**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        DC 20549**
  **FORM
        10-KSB**
 [X]
                  Annual
                      Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                      Act of
                      1934FOR
                      THE FISCAL YEAR ENDED**JUNE
                      30, 2005**OR[
                        ]
                  Transition
                      Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                      Act of
                      1934For
                      the transition period from
                      to
  **COMMISSION
        FILE NUMBER 000-33199**
  **MANARIS
        CORPORATION**
 (Exact
        name of registrant as specified in its charter)
  **NEVADA**
                **88-0467845**(State
                    of other jurisdiction of incorporation or organization)
                (IRS
                    Employer Identification
                    Number)
  **1155
        Rene-Levesque West**
 **Suite
        2720**
 **Montreal,
        Quebec**
 **Canada
        H3B 2K8**
 (Address
        of principal executive offices)
  **(514)
        337-2447**
 (Registrant's
        telephone number, including area code)
  Securities
        registered pursuant to Section 12(g) of the Act:
  **Common
        stock, par value $0.00001**
 **Title
        of each class**
  Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the Registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. Yes [X] No [   ]
  Indicate
        the number of shares outstanding of each of the issuer's classes of common
        stock, as of **JUNE
        30, 2005: 54,782,802**
  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. [X] Yes    
        [  
        ] No
  
  Check
        if
        there is no disclosure of delinquent filers in response to Item 405 of
        Regulation S-B contained in this form, and no disclosure will be contained,
        to
        the best of registrant's knowledge, in definitive proxy or information
        statements incorporated by reference in Part III of this Form 10-KSB or any
        amendment to this Form 10-KSB. [X]
  Indicate
        by check mark whether the registrant is a shell company (as defined in
        Rule 12b-2 of the Exchange Act). Yes o No ý
  Issuer's
        revenues for the year ended June 30, 2005 were $7,021,228. Aggregate market
        value of voting stock held by non-affiliates of 54,782,802 shares outstanding
        at
        June 30, 2005 was approximately $24,928,914.05. Amount was computed using
        the
        average bid and ask price as of June 30, 2005, which was $0.45505. As of
        June
        30, 2005, a total of 54,782,802 shares of common stock were
        outstanding.
  Documents
        incorporated by reference. None.
   2
  TABLE
          OF
          CONTENTS
  PART
                    I
                
                4ITEM
                    1.
                DESCRIPTION
                    OF BUSINESS
                4ITEM
                    2.
                DESCRIPTION
                    OF PROPERTIES
                21ITEM
                    3.
                LEGAL
                    PROCEEDINGS
                23ITEM
                    4.
                SUBMISSION
                    OF MATTERS TO A VOTE OF SECURITY HOLDERS
                23PART
                    II
                
                24ITEM
                    5.
                MARKET
                    FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
                24ITEM
                    6.
                MANAGEMENT'S
                    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                    OPERATIONS
                27ITEM
                    7.
                FINANCIAL
                    STATEMENTS AND SUPPLEMENTAL DATA
                39ITEM
                    8.
                CHANGES
                    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                    DISCLOSURE
                39ITEM
                    8A.
                CONTROLS
                    AND PROCEDURES
                39ITEM
                    8B.
                OTHER
                    INFORMATION.
                40PART
                    III
                
                40ITEM
                    9.
                DIRECTORS,
                    OFFICERS, PROMOTERS AND CONTROL PERSONS COMPLIANCE WITH SECTION
                    16(a) OF
                    THE EXCHANGE ACT
                40ITEM
                    10.
                EXECUTIVE
                    COMPENSATION
                44ITEM
                    11.
                SECURITY
                    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                47ITEM
                    12.
                CERTAIN
                    RELATIONSHIPS AND RELATED TRANSACTIONS
                48ITEM
                    13.
                EXHIBITS
                48ITEM
                    14.
                PRINCIPAL
                    ACCOUNTING FEES AND SERVICES
                50
  3
  **PART
        I**
  We
        make
        forward-looking statements in this document. Our forward-looking statements
        are
        subject to risks and uncertainties. You should note that many factors, some
        of
        which are described in this Part I or discussed elsewhere in this document,
        could affect our company in the future and could cause our results to differ
        materially from those expressed in our forward-looking statements, including
        those matters discussed under the heading “Risk Factors” below. Forward-looking
        statements include those regarding our goals, beliefs, plans or current
        expectations and other statements regarding matters that are not historical
        facts. For example, we use the words “believe,”“expect,”“anticipate” or similar
        expressions to make forward-looking statements. We are not required to publicly
        release the results of any revisions to these forward-looking statements
        we make
        to reflect future events or circumstances
  **ITEM
        1.**  **DESCRIPTION
        OF BUSINESS**
  **Overview** ****
  Manaris
        Corporation’s primary business is risk mitigation. Manaris offers corporations
        and institutions security management solutions and services enabling them
        to
        acquire market intelligence, lower business risks and improve customer service.
        The Company’s security solutions and services are geared towards increasing
        customer revenues and profits.
  Manaris
        operates the following wholly-owned subsidiaries:
  ·
              Avensys
                  Inc, which provides risk management monitoring solutions
 ·
              Chartrand
                  Laframboise Investigation, which provides investigative services
 ·
              C-Chip
                  Technologies Corporation (North America), which specializes in
                  high-tech
                  security
  **Corporate
        History**
  Manaris
        Corporation (sometimes referred to as “we,”  “our,”  “us,” or the
“company”), was incorporated in the State of Nevada on June 26, 2000 as Keystone
        Mines Limited and maintains its principal executive offices at 1155 Boulevard
        Rene-Levesque, Suite 2720, Montreal, Quebec, Canada.
  In
        June
        2000, the Company purchased four mineral claims, situated in the Greenwood
        Mining Division in the Province of British Columbia, Canada. At that time,
        our
        principal business plan was to acquire, explore and develop mineral properties
        and to ultimately seek earnings by exploiting the mineral claims. In December
        2002, we were advised that the mineral properties held were not economically
        viable. Our board of directors approved the termination of our exploration
        activity.
  4
  In
        March
        2003, we changed our company name to **C-Chip
        Technologies Corporation** in order
        to better reflect our new business activities, and began trading on the OTC
        Bulletin Board (OTC-BB) under the symbol "CCHI."
  In
        July
        2005, Shareholders approved a name change for the Company **to
        Manaris Corporation** to
        reflect C-Chip Technologies expanded scope of business. As a result, the
        new
        trading symbol on the OTC Bulletin Board (OTC-BB) became "MANS."
  **Recent
        Developments**
  *Resignation
        of Our Chief Executive Officer*
  On
        September 16, 2005, following the resignation of Stephane Solis, John G.
        Fraser,
        the Company’s Secretary/Treasurer, was appointed as Chief Executive Officer.
        According to the terms of Mr. Solis’s agreement, he will receive 600,000 options
        exercisable at $0.00001 and $30,000 CDN upon execution of the Agreement.
        John G.
        Fraser will receive a compensation of $18,000CDN per month and 500,000 options
        exercisable at market prices.
  *Closure
        of CSA subsidiary*
  On
        September 22, 2005, the
        Company decided to cease operations of our **Canadian
        Security Agency (2004) Inc.** ("CSA") subsidiary,
        which provides
        security services to large corporate accounts, including courier and trucking
        companies . As
        a result, C SA  has
        entered into an agreement with Securité
        Kolossal Inc. pursuant to which CSA will sell its customer list to
        Securité
        Kolossal for $100,000 CDN. The Company has owned CSA since February
        2004.
  *July
        2005 Warrant Offer*
  In
        July
        2005, the Company concluded a Special Warrant Offering which raised gross
        proceeds of $2,576,117. In connection with the Special Warrant Offer, our
        Company issued 7,360,336 common shares to Warrant Holders as well as new
        warrants which were issued in the following amounts: (i) 3,797,976 Series
        G
        Warrants, (ii) 3,797,976 Series I Warrants, (iii) 890,593 Series H Warrants
        and
        (iv)1,781,184 Series J Warrants.
  *Avensys
        Acquisition*
  In
        March
        2005, Manaris acquired all of the issued and outstanding common stock of **Avensys
        Inc. ("Avensys"),** a leader
        in risk management monitoring solutions for commercial and industrial buildings,
        infrastructures and various environments. The Company issued 10,400,002
        restricted shares of common stock in exchange for 15,746,369 shares of Avensys
        Inc. which constituted all of the issued and outstanding common stock of
        Avensys. Further, Manaris agreed to pay $312,625 (CDN$385,000) to holders
        of
        options of Avensys and then cancelled the options. The beneficiaries of the
        options have received $187,592 (CDN$231,000) as of the date hereof and will
        receive $124,970 (CDN$154,000) on or before December 31, 2005. The balance
        of
        the purchase price due not later than December 31, 2005 will accrue interest
        from the date of closing at a rate of twelve percent (12%) per year calculated
        daily and payable monthly and any unpaid interest will carry interest at
        the
        same rate.
  5
  *February
        2005 Financing*
  In
        February 2005, we closed a private placement with eighteen institutional
        investors. The Company issued Senior Secured Convertible Notes Series A
        (“Notes”) and Series E and F Warrants for an aggregate principal amount of
        $4,675,000. the Company allocated $1,863,870 to the Warrants Series E, $339,456
        to the Warrants Series F and recognized an embedded beneficial conversion
        feature of $2,470,674 accounted for as additional paid in capital and an
        equivalent discount against the Notes.
  *Chartrand
        Laframboise Acquisition*
  In
        February 2005, we entered into agreements to acquire one hundred percent
        (100%)
        of the outstanding shares of 9151-3929 QUEBEC INC., ("QUEBEC") and 3826961
        CANADA INC. ("CANADA") through our wholly owned subsidiary, 6327915 CANADA,
        INC.
        QUEBEC and CANADA collectively owned 100% of 3428249 CANADA INC which owned
        100%
        of **CHARTRAND
        LAFRAMBOISE INC** .,
        a
        company specializing in the security field and 100% of 9126-7641 QUEBEC INC.,
        a
        corporation specializing in credit management and verification. On June 30,
        2005, 3428249 Canada Inc. and 6327915 Canada Inc. completed a merger
        transaction. The merged company continues to be 6327915 Canada Inc. Following
        the merger 3826961 Canada Inc. and 9151-3929 Quebec Inc. were each dissolved
        on
        June 9, 2005 and September 26, 2005, respectively. QUEBEC, CANADA, 3428249
        CANADA INC., CHARTRAND LAFRAMBOISE INC **.,** and
        9126-7641 QUEBEC INC. are hereinafter collectively referred to as "CLI."
        In
        consideration for the acquisition of CLI, Manaris paid $2,436,251
        (CDN$3,000,000.00) in cash and issued a debenture, convertible into 1,700,000
        restricted shares of its common stock at a price of $0.82 per share on behalf
        of
        its wholly own subsidiary, 6327915 CANADA, INC.
  Founded
        in 1986, CLI has become a leader in the field of investigative services in
        Canada. CLI's core services include investigation, surveillance, background
        verification, business intelligence, security consulting and labor management
        conflict and engages undercover agents for many of its services. CLI is one
        of
        Investigations Canada’s major partners. Investigations Canada, a company
        offering expertise throughout Canada, is comprised of nine partners, 25
        locations and over 200 private investigation and security professionals.
        CLI is
        located in Laval, Quebec.
  **Services
        and Technologies**
  We
        offer
        the following services and technologies: Risk Management Solutions; Security
        Services; Environmental Monitoring; Web-Based Security Solutions.
  6
  **Risk
          Management Solutions** ****
  Our
        risk
        management solutions are provided by our C-Chip Technologies Corporation
        (North
        America) subsidiary (“C-Chip”). To allow increased security and to control the
        usage of remote equipment, **C-Chip** initially
        focused on the development and marketing of risk management solutions using
        integrated wireless communications, RFID technology, transaction processing,
        software applications and the Internet, and when location is required, Global
        Positioning System (GPS) technology to enable users to efficiently access,
        control, manage and monitor remote assets. Customers have access to a corporate
        website in order to remotely access, control, locate and monitor different
        types
        of equipment or services anywhere throughout North America for increased
        security. These security solutions provide significant value to business
        users
        by lowering their risks and associated costs as well as increasing efficiency
        of
        their operations.
  Because
        there is a large, readily available market for telematics applications for
        automotive products, management has focused initial product development effort
        in this industry. C-Chip is now starting to market an offering targeting
        the
        automotive sector with solutions encompassing the credit, asset and security
        management industry. Its current technology is based on a platform that can
        be
        adapted to a wide number of products, including office equipment, industrial
        machinery and consumer electronics products.
  Our
        competitors in credit management solutions for the automotive sector include
        OnTime, PassTime, and PayTeck. These competitors offer different versions
        of an
        "egg timer" whereby a code must be manually entered using a keypad to enable
        a
        physical device connected to the vehicle's starter. The process enables the
        use
        of the vehicle for a certain period of time. Although the device does not
        rely
        on wireless network coverage to function, a code must be given and manually
        entered after each payment has been made. These devices work well but involve
        significant management time and expense. Our basic product offers a significant
        price advantage over these manual devices and, in management's opinion, is
        a
        much more sophisticated solution as it is totally transparent to users.
  **Security
        Services**
  Since
        9/11, ensuing world events have further supported our position that the security
        industry offers significant opportunity for growth. Our goal is to attain
        a
        leading position within this industry through our subsidiary **CLI** .
  CLI’s
        services include the following:
  ***Security
        Officers***
  Security
        officers provide services primarily to commercial and industrial centers
        and
        office buildings. Their mission consists of delivering quality protection
        services combined with courteous customer service. These security officers
        all
        possess the necessary qualifications to work with complex and multi-purpose
        high-tech security systems.
  7
  ***Investigation***
  CLI’s
        investigation team is made up of highly specialized experts with long-standing
        experience in investigation and research. They provide external and internal
        investigation services as well as other related services. External
        investigations include fraud, insurance, workers' compensation, in-house
        theft,
        productivity problems, inventory protection, and drug trafficking. Internal
        investigations are mainly focused on research, pre-employment checks, criminal
        files, and due diligences. Other related services include VIP personal
        protection services as well as labor conflict management.
  The
        market for our security services is subject to intense competition. Although
        a
        large part of the market is provided by important multinationals, the vast
        majority of security- related services are provided by thousands of small
        entities, all offering a range of limited services. Our security services
        are
        primarily offered in the province of Quebec in Canada. Our competitors are
        mainly with Canadian firms such as Garda World, Kolossal, Sec-Pro and many
        other
        smaller entities and less with larger multinationals.
  Competition
        is based on reputation, relationship with customers, quality of services
        and, to
        some extent, price.
  **Environmental
        Monitoring**
  Our
        environmental monitoring services are provided by our Avensys subsidiary.
        In
        order to developing monitoring solutions to different environments as well
        as
        buildings and infrastructure, we acquired **Avensys
        Inc.** Avensys
        has developed a distinctive expertise in Fiber Bragg Grating (FBG) offering
        unique advantages for distributing sensing applications, namely for variables
        such as temperature, humidity, pressure, strain, etc. To further broaden
        its
        sensing expertise, Avensys has implemented a research & development program
        intended to extend its expertise to organic and chemical compounds. In addition,
        Avensys is developing complementary technologies such as innovative
        optoelectronic interrogation units to collect data from thousands of fiber
        sensors in a cost effective manner.
  Avensys'
        fiber-based sensing technology offers multiple variable sensors all of which
        are
        installed on a single fiber strand. Sensors can be interrogated remotely
        from
        different means of communications; are not sensitive to EMI/RFI and lightning;
        do not require electricity; can sustain very high temperatures; and are ideal
        for hostile or corrosive environments. Furthermore, all of Avensys' FBG-based
        sensors are designed for a minimum 25-year lifecycle with little or no
        maintenance, considerably reducing the cost of ownership. Avensys' fiber-based
        sensing technology is particularly applicable to the environmental,
        geotechnical, industrial, aerospace, nuclear and semiconductor vertical markets.
  8
  Avensys
        is considered a key player in the environment monitoring market with a
        significant foothold in the structure & geotechnical market segments. It is
        one of a few world players in the market for Fiber Bragg Grating (FBG)
        technology and believes that its cost structure is one of the lowest in the
        industry. In fact, some of Avensys’ competitors in distributed fiber based
        sensing technology purchase optical components from it. In order to offer
        complete end to end security monitoring solutions, Avensys intends to leverage
        its existing customer base which includes over 1,000 established accounts.
        A
        sample of the customer base follows:
  Components
        and Sensors
 3m
                    Canada
                City
                    of Toronto
                IGA
                    SupermarketsAbitibi-Consolidated
                Daishowa
                    Marabeni Inc.
                Irving
                    OilAgri-Food
                    Canada
                Department
                    of Agriculture
                INRS-Institut
                    Armand-FrappierAgropur
                Department
                    of Fisheries And Oceans
                Labatt
                    Breweries of CanadaAlcan
                    Aluminum Ltd.
                Department
                    of National Defense
                Merck
                    Frost CanadaB.C.
                    Environmental
                Department
                    of The Environment
                Metro
                    and RichelieuBasf
                    Canada
                Dofasco
                    Inc.
                Ontario's
                    Ministry of Environment & EnergyBombardier
                    Inc.
                GE
                    Canada Inc.
                NestleBowater
                    Pulp And Paper
                Gouvernment
                    Du Quebec
                Nova
                    Scotia PowerBristol-Myers
                    Squibb
                Health
                    Canada
                DomtarCascades
                    Carton Plat
                Hydro
                    Quebec
                Federal
                    Public Works & Government ServicesBookham
 
