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 March 31, 2008

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

 For the transition period from _________________ to ___________________________
 Commission file number ________________________________________________________

                        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 May 14, 2008, the issuer had
45,921,149 Common Shares outstanding.

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


<PAGE>

                                TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

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

Item 3. Controls and Procedures


PART II OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 3. Defaults Upon Senior Securities

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

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K

Signatures


                                       2
<PAGE>

ITEM 1

                        DEVINE ENTERTAINMENT CORPORATION

                                 MARCH 31, 2008

                                    CONTENTS

                                                                          PAGE

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

      Balance Sheet                                                       4

      Statement of Shareholders' Equity                                   5

      Statement of Operations                                             6

      Statement of Cash Flows                                             7

      Notes to Financial Statements                                       8 - 39


                                       3
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                       INTERIM CONSOLIDATED BALANCE SHEET
                      (Unaudited - Prepared by Management)
                         (expressed in Canadian dollars)

                                 MARCH 31, 2008

<TABLE>
<CAPTION>
                                     ASSETS

                                                                    March 31,       December 31,
                                                                                       2007
                                                                                     Restated
                                                                                     (Note 2)
                                                                  -----------      ------------
<S>                                                                <C>             <C>
Cash    and cash equivalents                                      $   246,134      $    245,872
Accounts receivable                                                 1,044,228         1,028,705
Film tax credits receivable (Note 4)                                  607,493         1,112,207
Inventory                                                              51,895            54,871
Prepaid and sundry assets                                             134,953           185,360
Advances receivable (Note 5)                                          494,550           494,550
Investment in film, television programs and
  recordings (Note 6)                                               5,455,790         5,355,327
Property and equipment (Note 7)                                        14,295            15,345
                                                                  -----------      ------------
                                                                  $ 8,049,338      $  8,492,237
                                                                  ===========      ============

                                   LIABILITIES

Accounts payable and accrued liabilities                          $ 1,582,710      $  1,569,974
Film production loan (Note 8)                                       1,272,570         1,840,604
Loans payable (Note 9)                                              1,700,800         1,700,800
Preferred shares (Note 10)                                            494,550           494,550
                                                                  -----------      ------------
                                                                    5,050,630         5,605,928
                                                                  ===========      ============


                              SHAREHOLDERS' EQUITY

Capital stock (11)                                                 12,652,998        12,652,998
Contributed surplus (Note 12)                                       1,132,196           902,449
Warrants (Note 11(d)                                                  708,456           708,456
Deficit                                                           (11,494,942)      (11,377,594)
                                                                  -----------      ------------


                                                                    2,998,708         2,886,309
                                                                  -----------      ------------

                                                                  $ 8,049,338      $  8,492,237
                                                                  ===========      ============
</TABLE>

See accompanying notes to consolidated financial statements.


                                       4
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

             INTERIM CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                      (Unaudited - Prepared by Management)
                         (expressed in Canadian dollars)

  FOR THE PERIOD ENDED MARCH 31, 2008 AND FOR THE YEAR ENDED DECEMBER 31, 2007

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

- expired options                                                                    (905,000)

- settlement for services
   rendered                           68,850      10,328

- settlement of accrued
   liabilities                        63,600       9,540

- issuance of private
   placement                       6,475,000     365,124    6,475,000    227,276

- grant of stock options                                                            1,315,000       119,450

- modification of warrants                                                16,256                    (16,256)

- grant of warrants                                         1,930,000    129,380

- Proceeds from financings                                                                          131,316

- subscription receivable, net                                                                      (39,226)
NET LOSS                                                                                                         (572,084)
                                 -----------------------------------------------------------------------------------------
BALANCE,
December 31, 2007                 45,921,149  12,652,998   14,474,166    708,456    4,655,000       902,449   (11,377,594)

- subscription received                                                                             229,747
NET LOSS                                                                                                         (117,348)
                                 -----------------------------------------------------------------------------------------
BALANCE,
March 31, 2008                    45,921,149  12,652,998   14,474,166    708,456    4,655,000     1,132,196   (11,494,942)
                                 ------------ ----------- ------------ ---------- ------------ ------------- ------------
</TABLE>

See accompanying notes to consolidated financial statements.


                                       5
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

  INTERIM CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
                      (Unaudited - Prepared by Management)
                         (expressed in Canadian dollars)

                     FOR THE 3 MONTH PERIOD ENDED MARCH 31,

<TABLE>
<CAPTION>
                                                              2008            2007
                                                                            Restated
                                                                            (Note 2)
                                                          ------------    ------------
<S>                                                       <C>             <C>
REVENUE                                                   $    104,554    $  2,029,075
                                                          ------------    ------------

EXPENSES
  Operating                                                    196,413         132,546
  Amortization - film, television programs and recordings       24,374       1,376,705
               - equipment                                       1,050           1,407
  Interest (Note 13)                                                65           5,737
                                                          ------------    ------------
                                                               221,902       1,516,395
                                                          ------------    ------------

NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)         $   (117,348)   $    512,680
                                                          ============    ============

EARNINGS (LOSS) PER SHARE (Note 14)

Basic and diluted                                         $       0.00    $       0.01
                                                          ============    ============

WEIGHTED AVERAGE NUMBER OF SHARES

Basic and diluted                                           45,921,149      39,313,699
                                                          ============    ============
</TABLE>

See accompanying notes to interim consolidated financial statements.


                                       6
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                  INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
                      (Unaudited - Prepared by Management)
                         (expressed in Canadian dollars)

                      FOR THE 3 MONTH PERIOD ENDED MARCH 31

<TABLE>
<CAPTION>
                                                                       2008           2007
                                                                                    Restated
                                                                                    (Note 2)
                                                                    -----------    -----------
<S>                                                                 <C>            <C>
OPERATING ACTIVITIES
  Net income (loss) for the period                                  $  (117,348)   $   512,680
  Amortization - film, television programs and recordings                24,374      1,376,705
               - property and equipment                                   1,050          1,407
  Change in non-cash components of working capital (Note 19)            555,310       (310,797)
                                                                    -----------    -----------

  Cash flows provided by operating activities                           463,386      1,579,995
                                                                    -----------    -----------

FINANCING ACTIVITIES

  Decrease in film production loans                                    (568,034)      (655,347)
  Net change in proceeds from financing and subscription receivable     229,747             --
                                                                    -----------    -----------

  Cash flows used in financing activities                              (338,287)      (655,347)
                                                                    -----------    -----------

INVESTING ACTIVITY

  Investment in film, television programs and recordings               (124,837)      (875,827)
                                                                    -----------    -----------

CHANGE IN CASH AND CASH EQUIVALENTS                                         262         48,821

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                          245,872        268,001
                                                                    -----------    -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                            $   246,134    $   316,822
                                                                    ===========    ===========

SUPPLEMENTAL CASHFLOW INFORMATION

  Interest paid                                                     $        --    $    45,004
                                                                    ===========    ===========
</TABLE>

See accompanying notes to interim consolidated financial statements.


                                       7
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

1.    NATURE OF BUSINESS AND GOING CONCERN

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

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

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

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

      While the Company  continues to maintain  its  day-to-day  activities  and
      produce  and  distribute  films  and  television  programming,  it  has  a
      significant  working  capital  deficiency  and its continued  existence is
      dependent upon its ability to restore and maintain  profitable  operations
      and to successfully extinguish loans payable (Note 9), which are currently
      in default.  Management is in constant communication with the loan holders
      and  expects  that the  Company  will be able to  settle  the loans in the
      normal course of operations.  Nonetheless,  the Company  remains unable to
      service this loan and the Company will require  additional working capital
      from its production activities or corporate financing in 2008.

