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 June 30, 2006

|_|   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 August 9, 2006, the issuer had
39,076,499 Common Shares outstanding.

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


                                      -1-
<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


                                      -2-
<PAGE>

                         PART 1 - FINANCIAL INFORMATION

Item 1.   Financial Statements.



                        DEVINE ENTERTAINMENT CORPORATION

                    INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                                  June 30, 2006

                         (expressed in Canadian dollars)


                                      -3-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                                  June 30, 2006

                                    CONTENTS

                                                                           PAGE
                                                                           ----

CONSOLIDATED FINANCIAL STATEMENTS

      Balance Sheet                                                           5

      Statement of Shareholders' Equity                                       6

      Statement of Operations                                                 7

      Statement of Cash Flows                                                 8

      Notes to Financial Statements                                        9-29


                                      -4-
<PAGE>

                                                                          PAGE V

                        DEVINE ENTERTAINMENT CORPORATION

                       INTERIM CONSOLIDATED BALANCE SHEET
                      (Unaudited - Prepared by Management)

                                     ASSETS
                                                     June 30          Dec 31
                                                       2006            2005
                                                     -------         -------
Current

Cash                                               $    660,765    $    239,990
Accounts receivable                                     214,134         229,581
Inventory                                                87,206          88,140
Prepaid and sundry assets                                29,406          26,312
                                                   ------------    ------------

                                                        991,511         584,023

Advances receivable (Note4)                             494,550         494,550
Investment in film, television
  programs and recordings (Note 5)                    7,057,663       6,848,108
Property and equipment (Note 6)                          22,541          23,872
                                                   ------------    ------------
                                                   $  8,566,265    $  7,950,553
                                                   ============

                                   LIABILITIES

Current

Accounts payable and accrued liabilities              1,138,618       1,259,239
Convertible debentures (Note 7)                       1,519,290       1,519,290
Deferred revenue                                        472,500              --
                                                   ------------
                                                      3,130,408       2,778,529
                                                   ------------

                              SHAREHOLDERS' EQUITY

Capital stock (Note 9)                             $ 12,790,669    $ 12,240,095
Contributed surplus (Note 10)                         1,018,851       1,007,376
Deficit                                              (8,373,663)     (8,075,447)
                                                   ------------
                                                      5,435,857       5,172,024
                                                   ------------
                                                   $  8,566,265    $  7,950,553
                                                   ------------

See accompanying notes to interim consolidated financial statements.


                                      -5-
<PAGE>

                                                                         PAGE VI

                        DEVINE ENTERTAINMENT CORPORATION

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

            FOR THE PERIOD ENDED JUNE 30, 2006 AND DECEMBER 31, 2005

<TABLE>
<CAPTION>
                                                                      Stock                              Contributed
                               Common Shares           Warrants      Options        Preferred Shares       Surplus       Deficit
                               -------------           --------      -------        ----------------     -----------     -------
                              #             $             #             #            #           $            $             $
                                                                                                          (Note 10)
                         ---------------------------------------------------------------------------------------------------------
<S>                      <C>            <C>            <C>           <C>             <C>        <C>        <C>          <C>
BALANCE,
December 31, 2004        32,251,088     11,208,887     5,459,950     3,440,000       494,550    494,550    1,051,886    (7,797,034)

- on conversion of
  warrants                2,547,500        433,450    (2,547,500)           --            --         --      (50,950)           --

- on issuance of step
  up warrants                    --        (10,190)    2,547,500            --            --         --       10,190            --

- on exercise of
  stock options             125,000         16,250            --      (125,000)           --         --       (3,750)           --

- on settlement for
  services rendered
  and accounts
  payable                   430,000         97,148            --            --            --         --           --            --

- expired
  options/warrants               --             --      (582,500)     (135,000)           --         --           --            --

- dividend distribution                                                                                                    (45,004)
NET LOSS                         --             --            --            --            --         --           --      (233,409)
                         ---------------------------------------------------------------------------------------------------------
BALANCE,                 35,353,508     11,745,545     4,877,450     3,180,000       494,550    494,550    1,007,376    (8,075,447)
December 31, 2005
- issuance of stock
  Options                        --             --            --       100,000            --         --        3,600            --
- on settlement for
  services rendered
  and accounts
  payable                   339,660         43,074            --       750,000            --         --        7,875            --

-issuance of
 Private Placement        3,383,331        507,500     1,691,666            --            --         --           --            --
NET LOSS                         --             --            --            --            --         --           --      (147,639)
                         ---------------------------------------------------------------------------------------------------------
BALANCE,
June 30, 2006            39,076,499     12,296,119     6,569,116     4,030,000       494,550    494,550    1,018,851    (8,223,086)
                         =========================================================================================================
</TABLE>

See accompanying notes to interim consolidated financial statements.


                                      -6-
<PAGE>

                                                                        PAGE VII
                        DEVINE ENTERTAINMENT CORPORATION

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

<TABLE>
<CAPTION>
                                                               Three months ended June 30,             Six months ended June 30,
                                                                2006                2005                2006               2005
                                                                ----                ----                ----               ----
<S>                                                        <C>                 <C>                 <C>                 <C>
REVENUE                                                    $    115,414        $  2,892,261        $    279,274        $  3,370,497
                                                           ------------        ------------        ------------        ------------
EXPENSES
 Operating                                                      156,200             214,791             388,577             389,835
 Stock-based compensation                                        23,184                  --              26,784                  --
Amortization
- film, television programs and recordings                       86,340           1,729,802             171,082           1,986,838
- equipment                                                       1,727               2,039               3,371               4,227
Interest                                                         (4,398)             12,579             (12,324)             34,070
                                                           ------------        ------------        ------------        ------------
                                                                263,053           1,959,211             577,490           2,414,970
                                                           ------------        ------------        ------------        ------------
INCOME BEFORE INCOME TAXES                                     (147,639)            933,050            (298,216)            955,527

Provision for Income Taxes                                           --              12,189                  --              12,189
                                                           ------------        ------------        ------------        ------------
NET INCOME for the period                                      (147,639)            920,861            (298,216)            943,338
                                                           ------------        ------------        ------------        ------------
DEFICIT, beginning of period                                 (8,226,024)         (7,774,557)         (8,075,447)         (7,797,034)
                                                           ------------        ------------        ------------        ------------
DEFICIT, end of period                                     $ (8,373,663)       $ (6,853,696)       $ (8,373,663)       $ (6,853,696)
                                                           ============        ============        ============        ============
EARNINGS PER SHARE (Note 12)

Basic                                                      $      (0.00)       $       0.03        $      (0.01)       $       0.03
                                                           ============        ============        ============        ============
Fully Diluted                                              $      (0.00)       $       0.02        $      (0.01)       $       0.03
                                                           ============        ============        ============        ============

WEIGHTED AVERAGE
SHARES  - BASIC                                              36,509,950          35,103,783          35,949,936          33,950,801
                                                           ============        ============        ============        ============
        - FULLY DILUTED                                      36,509,950          36,978,745          35,949,936          35,825,763
                                                           ============        ============        ============        ============
</TABLE>

See accompanying notes to interim consolidated financial statements.


