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, 2007

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

 For the transition period from______________________to________________________
   Commission file number____________________________________________________

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

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

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

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

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

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

                                  Common Shares
                                (Title of Class)

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

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

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of May 11, 2007, the issuer had
39,382,549 Common Shares outstanding.

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

                                      -1-


<PAGE>

                                TABLE OF CONTENTS

PART  I   FINANCIAL INFORMATION

Item 1.   Financial Statements

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

Item 3.   Controls and Procedures

PART II   OTHER INFORMATION

Item 1.   Legal Proceedings

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

Item 3.   Defaults Upon Senior Securities

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

Item 5.   Other Information

Item 6.   Exhibits and Reports on Form 8-K

Signatures


                                      -2-
<PAGE>

Item 1.

                        DEVINE ENTERTAINMENT CORPORATION

                    INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                      (Unaudited - Prepared by Management)

                         (expressed in Canadian dollars)

                                 March 31, 2007


                                      -3-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

                                 MARCH 31, 2007

                                    CONTENTS

                                                                            PAGE
INTERIM CONSOLIDATED FINANCIAL STATEMENTS

      Balance Sheet                                                           3

      Statement of Shareholders' Equity                                       4

      Statement of Operations                                                 5

      Statement of Cash Flows                                                 6

      Notes to Financial Statements                                        7- 29


                                      -4-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                                 MARCH 31, 2007

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                         March 31           December 31
                                                                                           2007                 2006
                                                                                       ------------         ------------
<S>                                                                                    <C>                  <C>
Current

Cash                                                                                   $    316,822         $    268,001
Accounts receivable                                                                         134,303               82,699
Subscription receivable                                                                          --              132,296
Inventory                                                                                    78,623               88,236
Film tax credits receivable (Note5)                                                         764,594            2,051,568
Prepaid and sundry assets                                                                   132,800              131,406
                                                                                       ------------         ------------
                                                                                          1,427,142            2,754,206

Advances receivable (Note 4)                                                                554,079              494,550
Investment in film, television programs and recordings (Note 6)                           8,989,623            9,490,501
Long term receivable                                                                        175,097              175,097
Property and equipment (Note 8)                                                              18,998               20,405

                                                                                       ------------         ------------
                                                                                       $ 11,164,939         $ 12,934,759
                                                                                       ============         ============

                                                         LIABILITIES

Current

Accounts payable and accrued liabilities                                               $  1,411,577         $  1,492,953
Film production loan (Note7)                                                              1,466,180            2,121,527
Convertible debentures (Note 9)                                                           1,519,290            1,519,290
Deferred revenue (Note3 (m))                                                              2,755,334            4,342,643
                                                                                       ------------         ------------
                                                                                          7,152,381            9,476,413
                                                                                       ------------         ------------

                                                     SHAREHOLDERS' EQUITY

Capital stock (Note 10)                                                                  12,330,949           12,330,949
Preferred shares                                                                            494,550              494,550
Contributed surplus (Note 11)                                                             1,267,449            1,267,449
Deficit                                                                                 (10,080,390)         (10,634,602)
                                                                                       ------------         ------------
                                                                                          4,012,558            3,458,346
                                                                                       ------------         ------------
                                                                                       $ 11,164,939         $ 12,934,759
                                                                                       ============         ============
</TABLE>


See accompanying notes to interim consolidated financial statements.


                                      -5-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

             INTERIM CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                      (Unaudited - Prepared by Management)
                         (expressed in Canadian dollars)

FOR THE PERIOD ENDED MARCH 31, 2007 AND FOR THE YEAR ENDED DECEMBER 31, 2006

<TABLE>
<CAPTION>
                                                                   Stock                                 Contributed
                              Common Shares       Warrants        Options          Preferred Shares         Surplus        Deficit
                             #           $           #               #              #             $             $              $
                                                                                                          (Note 11)
------------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>          <C>          <C>            <C>            <C>           <C>         <C>           <C>
BALANCE,
December 31, 2005        35,353,508   11,745,545   4,877,450      3,180,000      494,550       494,550     1,007,376     (8,075,447)
-issuance of stock
   options                       --           --          --        340,000           --            --         3,600             --

-on settlement for
   services rendered
   and accounts
   payable                  551,860       74,904          --        750,000           --            --         7,875             --

-issuance of private
   placement              3,383,331      507,500   1,691,666             --           --            --            --             --
-on exercise of
   stock options             25,000        3,000          --        (25,000)          --            --          (500)            --

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

-pursuant to closing
80 units of DEFFLP                                                                                           249,098

-dividend distribution                                                                                                      (45,004)

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

-expired options                                                   (780,000)

NET INCOME                                                                                                                  554,212
------------------------------------------------------------------------------------------------------------------------------------
BALANCE
March 31, 2006           39,313,699   12,330,949   6,069,166      3,465,000      494,550       494,550     1,267,449    (10,080,390)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to interim consolidated financial statements.


                                      -6-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION

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

                     FOR THE 3 MONTH PERIOD ENDED MARCH 31,

                                                        2007           2006
                                                     ----------     ---------
REVENUE                                              $2,029,075     $ 163,860
                                                     ----------     ---------

EXPENSES
  Operating                                             102,234       232,377
  Amortization - film, television programs
    and recordings
               - equipment                            1,376,705        84,742
                                                          1,407         1,644
  Interest (Note 12)                                     (5,483)       (7,926)
                                                     ----------     ---------
                                                      1,474,863       314,437
                                                     ----------     ---------

NET INCOME (LOSS) FOR THE PERIOD                     $  554,212     $(150,577)
                                                     ==========     =========

EARNINGS (LOSS) PER COMMON SHARE (Note 13)

BASIC                                                $     0.01     $    0.00
                                                     ==========     =========

FULLY DILUTED                                        $     0.01     $    0.00
                                                     ==========     =========

See accompanying notes to interim consolidated financial statements.


                                      -7-
<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>
                                                                                          2007              2006
                                                                                       ----------         ---------

<S>                                                                                    <C>                <C>
OPERATING ACTIVITIES
    Net income (loss) for the period                                                   $  554,212         $(150,577)
       Amortization - film, television programs and recordings                          1,376,705            84,742
                    - property and equipment                                                1,407             1,644
                    - financing charges                                                        --                --
    Stock-based compensation                                                                   --             3,600
    Change in non-cash components of working capital (Note 18)                           (352,329)           18,362
                                                                                       ----------         ---------

                                                                                        1,579,995           (42,229)
                                                                                       ----------         ---------

FINANCING ACTIVITIES
  Increase (decrease) in bank loans                                                      (655,347)               --
  Advances                                                                                     --           182,000
                                                                                       ----------         ---------

                                                                                         (655,347)          182,000
                                                                                       ----------         ---------

INVESTING ACTIVITY
Investment in film, television programs and recordings                                   (875,827)         (190,073)
                                                                                       ----------         ---------

CHANGE IN CASH                                                                             48,821           (50,302)

CASH, BEGINNING OF PERIOD                                                                 268,001           239,990

CASH, END OF PERIOD                                                                    $  316,822         $ 189,688
                                                                                       ==========         =========

SUPPLEMENTAL CASH FLOW INFORMATION

Interest paid                                                                          $       --         $      --
                                                                                       ==========         =========
</TABLE>

See accompanying notes to interim consolidated financial statements.


