission file number______________________________________________________

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

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

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

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

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

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

                                  Common Shares
                                (Title of Class)

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

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|

State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the latest  practicable date: As of November 13, 2007, the issuer
had 45,921,149 Common Shares outstanding.

Transitional Small Business Disclosure Format (check one): Yes |_| No |X|

<PAGE>

                                TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Item 1.   Financial Statements

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

Item 3.   Controls and Procedures

PART II OTHER INFORMATION

Item 1.   Legal Proceedings

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

Item 3.   Defaults Upon Senior Securities

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

Item 5.   Other Information

Item 6.   Exhibits and Reports on Form 8-K

Signatures

<PAGE>

Item. 1

                        DEVINE ENTERTAINMENT CORPORATION

                               September 30, 2007

                                    CONTENTS

         CONSOLIDATED FINANCIAL STATEMENTS                     PAGE

         Balance Sheet                                         III

         Statement of Shareholders' Equity                     IV

         Statement of Operations                               V

         Statement of Cash Flows                               VI

         Notes to Financial Statements                         VII-XXIX

<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                       INTERIM CONSOLIDATED BALANCE SHEET
                      (Unaudited - Prepared by Management)

<TABLE>
<CAPTION>
                                                ASSETS
                                                                                               September 30               Dec 31
                                                                                                   2007                    2006
                                                                                               ------------            ------------
<S>                                                                                            <C>                     <C>
Current

Cash                                                                                           $    216,471            $    268,001
Accounts receivable (Note 3c)                                                                       996,193                  82,699
Subscription receivable                                                                                  --                 132,296
Inventory                                                                                            64,823                  88,236
Film tax credits receivable (Note 5)                                                                214,284               2,051,568
Prepaid and sundry assets                                                                            80,674                 131,406
                                                                                               ------------            ------------
                                                                                                  1,572,445               2,754,206

Advances receivable (Note 4)                                                                        554,079                 494,550
Investment in film, television programs and recordings (Note 6)                                   7,508,687               9,490,501
Long term receivable (Note 18)                                                                      175,097                 175,097
Property and equipment (Note 8)                                                                      16,475                  20,405
                                                                                               ------------            ------------
                                                                                               $ (9,826,783)           $(12,934,579)
                                                                                               ============            ============

                                             LIABILITIES

Current

Accounts payable and accrued liabilities                                                       $  1,529,100            $  1,492,953
Film Production Loan (Note 7)                                                                     1,807,705               2,121,527
Convertible debentures (Note 9)                                                                   1,519,290               1,519,290
Advances (Note 10)                                                                                   90,000                      --
Deferred revenue                                                                                         --               4,342,643
                                                                                               ------------            ------------
                                                                                                 (4,946,095)             (9,476,413)

                                        SHAREHOLDERS' EQUITY

Capital Stock (Note 11)                                                                        $ 12,341,277            $ 12,330,949
Preferred Shares (Note11c)                                                                          494,550                 494,550
Contributed surplus (Note 12)                                                                     1,313,509               1,267,449
Deficit                                                                                          (9,268,648)            (10,634,602)
                                                                                               ------------            ------------
                                                                                                 (4,880,688)             (3,458,346)
                                                                                               ------------            ------------
                                                                                               $  9,826,783            $ 12,934,759
                                                                                               ============            ============
</TABLE>

See accompanying notes to interim consolidated financial statements.

<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

             INTERIM CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                      (Unaudited - Prepared by Management)

          FOR THE PERIOD ENDED SEPTEMBER 30, 2007 AND DECEMBER 31, 2006

<TABLE>
<CAPTION>
                                                                            Stock                         Contributed
                                      Common Shares         Warrants       Options      Preferred Shares    Surplus        Deficit
                                      -------------         --------       -------      ----------------    -------        -------
                                     #             $           #              #            #         $         $              $
                                                                                                           (Note 12)
                                ---------------------------------------------------------------------------------------------------
<S>                             <C>           <C>          <C>            <C>          <C>       <C>       <C>           <C>
BALANCE,
December 31, 2005               35,353,508    11,745,545   4,877,450      3,180,000    494,550   494,550   1,007,376     (8,075,447)

-grant of stock options                 --            --          --        340,000         --        --       3,600             --

-settlement for services
 rendered and accounts
 payable                           551,860        74,904          --        750,000         --        --       7,875             --
-issuance of private
 placement                       3,383,331       507,500   1,691,666             --         --        --          --             --

-exercise of stock options          25,000         3,000          --        (25,000)        --        --        (500)            --

-expired warrants                       --            --    (499,950)            --         --        --          --             --

-pursuant to closing
 80 units of DEFLLP                     --            --          --             --         --        --     249,098             --

-dividend distribution                  --            --          --             --         --        --          --        (45,004)
NET LOSS                                --            --          --             --         --        --          --     (2,514,151)
                                ---------------------------------------------------------------------------------------------------
BALANCE,
December 31, 2006               39,313,699    12,330,949   6,069,166      4,245,000    494,550   494,550   1,267,449    (10,634,602)

-expired options                        --            --          --       (905,000)        --        --          --             --

-settlement for services
 rendered and accounts
 payable                            68,850        10,328           ~              ~          ~         ~           ~              ~

-grant of stock options                  ~             ~           ~      1,315,000          ~         ~      24,500              ~

-grant of warrants                       ~             ~   1,750,000              ~          ~         ~      21,560              ~

NET INCOME                              --            --          --             --         --        --          --      1,365,954
                                ---------------------------------------------------------------------------------------------------
BALANCE,
September 30, 2007              39,382,549    12,341,277   7,819,166      4,655,000    494,550   494,550   1,313,509     (9,268,648)
                                ===================================================================================================
</TABLE>

See accompanying notes to interim consolidated financial statements.

<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,
                                                                2007                2006               2007                2006
                                                                ----                ----               ----                ----
<S>                                                        <C>                 <C>                 <C>                 <C>
REVENUE                                                    $  2,032,153        $     84,255        $  5,996,636        $    363,529
EXPENSES
 Operating                                                      269,576             287,420             510,896             675,995
 Stock-based compensation                                            --                  --              29,260              26,784
Amortization
- film, television programs and recordings                    1,364,572              28,426           4,095,691             199,508
- equipment                                                       1,215               1,687               3,930               5,058
Interest                                                         (1,238)             (1,880)             (9,095)            (14,202)
                                                           ------------        ------------        ------------        ------------
                                                              1,634,125             315,653           4,630,682             893,143
                                                           ------------        ------------        ------------        ------------

INCOME (LOSS) BEFORE INCOME TAXES                               398,028            (231,398)          1,365,954            (529,614)

Provision for Income Taxes                                           --                  --                  --                  --
                                                           ------------        ------------        ------------        ------------

NET INCOME (LOSS) for the period                           $    398,028        $   (231,398)       $  1,365,954        $   (529,614)
                                                           ------------        ------------        ------------        ------------

EARNINGS (LOSS) PER SHARE (Note 14)

Basic                                                      $       0.01        $      (0.01)       $       0.03        $      (0.01)
                                                           ============        ============        ============        ============

Fully Diluted                                              $       0.01        $      (0.01)       $       0.03        $      (0.01)
                                                           ============        ============        ============        ============

WEIGHTED AVERAGE
SHARES - BASIC                                               39,376,529          39,076,771          39,355,816          37,003,668
                                                           ============        ============        ============        ============

       - FULLY DILUTED                                       39,376,529          39,076,771          39,355,816          37,003,668
                                                           ============        ============        ============        ============
</TABLE>

See accompanying notes to interim consolidated financial statements.

<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                  INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
                      (Unaudited - Prepared by Management)

<TABLE>
<CAPTION>
                                                                          Three months ended                  Nine months ended
                                                                             September 30,                      September 30,
                                                                         2007             2006             2007             2006
                                                                         ----             ----             ----             ----
<S>                                                                  <C>              <C>              <C>              <C>
OPERATING ACTIVITIES
Net income for the period                                            $   398,028      $  (231,398)     $ 1,365,954      $  (529,614)
Shares issued to settle accounts payable                                      --               --               --               --
Stock based compensation                                                  16,800               --           46,060           26,784
Shares issued for services rendered                                           --               --               --
Amortization - film, television programs
               and recordings                                          1,364,572           28,426        4,095,691          199,508
               - Equipment                                                 1,215            1,687            3,930            5,058
               - financing charges                                            --               --               --               --
Operating expenses paid in common shares                                       ~                ~                ~               --
Change in non-cash components of
     working capital (Note 19)                                        (1,806,722)       1,761,550       (3,235,794)       2,126,716
                                                                     -----------      -----------      -----------      -----------
                                                                         (26,107)       1,560,265        2,275,841        1,828,452
                                                                     -----------      -----------      -----------      -----------
FINANCING ACTIVITIES
Repayment of bank loans                                                  363,192               --         (313,822)              --
Advances                                                                  90,000                ~           90,000                ~
Issuance of shares on conversion of warrants                                  --               --               --               --
Issuance of shares for services                                                ~                ~           10,328           27,765
Issuance of shares on exercise of the options                                 --            2,500               --            2,500
                                                                     -----------      -----------      -----------      -----------
                                                                         453,192            2,500         (213,494)          30,265
                                                                     -----------      -----------      -----------      -----------

INVESTING ACTIVITIES
Investment in film, television programs and recordings                  (364,606)      (1,503,200)      (2,113,877)      (1,883,839)
Shares issued on Private Placement                                            --               --               --          507,500
Purchase of property and equipment                                            --           (1,067)              --           (3,105)
                                                                     -----------      -----------      -----------      -----------
                                                                        (364,606)      (1,504,267)      (2,113,877)      (1,379,444)
                                                                     -----------      -----------      -----------      -----------
CHANGE IN CASH                                                            62,479           58,498          (51,530)         479,273

CASH, Beginning of period                                                153,992          660,765          268,001          239,990
                                                                     -----------      -----------      -----------      -----------

CASH, End of period                                                      216,471          719,263          216,471          719,263
                                                                     ===========      ===========      ===========      ===========

SUPPLEMENTARY CASH FLOW INFORMATION
      Interest paid                                                  $        --      $        --      $        --      $        --
      Income taxes paid                                              $        --      $        --      $        --      $        --
</TABLE>

See accompanying notes to interim consolidated financial statements.