 Integrated
                    Monitoring Solutions
                Optical
                    network (US National
                    Defense)National
                    water level management (Poland)
                Refrigeration
                    controls (IGA)Flood
                    prevention (China)
                Ammonia
                    levels monitoring (Versacold)Flood
                    prevention (Guyanna)
                Water
                    level measurements (Hydro Quebec)Landslide
                    prevention (Hong Kong)
                Air
                    quality surveillance (Environnent
                    Quebec)
  The
        reputation of Avensys has been built on years of experience in solving
        environmental monitoring problems, from micro scale in-building sensing systems
        to the real-time monitoring of temperature, humidity, pressure or chemical
        levels and macro-scale wireless landslide and flood warning systems in different
        countries. Through integrated solutions and services branded under the name
        SenseYourWorld TM ,
        Avensys
        combines skills, staff and the knowledge to integrate multiple monitoring
        technologies to deliver real-time, automated, cost-efficient data to business
        users requesting increased market intelligence.
  The
        Company intends to design and market monitoring devices & instrumentations
        and to offer complete, turnkey integrated monitoring solutions branded under
        the
        brand name "SenseYourWorld TM ".
        To
        provide end to end monitoring solutions to its customers, Avensys intends
        to
        have a foothold and be involved in all realms of turnkey monitoring solutions,
        including:
  1)
              Monitoring
                  Technologies. The provisioning of physical devices to measure desired
                  conditions;
  9
 