                                      -8-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

1.    NATURE OF BUSINESS AND GOING CONCERN

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

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

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

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

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

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

2.    COMPARATIVE FIGURES

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

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      These consolidated  financial  statements have been prepared in accordance
      with accounting  principles  generally accepted in Canada that conform, in
      all material respects,  with U.S. GAAP, except as described in Note 20 the
      financial statements.

      (a)   Basis of Consolidation

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


                                      -9-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      (b)   Inventory

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

      (c)   Revenue Recognition

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

      (d)   Investment in Film, Television Programs and Recordings

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

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


                                      -10-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

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

      (e)   Property and Equipment

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

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

      (f)   Foreign Currency Translation

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

      (g)   Government and Other Assistance

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


                                      -11-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      (h)   Stock-Based Compensation

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

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

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

      (i)   Future Income Taxes

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

      (j)   Earnings Per Share

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


                                      -12-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      (k)   Measurement Uncertainty

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

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

      (l)   Impairment of Long-Lived Assets

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

      (m)   Deferred revenue

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

      (n)   Recent Accounting Pronouncements

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


                                      -13-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

4.    ADVANCES RECEIVABLE

      Advances to an unrelated  company bear  interest at 6.5% per annum and are
      due December 16, 2014. (see Note 17)

5.    FILM TAX CREDITS RECEIVABLE

      Tax credits  receivable are federal and provincial  refundable tax credits
      related to specific film and  television  productions  in Canada.  Amounts
      recorded represent  management's best estimate of the amounts recoverable;
      however all amounts are subject to final determination by the relevant tax
      authorities.  As at March 31,  2007,  the  Company  expects to receive tax
      credits  of  $543,389  (December  31,  2006  $543,389)  from  the  federal
      government  and  $221,205  (December  31,  2006  -  $1,508,179)  from  the
      provincial government.

6.    INVESTMENT IN FILM, TELEVISION PROGRAMS AND RECORDINGS

<TABLE>
<CAPTION>
                                                                                      March 31,                         December 31,
                                                                                        2007                                2006
                                                                                     -----------                         -----------
                                                                                    Accumulated
                                                                       Cost         Amortization           Net               Net
                                                                   -----------       -----------       -----------       -----------
<S>                                                                <C>               <C>               <C>               <C>
Completed television programs and recordings                       $ 6,910,873       $ 6,033,428       $   877,445       $   930,318
Completed Motion picture - Bailey's Billion$                         6,972,580         4,081,502         2,891,078         2,891,078
Completed television Drama Series-                                   1,916,667         1,332,579           584,088                --
(2 of 6 episodes of Across the River)
Projects in progress                                                 4,637,012                --         4,637,012         5,669,105
                                                                   -----------       -----------       -----------       -----------
                                                                   $20,437,132       $11,447,509       $ 8,989,623       $ 9,490,501
                                                                   ===========       ===========       ===========       ===========
</TABLE>

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

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

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

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


                                      -14-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

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

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

      The  Company's  investment  in projects in progress was  $4,637,012  which
      includes  $3,180,382 for Across the River to Motor City and $1,456,630 for
      projects in development.

7.    FILM PRODUCTION LOAN

<TABLE>
<CAPTION>
                                                                                            2007            2006
                                                                                            ----            ----
<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.                                                                    $1,466,180      $2,121,527
                                                                                         ==========      ==========

      Interest on the above demand loan totalled $37,127 for the three month
      period ended March 31, 2007 (three months ended Dec. 31,2006 - $30,312)
      and has been capitalized to projects in progress.
</TABLE>

8.    PROPERTY AND EQUIPMENT

                                             March 31             December 31,
                                               2007                   2006
                                           ------------           ------------
                                           Accumulated
                                   Cost    Amortization    Net        Net
                                 --------  ------------  -------  ------------
Computer and editing equipment   $181,028    $166,716    $14,312    $15,472
Furniture and fixtures             58,193      53,506      4,687      4,933
                                 --------    --------    -------    -------
                                 $239,221    $220,222    $18,999    $20,405
                                 ========    ========    =======    =======


                                      -15-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

9.       CONVERTIBLE DEBENTURES

                                                   March 31,        December 31,
Principal                                            2007               2006
                                                 -----------        ------------
 Issued
  - February 1996 (i)                            $    75,000        $    75,000
  - December 2000 (ii)                               550,000            550,000
  - December 2000 (iii)                              835,800            835,800
  - Capitalized interest (iv)                        240,000            240,000
                                                 -----------        -----------
                                                   1,700,800          1,700,800
  Less - equity component                           (181,510)          (181,510)
                                                 -----------        -----------
                                                 $ 1,519,290        $ 1,519,290
                                                 ===========        ===========


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

            Management  renegotiated  repayment  terms of this  debenture  at an
            increased  interest  rate  of  10%  per  annum.  The  principal  was
            repayable  in four  quarterly  payments  during 2001 of $25,000 plus
            interest.  The first  instalment was made in April 2001. The Company
            is still in default on the second, third and fourth instalments.  As
            at March 31, 2007,  there remains an outstanding  balance of $75,000
            plus $46,875  (December  31, 2006 - $45,000) in accrued  interest on
            this  debenture.  As a  result  of the  default,  the  debenture  is
            classified as a current  liability on the balance sheet.  Management
            is in constant  communication with the debenture holders and expects
            that the Company will be able to settle the debentures in the normal
            course of operations.

      (ii)  The Company  issued  550,000  units of  debentures  and  warrants in
            December 2000 for $550,000 less costs of $85,000 for net proceeds to
            the Company of $465,000. Each unit consists of a $1.00 debenture and
            1  immediately   separable  warrant.   The  redeemable   convertible
            subordinated  debentures matured on December 31, 2005, bear interest
            at 10.5% per annum,  and are payable  semi-annually.  The debentures
            are  convertible  at the holders'  option into common  shares at any
            time prior to  maturity  on the basis of one common  share per $0.50
            principal  amount of debenture.  The debentures are  subordinated to
            certain senior indebtedness of the Company. As at March 31, 2007 the
            Company  is  in  default  of  an  outstanding  balance  of  $237,648
            (December  31,  2006  -  $223,211)  in  accrued  interest  on  these
            debentures.  As a result of the default, the debenture is classified
            as current liability on the balance sheet. Management is in constant
            communication  with  the  debenture  holders  and  expects  that the
            Company will be able to settle the  debentures  in the normal course
            of operations.