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


                                       8
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

1.    NATURE OF BUSINESS AND GOING CONCERN (continued)

      Company obtaining additional  financing to fund its continuing  operations
      and meet its obligations as they come due.

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

2.    RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

      The Company is restating its previously  reported  consolidated  financial
      statements  for the 3 months ended March 31, 2007. A summary of the impact
      of the  restatement  adjustments on the previously  reported  consolidated
      balance  sheet,  statement  of  operations  and cash  flows  amounts is as
      follows:

      Summary of Restatement Adjustments

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

            The Company has restated the interest  income from interest  expense
            (income).  The restatement  amounts to $30,312.  As a result accrued
            liabilities increased by $30,312 and net income decreased by $30,312
            for the 3 months  ended March 31,  2007.  The deficit  increased  by
            $30,312.

      b)    The company  restated its preferred  shares from an equity component
            to a liability  as it was  determined  that under the CICA  Handbook
            Section  3861,  and  following  the  guidance  under  EIC-149.   The
            preferred shares are redeemable, retractable and have a preferential
            priority  participation  in the  residual  equity  of  the  company,
            accordingly preferred shares have been restated as a liability.  The
            effect  of  the  restatement  resulted  in a  reclassification  from
            preferred  shares in the equity  section of the balance sheet in the
            amount of $494,550 to preferred  shares in the liability  section in
            the amount of $494,550.  This change was  reflected in the Company's
            December 31, 2007 financial statements. Accordingly dividends


                                       9
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

2.    RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)

      amounting to $11,220 would be restated as interest expense for the 3 month
      period ending March 31, 2008.

      The following table summarizes the impact of the restatement adjustment on
      the  previously  reported   consolidated   balance  sheet,   statement  of
      operations and cash flows for the 3 months ended March 31, 2007.

                                                                 March 31, 2007
                                                                 --------------

Balance Sheet
-------------

         Assets as previously reported                            $ 11,164,939
         Assets as restated                                       $ 11,164,939
                                                                  ------------

         Liabilities as previously reported                       $  7,152,381
         Interest income (Note 2 (a))                                   30,312
         Interest expense (Note 2 (b))                                  11,220
         Liabilities as restated (Note 2)                         $  7,193,913
                                                                  ------------

         Shareholders' Equity as previously reported              $  4,012,558
         Interest income (Note 2 (a))                                  (30,312)
         Interest expense (Note (b))                                   (11,220)
                                                                  ------------
         Shareholders' Equity as restated                         $  3,971,026
                                                                  ------------

Statement of Operations
-----------------------

         Net income and comprehensive income
            As previously reported                                $    554,212
         Interest expense (Note 2 (a))                                 (30,312)
         Interest income (Note 2 (b))                                  (11,220)
                                                                  ------------
         Net income and comprehensive income
            As restated                                           $    512,680
                                                                  ------------


                                       10
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

2.    RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)

      Statement of Cash Flows

            Cash flows provided by operating activities
                 As previously reported                             $ 1,579,995
            Interest income (Note 2 (a))                                (30,312)
            Interest expense (Note 2 (b))                               (11,220)
            Accrued liabilities (Note 2 (a and b))                       41,532
                                                                    -----------
            Cash flows provided by operating activities
                 As restated                                        $ 1,579,995
                                                                    -----------

            Cash flows used in by financing activities
                 As previously reported                             $  (655,347)
            Cash flows used in by financing activities
                 As restated                                        $  (655,347)
                                                                    -----------

            Cash flows provided by investing activities             $  (875,827)
            Cash flows used in investing activities
                 As restated                                        $  (875,827)
                                                                    -----------

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      These consolidated  financial  statements have been prepared in accordance
      with Canadian generally accepted accounting  principles ("Canadian GAAP").
      Note 21 describes and reconciles the significant  measurement  differences
      between Canadian generally accepted accounting  principles (Canadian GAAP)
      and  accounting  principles  generally  accepted in the United States ("US
      GAAP") affecting the accompanying  consolidated  financial  statements.  A
      summary of significant accounting principles is set below:


                                       11
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      (a)   Revenue Recognition

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

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

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

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

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

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

      (b)   Basis of Consolidation

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


                                       12
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

      (c)   Inventory

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

      (d)   Investment in Film, Television Programs and Recordings

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

            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


                                       13
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

            from third parties to assist in development  are deducted from these
            costs.  If the  property  under  development  has not  been  set for
            production   within  three  years,  or  if  upon  review  management
            determines   that  certain  costs  are   unrecoverable,   the  costs
            associated with such property are written off to income.

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

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

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

      (e)   Cash and Cash Equivalents

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


                                       14
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      (f)   Property and Equipment

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

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

      (g)   Foreign Currency Translation

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

      (h)   Government and Other Assistance

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

      (i)   Stock-Based Compensation

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


                                       15
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

      (j)   Future Income Taxes

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

      (k)   Earnings Per Share

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

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

      (l)   Use of Estimates

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


                                       16
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

            valuation  allowances  and other project  related  accruals.  Actual
            results  could  differ from these  estimates.  These  estimates  are
            reviewed periodically and, as adjustments become necessary, they are
            reported in earnings in the period in which they become known.

      (m)   Impairment of Long-Lived Assets

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

      (n)   Deferred Revenue

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

      (o)   Basis of Presentation

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

      (p)   Adoption of new accounting policies

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


                                       17
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

            Under these standards:

            Held-for-trading (assets or liabilities)

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

            Loans and receivables

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


                                       18
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Available-for-sale investments


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

      Other financial liabilities

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

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


                                       19
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

      Asset/Liability          | Category                | Measurement
      Accounts receivable      | Loans and receivables   | Amortized cost
      Subscription receivable  | Loans and receivables   | Amortized cost
      Accounts payable and     | Other liabilities       | Amortized cost
      accrued liabilities      |                         |
      Accrued Liabilities      | Other liabilities       | Amortized cost
      Loans payable            | Other liabilities       | Amortized cost

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

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

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

      (q)   Recent Accounting Pronouncements

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


                                       20
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

                  will  be  included  in  the   Company's   interim  and  annual
                  consolidated financial statements commencing January 1, 2008.

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

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

            iv)   In 2008, the CICA issued Handbook  Section 3064,  Goodwill and
                  Intangible  Assets ("CICA  3064").  CICA 3064,  which replaces
                  Section  3062,  Goodwill and  Intangible  Assets,  and Section
                  3450,  Research and Development Costs,  establishes  standards
                  for the  recognition,  measurement  and disclosure of goodwill
                  and  intangible  assets.   The  provisions   relating  to  the
                  definition  and  initial  recognition  of  intangible  assets,
                  including   internally   generated   intangible   assets,  are
                  equivalent to the  corresponding  provisions  for IFRS IAS 38,
                  Intangible Assets.

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

            vi)   In May 2007,  the CICA  published  an  updated  version of its
                  "Implementation Plan for Incorporating International Financial
                  Reporting  Standards  ("IFRS") into Canadian GAAP".  This plan
                  includes  an outline of the key  decisions  that the CICA will
                  need to make as it implements  the Strategic Plan for publicly
                  accountable enterprises


                                       21
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

            that will converge Canadian generally accepted accounting principles
            with IFRS.  The  changeover  date from  Canadian GAAP to IFRS is for
            annual and interim  financial  statements  relating to fiscal  years
            beginning on or after January 1, 2011.