 2)
              Data
                  Acquisition Process. An overall physical architecture to bring
                  data to a
                  central point;3)
              Data
                  Applications. A software layer to analyze and process information;
                  and,4)
              Data
                  Access & Reporting Process. An access to software tools and reports
                  needed for a specific application
  To
        enable
        Avensys to offer end to end monitoring solutions to its customers, proprietary
        technologies were designed to work with technologies from other companies,
        including partners, competitors, and other third parties. Similarly, Avensys’
        services were designed to operate with a variety of communications protocols.
        It
        intends to continue to develop additional proprietary technology where feasible
        and to purchase or license technology where cost-effective.
  **Web-Based
        Security Solutions** ****
  Our
        Web-Based Security Solutions are provided by our C-Chip subsidiary. On January
        7, 2003, we acquired all assets and intellectual property related to a new
        wireless, web-based set of communication tools offering users complete access,
        remote control, and monitoring of a variety of equipment from Capex Investments
        Limited ("Capex"). The technology we acquired allows selective enabling,
        disabling (on/off) of targeted equipment, and other commands at will, from
        anywhere to almost anywhere in North America. Essentially, the products and
        solutions derived from this technology are targeted to financial institutions
        and leasing companies to mitigate risks and enforce schedule of payment of
        borrowers and lessees of certain equipment. This technology is herein referred
        as the C-Chip technology.
  The
        basic
        system component of **C-Chip’s** technology entails a chipset embedded in target devices. This includes a
        radio
        frequency receiver and microprocessor, web-based applications and database
        management. Other required components include access to wireless networks
        and
        Internet access. The processor is addressable through a unique electronic
        serial
        number that corresponds to the individual device. The processor accepts an
        input
        signal and compares the signal to a number of criteria to determine if the
        current operating condition should be maintained or modified. Additional
        components to the basic unit include GPS technology for location/tracking
        and a
        host of additional monitoring features.
  To
        process the commands of authorized users and to enable users to manage their
        own
        database of embedded devices from a central point using the Web, C-Chip has
        built a proprietary Secure Data Management Center. This eliminates the need
        for
        users to make a substantial investment in acquiring and supporting capital
        equipment, such as hardware, software and data networking equipment, in order
        to
        use the Company’s services.
  C-Chip
        utilizes proven and effective wireless communications technologies including
        one-way messaging services, two-way messaging services and cellular
        services.
  C-Chip’s
        proprietary technologies are designed to work with those from other companies,
        including corporate partners, competitors, and other third parties. Similarly,
        C-Chip’s services are designed to operate with a variety of wireless
        communications protocols. The Company expects to continue development of
        additional proprietary technology, and, where cost-effective, purchase or
        license technology.
  10
  With
        approximately 4,000 units now in the field which were delivered based on
        minimal
        production volume, and market reception to its offering, C-Chip chose to
        reengineer its product for mass production in the first quarter of calendar
        2005
        to achieve increased efficiencies and to streamline processes. In order to
        achieve this as promptly as possible, C-Chip concluded an agreement in April
        2005 with iMetrik Inc, a company specializing in the development and marketing
        of wireless solutions to improve management of mobile and remote assets.
        The
        process is now essentially completed and the Company expects to begin delivery
        of its new units in sizeable quantities, starting October 2005 to provide
        three
        core solutions:
  **1.
        Credit Chip II** is a
        small two-way communications device installed in a rented, leased or financed
        vehicle's starter and ignition circuitry, or fuel pump. It allows the credit
        grantor to disable starting the vehicle in the event that a customer's account
        is in default. Addressing and disabling a vehicle is as simple as logging
        onto
        the Company’s secure website, entering a username and password, selecting the
        customer account, and then clicking on "Disable." In respect of "Right to
        cure"
        laws, an audible warning may also be enabled to advise the customer of the
        impending shut-down, giving them a 1, 2 or 3-day grace period.
  **2.
        Credit Chip 100** provides
        two-way wireless communications allowing remote visibility of vehicles at
        all
        times. It is one of the most cost-effective vehicle tracking devices on the
        market today. It provides the user with a location map, in real-time via
        the
        Internet right on their computer screen. Users can locate a targeted vehicle
        at
        any time and each location is stamped with a time and date.
  **3.
        Credit Chip 100 C** is
        C-Chip’s most advanced credit management solution. **** It
        combines remote visibility of vehicles and immobilization capabilities. Using
        two-way wireless communications and our Internet Web Applications, credit
        grantors have the ability to go online, sound a pre-warning, and then disable
        a
        vehicle. If suitable payment arrangement is not made, the vehicle can be
        located
        on a map in real-time, via the Internet right on any computer screen.
  In
        each
        of market segments where we intend to position our web-based products, we
        compete primarily on the basis of functionality, ease of use, quality, price,
        service availability, effectiveness and financial strength. All our target
        markets for all market segments are highly competitive. As market demand
        for
        wireless communications tools enabling management of remote assets increases,
        the quality, functionality and availability of competitors' products and
        services is expected to progress. And with new competitors flooding our market,
        further price reduction of products and services is expected. In addition,
        we
        expect that the widespread adoption of industry standards may make it easier
        for
        new market entrants or existing competitors to improve their products and
        services or offer some or all of the products and services we offer or may
        offer
        in the future, possibly at lower prices than ours. This would harm the
        competitive advantages that our products and services currently
        enjoy.
  11
  **Warranties**
  All
        of
        the Company’s web-based products are offered with a warranty. The Company’s
        current policy is to offer a warranty a one year warranty on all of its
        web-based products. Avensys’ warranty policy for manufactured products varies
        between 3 months and one year, depending on the product.
  **Insurance**
  Manaris
        currently has $1,000,000 of insurance coverage for its web-based security
        products and $1,000,000 for general liability and coverage for our fixed
        assets.
        CLI has insurance coverage of $3,000,000 for services and $1,000,000 for
        general
        liability and coverage of its fixed assets. Avensys has insurance coverage
        of
        $3,000,000 for its fiber based products and $1,000,000 for general liability
        and
        coverage of its fixed assets.
  **Government
        Regulation**
  Manaris’s
        businesses in the security service industry are subject to various federal,
        state, local and foreign laws and regulations. CLI and CSA hold security
        licenses from, and their security services are regulated by a local government
        agency. Both are in good standing. The Company also uses some data from outside
        sources, including data from third party vendors and various government and
        public records services, in performing its security services. The use of
        this
        data is regulated by certain laws and regulations. To date, applicable laws
        and
        regulations have not interfered materially with the manner in which the Company
        obtains information and conducts its operations, including its access to
        data
        used in its business. However, changes in these laws and regulations or the
        adoption of new laws or regulations, particularly those relating to privacy,
        could interfere with the Company’s method of operations and access to data and,
        as a result, could materially adversely affect Manaris’s business.
  In
        addition to regulations applicable to businesses in general, the Company’s
        web-based products are subject to certification by the Federal Communications
        Commission in the US and by the Department of Communications in Canada. C-Chip’s
        first generation of web-based products are all in the process of obtaining
        such
        certification for the US and Canadian markets. Other web-based products are
        expected to undergo the certification process once all pre-commercialization
        tests are completed. Furthermore, wireless carriers who supply the Company
        with
        airtime enabling our services are also subject to regulation by the Federal
        Communications Commission in the US and the Canadian Radio-Television and
        Telecommunications Commission in Canada.
  Manufactured
        products are subject to various industry and government certifications, all
        of
        which need to be obtained before commercial launch.
  12
  Employees
  As
        of
        June 30, 2005, we had a total of two hundred ninety-five (295) comprised
        of; 85
        (CLI), 75 (Avensys), 5 (CCTNA), 7 (Manaris), 123 (CSA) employees on the payrolls
        of C-Chip, CSA, CLI and Avensys and we retained several full-time and part-time
        consultants. Our employees are not unionized. We believe relationships with
        our
        employees and consultants are good **.**
  **Risk
        Factors**
  The
        risks
        and uncertainties described below are not the only ones facing our Company.
        Additional risks not presently known or that we currently consider insignificant
        may also impair our business operations in the future. Our business, financial
        condition and plan of operations could be materially adversely affected by
        any
        of the following risks. The trading price of our common shares could decline
        due
        to any of these risks.
  ***1.
        Our auditors have issued a going concern opinion. This means we may not be
        able
        to achieve our objectives and may have to suspend or cease operations.*** Our
        auditors have issued a going concern opinion as at June 30, 2005. This means
        that there is substantial doubt that we can continue as an ongoing business
        without additional financing and/or generating profits from our operations.
        Further, the going concern opinion could make it more difficult for us to
        secure
        additional financing on terms acceptable to us, if at all, and may materially
        and adversely affect the terms of any financing that we may obtain.
  ***2.
        Because we have historically incurred losses and these losses may increase
        in
        the future, we must begin generating a profit from our operations. If we
        do not
        begin generating a profit we may have to suspend or cease
        operations.*** As a
        result, you may lose your investment. We have never been profitable. At June
        30,
        2005 we had negative working capital of $1,329,550. Included in current
        liabilities are amounts due to related parties of $476,646 that carry no
        interest or fixed terms of repayment. Funds on hand together with relatively
        low
        revenues will not sustain operations for the next year. We will need to raise
        additional capital to sustain our operations. In order to become profitable,
        we
        will need to generate significant revenues to offset our cost of revenues,
        sales
        and marketing, research and development and general and administrative expenses.
        We may not achieve or sustain our revenue or profit objectives and our losses
        may continue or increase in the future in which case you might lose your
        investment.
  **3** ***.
        We have experienced a history of losses and expect to incur future losses
        albeit
        at a reduced level. Therefore, we must continue to raise money from investors
        to
        fund our operations. If we are unable to fund our operations, we will cease
        doing business.*** We have
        an accumulated deficit of $12,548,352 as of June 30, 2005. Our losses have
        resulted principally from costs incurred in research and development activities
        related to our efforts to develop our technologies and from the associated
        marketing and administrative costs and stock based compensation. We will
        need to
        generate significant revenues in order to achieve and maintain profitability.
        We
        may not be able to generate these revenues or achieve profitability in the
        future. Even if we do achieve profitability, we may not be able to sustain
        or
        increase profitability. Product revenue totaled $3,580,619 and service revenue
        totaled $3,440,609 for the twelve month period ended June 30, 2005.
        Consequently, we have raised money from investors to fund our operations.
        If we
        can't fund our operations through product sales and investments by third
        parties, we will have to cease operations.
  13
  **4.** ***We may not be able to obtain additional financing when needed or on acceptable
        terms.*** We
        have never been profitable and we do not expect that funds on hand together
        with
        relatively low revenues will sustain our operations for the next year. We
        will
        need to raise additional capital to sustain our operations or to pursue our
        acquisition strategy.  We cannot assure you that any required
        additional financing will be available or, if it is, whether it will be on
        acceptable terms. Our inability to obtain any needed financing, or the terms
        on
        which it may be available, could have a material adverse effect on our business.
        As a result, we could have to suspend or cease our operations and you could
        loose your entire investment.
  **5.** ***We have incurred substantial debt which could affect our ability to obtain
        additional funds and may increase our vulnerability to economic or business
        downturns.*** On
        February 23, 2005, we entered into a Purchase Agreement with eighteen
        institutional and accredited investors under the terms of which we agreed
        to
        issue Units consisting of (i) an aggregate of $4,675,000 of our Company's
        9.0%
        Senior Secured Convertible Notes, Series A, which are convertible into shares
        of
        our common stock at a conversion price of $0.65 per share,. Under the terms
        of
        the 9.0% Senior Secured Convertible Note, Series A, the Principal on the
        Note
        shall be paid in 20 equal monthly installments, with each payment equal to
        5% of
        the principal amount, commencing on June 23, 2005 and continuing on the same
        day
        of each month thereafter to the Holder on the tenth date immediately preceding
        the Principal Payment Date. All payments of principal shall be made at our
        option in cash or, with 10 business day prior notice, in our common stock
        valued
        at 85% of the average closing bid price of our stock in the most recent five
        Trading Days prior to a Valuation Date. As a result, we are subject to the
        risks
        associated with substantial indebtedness, including:
  -
                we
                    are required to dedicate a portion of our cash flows from operations
                    to
                    pay debt service costs;-
                it
                    may be more difficult and expensive to obtain additional funds
                    through
                    financings, if available at all;-
                we
                    are more vulnerable to economic downturns and fluctuations in
                    interest
                    rates, less able to withstand competitive pressures and less
                    flexible in
                    reacting to changes in our industry and general economic conditions;
                    and-
                if
                    we defaulted under any of our existing indebtedness or if our
                    creditors
                    demanded payment of a portion or all of our indebtedness, we
                    may not have
                    sufficient funds to make such
                    payments.
  **6.** ***If we default under our financing agreement, we could have to forfeit our
        rights
        to our assets.*** We
        have
        pledged substantially all of our assets, including the assets of our
        subsidiaries, as security to holders of our convertible debentures. A default
        under the financing agreement concluded with holders of our convertible
        debentures, if not waived or cured, would permit the holders of the convertible
        debentures to foreclose on the collateral and we could lose all our rights
        in
        the collateral, which would have a materially adverse effect on our business.
        As
        a result, we could have to suspend or cease our operations and you could
        loose
        your entire investment.
  14
  **7** ***.
        We may not be able to implement our acquisition
        strategy*** .
        While
        our management has some experience in identifying and integrating acquisitions,
        we may not be able to identify suitable acquisition candidates, obtain the
        capital necessary to pursue our acquisition strategy or complete acquisitions
        on
        satisfactory terms or at all. When companies are acquired, we may not be
        able to
        integrate or manage these businesses to produce returns that justify our
        investment. A number of our competitors have also adopted the strategy of
        expanding and diversifying through acquisitions. We experience competition
        in
        our effort to execute our acquisition strategy and expect the level of
        competition to increase. As a result, we may be unable to continue to make
        acquisitions or may be forced to pay more for the companies we are able to
        acquire.
  **8** ***.
        We may seek to make acquisitions that prove unsuccessful or strain or divert
        our
        resources.*** We
        may
        seek to grow our business through acquisitions of related businesses. Such
        acquisitions present risks that could materially adversely affect our business
        and financial performance, including:
 -
                the
                    diversion of our management's attention from our everyday business
                    activities;-
                the
                    assimilation of the operations and personnel of the acquired
                    business;-
                the
                    contingent and latent risks associated with the past operations
                    of, and
                    other unanticipated problems arising in, the acquired business;
                    and-
                the
                    need to expand management, administration, and operational
                    systems.
  If
          we
          make such acquisitions we cannot predict whether:
  -
                we
                    will be able to successfully integrate the operations of any
                    new
                    businesses into our business;-
                we
                    will realize any anticipated benefits of completed acquisitions;
                    or-
                there
                    will be substantial unanticipated costs associated with
                    acquisitions.
  In
          addition, future acquisitions by us may result in:
  -
                potentially
                    dilutive issuances of our equity securities;-
                the
                    incurrence of additional debt; and-
                the
                    recognition of significant charges for depreciation and amortization
                    related to goodwill and other intangible
                    assets.
  Although
        we have no present plans or intentions, we continuously evaluate potential
        acquisitions of related businesses. However, we have not reached any agreement
        or arrangement with respect to any particular acquisition and we may not
        be able
        to complete any acquisitions on favorable terms or at all.
  15
  **9.**  ***We
        may*** ** ***not
        be able to develop or manage our internal growth.*** Our
        growing existing businesses may strain our management, human resources and
        information systems. To manage our growth successfully, we will have to add
        managers and employees and update our operating, financial and other systems,
        procedures and controls. In addition, issues relating to new acquisitions
        may
        divert current management's attention from existing operations.
  **10.**  ***We
        are highly dependent on our executive management and other key employees.*** We
        rely
        heavily on our executive management and key employees to provide services
        and
        for continued business development. We have employment agreements which contain
        non-competition and non-solicitation provisions with most of our executive
        managers and other key employees. Our business could be materially adversely
        affected if a number of our executive managers and other key employees were
        to
        leave us and if we were unable to enforce the non-competition and
        non-solicitation agreements or to attract and retain qualified replacements.
  On
        September 16, 2005, the Chief Executive Officer, Stephane Solis, resigned.
        John
        G. Fraser, the Company’s Secretary/Treasurer, was appointed as Chief Executive
        Officer. We do not expect the resignation to materially adversely affect
        the
        services and business development.
  **11.** ***Some
        of our*** **** ***products
        and services are in the development stage, and may not be effective at a
        level
        sufficient to support a profitable business venture*** **.** If
        our
        products or services are not effective at a level sufficient to support a
        profitable venture, we will be unable to create marketable products and
        services, and we will have to cease some of our operations. Most of our products
        and services are in the development state. Although we have begun to sell
        some
        of our products and services and have current data which indicates the promise
        of the concept and market demand, we can offer you no assurance that all
        of our
        products and services will be effective at a level sufficient to support
        a
        profitable business venture. If they are not, we will be unable to create
        marketable products, we will not generate sufficient revenues from our key
        operations, and we will have to reduce, suspend or cease key operations and
        you
        could lose your entire investment.
  **12.** ***If we cannot deliver the features and functionality our customers demand,
        we
        will be unable to attract customers that will result in a loss of income
        and
        eventually a termination of our operations. As a result you could lose your
        investment*** *.* As a
        security solutions provider, our future success depends largely upon our
        ability
        to determine the features, functionality and services our customers demand
        and
        to design and implement products and services that meet their needs in a
        cost
        efficient manner. We cannot assure that we will be able to successfully
        determine customer requirements or that our current or future products and
        services will adequately satisfy customer demands. If we cannot meet our
        customers' demands, we will not generate revenues from this business segment
        and
        may have to cease or suspend key operations. As a result, you could lose
        your
        investment.
  16
  **13.** ***Because
        some of our security solutions depend on a limited number of third parties
        to
        manufacture and supply critical components for our products and services,
        if the
        third party manufacturer should cease operations or refuse to sell components
        to
        us, we may have to suspend or cease these operations. As a result, you may
        lose
        your investment*** **.** If our
        suppliers do not execute their obligations, or if they stop manufacturing
        and
        supplying components critical for our products and services, we may be not
        be
        capable of finding other suppliers or operating our business. We rely on
        limited
        suppliers for a number of key components and do not have long-term agreements
        with any of our suppliers. If our agreements with these suppliers were
        terminated or expired, if we were unable to obtain adequate quantities of
        components critical for our products and services, if the quality of these
        components was inadequate, or if the terms for supply of these components
        became
        commercially unreasonable, our search for additional or alternate suppliers
        could result in significant delays, added expense and our inability to maintain
        or expand key components of our business. Any of these events could require
        us
        to take unforeseen actions or devote additional resources to provide our
        products and services and could harm our ability to compete effectively.
        As a
        result, you could lose your investment.
  **14.** ***Some
        of our products and services depend on GPS technology owned and controlled
        by
        others, if access to the technology is terminated or withheld from us, we
        may
        have to suspend or cease operations.*** **** Our
        services rely on signals from GPS satellites built and maintained by the
        U.S.
        Department of Defense. GPS satellites and their ground support systems are
        subject to electronic and mechanical failures and sabotage. If one or more
        satellites malfunction, there could be a substantial delay before they are
        repaired or replaced, if at all, and our services may cease and customer
        satisfaction would suffer. In addition, the U.S. government could decide
        not to
        continue to operate and maintain GPS satellites over a long period of time
        or to
        charge for the use of satellites. If the foregoing events occur, we may have
        to
        suspend or cease operations.
  **15.** ***Some
        of our products and services depend on communication networks owned and
        controlled by others, and if access to the technology is terminated or withheld
        from us, we may have to suspend or cease operations.*** **** As
        a
        security solutions provider, our ability to grow and achieve profitability
        depends on the ability of communications carriers to provide sufficient network
        capacity, reliability and security to our customers. When we use wireless
        communications, even where wireless carriers provide coverage to entire
        metropolitan areas, there are occasional lapses in coverage. These effects
        could
        make our services less reliable and less useful, and customer satisfaction
        could
        suffer. Our financial condition could be seriously harmed if our wireless
        and
        land-based carriers were to increase the prices of their services, or to
        suffer
        operational or technical failures.
  **16.** ***Our business is subject to rapid technological change.*** Two of our business units develop security solutions for clients. C-Chip
        itself
        integrates wireless communications, online transactions, software applications,
        RFID technology, the Internet and, when location is required, GPS technology,
        to
        enable business users to efficiently access, control, manage and monitor
        remote
        assets at low costs. Our wholly-owned subsidiary, Avensys, uses leading edge
        fiber optics sensor technology to offer business and corporations different
        monitoring solutions related to the environment, including buildings and
        infrastructure. Many of the technologies that we currently use have only
        recently emerged and our future success will depend upon the ability of our
        product development team to remain current with the rapid changes in the
        technologies. If we fail to do this, we could be at a competitive disadvantage.
        If we cannot foresee and adapt to technological changes, our business will
        be
        materially adversely affected.
  17
  **17.** ***Our
        business*** **** ***depends
        on the protection of its intellectual property and proprietary
        information.*** We
        rely on a combination of trade secret and trademark laws, confidentiality
        procedures, contractual provisions and patent and copyright laws to protect
        our
        proprietary rights in our products and technology. These measures may not
        be
        adequate to protect our trade secrets and proprietary technology. As a result,
        unauthorized third parties may copy or otherwise obtain and use our products
        or
        technology. To enforce our proprietary rights, we may have to engage in
        litigation to defend and enforce our intellectual property rights, either
        domestically or in other countries, and we could face substantial costs and
        diversion of resources, including management' s attention, regardless of
        the
        outcome of that litigation. Any of our attempts to enforce our intellectual
        property rights may not be successful, may result in royalties that are less
        than the cost of such enforcement efforts or may result in the loss of the
        intellectual property altogether. Further, we may not have adequate funds
        available to prosecute actions to protect or defend our proprietary rights,
        in
        which case those using our proprietary rights may continue to do so in the
        future. Even if we succeeded in protecting our intellectual property, others
        may
        independently develop similar technologies or products that do not infringe
        on
        our intellectual property.
  **18.** ***Our
        trademarks may not give us adequate protection. As a result, third parties
        may
        appropriate our trademarks that may reduce our competitive edge and cause
        our
        revenues to decrease.*** We
        have
        trademarks. There is no assurance, however, that third parties may not infringe
        on our trademarks. In order to protect our trademark rights, we may have
        to file
        lawsuits and obtain injunctions, which will likely be expensive and divert
        our
        resources. If we do that, we will have to spend large sums of money for
        attorney's fees in order to obtain the injunctions. Even if we obtain the
        injunctions, there is no assurance that those infringing on our trademarks
        will
        comply with the injunctions. Further, we may not have adequate funds available
        to prosecute actions to protect or to defend our trademarks, in which case
        those
        infringing on our trademarks could continue to do so in the future.
  **19.** ***Claims
        that we infringe third-party proprietary rights could result in significant
        expenses or restrictions on our ability to provide our products and
        services*** Third
        parties may claim that our current .or future products or services infringe
        their proprietary rights or assert other claims against us. As the number
        of
        entrants into our market increases, the possibility of an intellectual property
        or other claim against us grows. Any intellectual property or other claim,
        with
        or without merit, would be time-consuming and expensive to litigate or settle
        and could divert management attention from focusing on our core business.
        As a
        result of such a dispute, we may have to pay damages, incur substantial legal
        fees, develop costly non-infringing technology, if possible, or enter into
        license agreements, which may not be available on terms acceptable to us,
        if at
        all. As a result, our business and operating results could be materially
        adversely affected.
  18
  **20.** ***Changes in government regulations and licensing requirements could have a
        material adverse effect on our business.*** Our
        businesses are subject to various federal, state, local and foreign laws
        and
        regulations. Two of our subsidiaries hold security licenses from, and their
        security services are regulated by, local government agencies. We also use
        some
        data from outside sources, including data from third party vendors and various
        government and public records services, in performing our security services.
        The
        use of this data is regulated by certain laws and regulations. To date,
        applicable laws and regulations have not interfered materially with the manner
        in which we obtain information and conduct our operations, including our
        access
        to data used in our business. However, changes in these laws and regulations
        or
        the adoption of new laws or regulations, particularly those relating to privacy,
        could interfere with our method of operations and access to data and, as
        a
        result, could materially adversely affect our business. Our security products
        are also subject to certification by the Federal Communications Commission
        in
        the US and by the Department of Communications in Canada. Further, wireless
        carriers who supply us with airtime enabling some of our services are also
        subject to regulation by the Federal Communications Commission in the US
        and the
        Canadian Radio-Television and Telecommunications Commission in Canada. If
        any of
        our security products could not obtain certification from either or both
        the
        Federal Communications Commission in the US and the Department of
        Communications, or if the communications carriers that we use to provide
        some of
        our services to our customers could not obtain a renewal of their licenses,
        our
        business would be materially adversely affected.
  **21.** ***Competitive
        conditions could materially adversely affect our businesses.*** The
        markets in which we do, and intend to do, businesses are highly competitive
        with
        few barriers to entry. Our ability to execute our business strategy depends
        in
        part upon our ability to develop and commercialize efficient and effective
        products based on our technologies. We compete against established companies
        as
        well as numerous independently owned small businesses. Many of our competitors
        are capable of developing products based on similar technology, have developed
        and are capable of continuing to develop products based on other technologies,
        which are or may be competitive with our products and technologies. In all
        market segments in which we operate, there are many competitors, some of
        which
        are significantly larger, have access to much more important resources or
        capital than us, or have better reputations among potential customers in
        the
        delivery of particular services or products. Our competitors may succeed
        in
        developing competing products and technologies that are more effective than
        our
        products and technologies, which may render our existing and new products
        or
        technology uncompetitive, uneconomical or obsolete.
  19
  **22.** ***We
        may be exposed to liability claims if products based on our technologies
        are
        marketed and sold. We have liability insurance coverage on our products which
        varies from $1,000,000 to $3,000,000, however if a judgment is rendered against
        us in excess of the amount of our coverage, we may have to cease operations.*** If
        we are
        sued for any reason, we will have to rely on our liability insurance to pay
        any
        judgment rendered against us. Although we maintain product liability insurance
        of between $1,000,000 and $3,000,000, we cannot provide any assurance
        that:
  -
                our
                    insurance will provide adequate coverage against potential liabilities
                    if
                    a product or a service that we provide causes harm or fails to
                    perform as
                    promised;-
                adequate
                    product liability insurance will continue to be available in
                    the future;
                    or-
                our
                    insurance can be maintained on acceptable terms.
  The
          obligation to pay any product liability claim in excess of whatever insurance
          we
          are able to obtain would increase our expenses and could greatly reduce
          our
          assets or cause us to cease operations. If a judgment is rendered against
          us for
          any amount of money over our coverage of $1,000,000 and, in some cases,
          of
          $3,000,000, we may have to cease operations.
  **23.** ***Fluctuations
          in the value of foreign currencies could result in increased product costs
          and
          operating expenses.*** We
          have
          suppliers that are located outside Canada and the U.S. Our functional currency
          is Canadian dollars and we report our results in U.S. dollars. Fluctuations
          in
          the value of Canadian and U.S. dollars are difficult to predict and can
          cause us
          to incur currency exchange costs. Although, we cannot predict the effect
          of
          exchange rate fluctuations on our future operating results any material
          changes
          could cause our operating results to be materially adversely affected.
  **24.** ***Because
          a limited number of our stockholders collectively continue to own a majority
          of
          our stock, they may act, or prevent certain types of corporate actions,
          to the
          detriment of other stockholders.*** Our
          officers and directors and certain stockholders beneficially own in the
          aggregate approximately 11.02% of our outstanding shares of common stock.
          As a
          result, these stockholders may be able to influence significantly the actions
          that require stockholder approval, including:
  -
                the
                    election of a majority of our directors; and-
                the
                    approval of mergers, sales of assets or other corporate transactions
                    or
                    matters submitted for stockholder
                    approval.
  As
          a
          result, our other stockholders may have little or no influence over matters
          submitted for stockholder approval. In addition, this influence could preclude
          any unsolicited acquisition of us and consequently materially adversely
          affect
          the price of our common stock.
  **25.** ***Because
          the market for our common stock is limited, you may not be able to resell
          your
          shares of common stock.*** **** There
          is
          currently only a limited trading market for our common stock. Our common
          stock
          trades on the Bulletin Board operated by the National Association of Securities
          Dealers, Inc. under the symbol "MANS." Trading volume of OTC Bulletin Board
          stocks has been historically lower and more volatile than stocks traded
          on an
          exchange. As a result, you may not be able to resell your securities in
          open
          market transactions.
 20
  **26.** ***Sales
        of substantial amounts of our common stock could cause our stock price to
        fall.*** As
        of
        June 30, 2005, 54,782,802 shares of our common stock were outstanding,
        37,692,544 of which were freely tradable and 17,090,258 of which were restricted
        as a result of securities laws. In addition, as of June 30, 2005, 31,073,088
        shares of our common stock were issuable upon conversion of our outstanding
        debentures and exercise of outstanding options and warrants. Sales of a
        substantial number of shares of our common stock could cause the price of
        our
        securities to fall and could impair our ability to raise capital by selling
        additional securities. The terms on which we could obtain additional capital
        during the life of the options and warrants may be adversely affected, and
        it
        should be expected that the holders of the options and warrants would exercise
        or convert them at a time when we would be able to obtain equity capital
        on
        terms more favorable than those provided for by such convertible securities.
        As
        a result, any issuance of additional shares of common stock may cause our
        current shareholders to suffer significant dilution which may adversely affect
        the market price of our common stock.
  **27.** ***Because
        our common stock is subject to penny stock rules, the liquidity of your
        investment may be restricted.*** Our
        common stock is now and may continue to be in the future subject to the penny
        stock rules under the Securities Exchange Act of 1934, as amended. These
        rules
        regulate broker/dealer practices for transactions in "penny stocks." Penny
        stocks are generally equity securities with a price of less than $5.00. The
        penny stock rules require broker/dealers to deliver a standardized risk
        disclosure document that provides information about penny stocks and the
        nature
        and level of risks in the penny stock market. The broker/dealer must also
        provide the customer with current bid and offer quotations for the penny
        stock,
        the compensation of the broker/dealer and its salesperson and monthly account
        statements showing the market value of each penny stock held in the customer's
        account. The bid and offer quotations and the broker/dealer and salesperson
        compensation information must be given to the customer orally or in writing
        prior to completing the transaction and must be given to the customer in
        writing
        before or with the customer's confirmation. In addition, the penny stock
        rules
        require that prior to a transaction, the broker and/or dealer must make a
        special written determination that the penny stock is a suitable investment
        for
        the purchaser and receive the purchaser's written agreement to the transaction.
        These additional penny stock disclosure requirements are burdensome and may
        reduce the trading activity in the market for our common stock. As long as
        the
        common stock is subject to the penny stock rules, holders of our common stock
        may find it more difficult to sell their securities.
  **ITEM
        2.**  **DESCRIPTION
        OF PROPERTIES**
  The
        Manaris main office is located at 1155, Rene-Levesque West, Suite 2720,
        Montreal, Quebec, Canada. The base rent for the current premises is
        approximately CDN$8,161 inclusive of taxes per month and is subject to annual
        increases equivalent to the increase in the Consumer Price Index ("CPI").
        This
        lease expires on November 30.
  21
  The
        office of our wholly owned subsidiary, C-Chip, is located at 740 Notre-Dame
        West, Suite 1320, Montreal, Quebec, Canada. They currently lease approximately
        1,900 square feet for administration and development. The base rent for the
        current premises is approximately CND$2,300 inclusive of taxes per month
        and is
        subject to annual increases equivalent to the increase in the Consumer Price
        Index ("CPI"). This lease expires in June 2010.
  The
        office of our wholly owned subsidiary, Chartrand Laframboise Inc., is located
        at
        2 Place Laval, Suite 350, Laval, Quebec, Canada. They currently lease
        approximately 6,700 square feet for administration. The base rent for the
        current premises is approximately CND$12,100 inclusive of taxes per month
        and is
        subject to annual increases equivalent to the increase in the Consumer Price
        Index ("CPI"). This lease expires on January 31, 2007.
  The
        main
        office of our wholly owned subsidiary, Avensys Inc., is located at 880 Selkirk,
        Pointe-Claire, Quebec, Canada. They currently lease approximately 20,500
        square
        feet for administration and production. The base rent for the current premises
        is approximately CND$13,670 inclusive of taxes per month and is subject to
        annual increases equivalent to the increase in the Consumer Price Index ("CPI").
        This lease expires on July 31, 2006.
  Avensys
        has also two sales representative offices in Canada. They currently lease
        approximately 3,615 square feet for administration at 1131 Derry Road East,
        Mississauga, Ontario Canada. The base rent for the current premises is
        approximately CND$2,184 inclusive of taxes per month and is subject to annual
        increases equivalent to the increase in the Consumer Price Index ("CPI").
        This
        lease expires on June 30, 2006. They currently lease approximately 400 square
        feet for administration at 301-1493 Johnston Road, White Rock, British Columbia,
        Canada. The base rent for the current premises is approximately CND$500
        inclusive of taxes per month and is subject to annual increases equivalent
        to
        the increase in the Consumer Price Index ("CPI"). This lease expires on January
        31, 2007.
  Avensys
        Inc. also maintains research and development facilities and development
        facilities. These facilities are located at 247 Boulevard Thibeau,
        Cap-de-la-Madeleine, Quebec, Canada They currently lease approximately
        6,500 square feet and the base rent for the current premises is approximately
        CND$2,871 inclusive of taxes per month and is subject to annual increases
        equivalent to the increase in the Consumer Price Index ("CPI"). This lease
        expires on October 30, 2006.
  We
        believe that additional office space will be required, and readily available,
        as
        our business grows.
  22
  ITEM
        3.  **LEGAL
        PROCEEDINGS**
  In
        the
        course of normal business, the Company may be subject to threat of litigation,
        claims and assessments. Management does not believe that unfavorable decisions
        in any pending procedures or threat of procedures or any amount it might
        be
        required to pay will not have a material adverse impact on our financial
        condition.
  A
        motion
        was filed by Citicorp Vendor Finance Ltd., under Quebec law, in the district
        of
        Montreal, Province of Quebec, totalling $69,600 USD ($85,348 CAD) for an
        unpaid
        contract of credit. The Company intends to contest the case vigorously and,
        in
        the event of an unfavorable outcome, the amount of any damages is not expected
        to have a material adverse impact on our financial condition.
 