                                      -16-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

9.    CONVERTIBLE DEBENTURES (Continued)

      (iii) On December  19,  2000,  the Company  obtained  the  approval of the
            holders of the 7.5% debentures issued December,  1995 to: (i) extend
            the maturity date to December 31, 2002;  (ii) reduce the  conversion
            rate to $0.50 per common share;  (iii) increase the rate of interest
            applicable  to 10.5% per  annum;  (iv)  issue to the  holders of the
            debentures one warrant for each $1.00 principal  amount held by such
            holder;  and (v) to secure the 7.5%  debentures by way of a floating
            charge over all of the Company's assets,  such floating charge to be
            subordinated  to all existing and future "Senior  Indebtedness"  and
            "Permitted  Encumbrances"  and to rank  pari  passu  with  identical
            security  to be granted to  holders  of up to  $1,000,000  principal
            amount of convertible  debentures  issued by the Company on December
            21,  2000.  The  Company  is in  default  on  the  repayment  of the
            debentures.  As at March 31,  2007,  there  remains  an  outstanding
            balance  of  $359,028  (December  31,  2006 -  $337,088)  in accrued
            interest  on these  debentures.  As a  result  of the  default,  the
            debenture is classified as a current liability on the balance sheet.
            Management is in constant  communication  with the debenture holders
            and expects that the Company  will be able to settle the  debentures
            in the normal course of operations.

      (iv)  As part of the  settlement  of the  long-term  debt the  Company has
            granted the same  conversion  privileges to $240,000  portion of the
            interest  accrued on the  debentures  described  in notes 9 (ii) and
            7(iii) and as on the related debentures.  As at March 31, 2007 there
            is an outstanding amount of $69,300 (December 31, 2006 - $63,000) in
            accrued  interest.  As a result of the  default,  the  debenture  is
            classified as current liability on the balance sheet.  Management is
            in constant  communication  with the  debenture  holders and expects
            that the Company will be able to settle the debentures in the normal
            course of operations.

10.   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, 2007 and December 31, 2006   39,313,699     $12,330,949
                                                      ==========     ===========


                                      -17-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

10.   CAPITAL STOCK (continued)

      (c)   Issued - Series 1 preferred shares

                                                              Number     Amount
                                                             -------    --------
            Balance, December 31, 2006 and March 31, 2007    494,550    $494,550
                                                             =======    ========


            The  Series  1   preferred   shares  are   non-voting,   cumulative,
            non-participating,  $1 redeemable  and  retractable.  The shares pay
            dividends  at  the  rate  of  9.1%  per  annum   payable  in  annual
            instalments  on the  15th day of  December  in each  year and  shall
            accrue  and be  cumulative  from the date of issue.  As at March 31,
            2007 dividends in arrears amounted to $11,220.

      (d)   Stock Option Plan

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

            The outstanding and exercisable stock options are as follows:

                                                                        Weighted
                                                                        Average
                                                  Number    Allocated   Exercise
            Outstanding and Exercisable         of Options    Value      Price
            ---------------------------         ----------  ---------   --------
            Balance, December 31, 2006          4,245,000    96,100       0.10
            Expired, January 2007                (780,000)       --       0.16
                                                ---------    ------       ----
            Balance, March 31, 2007             3,465,000    96,100       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     2.24
Sept. 30, 2007  June 25, 2004      125,000    0.10       125,000      0.5
April 25, 2010  April 25, 2006     100,000    0.10       100,000     3.09
Dec.29, 2009    Dec.29, 2006       240,000    1.00       240,000     2.75

                                 3,465,000             3,465,000     2.24
                                 =========             =========     ====


                                      -18-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

10.   CAPITAL STOCK (continued)

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

Issue date                             April 25, 2006         December 29, 2006
--------------------------------------------------------------------------------
Number of options                             100,000                   240,000
Expected life                                 5 years                   3 years
Price volatility                                   30                       30%
Dividend yield                                     --                        --
Risk-free interest rate of return                  5%                        5%
Amount recorded                                $3,600                        --

      (e)   Warrants

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

            Outstanding and Exercisable       # of Warrants     Value      Price
            --------------------------------------------------------------------
            Balance Dec. 31, 2006                6,069,166      73,140      0.36
                                                 ---------      ------      ----
            Balance, March 31, 2007              6,069,166      73,140      0.36
                                                 =========      ======      ====


The Company has granted warrants as follows:

<TABLE>
<CAPTION>
                                     Number    Exercise    Outstanding    Weighted Average
Expiry Date        Grant Date     of Warrants   Price    and Exercisable   Remaining Life
-------------------------------------------------------------------------------------------
<S>                <C>             <C>           <C>        <C>                  <C>
December 31, 2009  June 30, 2004   1,830,000     0.50        1,830,000            2.75
April 7, 2007      April 7, 2005   2,547,500     0.30        2,547,500           0.019
May 31, 2007       May 31, 2006    1,691,666     0.30        1,691,666            0.17
                                   ---------                 ---------           -----
                                   6,069,166                 6,069,166            0.88
                                   =========                 =========           =====
</TABLE>

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

            Grant date                               May 31, 2006
            Number of warrants                          1,691,666
            Expected life                                  1 year
            Price volatility                                  30%
            Dividend yield                                     --
            Risk-free interest rate of return                  5%

            Amount recorded                                    --

            There were no  warrants  granted  during the first  quarter of 2007,
            however,  the board of directors  approved an extension of 1,830,000
            warrants to  December  31,  2009 that were  originally  to expire in
            February 2007. There was no impact to the Financial  Statements as a
            result of the extension of the warrants.


                                      -19-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

11.   CONTRIBUTED SURPLUS

            Balance, December 31, 2006                   $1,267,449
                                                         ----------
            Balance March 31, 2007                       $1,267,449
                                                         ==========

                                                          March 31,    Dec.  31,
                                                             2007         2006
                                                          ---------    ---------
Settlement of debt instruments                             $664,501     $664,501
Equity portion of long-term debt                            181,510      181,510
Stock Options (10 (d))                                       99,200       99,200
Warrants (Note 10 (e))                                       73,140       73,140
Pursuant to closing of limited partnership (17)             249,098      249,098
                                                         ----------   ----------
                                                         $1,267,449   $1,267,449
                                                         ==========   ==========

12.   INTEREST EXPENSE (INCOME)

                                                           March 31,   March 31,
                                                             2007        2006
                                                           --------    --------
Interest on convertible debentures                         $ 44,552    $ 44,552
Bank film production loan                                    37,127          --
                                                           --------    --------
                                                             81,679      44,552
Interest income                                              (8,147)     (7,926)
                                                           --------    --------
                                                             73,532      36,626
Less: amounts capitalized to projects                       (41,888)    (44,552)
                                                           --------    --------
                                                           $ 31,644    $ (7,926)
                                                           ========    ========

            Interest  expense of $37,127 for the film  production  bank loan has
            been capitalized to projects in progress. (See note 7)