                                      -7-
<PAGE>

                                                                       PAGE VIII
                        DEVINE ENTERTAINMENT CORPORATION

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

<TABLE>
<CAPTION>
                                                                    Three months ended June 30,          Six months ended June 30,
                                                                       2006              2005              2006             2005
                                                                       ----              ----              ----             ----
<S>                                                                 <C>             <C>               <C>               <C>
OPERATING ACTIVITIES
Net income for the period                                           $(147,639)      $   920,861       $  (294,616)      $   943,338
Shares issued to settle accounts payable                                   --            78,748                --            78,748
Stock based compensation                                               23,184                --            23,184                --
Shares issued for services rendered                                    27,765                --            27,765            18,400
Amortization - film, television programs
               and recordings                                          86,340         1,729,802           171,082         1,986,838
             - Equipment                                                1,727             2,039             3,371             4,226
             - financing charges                                           --             4,250                --            27,623
Change in non-cash components of
     working capital (Note 17)                                        346,805        (2,179,997)          365,166        (1,848,318)
                                                                    ---------       -----------       -----------       -----------
                                                                      338,182           555,703           295,952         1,210,855
                                                                    ---------       -----------       -----------       -----------
FINANCING ACTIVITIES
Repayment of bank loans                                                    --          (361,839)               --          (919,664)
Issuance of shares on conversion of warrants                               --           178,125                --           382,500
Issuance of shares on exercise of the options                              --                --                --            12,500
                                                                    ---------       -----------       -----------       -----------
                                                                           --          (183,714)               --          (524,664)
                                                                    ---------       -----------       -----------       -----------
INVESTING ACTIVITIES
Investment in film, television programs and recordings               (192,605)         (333,323)         (382,677)         (498,208)
Shares issued on Private Placement                                    325,500                             507,500
Purchase of property and equipment                                         --                --                --                --
                                                                    ---------       -----------       -----------       -----------
                                                                      132,895          (333,323           124,823          (498,208)
                                                                    ---------       -----------       -----------       -----------
CHANGE IN CASH                                                        471,077            38,666           420,775           187,983

CASH, Beginning of period                                             189,688           254,044           239,990           104,727
                                                                    ---------       -----------       -----------       -----------
CASH, End of period                                                   660,765           292,710           660,765           292,710
                                                                    =========       ===========       ===========       ===========
SUPPLEMENTARY CASH FLOW INFORMATION
     Interest paid                                                  $      --       $     9,702       $        --       $    18,423
     Income taxes paid                                              $      --       $    12,189       $        --       $    12,189
</TABLE>

See accompanying notes to interim consolidated financial statements.


                                      -8-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

1.    NATURE OF BUSINESS

      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.    BASIS OF PRESENTATION

      The accompanying  unaudited interim consolidated financial statements have
      been  prepared  in  accordance  with  the  requirements  of  the  Canadian
      Institute  of  Chartered   Accountants  ("CICA")  Handbook  Section  1751,
      "Interim  Financial  Statements."  Accordingly,  certain  information  and
      footnote  disclosure  normally  included  in annual  financial  statements
      prepared  in  accordance  with  Canadian  generally  accepted   accounting
      principles  ("GAAP")  have  been  omitted  or  condensed.   These  interim
      consolidated financial statements include the accounts of the Company, its
      subsidiaries and variable interest  entities.  All material  inter-company
      balances and transactions  have been eliminated.  These unaudited  interim
      consolidated  financial statements and supplemental  information should be
      read in  conjunction  with the Company's  audited  consolidated  financial
      statements  as at and for the year ended  December 31, 2005, as set out in
      the December 2005 Annual Report.

      In the opinion of management,  these  statements  include all  adjustments
      (consisting  of  normal  recurring  accruals)   considered   necessary  by
      management  to present a fair  statement  of the  results  of  operations,
      financial  position and cash flows.  The  unaudited  interim  consolidated
      financial  statements were prepared using the same accounting policies and
      methods  as those used in the  Company's  audited  consolidated  financial
      statements for the year ended December 31, 2005.


                                      -9-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      These  interim  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
      the financial statements.

      (a)   Basis of Consolidation

            In October 2005, the Company  amalgamated  its  operations  with its
            wholly-owned subsidiaries.

            The June 30, 2006 interim consolidated  financial statements include
            the accounts of Devine  Entertainment  Corporation  (the  "Company")
            with Variable Interest  Entities ("VIE").  The June 30, 2006 interim
            consolidated  financial  statements  include  the  accounts  of  the
            Company and all of its wholly-owned subsidiaries and VIE's.

      (b)   Revenue Recognition

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

      (c)   Investment in Film, Television Programs and Recordings

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

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


                                      -10-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      (c)   Investment in Film, Television Programs and Recordings (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.

      (d)   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.

      (e)   Earnings Per Share

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


                                      -11-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      (f)   Impairment of Long-Lived Assets

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

      (g)   Recent Accounting Pronouncements

            (i)   Effective  December 1, 2004, the Company was required to adopt
                  the  Canadian  Institute  of  Chartered   Accountants'  (CICA)
                  Accounting  Guideline  15(AcG-15),  "Consolidation of Variable
                  Interest  Entities"  ("VIE").  AcG-15  provides  guidance that
                  addresses when a company  should  consolidate in its financial
                  statements the assets,  liabilities  and operating  results of
                  another entity.  Under previous guidance,  a company generally
                  included   another  entity  in  its   consolidated   financial
                  statements  only  if  the  entity  is  controlled   through  a
                  controlling  voting  interest.  AcG-15  requires  a VIE  to be
                  consolidated  by the  company if that  company is the  primary
                  beneficiary  of that entity.  In January 2003, the FASB issued
                  Interpretation  No.  ("FIN")  46,  "Consolidation  of Variable
                  Interest   Entities",   which  is  effective   for   financial
                  statements  of  public  companies  that have  special  purpose
                  entities for periods  ending  after  December 15, 2003 and for
                  public companies  without special purpose entities for periods
                  ending  after  March 15,  2004.  Accordingly,  the Company has
                  included the results of operations of the Devine Entertainment
                  Limited  Partnership  and the QCF 2005 Limited  Partnership in
                  its consolidated operations.

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


                                      -12-
<PAGE>
                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      (g)   Recent Accounting Pronouncements (Continued)

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

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

4.    ADVANCES RECEIVABLE

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


5.    INVESTMENT IN FILM, TELEVISION PROGRAMS AND RECORDINGS

<TABLE>
<CAPTION>
                                                                            June 30, 2006                    December 31,
                                                                            Accumulated                         2005
                                                                Cost        Amortization           Net           Net
                                                                ----        ------------           ---           ---
<S>                                                         <C>              <C>              <C>            <C>
      Completed television programs and recordings          $ 16,002,255     $ 14,426,885     $ 1,575,370    $ 1,723,043
      Completed Motion picture - Bailey's Billion$             6,969,564        3,763,899       3,205,665      3,241,219
      Projects in progress                                     2,276,628           -            2,276,628      1,883,846
                                                            ------------     ------------     -----------
                                                            $ 25,248,447     $ 18,190,784     $ 7,057,663    $ 6,848,108
                                                            ============     ============     ===========
</TABLE>

The  Company  expects  to  amortize   approximately   $1,100,000  for  completed
television  programs and recording  costs and  $1,900,000  for completed  motion
picture costs during the current fiscal year.