 A
        lawsuit
        was filed on July 15, 2005, under Quebec law, in the District of Montreal,
        Province of Quebec, for a total of $506,000 USD ($620,000 CAD) with regards
        to
        alleged breach of employment contract and wrongful dismissal of Charles
        Finkelstein. This lawsuit was settled on September 2, 2005 for an amount
        of
        $81,600 USD ($100,000 CAD) and the transfer of 200,000 shares of the Company,
        currently held in escrow. The parties exchanged under this agreement a complete
        and final release regarding their business and employment relationship.
 
 Autoland
        filed a lawsuit on July 15, 2005, under Quebec law, in the District of Montreal,
        Province of Quebec, for a total of $81,600 USD ($100,000 CAD) with regards
        to
        alleged expenses incurred by the plaintiff for the purchase of anti-theft
        product known as the “Hawk 200”. The Company intends to contest the case
        vigorously and, in the event of an unfavorable outcome, the amount of any
        damages will be charged to the earnings of the quarter and is not expected
        to
        have a material adverse impact on our financial condition.
  A
        lawsuit
        was filed by Richard Larocque on June 30, 2005 under Quebec law, in the District
        of Montreal, Province of Quebec pertaining to a claim in the amount of $88,900
        USD ($108,900 CAD) for alleged wrongful and unnecessary use of force in the
        exercise of the Company’s employee security duties. The Company intends to
        contest the case vigorously and, in the event of an unfavorable outcome,
        the
        amount of any damages will be charged to the earnings of the quarter and
        is not
        expected to have a material adverse impact on our financial
        condition.
 
 Rothsman
        Bastien, filed a lawsuit under Quebec law, in the district of Laval, Province
        of
        Quebec, totalling $66,351USD ($81,306 CAD) for compensatory damages and
        $12,240USD ($15,000 CAD) in punitive and exemplary damages. The claim alleges
        that the Company submitted erroneous evidence that was based on racial profiling
        which led to the arrest of the plaintiff. The Company intends to contest
        the
        case vigorously and, in the event of an unfavorable outcome, the amount of
        any
        compensatory damages will be covered by the Company’s insurance policy. The
        punitive and exemplary damages will be charged to the earnings of the quarter
        and is not expected to have a material adverse impact on our financial
        condition.
  23
  ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF
        SECURITY HOLDERS
 
 None.
  **PART
        II**
  **ITEM
        5.**  **MARKET
        FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS**
  Our
        common shares are traded on the OTC Bulletin Board operated by the National
        Association of Securities Dealers, Inc under the symbol "MANS." Our shares
        began
        trading on July 2, 2001. The following table sets forth the closing high
        and low
        bid prices of the common stock for each quarter within the last three years.
        The
        quotations reflect inter-dealer prices and do not represent retail mark-ups,
        markdowns, commissions, and may not reflect actual transactions. Prices before
        January 23, 2003 are adjusted for a 20:1 stock split on that date.
  **Fiscal
                    Quarter**
                **High
                    Bid**
                
                **Low
                    Bid****2005**04-01-05
                    - 06-30-05
                0.79
                
                0.4101-01-05
                    - 03-31-05
                1.02
                
                0.6510-01-04
                    - 12-31-04
                0.86
                
                0.6507-01-04
                    - 09-30-04
                0.90
                
                0.62**2004**04-01-04
                    - 06-30-04
                1.09
                
                0.7101-01-04
                    - 03-31-04
                0.87
                
                0.6310-01-03
                    - 12-31-03
                0.94
                
                0.5007-01-03
                    - 09-30-03
                0.87
                
                0.17**2003**04-01-03
                    - 06-30-03
                0.53
                
                0.1501-01-03
                    - 03-31-03
                1.00
                
                0.2110-01-02
                    - 12-31-02
                0.20
                
                0.0507-01-02
                    - 09-30-02
                0.10
                
                0.06
  As
        of
        June 30, 2005, we had one hundred twenty-four shareholders of record of our
        common stock. This does not reflect persons or entities that hold stock through
        various brokerage firms or depositories.
  The
        market price of our common shares may to be the object of significant
        fluctuations related to a number of events and reasons, such as variations
        in
        our operating results, publication of technological developments or new products
        or services by us or our competitors, recommendations of securities analysts
        on
        us or our competitors, the operating and stock performance of other companies
        that the market may view as related to our business, and news reports relating
        to trends in our activities.
  In
        addition, the stock market in recent years has experienced significant price
        and
        volume fluctuations that have particularly affected the market prices of
        many
        high technology companies that may have often been not related or inconsistent
        to the operating performance of those companies. These fluctuations, as well
        as
        general political, economic and market conditions and other factors, may
        adversely affect the market price for our common stock.
  24
  Dividend
        Policy
  We
        have
        never paid any cash dividends on our common shares and at present we do not
        intend to pay any cash dividends in the foreseeable future. Our plan is to
        retain earnings, if any, to fund our future growth.
  On
        January 3, 2003, we declared a stock dividend of 19 shares of common stock
        for
        each 1 share outstanding. The record date for the stock dividend was January
        20,
        2003 and our common shares began trading on a post-dividend basis on January
        23,
        2003.
  **Issuance
        and Cancellation of Common Shares**
  During
        the year ended June 30, 2005, the Company:
  During
        the year ended June 30, 2005, the Company issued 2,120,501 common shares
        for
        total proceeds of $205,012 from the exercise of stock options.
  During
        the year ended June 30, 2005, a total of 176,767 stock options were exercised
        after issuance to settle outstanding payables in the amount of $127,327.
  During
        the year ended June 30, 2005, the Company issued 121,250 restricted common
        shares and 95,193 common shares for total proceeds of $2 following the exercise
        of 216,443 Series IB1 warrants.
  In
        May
        2005, the Company issued 120,000 restricted common shares with a value of
        $79,200 for consulting fees.
  In
        April
        2005, the Company issued 1,106,667 restricted common shares valued at $830,000
        following the conversion of convertible debentures.
  In
        April
        2005, the Company issued 258,000 restricted common shares valued at $175,182
        as
        a finder’s fee and 32,260 restricted common shares valued at $32,260 as a
        consultant’s fee related to the acquisition of Avensys Inc. A total of 159,458
        restricted common shares valued at $146,701 were issued as a finder’s fee
        related to the acquisition of CLI Group.
  In
        January 2005, the Company issued 164,474 restricted common shares with a
        value
        of $125,000 for the purchase price of Markus 360.
  In
        March
        2005, the Company issued 10,400,002 restricted common shares having a value
        of
        $7,633,586 for the acquisition of Avensys Inc. The Company issued 432,427
        restricted common shares valued at $324,320 as finder’s fee related to the
        acquisition of Avensys Inc.
  25
  **Section
        15(g) of the Securities Exchange Act of 1934**
  Our
        Company's shares are covered by Section 15(g) of the Securities Exchange
        Act of
        1934, as amended that imposes additional sales practice requirements on
        broker/dealers who sell such securities to persons other than established
        customers and accredited investors (generally institutions with assets in
        excess
        of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual
        income exceeding $200,000 or $300,000 jointly with their spouses). For
        transactions covered by the Rule, the broker/dealer must make a special
        suitability determination for the purchase and have received the purchaser's
        written agreement to the transaction prior to the sale. Consequently, the
        Rule
        may affect the ability of broker/dealers to sell our securities and also
        may
        affect your ability to sell your shares in the secondary market.
  Section
        15(g) also imposes additional sales practice requirements on broker/dealers
        who
        sell penny securities. These rules require a one-page summary of certain
        essential items. The items include the risk of investing in penny stocks
        in both
        public offerings and secondary marketing; terms important to in understanding
        of
        the function of the penny stock market, such as "bid" and "offer" quotes,
        a
        dealers "spread" and broker/dealer compensation; the broker/dealer compensation,
        the broker/dealers duties to its customers, including the disclosures required
        by any other penny stock disclosure rules; the customers rights and remedies
        in
        causes of fraud in penny stock transactions; and, the NASD's toll free telephone
        number and the central number of the North American Administrators Association,
        for information on the disciplinary history of broker/dealers and their
        associated persons.
  **Securities
        authorized for issuance under equity compensation plans**
  We
        have
        two equity compensation plans: our 2003 Nonqualified Stock Option Plan and
        our
        2004 Nonqualified Stock Option Plan (the "Plans"). The Plans provide for
        the
        issuance of stock options for services rendered to us. The board of directors
        is
        vested with the power to determine the terms and conditions of the options.
        The
        Plans include 10,000,000 shares. As of June 30, 2005, options to purchase
        8,536,586 shares had been granted of which 3,958,686options had been exercised,
        735,400 had been forfeited and 3,842,500 are outstanding. Under the Plans,
        we
        have 2,198,814 options available for issuance as at June 30, 2005.
 **Number
                    of securities****Number
                    of securities to**
                