<PAGE>

                                                                       PAGE VIII

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

1.    NATURE OF BUSINESS AND GOING CONCERN

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

      Television and film production and distribution is highly  speculative and
      inherently  risky.  There can be no assurance  of the economic  success of
      such television and film  programming  since the revenues derived from the
      production  and  distribution  (which  do not  necessarily  bear a  direct
      correlation  to the  production or  distribution  costs  incurred)  depend
      primarily upon their acceptance by the public.

      The success of the Company's  television and film  programming also may be
      impacted by, among other factors,  prevailing advertising rates, which are
      subject to fluctuation.  Therefore,  there is a substantial risk that some
      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.

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

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

2.    COMPARATIVE FIGURES

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

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      These consolidated  financial  statements have been prepared in accordance
      with accounting  principles  generally accepted in Canada that conform, in
      all material  respects,  with U.S. GAAP, except as described in Note 21 to
      the financial statements.

      (a) Basis of Consolidation

      The  September  30,  2007 and  December  31, 2006  consolidated  financial
      statements include the accounts of Devine Entertainment  Corporation,  its
      wholly-owned subsidiaries and Variable Interest Entities ("VIE").

<PAGE>

                                                                         PAGE IX

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      (b)   Inventory

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

            (c) Revenue Recognition

            Revenue is derived from broadcast licensing  agreements,  royalties,
            distribution  fees,  the  sale  of  distribution   rights,  sale  of
            copyright  interests  and the sale of home  videos.  All  revenue is
            recognized upon meeting all recognition requirements of Statement of
            Position of the American  Institute of Certified Public  Accountants
            ("SOP 00-2"). Revenue from broadcast licensing agreements,  together
            with related costs, and revenue from the sale of copyright interests
            are  recognized  once the  licensing  periods  have  commenced,  the
            programs are delivered and collection is reasonably assured. Revenue
            from royalties and  distribution  fees is recognized  when received.
            Revenue from the sale of distribution  rights is recognized when the
            film  or  television  programs  are  substantially   complete,   the
            investors have irrevocably  committed to acquire distribution rights
            and there is  reasonable  assurance of  collectibility  of proceeds.
            Revenue from the sale of home videos and DVDs are  recognized at the
            time of shipment. Amounts received and not recognized as revenue are
            recorded as deferred revenue.

            As a result of  delivering  the final two of six  episodes of Across
            the  River To Motor  City in the  third  quarter  2007,  revenue  of
            $1,870,809 and $961,285 of accounts  receivable were recognized.  In
            the second  quarter of 2007 $884,525 of the current  receivable  was
            allocated to deferred revenue.

      (d)   Investment in Film, Television Programs and Recordings

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

            Projects in progress  include the costs of acquiring  film rights to
            original  screenplays  and costs to adapt such projects.  Such costs
            are capitalized and, upon  commencement of production,  are added to
            investment in film, television programs, and recordings. Advances or
            contributions  received from third parties to assist in  development
            are deducted from these costs.  Projects in progress are written off
            at the earlier of the date  determined not to be recoverable or when
            projects in progress are abandoned, and three years from the date of
            the initial investment.

<PAGE>

                                                                          PAGE X

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

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 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)   Property and Equipment

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

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

      (f)   Foreign Currency Translation

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

      (g)   Government and Other Assistance

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

<PAGE>

                                                                         PAGE XI

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      (h)   Stock-Based Compensation

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

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

            Stock options  without  attached stock  appreciation  rights granted
            after January 1, 2002 are accounted for under the fair value method.
            Under this method, compensation expense is measured at fair value at
            the grant  date using the  Black-Scholes  option  pricing  model and
            recognized over the vesting period with a corresponding  increase to
            contributed surplus. When stock options are exercised, the proceeds,
            together  with the  amount  recorded  in  contributed  surplus,  are
            recorded in share capital. Stock options granted prior to January 1,
            2002 continue to be accounted  for using the intrinsic  value method
            which does not give rise to compensation expense.

      (i)   Future Income Taxes

            The  Company  uses the asset and  liability  method to  account  for
            income taxes.  The asset and liability  method  requires that income
            taxes  reflect the  expected  future tax  consequences  of temporary
            differences  between the carrying  amounts of assets or  liabilities
            and their tax bases.  Future income tax assets and  liabilities  for
            each temporary  difference based on the tax rates which are expected
            to be in effect when the underlying items of income and expenses are
            expected to be realized.  The effect of future income tax assets and
            liabilities  of a change in the tax rates is  included  in income in
            the period that the rate changes.

      (j)   Earnings Per Share

            Basic earnings per share are computed by dividing earnings available
            to common  shareholders  by the  weighted  average  number of common
            shares  outstanding  during the year.  The treasury  stock method is
            used to calculate  fully diluted  earnings per share.  Fully diluted
            earnings per share is similar to basic  earnings  per share,  except
            that  the   denominator  is  increased  to  include  the  number  of
            additional  common shares that would have been outstanding  assuming
            that options and warrants with an average  market price for the year
            greater than their  exercise  price are  exercised  and the proceeds
            used to repurchase  common  shares.  Fully diluted loss per share is
            not presented when the effect would be anti-dilutive.

<PAGE>

                                                                        PAGE XII

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

      (k)   Measurement Uncertainty

            The preparation of financial  statements in conformity with Canadian
            generally accepted accounting principles requires management to make
            estimates and assumptions that affect the reported amounts on assets
            and liabilities, revenues and expenses and disclosures of contingent
            assets  and  liabilities.  Significant  areas  requiring  the use of
            significant  judgment  include the  measurement of ultimate  revenue
            related  to  future  sales,   amortization  of  Long-Lived   Assets,
            valuation of stock  compensation,  recoverability of tax credits and
            estimation of future  income tax assets,  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.

      (l)   Impairment of Long-Lived Assets

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

      (m)   Deferred revenue

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

      (n)   Recent Accounting Pronouncements

            (i) In September 2006, the Emerging Issues  Committee issued EIC-163
            "Determining  the Variability to be Considered in Applying  AcG-15",
            effective for the first interim or annual reporting period beginning
            on or after January 1, 2007. EIC-163 defines that the variability to
            be considered  in applying  AcG-15 is to be based on analysis of the
            design of the entity and  prescribes  the steps to be  undertaken in
            such an analysis.  The Company has not yet  determined the impact of
            adopting  EIC-163  on its  consolidated  results  of  operations  or
            financial position.

4.    ADVANCES RECEIVABLE

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

<PAGE>

                                                                       PAGE XIII

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

5.    FILM TAX CREDITS RECEIVABLE

      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, 2007, the Company expects to receive tax
      credits of $nil (December 31, 2006  $543,389) from the federal  government
      and  $214,284  (December  31,  2006  -  $1,508,179)  from  the  provincial
      government.

6.    INVESTMENT IN FILM, TELEVISION PROGRAMS AND RECORDINGS

<TABLE>
<CAPTION>
                                                                                   September 30,                        December 31,
                                                                                        2007                                2006
                                                                                        ----                                ----
                                                                                    Accumulated
                                                                       Cost         Amortization           Net                Net
                                                                   -----------       -----------       -----------       -----------
<S>                                                                <C>               <C>               <C>               <C>
Completed television programs and recordings                       $ 6,902,529       $ 6,215,543       $   686,986       $   930,318
Completed Motion picture - Bailey's Billion                        $ 6,972,580         4,081,502         2,891,078         2,891,078
Completed television Drama Series                                    5,812,000         3,869,114         1,942,886                --
Projects in progress                                                 1,987,737                --         1,987,737         5,669,105
                                                                   -----------       -----------       -----------       -----------
                                                                   $21,674,846       $14,166,159       $ 7,508,687       $ 9,490,501
                                                                   ===========       ===========       ===========       ===========
</TABLE>

      Annually,  management  reviews the  estimate of total  remaining  ultimate
      revenue and the fair value of the  capitalized  film costs. As a result of
      the review,  the Company may change the  carrying  value of its  completed
      film and television programs accordingly.

      The  Company  expects to amortize  approximately  $415,000  for  completed
      television  programs and recordings  costs,  $355,000 for completed motion
      picture costs and $3,869,000 for completed  television drama series during
      the fiscal year.

      Development  costs for  properties  that are  expected  to benefit  future
      periods are also capitalized.  If upon review  management  determines that
      certain costs are  unrecoverable,  the costs associated with such property
      are written off to income.

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

      As at December 2010 over 80% of the completed motion picture costs will be
      amortized.

      The remaining  period of  amortization  for the completed  projects ranges
      from two to ten years.

<PAGE>

                                                                        PAGE XIV

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

7.    FILM PRODUCTION LOAN

                                                            2007         2006
                                                            ----         ----

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

                                                        $1,807,705    $2,121,527
                                                        ==========    ==========

      Interest on the above demand loan totalled
      $31,239 for the three month period ended
      September 30, 2007 (three months ended Dec.
      31,2006 - $30,312).

8.    PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                                 September 30                          December 31,
                                                                                     2007                                  2006
                                                                                     ----                                  ----
                                                                                  Accumulated
                                                                   Cost          Amortization             Net                Net
                                                                   ----          ------------             ---                ---

<S>                                                              <C>                <C>                <C>                <C>
Computer and editing equipment                                   $181,028           $168,783           $ 12,245           $ 15,472
Furniture and fixtures                                             58,193             53,963              4,230              4,933
                                                                 --------           --------           --------           --------
                                                                 $239,221           $222,746           $ 16,475           $ 20,405
                                                                 ========           ========           ========           ========
</TABLE>

9.    CONVERTIBLE DEBENTURES

                                                 September 30,      December 31,
                                                     2007              2006
Principal                                            ----              ----
Issued
  - February 1996 (i)                            $    75,000        $    75,000
  - December 2000 (ii)                               550,000            550,000
  - December 2000 (iii)                              835,800            835,800
  - Capitalized interest (iv)                        240,000            240,000
                                                 -----------        -----------
                                                   1,700,800          1,700,800

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

<PAGE>

                                                                         PAGE XV

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

9.    CONVERTIBLE DEBENTURES (continued)

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

      Management  renegotiated repayment terms of this debenture at an increased
      interest  rate of 10% per  annum.  The  principal  was  repayable  in four
      quarterly  payments  during  2001 of  $25,000  plus  interest.  The  first
      instalment  was made in April 2001. The Company is still in default on the
      second,  third and fourth  instalments.  As at September  30, 2007,  there
      remains an outstanding  balance of $75,000 plus $50,625 (December 31, 2006
      -  $45,000)  in accrued  interest  on this  debenture.  As a result of the
      default, the debenture is classified as a current liability on the balance
      sheet.  Management is in constant communication with the debenture holders
      and expects that the Company will be able to settle the  debentures in the
      normal course of operations.