                                      -13-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

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

      The Company  expects 98% of completed  television  programs and recordings
      and 62% of completed  motion  picture  costs will be amortized by December
      31, 2007.

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

      The remaining  period of  amortization  for the completed  projects ranges
      from two to nine years at December 31, 2004.

6.    PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                        June 30, 2006                       December 31,
                                                                         Accumulated                            2005
                                                           Cost         Amortization           Net               Net
                                                           ----         ------------           ---               ---
      <S>                                                 <C>               <C>             <C>                <C>
      Computer and editing equipment                     $ 179,963         $ 162,888         $ 17,075          $ 17,810
      Furniture and fixtures                                58,193            52,727            5,466             6,062
                                                         ---------         ---------         --------
                                                         $ 238,156         $ 215,615         $ 22,541          $ 23,872
                                                         =========         =========         ========
</TABLE>

7.    CONVERTIBLE DEBENTURES

<TABLE>
<CAPTION>
                                                                                            June 30,       December 31,
                                                                                              2006             2005
                                                                                          -----------      ------------
              <S>                                                                         <C>              <C>
               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
                                                                                          ===========
</TABLE>


                                      -14-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

7.    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%. The principal was re-payable in four
            quarterly  payments during 2001 of $25,000 plus interest.  The first
            installment  was made in April 2001. The Company is still in default
            on the second,  third and fourth installments.  As at June 30, 2006,
            there  remains  an  outstanding  balance  of  $75,000  plus  $41,250
            (December 31, 2005 - $37,500) in accrued interest on this debenture.
            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 holder and expects that the Company
            will be  able to  settle  the  debenture  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 June 30, 2006 the
            Company  is  in  default  of  an  outstanding  balance  of  $194,337
            (December  31,  2005  -  $165,463)  in  accrued  interest  on  these
            debentures.   As  a  result  of  the  default,  the  debentures  are
            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.

      (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 June  30,  2005,  there  remains  an  outstanding
            balance  of  $293,208  (December  31,  2005 -  $249,328)  in accrued
            interest  on these  debentures.  As a  result  of the  default,  the
            debentures are classified as a current


                                      -15-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

7.    CONVERTIBLE DEBENTURES (Continued)

                  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 the  $240,000
                  portion of the interest accrued on the debentures described in
                  notes  7(ii) and 7(iii) as on the  related  debentures.  As at
                  June  30,  2006  there is an  outstanding  amount  of  $50,400
                  (December 31, 2005 - $37,800) 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.

8.    PRIVATE PLACEMENT

      On May 31st the Company  completed a private placement of 3,383,331 units,
      each consisting of one common share and one-half purchase warrant at $0.15
      per unit. Each warrant is exercisable,  at any time on or prior to May 31,
      2007, to acquire one common share at an exercise price of $0.30 per share.
      Net proceeds totaled $507,500.

9.    CAPITAL STOCK

      (a)   Authorized

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

      (b)   Issued - common shares
<TABLE>
<CAPTION>
                                                                                         Number            Amount
                                                                                         ------            ------
<S>                                                                                     <C>              <C>
            Balance, December 31, 2005 and March 31, 2006                               35,353,508       $11,745,545

            Common shares issued on Private Placement                                    3,383,331           507,500

            Common shares issued for services rendered                                     185,100            43,074

            Common shares issued for stock-based compensation                              154,560                --
                                                                                        ----------

            Balance, June 30, 2006                                                      39,076,499       $12,296,119
</TABLE>

     9. CAPITAL STOCK (Continued)


                                      -16-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

      (c)   Issued - Series 1 preferred shares

<TABLE>
<CAPTION>
                                                                                            Number            Amount
                                                                                            ------            ------
<S>                                                                                        <C>            <C>
            Balance, December 31, 2005 and June 30, 2006                                   494,550        $  494,550
                                                                                           -------
</TABLE>

            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
            installments on the  15th day of  December  in each  year and  shall
            accrue and be cumulative from the date of issue.

      (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.

            The outstanding and exercisable stock options are as follows:

<TABLE>
<CAPTION>
Exercise                                                                       Number          Allocated     Weighted
Price             Outstanding and Exercisable                               of Options           Value       Average
----------------------------------------------------------------------------------------------------------------------
                  <S>                                                        <C>                   <C>           <C>
                  Balance, December 31, 2005                                 3,180,000             96,100        0.10

                  Issued pursuant to stock option plan                         100,000              3,600        0.10
                                                                             ---------            -------        ----
                  Balance, March 31, 2006                                    3,280,000             99,700        0.10

                  Issued pursuant to services agreement                        375,000              5,250        0.15

                  Issued pursuant to services agreement                        375,000              2,625        0.17
                                                                             ---------            -------        ----
                  Balance, June 30, 2006                                     4,030,000            107,575        0.11
                                                                             =========            =======
</TABLE>


                                      -17-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

9.    CAPITAL STOCK (Continued)

The Company has granted stock options as follows:
<TABLE>
<CAPTION>
                                                                                                 Weighted
                                                                             Outstanding          Average
                                              Number       Exercise              and            Remaining
      Expiry Date          Grant Date      of Options        Price           Exercisable             Life
      -----------          ----------      ----------      --------          -----------        ---------
      <S>               <C>               <C>               <C>              <C>                 <C>
      Sept. 30,2006     June 25, 2004       180,000          0.10              180,000            0.25
      June 25, 2009     June 25, 2004     3,000,000          0.10            3,000,000            3.00
      April 25, 2009    April 25, 2006      100,000          0.10              100,000            2.80
      Jan. 11, 2007     June 11, 2006       375,000          0.15              375,000             0.5
      Jan. 11, 2007     June 11, 2006       375,000          0.17              375,000             0.5
                                          ---------                          ---------            ----
                                          4,030,000                          4,030,000            2.40
                                          =========                          =========            ====
</TABLE>

The Board of  Directors  of the Company has approved an extention to the date of
expiry of options as follows:

180,000 options granted June 25, 2004 expiry extended to September 30, 2006.