                                      -20-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

13.   EARNINGS (LOSS) PER COMMON SHARE

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

            Period                                                 Outstanding
            ------                                                 -----------
            March 31, 2007                                         39,313,699
            March 31, 2006                                         35,353,508

                                                      March 31,       March 31,
                                                        2007            2006
                                                    ------------   ------------
Numerator:
----------
Net income (loss) as reported for basic EPS         $    554,212   $   (150,577)

Less: Preferred share dividends paid and in arrears      (11,220)       (11,200)
                                                    ------------   ------------
Net Income (Loss)                                   $    542,992   $   (161,797)
                                                    ------------   ------------
Denominator:
------------
Weighted average shares for basic EPS                 39,313,699     35,353,508
                                                    ============   ============
Basic income (loss) per share                       $       0.01   $      (0.00)
                                                    ============   ============

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


                                      -21-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

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

                                                     March 31,       March 31,
                                                       2007            2006
                                                   ------------    ------------
Numerator:
----------
Net income (loss) as reported for basic EPS        $    554,212    $   (150,577)
Less: Preferred share dividends paid
  and in arrears                                        (11,220)        (11,220)
                                                   ------------    ------------

Net Income (loss)                                  $    542,992    $   (161,797)
                                                   ------------    ------------

Denominator:
------------
Weighted average shares for basic EPS                39,313,699      35,353,508
Effect of dilutive securities:
  Stock options                                         554,167              --
  Warrants                                                   --              --
                                                   ------------    ------------
Adjusted weighted average shares and assumed
conversions for dilutive EPS                         39,867,866      35,353,508
                                                   ============    ============
Fully diluted income (loss) per share              $       0.01    $      (0.00)
                                                   ============    ============

      (c)   Anti-dilutive:  For the 3 months  ended  March  31,  2007 and  2006,
            options to purchase 210,000 and 3,280,000 common shares and warrants
            of 6,069,166 and  4,877,450,  respectively  were not included in the
            computation of fully diluted earnings (loss) per share because to do
            so for the three months ended March 31, 2007 would be  anti-dilutive
            and for the three  months  ended March 31, 2006  because of the loss
            results.

14.   FINANCIAL INSTRUMENTS

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

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

      (i)   Fair Value

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


                                      -22-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

14.   FINANCIAL INSTRUMENTS (continued)

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

            The fair value of the convertible debentures issued in December 2000
            has been  estimated by first  calculating  the present  value of the
            liability  component  using a discount  factor and then assigning to
            the equity  component  the  difference  between the  proceeds of the
            debenture  and  the  fair  value  of the  liability  component.  The
            estimated  discount  factor used  approximated  the market  interest
            rates at March 31, 2007 and 2006. Accordingly,  the carrying amounts
            of the convertible debentures approximate fair value.

      (ii)  Credit Risk

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

      (iii) Currency Risk

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

            The Company does not actively use  derivative  instruments to reduce
            its exposure to foreign  currency  risk.  However,  dependent on the
            nature, amount and timing of foreign currency receipts and payments,
            the Company may enter into  forward  exchange  contracts to mitigate
            the  associated  risks.  There  were no forward  exchange  contracts
            outstanding at March 31, 2007.



15.   COMMITMENTS AND CONTINGENCIES

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

                2007                                           $ 21,000
                2008                                             29,000
                2009                                             13,000
                                                               --------
                                                                $63,000
                                                               ========


                                      -23-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

15.   COMMITMENTS AND CONTINGENCIES (continued)

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

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

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

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

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

16.   RELATED PARTY TRANSACTIONS

      During the 3 month period ended March 31, 2007 $151,445  (March 31, 2006 -
      $73,749) of fees were paid or accrued to corporations controlled by two of
      the  directors  for  writing,  directing  and  producing  services.  These
      transactions have been measured at exchange amount, which is the amount of
      consideration  established  and agreed to by the related parties and which
      management believes reflect prevailing market rates.

17.   VARIABLE INTEREST ENTITIES

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

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


                                      -24-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

17.   VARIABLE INTEREST ENTITIES (continued)

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

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

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

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


      In  December  2005,  The  Devine   Entertainment   Film  Library   Limited
      Partnership ("DEFL LP"), a limited partnership formed and registered under
      the Limited  Partnerships Act (Ontario) on March 8, 2004,  acquired Devine
      Entertainment  Corporation's  interest in a defined part of the  Company's
      proprietary  film  library  for $7.0  million,  as  valued  by an  outside
      valuator. The Company has provided financing for the transaction,  and has
      entered into a financing agreement and a management agreement with DEFL LP
      in order to manage the  exploitation  and expand the  distribution  of the
      properties.  Under these agreements the Company will maintain a call right
      for  between a minimum of 70% and a maximum  100%  interest in the library
      assets.  On December  29, 2006  subscriptions  for 80 units of the DEFL LP
      were  finalized.  $175,097 is receivable  in 2008 and 2009.  Subsequent to
      payment of all  closing  expenses  the DEFL LP overall net  proceeds  were
      $249,098. The accounts of this variable interest entity have been included
      in the consolidated financial statements of the Company.

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

                                                   March 31, 2007 March 31, 2006
                                                   -------------- --------------
Accounts receivable                                  $    80,692    $    56,494
Film tax credits receivable                            1,286,974             --
Advance receivable                                       (59,529)            --
Inventory                                                  9,613          8,546
Prepaid and sundry assets                                 (1,394)        (9,471)
Accounts payable and accrued liabilities                 (81,376)       (37,207)
Deferred revenue                                      (1,587,309)            --
                                                     -----------    -----------
                                                     $  (352,329)   $    18,362
                                                     ===========    ===========


                                      -25-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

18.   CHANGE IN  NON-CASH  OPERATING  ASSETS AND  LIABILITIES  AND  SUPPLEMENTAL
      INFORMATION (continued)

The supplemental cash flow information is as follows:    March 31,    March 31,
                                                           2007         2006
                                                         ---------    ---------
Non-cash transactions
  Stock options issued                                        --         3,600

19.   SEGMENTED INFORMATION

      The  Company  is  considered  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, 2007   March 31, 2006
                                                --------------   --------------
      Canada                                      $1,886,950         $  6,856
      United States                                   42,533           72,148
      France                                              --           68,723
      Russia                                          83,442               --
      Europe - Other                                  16,150              769
      Other foreign                                       --           15,364
                                                  ----------         --------
                                                  $2,029,075         $163,860
                                                  ==========         ========

20.   RECONCILIATION TO UNITED STATES GAAP


Canada and United States Accounting Policy Differences

The  consolidated  financial  statements  of the Company  have been  prepared in
accordance with Canadian GAAP. The significant  differences between Canadian and
U.S.  GAAP,  and their effect on the  consolidated  financial  statements of the
Company, are described below.