                **Weighted-average**
                
                **remaining
                    available for****be
                    issued upon exercise**
                
                **exercise
                    price of**
                
                **future
                    issuance under equity****of
                    outstanding options,**
                
                **outstanding
                    options,**
                
                **compensation
                    plans****warrants
                    and rights**
                
                **warrants
                    and rights**
                
                **(excluding
                    securities reflected****Plan
                    category**
                
                **(a)**
                
                **(b)**
                
                **I2n
                    column (a)) (c)**Equity
                    compensation plansapproved
                    by security holders
                
                
                0
                
                
                0
                
                
                0Equity
                    compensation plans notapproved
                    by securities holders
                
                
                3,842,500
                
                $
                0.65
                
                
                2,198,814Total
                
                
                3,842,500
                
                $
                0.65
                
                
                2,198,814
  26
  ITEM
        6.  **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS**
  With
        respect to forward-looking statements made in this Management’s Discussion and
        Analysis of Financial Condition and Results of Operations see Part I initial
        paragraph concerning “forward-looking statements”.
  **Executive
        Overview**
  Significant
        milestones were accomplished in the twelve month period ended June 30, 2005.
        In
        particular, the acquisitions of Avensys Inc, and Chartrand Laframboise Inc.
        (CLI) in Q3 of the fiscal period have both grown our asset base significantly
        and expanded our sources of revenue. In fact, of the $7 million in revenue
        for
        FY 2005, $3.7 million was generated in Q4.
  We
        expect
        steady growth and profitability from these two subsidiaries in the coming
        year.
        Aside from any possible acquisitions made by Avensys and CLI, the major
        potential for revenue growth in the next 12 months for Manaris rests with
        C-Chip, the subsidiary conducting the Company’s original core business. We have
        made a significant investment in reengineering the C-Chip product line as
        we
        strongly believe in the product concept. C-Chip’s senior management clearly
        understands the need to produce results during FY2006. Market conditions
        appear
        to be healthy for all three subsidiaries.
  In
        February 2004, we purchased 100% of **Canadian
        Security Agency (2004) Inc.** ("CSA"),
        a private Montreal-based business established in 1984 that provides security
        services to large corporate accounts, including courier and trucking companies.
        As consideration for the purchase of CSA, we issued 1,600,000 restricted
        common
        shares to 9129-2763 Quebec Inc. On closing, 600,000 of restricted common
        shares
        were released to 9129-2763 Quebec Inc. with the remaining 1 million shares
        being
        subject to an escrow agreement. The release of these 1 million restricted
        common
        shares to 9129-2763 Quebec Inc. were subject to the attainment of certain
        milestones by CSA. The first milestone was achieved on May 2004 and 300,000
        shares were released from escrow. In September 2004, a second milestone was
        attained and an additional 200,000 shares were released from escrow. Subject
        to
        the payment by 9129-2763 Quebec Inc. of notes amounting to $383,536 as of
        March
        31, 2005, we will release the remaining 500,000 shares to the selling
        shareholder. We are doubtful that we will recover this amount.
  27
  The
        Canadian Security Agency (2004) Inc. (CSA) has been a disappointment and
        has not
        lived up to expectations. We made a decision subsequent to the end of FY2005
        to
        cease operations at CSA and sold the client list to Sécurité Kolossal Inc. At
        the same time we settled a pending lawsuit with the original shareholder
        of CSA.
        The loss of CSA revenues will not have a material impact on our revenue
        stream.
  In
        February 2005, we closed a private placement of $4,675,000 with eighteen
        institutional investors. Subsequent to our year end of June 30, 2005, we
        concluded a Special Warrant Offering enabling our Company to raise approximately
        an additional $2.6 million.
  The
        Company has several priorities for FY2006. Manaris, the holding company,
        will
        reduce costs where possible. We will further leverage the success of both
        Avensys and CLI and expect C-Chip to start realizing its potential. Overall,
        corporate focus will be on the need towards profitability and continued growth.
        In addition, we will also look to streamline operations and develop efficiencies
        amongst complementary activities of our subsidiaries. The following are our
        subsidiaries’ priorities for FY2006:
  Chartrand
        Laframboise Inc.  offers
        services that include investigation, surveillance, undercover agents, background
        verification, business intelligence, security consulting and labor management
        conflict to over 1,000 customers. For FY2006, in addition to continued
        profitability, CLI is seeking opportunities to broaden its service offering
        and
        expand geographically across Canada.
  Avensys
        Inc. is a leader in risk management monitoring solutions for commercial and
        industrial buildings, infrastructures and various environments, including
        air,
        soil and water. We anticipate that FY2006  should
        be
        a profitable year accompanied with significant revenue growth when compared
        to
        the previous 12 months period. If we exclude a one-time procurement project
        realized in FY2005, the planned growth is superior to 30. We expect that
        the
        production of fiber optics components will continue to be the highest growth
        area of the company, with some investments needed to keep our lead position
        and
        improve our manufacturing processes. This fiscal year will also see the transfer
        of our first optical sensors from the research and development group to the
        manufacturing group. The market for optical sensing solutions should therefore
        produce tangible results, although we expect that the real growth for that
        sector will start in the next fiscal year.
 