(ii)  The Company  issued  550,000 units of debentures  and warrants in December
      2000 for $550,000 less costs of $85,000 for net proceeds to the Company of
      $465,000.  Each  unit  consists  of a $1.00  debenture  and 1  immediately
      separable  warrant.  The redeemable  convertible  subordinated  debentures
      matured on December 31, 2005,  bear  interest at 10.5% per annum,  and are
      payable  semi-annually.  The  debentures  are  convertible at the holders'
      option  into  common  shares at any time prior to maturity on the basis of
      one common share per $0.50 principal  amount of debenture.  The debentures
      are  subordinated  to certain senior  indebtedness  of the Company.  As at
      September 30, 2007 the Company is in default of an outstanding  balance of
      $266,524  (December  31,  2006 -  $223,211)  in accrued  interest on these
      debentures.  As a result of the default,  the  debenture is  classified as
      current  liability  on  the  balance  sheet.  Management  is  in  constant
      communication with the debenture holders and expects that the Company will
      be able to settle the debentures in the normal course of operations.

(iii) On December 19, 2000, the Company  obtained the approval of the holders of
      the 7.5% debentures issued December, 1995 to: (i) extend the maturity date
      to December 31, 2002;  (ii) reduce the conversion rate to $0.50 per common
      share; (iii) increase the rate of interest  applicable to 10.5% per annum;
      (iv) issue to the  holders of the  debentures  one  warrant for each $1.00
      principal  amount  held  by  such  holder;  and  (v) to  secure  the  7.5%
      debentures by way of a floating  charge over all of the Company's  assets,
      such floating charge to be subordinated to all existing and future "Senior
      Indebtedness"  and  "Permitted  Encumbrances"  and to rank pari passu with
      identical security to be granted to holders of up to $1,000,000  principal
      amount of  convertible  debentures  issued by the Company on December  21,
      2000. The Company is in default on the repayment of the debentures.  As at
      September  30,  2007,  there  remains an  outstanding  balance of $402,908
      (December 31, 2006 - $337,088) in accrued interest on these debentures. As
      a  result  of the  default,  the  debenture  is  classified  as a  current
      liability on the balance  sheet.  Management is in constant  communication
      with the  debenture  holders and expects  that the Company will be able to
      settle the debentures in the normal course of operations.

(iv)  As part of the  settlement of the  long-term  debt the Company has granted
      the same conversion privileges to $240,000 portion of the interest accrued
      on the  debentures  described in notes 9 (ii) and 9(iii) as on the related
      debentures.  As at September  30, 2007 there is an  outstanding  amount of
      $81,900 (December 31, 2006 - $63,000) in accrued interest.  As a result of
      the default,  the  debenture  is  classified  as current  liability on the
      balance sheet.  Management is in constant communication with the debenture
      holders and expects that the Company will be able to settle the debentures
      in the normal course of operations.

<PAGE>

                                                                        PAGE XVI

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

10.   ADVANCES

      The Board of Directors  approved,  and the Company completed after the end
      of the  interim  period a  private  placement  for  6,475,000  units  each
      consisting  of one common  share and one  warrant at $0.10 per unit.  Each
      warrant is exercisable within eighteen months after closing to acquire one
      common share at $0.10 per unit. (Note 22)

      As at September  30, 2007,  $90,000 has been  advanced to the Company.  No
      shares or warrants have been issued as of September 30, 2007.

11.   CAPITAL STOCK

      (a)   Authorized

            An unlimited  number of common shares and preferred  shares issuable
            in series 494,550 of Series 1, preferred shares.

      (b)   Issued - common shares                        Number        Amount
                                                        ----------    ----------
            Balance, December 31, 2006                  39,313,699   $12,330,949

            Issued for services rendered                    68,850        10,328
                                                        ----------    ----------
            Balance, September 30, 2007                 39,382,549    12,341,277
                                                        ==========    ==========

      (c)   Issued - Series 1 preferred shares            Number        Amount
                                                        ----------    ----------

            Balance, December 31, 2006 and
            September 30, 2007                           494,550       $494,550
                                                         =======       ========


            The  Series  1   preferred   shares  are   non-voting,   cumulative,
            non-participating,  $1 redeemable  and  retractable.  The shares pay
            dividends  at  the  rate  of  9.1%  per  annum   payable  in  annual
            instalments  on the  15th day of  December  in each  year and  shall
            accrue and be cumulative from the date of issue. As at September 30,
            2007 dividends in arrears amounted to $33,661.

      (d)   Stock Option Plan

            Under the terms of a stock option plan approved by the shareholders,
            the Company is authorized to grant  directors,  officers,  employees
            and others options to purchase  common shares at prices based on the
            market price of shares as determined on the date of grant.

<PAGE>

                                                                       PAGE XVII

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

11.   CAPITAL STOCK

      (d)   Stock Option Plan (continued)

            The outstanding and exercisable stock options are as follows:

                                                                     Weighted
                                                                     Average
                                           Number      Allocated     Exercise
Outstanding and Exercisable              of Options      Value        Price
---------------------------              ----------    ---------     --------
Balance, December 31, 2006               4,245,000       99,200       $0.16
Expired, January 2007                     (780,000)          --        0.16
                                         ---------      -------       -----
Balance, March 31, 2007                  3,465,000       99,200        0.16
Stock options granted                      200,000        1,400        0.15
Stock options granted                    1,100,000       23,100        0.15
                                         ---------      -------       -----
Balance, June 30, 2007                   4,765,000      123,700       $0.16
Stock options expired                     (125,000)          --        0.10
Stock options granted                       15,000           --        0.15
                                         ---------      -------       -----
Balance, September 30, 2007              4,655,000      123,700       $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
--------------------------------------------------------------------------------
June 25, 2009      June 25, 2004    3,000,000    0.10      3,000,000      1.73
April 25, 2010     April 25, 2006     100,000    0.10        100,000      2.57
Dec.29, 2009       Dec.29, 2006       240,000    1.00        240,000      2.25
May 11, 2009       May 11, 2007       200,000    0.15        200,000      1.61
May 11, 2012       May 11, 2007     1,100,000    0.15      1,100,000      4.61
July 29, 2012      July 30, 2007       15,000    0.15         15,000      4.83
                                    ---------              ---------      ----
                                    4,655,000              4,655,000      2.46
                                    =========              =========      ====

<PAGE>

                                                                      PAGE XVIII

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

11.   CAPITAL STOCK

      (d)   Stock Option Plan (continued)

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

<TABLE>
<CAPTION>
Grant Date                              April 25, 2006    Dec. 29, 2006    May 11, 2007
---------------------------------------------------------------------------------------
<S>                                            <C>              <C>           <C>
Number of options                              100,000          240,000       1,300,000
Expected life                                  5 years          3 years     2 - 5 years
Price volatility                                   30%              30%             30%
Dividend yield                                      --               --              --
Risk-free interest rate of return                   5%               5%              5%
Amount recorded                              $   3,600               --          24,500

Grant Date                               July 30, 2007
------------------------------------------------------
Number of options                               15,000
Expected life                                  5 years
Price volatility                                   30%
Dividend yield                                      --
Risk-free interest rate of return                   5%
Amount recorded                                     --
</TABLE>

(e)   Warrants

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

                                                                        Weighted
                                                                         Average
                                                                        Exercise
Outstanding and Exercisable                  # of Warrants    Value       Price
-------------------------------------------------------------------------------
Balance March 31, 2007 and Dec. 31, 2006       6,069,166      73,140      $0.28

Warrants issued                                  550,000       4,760       0.25
                                               ---------      ------      -----

Balance, June 30, 2007                         6,619,166      77,900       0.28

Warrants issued for services rendered          1,200,000      16,800       0.10
                                               ---------      ------      -----

Balance, September 30, 2007                    7,819,166      94,700      $0.25
                                               =========      ======      =====

<PAGE>

                                                                        PAGE XIX

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

11.   CAPITAL STOCK (continued)

      The Company has granted warrants as follows:

<TABLE>
<CAPTION>
                                              Number     Exercise     Outstanding      Weighted Average
Expiry Date               Grant Date       of Warrants     Price    and Exercisable     Remaining Life
-------------------------------------------------------------------------------------------------------
<S>                    <C>                  <C>             <C>        <C>                   <C>
December 31, 2009      June 30, 2004        1,830,000       0.25       1,830,000             2.25
April 7, 2008          April 7, 2005        2,547,500       0.30       2,547,500             0.52
May 31, 2008           May 31, 2006         1,691,666       0.30       1,691,666             0.64
December 31, 2009      May 11, 2007           550,000       0.25         550,000             2.25
August 14, 2010        August 14, 2007      1,200,000       0.10       1,200,000             2.87
                                            ---------                  ---------             ----
                                            7,819,166                  7,819,166             1.43
                                            =========                  =========             ====
</TABLE>

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

Grant date                   May 31, 2006     May 11, 2007     August 14, 2007
Number of warrants           1,691,666             550,000           1,200,000
Expected life                1 year             2.64 years             3 years
Price volatility             30%                       30%                 30%
Dividend yield               --                         --                  --
Risk-free interest
Rate of return               5%                         5%                4.5%
Amount recorded              --                     $4,760             $16,800

The board of directors  approved the extension of 2,547,500 warrants to April 7,
2008 that were originally to expire in April 2007 and 1,691,666  warrants to May
31, 2008 that were originally to expire on May 31, 2007.  There was no impact to
the Financial Statements as a result of the extension of the warrants.