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

      Issue date                              April 25,2006        June 11, 2006
      --------------------------------------------------------------------------
      Number of options                             100,000              750,000
      Expected life                                 5 years            0.5 years
      Price volatility                                  30%                  30%
      Dividend yield                                     --                   --
      Risk-free interest rate of return                  5%                   5%
      Amount recorded   $3,600                      $7,875


                                      -18-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

9.    CAPITAL STOCK (Continued)

      (e)   Warrants

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

<TABLE>
<CAPTION>
            Outstanding and Exercisable                          # of Warrants           Value             Price
            ----------------------------------------------------------------------------------------------------
            <S>                                                     <C>               <C>                  <C>
            Balance, December 31, 2004                               5,459,950         113,900              0.37

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

            Balance, December 31, 2005                               4,877,450          73,140            $ 0.36

            Issued on Private Placement                              1,691,666              --              0.30

            Balance, June 30, 2006                                   6,569,116          73,140              0.34
</TABLE>

            The Company has granted warrants as follows:

<TABLE>
<CAPTION>
                                                                                                         Weighted
                                                                                       Outstanding        Average
                                                      Number         Exercise             and           Remaining
            Expiry Date             Grant Date      of Warrants        Price           Exercisable           Life
            -----------------------------------------------------------------------------------------------------
            <S>                     <C>              <C>          <C>                 <C>                <C>
            December 31, 2006       June 30, 2004      499,950    0.15 - 0.20           499,950           0.50
            February 26, 2007       June 30, 2004    1,830,000           0.50         1,830,000           0.60
            April 7, 2007           April 7, 2005    2,547,500           0.30         2,547,500           0.75
            May, 31, 2007           May 31, 2006     1,691,666           0.30         1,691,666           0.80
                                                     ---------                        ---------           ----
                                                     6,569,116                        6,569,116           0.70
                                                     =========                        =========           ====
</TABLE>

The Board of  Directors  of the Company has approved an extention to the date of
expiry of warrants as follows:

499,950 warrants granted on June 30, 2004 expiry extended to December 31, 2006


                                      -19-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

10.   CONTRIBUTED SURPLUS

      Balance, December 31, 2004                                    $ 1,051,886
      Less:   Stock Options exercised (Note 9(d))                        (3,750)
      Less:  Warrants converted into common shares (Note 9(e))          (50,950)
      Add: Step up warrants granted                                      10,190
      Balance, December 31, 2005                                      1,007,376
      Add: Stock options granted                                          3,600
      Balance, March 31, 2006                                         1,010,976
      Add: Stock options granted                                          7,875
                                                                    ------------
      Balance, June 30, 2006                                        $ 1,018,851

                                                   June 30, 2006   Dec. 31, 2005
                                                   -------------   -------------
      Settlement of debt instruments                 $   656,626    $   656,626
      Equity portion of long-term debt (Note 7(a))       181,510        181,510
      Stock Options(Note 10 (d))                         107,575         96,100
      Warrants (Note 10(e))                               73,140         73,140
                                                     -----------    -----------
                                                     $ 1,018,851    $ 1,007,376
                                                     -----------

11.   INTEREST EXPENSE (INCOME)

                                      Three months              Six months
                                      ended June 30,          ended June 30,
                                    2006        2005        2006          2005
                                    ----        ----        ----          ----
Interest on
convertible debentures           $  44,552    $ 51,110    $  89,104
                                 $ 119,035                                    ~
Other interest                                   9,702                   18,423
                                 ---------    --------    ---------    --------
                                    44,552      60,812       89,104     137,458
Interest income                     (8,056)    (12,372)     (15,982)    (25,747)
Adjustment to prior
period estimates                        --                       --
                                 ---------    --------    ---------    --------
                                    36,496      48,440       73,122     111,711
Less: amounts capitalized
      to projects in progress      (40,445)    (35,861)     (84,997)    (77,641)
                                 ---------    --------    ---------    --------
                                    (3,949)     12,579      (11,875)     34,070
                                 ---------    --------    ---------    --------


                                      -20-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

12.   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
            ------                                                   -----------
            June 30, 2006                                             39,076,499
            June 30, 2005                                             35,103,783

<TABLE>
<CAPTION>
                                      Three months ended June 30,  Six months ended June 30,
                                      ---------------------------  -------------------------
            <S>                       <C>            <C>          <C>           <C>
            Numerator:
            Net income (loss) as
            reported for basic EPS    $  (147,639)  $   920,861   $  (298,216)  $   943,338
            Less: Preferred share
            dividends paid and
            in arrears                    (11,220)      (11,220)      (22,440)      (22,440)
                                      -----------   -----------   -----------   -----------
            Net Income (Loss)         $  (158,859)  $   909,641   $  (320,656)  $   920,898
                                      -----------   -----------   -----------   -----------
            Denominator:
            Weighted average
            shares for basic EPS       36,509,950    35,103,783    35,949,936    33,950,801
                                      ===========   ===========   ===========   ===========
            Basic income (loss)
            per share                 $     (0.00)  $      0.03   $     (0.01)  $      0.03
                                      ===========   ===========   ===========   ===========
</TABLE>

      (b)   Fully  Diluted:  The Company  follows CICA  Handbook  Section  3500,
            "Earnings  per Share",  effective  January 31, 2003.  The  statement
            requires the  presentation of both basic and diluted earnings (loss)
            per  share  ("EPS")  in  the  statement  of  operations,  using  the
            "treasury  stock"  method to compute  the  dilutive  effect of stock
            options and warrants and the "if converted"  method for the dilutive
            effect of convertible instruments.  For the years ended December 31,
            2005 and 2004 the assumed exercise of outstanding  stock options and
            warrants  would have a dilutive  effect on EPS. The following  table
            sets forth the weighted average number of common shares  outstanding
            for the  computation of dilutive EPS for each of the years presented
            in the consolidated financial statements.


                                      -21-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

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

<TABLE>
<CAPTION>
                                                Three months ended June 30,       Six months ended June 30,
                                                ---------------------------       -------------------------
             <S>                               <C>             <C>             <C>              <C>
             Numerator:
             Net income (loss) as
             reported for basic EPS            $  (147,639)    $   920,861     $  (298,216)    $   943,338
             Less: Preferred share
             dividends paid and in arrears         (11,220)        (11,220)        (22,440)        (11,220)
                                               -----------     -----------     -----------     -----------
             Net Income (loss)                    (158,859)    $   909,641        (320,656)    $   920,898
                                               -----------     -----------     -----------     -----------
             Denominator:
             Weighted average shares for
             basic EPS                          36,509,950      35,103,783      35,949,936      33,950,801
                                               ===========     ===========     ===========     ===========
             Effect of dilutive securities:
             Stock options and Warrants                 --       1,874,962              --       1,874,962
                                               -----------     -----------     -----------     -----------
             Adjusted weighted
             average shares and assumed
             conversions for dilutive EPS       36,509,950      36,978,745      35,949,936      35,825,763
                                               ===========     ===========     ===========     ===========
             Fully diluted income (loss)
             per share                         $     (0.00)    $      0.02           (0.01)    $      0.03
                                               ===========     ===========     ===========     ===========
</TABLE>

      (c)   Anti-dilutive:  For the three  months  ended June 30, 2006 and 2005,
            4,030,000 and nil options to purchase  common shares and warrants of
            6,569,116  and  2,380,000,  respectively,  were not  included in the
            computation  of  diluted  earnings  per  share  because  of the loss
            position in 2006 and the warrant  exercise  prices were greater than
            the average market price of the common shares in 2005.

            For the six months ended June 30, 2006 and 2005,  4,030,000  and nil
            options to purchase  common  shares and  warrants of  6,569,116  and
            2,380,000,  respectively,  were not included in the  computation  of
            diluted  earnings per share because of the loss position in 2006 and
            the warrant  exercise  prices were greater  than the average  market
            price of the common shares in 2005.


                                      -22-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

13.   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,  convertible
            debenture  issued in February 1996 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 June 30, 2006 and 2005.  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 June 30, 2006.