                                      -26-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

20.   RECONCILIATION TO UNITED STATES GAAP (continued)
      Consolidated statements of operations:

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

FOR THE THREE MONTHS ENDED MARCH 31,                      2007         2006
                                                      -----------   -----------
Net income (loss) in accordance with Canadian GAAP    $   554,212   $  (150,577)

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

Net Income (Loss) in accordance with
U.S. GAAP                                             $   542,992   $  (161,797)
                                                      -----------   -----------

Net Income
(Loss) per share                                      $      0.01   $        --
                                                      ===========   ===========
The cumulative effect of these
adjustments on shareholders' equity is as follows:

FOR THE THREE MONTHS ENDED MARCH 31,                      2007          2007
                                                      -----------   -----------
Shareholders' Equity in accordance
with Canadian GAAP                                    $ 4,012,558   $ 5,025,047

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

Gain on settlement of New Convertible Debentures

Effect on Contributed Surplus (Note b)                   (284,803)     (284,803)

Gain on settlement of New Convertible Debentures

Effect on Deficit (Note b)                                284,803       284,803

Cumulative dividends (Note c)                            (101,351)      (56,347)

Preferred Shares (Note c)                                (494,550)     (494,550)
                                                      -----------   -----------

Shareholders' Equity in accordance with U.S. GAAP     $ 3,235,147   $ 4,292,640
                                                      ===========   ===========


                                      -27-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

20.   RECONCILIATION TO UNITED STATES GAAP (continued)

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

FOR THE THREE MONTHS ENDED MARCH 31,                   2007            2006
                                                   ------------    ------------
Assets in accordance with Canadian GAAP            $ 11,164,939    $  7,948,369

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

Assets in accordance with U.S. GAAP                $ 11,164,939    $  7,948,369
                                                   ============    ============
Liabilities in accordance with Canadian GAAP       $  7,152,381    $  2,923,322

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

Cumulative dividends (Note c)                           101,331          56,347

Preferred Shares (Note c)                               494,550         494,550
                                                   ------------    ------------

Liabilities in accordance with U.S. GAAP           $  7,929,772    $  3,655,729
                                                   ============    ============

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


FOR THE THREE MONTHS ENDED MARCH 31,                   2007            2006
                                                   ------------    ------------

Cash flows provided by Operating Activities

Cash flows provided by operating activities
in accordance with Canadian GAAP                   $  1,579,995    $    (42,229)

Interest (Dividends) on Preferred Shares -
Effect on Net Loss (Note c)                             (11,220)        (11,220)

Interest (Dividends)on Preferred Shares
(Note c) - Effect on Other Liabilities                   11,220          11,220

Cash flows provided by Operating Activities        $  1,579,995    $    (42,229)
                                                   ============    ============


                                      -28-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

20.   RECONCILIATION TO UNITED STATES GAAP (continued)

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

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

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

      (d)   Financial   Accounting   Standards   Board  Statement  of  Financial
            Accounting Standards No. 130 "Reporting  Comprehensive Income" (SFAS
            130) requires the disclosure of comprehensive income, which includes
            reported net earnings adjusted for other comprehensive income. Other
            comprehensive  income  is  defined  as the  change  in  equity  of a
            business  enterprise  during a period  from  transactions  and other
            events and  circumstances  from non-owner  sources.  During 2006 and
            2005, there was no other comprehensive income.

      Impact of Newly Issued United States Accounting Standards

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


            ii)   In February 2006, the FASB issued SFAS No.155, "Accounting for
                  Certain Hybrid Financial  Instruments."  Which amends SFAS No.
                  133 and SFAS  No.140.  SFAS No. 155 permits  hybrid  financial
                  instruments  that  contain an embedded  derivative  that would
                  otherwise require  bifurcation to irrevocably be accounted for
                  at fair value,  with changes in fair value  recognized  in the
                  statement of income. The fair value election may be applied on
                  an   instrument-by-instrument   basis.   SFAS  No.   155  also
                  eliminates a restriction on the passive derivative instruments
                  that a qualifying  special  purpose entity may hold.  SFAS No.
                  155 is effective for those financial  instruments  acquired or
                  issued after  December 1, 2006.  At adoption,  any  difference
                  between the total carrying amount of the individual components
                  of the existing bifurcated  financial  instrument and the fair
                  value of the  combined  hybrid  financial  instrument  will be
                  recognized as a cumulative-effect adjustment


                                      -29-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

20.   RECONCILIATION TO UNITED STATES GAAP (continued)

                  to beginning  retained  earnings.  The Company does not expect
                  the new standard to have any material  impact on our financial
                  position and results of operations.

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

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

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

            vi)   In September  2006, the SEC issued Staff  Accounting  Bulletin
                  No.108  "Considering  the Effects of Prior Year  Misstatements
                  when  Quantifying  Misstatements  in  Current  Year  Financial
                  Statements"("SAB  108").  SAB 108 provides  guidance on how to
                  evaluate prior period financial  statement  misstatements  for
                  purposes of assess in their materiality in the current period.
                  If the prior period effect is material to the current  period,
                  then the prior period is required to be corrected.  Correcting
                  prior year financial statements would not require an amendment
                  to prior year financial statements,  but such correction would
                  be made the  next  time  the  company  files  the  prior  year
                  financial statements.  Upon adoption SAB 108 allows a one-time
                  transitional


                                      -30-
<PAGE>

                        DEVINE ENTERTAINMENT CORPORATION
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                       (Unaudited-Prepared by Management)
                         (expressed in Canadian dollars)
                                 March 31, 2007

20.   RECONCILIATION TO UNITED STATES GAAP (continued)

                  cumulative   effect   adjustment  to  retained   earnings  for
                  correction of prior period  misstatement  required  under this
                  statement.  SAB108 is effective  for fiscal years ending after
                  November  15,  2006.  The  adoption  of SAB108  did not have a
                  material effect on the Company's financial statements.

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


                                      -31-
<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
11,  2007 to  provide a review of current  activities  and a  comparison  of the
performance and financial  position of Devine  Entertainment for the three month
period  ended March 31,  2007 and 2006.  Additional  information  related to the
Company is  available  on SEDAR at  www.sedar.com.  The  financial  data in this
document have been prepared in accordance with accounting  principles  generally
accepted in Canada that  conforms,  in all  material  respects,  with U.S.  GAAP
except  as  described  in Note 20 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 in theatres, on television and
DVD worldwide.  In 2006 the Company continued  expanding its proprietary library
by financing and producing 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;  (iii) grow by
expanding its library through acquisitions of third party film libraries and the
integration of third party productions and production companies

FORWARD-LOOKING STATEMENTS

Readers are cautioned that actual results may differ materially from the results
projected in any  "forward-looking"  statements  included in this discussion and
analysis, which


                                      -32-
<PAGE>

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.