4.    FILM TAX CREDITS RECEIVABLE

      Film tax credits  receivable  are federal and  provincial  refundable  tax
      credits  related to specific film and  television  productions  in Canada.
      Amounts  recorded  represent  management's  best  estimate  of the amounts
      recoverable; however all amounts are subject to final determination by the
      relevant tax  authorities.  As at March 31, 2008,  the Company  expects to
      receive tax  credits of $194,080  (December  31, 2007  $194,080)  from the
      federal  government  and $258,052  (December 31, 2007  $820,766)  from the
      provincial government. for its completed productions.  The Company accrued
      $58,000 for tax  credits  receivable  related to its  projects in progress
      (2007 - $97,361)

5.    ADVANCES RECEIVABLE

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

6.    INVESTMENT IN FILM, TELEVISION PROGRAMS AND RECORDINGS

<TABLE>
<CAPTION>
                                                              March 31,                   December 31,
                                                                2008                          2007
                                                                ----                          ----
                                                            Accumulated
                                                   Cost     Amortization        Net           Net
                                                   ----     ------------        ---           ---
<S>                                            <C>           <C>           <C>           <C>
Completed television programs and recordings   $ 6,869,808   $ 6,633,981   $   235,827   $   265,000
Completed Motion picture - Bailey's Billion$     6,972,580     4,937,661     2,034,919     2,034,919
Completed television Drama Series-               5,714,560     3,869,114     1,845,446     1,816,485
Projects in progress                             1,339,598          --       1,339,598     1,238,923
                                               -----------   -----------   -----------   -----------
                                               $20,896,546   $15,440,756   $ 5,455,790   $ 5,355,327
                                               ===========   ===========   ===========   ===========
</TABLE>


                                       22
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

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

Amortization expensed in the three months ended March 31, 2008 for the Company's
Investment in Film, Television Programs and Recordings totaled $24,374. At March
31, 2008  investment in completed  television  programs and  recordings  totaled
$235,827  (December  31, 2007 -  $265,000).  At March 31,  2008,  the  Company's
investment in completed motion picture,  Bailey's  Billion$,  totaled $2,034,919
(December 31, 2007 - $2,034,919),  its investment in completed  television drama
series totaled $1,845,446 (December 31, 2007 - $1,816,485) and its investment in
projects in progress totaled $1,339,598 (December 31, 2007 - $1,238,923).

Development costs for properties that are expected to benefit future periods are
capitalized.  If the property under  development has not been set for production
within three years, or if upon review  management  determines that certain costs
are  unrecoverable,  the costs  associated with such property are written off to
income.

The net carrying value for the Company's Investment in Film, Television Programs
and Recordings totaled $5,455,790 at March 31, 2008 as compared to $5,355,327 at
December 31, 2007.

At year end 2007 96% of completed  television  programs and  recordings,  71% of
completed  motion  picture  costs and 68% of completed  television  drama series
costs have been amortized.

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

Interest  incurred on funds borrowed  during  productions  of films,  television
programs and recordings is capitalized as a cost of the  production.  During the
quarter ended March 31, 2008 the Company capitalized interest in connection with
various  productions  amounting to $38,110,  (December  31, 2007 - $21,421).  In
addition,  interest on the Company's film production  loan totalled  $29,242 for
the three month period ended March 31, 2008 (three  months ended Dec. 31, 2007 -
$32,899) and has been capitalized to completed television drama series.


                                       23
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

7.    PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                    March 31                December 31,
                                                      2008                      2007
                                                      ----                      ----
                                                  Accumulated
                                         Cost     Amortization      Net          Net
                                         ----     ------------      ---          ---

<S>                                    <C>          <C>          <C>          <C>
      Computer and editing equipment   $181,028     $170,550     $ 10,478     $ 11,327
      Furniture and fixtures             58,193       54,376        3,817        4,018
                                       --------     --------     --------     --------
                                       $239,221     $224,926     $ 14,295     $ 15,345
                                       ========     ========     ========     ========
</TABLE>

8.    FILM PRODUCTION LOAN

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                     2008             2007
                                                                     ----             ----
<S>                                                                <C>              <C>
      A Demand loan bearing interest at prime plus 1%,
      repayable in full by June 30, 2008 was arranged for
      the financing of 6 episodes of a one hour TV series
      entitled Across the River to Motor City, which was
      produced by the Company's wholly owned subsidiary
      Across the River Productions Ltd. The loan is secured
      by all receipts including all commercialization or
      exploitation of the series worldwide including
      pre-sale and funding agreements and various tax
      credits. The loan is not secured by the parent
      company's assets and is non-recourse to parent
      company.
                                                                  $1,272,570       $1,840,604
                                                                  ----------       ----------
</TABLE>

      Interest  on the above  demand loan  totalled  $29,242 for the three month
      period  ended March 31, 2008 (three  months ended Dec. 31, 2007 - $32,899)
      and has been capitalized to completed television drama series.

9.    LOANS PAYABLE

      Loans payable  consist of the Company's  1995,  1996 and 2000  Convertible
      debentures,  which bear  interest at 10.5 %, have  matured,  have not been
      extended and carry no fixed term,  accordingly the Company is carrying the
      outstanding  amount of $1,700,800  (2007 - $1,700,800)  as a loan payable.
      The  creditors  have a general  security  assignment  on the assets of the
      Company. Accrued interest as at


                                       24
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

      March 31, 2008 was $891,058 (December 31, 2007 - $846,505) and is included
      in accounts payable and accrued liabilities.

10.   PREFERRED SHARES

      The   Series   1   preferred    shares   are    non-voting,    cumulative,
      non-participating,  $1 redeemable and retractable. The shares pay interest
      at the rate of 9.1% per annum  payable in annual  instalments  on the 15th
      day of December in each year and shall accrue and be  cumulative  from the
      date of issue.  As at March 31,  2008  dividends  in arrears  amounted  to
      $11,220.

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

      Issued - Series 1 preferred shares

                                                  Number           $ Amount
            Balance, March 31, 2008 and 2007      494,550           494,550
                                                  =======           =======

11.   CAPITAL STOCK

      (a)   Authorized

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

      (b)   Issued - common shares

                                                  Number           Amount
                                                -----------       -----------
            Balance, March 31, 2008 and
              December 31, 2007                 $45,921,149       $12,652,998
                                                ===========       ===========

      (c)   Stock Option Plan

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


                                       25
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

11.   CAPITAL STOCK (continued)

      (c)   Stock Option Plan

            The outstanding and exercisable stock options are as follows:

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

            The Company has granted stock options as follows:

                                                                       Weighted
                                                         Outstanding    Average
                                 Number       Exercise       and       Remaining
Expiry Date        Grant Date    of Options   Price      Exercisable     Life
--------------------------------------------------------------------------------
June 25, 2009    June 25, 2004   3,000,000    0.10        3,000,000      1.24
May 11, 2009     May 11, 2007      200,000    0.15          200,000      1.11
May 11, 2012     May 11, 2007    1,100,000    0.15        1,100,000      4.11
July 29, 2012    July 30, 2007      15,000    0.15           15,000      4.33
April 24, 2010   April 25, 2006    100,000    0.10          100,000      2.07
Dec.29, 2009     Dec.29, 2006      240,000    1.00          240,000      1.75

                                 4,655,000                4,655,000      1.97
                                 =========                =========      ====

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

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


                                       26
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

11.   CAPITAL STOCK (continued)

      (d)   Warrants

      Balance at March 31, 2008 and December 31, 2007      $708,456
                                                           ========

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

                                                                    Weighted
                                                                     Average
                                                                    Exercise
            Outstanding and Exercisable           # of Warrants        Price
--------------------------------------------------------------------------------

            Balance, March 31, 2008
                 and December 31, 2007              14,474,166          0.18
                                                    ==========          ====

The Company has granted warrants as follows:

<TABLE>
<CAPTION>
                                                                           Outstanding         Weighted
                                               Number        Exercise          and              Average
Expiry Date            Grant Date           of Warrants       Price        Exercisable       Remaining Life
-----------------------------------------------------------------------------------------------------------
<S>                    <C>                  <C>                <C>          <C>                   <C>
December 31, 2009      June 30, 2004          1,830,000        0.25          1,830,000            1.75
April 7, 2008          April 7, 2007          2,547,500        0.30          2,547,500            1.02
May 31, 2008           May 31, 2007           1,691,666        0.30          1,691,666            1.14
December 31, 2009      May 11, 2007             550,000        0.25            550,000            1.75
August 14, 2010        August 14, 2007        1,200,000        0.10          1,200,000            2.37
April 11, 2009         October 11, 2007       6,475,000        0.10          6,475,000            1.03
October 1, 2008        October 1, 2007          180,000        0.10            180,000            0.53
                                             ----------                     ----------            ----
                                             14,474,166                     14,474,166            0.97
                                             ==========                     ==========            ====
</TABLE>


                                       27
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

11.   CAPITAL STOCK (continued)

      (d)   Warrants

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

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

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

      There were no warrants granted during the first quarter of 2008,  however,
      subsequent to March 31, 2008 the board of directors  approved an extension
      of 2,547,500  warrants to April 7, 2009 that were  originally to expire in
      April 2008 and 1,691,666  warrants to May 31, 2009 that were originally to
      expire in May 2008.  There was no impact to the Financial  Statements  for
      the 3 months  ended  March 31,  2008 as a result of the  extension  of the
      warrants.

12.   CONTRIBUTED SURPLUS

      Balance, December 31, 2007                            $  902,449
      Subscription receivable                                  229,747
                                                            ----------
      Balance March 31, 2008                                $1,132,196
                    === ====                                ==========


                                       28
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

13.   INTEREST EXPENSE (INCOME)

                                                                Restated
                                                  March 31,     March 31,
                                                    2008          2007
                                                    ----          ----
      Interest on convertible debentures         $ 44,552       $ 44,552
      Bank film production loan                    29,242         37,127
      Interest on preferred shares                 11,220         11,220
                                                 --------       --------

                                                   85,014         92,899
      Interest income                             (17,597)        (8,147)
                                                 --------       --------

                                                   67,417         84,752
      Less: amounts capitalized to projects       (67,352)       (79,015)
                                                 --------       --------

                                                 $     65       $  5,737
                                                 ========       ========

      Interest  expense of $29,242  for the film  production  bank loan has been
      capitalized to projects in progress. (See note 8)


14.   EARNINGS (LOSS) PER SHARE

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

      For the 3 months  ended  March 31,  2008 and  2007,  options  to  purchase
      4,655,000 and 210,000  common  shares and warrants to purchase  14,474,166
      and  6,069,166  common  shares,  respectively  were  not  included  in the
      computation of diluted  earnings (loss) per share because the effect would
      have been anti-dilutive.


                                       29
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

14.   EARNINGS (LOSS) PER SHARE (continued)

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

                                                        Number of
                                                      Common Shares
      Period                                           Outstanding
      ------                                           -----------

      March 31, 2008                                    45,921,149
      March 31, 2007                                    39,313,699

<TABLE>
<CAPTION>
                                                                               Restated
                                                                March 31,      March 31,
                                                                  2008           2007
                                                                  ----           ----
      Numerator:
      ----------
<S>                                                           <C>            <C>
      Net income (loss) for the period, basic and diluted     $  (117,348)   $   512,680

      Denominator:
      ------------
      Weighted average number of shares - basic                45,921,149     39,313,699
      Effect of dilutive securities:
          Stock options                                                --        554,167
          Warrants                                                     --             --
                                                              -----------    -----------

      Weighted average number of shares - diluted              45,921,149     39,867,866
                                                              ===========    ===========

      Net income (loss) per share - basic and diluted         $      0.00    $      0.01
                                                              ===========    ===========
</TABLE>

15.   FINANCIAL INSTRUMENTS

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


                                       30
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

15.   FINANCIAL INSTRUMENTS (continued)

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

      (i)   Fair Value

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

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

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

      (ii)  Credit Risk

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

      (iii) Currency Risk

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


                                       31
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

15.   FINANCIAL INSTRUMENTS (continued)

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

16.   COMMITMENTS AND CONTINGENCIES

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

                        2008                                $ 21,750
                        2009                                  13,000
                                                            --------
                                                            $ 34,750
                                                            ========

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

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

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


                                       32
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

16.   COMMITMENTS AND CONTINGENCIES (continued)

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

      (f)   In connection with certain Limited  Partnership  financings (Note18)
            the Company may be obligated to issue up to 408,000 common shares to
            the participants.

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

17.   RELATED PARTY TRANSACTIONS

      During the 3 month period  ended March 31, 2008 $73,750  (March 31, 2007 -
      $151,445) of fees were paid or accrued to  corporations  controlled by two
      of the  directors for writing,  directing  and  producing  services on the
      Company's film and television productions. These transactions occur during
      the normal course of business and have been  measured at exchange  amount,
      which is the  amount of  consideration  established  and  agreed to by the
      related parties and which management  believes reflect  prevailing  market
      rates.


                                       33
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

18.   LIMITED PARTNERSHIP FINANCING

      The Company has entered into tax  preferred  financing  arrangements  with
      limited  partnerships.  These limited  partnerships  meet the criteria for
      variable interest entities and are consolidated.  In connection with these
      financings the Company received  proceeds net of costs of $380,414 to date
      recorded as  contributed  surplus and  subscriptions  receivable  (net) of
      $116,872 at March 31, 2008.  In  connection  with the limited  partnership
      financing  the  Company  may be  obligated  to issue up to 408,000  common
      shares to the participants.

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

                                                                      Restated
                                                March 31, 2008   March 31, 2007
                                                --------------   --------------
      Accounts receivable                        $   (15,523)     $    80,692
      Film tax credits receivable                    504,714        1,286,974
      Advance receivable                                  --          (59,529)

      Inventory                                        2,976            9,613
      Prepaid and sundry assets                       50,407           (1,394)
      Accounts payable and accrued liabilities        12,736          (39,844)
        Deferred revenue                                  --       (1,587,309)
                                                 -----------      -----------
                                                 $   555,310      $  (310,797)
                                                 ===========      ===========

20.   GEOGRAPHIC SALES INFORMATION

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

                                          March 31                March 31
                                    %         2008          %         2007
                                  -----       ----        -----       ----
                                                $                       $
      Revenue
             Canada                   5       4,720          93   1,886,950
             United States           67      69,958           2      42,533
             Russia                              --           4      83,442
             Europe - Other          28      29,876           1      16,150
                                  -----     -------       -----   ---------
                                  100.0     104,554       100.0   2,029,075
                                  =====     =======       =====   =========


                                       34
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

21.   CANADIAN GAAP AND US GAAP RECONCILIATION

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

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

      b.    Under US GAAP,  FASB 150, if the preferred  shares are redeemable at
            the option of the  holders,  they should be  presented  as mezzanine
            equity.  The preferred  shares are retractable by the holder but are
            not mandatorially redeemable.