                                      -23-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006



14.   COMMITMENTS AND CONTINGENCIES

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

       2006                                                          13,500
       2007                                                          28,000
       2008                                                          29,000
       2009                                                          13,000
                                                                     ------
                                                                    $83,500

      (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
            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  at a  rate  ranging  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.

15.   RELATED PARTY TRANSACTIONS

      During the three month period ended June 30, 2006,  $73,749  (June 30,2005
      $107,328) and six month period ended June 30, 2006 $147,498 (June 30, 2005
      $181,077) 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.


                                      -24-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

16.   VARIABLE INTEREST ENTITIES

      In  December  2005,  The  Devine   Entertainment   Film  Library   Limited
      Partnership ("DEFLLP"),  a limited partnership formed and registered under
      the Limited  Partnerships Act (Ontario) on March 8, 2004,  acquired Devine
      Entertainment  Corporation's  interest in a defined part of the  Company's
      proprietary  film  library  for $6.8  million,  as  valued  by an  outside
      valuator. The Company has provided financing for the transaction,  and has
      entered  into a  financing  agreement  and will  enter  into a  management
      agreement with DEFLLP in order to manage the  exploitation  and expand the
      distribution  of the properties.  Under these  agreements the Company will
      receive management fees and interest revenue and the Company will maintain
      a call right for between a minimum of 70% and a maximum  100%  interest in
      the library  assets.  The accounts of this variable  interest  entity have
      been  included in the interim  consolidated  financial  statements  of the
      Company.

17.   CHANGE  IN  NON-CASH   COMPONENTS  OF  WORKING  CAPITAL  AND  SUPPLEMENTAL
      INFORMATION

<TABLE>
<CAPTION>
                                                                  Three months ended June 30,           Six months ended June 30,
                                                                     2006              2005                2006            2005
                                                                     ----              ----                ----            ----
<S>                                                            <C>                <C>                <C>                <C>
Change in non-cash working capital
Accounts receivable                                            $   (41,047)       $   190,706        $    15,447
                                                               $   498,897
Tax credits receivable                                                --              299,097               --              299,097
Inventory                                                           (7,612)           (75,573)               934            (63,081)
Prepaids and sundry receivable                                       6,377            (27,781)            (3,094)           (52,284)
Accounts payable and accrued liabilities                           (83,414)            92,525           (120,621)           128,024
Deferred revenue                                                   472,500         (2,658,971)           472,500         (2,658,971)
                                                                   -------         ----------            -------         ----------
                                                                   346,805         (2,179,997)           365,166         (1,848,318)
                                                                   -------         ----------            -------         ----------

Non-cash transactions
Shares issued on settlement of payables                             27,765             78,748             27,765             78,748
Stock-based compensation                                            23,184               --               23,184             18,400
Shares issued on settlement of long-term debts                        --              232,505               --              232,505
</TABLE>


                                      -25-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

18.   SEGMENTED 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 June 30,                    Six months ended June 30,
                                                          2006                  2005                   2006                   2005
                                                          ----                  ----                   ----                   ----
<S>                                                  <C>                    <C>                    <C>                   <C>
Canada                                               $   12,020             $   80,000             $   18,876
                                                     $  196,000
United States                                            66,624                153,000                138,772                222,000
France                                                     --                     --                   68,723                 99,000
United Kingdom                                             --                2,659,000                   --                2,659,000
Other foreign                                            36,770                   --                   52,903                194,000
                                                        -------              ---------                -------              ---------
                                                        115,414              2,892,000                279,274              3,370,000
                                                        =======              =========                =======              =========
</TABLE>

19.   RECONCILIATION TO UNITED STATES GAAP

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

      (a)   Under  Canadian  GAAP,  the  conversion  feature on the  convertible
            debentures  (Note 7), 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


                                      -26-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

19.   RECONCILIATION TO UNITED STATES GAAP (Continued)

            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 2006 and
            2005, there was no other comprehensive income.

June 30, 2006                                       CDN GAAP           U.S. GAAP
-------------                                       --------           ---------
                                                        $                  $
Balance Sheet
-------------

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

Contributed Surplus                                 1,018,851            552,538

Deficit                                             8,373,663          8,111,423

Other liabilities                                        --              517,113

Capital stock                                      12,790,669         12,296,119


                                      -27-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

19.   RECONCILIATION TO UNITED STATES GAAP (Continued)

<TABLE>
<CAPTION>
Income Statement
----------------

                                                                 Three Months Ended June 30,              Six Months Ended June 30,
                                                                CDN GAAP             U.S. GAAP           CDN GAAP          U.S. GAAP
                                                                --------             ---------           --------          ---------
<S>                                                             <C>                  <C>                 <C>                 <C>

Interest expense (income)                                       $(4,398)             $ 6,822             $ 3,371             $25,811
</TABLE>

December 31, 2005                                    CDN GAAP          U.S. GAAP
-----------------                                    --------          ---------
                                                         $                 $
Balance Sheet
-------------

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

Contributed Surplus                                 1,007,376            541,063

Deficit                                             8,075,447          7,790,767

Other liabilities                                        --              494,673

Capital stock                                      12,240,095         11,745,545

Income Statement
----------------

Interest expense                                       50,832             95,836

      Impact of Newly Issued United States Accounting Standards

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

      ii)   In May 2005, the FASB issued SFAS No. 154,  "Accounting  Changes and
            Error  Corrections"  ("SFAS No. 154), which is providing guidance on
            the accounting for, and reporting of,  accounting  changes and error
            corrections.  This Statement replaces APB Opinion No. 20, Accounting
            Changes,  and FASB Statement No. 3, Reporting  Accounting Changes in
            Interim Financial Statements, and changes the requirements


                                      -28-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                  JUNE 30, 2006

19.   RECONCILIATION TO UNITED STATES GAAP (Continued)

      for the accounting for and reporting of a change in accounting  principle.
      This Statement applies to all voluntary  changes in accounting  principle.
      It also applies to changes required by an accounting  pronouncement in the
      unusual  instance  that  the  pronouncement   does  not  include  specific
      transition  provisions.  When a pronouncement includes specific transition
      provisions,  those provisions  should be followed.  The provisions of SFAS
      154 are effective for accounting  changes and corrections of error made in
      the  period  beginning  after  December  31,  2005.  We do not  expect the
      adoption of SFAS 154 to have a material  impact on our financial  position
      or results of operations.

20.   COMPARATIVE FIGURES

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


                                      -29-
<PAGE>

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

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

The  following  management's  discussion  and analysis  has been  prepared as of
August 14, 2006 to provide a review of current  activities  and a comparison  of
the  performance  and  financial  position of Devine  Entertainment  Corporation
("Devine" or the  "Company") for the three month periods ended June 30, 2006 and
2005. It should be read in conjunction with the accompanying  unaudited  interim
consolidated financial statements and the notes therein.  Additional information
related to the Company is available on Sedar at  www.sedar.com  . The  financial
data in this  document have been  prepared in  accordance  with  Canadian  GAAP.
References  to  Canadian  dollars,  Cdn$ or $ are to the  currency of Canada and
references to U.S. dollars or US$ are to the currency of the United States.