 With
        regards to environmental and geotechnical solutions, the volume of distributed
        monitoring equipment should be stable, but our involvement into customer
        solutions will show double digit growth. It is our intention to create a
        team
        totally dedicated to integrated solutions in FY2006, with the achievement
        of a
        first large scale integrated customer solution during the year.
  28
  We
        anticipate that our recent launch in summer 2005, of our advanced limnimeter
        will result in excellent year-end results for this new technology, with even
        higher growth in the coming years.
  C-Chip
        specializes in the high-tech sector of the security industry, with technology
        that allows credit grantors the ability to efficiently access, control, manage
        and monitor remote assets at low costs. For FY2006, C-Chip’s priority is to
        manufacture and deliver an increasing number of C-Chip products into the
        North
        American marketplace.
  **Recent
        Financings**
  In
        February 2005, we entered into a Purchase Agreement with eighteen institutional
        and accredited investors under the terms of which we issued units consisting
        of
        an aggregate of $4,675,000 of our Company's 9.0% Senior Secured Convertible
        Notes, Series A, which are convertible into shares of our common stock at
        a
        conversion price of $0.65 per share. Under the terms of the 9.0% Senior Secured
        Convertible Notes, Series A, principal on the Notes shall be paid in 20 equal
        monthly installments, with each payment equal to 5% of the principal amount,
        commencing on June 23, 2005 and continuing on the same day of each month
        thereafter to the Holder on the tenth date immediately preceding the Principal
        Payment Date. All payments of principal by us shall be made at our option
        in
        cash or, with 10 business day's prior notice, in common stock of our Company
        valued at 85% of the average closing bid price of the security in the most
        recent five trading days prior to a Valuation Date. The Notes contains full
        ratchet anti-dilution protection.
  In
        July
        2005 the Company made a Special Warrant Offer (the “Offer”) to all Class A
        Series A, Series E, and Series F warrant holders. A total of $2,576,168 was
        raised under the Private Placement. Under the terms of the Offer ,
        each
        Holder participating in the Offer by exercising any Series E Warrants at $0.35 per
        share received new Series G Incentive Warrants (the “Series G Incentive
        Warrants”) and new Series I Incentive Warrants (the “Series I Incentive
        Warrants”), each in an amount equal to one hundred percent (100%) of the number
        of shares of the Company’s common stock issued upon exercise of the
        Series E Warrants
        pursuant to the Offer. A total of 3,797,976 Series E Warrants were exercised
        which prompted the issuance of 3,797,976 of Series G Incentive Warrants and
        3,797,976 of Series I Incentive Warrants.
  Holders
        participating in the Offer by exercising any Class A Warrants, Series A Warrants
        or Series F Warrants received new Series H Incentive Warrants (the “Series H
        Incentive Warrants”) and new Series J incentive warrants (the “Series J
        Incentive Warrants”), each in an amount equal to twenty-five percent (25%) and
        fifty percent (50%), respectively, of the number of shares of the Company’s
        common stock issued upon exercise of the
        Class
        A Warrants, the Series A Warrants or the Series F Warrants
        pursuant to the Offer. A total of 3,562,359 of Class A Warrants, Series A
        Warrants and Series F Warrants were exercised which prompted the issuance
        of
        890,590 Series H Warrants and 1,781,180 of Series J Warrants.
  As
        a
        result of the Offer, the Company, pursuant to the Warrants in effect, adjusted
        the respective Warrants accordingly.
  29
  Following
        the Offer, the Company received notice from the SEC inquiring about details
        regarding the Offer and the registration amendment. The Company has replied
        accordingly and is waiting for a response from the SEC.
  Further,
        as a result of Special Warrant Offering, the Company issued shares of common
        stock for a consideration per share less than the Conversion Price in effect,
        which constitutes a “Trigger Issuance” under the Senior Secured Convertible Note
        of February 16, 2005. Consequently, some Investors pursuant to the Senior
        Secured Convertible Note exercised their right to convert part of the Note
        into
        Shares of Common Stock. A total of $815,985 of the Senior Secured Convertible
        Note was converted. Having made four principle payments, the balance remaining
        on the Note Agreement totals $2,971,647.
  **Critical
        Accounting Policies and Estimates**
  Management's
        discussion and analysis of our financial condition and results of operations
        are
        based upon our consolidated financial statements, which have been prepared
        in
        accordance with accounting principles generally accepted in the United States
        of
        America. The preparation of these financial statements requires that we make
        estimates and judgments that affect the reported amounts of assets, liabilities,
        revenues and expenses and related disclosure of contingent assets and
        liabilities. At each balance sheet date, management evaluates its estimates,
        including, but not limited to, those related to accounts receivable,
        inventories, and deferred revenue. We base our estimates on historical
        experience and on various other assumptions that are believed to be reasonable
        under the circumstances. Actual results may differ from these estimates under
        different assumptions or conditions. The estimates and critical accounting
        policies that are most important in fully understanding and evaluating our
        financial condition and results of operations are discussed below.
  **Revenue
        Recognition**
  One
        of
        our subsidiaries, C-Chip has generated limited commercial sales of products.
        The
        Company developed prototypes for testing by potential customers, which were
        billed for a portion of the costs incurred. Commercial product sales are
        recorded when shipped as part of a sales agreement, usually by customer purchase
        order. Certain product sales contain a small charge for after sales service
        for
        up to one year; such amounts are deferred and recognized as revenue when
        earned.
        Products carry a one-year replacement warranty and the level of actual warranty
        expense has not been material.
  Our
        Company recognizes revenue in accordance with Securities and Exchange Commission
        Staff Accounting Bulletin No. 104 ("SAB 104"), "Revenue Recognition in Financial
        Statements." Revenue is recognized only when the price is fixed or determinable,
        persuasive evidence of an arrangement exists, the service is performed, and
        collectibility is reasonably assured.
  30
  Sales
        of
        security services commenced on the acquisition of Canadian Security Agency
        (2004) Inc. on February 17, 2004. Clients are provided security services
        with
        revenue recognized as services are performed.
  CLI
        recognizes revenue for service contracts as the services are performed using
        a
        proportional performance model. Revenues from investigation contracts are
        reported on the percentage of completion method of accounting using measurements
        of progress toward completion appropriate for the work performed. Progress
        is
        generally based upon man-hours or costs incurred based upon the appropriate
        method for the type of job.
  Avensys
        Inc. recognizes revenues when goods are shipped and the risks and rewards
        have
        transferred to customers. Revenues are recorded net of rebates, discounts
        and
        sales returns. Avensys and its 70% owned subsidiary, specialize in developing,
        manufacturing and installing control and monitoring remote security
        solutions.
  Our
        Company continually monitors timely payments and assesses any collection
        issues.
        The allowance for doubtful accounts is based on the Company's detailed
        assessment of the collectibility of specific customer accounts. Any significant
        customer accounts that are not expected to be collected are excluded from
        revenues.
  **Principles
        of Consolidation**
  Our
        consolidated financial statements include the accounts of the Company and
        its
        wholly owned subsidiaries. Consolidated companies include: a) 100% of Avensys
        and its subsidiary, Fizians Inc. of which Avensys owns 70% of its outstanding
        shares and the accounts of Avensys Labs Inc., a company in which Avensys
        holds
        variable interests and is the primary beneficiary, b) 100% of 6327915 Canada,
        Inc., 9151-3929 Quebec Inc., 3826961 Canada Inc., 3428249 Canada Inc., Chartrand
        Laframboise Inc. and 9126-7641 Quebec Inc. (collectively the "CLI Group"),
        c)
        100% of Canadian Security Agency (2004) Inc., d) 100% of C-Chip. Operating
        results for the CLI Group and Avensys are included from the date of acquisition
        of February 28, 2005. All inter-company accounts and transactions have been
        eliminated.
  **Amortization
        of Equipment and Property**
  Our
        Company's property and equipment are recorded at cost. Our Company provides
        for
        depreciation using the following methods and applying rates estimated to
        amortize the cost over the useful life of the assets:
 Computer
                    equipment
                Straight-line
                    and declining balance
                30%-33
                    1/3%Furniture
                    and fixture
                Straight-line
                    and declining balance
                20%Leasehold
                    improvements
                Straight-line
                5
                    to 8 yearsSurveillance
                    equipment
                Declining
                    balance
                30%Communication
                    equipment
                Declining
                    balance
                20%Laboratory
                    equipment
                Straight-line
                    and declining balance
                20%Automotive
                    equipment and software
                Declining
                    balance
                30%Machinery
                    and office equipment
                Declining
                    balance
                20%
  31
  **Intangible
        Assets**
  An
        acquired intangible asset that represents technology that has reached
        technological feasibility is capitalized at cost. Intangible assets with
        definite lives are reported at cost, less accumulated amortization. The Company
        does not have any identified intangible assets with a finite life. Acquired
        in-process research and development is charged to operations in the period
        of
        acquisition. The Company provides for amortization on a straight-line basis
        over
        the following periods:
  Customer
                  lists
              3-10
                  yearsLicenses,
                  patents and trademarks
              4-6
                  yearsNon-compete
                  agreements
              4
                  years
  **Goodwill**
  Goodwill
        represents the excess of the purchase price of acquired assets over the fair
        values of the identifiable assets acquired and liabilities assumed. Pursuant
        to
        SFAS No. 141, the Company does not amortize goodwill, but tests for impairment
        of goodwill on an annual basis and at any other time if events occur or
        circumstances indicate that the carrying amount of goodwill may not be
        recoverable. Circumstances that could trigger an impairment test include
        but are
        not limited to: a significant adverse change in the business climate or legal
        factors; an adverse action or assessment by a regulator; unanticipated
        competition and loss of key personnel. Goodwill is tested for impairment
        using
        present value techniques of estimated future cash flows; or using valuation
        techniques based on multiples of earnings. If the carrying amount of goodwill
        exceeds the implied fair value of that goodwill, an impairment loss is charged
        to operations.
  **Stock-Based
        Compensation**
  Our
        Company has elected to apply the intrinsic value method of accounting in
        accordance with Accounting Principles Board Opinion No. 25, "Accounting for
        Stock Issued to Employees" (APB25). Under the intrinsic value method of
        accounting, compensation expense is recognized if the exercise price of the
        Company's employee stock options is less than the market price of the underlying
        common stock on the date of grant. Stock-based compensation for employees
        is
        recognized on the straight-line basis over the vesting period of the individual
        options. Stock options granted to non-employees are accounted for under
        Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
        Compensation" (SFAS 123), which establishes a fair value based method of
        accounting for stock-based awards, and recognizes compensation expense based
        on
        the fair market value of the stock award or fair market value of the goods
        and
        services received, whichever is more reliably measurable. Under the provisions
        of SFAS 123, companies that elect to account for stock-based awards in
        accordance with the provisions of APB 25 are required to disclose the pro
        forma
        net income (loss) that would have resulted from the use of the fair value
        based
        method under SFAS 123.
  32
  Contingent
        Consideration
  The
        measurement, recognition and allocation of contingent consideration are
        accounted for using the following principles:
  *Measurement
        and Recognition*
  In
        accordance with SFASNo.141, Business Combinations ("SFAS141"), contingent
        consideration is recorded when a contingency is satisfied and additional
        consideration is issued or becomes issuable. Our Company records the additional
        consideration issued or issuable in connection with the acquisition when
        a
        specified internal performance goal is met. For additional consideration
        paid in
        stock, our Company calculates the amount of additional consideration using
        the
        closing price of its common stock on the date the performance goal is
        satisfied.
  *Amount
        Allocated to Goodwill*
  In
        accordance with EITF No.95-8, Accounting for Contingent Consideration Paid
        to
        the Shareholders of an Acquired Enterprise in a Purchase Business Combination
        ("EITF 95-8") and FIN44, the portion of additional consideration issuable
        to
        holders of unrestricted common stock and fully vested options as of the
        acquisition date is recorded as additional purchase price, as the consideration
        is unrelated to continuing employment with the Company. Such portion is
        allocated to goodwill.
  *Amount
        Allocated to Stock-Based Compensation Expense*
  In
        accordance with EITF 95-8, the intrinsic value associated with additional
        consideration related to stock or options that vest between the acquisition
        date
        and the date at which the contingency is satisfied is recorded as an immediate
        charge to stock-based compensation expense because the consideration is related
        to continuing employment with the Company.
  *Amount
        Allocated to Deferred Compensation*
  Additional
        consideration related to options and restricted stock that remain unvested
        when
        the contingency is satisfied is recorded as deferred compensation expense
        under
        EITF 95-8 and FIN44, as such consideration will only be earned to the extent
        that the holder of such options or restricted stock continues to be employed
        by
        our Company and meets the vesting requirements. The amount recorded as deferred
        compensation is based upon the intrinsic value of the restricted stock and
        unvested options at the date at which the contingency is satisfied. Our Company
        amortizes such deferred compensation over the remaining vesting period of
        the
        underlying restricted stock and unvested options. In the event that a holder
        does not fully vest in the restricted stock or unvested options, the unamortized
        portion of deferred compensation is eliminated.
  33
  **Income
        Tax**
  Our
        Company utilizes the liability method of accounting for income taxes as set
        forth in SFAS No. 109, "Accounting for Income Taxes". Under the liability
        method, deferred taxes are determined based on the temporary differences
        between
        the financial statement and tax bases of assets and liabilities using enacted
        tax rates. A valuation allowance is recorded when it is more likely than
        not
        that some of the deferred tax assets will not be realized. The Company has
        incurred net operating losses of $10,394,000 which expire starting in 2015.
        Pursuant to SFAS 109 our Company is required to compute tax asset benefits
        for
        net operating losses carried forward. Potential benefit of net operating
        losses
        have not been recognized in these financial statements because the company
        cannot be assured it is more likely than not it will utilize the net operating
        losses carried forward in future years.
  **Recent
        Accounting Pronouncements**
  In
        December 2004, FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
        - An
        Amendment of APB Opinion No. 29" . The guidance in APB Opinion No. 29,
        "Accounting for Nonmonetary Transactions", is based on the principle that
        exchanges of nonmonetary assets should be measured based on the fair value
        of
        the assets exchanged. The guidance in that Opinion, however, included certain
        exceptions to that principle. SFAS No. 153 amends Opinion No. 29 to
        eliminate the exception for nonmonetary exchanges of similar productive assets
        and replaces it with a general exception for exchanges of nonmonetary assets
        that do not have commercial substance. A nonmonetary exchange has commercial
        substance if the future cash flows of the entity are expected to change
        significantly as a result of the exchange. The provisions of SFAS No. 153
        are
        effective for nonmonetary asset exchanges occurring in fiscal periods beginning
        after June 15, 2005. Early application is permitted and companies must apply
        the
        standard prospectively. The adoption of this standard is not expected to
        have a
        material effect on our Company's results of operations or financial
        position.
  In
        May
        2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154,
        “Accounting Changes and Error Corrections - A Replacement of APB Opinion No.
        20
        and SFAS No. 3”. SFAS 154 changes the requirements for the accounting for and
        reporting of a change in accounting principle and applies to all voluntary
        changes in accounting principle. It also applies to changes required by an
        accounting pronouncement in the unusual instance that the pronouncement does
        not
        include specific transition provisions. SFAS 154 requires retrospective
        application to prior periods’ financial statements of changes in accounting
        principle, unless it is impracticable to determine either the period-specific
        effects or the cumulative effect of the change. The provisions of SFAS No.
        154
        are effective for accounting changes and correction of errors made in fiscal
        years beginning after December 15, 2005. The adoption of this standard is
        not
        expected to have a material effect on the Company’s results of operations or
        financial position.
  34
  In
        December 2004, the Financial Accounting Standards Board (FASB) issued Statement
        of Financial Accounting Standard (SFAS) No. 123R, "Share Based Payment”. SFAS
        123R is a revision of SFAS No. 123 “Accounting for Stock-Based Compensation”,
        and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees"
        and its related implementation guidance. SFAS 123R establishes standards
        for the
        accounting for transactions in which an entity exchanges its equity instruments
        for goods or services. It also addresses transactions in which an entity
        incurs
        liabilities in exchange for goods or services that are based on the fair
        value
        of the entity’s equity instruments or that may be settled by the issuance of
        those equity instruments. SFAS 123R focuses primarily on accounting for
        transactions in which an entity obtains employee services in share-based
        payment
        transactions. SFAS 123R does not change the accounting guidance for share-based
        payment transactions with parties other than employees provided in SFAS 123
        as
        originally issued and Emerging Issues Task Force Issue No. 96-18," Accounting
        for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
        or
        in Conjunction with Selling, Goods or Services". SFAS 123R does not address
        the
        accounting for employee share ownership plans, which are subject to AICPA
        Statement of Position 93-6," Employers' Accounting for Employee Stock Ownership
        Plans". SFAS 123R requires a public entity to measure the cost of employee
        services received in exchange for an award of equity instruments based on
        the
        grant-date fair value of the award (with limited exceptions). That cost will
        be
        recognized over the period during which an employee is required to provide
        service in exchange for the award - the requisite service period (usually
        the
        vesting period). SFAS 123R requires that the compensation cost relating to
        share-based payment transactions be recognized in financial statements. That
        cost will be measured based on the fair value of the equity or liability
        instruments issued. The scope of SFAS 123R includes a wide range of share-based
        compensation arrangements including share options, restricted share plans,
        performance-based awards, share appreciation rights, and employee share purchase
        plans. Public entities (other than those filing as small business issuers)
        will
        be required to apply SFAS 123R as of the first interim or annual reporting
        period that begins after June 15, 2005. Public entities that file as small
        business issuers will be required to apply SFAS 123R in the first interim
        or
        annual reporting period that begins after December 15, 2005. For nonpublic
        entities, SFAS 123R must be applied as of the beginning of the first annual
        reporting period beginning after December 15, 2005. Our Company is evaluating
        the impact of adopting this standard on the Company's results of operations
        and
        financial position.
  In
        March
        2005, the SEC staff issued Staff Accounting Bulletin No. 107 ("SAB 107")
        to give
        guidance on the implementation of SFAS No. 123R. Our Company will consider
        SAB
        107 during the implementation of SFAS No. 123R.
  35
  Results
        of Operations
  **Twelve
        months ended June 30, 2005 compared to Twelve months ended June 30,
        2004** ****
  The
        results of the operations include the accounts of the Company and its
        wholly-owned subsidiaries.
  Operating
        results for CSA were included for the twelve months in 2005 compared to four
        months in 2004. Operating results for CLI Group and Avensys were included
        from
        the date of acquisition of February 28, 2005. Operating results for C-Chip
        were
        included from April 1, 2005.
  Our
        revenues for the twelve months ended June 30, 2005 were $7,021,228 compared
        to
        $1,040,898 last year. The increase was primarily due to acquisition of CLI
        and
        Avensys during the year. For the same period, our product revenue accounted
        for
        $3,580,619 compared to $210,222 last year. An increase of $3,238,000 was
        primarily due to the acquisition of Avensys. Our service revenues were
        $3,440,609 for the period ended June 30, 2005 compared to $830,676 in the
        prior
        year. An increase of $1,472,000 was due to the acquisition of CLI during
        the
        year and $1,164,000 was due to the impact of CSA that accounted for twelve
        months in 2005 compared to four months in 2004. Gross margin for the twelve
        months ended June 30, 2005 was $2,354,728 compared to $379,059 for the same
        period last year. Our net loss for the twelve months ended June 30, 2005
        was
        $6,230,943 compared to $4,590,561 for the same period last year. Net losses
        were
        generated mainly by our wholly owned subsidiary CSA, by our re-engineering
        of
        the c-chip product line and by increased corporate expenses arising out of
        the
        acquisitions and the February financing.
  Operating
        expenses for the twelve months ended June 30, 2005 were $7,724,241 compared
        to
        $3,522,643 for the same period last year. Selling, General and Administration
        expenses for the twelve months ended June 30 2005, which exclude stock based
        compensation of $1,216,542, were $4,538,256 compared to $1,858,376 in the
        same
        period last year, also excluding stock based compensation of $856,384 last
        year.
        The above reflected increased marketing, consulting and professional expenses
        in
        the period ended June 30, 2005. Research and development expenses for the
        twelve
        months ended June 30, 2005 were $731,865 compared to $351,584 for the same
        period last year. Acquired in-process research and development for the twelve
        months ended June 30, 2005 was $386,749 compared to none last year. Impairment
        of goodwill and other intangible assets for the twelve months ended June
        30,
        2005 was $180,974 compared to $278,852 in the prior year.
  Our
        results for the twelve months ended June 30, 2005 includes the results of
        recently acquired CLI, from February 28, 2005 to June 30, 2005, and the results
        of Avensys from February 28, 2005 to June 30, 2005, and C-Chip since April
        1,
        2005.
  36
  **Financial
        Condition, Liquidity and Capital Resources**
  We
        are
        involved in the risk mitigation business. Through our different business
        units,
        our aim is to provide services and solutions to our customers encompassing
        all
        aspects of the security industry, from the collection and transmission of
        information, to the treatment and analysis of the data collected, all to
        offer
        the required intervention and protection whether it pertains to assets, persons
        or the environment. So far, our operations have been financed primarily from
        cash on hand, from the sale of common shares or of convertible debentures
        and
        with respect to Avensys, CLI and CSA primarily from revenue from the sales
        of
        products and services.
  As
        of
        June 30, 2005 we had a deficiency in working capital of $1,329,550, compared
        to
        a working capital of $1,567,254 at June 30, 2004. Included in these figures,
        a
        cash balance of $287,147 (2004: $1,561,020), $2,858,275 (2004: $237,384)
        in
        accounts receivable, $1,097,776 (2004: $155,680) in inventory, $1,507,959
        (2004:
        $165,362) in accounts payable and $2,021,127 (2004: $232,705) in accrued
        liabilities and $1,598,273 (2004: $221,490) in loans payable. The main reason
        for these significant changes is due to the consolidation of our new
        wholly-owned subsidiaries, Avensys and CLI.
  Net
        cash
        used for our operations was $2,661,708 (2004: $1,813,789). We mainly financed
        our operations and acquisitions through the issuance of a Senior Convertible
        Debenture for a total cash proceeds of $4,675,000 and the issuance of 10,400,002
        common shares. Additional cash was raised through the exercise of 2,120,501
        stock options for $205,012 (2004: $339,618).
  As
        of
        June 30, 2005, our Company’s total assets were $20,115,755 compared to
        $3,053,936. The increase is due to acquisition of our two wholly-owned
        subsidiaries. The increase in total assets was primarily attributable to
        Goodwill, $9,727,454 compared to $107,000 in 2003, and in intangible assets
        $3,852,772 compared to $447,125 in 2003. The main reason for these significant
        changes is due to the consolidation of our new wholly-owned subsidiaries,
        Avensys and CLI.
  As
        of
        June 30,2005, the Company had 54,782,802 issued and outstanding shares compared
        to 39,595,803 in 2003. The increase in common shares is mainly due to the
        issuance of 10,400,002 common shares for Avensys business
        acquisition.
  Stock
        options outstanding at June 30 2005 totaled 3,842,500 at a weighted average
        exercise price of $0.65 and have a weighted average remaining contractual
        life
        of 4.13 years.
  In
        January, 2005, we completed the acquisition of Markus 360, an asset management
        software solution designed to control and monitor the movement of assets
        within
        one or many premises. The purchase price of $125,000 was satisfied by the
        issuance of 164,474 restricted shares of our common stock. The purchase
        agreement requires us to pay the seller a royalty of 10% of future gross
        revenue
        of the software, up to a maximum of $1,000,000, over a 5 year period.
  37
  In
        February, 2005, we completed the acquisition of CLI of Montreal Canada, and
        all
        businesses related to CLI, including Commercial Business Bureau Inc. The
        purchase price was $3,000,000CND (US$2,439,000) and a US$1,394,000 convertible
        debenture with a coupon of 9% and a 5 year maturity date. At the option of
        the
        holders, the debenture is convertible into 1,700,000 shares of our common
        stock
        at price of $0.82 per share.
  In
        February 2005, we entered into a Purchase Agreement with eighteen institutional
        and accredited investors under the terms of which we issued Units consisting
        of
        (i) an aggregate of $4,675,000 of our Company's 9.0% Senior Secured Convertible
        Notes, Series A, which are convertible into shares of our common stock at
        a
        conversion price of $0.65 per share. Under the terms of the 9.0% Senior Secured
        Convertible Note, Series A, principal on the Note shall be paid in 20 equal
        monthly installments, with each payment equal to 5% of the principal amount,
        commencing on June 23, 2005 and continuing on the same day of each month
        thereafter to the Holder on the tenth date immediately preceding the Principal
        Payment Date. All payments of principal by us shall be made at our option
        in
        cash or, with 10 business days prior notice, in common stock of our company
        valued at 85% of the average closing bid price of the security in the most
        recent five trading days prior to a Valuation Date. Further, as part of the
        Purchase Agreement, investors were issued warrants, which if exercised, will
        provide $5,304,252 as follows:
  i)
                  5,394,131
                      warrants exercisable at $0.75 each and expiring in February
                      2010.ii)
                  1,798,077
                      warrants exercisable at $0.70 each and expiring in February
                      2006.
 Related
          to the completion of the above private placement, we agreed to issue warrants
          to
          the placement agents, which if exercised, will provide $472,724 as
          follows:
  i)
                  336,635
                      warrants exercisable at $0.0001 each and expiring in February
                      2010.ii)
                  215,
                      385 warrants exercisable at $0.65 each and expiring in February
                      2010.iii)
                  323,
                      076 warrants exercisable at $0.75 each and expiring in February
                      2010iv)
                  107,
                      692 warrants exercisable at $0.70 each and expiring in February
                      2006v)
                  20,000
                      warrants exercisable at $0.75 each and expiring three (3) following
                      the
                      effectiveness of the current registration
                      statement.
  In
        March
        2005, we acquired all of the issued and outstanding common stock of Avensys.
        We
        issued 10,400,000 restricted shares of our common stock in exchange for
        15,746,369 shares of Avensys Inc. which constituted all of the issued and
        outstanding common stock of Avensys Inc. Further, we agreed to pay CDN$385,000
        to holders of options of Avensys, Inc. and then cancelled the options. The
        beneficiaries of the options have received CDN$231,000 as of the date hereof
        and
        will receive CDN$154,000 on or before December 31, 2005. The balance of the
        purchase price due not later than December 31, 2005 will accrue interest
        as from
        the date of closing at a rate of twelve percent (12%) per year calculated
        daily
        and payable monthly and any unpaid interest will carry interest at the same
        rate.
  38
  The
        shares issued in exchange for the Avensys shares are restricted shares and
        have
        been deposited in escrow and will be released to the shareholders as follows:
  -
                A
                    first portion representing twenty percent (20 %) of the issued
                    shares will
                    be released to the stockholders four (4) months following the
                    closing of
                    the transaction;-
                a
                    second portion representing twenty percent (20 %) of the issued
                    shares
                    will be released to the stockholders six (6) months after the
                    closing of
                    the transaction;-
                A
                    third portion representing twenty percent (20 %) of the issued
                    shares will
                    be released to the stockholders nine (9) months after the closing
                    of the
                    transaction, a fourth portion representing twenty percent (20
                    %) of the
                    issued shares will be released to the stockholders twelve (12)
                    months
                    after the closing of the transaction; and,-
                The
                    last portion representing the remaining twenty percent (20 %)
                    of the
                    issued will be released to the stockholders eighteen (18) months
                    after the
                    closing of the transaction.
  39
 **ITEM
        7.**  **FINANCIAL
        STATEMENTS AND SUPPLEMENTAL DATA**
   40
  Manaris
        Corporation
 (Formerly
        C-Chip Technologies Corporation
 (Formerly
        A Development Stage Company)
 Consolidated
        Financial Statements
 June
        30,
        2005 and 2004
 