12.   CONTRIBUTED SURPLUS

Balance, December 31, 2006                        $1,267,449
                                                  ----------
Balance September 30, 2007                        $1,313,509
                                                  ==========

                                             September 30, 2007    Dec. 31, 2006
                                             ------------------    -------------

Settlement of debt instruments                    $  664,501         $  664,501
Equity portion of long-term debt                     181,510            181,510
Stock Options (11 (d))                               123,700             99,200
Warrants (11 (e))                                     94,700             73,140
Pursuant to closing of limited
  partnership (18)                                   249,098            249,098

                                                  $1,313,509         $1,267,449
                                                  ==========         ==========

<PAGE>

                                                                         PAGE XX

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

13.   INTEREST EXPENSE (INCOME)

<TABLE>
<CAPTION>
                                                                  Three months ended Sept 30             Nine months ended Sept 30
                                                                  --------------------------             -------------------------
                                                                    2007               2006               2007               2006

<S>                                                              <C>                <C>                <C>                <C>
Interest on convertible debentures                               $  44,552          $  44,552          $ 133,656          $ 133,656
Bank film production loan                                           31,239                 --             97,008                 --
Other interest                                                          33              1,512                 33              1,512
                                                                 ---------          ---------          ---------          ---------
                                                                    75,824             46,064            230,697            135,168
Interest income                                                     (8,296)            (8,640)           (25,029)           (25,070)
                                                                 ---------          ---------          ---------          ---------
                                                                    67,528             37,424            205,668            110,098
Less: amounts capitalized to projects                              (37,527)           (39,304)          (117,755)          (124,300)
                                                                 ---------          ---------          ---------          ---------
                                                                 $  30,001          $  (1,880)         $  87,913          $ (14,202)
                                                                 =========          =========          =========          =========
</TABLE>

Interest  expense  of  $31,239  for the  film  production  bank  loan  has  been
capitalized to projects in progress. (See note 7)

14.   EARNINGS (LOSS) PER COMMON SHARE

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

            Period                                                   Outstanding
            ------                                                   -----------

            September 30, 2007                                        39,382,549
            September 30, 2006                                        39,101,499

<TABLE>
<CAPTION>
                                                                Three months ended                      Nine months ended
                                                                   September 30,                           September 30,
                                                             2007                2006                 2007                 2006
                                                             ----                ----                 ----                 ----
<S>                                                     <C>                  <C>                  <C>                  <C>
Numerator:
----------
Net income (loss) as reported for
basic EPS                                               $    398,028         $   (231,398)        $  1,365,954         $   (529,614)
Less: Preferred share dividends
paid and in arrears                                          (11,251)             (11,251)             (33,661)             (33,753)
                                                        ------------         ------------         ------------         ------------
Net Income (Loss)                                       $    386,777         $   (242,649)        $  1,332,293         $   (563,367)
                                                        ------------         ------------         ------------         ------------
Denominator:
------------
Weighted average shares for
basic EPS                                                 39,376,529           36,076,771           39,355,816           37,003,668
                                                        ============         ============         ============         ============

Basic income (loss) per share                           $       0.01         $      (0.01)        $       0.03         $      (0.02)
                                                        ============         ============         ============         ============
</TABLE>

<PAGE>

                                                                        PAGE XXI

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

14.   EARNINGS (LOSS) PER COMMON SHARE (Continued)

      (b)   Fully  Diluted:  The Company  follows CICA  Handbook  Section  3500,
            "Earnings  per Share",  effective  January 31, 2003.  The  statement
            requires the  presentation of both basic and diluted earnings (loss)
            per  share  ("EPS")  in  the  statement  of  operations,  using  the
            "treasury  stock"  method to compute  the  dilutive  effect of stock
            options and warrants and the "if converted"  method for the dilutive
            effect of  convertible  instruments.  For the three and nine  months
            ended   September  30,  2007  and  2006  the  assumed   exercise  of
            outstanding  stock options and warrants would have a dilutive effect
            on EPS. The following  table sets forth the weighted  average number
            of common shares outstanding for the computation of dilutive EPS for
            each  of  the  years   presented  in  the   consolidated   financial
            statements.

<TABLE>
<CAPTION>
                                                                 Three months ended                     Nine months ended
                                                                    September 30,                         September 30,
                                                                2007                2006               2007                2006
                                                                ----                ----               ----                ----
<S>                                                        <C>                 <C>                 <C>                 <C>
Numerator:
----------
Net income (loss) as reported for
basic EPS                                                  $    398,028        $   (231,398)       $  1,365,954        $   (529,614)
Less: Preferred share dividends
paid and in arrears                                             (11,251)            (11,251)            (33,661)            (33,753)
                                                           ------------        ------------        ------------        ------------

Net Income (loss)                                               386,777            (242,649)          1,332,293            (563,367)
                                                           ------------        ------------        ------------        ------------
Denominator:
------------
Weighted average shares for
basic EPS                                                    39,376,529          39,076,771          39,355,816          37,003,668
                                                           ============        ============        ============        ============
Effect of dilutive securities:
Stock options and Warrants                                           --                  --                  --                  --
Adjusted weighted average shares and
assumed conversions for dilutive EPS                         39,376,529          39,076,771          39,355,816          37,003,668
                                                           ============        ============        ============        ============

Fully diluted income (loss) per share                      $       0.01        $      (0.01)       $       0.03        $      (0.02)
                                                           ============        ============        ============        ============
</TABLE>

      (c)   Anti-dilutive:  For the three  months ended  September  30, 2007 and
            2006,  4,655,000 and 4,005,000 options to purchase common shares and
            warrants exercisable for 7,819,166 and 6,569,116,  respectively were
            not included in the computation of fully-diluted earnings (loss) per
            share  because in 2007 the  exercise  prices were  greater  than the
            average market price of the common shares and in 2006 because of the
            loss position.

            For the nine months ended September 30, 2007 and 2006, 4,655,000 and
            4,005,000 options to purchase common shares and warrants exercisable
            for 7,819,166 and 6,569,116  common shares,  respectively,  were not
            included in the  computation of  fully-diluted  earnings  (loss) per
            share  because the  exercise  prices were  greater  than the average
            market  price of the common  shares and in 2006  because of the loss
            position.

<PAGE>

                                                                       PAGE XXII

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

15.   FINANCIAL INSTRUMENTS

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

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

      (i)   Fair Value

            The carrying values of cash, accounts  receivable,  film tax credits
            receivable,  bank loans,  convertible  debenture  issued in February
            1996  (Note  9(i)) and  accounts  payable  and  accrued  liabilities
            approximate fair value due to their  short-term  maturity and normal
            credit terms.

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

            The fair value of the convertible debentures issued in December 2000
            has been  estimated by first  calculating  the present  value of the
            liability  component  using a discount  factor and then assigning to
            the equity  component  the  difference  between the  proceeds of the
            debenture  and  the  fair  value  of the  liability  component.  The
            estimated  discount  factor used  approximated  the market  interest
            rates at  September  30, 2007 and 2006.  Accordingly,  the  carrying
            amounts of the convertible debentures approximate fair value.

      (ii)  Credit Risk

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

      (iii) Currency Risk

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

            The Company does not actively use  derivative  instruments to reduce
            its exposure to foreign  currency  risk.  However,  dependent on the
            nature, amount and timing of foreign currency receipts and payments,
            the Company may enter into  forward  exchange  contracts to mitigate
            the  associated  risks.  There  were no forward  exchange  contracts
            outstanding at September 30, 2007.

<PAGE>

                                                                      PAGE XXIII

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

16.   COMMITMENTS AND CONTINGENCIES

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

                     2007                               $ 7,000
                     2008                                29,000
                     2009                                13,000
                                                        -------
                                                        $56,000
                                                        =======

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

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

      (d)   The purchasers of the copyright  interest are entitled to a priority
            distribution  of the future  revenue  earned from the motion picture
            "Bailey's  Billion$" up to the original amount of the purchase price
            of  $2,477,500 up to 42%.  Subsequent to the priority  distribution,
            all the amounts would be distributed  pari passu in accordance  with
            the percentage ownership acquired.

      (e)   The distributors of the film are entitled to a priority distribution
            of the  future  revenue  earned  from the motion  picture  "Bailey's
            Billion$"  up to the original  amount of the  purchase  price in the
            amount of $2,908,971.  Subsequent to the priority distribution,  all
            the amounts would be distributed in accordance  with the contractual
            agreements.

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

17.   RELATED PARTY TRANSACTIONS

      During the 3 month period ended September 30, 2007 $98,332  (September 30,
      2006 - $73,749) of fees were paid or accrued to corporations controlled by
      two of the directors for writing,  directing and producing services. These
      transactions 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.

<PAGE>

                                                                       PAGE XXIV

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

18.   VARIABLE INTEREST ENTITIES

      a) During the year ended  December  31, 2004,  the Company  entered into a
      services agreement with Devine Entertainment Limited Partnership ("DELP").

      Under the terms of the services agreement, the 2004 DELP advanced $846,350
      to the Company for the 2004 services,  which was originally  accounted for
      as royalty interest  payable.  Included in the $846,350 was $494,550 which
      was  initially  loaned from the Company to an unrelated  company (Note 4),
      which subsequently loaned these funds to the limited partners.

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

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

      b) During 2005, the Company entered into a services agreement with the QCF
      2005 Limited Partnership ("QCF") which to date has not been finalized.

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

      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  for $7.0  million,  as  valued  by an  outside
      valuator. The Company has provided financing for the transaction,  and has
      entered into a financing agreement and a management agreement with DEFL LP
      in order to manage the  exploitation  and expand the  distribution  of the
      properties.  Under these agreements the Company will maintain a call right
      for  between a minimum of 70% and a maximum  100%  interest in the library
      assets.  On December  29, 2006  subscriptions  for 80 units of the DEFL LP
      were  finalized.  $175,097 is receivable  in 2008 and 2009.  Subsequent to
      payment of all  closing  expenses  the DEFL LP overall net  proceeds  were
      $249,098. The accounts of this variable interest entity have been included
      in the consolidated financial statements of the Company.

<PAGE>

                                                                        PAGE XXV

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

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

<TABLE>
<CAPTION>
                                                                 Three months ended Sept 30,           Nine months ended Sept 30,
                                                                   2007               2006               2007               2006
                                                                   ----               ----               ----               ----
<S>                                                            <C>                <C>                <C>                <C>
Change in non-cash working capital
Accounts receivable                                            $  (932,848)       $   105,682        $   151,650        $   121,129
Tax credits receivable                                                  --                 --          1,837,284                 --
Advances receivable                                                (59,529)
Inventory                                                            9,494             16,485             13,919             17,419
Prepaids and sundry receivable                                       4,730           (307,689)            46,002           (310,783)
Accounts payable and accrued liabilities                            (3,573)           281,786             39,720            161,165
Deferred revenue                                                  (884,525)         1,665,286         (3,458,118)         2,137,786
                                                               -----------        -----------        -----------        -----------
                                                                (1,806,822)         1,761,550         (1,429,072)         2,126,716
                                                               -----------        -----------        -----------        -----------
Non-cash transactions
Shares issued on settlement of payables                                 --                 --                 --             27,765
Stock-based compensation                                            16,800                 --             46,060             23,184
</TABLE>

20.   GEOGRAPHIC INFORMATION

            The  Company  conducts  its  operations  in  one  business  segment:
            distribution of internally produced films and television programs.