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

      Consolidated statements of operations:

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

                                                                      2007
      FOR THE 3 MONTHS ENDED MARCH 31,                   2008      (restated)
                                                       ---------   ----------

      Net income (loss) in accordance with Canadian    $(117,348)   $ 512,680
      GAAP and US GAAP

      Interest on Preferred Shares (Note c)               11,220       11,220
                                                       ---------    ---------

      Net Income (Loss) in accordance with U.S.
      GAAP                                             $(106,128)   $ 523,900
                                                       ---------    ---------

      Net Income (Loss)
      per share - Basic & Diluted                      $    0.00    $    0.01
                                                       =========    =========


                                       35
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

21.   RECONCILIATION TO UNITED STATES GAAP (continued)

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

<TABLE>
<CAPTION>
                                                                              2007
            FOR THE PERIODS ENDED MARCH 31,                    2008        (restated)
                                                           -----------    -----------
            ASSETS
            ------
            <S>                                           <C>            <C>
            Assets in accordance with Canadian GAAP        $ 8,049,338    $ 8,492,237

            Assets in accordance with US GAAP              $ 8,049,338    $ 8,492,237
                                                           ===========    ===========

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

            Liabilities in accordance with Canadian GAAP   $ 5,050,630    $ 5,605,928

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

            Liabilities in accordance with US GAAP           4,556,080      5,111,378

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

            Equity in accordance with Canadian GAAP          2,998,708      2,886,309

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

            Effect of interest on preferred shares on
            deficit (Note c )                                   11,220         11,220

            Dividends on preferred shares (Note c)             (11,220)       (11,220)

                                                           -----------    -----------
            Equity in accordance with US GAAP                3,493,258      2,886,309
                                                           -----------    -----------
</TABLE>


                                       36
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

21.   RECONCILIATION TO UNITED STATES GAAP (continued)

      Impact of Newly Issued United States Accounting Standards

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

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

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


                                       37
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

21.   RECONCILIATION TO UNITED STATES GAAP

      Impact of Newly Issued United States Accounting Standards (continued)

      Company is currently  evaluating  the potential  impact,  if any, that the
      adoption  of  SFAS  No.  157  will  have  on  our  consolidated  financial
      statements.

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

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

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


                                       38
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited- Prepared by Management)
                         (expressed in Canadian dollars)

                                 March 31, 2008

21.   RECONCILIATION TO UNITED STATES GAAP (continued)

      Impact of Newly Issued United States Accounting Standards

      for  earlier  periods  at  initial  adoption.  The  Company  is  currently
      assessing  the  impact  of FAS 161 and does not  anticipate  any  material
      effect on the Company's financial statements.

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

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


                                       39
<PAGE>

ITEM 2

                 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

The following  management's  discussion and analysis has been prepared as of May
14,  2008 to  provide a review of current  activities  and a  comparison  of the
performance and financial position of Devine  Entertainment for the three months
ended March 31, 2008 and 2007. Additional  information related to the Company is
available on SEDAR at  www.sedar.com  The  financial  data in this document have
been  prepared  in  accordance  with  Canadian  generally  accepted   accounting
principles that conforms,  in all material respects,  with accounting principles
generally  accepted in the United States of America  except as described in Note
21 to the financial statements. References to Canadian dollars, Cdn$ or $ are to
the currency of Canada and references to U.S. dollars or US$ are to the currency
of the United States.

OVERVIEW

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

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

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


                                       40
<PAGE>

FORWARD-LOOKING STATEMENTS

Readers are cautioned that actual results may differ materially from the results
projected in any  "forward-looking"  statements  included in this discussion and
analysis,  which  involve a number of risks and  uncertainties.  Forward-looking
statements are statements  that are not historical  facts,  and include (but are
not limited to) statements  regarding the Company's planned production slate and
development  activities,  anticipated future  profitability,  losses,  revenues,
expected future  expenditures,  the Company's  intention to raise new financing,
sufficiency of working capital for continued  operations,  and other  statements
regarding  anticipated  future  events  and  the  Company's  anticipated  future
performance. Forward-looking statements generally can be identified by the words
"expected", "intends", "anticipates",  "feels", "continues", "planned", "plans",
"potential", "with a view to", and similar expressions or variations thereon, or
that  events  or  conditions  "will",  "may",  "could"  or  "should"  occur,  or
comparable terminology referring to future events or results.

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

NON-GAAP  MEASURE  -  Earnings  (loss)  before  interest,  taxes,  depreciation,
amortization and write-down ("EBITDA")

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


                                       41
<PAGE>

FIRST QUARTER HIGHLIGHTS

The  Company's  activities  in the first quarter of 2008 were focused on ongoing
development  and  financing  new  production  for  later  in the  year  and  the
continuing  sales and  distribution  of its  proprietary  library.  The  Company
reported a modest loss of $117,348, or (0.00) per share in the quarter.

      o     Revenues  for the three  months  ended March 31, 2008  decreased  by
            $1,924,521 to $104,554 as compared to $2,029,521 for the same period
            in 2007.  This drop in revenues  reflected the fact that the Company
            delivered two episodes of its miniseries,  Across the River to Motor
            City, and recognized  $1,870,809 from these  deliveries in the first
            quarter of 2007.  The Company  delivered no new  productions  in the
            first quarter of 2008.  All of the  Company's  revenues in the first
            quarter  of 2008  were  generated  from  the  Company's  proprietary
            library of films and television programs.

      o     The  Company  reported a modest  loss of  $117,348  as  compared  to
            earnings of $512,680 in the same period in 2007.

RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2008 AND 2007

Revenues

The  Company's  Revenues for the three months ended March 31, 2008  decreased by
$1,924,521  to $104,554 as compared to  $2,029,521  for the same period in 2007.
This drop in revenues reflected the fact that the Company delivered two episodes
of its  miniseries,  Across the River to Motor City, and  recognized  $1,870,809
from these deliveries in the first quarter of 2007. The Company delivered no new
productions in the first quarter of 2008.

All of the Company's  revenues in the first quarter of 2008 were  generated from
the Company's proprietary library of films and television programs.  $29,876 was
derived from foreign broadcast  licenses in Eastern Europe through the Company's
relationship  with  Paris-based   distributor  Carrere  Group.  The  balance  of
revenues,  or $74,678, was derived from the Company's in-house DVD and ancillary
product  sales  in  North  America.  Sales  in the US made up  $69,958  of these
revenues, with the balance of $4,720 being generated in Canada.


                                       42
<PAGE>

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

                                  2008          %          2007          %
                                -------       ----      ---------      ----
                                    $                       $
      Revenue
             Canada               4,720        4.5      1,886,950      93.0
             United States       69,958       66.9         42,533       2.1
             Russia                  --         --         83,442       4.1
             Europe - Other      29,876       28.6         16,150       0.8
                                -------                 ---------
                                104,554                 2,029,075
                                =======                 =========

Earnings / Loss per Share

Loss for the three months ended March 31, 2008 was $117,348 or ($0.00) per share
as compared to earnings of $512,680,  or $0.01 per share,  in the same period in
2007.

EBITDA

EBITDA, a non-GAAP financial measure defined as earnings (loss) before interest,
taxes, depreciation,  amortization and write-down, was negative ($91,859) in the
three months ended March 31, 2008,  as compared to $1,854,997 in the same period
in 2007.

                                                       2008           2007
------------------------------------------------ --------------- --------------
Net Loss                                              $(117,348)     $ 512,680
------------------------------------------------ --------------- --------------
Amortization & Write-down of film
television programs and recordings                       24,374      1,376,705
------------------------------------------------ --------------- --------------
Amortization of property and equipment                    1,050          1,407
------------------------------------------------ --------------- --------------
Interest (Interest expense)                                  65        (35,795)
------------------------------------------------ --------------- --------------
EBITDA                                                $ (91,859)    $1,854,997
------------------------------------------------ --------------- --------------

Shareholders' Equity

Shareholders'  equity  increased  year over year by $112,399 to $2,998,708 as at
March 31, 2007 as compared to $2,886,309 as at December 31, 2007.