OVERVIEW

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

The Company's  primary focus is the production of quality  children's and family
films,  including  broadly marketed  commercial  family films for the theatrical
release and broadcast internationally as well as specialty video and DVD markets
worldwide. Devine's library of films include 19 hours of award-winning broadcast
programs based on the lives of important  international  historical  figures and
other classic family stories,  which permit it access to sales in a wide variety
of outlets  encompassing both the entertainment and educational markets. In 2004
the Company completed and delivered  Bailey's  Billion$,  its first feature film
targeted at a family audience for release in theatres 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
library of original  programs and (ii) increase its production and  distribution
through strategic alliances with major international distributors,  broadcasters
and co-producers.

FORWARD-LOOKING STATEMENTS

Readers are cautioned that actual results may differ materially from the results
projected in any  "forward-looking"  statements  included in this discussion and
analysis,  which  involve a number of risks and  uncertainties.  Forward-looking
statements are statements  that are not historical  facts,  and include (but are
not limited to) statements  regarding the Company's planned production slate and
development activities, anticipated future


                                      -30-
<PAGE>

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.  The Company
assumes no responsibility to update the information contained herein.

SECOND QUARTER HIGHLIGHTS

The Company's  second quarter  activities in 2006 continued the trend started in
the first quarter of 2006 and were focused on preparing its new production slate
for 2006 and  2007,  specifically  the new  primetime  mystery  series  for Chum
Television,  Across the River to Motor City and the Canada-France  co-production
of The Writers'  Specials.  Agreements  signed with Chum  Television and Carrere
Group in the quarter are expected to generate revenues of over $4,000,000 in the
first half of 2007 when new film and television programs are delivered.  Overall
revenues from the Company's  proprietary library of $115,414 were lower than for
the same period 2005,  as expected,  and reflected  that the  Company's  feature
film,  Bailey's  Billion$,  has completed its first sales cycle  generating over
$6.1 million in revenues in 2004 and 2005.

      o     The  Company  reported a modest net loss of  $147,639or  ($0.00) per
            share in the  three  months  ended  June  30,  2006  reflecting  the
            Company's  focus on preparing its new production  slate for 2006 and
            2007.  The Company's net loss in the six month period ended June 30,
            2006 was 298,216 or  approximately  (0.01) per share as compared net
            earnings of $943,338 or 0.03 per share for the same six month period
            in 2005.

      o     The Company's  cash on hand  increased by $471,077 or  approximately
            248% to $660,765 as compared to $189,688 in the quarter ended March,
            2006,  primarily  as a result of cash flow  from the  proceeds  of a
            successful  private  placement  that closed May 31, 2006 and initial
            payments for the Across the River to Motor City production  received
            in June of 2006

      o     Shareholder's  equity increased by 410,810 in the quarter ended June
            30, 2006 to  $5,435,857,  reflecting  an  increase  of 263,833  from
            $5,172,024 as at December 31, 2005.


                                      -31-
<PAGE>

RESULTS OF OPERATIONS  FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 2006
AND 2005

Revenues

The  Company's  second  quarter  revenues in 2006  decreased  by  $2,776,847  to
$115,414 as compared to $2,892,261  for the same period in 2005.  This reflected
the expected  completion of the first sales cycle of the Company's feature film,
Bailey's Billion$, which generated $6.1 million in 2004 and 2005, $2,658, 970 of
which were generated the three months ended June 30, 2005.

The Company's  proprietary film library generated $115,414 in revenues.  $78,644
of the revenue was derived from DVD,  video and  ancillary  publishing  sales in
North  America  and  $36,770  from  sales of  distribution  rights in Germany of
Bailey's Billion$.

Reflecting  the fact that the film library  revenues in the second  quarter 2006
are  derived  primarily  from  sales in the  United  States  and  Canada and the
revenues  from the  sales  of  Bailey's  Billion$  came  from a sale of  foreign
distribution rights in Germany,  the Company's revenues by geographic  location,
based on the location of customers were as follows:

<TABLE>
<CAPTION>
                                                       Three months                                 Six months
                                                      ended June 30                                ended June 30
Revenue                                       2006                   2005                   2006                  2005
<S>                                      <C>                    <C>                    <C>                    <C>

Canada                                   $   12,000             $   80,000             $   18,000             $  196,000
United States                                66,000                153,000                139,000                222,000
France                                         --                     --                   69,000                 99,000
Germany                                      37,000                   --                   37,000                   --
United Kingdom                                 --                2,659,000                   --                2,659,000
Other foreign                                  --                                          15,000
Europe - Other                                 --                     --                    1,000                194,000
                                         ----------             ----------             ----------             ----------
                                            115,000              2,892,000                279,000              3,370,000
</TABLE>


                                      -32-
<PAGE>

Earnings (loss) per Common Share (EPS)

In the  second  quarter  of 2006,  the  Company's  adjusted  net loss for EPS is
$147,639 or ($0.00) per common  share  (basic),  as compared  with  adjusted net
income of $920,861 or $0.03 per common share for the same period in 2005.  These
results  reflect  that the  Company's  second  quarter  activities  in 2006 were
focused on preparing its new  production  slate for 2006 and 2007,  specifically
the new primetime  mystery  series for ChumCity,  Across the River to Motor City
and the  Canada-France  co-production  of The  Writers'  Specials,  and that the
initial  sales cycle of the  Company's  feature  film,  Bailey's  Billion$,  was
completed in 2005. The Company's net loss in the six month period ended June 30,
2006 was 298,216 or  approximately  (0.01) per share as compared net earnings of
$943,338 or 0.03 per share for the same six month period in 2005.

Shareholders' Equity

Shareholder's  equity increased by 410,810 in the quarter ended June 30, 2006 to
$5,435,857,  reflecting  an  increase  of  263,833 or 5% from  $5,172,024  as at
December 31, 2005.

EBITDA

EBITDA, defined as earnings before interest, taxes,  depreciation,  amortization
and gains on settlement of debt was in a modest loss position at (63,970) in the
second quarter of 2006, as compared to $2,677,470 for the same period in 2005.

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.


                                      -33-
<PAGE>

Operating expenses

The Company's  operating expenses for the three month period ended June 30, 2006
decreased by $58,591 or approximately  27% to $156,200,  as compared to $214,791
in the  same  period  in 2005,  reflecting  that the  Company's  second  quarter
activities  in 2006 were  focused  on  preparing  its  production  currently  in
progress, the new primetime mystery series for Chum Television, Across the River
to Motor City.

Production and Development Activity

The Company  continues to develop new projects in order to secure new production
activity.

Primary  among them is a new primetime  television  series in  association  with
Jonsworth  Productions and CHUM  Television,  entitled Across the River to Motor
City, with  commitments  from CHUM Television The Canadian  Television Fund, The
Independent  Production Fund and other Canadian funding sources committed and or
contracted  in the quarter  ended June 30, 2006.  Pre-production  for Across the
River  to  Motor  City  began  in the  second  quarter  of  2006  and  principal
photography is scheduled to commence in September 2006. The Company expects that
sales currently  contracted will generate revenues of approximately $3.9 million
in the first six  months of 2007 when the  initial  episodes  of the  series are
delivered and related revenues are recognized.