FIRST QUARTER 2007 HIGHLIGHTS

Revenues and earnings increased  dramatically as a result of the Company's focus
on the  post-production  and delivery of the first two episodes of the Company's
new primetime mystery series for Chum Television, Across the River to Motor City
and sales resulting from the new foreign distribution  relationship with Carrere
Group of France.

      o     Revenues in the first quarter ended March 31, 2007 increased by more
            than $1,865,215 or approximately  1138% to $2,029,075 as compared to
            $163,860 for the same period in 2006.  $1,870,809 of these  revenues
            were  derived from the delivery of the first two episodes of its new
            series Across The River to Motor City and the balance of $158,266 in
            revenues were generated by sales from the Company's library of films
            and television programs.

      o     Net  Earnings for the first  quarter  2007  increased by $704,789 to
            $554,212 or $0.01 per share as  compared  to a loss of $150,577  for
            the same period in 2006.

The Company expects strong revenue and earnings  growth to continue  through the
balance of 2007 with  revenues  being  generated by its  proprietary  library of
films and  television  programs and as four more episodes of Across the River to
Motor City are completed and delivered.


                                      -33-
<PAGE>

RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2007 AND 2006

Revenues

Revenues  in the first  quarter  ended  March 31,  2007  increased  by more than
$1,865,215  to  $2,029,075,  reflecting  an increase of  approximately  1138% as
compared to $163,860 for the same period in 2006.

The majority of the  Company's  revenues in the  quarter,  or  $1,870,809,  were
derived  from the delivery of the first two  episodes of the  six-episode  first
season of its new series for CHUM Television, entitled Across The River to Motor
City.  The  balance  of  $158,266  in  revenue  for the first  quarter  2007 was
generated  by  continuing  sales  from  the  Company's  proprietary  library  of
completed films and television  programs.  The Company's  library  revenues were
marginally  lower as compared  with  $163,860  for the same  period in 2006.  As
expected,  the Company's feature film, Bailey's Billion$,  did not contribute to
the Company's revenues in the first quarter of 2007.

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

                                            March 31, 2007      March 31, 2006
                                            --------------      --------------
Canada                                        $1,886,950         $    6,856
United States                                     42,533             72,148
France                                                --             68,723
Russia                                            83,442                 --
Europe - Other                                    16,150                769
Other foreign                                         --             15,364
                                              ----------         ----------
                                              $2,029,075         $  163,860
                                              ==========         ==========

Earnings (loss) per Common Share (EPS)

Net Earnings for the first quarter ended March 31, 2007 increased by $704,789 to
$554,212 or $0.01 per share as  compared to a net loss of $150,577  for the same
period in 2006.

EBITDA

EBITDA, defined as earnings before interest, taxes,  depreciation,  amortization
and  write-down  of debt was  $1,926,841 or $0.05 per share in the quarter ended
March 31, 2007 an increase of  $1,998,958  as compared to  ($72,117) in the same
period in 2006.


                                      -34-
<PAGE>

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

Shareholders' Equity

Shareholders' equity was $4,012,558 at March 31, 2007, reflecting an increase of
$54,212 as compared to $3,458,346 at December 31, 2006.

SUMMARY OF QUARTERLY RESULTS:

<TABLE>
<CAPTION>
                          March 31,    Dec. 31,      Sept. 30,    June 30,     Mar. 31,      Dec. 31,     Sept. 30,      June 30,
                            2007         2006          2006         2006         2006          2005          2005          2005
                            ----         ----          ----         ----         ----          ----          ----          ----
<S>                       <C>             <C>          <C>         <C>          <C>           <C>           <C>         <C>
Revenues                  2,029,075       60,430       84,255      115,414      163,860       468,348       180,899     2,892,261

Operating                   102,234      181,507      287,420      156,200      232,377       268,418       192,765       214,791
Expenses

Earnings (loss) before      554,212   (2,514,151)    (231,398)    (147,639)    (150,577)     (865,770)     (323,166)      933,050
income taxes
                                                                                                                          (12,189)
Income taxes                     --           --           --           --           --        12,189            --
                                                                                                                          920,861
Net earnings (loss)         554,212   (2,514,151)    (231,398)    (147,639)    (150,577)     (853,581)     (323,166)


Basic  earnings (loss)         0.01        (0.07)       (0.01)       (0.00)       (0.00)        (0.02)        (0.01)         0.03
per common share
</TABLE>

Operating expenses

The Company's  operating expenses for the quarter ended March 31, 2007 decreased
by $130,143 or  approximately  56% to  $102,234,  as compared to $232,377 in the
same period in 2006.


                                      -35-
<PAGE>

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 Spout, StarDucks,  Quarterback,  Fat Camp and Humchucker.  The
Company has also  entered  into an initial  agreement  to  co-develop,  with the
intent of co-producing in the future,  a new series of Writers'  Specials with a
co-producer in France. In addition,  the Company recently  commissioned four new
scripts for a second  season of its new  primetime  mystery  series,  Across the
River to Motor City, with the  participation  and support of CHUM Television and
the Cable Television Fund.

Investment in Film and Television Programs and Recordings

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

Amortization  expenses  in the quarter  ended  March 31, 2007 for the  Company's
library of completed  television  programs  and  recordings  and motion  picture
totaled  $52,873.  As at December  31, 2006,  the  Company's  investment  in its
proprietary  film library of completed  television  programs and  recordings was
estimated as $877,445 after accumulated  amortization.  The Company's investment
in its motion  picture  Bailey's  Billion$  was  estimated as  $2,891,078  after
accumulated  amortization  and the Company's  investment in projects in progress
was $4,637,012, which includes $3,180,382 for Across the River to Motor City and
$1,456,630 for projects in development as per the following table:

<TABLE>
<CAPTION>
                                                          March 31, 2007      Dec. 31, 2006
                                                          --------------      -------------
                                                           Accumulated
                                                  Cost     Amortization      Net          Net
                                                  ----     ------------      ---          ---
<S>                                            <C>          <C>          <C>          <C>
Completed television programs and recordings   $6,910,873   $6,033,428   $  930,318   $  930,318
Completed Motion picture - Bailey's Billion$    6,972,580    4,081,502    2,891,078    3,241,219
Completed television Drama Series-              1,916,667    1,332,579      584,088           --
(2 of 6 episodes of Across the River)
Projects in progress                            4,637,012           --    4,637,012    5,669,105
                                             ------------  -----------   ----------   ----------
                                             $ 20,437,132  $11,447,509   $8,989,623   $9,490,501
                                             ============  ===========   ==========   ==========
</TABLE>


                                      -36-
<PAGE>

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

The Company expects to amortize  approximately $415,000 for completed television
programs and recordings  costs,  $355,000 for completed motion picture costs and
$4,018,500 for completed television drama series during the next fiscal year.

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

The Company expects 100% of completed television programs and recordings, 70% of
completed motion picture costs and 78% of completed television drama series will
be amortized by December 31, 2008.