            Revenue by geographic location,  based on the location of customers,
            is as follows:

<TABLE>
<CAPTION>
                                                        Three months ended Sept 30,                    Nine months ended Sept 30,
                                                        2007                   2006                   2007                   2006
                                                        ----                   ----                   ----                   ----
<S>                                                  <C>                    <C>                    <C>                    <C>
Canada                                               $1,881,809             $   19,344             $5,643,960             $   38,219
United States                                            79,344                 64,911                182,084                203,684
France                                                   71,000                     --                 71,000                 68,723
Russia                                                       --                     --                 83,442                     --
Other foreign                                                --                     --                 16,150                 52,903
                                                     ----------             ----------             ----------             ----------
                                                      2,032,153                 84,255              5,996,636                363,529
                                                     ==========             ==========             ==========             ==========
</TABLE>

<PAGE>

                                                                       PAGE XXVI

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

21.   RECONCILIATION TO UNITED STATES GAAP

Canada and United States Accounting Policy Differences

The  consolidated  financial  statements  of the Company  have been  prepared in
accordance with Canadian GAAP. The significant  differences between Canadian and
U.S.  GAAP,  and their effect on the  consolidated  financial  statements of the
Company, are described below. 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
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,                       2007             2006              2007             2006
                                                                        ----             ----              ----             ----
<S>                                                                  <C>              <C>               <C>              <C>
Net income (loss) in accordance with Canadian GAAP                   $  398,028       $ (231,398)       $1,365,954       $ (529,614)

Interest (Dividends) on Preferred Shares (Note c)                        11,251           11,251            33,661           33,753
                                                                     ----------       ----------        ----------       ----------

Net Income (Loss) in accordance with U.S. GAAP                       $  386,777       $ (242,649)       $1,332,293       $ (563,367)
                                                                     ----------       ----------        ----------       ----------

Net Income
(Loss) per share                                                     $     0.01       $    (0.01)       $     0.03       $    (0.02)
                                                                     ==========       ==========        ==========       ==========
</TABLE>

The  cumulative  effect  of these  adjustments  on  shareholders'  equity  is as
follows:

<TABLE>
<CAPTION>
                                                                                                September                 December
AS AT SEPTEMBER 30, 2007 AND DECEMBER 31, 2006                                                  30, 2007                  31, 2006
                                                                                               -----------              -----------
<S>                                                                                            <C>                      <C>
Shareholders' Equity in accordance with Canadian GAAP                                          $ 4,880,688              $ 3,458,346

Conversion feature on Convertible Debentures (Note a)                                             (181,510)                (181,510)

Gain on settlement of New Convertible Debentures
Effect on Contributed Surplus (Note b)                                                            (284,803)                (284,803)

Gain on settlement of New Convertible Debentures
Effect on Deficit (Note b)                                                                         284,803                  284,803
Cumulative dividends (Note c)                                                                     (123,822)                 (90,131)
Preferred Shares (Note c)                                                                         (494,550)                (494,550)
                                                                                               -----------              -----------

Shareholders' Equity in accordance with U.S. GAAP                                              $ 4,080,806              $ 2,692,155
                                                                                               ===========              ===========
</TABLE>

<PAGE>

                                                                      PAGE XXVII

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

21.   RECONCILIATION TO UNITED STATES GAAP (continued)

The effect of these adjustments on the consolidated Balance Sheet is as follows:

<TABLE>
<CAPTION>
                                                                                                 September                 December
AS AT SEPTEMBER 30, 2007 AND DECEMBER 31, 2006                                                   30, 2007                  31, 2006
                                                                                                -----------              -----------
<S>                                                                                             <C>                      <C>
Assets in accordance with Canadian GAAP                                                         $ 9,826,783              $12,934,759

Differences for U.S. GAAP                                                                                --                       --
                                                                                                -----------              -----------
Assets in accordance with U.S. GAAP                                                             $ 9,826,783              $12,934,759
                                                                                                ===========              ===========
Liabilities in accordance with Canadian GAAP                                                    $ 4,946,095              $ 9,476,413

Conversion feature on Convertible Debentures (Note a)                                               181,510                  181,510

Cumulative dividends (Note c)                                                                       123,822                   90,131

Preferred Shares (Note c)                                                                           494,550                  494,550
                                                                                                -----------              -----------
Liabilities in accordance with U.S. GAAP                                                        $ 5,745,977              $10,242,604
                                                                                                ===========              ===========
</TABLE>

The effect of these adjustments on the consolidated statement of
cash flows is as follows:

<TABLE>
<CAPTION>
                                                                  Three           Three           Nine           Nine
                                                                  months          months         months         months
                                                                  ended           ended          ended          ended
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,                  2007            2006           2007           2006
                                                               -----------     -----------      ---------     ---------
<S>                                                            <C>             <C>              <C>           <C>
Cash flows provided by Operating Activities

Cash flows provided by (used in) operating
activities in accordance with Canadian
GAAP                                                           $   (26,107)    $ 1,560,265      2,275,841     1,828,452

Interest (Dividends) on Preferred
Shares - Effect on Net Loss (Note c)                               (11,251)        (11,251)       (33,661)      (33,753)

Interest (Dividends) on Preferred Shares
(Note c) - Effect on Other Liabilities                              11,251          11,251         33,661        33,753
                                                               -----------     -----------      ---------     ---------
Cash flows provided by (Used in)
Operating Activities                                           $   (26,107)    $ 1,560,265      2,275,841     1,828,452
                                                               ===========     ===========      =========     =========
</TABLE>

<PAGE>

                                                                     PAGE XXVIII

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

21.   RECONCILIATION TO UNITED STATES GAAP (Continued)

      (a)   Under  Canadian  GAAP,  the  conversion  feature on the  convertible
            debentures  (Note 9), is valued at $181,510 and has been  classified
            as contributed  surplus.  Under U.S. GAAP the conversion  feature is
            not accounted separately and thus would not flow through contributed
            surplus. This transaction occurred in 2000.

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

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

      (d)   Financial   Accounting   Standards   Board  Statement  of  Financial
            Accounting Standards No. 130 "Reporting  Comprehensive Income" (SFAS
            130) requires the disclosure of comprehensive income, which includes
            reported net earnings adjusted for other comprehensive income. Other
            comprehensive  income  is  defined  as the  change  in  equity  of a
            business  enterprise  during a period  from  transactions  and other
            events and  circumstances  from non-owner  sources.  During 2007 and
            2006, there was no other comprehensive income.

      Impact of Newly Issued United States Accounting Standards

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

      ii)   In  February  2006,  the FASB issued SFAS  No.155,  "Accounting  for
            Certain Hybrid Financial Instruments." Which amends SFAS No. 133 and
            SFAS No.140. SFAS No. 155 permits hybrid financial  instruments that
            contain  an  embedded   derivative  that  would  otherwise   require
            bifurcation  to  irrevocably  be accounted  for at fair value,  with
            changes in fair value  recognized  in the  statement of income.  The
            fair value  election  may be applied on an  instrument-by-instrument
            basis.  SFAS No. 155 also  eliminates a  restriction  on the passive
            derivative  instruments that a qualifying special purpose entity may
            hold.  SFAS No. 155 is  effective  for those  financial  instruments
            acquired  or  issued  after  December  1,  2006.  At  adoption,  any
            difference  between  the total  carrying  amount  of the  individual
            components of the existing bifurcated  financial  instrument and the
            fair  value of the  combined  hybrid  financial  instrument  will be
            recognized as a  cumulative-effect  adjustment to beginning retained
            earnings.  The Company  does not expect the new standard to have any
            material impact on our financial position and results of operations.

      iii)  In  March  2006,  the FASB  issued  SFAS No.  156,  "Accounting  for
            Servicing of Financial  Assets,  an amendment of FASB  Statement No.
            140." SFAS No. 156  requires  all  separately  recognized  servicing
            assets and servicing  liabilities  to be initially  measured at fair
            value,   if   practicable.   The  standard   permits  an  entity  to
            subsequently  measure  each class of  servicing  assets or servicing
            liabilities  at fair value and  report  changes in fair value in the
            statement  of income in the period in which the changes  occur.  The
            Company does not expect the new standard to have any material impact
            on our financial position and results of operations.

<PAGE>

                                                                       PAGE XXIX

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                               SEPTEMBER 30, 2007

21.   RECONCILIATION TO UNITED STATES GAAP (Continued)

      iv)   In  July  2006,  the  FASB  issued  FASB   Interpretation   No.  48,
            "Accounting  for  Uncertainty in Income Taxes an  interpretation  of
            FASB Statement No. 109 (FIN 48), which  clarifies the accounting for
            uncertainty in tax positions.  This Interpretation  requires that we
            recognize in our financial statements, the impact of a tax position,
            if that  position  is more  likely  than not of being  sustained  on
            audit, based on the technical merits of the position. The provisions
            of FIN 48 are effective as of the beginning of our 2007 fiscal year,
            with the  cumulative  effect of the change in  accounting  principle
            recorded as an adjustment to opening retained earnings.  The Company
            is  currently  evaluating  the  impact  of  adopting  FIN48  on  our
            financial statements.

      v)    In September 2006,  FASB issued SFAS 157 'Fair Value  Measurements'.
            This  Statement  defines  fair value,  establishes  a framework  for
            measuring  fair value in generally  accepted  accounting  principles
            (GAAP), and expands disclosures about fair value measurements.  This
            Statement applies under other accounting pronouncements that require
            or permit  fair  value  measurements,  the Board  having  previously
            concluded in those accounting  pronouncements that fair value is the
            relevant measurement attribute. Accordingly, this Statement does not
            require any new fair value measurements. However, for some entities,
            the application of this Statement will change current practice. This
            Statement is effective  for financial  statements  issued for fiscal
            years  beginning after November 15, 2007, and interim periods within
            those fiscal years.  The Company is currently  evaluating the effect
            of this pronouncement on financial statements.

      vi)   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 to evaluate  prior
            period financial  statement  misstatements for purposes of assess in
            their  materiality in the current period. If the prior period effect
            is material to the current period, then the prior period is required
            to be corrected.  Correcting  prior year financial  statements would
            not require an amendment  to prior year  financial  statements,  but
            such  correction  would be made the next time the company  files the
            prior year  financial  statements.  Upon  adoption  SAB 108 allows a
            one-time  transitional  cumulative  effect  adjustment  to  retained
            earnings for correction of prior period misstatement  required under
            this  statement.  SAB108 is effective  for fiscal years ending after
            November  15,  2006.  The adoption of SAB108 did not have a material
            effect on the Company's financial statements.

      vii)  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 is not expected to be material to the Company's
            financial statements.