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.  Pre-sale  commitments  from  France 5 and TPS  Jeunesse
support the Company's  expectation  that production on the new series will begin
within approximately 12 months.

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

Investment in Film and Television Programs and Recordings

The  Company  reviews  and  revises  the  estimated  fair  market  value  of its
investment in film,  television programs and recordings as required on a regular
basis.  Capitalized  film costs are stated at the lower of  unamortized  cost or
estimated fair value on an individual  film basis.  For the  proprietary  films,
television  programs and recordings produced by the company, a maximum period of
ten years after the delivery of the  production is used in  accordance  with SOP
00-2 to estimate fair value. Development costs which are expected


                                      -34-
<PAGE>

to  benefit  future  periods  are  also  capitalized.   If  the  property  under
development  has not been set for  production  within  three  years,  the  costs
associated with such property are written off to income.

Amortization expenses as at June 30, 2006 for the Company's library of completed
television  programs and recordings and motion picture totaled  $171,082.  As at
June 30, 2006,  the  Company's  investment  in its  proprietary  film library of
completed  television  programs and recordings was estimated as $1,575,370 after
accumulated  amortization.  The  Company's  investment  in  its  motion  picture
Bailey's Billion$ was estimated at $3,205,665 after accumulated amortization and
the Company's  investment in projects in development was estimated as $2,276,628
as per the following table:

<TABLE>
<CAPTION>
                                                                          June 30, 2006                         Dec. 31, 2005
                                                                          -------------                         -------------
                                                                                    Accumulated
                                                                       Cost         Amortization           Net                 Net
                                                                       ----         ------------           ---                 ---
<S>                                                                <C>               <C>               <C>               <C>

Completed television programs and recordings                       $16,002,255       $14,426,885       $ 1,575,370       $ 1,723,043
Completed Motion picture - Bailey's Billion$                         6,969,564         3,763,899         3,205,665         3,241,219
Projects in progress                                                 2,276,628              --           2,276,628         1,883,846
                                                                   -----------       -----------       -----------

                                                                   $25,248,447       $18,190,784       $ 7,057,663       $ 6,848,108
                                                                   ===========       ===========       ===========       ===========
</TABLE>

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

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


                                      -35-
<PAGE>

discounted  them  conservatively  and modeled the estimates to  incorporate  the
distribution   fees  and  expense   limitations  in  its  various   distribution
agreements.  The models  provided  net revenue  estimates  of  approximately  $5
million  (U.S.),  which the Company then  discounted  to less than fifty percent
(50%),  which in effect reflects 750,000 unit sales over ten years at the lowest
price and margin.

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

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

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

The Company  believes that these lower results for the  Inventors'  and Artists'
Specials in the most recent years reflect the  challenging  conditions  industry
wide in the  international  markets  resulting  from the collapse of  investment
markets that had fuelled high valuations for content, the overestimated benefits
for the models of media  convergence  and the promise of media  deregulation  in
Europe that proved challenging in the context of 9/11, as well as the challenges
associated  with the  Company's  debt,  equity and capital  position  which were
respectively settled resulting in significant gains, improved  significantly and
successfully reorganized in 2004.

The Company  estimates average annual ultimate revenue for the Artists' Specials
at  $438,333  per year for the next three  years and  estimates  average  annual
ultimate revenue for the Inventors'  Specials at $380,000 per year for 2006. The
Company believes that its current  ultimate  revenue  estimates for the Artists'
Specials  and  Inventors'  Specials  are  reasonable  and  realizable  given the
multi-year nature of television contracts and that annual revenue can fluctuate.
The Company's new  agreements  recently  concluded with sales agents in Germany,
France, Italy, Spain, Japan and Korea, point both to the renewed


                                      -36-
<PAGE>

opportunities  resulting from the Company's improved financial position and also
to an industry  wide  renewal of sales of  broadcast  licenses in  international
markets.  As well,  the Company's  experience  supports the fact that when a new
series of its branded  proprietary  library of award-winning  films is produced,
sales for the previously produced library of films are concluded concurrent with
commitments  for the new  production  on a  territory-per-territory  basis.  The
Company  expects to begin  production of a new series based on landmark  authors
entitled  The  Writers'  Specials in 2006 and has already  begun to pre-sell the
broadcast  licenses for the Writers  Specials and, in  conjunction,  license the
Company's completed television programs as well.

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

DEVINE LIBRARY DVD/Video, publishing and Ancillary sales (includes dvd and video
sales,  music  publishing  royalties,  teachers  guides,  stock footage  rights,
rentals of props etc.)

<TABLE>
<CAPTION>

                                                                      Composers - DVD    Inventors DVD         Artists DVD
                                                                      ---------------    -------------         -----------
                                                     Yr TOTAL            Ancillary          Ancillary           Ancillary
                                                     --------            ---------          ---------           ---------
<S>                                   <C>            <C>                 <C>                <C>                 <C>
                                      2000           $731,837            $145,590           $397,147            $189,100
                                      2001           $748,178            $ 37,880           $354,253            $356,045
                                      2002           $602,443            $166,427           $241,577            $194,439
                                      2003           $623,918            $187,603           $230,907            $205,408
                                      2004           $346,712            $153,977           $ 94,566            $ 98,169
                                      2005           $868,574            $573,533           $168,610            $126,431

6 year average                                       $653,610            $210,835           $247,843            $194,932
                                                     --------            --------           --------            --------
% increase 2005/2004                                      150%              272.%                 78%                 29%
</TABLE>

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


                                      -37-
<PAGE>

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

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

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

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

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

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


                                      -38-
<PAGE>

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

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

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

Years                                                 2006-2007            2008
-----                                                 ---------         -------
US Broadcast                                             90,000          60,000
English and French Canada Broadcast                      90,000          60,000
France Broadcast                                         67,500          75,000
German Broadcast                                        120,000               0
UK Broadcast                                            150,000          75,000
Spain, Japan, Korea, Holland Broadcast                  150,000          75,000
Other ex-North America Broadcast                        175,000          75,000
                                                        -------         -------
Anticipated total over 3 years                          842,500         345,000

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


--------------------------------------------------------------------------------
        Year         Total         Dvd sales         Broadcast licenses
--------------------------------------------------------------------------------
        2006       1,200,000        550,000               650,000
                   ---------        -------               -------
--------------------------------------------------------------------------------
Due to the short period  available to derive the  revenue,  the Company  further
discounted Total Revenue to $380,000 .


                                      -39-
<PAGE>

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

--------------------------------------------------------------------------------
 YEAR                   Total                Dvd sales        Broadcast licenses
--------------------------------------------------------------------------------
 2006                 1,025,000               500,000                525,000
--------------------------------------------------------------------------------
 2007                  700,000                400,000                300,000
--------------------------------------------------------------------------------
 2008                  725,000                400,000                325,000
                       -------                -------                -------
--------------------------------------------------------------------------------
 Total                2,450,000              1,300,000              1,150,000
--------------------------------------------------------------------------------

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

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

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

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

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

As at December  2010,  over 80% of the  completed  motion  picture costs will be
amortized.  The remaining  period of  amortization  for the  completed  projects
ranges from one to eight years at December 31, 2005.