As at  December  2010,  over  80% of the  completed  motion  picture  costs  and
completed television drama series will be amortized.

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

Capital stock

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

The Company issued no common or preferred  shares in the quarter ended March 31,
2007.

Subsequent  to March 31, 2007 the Company  issued  68,250  common  shares to the
Company's three outside directors pursuant to the previously approved and agreed
upon  director's  compensation  plan for the fourth  quarter  2006 and the first
quarter 2007.

Related Party Transactions

During the 3 month  period  ended  March 31,  2007  $151,445  (March 31,  2006 -
$73,749) of fees were paid or accrued to  corporations  controlled by two of the
directors for writing, directing and producing services. These transactions have
been  measured  at  exchange  amount,  which  is  the  amount  of  consideration
established and agreed to by the related parties and which  management  believes
reflect prevailing market rates.


                                      -37-
<PAGE>

Limited Partnerships

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

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

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

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

      o     Administrative services; and

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

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

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

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


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

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

      o     Administrative services; and

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

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

In December  2005, The Devine  Entertainment  Film Library  Limited  Partnership
("DEFL  LP"),  a limited  partnership  formed and  registered  under the Limited
Partnerships  Act  (Ontario)  on March 8, 2004,  acquired  Devine  Entertainment
Corporation's  interest  in a defined  part of the  Company's  proprietary  film
library  for $7.0  million,  as valued by an outside  valuator.  The Company has
provided  financing  for the  transaction,  and  has  entered  into a  financing
agreement  and a  management  agreement  with  DEFL LP in  order to  manage  the
exploitation  and  expand  the  distribution  of  the  properties.  Under  these


                                      -38-
<PAGE>

agreements,  the Company will receive  management fees and interest  revenue and
the  Company  will  maintain  a call  right for  between a minimum  of 70% and a
maximum 100% interest in the library assets. On December 29, 2006  subscriptions
for 80 units of the DEFL LP were  finalized  providing an investment of $470,817
of which  $175,000 is  receivable  in 2008 - 2009.  Subsequent to payment of all
closing  expenses the DEFL LP overall net proceeds for general  working  capital
were $249,098.  The accounts of this variable interest entity have been included
in the consolidated financial statements of the Company.

Liquidity and Capital Resources

The  Company's  cash on hand as at March 31,  2007 was  $316,822  as compared to
$268,001 as at December 31, 2006, an increase in cash position of  approximately
18% or $28,011.

A demand loan bearing  interest at prime plus 1%,  repayable in full by June 30,
2008 was  arranged  for the  financing of 6 episodes of a new one hour TV series
entitled  Across the River to Motor City,  which was  produced by the  Company's
wholly owned  subsidiary,  Across the River Productions Ltd. The loan is secured
by all receipts  including all  commercialization  or exploitation of the series
worldwide including pre-sale and funding agreements and various tax credits. The
loan is not secured by the parent  company's  assets and is  non-recourse to the
parent  company.  As at March 31, 2007 the production  loan totalled  $1,466,180
(December  31, 2006 -  $2,121,527).  Interest on the above demand loan  totalled
$37,127  in the three  months  ended  March 31,  2007 (the  three  months  ended
December 31, 2006 - $30,312)

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

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

Nonetheless,  the Company remains unable to service its convertible debt and the
Company will require additional  working capital from its production  activities
or corporate  financing in 2007. The Company intends to actively seek additional
funding in calendar 2007.


                                      -39-
<PAGE>

OUTLOOK

The Company is optimistic  about the successful  commercial  exploitation of its
new one hour primetime mystery Across the River to Motor City and its library of
motion pictures and television  programs and recordings.  With  approximately $4
million of contracted  pre-sale broadcast licenses with CHUM Television in place
for Across the River to Motor  City,  additional  Canadian  equity  sales of the
series and results from the new  international  distribution  agreement  for the
Company's proprietary film library with Carrere Group expected to begin in 2007,
this year promises to be among the Company's  strongest ever,  with  anticipated
revenues of between $5.5 and $6 million.

Although there can be no assurance, the Company expects that 2007 will bring new
opportunities for additional corporate and production financings and the Company
is actively pursuing  financing to produce new films,  develop its marketing and
distribution  activities in North America and abroad and for its general working
capital requirements.

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These  consolidated  financial  statements have been prepared in accordance with
accounting  principles  generally  accepted  in  Canada  that  conforms,  in all
material  respects,  with  U.S.  GAAP,  except  as  described  in Note 20 to the
financial statements.

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

Recent Accounting Pronouncements

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


                                      -40-
<PAGE>

RECONCILIATION TO UNITED STATES GAAP

Canada and United States Accounting Policy Differences

The  consolidated  financial  statements  of the Company  have been  prepared in
accordance with Canadian GAAP. The significant  differences between Canadian and
U.S.  GAAP,  and their effect on the  consolidated  financial  statements of the
Company, are described below.

Consolidated statements of operations:

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

FOR THE THREE MONTHS ENDED MARCH 31,                         2007        2006
                                                          ---------   ---------
Net income (loss) in accordance with Canadian GAAP        $ 554,212   $(150,577)

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

Net Income (Loss) in accordance with
U.S. GAAP                                                 $ 542,992   $(161,797)
                                                          ---------   ---------

Net Income
(Loss) per share                                          $    0.01   $      --
                                                          =========   =========


                                      -41-
<PAGE>

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

FOR THE THREE MONTHS ENDED MARCH 31,                   2007            2006
                                                   ------------    ------------
Shareholders' Equity in accordance
with Canadian GAAP                                 $  4,012,558       $5,025047

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

Gain on settlement of New Convertible Debentures

Effect on Contributed Surplus (Note b)                 (284,803)       (284,803)

Gain on settlement of New Convertible Debentures

Effect on Deficit (Note b)                              284,803         284,803

Cumulative dividends (Note c)                          (101,351)        (56,347)

Preferred Shares (Note c)                              (494,550)       (494,550)
                                                   ------------    ------------

Shareholders' Equity in accordance with
U.S. GAAP                                          $  3,235,147    $  4,292,640
                                                   ============    ============

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

FOR THE THREE MONTHS ENDED MARCH 31,                   2007             2006
                                                   ------------    ------------

Assets in accordance with Canadian GAAP            $ 11,164,939    $  7,948,369

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

Assets in accordance with U.S. GAAP                $ 11,164,939    $  7,948,369
                                                   ============    ============
Liabilities in accordance with Canadian GAAP       $  7,152,381    $  2,923,322

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

Cumulative dividends (Note c)                           101,331          56,347

Preferred Shares (Note c)                               494,550         494,550
                                                   ------------    ------------
Liabilities in accordance with U.S. GAAP           $  7,929,772    $  3,655,729
                                                   ============    ============


                                      -42-
<PAGE>

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

FOR THE THREE MONTHS ENDED MARCH 31,                   2007            2006
                                                   ------------    ------------
Cash flows provided by Operating Activities

Cash flows provided by operating activities
in accordance with Canadian GAAP                   $  1,579,995    $    (42,229)

Interest (Dividends) on Preferred Shares -
Effect on Net Loss (Note c)                             (11,220)        (11,220)

Interest (Dividends)on Preferred Shares
(Note c) - Effect on Other Liabilities                   11,220          11,220

Cash flows provided by Operating Activities        $  1,579,995    $    (42,229)
                                                   ============    ============

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

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

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

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


                                      -43-
<PAGE>

(d)   Financial  Accounting  Standards Board  Statement of Financial  Accounting
      Standards No. 130 "Reporting Comprehensive Income" (SFAS 130) requires the
      disclosure of comprehensive  income,  which includes reported net earnings
      adjusted for other comprehensive  income.  Other  comprehensive  income is
      defined as the change in equity of a business  enterprise  during a period
      from  transactions  and other  events  and  circumstances  from  non-owner
      sources. During 2006 and 2005, there were no other comprehensive income.