22.   SUBSEQUENT EVENTS

      Subsequent  to the end of the  quarter,  the  Company  completed a private
      placement  of 6,475,000  units for proceeds of $647,500.  Each unit of the
      private  placement  consists of one common share and one purchase  warrant
      with a purchase  price of $0.10 per unit.  Each warrant is  exercisable at
      anytime on or prior to April 11,  2009,  to acquire one common share at an
      exercise price of $0.10.  The proceeds are earmarked for investment in the
      development  of the Company's  marketing and  distribution  activities and
      general working capital.

<PAGE>

                                                                        PAGE XXX

      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 13, 2007 to provide a review of current  activities and a comparison of
the performance and financial  position of Devine  Entertainment (the "Company")
for the  three  and nine  month  periods  ended  September  30,  2007 and  2006.
Additional  information  related  to  the  Company  is  available  on  SEDAR  at
www.sedar.com.  The  financial  data in this  document  have  been  prepared  in
accordance  with  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 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.

<PAGE>

                                                                       PAGE XXXI

THIRD QUARTER 2007 HIGHLIGHTS

Continuing  the  trend  established  in the  first  two  quarters  of 2007,  the
Company's third quarter revenues and earnings  increased  dramatically year over
year as a result of the Company's focus on the  post-production  and delivery of
the final two  episodes  of the first  season  of the  Company's  new  primetime
mystery series for Chum Television, Across the River to Motor City.

      o     Revenues in the  quarter  ended  September  30,  2007  increased  by
            $1,947,898  or  approximately  2310% to  $2,032,153  as  compared to
            $84,255 for the same period in 2006.  $1,870,809  of these  revenues
            were derived  from the  delivery of the fifth and sixth  episodes of
            its new  series  Across  The River to Motor  City.  The  balance  of
            $161,344 in revenues in the quarter were generated by sales from the
            Company's library of films and television programs.

      o     Net Earnings for the quarter ended  September 30, 2007  increased by
            $629,426  to  $398,028  or $0.01 per share as  compared to a loss of
            $231,398 for the same period in 2006.

With the  recognition  of  $5,612,427  in revenues on the  delivery of the first
season of Across  the River to Motor  City,  and  increased  sales  from the new
international  distribution agreement for the Company's proprietary film library
with Carrere Group that commenced in the first quarter 2007,  this year promises
to be among the  Company's  strongest  ever.  The Company is on track to end the
year with anticipated revenues surpassing $6 million,  EBITDA of more than $0.10
per share and profits of between $0.02 to $0.03 per share.

RESULTS OF OPERATIONS FOR THE THIRD QUARTER AND NINE MONTHS
ENDED SEPTEMBER 30, 2007 AND 2006

Revenues

Revenues in the three months  ended  September  30, 2007  increased by more than
$1,947,898  to  $2,032,153,  reflecting  an increase of  approximately  2310% as
compared to $84,255 for the same period in 2006.

Revenues for the nine months  ended  September  30, 2007  increased by more than
$5,633,107  to  5,996,636,  reflecting  an  increase of  approximately  1550% as
compared to $363,529 for the same period in 2006.

The  majority of the  Company's  revenues in the  quarter,  or  $1,870,809,  was
derived  from the  delivery of the fifth and sixth  episodes of the  six-episode
first season of its new series for CITY-TV,  entitled  Across The River to Motor
City.  The  balance  of  $161,344  in  revenue  for the third  quarter  2007 was
comprised of $86,899 from  continuing  DVD and ancillary  product sales from the
Company's  proprietary  library of completed  films and  television  programs in
North  America and $74,445  from sales of  broadcast  licenses of the  Company's
proprietary  library of completed films and television programs outside of North
America.  A total of $5,612,427 of the  $5,996,636 of the Company's  revenues in
the nine month period ended September 30, 2007 was generated by Across The River
to Motor  City.  Revenues  from the  Company's  proprietary  library in the nine
months ended  September  30, 2007 of $384,209  were  approximately  6% higher as
compared  with  $363,529  for the same period in 2006.  This  reflects  that the
Company's newly  established  foreign  distribution  agreement for the Company's
library of films with the  Carrere  Group,  which is just  beginning  to produce
results,  has made up for what would have been a comparative decrease in revenue
due to the  significant  drop in the value in the US dollar as  compared  to the
Canadian dollar since 2006.

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

<TABLE>
<CAPTION>
                                                               Three months                                 Nine months
                                                              ended Sept. 30                               ended Sept. 30
Revenue                                                 2007                   2006                   2007                   2006
<S>                                                  <C>                    <C>                    <C>                    <C>
Canada                                               $1,881,809             $   19,344             $5,643,960             $   38,219
United States                                            79,344                 64,911                182,084                203,684
France                                                   71,000                     --                 71,000                 68,723
Russia                                                       --                     --                 83,442                     --
Other foreign                                                --                     --                 16,150                 52,903
                                                     ----------             ----------             ----------             ----------
                                                     $2,032,153             $   84,255             $5,996,636             $  363,529
</TABLE>

<PAGE>

                                                                      PAGE XXXII

Earnings (loss) per Common Share (EPS)

Net Earnings for the three months ended September 30, 2007 increased by $629,426
to  $398,028 or $0.01 per share as compared to a net loss of $231,398 or ($0.01)
for the same period in 2006.

Net  Earnings  for the  nine  months  ended  September  30,  2007  increased  by
$1,895,568  to  $1,365,954  or  $0.03  per  share as  compared  to a net loss of
$529,614 or ($0.01) for the same period in 2006.

EBITDA

EBITDA,   defined  as  earnings  before   interest,   taxes,   depreciation  and
amortization  was  $1,762,577  or $0.04  per  share in the  three  months  ended
September  30, 2007 an increase of  $1,965,742  as compared to ($203,165) in the
same period in 2006.

EBITDA,  for the six months ended September 30, 2007 was $5,456,480 or $0.14 per
share in the three months ended  September 30, 2007 an increase of $5,795,732 as
compared to ($339,252) in the same period in 2006.

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

Shareholders' Equity

Shareholders'  equity was  $4,880,688  at  September  30,  2007,  reflecting  an
increase of $1,422,342 as compared to $3,458,346 at December 31, 2006.

SUMMARY OF QUARTERLY RESULTS:

<TABLE>
<CAPTION>
                          Sept. 30,     June 30,     Mar. 31,     Dec. 31,       Sept. 30,     June 30,      Mar. 31,       Dec. 31,
                            2007          2007         2007         2006           2006          2006          2006          2005
                            ----          ----         ----         ----           ----          ----          ----          ----
<S>                       <C>          <C>          <C>              <C>          <C>           <C>           <C>           <C>
Revenues                  2,032,153    1,935,408    2,029,075        60,430       163,860       115,414       163,860       468,348

Operating Expenses          269,576      139,086      102,234       181,507       232,377       156,200       232,377       268,418
Earnings (loss)
before income taxes
                            398,028      442,974      554,212    (2,514,151)     (150,577)     (147,639)     (150,577)     (865,770)

Income taxes                     --           --           --            --            --            --            --        12,189

Net earnings (loss)         398,028      442,974      554,212    (2,514,151)     (150,577)     (147,639)     (150,577)     (853,581)

Basic earnings (loss)
per common share               0.01         0.01         0.01         (0.07)        (0.00)        (0.00)        (0.00)        (0.02)
</TABLE>

<PAGE>

                                                                     PAGE XXXIII

Operating expenses

The Company's  operating  expenses for the three months ended September 30, 2007
decreased by $17,014 or approximately 6% to $269,576, as compared to $287,420 in
the same period in 2006.

The Company's  operating  expenses for the nine months ended  September 30, 2007
decreased by $165,099 or approximately 24% to $510,896,  as compared to $675,995
in the same period in 2006.

Production and Development Activity

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

Investment in Film and Television Programs and Recordings

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

Amortization  expenses in the quarter ended September 30, 2007 for the Company's
library of completed  television  programs  and  recordings  and motion  picture
totaled  $164,954.  As at September 30, 2007,  the  Company's  investment in its
proprietary  film library of completed  television  programs and  recordings was
estimated as $686,986 after accumulated  amortization.  The Company's investment
in its motion  picture  Bailey's  Billion$  was  estimated as  $2,891,078  after
accumulated amortization. Amortization expenses in the quarter for the Company's
completed  television  Drama  Series,  Across  the River to Motor  City  totaled
$1,203,956  and the  Company's  investment  in Drama  Series  was  estimated  at
$1,942,886.  The Company's  investment  in projects in progress was  $1,987,737,
which  includes  $410,743 for Across the River to Motor City and  $1,576,994 for
projects in development as per the following table:

<TABLE>
<CAPTION>
                                                                                    September 30,                       December 31,
                                                                                         2007                               2006
                                                                                         ----                               ----
                                                                                     Accumulated
                                                                       Cost          Amortization          Net               Net
                                                                       ----          ------------          ---               ---
<S>                                                                <C>               <C>               <C>               <C>
Completed television programs and recordings                       $ 6,902,529       $ 6,215,543       $   686,986       $   930,318
Completed Motion picture - Bailey's Billion                        $ 6,972,580         4,081,502         2,891,078         2,891,078
Completed television Drama Series                                    5,812,000         3,869,114         1,942,886                --

Projects in progress                                                 1,987,737                --         1,987,737         5,669,105
                                                                   -----------       -----------       -----------       -----------
                                                                   $21,674,846       $14,166,159       $ 7,508,687       $ 9,490,501
</TABLE>

Annually,  management  reviews the estimate of total remaining  ultimate revenue
and the fair value of the capitalized film costs. As a result of the review, the
Company  may change the  carrying  value of its  completed  film and  television
programs accordingly.