 IndexReport
                  of Independent Registered Public Accounting Firm
              F-1Consolidated
                  Balance Sheets
              F-2Consolidated
                  Statements of Operations
              F-3Consolidated
                  Statements of Cash Flows
              F-4Consolidated
                  Statement of Stockholders’ Equity
              F-6Notes
                  to the Consolidated Financial Statements
              F-7
 
 
 
 
 
 
 
 Report
        of Independent Registered Public Accounting Firm
  To
        the
        Stockholders and Board of Directors
 of
        Manaris Corporation (formerly C-Chip Technologies Corporation)
  We
        have
        audited the accompanying consolidated balance sheets of Manaris Corporation
        (formerly C-Chip Technologies Corporation) as of June 30, 2005 and 2004 and
        the
        related consolidated statements of operations, cash flows and stockholders’
        equity for each of the two years in the period ended June 30, 2005. These
        consolidated financial statements are the responsibility of the Company’s
        management. Our responsibility is to express an opinion on these consolidated
        financial statements based on our audits.
 
 We
        conducted our audits in accordance with the Standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether the
        financial statements are free of material misstatement. An audit includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements. An audit also includes assessing the accounting
        principles used and significant estimates made by management, as well as
        evaluating the overall financial statement presentation. We believe that
        our
        audits provide a reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of Manaris Corporation
        (formerly C-Chip Technologies Corporation), as of June 30, 2005 and 2004,
        and
        the results of its operations and its cash flows for each of the two years
        in
        the period ended June 30, 2005, in conformity with accounting principles
        generally accepted in the United States.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        the
        Company will continue as a going concern. As discussed in Note 1 to the
        consolidated financial statements, the Company has incurred significant
        operating losses since inception. The Company's working capital and cash
        flows
        generated from product and service revenues may not be sufficient to fund
        operations for the next twelve months. These factors raise substantial doubt
        about the Company’s ability to continue as a going concern. Management’s plans
        in regard to these matters are also discussed in Note 1. The consolidated
        financial statements do not include any adjustments relating to the
        recoverability and classification of recorded asset amounts or the amounts
        and
        classification of liabilities that might be necessary should the Company
        be
        unable to continue as a going concern.
 
 
 */s/
        “Manning Elliott”*
 
 
 CHARTERED
        ACCOUNTANTS
 Vancouver,
        Canada
 August
        29, 2005
  F-1
  Manaris
        Corporation
 (Formerly
        C-Chip Technologies Corporation)
 (Formerly
        A Development Stage Company)
 Consolidated
        Balance Sheets
 (expressed
        in U.S. dollars)
 
 June
                  30,
                2005
                $
              
              June
                  30,
                2004
                $ASSETSCurrent
                  AssetsCash
              
              
              287,147
              
              
              1,561,020Accounts
                  receivable, net of allowance for doubtful accounts of $141,093
                  and $5,805,
                  respectively
              
              
              2,858,275
              
              
              237,384Other
                  receivables (Note 7)
              
              
              899,248
              
              
              —Inventories
                  (Note 7)
              
              
              1,097,776
              
              
              155,680Note
                  receivable from a related party (Note 9(b))
              
              
              —
              
              
              417,899Prepaid
                  expenses
              
              
              143,717
              
              
              45,554Restricted
                  marketable securities
              
              
              81,606
              
              
              —Total
                  Current Assets
              
              
              5,367,769
              
              
              2,417,537Property
                  and Equipment (Note 8)
              
              
              731,075
              
              
              82,274Intangible
                  Assets (Note 6)
              
              
              3,852,772
              
              
              447,125Goodwill
                  (Notes 3 and 6)
              
              
              9,727,454
              
              
              107,000Deferred
                  Financing Costs
              
              
              436,685
              
              
              —Total
                  Assets
              
              
              20,115,755
              
              
              3,053,936LIABILITIES
                  AND STOCKHOLDERS’ EQUITYCurrent
                  LiabilitiesAccounts
                  payable
              
              
              1,507,959
              
              
              165,362Accrued
                  liabilities (Note 7)
              
              
              2,021,127
              
              
              232,705Loans
                  payable (Note 10)
              
              
              1,598,273
              
              
              221,490Current
                  portion of long-term debt
              
              
              199,878
              
              
              —Current
                  portion of convertible debentures
              
              
              893,436
              
              
              —Due
                  to related parties (Note 9(a))
              
              
              476,646
              
              
              230,726Total
                  Current Liabilities
              
              
              6,697,319
              
              
              850,283Long-term
                  Debt, less Current Portion (Note 11)
              
              
              483,240
              
              
              —Convertible
                  Debentures (Note 12)
              
              
              1,687,304
              
              
              —Total
                  Liabilities
              
              
              8,867,863
              
              
              850,283Non-controlling
                  Interest
              
              
              18,033
              
              
              —Commitments
                  and Contingencies (Notes 1 and 16)Stockholders’
                  EquityCommon
                  Stock, 100,000,000 shares authorized with a par value of $0.00001;
                  54,782,802 and 39,595,803 issued and outstanding,
                  respectively
              
              
              548
              
              
              396Additional
                  Paid-in Capital
              
              
              24,142,078
              
              
              8,536,780Deferred
                  Compensation
              
              
              —
              
              
              (25,974
              )Accumulated
                  Other Comprehensive Income (Loss)
              
              
              (364,415
              )
              
              9,860Deficit
              
              
              (12,548,352
              )
              
              (6,317,409
              )Total
                  Stockholders’ Equity
              
              
              11,229,859
              
              
              2,203,653Total
                  Liabilities and Stockholders’ Equity
              
              
              20,115,755
              
              
              3,053,936
 
 (The
              Accompanying Notes are an Integral Part of the Consolidated Financial
              Statements)
 F-2
 
 Manaris
        Corporation
 (Formerly
        C-Chip Technologies Corporation)
 (Formerly
        A Development Stage Company)
 Consolidated
        Statements of Operations
 (expressed
        in U.S. dollars)
 
 For
                  the Years Ended
                June
                  30,2005
                $
              
              2004
                $RevenueProduct
              
              
              3,580,619
              
              
              210,222Service
              
              
              3,440,609
              
              
              830,676Total
                  Revenue
              
              
              7,021,228
              
              
              1,040,898Cost
                  of RevenueProduct
              
              
              2,255,020
              
              
              102,487Service
              
              
              2,411,480
              
              
              559,352Total
                  Cost of Revenue
              
              
              4,666,500
              
              
              661,839Gross
                  Margin
              
              
              2,354,728
              
              
              379,059Operating
                  ExpensesDepreciation
                  and amortization
              
              
              461,819
              
              
              177,456Selling,
                  general and administrative
              
              
              4,538,256
              
              
              1,858,367Acquired
                  in-process research and development
              
              
              386,749
              
              
              —Impairment
                  of goodwill and other intangible assets
              
              
              180,974
              
              
              278,852Impairment
                  of long-lived assets
              
              
              15,487
              
              
              —Research
                  and development
              
              
              731,865
              
              
              351,584Stock
                  based compensation1
              
              
              1,216,542
              
              
              856,384Settlement
                  costs
              
              
              192,549
              
              
              —Total
                  Operating Expenses
              
              
              7,724,241
              
              
              3,522,643Loss
                  from Operations
              
              
              (5,369,513
              )
              
              (3,143,584
              )Other
                  ExpensesInterest
                  expense
              
              
              288,735
              
              
              11,901Debenture
                  accretion
              
              
              609,225
              
              
              16,625Discount
                  on conversion of debt
              
              
              —
              
              
              1,418,451Net
                  Loss Before Income Tax Benefit
              
              
              (6,267,473
              )
              
              (4,590,561
              )Income
                  Tax Benefit
              
              
              37,787
              
              
              —Net
                  Loss Before Non-controlling Interest
              
              
              (6,229,686
              )
              
              (4,590,561
              )Non-controlling
                  Interest
              
              
              1,257
              
              
              —Net
                  Loss
              
              
              (6,230,943
              )
              
              (4,590,561
              )Comprehensive
                  Loss (Note 15)
              
              
              (6,605,218
              )
              
              (4,580,701
              )Net
                  Loss Per Share - Basic and Diluted
              
              
              (0.15
              )
              
              (0.14
              )Weighted
                  Average Shares Outstanding
              
              
              41,022,000
              
              
              33,450,000(1)
                  Stock based compensation is excluded from the following:Selling,
                  general and administration
              
              
              1,216,542
              
              
              856,384
  (The
        Accompanying Notes are an Integral Part of the
        Consolidated Financial Statements)
 F-3
 
 Manaris
        Corporation
 (Formerly
        C-Chip Technologies Corporation)
 (Formerly
        A Development Stage Company)
 Consolidated
        Statements of Cash Flows
 (expressed
        in U.S. dollars)
  For
                  the Years Ended
                June
                  30,2005
                $
              
              2004
                $Operating
                  ActivitiesNet
                  loss
              
              
              (6,230,943
              )
              
              (4,590,561
              )Adjustments
                  to reconcile net loss to cash used in operating activitiesContingent
                  consideration paid in shares
              
              
              148,000
              
              
              303,000Stock
                  based compensation
              
              
              1,068,542
              
              
              553,384Expenses
                  settled with issuance of common shares
              
              
              79,200
              
              
              261,534Discount
                  on conversion of debt
              
              
              —
              
              
              1,418,451Depreciation
                  and amortization
              
              
              461,819
              
              
              177,456Amortization
                  deferred financing costs
              
              
              56,525
              
              
              —In-process
                  research and development
              
              
              386,749
              
              
              —Non-controlling
                  interest
              
              
              1,257
              
              
              —Accretion
                  of debenture
              
              
              609,225
              
              
              16,625Impairment
                  of goodwill and other intangible assets
              
              
              180,974
              
              
              278,852Impairment
                  of long-lived assets
              
              
              15,487
              
              
              —Impairment
                  of promissory note
              
              
              383,536
              
              
              —Changes
                  in operating assets and liabilities(Increase)
                  in accounts receivable
              
              
              (852,061
              )
              
              (82,816
              )Decrease
                  (increase) in inventory
              
              
              28,811
              
              
              (142,340
              )Decrease
                  in other receivable
              
              
              114,607
              
              
              —Decrease
                  (increase) in prepaid and other assets
              
              
              81,686
              
              
              (33,108
              )Increase
                  in due to related parties
              
              
              245,920
              
              
              —Increase
                  in accounts payable and accrued liabilities
              
              
              558,958
              
              
              25,734Net
                  Cash Used In Operating Activities
              
              
              (2,661,708
              )
              
              (1,813,789
              )Investing
                  ActivitiesAcquisition
                  of companies, net of cash acquired
              
              
              (2,741,657
              )
              
              —Purchase
                  of property and equipment
              
              
              (36,689
              )
              
              (28,429
              )Payment
                  received on note receivable
              
              
              —
              
              
              55,372Acquisition
                  of customer list
              
              
              (26,644
              )
              
              —Net
                  Cash Provided by (Used) in Investing Activities
              
              
              (2,804,990
              )
              
              26,943Financing
                  ActivitiesRepayments
                  on bank credit line
              
              
              (318,555
              )
              
              (62,250
              )Repayment
                  of debt
              
              
              (84,267
              )
              
              —Related
                  party advances
              
              
              —
              
              
              (2,840
              )Deferred
                  financing costs related to senior convertible debenture
              
              
              (413,681
              )
              
              —Proceeds
                  from loans
              
              
              445,561
              
              
              —Proceeds
                  from senior convertible debenture
              
              
              4,675,000
              
              
              —Proceeds
                  from issuance of common shares, net
              
              
              —
              
              
              3,054,973Proceeds
                  from exercise of stock options and warrants
              
              
              205,014
              
              
              339,618Net
                  Cash Provided By Financing Activities
              
              
              4,509,072
              
              
              3,329,501Effect
                  of Exchange Rate Changes on Cash
              
              
              (316,247
              )
              
              9,860Increase
                  (Decrease) in Cash
              
              
              (1,273,873
              )
              
              1,552,515Cash
                  - Beginning of Year
              
              
              1,561,020
              
              
              8,505Cash
                  - End of Year
              
              
              287,147
              
              
              1,561,020
  (The
        Accompanying Notes are an Integral Part of the
        Consolidated Financial Statements)
 F-4
 
 Manaris
        Corporation
 (Formerly
        C-Chip Technologies Corporation)
 (Formerly
        A Development Stage Company)
 Consolidated
        Statements of Cash Flows (continued)
 (expressed
        in U.S. dollars)
 
 For
                  the Years Ended
                June
                  30,2005
                $
              
              2004
                $Non-Cash
                  Financing and Investing ActivitiesIssuance
                  of common shares for services
              
              
              79,200
              
              
              261,534Issuance
                  of common shares for finder’s fees and acquisition related consulting
                  fees
              
              
              678,463
              
              
              —Issuance
                  of common shares for Avensys business acquisition
              
              
              7,633,588
              
              
              —Issuance
                  of convertible debt for CLI business acquisition
              
              
              1,380,543
              
              
              —Issuance
                  of common shares for technology acquisition
              
              
              125,000
              
              
              —Issuance
                  of common shares for acquisition of Canadian Security Agency (2004)
                  Inc.
              