                                       43
<PAGE>

SUMMARY OF QUARTERLY RESULTS:

<TABLE>
<CAPTION>

                                                  Restated      Restated     Restated       Restated      Restated     Restated
                         Mar. 31,      Dec. 31,   Sept. 30,      June 30,     Mar. 31,      Dec. 31,      Sept. 30,    June 30,
                          2008          2007        2007           2007        2007           2006          2006         2006
                         -------       -------    ---------     ---------    ---------      --------      ---------    --------
<S>                      <C>           <C>         <C>          <C>          <C>             <C>            <C>         <C>
Revenues                 104,554       147,941     2,032,153    1,935,408    2,029,075       60,430         84,255      115,414

Operating                196,413       336,529      363,626      285,586      102,234       205,268        280,670      185,684
Expenses

Earnings (loss)
before income taxes     (117,348)    (1,633,516)    292,758      255,994      512,680     (2,019,389)     (224,648)    (153,939)

Net earnings (loss)     (117,348)    (1,633,516)    282,758      255,994      512,680     (2,019.389)     (224,648)    (153,939)


Basic  earnings           (0.00)       (0.04)        0.01         0.01         0.01          (0.06)        (0.01)       (0.00)
(loss) per common
share
</TABLE>

Operating expenses

The  Company's  operating  expenses  for the three  months  ended March 31, 2008
increased by $94,179,  or approximately  92% to $196,413 as compared to $102,234
in the same period in 2007. The increase in operating expenses reflects that the
Company was engaged in  production  in the three months ended March 31, 2007 and
not in production in the same period in 2008.

Production and Development Activity

The Company  continues to develop new projects in order to secure new production
activity.  The  Company  has  acquired  the  rights and is  actively  developing
additional  films and series projects  targeted to the worldwide family audience
including Russell Sprout, October 7, 1944, Fat Camp and Humchucker.  The Company
has also entered into an initial  agreement  to  co-develop,  with the intent of
co-producing in the future, a new series of Writers' Specials with a co-producer
in France. Although a new order of Across the River to Motor City in Canada does
not seem likely in the near  future,  the Company is  preparing to expand on the
primetime drama  franchise  established by Across the River to Motor City with a
new series,  entitled Rio Grande,  set on the US/Mexico border and is presenting
this new series concept to US broadcasters.

Investment in Film and Television Programs and Recordings

The Company  determines  amortization  of its  investment in film and television
programs and recordings based on the ratio that current gross film revenues bear
to management's  estimate of total  remaining  ultimate gross film revenue as of
the  beginning  of the current  fiscal  year on a program by program  basis (the
"individual film forecast method").


                                       44
<PAGE>

Revenue and film  carrying  costs are  continually  reviewed by  management  and
revised when warranted by changing conditions.  When estimates of total revenues
and costs  indicate that a feature film or television  program will result in an
ultimate loss, a reduction in the carrying value of the investment is recognized
to the extent that capitalized film costs exceed estimated fair value.

Amortization expensed in the three months ended March 31, 2008 for the Company's
Investment in Film, Television Programs and Recordings totaled $24,374. At March
31, 2008  investment in completed  television  programs and  recordings  totaled
$235,827  (December  31, 2007 -  $265,000).  At March 31,  2008,  the  Company's
investment in completed motion picture,  Bailey's  Billion$,  totaled $2,034,919
(December 31, 2007 - $2,034,919),  its investment in completed  television drama
series totaled $1,845,446 (December 31, 2007 - $1,816,485) and its investment in
projects in progress totaled $1,339,598 (December 31, 2007 - $1,238,923).

The  Company  believes  that its  proprietary  library of  completed  television
programs and recordings are evergreen and will continue to generate  revenues in
the future.  In accordance with statement of position of the American  Institute
of Certified Public Accountants ("SOP 00-2") all of the Company's carrying value
for its completed  television programs and recording are required to be expensed
by the end of the prescribed ten year amortization period in 2008.

Development costs for properties that are expected to benefit future periods are
capitalized.  If the property under  development has not been set for production
within three years, or if upon review  management  determines that certain costs
are  unrecoverable,  the costs  associated with such property are written off to
income.

The net carrying value for the Company's Investment in Film, Television Programs
and Recordings totaled $5,455,790 at March 31, 2008 as compared to $5,355,327 at
December 31, 2007, as per the following table:

<TABLE>
<CAPTION>
                                                              March 31,                  December 31,
                                                                2008                         2007
                                                                ----                         ----
                                                             Accumulated
                                                  Cost       Amortization       Net           Net
                                                  ----       ------------       ---           ---
<S>                                            <C>           <C>            <C>          <C>
Completed television programs                  $ 6,869,808    $ 6,633,981   $  235,827    $  265,000
   and recordings
Completed Motion picture - Bailey's Billion$     6,972,580      4,937,661    2,034,919     2,034,919
Completed television Drama Series-               5,714,560      3,869,114    1,845,446     1,816,485
Projects in progress                             1,339,598             --    1,339,598     1,238,923
                                               -----------    -----------   ----------    ----------
                                               $20,896,546    $15,440,756   $5,455,790    $5,355,327
                                               ===========    ===========   ==========    ==========
</TABLE>


                                       45
<PAGE>

At year end 2007 96% of completed  television  programs and  recordings,  71% of
completed  motion  picture  costs and 68% of completed  television  drama series
costs have been amortized.

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

Interest  incurred on funds borrowed  during  productions  of films,  television
programs and recordings is capitalized as a cost of the  production.  During the
quarter ended March 31, 2008 the Company capitalized interest in connection with
various projects in progress amounting to $38,110 (December 31, 2007 - $21,421).
In addition, interest on the Company's film production loan totalled $29,242 for
the three month period ended March 31, 2008 (three  months ended Dec. 31, 2007 -
$32,899) and has been capitalized to completed television drama series.

Capital stock

There were no common shares,  preferred  shares or warrants  issued in the three
months ended March 31, 2008. At March 31, 2008 and December 31, 2007 the Company
had  45,921,149  common  shares,  494,550  Series  1  Class A  preferred  shares
outstanding and 14,474,166 warrants outstanding.

Related Party Transactions

During the 3 month  period  ended  March 31,  2008  $73,750  (March  31,  2007 -
$151,445) of fees were paid or accrued to corporations  controlled by two of the
directors for writing,  directing and producing  services on the Company's  film
and television productions. These transactions occur during the normal course of
business  and have been  measured  at  exchange  amount,  which is the amount of
consideration  established  and  agreed  to by the  related  parties  and  which
management believes reflect prevailing market rates.


                                       46
<PAGE>

Variable Interest Entities

A Variable  Interest  Entity  ("VIE")  is an entity  that  either  does not have
sufficient  equity  at risk  to  finance  its  activities  without  subordinated
financial  support or wherein the equity investors lack the  characteristic of a
controlling  financial  interest.  Pursuant  to CICA AcG-15 and FIN 46, VIEs are
consolidated  by a company if that company is deemed the primary  beneficiary of
the VIE. Accordingly, the Company has consolidated the VIE's in the December 31,
2007 financial statements as discussed herein.

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

In December  2005, The Devine  Entertainment  Film Library  Limited  Partnership
("DEFL  LP"),  a limited  partnership  formed and  registered  under the Limited
Partnerships  Act  (Ontario)  on March 8, 2004,  acquired  Devine  Entertainment
Corporation's  interest  in a defined  part of the  Company's  proprietary  film
library.  These  limited  partnerships  meet the criteria for variable  interest
entities and are consolidated. . In connection with these financings the Company
received  proceeds  net of costs of  $380,414 to date  recorded  as  contributed
surplus and  subscriptions  receivable  (net) of $116,872 at March 31, 2008.  In
connection with the limited  partnership  financing the Company may be obligated
to issue up to 408,000 common shares to the participants.