The Company expects to amortize  approximately $415,000 for completed television
programs and recordings  costs,  $355,000 for completed motion picture costs and
$3,869,000 for completed television drama series during the fiscal year.

<PAGE>

                                                                      PAGE XXXIV

Development costs for properties that are expected to benefit future periods are
also capitalized.  If upon review  management  determines that certain costs are
unrecoverable,  the costs  associated  with such  property  are  written  off to
income.

As at year end 2006 94% of completed  television programs and recordings and 59%
of completed motion picture costs have been amortized.

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

As at  December  2010 over 80% of the  completed  motion  picture  costs will be
amortized.

The remaining period of amortization for the completed  projects ranges from two
to ten years.

Capital stock

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

On April 16, 2007 the Company issued 68,850 common shares to the Company's three
outside directors pursuant to the previously approved and agreed upon director's
compensation plan for the fourth quarter 2006 and the first quarter 2007.

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

Also on May 11, 2007, the board approved the issuance of 550,000  warrants to an
unrelated investor that participated in the Company's debt restructuring in 2004
and priced all of the  creditor's  warrants at $0.25  pursuant to the agreements
entered into at that time.

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

At  September  30,  2007 the Company had  39,382,549  common  shares and 494,550
Series 1 Class A preferred shares outstanding.

Subsequent Equity Financing

Subsequent to the end of the quarter,  the Company completed a private placement
of 6,475,000 units for proceeds of $647,500.  Each unit of the private placement
consists of one common share and one purchase  warrant with a purchase  price of
$0.10 per unit.  Each warrant is exercisable at anytime on or prior to April 11,
2009,  to acquire one common share at an exercise  price of $0.10.  The proceeds
are earmarked for investment in the  development of the Company's  marketing and
distribution activities and general working capital.

Related Party Transactions

During the 3 month period ended September 30, 2007,  $98,332 (September 30, 2006
- $73,749) of fees were paid or accrued to corporations controlled by two of the
directors for writing, directing and producing services. These transactions 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.

Limited Partnerships

During  2004  the  Company  entered  into  a  services   agreement  with  Devine
Entertainment  Limited Partnership ("the  Partnership").  Under the terms of the
agreement,  the  Partnership  assumed  certain  expenses of the Company  through
December 31, 2004, relating to the following:

<PAGE>

                                                                       PAGE XXXV

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

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

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

      o     Administrative services; and

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

In return,  the Partnership was entitled to a royalty based on the gross revenue
of the Company.  On December 22, 2004 the  Partnership  exercised its conversion
right under the services  agreement to exchange its royalty interest for 380,450
Common Shares and 494,550 Series 1 preferred shares of the Company.  The Company
issued  the  shares  and  the   Partnership's   royalty   interest  payable  was
reclassified to capital stock.

During the first quarter of 2005, the Company entered into a services  agreement
with the QCF 2005 Limited Partnership ("QCF"). Under the terms of the agreement,
QCF assumed certain  expenses of the Company through  December 31, 2005 relating
to the following:

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

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

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

      o     Administrative services; and

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

In return,  QCF is entitled to receive royalty payments equal to a percentage of
gross revenue of the Company for the calendar years 2005 through 2015.

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  for $7.0  million,  as valued by an outside  valuator.  The Company has
provided  financing  for the  transaction,  and  has  entered  into a  financing
agreement  and a  management  agreement  with  DEFL LP in  order to  manage  the
exploitation  and  expand  the  distribution  of  the  properties.  Under  these
agreements,  the Company will receive  management fees and interest  revenue and
the  Company  will  maintain  a call  right for  between a minimum  of 70% and a
maximum 100% interest in the library assets. On December 29, 2006  subscriptions
for 80 units of the DEFL LP were  finalized  providing an investment of $470,817
of which  $175,000 is  receivable  in 2008 - 2009.  Subsequent to payment of all
closing  expenses the DEFL LP overall net proceeds for general  working  capital
were $249,098.  The accounts of this variable interest entity have been included
in the consolidated financial statements of the Company.

Liquidity and Capital Resources

The Company's  cash on hand as at September 30, 2007 was $216,471 as compared to
$268,001 as at December 31, 2006, a decrease in cash position of $51,530.

A demand loan bearing  interest at prime plus 1%,  repayable in full by June 30,
2008 was  arranged  for the  financing of 6 episodes of a new one hour TV series
entitled  Across the River to Motor City,  which was  produced by the  Company's
wholly owned  subsidiary,  Across the River Productions Ltd. The loan is secured
by all receipts  including all  commercialization  or exploitation of the series
worldwide including pre-sale and funding agreements and various tax credits. The
loan is not secured by the parent  company's  assets and is  non-recourse to the
parent company. As at September 30, 2007 the production loan totalled $1,807,775
(December  31, 2006 -  $2,121,527).  Interest on the above demand loan  totalled
$31,239 in the three  months  ended  September  30, 2007 (the three months ended
December 31, 2006 - $30,312).

The Company expects to maintain  renewed growth from operations and expects that
proceeds  from sales of Across the River to Motor City and its film library will
generate additional revenues and positive cash flow through 2007.

The Company's working capital deficiency,  although reduced, remains significant
but is  mitigated by the fact that the Company is working  towards  successfully
converting  its  $1,519,290 of outstanding  convertible  debentures  into common
shares in 2007.

Nonetheless,  the Company remains unable to service its convertible debt and the
Company will require additional  working capital from its production  activities
or  corporate  financing  in 2007.  Subsequent  to the end of the  quarter,  the
Company  completed  a private  placement  of  6,475,000  units for  proceeds  of
$647,500.  Each unit of the private  placement  consists of one common share and
one purchase  warrant with a purchase  price of $0.10 per unit.  Each warrant is
exercisable  at anytime  on or prior to April 11,  2009,  to acquire  one common
share at an exercise  price of

<PAGE>

                                                                      PAGE XXXVI

$0.10.  The proceeds are earmarked  for  investment  in the  development  of the
Company's marketing and distribution activities and general working capital. The
Company continues to seek additional funding.

OUTLOOK

The Company is optimistic  about the successful  commercial  exploitation of its
new one hour  primetime  mystery  Across the River to Motor City and growing its
library of motion  pictures and  television  programs and  recordings.  With the
recognition  of  $5,612,427  in revenues on the  delivery of the first season of
Across the River to Motor City, and increased  sales from the new  international
distribution  agreement for the Company's  proprietary film library with Carrere
Group that  commenced in the first quarter 2007,  this year promises to be among
the  Company's  strongest  ever.  The  Company  is on track to end the year with
anticipated revenues surpassing $6 million,  EBITDA of more than $0.10 per share
and profits of between $0.02 to $0.03 per share.

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

While many business risks remain and the success of these  strategies  cannot be
guaranteed, the Company expects that the successful completion of all or some of
these  strategic  objectives  will  assist  with the  continued  renewal  of the
Company's growth through 2007 and into the future.

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 21 to the
financial statements.

There have been no significant changes in the Company's  accounting policies and
estimates since December 31, 2006. Refer to Management's Discussion and Analysis
in the Company's December 31, 2006 Annual Report.

RECONCILIATION TO UNITED STATES GAAP

Canada and United States Accounting Policy Differences

The  consolidated  financial  statements  of the Company  have been  prepared in
accordance with Canadian GAAP. The significant  differences between Canadian and
U.S.  GAAP,  and their effect on the  consolidated  financial  statements of the
Company, are described below. 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
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,                           2007            2006             2007            2006
                                                                            ----            ----             ----            ----
<S>                                                                      <C>             <C>              <C>             <C>
Net income (loss) in accordance with Canadian GAAP                       $ 398,028       $(231,398)       1,365,954       $(529,614
Interest (Dividends) on Preferred Shares (Note c)                           11,251          11,251           33,661          33,753
                                                                                                          ---------       ---------
Net Income (Loss) in accordance with U.S. GAAP                           $ 386,777       $(242,649)       1,332,293       $(563,367)
                                                                         ---------       ---------        ---------       ---------
Net Income (Loss) per share                                              $    0.01       $   (0.01)       $    0.03       $   (0.02)
                                                                         =========       =========        =========       =========
</TABLE>

<PAGE>

                                                                     PAGE XXXVII

The  cumulative  effect  of these  adjustments  on  shareholders'  equity  is as
follows:

     The effect of these adjustments on the consolidated Balance Sheet is
     as follows:

<TABLE>
<CAPTION>
                                                                                             September 30,               December
AS AT SEPTEMBER 30, 2007 AND DECEMBER 31, 2006                                                    2007                   31, 2006
                                                                                             -------------             ------------
<S>                                                                                          <C>                       <C>
Shareholders' Equity in accordance with Canadian GAAP                                        $  4,880,688              $  3,458,346

Conversion feature on Convertible Debentures (Note a)                                            (181,510)                 (181,510)

Gain on settlement of New Convertible Debentures
Effect on Contributed Surplus (Note b)                                                           (284,803)                 (284,803)

Gain on settlement of New Convertible Debentures

Effect on Deficit (Note b)                                                                        284,803                   284,803
Cumulative dividends (Note c)                                                                    (123,822)                  (90,131)
Preferred Shares (Note c)                                                                        (494,550)                 (494,550)
                                                                                             ------------              ------------
Shareholders' Equity in accordance with U.S. GAAP                                            $  4,080,806              $  2,692,155
                                                                                             ============              ============
</TABLE>

<TABLE>
<CAPTION>
                                                                                             September 30,               December
AS AT SEPTEMBER 30, 2007 AND DECEMBER 31, 2006                                                    2007                   31, 2006
                                                                                             -------------             ------------
<S>                                                                                          <C>                       <C>
Assets in accordance with Canadian GAAP                                                      $  9,826,783              $ 12,934,759

Differences for U.S. GAAP                                                                              --                        --
                                                                                             ------------              ------------

Assets in accordance with U.S. GAAP                                                          $  9,826,783              $ 12,934,759
                                                                                             ============              ============
                                                                                             $  4,946,095              $  9,476,413
Liabilities in accordance with Canadian GAAP

Conversion feature on Convertible Debentures (Note a)                                             181,510                   181,510

Cumulative dividends (Note c)                                                                     123,822                    90,131