Impact of Newly Issued United States Accounting Standards

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

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

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

v)    In July 2006, the FASB issued FASB  Interpretation No. 48, "Accounting for
      Uncertainty  in Income Taxes an  interpretation  of FASB Statement No. 109
      (FIN 48), which clarifies the accounting for uncertainty in tax positions.
      This   Interpretation   requires   that  we  recognize  in  our  financial
      statements,  the impact of a tax position, if that position is more likely
      than not of being sustained on audit,


                                      -44-
<PAGE>

      based on the technical  merits of the position.  The  provisions of FIN 48
      are  effective  as of the  beginning  of our 2007  fiscal  year,  with the
      cumulative  effect of the change in  accounting  principle  recorded as an
      adjustment  to  opening  retained  earnings.   The  Company  is  currently
      evaluating the impact of adopting FIN48 on our financial statements.

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

vii)  In  September  2006,  the SEC  issued  Staff  Accounting  Bulletin  No.108
      "Considering  the  Effects of Prior Year  Misstatements  when  Quantifying
      Misstatements  in Current Year Financial  Statements"("SAB  108"). SAB 108
      provides  guidance on how to evaluate  prior  period  financial  statement
      misstatements  for purposes of assess in their  materiality in the current
      period. If the prior period effect is material to the current period, then
      the prior  period is  required  to be  corrected.  Correcting  prior  year
      financial  statements  would  not  require  an  amendment  to  prior  year
      financial statements,  but such correction would be made the next time the
      company files the prior year financial  statements.  Upon adoption SAB 108
      allows a one-time  transitional  cumulative  effect adjustment to retained
      earnings for correction of prior period  misstatement  required under this
      statement.  SAB108 is effective for fiscal years ending after November 15,
      2006.  The  adoption  of  SAB108  did not have a  material  effect  on the
      Company's financial statements.

viii) 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


                                      -45-
<PAGE>

      November 15, 2007. The adoption of SFAS 159 is not expected to be material
      to the Company's financial statements.

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


                                      -46-
<PAGE>

production  companies for ideas and storylines  created by third parties as well
as for actors, directors and other personnel required for a production.

Government Incentive Programs

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

International Operations

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

Importance of Management Estimates in Reported Revenues and Earnings

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

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


                                      -47-
<PAGE>

nature of the particular  service and financial  performance.  Under regulations
and policies of the CRTC, a program  will qualify as a Canadian  production  if,
among other  things,  (i) it is produced by Canadians  with the  involvement  of
Canadians in principal  functions,  and (ii) a substantial portion of the budget
is spent on Canadian elements.  The Company believes it will continue to qualify
as a Canadian  producer for this purpose so long as,  among other  things,  more
than 50% of the combined voting power of its outstanding  shares is beneficially
owned by  Canadian  nationals.  The  Company  cannot  be  certain  of the  total
percentage of the Company's  stock  currently held in Canada because the Company
has no way of determining  the beneficial  ownership of its  outstanding  Common
Shares.

Proprietary Rights

To the extent  practicable,  the  Company  attempts  to retain and  protect  all
proprietary  and  intellectual   property  rights  to  its  productions  through
international  copyright laws and licensing and distribution  arrangements  with
reputable  international  companies  for  specified  territories  and  media for
limited  durations.  Despite these  precautions,  existing copyright laws afford
only limited  practical  protection in certain  jurisdictions  and, in fact, the
Company  operates  in  other  jurisdictions  in  which  there  is  no  copyright
protection.  As a result,  it may be possible for unauthorized  third parties to
copy  and   distribute  the  Company's   productions  or  certain   portions  or
applications  of  the  Company's  productions.  In  addition,  there  can  be no
assurance  that other  companies  will not  independently  develop  and  produce
programs  that are  similar  to or  imitate  those of the  Company  but  legally
circumvent the Company's intellectual property rights.


OTHER INFORMATION

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

Disclosure of outstanding share data

As of May 11, 2007 the Company has the following voting or equity  securities or
securities  convertible or exercisable into voting or equity securities,  issued
and outstanding:

Common shares issued & outstanding: 39,382,549
Series 1 preferred shares issued and outstanding: 494,550
Options: 3,465,000 outstanding options to purchase 3,465,000 common shares
Warrants: 6,069,166 outstanding to purchase 6,069,166 common shares
Debentures: 1,519,290 convertible into 3,301,600 common shares


                                      -48-
<PAGE>

Item 3. Controls and Procedures.

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


                                      -49-
<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)   On April 16, 2007,  the Company  issued 68,850 Common Shares equally
            to Flehr & Associates  Ltd. and Messrs F. Bryson Farrill and Kenneth
            Taylor in consideration  for Board of Director  services provided to
            the Company.  The  aforesaid  Common Shares were offered and sold in
            reliance on the exemption from registration afforded by Section 4(2)
            of the Securities Act.

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

      (b)   Not Applicable.

      (c)   Not applicable.

      (d)   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.


                                      -50-
<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 5,
            2007. Under item 8.01 of that 8-K the Company  announced  extensions
            of the exercise dates associated with certain warrants issued by the
            Company.

            (ii) The Company filed a current  report on Form 8-K dated March 13,
            2007.  Under  item  8.01 of  that  8-K the  Company  announced  CHUM
            Television's commitment to fund new scripts for the second season of
            Devine's mystery series entitled "Across the River to Motor City".

            (iii) The Company filed a current  report on Form 8-K dated March 2,
            2007. Under item 4.01 of that 8-K the Company  announced a change in
            its Certifying Accounting firm.


                                      -51-
<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, 2007

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

Signature            Title                                           Date
--------------------------------------------------------------------------------
/s/ David Devine     Director, Chairman of the Board             May 14, 2007
                     President and Chief Executive Officer

/s/ Richard Mozer    Director, Vice-Chairman of the              May 14, 2007
                     Board, Chief Financial Officer,
                     Treasurer and Secretary


                                      -52-