Restatement

The  Company  is  restating  its  previously  reported  consolidated   financial
statements for the 3 months ended March 31, 2007. A summary of the impact of the
restatement  adjustments on the previously reported  consolidated balance sheet,
statement of operations and cash flows amounts is as follows:

Summary of Restatement Adjustments

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

            The Company has restated the interest  income from interest  expense
            (income).  The restatement  amounts to $30,312.  As a result accrued
            liabilities increased by $30,312 and net income decreased by $30,312
            for the 3 months  ended March 31,  2007.  The deficit  increased  by
            $30,312.


                                       47
<PAGE>

      c)    The company  restated its preferred  shares from an equity component
            to a liability  as it was  determined  that under the CICA  Handbook
            Section  3861,  and  following  the  guidance  under  EIC-149.   The
            preferred shares are redeemable, retractable and have a preferential
            priority  participation  in the  residual  equity  of  the  company,
            accordingly preferred shares have been restated as a liability.  The
            effect  of  the  restatement  resulted  in a  reclassification  from
            preferred  shares in the equity  section of the balance sheet in the
            amount of $494,550 to preferred  shares in the liability  section in
            the amount of $494,550.  This change was  reflected in the Company's
            December  31,  2007  financial  statements.   Accordingly  dividends
            amounting to $11,220 would be restated as interest expense for the 3
            month period ending March 31, 2008.

            The  following  table  summarizes  the  impact  of  the  restatement
            adjustment on the previously  reported  consolidated  balance sheet,
            statement of operations  and cash flows for the 3 months ended March
            31, 2007.

                                                                  March 31, 2007
                                                                  --------------
            Balance Sheet
            -------------

                  Assets as previously reported                    $11,164,939
                  Assets as restated                               $11,164,939
                                                                   -----------

                  Liabilities as previously reported               $ 7,152,381
                  Interest income (Note 2 (a))                          30,312
                  Interest expense (Note 2 (b))                         11,220
                  Liabilities as restated (Note 2)                 $ 7,193,913
                                                                   -----------

                  Shareholders' Equity as previously reported      $ 4,012,558
                  Interest income (Note 2 (a))                         (30,312)
                  Interest expense (Note (b))                          (11,220)
                                                                   -----------
                  Shareholders' Equity as restated                 $ 3,971,026
                                                                   -----------

            Statement of Operations
            -----------------------

                  Net income and comprehensive income
                       As previously reported                      $   554,212
                  Interest expense (Note 2 (a))                        (30,312)
                  Interest income (Note 2 (b))                         (11,220)
                                                                   -----------
                  Net income and comprehensive income
                       As restated                                 $   512,680
                                                                   -----------


                                       48
<PAGE>

            Statement of Cash Flows
            -----------------------

                  Cash flows provided by operating activities
                       As previously reported                      $ 1,579,995
                  Interest income (Note 2 (a))                         (30,312)
                  Interest expense (Note 2 (b))                        (11,220)
                  Accrued liabilities (Note 2 (a and b))                41,532
                                                                   -----------
                  Cash flows provided by operating activities
                       As restated                                 $ 1,579,995
                                                                   -----------

                  Cash flows used in by financing activities
                       As previously reported                      $  (655,347)
                  Cash flows used in by financing activities
                       As restated                                 $  (655,347)
                                                                   -----------

                  Cash flows provided by investing activities      $  (875,827)
                  Cash flows used in investing activities
                       As restated                                 $  (875,827)
                                                                   -----------

Loans Payable

Loans  payable  consist  of  the  Company's  1995,  1996  and  2000  Convertible
debentures,  which bear interest at 10.5 %, have matured, have not been extended
and carry no fixed term,  accordingly  the Company is carrying  the  outstanding
amount of $1,700,800 (2007 - $1,700,800) as a loan payable. The creditors have a
general security assignment on the assets of the Company. Accrued interest as at
March 31, 2008 was $891,058  (December  31, 2007 - $846,505)  and is included in
accounts payable and accrued liabilities.

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

Liquidity and Capital Resources

The  Company's  cash on hand as at March 31,  2008 was  $246,134  as compared to
$$245,872 as at December 31, 2007, an increase in cash position of $262.

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


                                       49
<PAGE>

assets  and is  non-recourse  to the  parent  company.  At  March  31,  2008 the
production loan totalled $1,272,570  (December 31, 2007 - $1,466,180).  Interest
due and paid on the above  demand  loan  totalled  $29,242  for the three  month
period ended March 31, 2008 (December 31, 2007 - $132,907)

The Company expects to establish renewed growth from operations and expects that
proceeds  from sales of Across  the River to Motor City and its film  library as
well as new production will generate  additional revenues and positive cash flow
later in 2008 and beyond.

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

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

OUTLOOK

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

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are those that are, in management's view, important
to the  portrayal  of our  financial  condition  and results of  operations  and
require management's judgment.

The Company's  discussion and analysis of its financial  statements,  which have
been  prepared  in  accordance  with  Canadian  generally  accepted   accounting
principles   ("Canadian   GAAP")   describes  and  reconciles  the   significant
measurement differences


                                       50
<PAGE>

between Canada and United States generally  accepted  accounting  principles (US
GAAP") effecting the accompanying consolidated financial statements.

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

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

Recent Accounting Pronouncements

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

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

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

      iv)   In  2008,  the CICA  issued  Handbook  Section  3064,  Goodwill  and


                                       51
<PAGE>

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

      v)    International Financial Reporting Standards

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

CANADIAN GAAP AND US GAAP RECONCILIATION

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

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

e.    Under US GAAP,  FASB 150, if the  preferred  shares are  redeemable at the
      option of the holders,  they should be presented as mezzanine equity.  The
      preferred  shares are retractable by the holder but are not  mandatorially
      redeemable.

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


                                       52
<PAGE>

Consolidated statements of operations:

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

                                                                         2007
FOR THE THREE MONTHS ENDED MARCH 31,                        2008      (restated)
                                                         ----------   ----------
Net income (loss) in accordance with Canadian
GAAP and US GAAP                                         $ (106,128    $ 512,680

Interest on Preferred Shares (Note c)                        11,220       11,220
                                                         ----------    ---------

Net Income (Loss) in accordance with U.S. GAAP            $ (94,908     $523,900
                                                         ----------    ---------
Net Income (Loss)
per share - Basic & Diluted                               $    0.00     $   0.01
                                                         ==========    =========


                                       53
<PAGE>

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

FOR THE THREE MONTHS ENDED                                              2007
MARCH 31,                                                2008        (restated)
                                                     -----------    -----------
ASSETS
------

Assets in accordance with Canadian GAAP              $ 8,049,338    $ 8,492,237
Assets in accordance with US GAAP                    $ 8,049,338    $ 8,492,237
                                                     ===========    ===========

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

Liabilities in accordance with Canadian GAAP         $ 5,039,410    $ 5,605,928
Preferred shares (Note b)                            $  (494,550)      (494,550)
                                                     -----------    -----------
Liabilities in accordance with US GAAP                 4,544,860      5,111,378

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

Equity in accordance with Canadian GAAP                3,009,928      2,886,309
Preferred Shares (Note b)                                494,550        494,550
Effect of interest on preferred shares on deficit
(Note c )                                                 11,220        11,220
Dividends on preferred shares (Note c)                   (11,220)       (11,220)
                                                     -----------    -----------
Equity in accordance with US GAAP                      3,504,478      2,886,309
                                                     -----------    -----------


                                       54
<PAGE>

Impact of Newly Issued United States Accounting Standards

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

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

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

iv)   In February  2007, the FASB issued FASB Statement NO. 159, "The Fair Value
      Option  for  Financial  Assets  and  Financial  Liabilities  Including  an
      Amendment of FASB  Statement No. 115" ("SFAS 159").  The fair value option
      established by SFAS 159 permits all entities to choose to measure eligible
      items at fair value at specified  election  dates. A business  entity will
      report  unrealized gains or loses on items for which the fair value option
      has been elected in earnings (or another performance


                                       55
<PAGE>

      indication  if the  business  entity  does not  report  earnings)  at each
      subsequent  reporting  date.  The fair  value  option:  (a) may be applied
      instrument  by  instrument,  with a few  exceptions,  such as  investments
      otherwise accounted for by the equity method; (b) is irrevocable (unless a
      new election date occurs);  and (c) is applied only to entire  instruments
      and not to portions of  instruments.  FASB No. 159 is  effective as of the
      beginning  of the fiscal years  beginning  after  November  15, 2007.  The
      adoption  of SFAS  159 did not have a  material  effect  to the  Company's
      financial statements.