Preferred Shares (Note c)                                                                         494,550                   494,550
                                                                                             ------------              ------------
Liabilities in accordance with U.S. GAAP                                                     $  5,745,977              $ 10,242,604
                                                                                             ============              ============
</TABLE>

<PAGE>

                                                                    PAGE XXXVIII

The effect of these adjustments
on the consolidated statement of
cash flows is as follows:

<TABLE>
<CAPTION>
                                                                  Three              Three              Nine               Nine
                                                                  months             months            months             months
                                                                  ended              ended             ended              ended
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,                  2007               2006              2007               2006
                                                               -----------        -----------         ---------         ---------
<S>                                                            <C>                <C>                  <C>                <C>
Cash flows provided by Operating Activities

Cash flows provided by operating activities
in accordance with Canadian GAAP                               $   (26,107)       $ 1,560,265          2,275,841          1,828,452

Interest (Dividends) on Preferred Shares
- Effect on Net Loss (Note c)                                      (11,251)           (11,251)           (33,661)           (33,753)

Interest (Dividends)on Preferred Shares
(Note c) - Effect on Other Liabilities                              11,251             11,251             33,661             33,753
                                                               -----------        -----------        -----------        -----------

Cash flows provided by Operating Activities                    $   (26,107)       $ 1,560,265          2,275,841          1,828,452
                                                               ===========        ===========        ===========        ===========
</TABLE>

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

(a)   Under Canadian GAAP, the conversion feature on the convertible  debentures
      (Note 9), is valued at $181,510  and had been  classified  as  contributed
      surplus.   Under  U.S.  GAAP  the  conversion  feature  is  not  accounted
      separately  and thus  would not flow  through  contributed  surplus.  This
      transaction occurred in 2000.

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

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

(d)   Financial  Accounting  Standards Board  Statement of Financial  Accounting
      Standards No. 130 "Reporting Comprehensive Income" (SFAS 130) requires the
      disclosure of comprehensive  income,  which includes reported net earnings
      adjusted for other comprehensive  income.  Other  comprehensive  income is
      defined as the change in equity of a business  enterprise  during a period
      from  transactions  and other  events  and  circumstances  from  non-owner
      sources. During 2007 and 2006, there were no other comprehensive income.

Impact of Newly Issued United States Accounting Standards

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

<PAGE>

                                                                     PAGE XXXVIX

ii)   In February  2006,  the FASB issued SFAS No.155,  "Accounting  for Certain
      Hybrid Financial  Instruments." Which amends SFAS No. 133 and SFAS No.140.
      SFAS No. 155 permits hybrid financial instruments that contain an embedded
      derivative  that would  otherwise  require  bifurcation  to irrevocably be
      accounted for at fair value,  with changes in fair value recognized in the
      statement  of  income.  The  fair  value  election  may be  applied  on an
      instrument-by-instrument basis. SFAS No. 155 also eliminates a restriction
      on the passive  derivative  instruments that a qualifying  special purpose
      entity may hold. SFAS No. 155 is effective for those financial instruments
      acquired or issued after  December 1, 2006.  At adoption,  any  difference
      between the total  carrying  amount of the  individual  components  of the
      existing  bifurcated  financial  instrument  and  the  fair  value  of the
      combined   hybrid   financial   instrument   will  be   recognized   as  a
      cumulative-effect  adjustment to beginning retained earnings.  The Company
      does not  expect  the new  standard  to have any  material  impact  on our
      financial position and results of operations.

iii)  In March 2006, the FASB issued SFAS No. 156,  "Accounting for Servicing of
      Financial  Assets,  an amendment of FASB  Statement No. 140." SFAS No. 156
      requires  all  separately   recognized   servicing  assets  and  servicing
      liabilities to be initially  measured at fair value, if  practicable.  The
      standard permits an entity to subsequently measure each class of servicing
      assets or servicing  liabilities  at fair value and report changes in fair
      value in the statement of income in the period in which the changes occur.
      The Company does not expect the new  standard to have any material  impact
      on our financial position and results of operations.

iv)   In July 2006, the FASB issued FASB  Interpretation No. 48, "Accounting for
      Uncertainty  in Income Taxes an  interpretation  of FASB Statement No. 109
      (FIN 48), which clarifies the accounting for uncertainty in tax positions.
      This   Interpretation   requires   that  we  recognize  in  our  financial
      statements,  the impact of a tax position, if that position is more likely
      than not of being sustained on audit, based on the technical merits of the
      position.  The  provisions  of FIN 48 are effective as of the beginning of
      our 2007  fiscal  year,  with  the  cumulative  effect  of the  change  in
      accounting  principle  recorded  as  an  adjustment  to  opening  retained
      earnings. The Company is currently evaluating the impact of adopting FIN48
      on our financial statements.

v)    In September  2006, FASB issued SFAS 157 'Fair Value  Measurements'.  This
      Statement  defines fair value,  establishes a framework for measuring fair
      value in generally  accepted  accounting  principles  (GAAP),  and expands
      disclosures  about fair value  measurements.  This Statement applies under
      other  accounting   pronouncements  that  require  or  permit  fair  value
      measurements,  the Board having  previously  concluded in those accounting
      pronouncements  that fair  value is the  relevant  measurement  attribute.
      Accordingly,   this   Statement  does  not  require  any  new  fair  value
      measurements.   However,  for  some  entities,  the  application  of  this
      Statement  will change current  practice.  This Statement is effective for
      financial  statements issued for fiscal years beginning after November 15,
      2007,  and interim  periods  within  those  fiscal  years.  The Company is
      currently  evaluating  the  effect  of  this  pronouncement  on  financial
      statements.

vi)   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 to evaluate  prior  period  financial  statement
      misstatements  for purposes of assess in their  materiality in the current
      period. If the prior period effect is material to the current period, then
      the prior  period is  required  to be  corrected.  Correcting  prior  year
      financial  statements  would  not  require  an  amendment  to  prior  year
      financial statements,  but such correction would be made the next time the
      company files the prior year financial  statements.  Upon adoption SAB 108
      allows a one-time  transitional  cumulative  effect adjustment to retained
      earnings for correction of prior period  misstatement  required under this
      statement.  SAB108 is effective for fiscal years ending after November 15,
      2006.  The  adoption  of  SAB108  did not have a  material  effect  on the
      Company's financial statements.

vii)  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 is not
      expected to be material to the Company's financial statements.

<PAGE>

                                                                         PAGE XL

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.

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.

<PAGE>

                                                                        PAGE XLI

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
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  13,  2007  the  Company  has the  following  voting  or  equity
securities  or  securities  convertible  or  exercisable  into  voting or equity
securities, issued and outstanding:

Common shares issued & outstanding: 45,921,149.
Series 1 preferred shares issued and outstanding: 494,550
Options: 4,780,000 outstanding options to purchase 4,780,000 common shares
Warrants: 14,474,166 outstanding to purchase 14,474,166 common shares
Debentures: 1,519,290 convertible into 3,301,600 common shares

<PAGE>

                                                                       PAGE XLII

Item 3. Controls and Procedures.

The Company's Chief Executive Officer and Chief Financial Officer (collectively,
the  "Certifying  Officers") are responsible  for  establishing  and maintaining
disclosure controls and procedures for the Company. Such officers have concluded
(based upon their  evaluation  of these  controls  and  procedures  as of a date
within 90 days of filing of this report) that the Company's  disclosure controls
and procedures are effective to ensure that information required to be disclosed
by the Company in this report is accumulated  and  communicated to the Company's
management,  including its Certifying  Officers as appropriate,  to allow timely
decisions  regarding  required  disclosure.  The  Certifying  Officers also have
indicated  that there were no  significant  changes  in the  Company's  internal
controls  or  other  factors  that  could  significantly  affect  such  controls
subsequent to the date of their evaluation, and there were no corrective actions
with regard to significant deficiencies and material weaknesses.

<PAGE>

                                                                      PAGE XLIII

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

      (a)   On July 30, 2007,  the Board of  Directors  approved and the Company
            granted  15,000  stock  options  to a  consultant  pursuant  to  the
            company's stock option plan.

      (b)   On July 30, 2007 the Board of  Directors  approved  the  issuance of
            1,200,000 warrants to Trilogy Capital Partners for IR Services.  The
            warrants were issued on August 14, 2007.

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

      (c)   Not Applicable.

      (d)   Not applicable.

      (e)   Not applicable.

Item 3. Defaults Upon Senior Securities.

      (a)   Note 9 to  the  interim  consolidated  financial  statements  of the
            Company  dated  September  30, 2007 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.

<PAGE>

                                                                       PAGE XLIV

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

(a)   Exhibits

            i.    99.1 Certification of Chief Executive Officer pursuant to Rule
                  13a-14 (a)

            ii.   99.2 Certification of Chief Financial Officer pursuant to Rule
                  13a-14 (a)

            iii.  A-1  Certification  of Chief Executive  Officer pursuant to 18
                  U.S.C.  Section 1350 as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601 (b)
                  (32) (ii) of Regulation S-K).

            iv.   A-2  Certification  of Chief Financial  Officer pursuant to 18
                  U.S.C.  Section 1350 as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002 (furnished pursuant to Item 601 (b)
                  (32) (ii) of Regulation S-K).

(b)   Reports on Form 8-K

                  (i) The  Company  filed a  current  report  on Form 8-K  dated
                  September  20,  2007.  Under item 8.01 of that 8-K the Company
                  announced  that it had engaged  Trilogy  Capital  Partners,  a
                  leading financial marketing and investor relations firm

                  (ii) The  Company  filed a  current  report  on Form 8-K dated
                  September  21,  2007.  Under item 8.01 of that 8-K the Company
                  announced  revenue and  earnings  guidance for the first three
                  quarters of calendar year 2007.

                  (iii) The  Company  filed a  current  report on Form 8-K dated
                  September  28,  2007.  Under item 8.01 of that 8-K the Company
                  issued a press release  regarding  the  transcript of Devine's
                  September 26, 2007 conference call.

<PAGE>

                                                                        PAGE XLV

                                   SIGNATURES

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

                                        DEVINE ENTERTAINMENT CORPORATION

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

Dated: November 13, 2007

      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, 2007
                      President and Chief Executive Officer

/s/ Richard Mozer     Director, Vice-Chairman of the           November 13, 2007
                      Board, Chief Financial Officer,
                      Treasurer and Secretary