Capital stock

The Company issued  3,722,991 common shares in the three month period ended June
30, 2006 as part of the following transactions:

(i) On May 31, 2006, the Company successfully  completed a private placement and
issued  3,383,331  units,  each  consisting  of one  common  share and  one-half
purchase warrant at $0.15 per unit.


                                      -40-
<PAGE>

Each full warrant was exercisable, at any time prior to May 31, 2007, to acquire
one common share at an exercise price of $0.30 per unit.

(ii) The Company  issued 304,560 common shares as payments to consultants in the
quarter.

(iii) The Company  issued 35,100 common  shares as  compensation  to the outside
directors serving on the board.

At June 30, 2006 the Company had  39,076,499  common shares and 494,550 Series 1
Class A preferred shares outstanding.

Related Party Transactions

During the three month  period  ended June 30,  2006,  $73,749  (June 30,  2005,
$107,328)  and six month  period  ended June 30, 2006 - $147,498  (June 30, 2005
$81,077), 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  ("Partnership").  Under  the  terms  of the
agreement,  the Partnership incurred certain expenses,  until December 31, 2004,
relating to the following  services  required in connection  with the conduct of
business of the Company:

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

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

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

      o     Administrative services

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

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


                                      -41-
<PAGE>

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

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

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

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

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

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

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

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

      o     Administrative services

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

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

In December 2005, The Devine Entertainment Film Library Limited  Partnership,  a
limited  partnership  formed and registered  under the Limited  Partnerships Act
(Ontario) on March 8, 2004, acquired Devine Entertainment Corporation's interest
in a defined part of the Company's proprietary film library for $6.8 million, as
valued by an outside  valuator.  The  Company  has  provided  financing  for the
transaction,  and has entered into a financing  agreement  and will enter into a
management  agreement  with the  Limited  Partnership  in order  to  manage  the
exploitation  and  expand  the  distribution  of  the  properties.  Under  these
agreements the Company will receive management fees and interest revenue and the
Company  will  maintain a call right for  between a minimum of 70% and a maximum
100% interest in the library assets. The accounts of this variable


                                      -42-
<PAGE>

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

Liquidity and Capital Resources

The  Company's  cash on hand  increased  by  $471,077 or  approximately  248% to
$660,765 as compared to $189,688 in the quarter  ended June 30, 2006,  primarily
as a result of cash flow from the  proceeds of a  successful  private  placement
that closed May 31, 2006 and initial  payments for the Across the River to Motor
City production received in June of 2006.

The Company has no bank debt.

The Company  expects to  maintain  renewed  profitability  from  operations  and
expects that  proceeds from sales of its film library and new  production  slate
will generate  additional revenues and positive cash flow through the balance of
2006.

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

Nonetheless,  the Company remains unable to service its convertible debt and the
Company will require additional  working capital from its production  activities
or  corporate  financing  in 2006.  On May 31,  2006,  the Company  successfully
completed a private placement and issued 3,383,331 units, each consisting of one
common share and one-half  purchase  warrant at $0.15 per unit for cash proceeds
of $507,500.

The Company intends to actively seek additional funding in calendar 2006.

OUTLOOK

The Company is optimistic  about its renewed  production for 2006 and 2007. With
commitments in hand from CHUM Television and other Canadian funding sources, the
Company has commenced  pre-production and expects to begin principal photography
of the first six episodes of the new primetime series, Across the River to Motor
City, budgeted at $8,100,000 later this year.  Commitments  currently contracted
confirm  initial  sales of over  $3.9  million  which  the  Company  expects  to
recognize on delivery of the series episodes in the first six months of 2007. In
addition,  pre-sale  commitments  from  broadcasters  France  5,  TPS  Jeunesse,
TVOntario and Knowledge  network for the Company's new Writers'  Specials series
support the Company's expectations that at least one other major production will
commence in the next 12 months.

In  addition,   the  Company  is  optimistic  about  the  successful  commercial
exploitation  of  Bailey's  Billion$,  which was  released  in DVD in the United
States and Canada in April 2006 as well as the continued revenues generated from
the Company's proprietary film library.


                                      -43-
<PAGE>

The Company  expects that the  successful  settlement and  restructuring  of the
majority of the Company's debt and the successful  financings  completed in 2004
and 2005 will bring new  opportunities  for  additional  corporate  and  limited
partnership financings in 2006 and the Company is actively pursuing financing to
produce new films,  develop its marketing and  distribution  activities in North
America and abroad and for its general working capital requirements.

The Company is now moving forward with a  significantly  improved  balance sheet
and the  opportunity to attract new capital  resources for its ongoing  business
objectives. While many business risks remain and the success of these strategies
cannot be guaranteed,  the Company expects that the successful completion of all
or some of these strategic  objectives will assist with the continued renewal of
the Company's growth and profitability through 2006 and into the future.

OTHER INFORMATION

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

Disclosure of outstanding share data
As of August 14, 2006 the Company has the following voting or equity  securities
or  securities  convertible  or  exercisable  into voting or equity  securities,
issued and outstanding:

Common shares issued & outstanding: 39,076,499
Series 1 preferred shares issued and outstanding: 494,550
Options: 4,030,000 outstanding options to purchase 4,030,000 common shares
Warrants: 6,569,116 outstanding to purchase 6,569,116 common shares
Debentures: 1,519,290 convertible into 3,301,600 common shares


                                      -44-
<PAGE>

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.

                           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)   Not applicable.

      (b)   In December  2004,  the Company  issued  494,500 shares of preferred
            stock designated as Series 1 Preferred Shares.  The holders of these
            shares,  in  priority  to the  holders  of the  Common  Shares,  are
            entitled to receive a  cumulative  annual  dividend of 9.1 cents per
            share.  Absent  the  consent  of all of the  holders of the Series 1
            Preferred Shares,  dividends may not be paid on the Common Shares if
            dividends are then due and owing on the Series 1 Preferred Shares.

      (c)   Not applicable.

      (d)   Not applicable.

Item 3. Defaults Upon Senior Securities.

      (a) Note 7 to the interim consolidated financial statements of the Company
      dated June 30, 2006 filed herewith is incorporated herein by reference.

      (b) Not applicable


                                      -45-
<PAGE>

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

(a) Not applicable.

(b) Not applicable.

(c) Not applicable.

(d) Not applicable.

Item 5. Other Information.

(a) Not applicable.

(b) Not applicable.

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

(a)   Exhibits

            i.    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

                  None.


                                      -46-
<PAGE>

                                   SIGNATURES

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

                                           DEVINE ENTERTAINMENT CORPORATION

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

Dated: August 14, 2006

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

Signature            Title                                        Date
-------------------------------------------------------------------------------

/s/ David Devine     Director, Chairman of the Board            August 14, 2006
                     President and Chief Executive Officer

/s/ Richard Mozer    Director, Vice-Chairman of the             August 14, 2006
                     Board, Chief Financial Officer,
                     Treasurer and Secretary

                                      -47-