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

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

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

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


                                       56
<PAGE>

RISK AND UNCERTAINTIES

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

Risks Related to the Nature of the Entertainment Industry

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

Fluctuating Results of Operations

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

Additional Financing

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

Competition

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


                                       57
<PAGE>

Government Incentive Programs

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

International Operations

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

Risks related to US Regulations

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

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

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


                                       58
<PAGE>

Importance of Management Estimates in Reported Revenues and Earnings

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

Exchange Rates

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

Canadian Content and Ownership

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

Proprietary Rights

To the extent  practicable,  the  Company  attempts  to retain and  protect  all
proprietary  and  intellectual   property  rights  to  its  productions  through
international  copyright laws and licensing and distribution  arrangements  with
reputable  international  companies  for  specified  territories  and  media for
limited  durations.  Despite these  precautions,  existing copyright laws afford
only limited  practical  protection in certain  jurisdictions  and, in fact, the
Company  operates  in  other  jurisdictions  in  which  there  is  no  copyright
protection.  As a result,  it may be possible for unauthorized  third parties to
copy  and   distribute  the  Company's   productions  or  certain   portions  or
applications of the Company's productions.


                                       59
<PAGE>

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

OTHER INFORMATION

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

Disclosure of outstanding share data

As of May 14, 2008 the Company has the following voting or equity  securities or
securities  convertible or exercisable into voting or equity securities,  issued
and outstanding:

Common shares issued & outstanding: 45,921,149.
Series 1 preferred shares issued and outstanding: 494,550
Options: 4,655,000 outstanding options to purchase 4,655,000 common shares
Warrants: 14,474,166 outstanding to purchase 14,474,166 common shares


                                       60
<PAGE>

Item 3. Controls and Procedures.

Management's Responsibility for Financial Reporting

The  Company's  consolidated  financial  statements  are the  responsibility  of
management and have been approved by the board of directors.

The  consolidated  financial  statements  have been  prepared by  management  in
accordance  with  Canadian  generally  accepted  accounting  principles.   These
statements  include  some  amounts  that are based on  estimates  and  judgment.
Management has determined such amounts on a reasonable  basis in order to ensure
that the financial statements are presented fairly, in all material respects.

The  Company's  policy  is  to  maintain  systems  of  internal  accounting  and
administrative  controls of high quality,  consistent with reasonable cost. Such
systems  are  designed  to  provide  reasonable  assurance  that  the  financial
information is relevant, accurate and reliable and that the Company's assets are
appropriately accounted for and adequately safeguarded.

The board of directors is responsible for ensuring that management  fulfills its
responsibilities  for  financial  reporting and is  ultimately  responsible  for
approving the financial  statements.  The board carries out this  responsibility
principally through its Audit Committee.

The Audit  Committee is  appointed by the board and is comprised  two of outside
directors and the Chief Financial Officer. The committee meets periodically with
management  and the  external  auditors to discuss  internal  controls  over the
financial reporting process,  auditing matters and financial reporting issues to
satisfy itself that each party is properly discharging its responsibilities. The
Audit committee reviews the Company's annual consolidated  financial statements,
the report of the independent registered chartered accountants,  the comments by
independent  registered chartered accountants on Canada-United States of America
reporting  difference and other information in the Annual Report.  The committee
reports  findings to the board for  consideration  by the board when it approves
the financial statements for issuance to the shareholders.

On behalf of the  shareholders,  the financial  statements  have been audited by
Deloitte and Touche LLP, the external  auditors,  in  accordance  with  Canadian
generally accepted auditing standards. Deloitte and Touche LLP has full and free
access to the Audit Committee.

Disclosure Controls and Procedures

Disclosure  controls  and  procedures  are  designed to ensure that  information
required  to be  disclosed  by the  Company  in reports  filed  with  securities
regulatory agencies is recorded, processed,  summarized and reported on a timely
basis and is accumulated and communicated to the Company's management, including
the Company's Chief Executive


                                       61
<PAGE>

Officer and Chief Financial Officer,  as appropriate,  to allow timely decisions
regarding required  disclosure.  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  evaluated  these controls and procedures as of a date within
90 days of filing of this report.

Internal  controls  include those  policies and  procedures  that pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the Company's  assets,  provide  reasonable
assurance that  transactions are recorded as necessary to permit the preparation
of  financial  statements  in  accordance  with  generally  accepted  accounting
principles, provide reasonable assurance that receipts and expenditures are made
only in accordance with  authorization of management and the board of directors,
and provide reasonable assurance regarding the prevention or timely detection of
unauthorized acquisition,  use or disposition of the Company's assets that could
have a material  impact on the  financial  statements.  Because of its  inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements.

As a result of a thorough review of the Company's  prior financial  disclosures,
the  Company has  determined  that the  previously  filed  financial  statements
contained  errors  requiring  restatement as reflected in Note 2 to the December
31, 2007 and 2006 consolidated  financial statements.  The Company has concluded
that there are  material  weaknesses  in the  internal  control  over  financial
reporting as of December  31, 2007 and that the Company did not have  sufficient
in-house  expertise to ensure  compliance with the measurement,  recognition and
disclosure requirements under Canadian and US GAAP for certain transactions.

Plan for Remediation of Material Weaknesses

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

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

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

With the implementation of these corrective  actions,  the Company believes that
the above noted  material  weaknesses  will,  over time,  address  the  material
weaknesses that were identified in its internal control over financial reporting
as of December 31, 2007. However,  the effectiveness of these procedures remains
to be tested in 2008 and several


                                       62
<PAGE>

fiscal quarters may be required prior to management  being able to conclude that
the material  weaknesses  have been  remediated.  The Company  will  continue to
periodically  review its disclosure controls and procedures and internal control
over  financial  reporting  and  may  make  modifications  from  time to time as
considered necessary or desirable.

Changes In Internal Control Over Financial Reporting

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


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<PAGE>

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

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

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

      (a)   Not Applicable.

      (b)   Not applicable.

      (c)   Not applicable.

Item 3.  Defaults Upon Senior Securities.

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

      (b)   Not applicable

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

      (a)   Not applicable.

      (b)   Not applicable.

      (c)   Not applicable.

      (d)   Not applicable.

Item 5.  Other Information.

      (a)   Not applicable.

      (b)   Not applicable.


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<PAGE>

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

(a)   Exhibits

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

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

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

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

(b)   Reports on Form 8-K

            (i)   The Company filed a current  report on Form 8-K dated April 7,
                  2008.  Under  item  8.01 of that  8-K  the  Company  announced
                  extensions  of the  exercise  dates  associated  with  certain
                  warrants issued by the Company.


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<PAGE>

                                   SIGNATURES

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

                                      DEVINE ENTERTAINMENT CORPORATION

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

Dated: May 14, 2008

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

Signature               Title                                           Date
--------------------------------------------------------------------------------
/s/ David Devine        Director, Chairman of the Board             May 14, 2008
                        President and Chief Executive Officer

/s/ Richard Mozer       Director, Vice-Chairman of the              May 14, 2008
                        Board, Chief Financial Officer,
                        Treasurer and Secretary


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