              
              —
              
              
              468,000Issuance
                  of common shares for settlement of promissory note
              
              
              —
              
              
              500,000Issuance
                  of common shares for convertible debenture
              
              
              830,000
              
              
              966,722Issuance
                  of common shares to settle outstanding payables
              
              
              127,327
              
              
              —Supplemental
                  DisclosuresInterest
                  paid
              
              
              48,597
              
              
              11,901Income
                  taxes paid
              
              
              27,441
              
              
              —
 
 
 (The
        Accompanying Notes are an Integral Part of the
        Consolidated Financial Statements)
 F-5
 Manaris
        Corporation
 (Formerly
        C-Chip Technologies Corporation)
 (Formerly
        A Development Stage Company)
 Consolidated
        Statement of Stockholders’ Equity (Deficit)
 (Expressed
        in U.S. Dollars)
  Common
                  Shares
              
              Additional
                Paid-In
              
              Deferred
              
              Accumulated
                Other
                Comprehensive
              
              
              
              Total
                Stockholders’#
                  of
              
              Amount
              
              Capital
              
              Compensation
              
              Income
              
              Deficit
              
              EquityShares
              
              
              
              $$
              
              
              
              $$
              
              
              
              $$Balance,
                  June 30, 2003
              
              
              25,293,960
              
              
              253
              
              
              645,268
              
              
              —
              
              
              —
              
              
              (1,726,848
              )
              
              (1,081,327
              )Common
                  stock issued for services
              
              
              788,206
              
              
              8
              
              
              261,526
              
              
              —
              
              
              —
              
              
              —
              
              
              261,534Common
                  stock issued for cash
              
              
              5,503,008
              
              
              55
              
              
              3,054,917
              
              
              —
              
              
              —
              
              
              —
              
              
              3,054,972Common
                  stock issued for promissory note
              
              
              909,091
              
              
              9
              
              
              499,991
              
              
              —
              
              
              —
              
              
              —
              
              
              500,000Common
                  stock issued for debenture
              
              
              3,910,120
              
              
              39
              
              
              966,683
              
              
              —
              
              
              —
              
              
              —
              
              
              966,722Discount
                  on debenture
              
              
              —
              
              
              —
              
              
              1,418,451
              
              
              —
              
              
              —
              
              
              —
              
              
              1,418,451Common
                  stock issued for purchase of business
              
              
              1,600,000
              
              
              16
              
              
              467,984
              
              
              —
              
              
              —
              
              
              —
              
              
              468,000Issuance
                  of common shares from exercise of stock option
              
              
              1,591,418
              
              
              16
              
              
              339,602
              
              
              —
              
              
              —
              
              
              —
              
              
              339,618Stock
                  based compensation
              
              
              —
              
              
              —
              
              
              882,358
              
              
              (25,974
              )
              
              —
              
              
              —
              
              
              856,384Translation
                  adjustment
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              9,860
              
              
              —
              
              
              9,860Net
                  loss for the year
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (4,590,561
              )
              
              (4,590,561
              )Balance,
                  June 30, 2004
              
              
              39,595,803
              
              
              396
              
              
              8,536,780
              
              
              (25,974
              )
              
              9,860
              
              
              (6,317,409
              )
              
              2,203,653Common
                  stock issued for services
              
              
              1,002,145
              
              
              10
              
              
              757,653
              
              
              —
              
              
              —
              
              
              —
              
              
              757,663Common
                  stock issued for purchase of business
              
              
              10,400,002
              
              
              104
              
              
              7,633,484
              
              
              —
              
              
              —
              
              
              —
              
              
              7,633,588Common
                  stock issued for purchase of intangible asset
              
              
              164,474
              
              
              1
              
              
              124,999
              
              
              —
              
              
              —
              
              
              —
              
              
              125,000Issuance
                  of common shares from exercise of stock options
              
              
              2,120,501
              
              
              22
              
              
              204,990
              
              
              —
              
              
              —
              
              
              —
              
              
              205,012Stock
                  based compensation
              
              
              —
              
              
              —
              
              
              1,190,568
              
              
              —
              
              
              —
              
              
              —
              
              
              1,190,568Amortization
                  of deferred compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              25,974
              
              
              —
              
              
              —
              
              
              25,974Common
                  stock issued to settle outstanding payables
              
              
              176,767
              
              
              2
              
              
              127,325
              
              
              —
              
              
              —
              
              
              —
              
              
              127,327Discount
                  on debenture
              
              
              —
              
              
              —
              
              
              2,470,674
              
              
              —
              
              
              —
              
              
              —
              
              
              2,470,674Debenture
                  conversion
              
              
              1,106,667
              
              
              11
              
              
              829,989
              
              
              —
              
              
              —
              
              
              —
              
              
              830,000Warrants
                  issued
              
              
              —
              
              
              —
              
              
              2,265,616
              
              
              —
              
              
              —
              
              
              —
              
              
              2,265,616Common
                  stock issued pursuant to warrants exercised
              
              
              216,443
              
              
              2
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              2Translation
                  adjustment
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (374,275
              )
              
              —
              
              
              (374,275
              )Net
                  loss for the year
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (6,230,943
              )
              
              (6,230,943
              )Balance,
                  June 30, 2005
              
              
              54,782,802
              
              
              548
              
              
              24,142,078
              
              
              —
              
              
              (364,415
              )
              
              (12,548,352
              )
              
              11,229,859
 
  (The
        Accompanying Notes are an Integral Part of the
        Consolidated Financial Statements)
 F-6
 Manaris
              Corporation
 (Formerly
              C-Chip Technologies Corporation)
 (Formerly
              A Development Stage Company)
 Notes
              to
              Consolidated Financial Statements
 June
              30,
              2005
 (Expressed
              in U.S. Dollars)
 
 1.  Nature
        of
        Operations and Continuance of Business
  Manaris
        Corporation (the “Company”) was incorporated in the State of Nevada on June 26,
        2000 as Keystone Mines Limited.
  On
        January 7, 2003 the Company acquired assets and intellectual property. It
        then
        changed its business focus to the development of security technology and
        changed
        its name to C-Chip Technologies Corporation. In July 2005, the Company changed
        it’s name to Manaris Corporation.
  On
        February 17, 2004, the Company acquired Canadian Security Agency (2004) Inc.,
        (“CSA”) a company providing guard and security services. (Refer to Note
        3(c)).
  The
        Company was previously a development stage company as defined by Statement
        of
        Financial Accounting Standard No. 7, “Development Stage Companies”. The Company
        has achieved significant revenue from acquired companies as described below.
        The
        companies acquired during the year ended June 30, 2005 have significant
        operations which involve security services and products. The Company is no
        longer considered a development stage company.
  On
        February 28, 2005, the Company acquired, through its wholly owned subsidiary
        corporation, 6327915 Canada, Inc., 100% of the outstanding shares of 9151-3929
        Quebec Inc., ("Quebec") and 3826961 Canada Inc. ("Canada"). Quebec and Canada
        collectively own 100% of 3428249 Canada Inc. 3428249 Canada Inc. owns 100%
        of
        Chartrand Laframboise Inc., a company specializing in the security field,
        and
        100% of 9126-7641 Quebec Inc., a company specializing in the credit management
        and verification. On June 30, 2005, 3428249 Canada Inc. and 6327915 Canada
        Inc.
        completed a merger transaction. The merged company continues to be 6327915
        Canada Inc. Following the merger 3826961 Canada Inc. and 9151-3929 Quebec
        Inc.
        were each dissolved on June 9, 2005 and September 26, 2005, respectively.
        Collectively, Quebec, Canada, 3428249 Canada Inc., Chartrand Laframboise
        Inc.,
        and 9126-7641 Quebec Inc. are hereinafter collectively referred to as "CLI".
        (Refer to Note 3(a)).
  On
        February 28, 2005 the Company also acquired Avensys Inc. (“Avensys”), a company
        incorporated under Part IA of the Companies Act (Quebec) in Canada. Avensys
        is a
        leader in risk management monitoring solutions for commercial and industrial
        buildings, infrastructures and various environments. (Refer to Note
        3(b)).
  The
        Company’s assets and operations at June 30, 2005 are located largely in Quebec
        and in Ontario, Canada. In April 2005 the Company transferred the production,
        marketing and sales of its C-Chip product technology to it’s wholly-owned
        subsidiary, C-Chip Technologies Corporation (North America).
  The
        Company’s shares trade on the NASD OTC Bulletin Board under the symbol
        MANS.
  The
        Company has experienced significant operating losses since inception and
        has a
        working capital deficiency of $1,329,550. These factors raise substantial
        doubt
        regarding the Company’s ability to continue as a going concern. These
        consolidated financial statements do not include any adjustments to the
        recoverability and classification of recorded assets amounts and classification
        of liabilities that might be necessary should the Company be unable to continue
        as a going concern. The Company has funded itself through issuance of shares
        or
        by loans from shareholders and/or directors. During the next twelve months
        the
        Company plans to fund its operations through cash on hand, the sale of security
        services and the sale of products. If profitable operations are not achieved,
        additional financing will be required to pursue the Company’s business
        plan.
 
 
 2.  Summary
        of Significant Accounting Policies
  Fiscal
        Year
  The
        Company’s fiscal year-end is June 30.
  Basis
        of
        Accounting
  These
        consolidated financial statements are prepared in conformity with accounting
        principles generally accepted in the United States and are presented in US
        dollars.
  F-7
 Manaris
              Corporation
 (Formerly
              C-Chip Technologies Corporation)
 (Formerly
              A Development Stage Company)
 Notes
              to
              Consolidated Financial Statements
 June
              30,
              2005
 (Expressed
              in U.S. Dollars)
 
 2.  Summary
        of Significant Accounting Policies (continued)
  Principles
        of Consolidation
  These
        consolidated financial statements include the accounts of the Company and
        its
        subsidiaries. Consolidated companies include: a) 100% of Avensys and its
        subsidiary, Fizians Inc. of which Avensys owns 70% of its outstanding shares
        and
        the accounts of Avensys Labs Inc., a company in which Avensys holds variable
        interests and is the primary beneficiary. b) 100% of 6327915 Canada, Inc.,
        9151-3929 Quebec Inc., 3826961 Canada Inc., 3428249 Canada Inc., Chartrand
        Laframboise Inc. and 9126-7641 Quebec Inc., (collectively the “CLI Group”) c)
        100% of Canadian Security Agency (2004) Inc. d) 100% of C-Chip Technologies
        Corporation (North America). Operating results for the CLI Group and Avensys
        are
        included from the date of acquisition of February 28, 2005. All inter-company
        accounts and transactions have been eliminated.
  Cash
        and
        Cash Equivalents
  The
        Company considers all highly liquid instruments with maturity of three months
        or
        less at the time of issuance to be cash equivalents.
  Advertising
  The
        Company charges to operations the cost of advertising as incurred which was
        $94,296 for the year ended June 30, 2005 (2004 - $58,900).
  Long-Lived
        Assets
  In
        accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
        Long-Lived Assets”, the Company tests long-lived assets or asset groups for
        recoverability when events or changes in circumstances indicate that their
        carrying amount may not be recoverable. Circumstances which could trigger
        a
        review include, but are not limited to: significant decreases in the market
        price of the asset; significant adverse changes in the business climate or
        legal
        factors; accumulation of costs significantly in excess of the amount originally
        expected for the acquisition or construction of the asset; current period
        cash
        flow or operating losses combined with a history of losses or a forecast
        of
        continuing losses associated with the use of the asset; and current expectation
        that the asset will more likely than not be sold or disposed significantly
        before the end of its estimated useful life.
  Recoverability
        is assessed based on the carrying amount of the asset and its fair value
        which
        is generally determined based on the sum of the undiscounted cash flows expected
        to result from the use and the eventual disposal of the asset, as well as
        specific appraisal in certain instances. An impairment loss is recognized
        when
        the carrying amount is not recoverable and exceeds fair value.
  Foreign
        Currency Transactions/Balances
  The
        Company's functional currency is the Canadian dollar. Occasional transactions
        occur in U.S. dollars, and management has adopted SFAS No. 52, “Foreign Currency
        Translation”. Financial statements denominated in foreign currencies are
        translated into US dollars at rates of exchange in effect at the balance
        sheet
        date. Average rates for the year are used to translate revenues and expenses.
        Resulting translation gains and losses are accumulated in a separate component
        of stockholders’ equity as accumulated other comprehensive income or loss.
        Currency transaction gains and losses are included in the Company’s results of
        operations.
  Use
        of
        Estimates
  The
        preparation of financial statements in conformity with U.S. generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting period.
        Actual results could differ from those estimates.
  F-8
 Manaris
              Corporation
 (Formerly
              C-Chip Technologies Corporation)
 (Formerly
              A Development Stage Company)
 Notes
              to
              Consolidated Financial Statements
 June
              30,
              2005
 (Expressed
              in U.S. Dollars)
 
 2.  Summary
        of Significant Accounting Policies (continued)
  Recent
        Accounting Pronouncements
 In
        May
        2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154,
        “Accounting Changes and Error Corrections - A Replacement of APB Opinion No.
        20
        and SFAS No. 3”. SFAS 154 changes the requirements for the accounting for and
        reporting of a change in accounting principle and applies to all voluntary
        changes in accounting principle. It also applies to changes required by an
        accounting pronouncement in the unusual instance that the pronouncement does
        not
        include specific transition provisions. SFAS 154 requires retrospective
        application to prior periods’ financial statements of changes in accounting
        principle, unless it is impracticable to determine either the period-specific
        effects or the cumulative effect of the change. The provisions of SFAS No.
        154
        are effective for accounting changes and correction of errors made in fiscal
        years beginning after December 15, 2005. The adoption of this standard is
        not
        expected to have a material effect on the Company’s results of operations or
        financial position.
  In
        December 2004, FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets - An
        Amendment of APB Opinion No. 29”. The guidance in APB Opinion No. 29,
“Accounting for Nonmonetary Transactions”, is based on the principle that
        exchanges of nonmonetary assets should be measured based on the fair value
        of
        the assets exchanged. The guidance in that Opinion, however, included certain
        exceptions to that principle. SFAS No. 153 amends Opinion No. 29 to
        eliminate the exception for nonmonetary exchanges of similar productive assets
        and replaces it with a general exception for exchanges of nonmonetary assets
        that do not have commercial substance. A nonmonetary exchange has commercial
        substance if the future cash flows of the entity are expected to change
        significantly as a result of the exchange. The provisions of SFAS No. 153
        are
        effective for nonmonetary asset exchanges occurring in fiscal periods beginning
        after June 15, 2005. Early application is permitted and companies must apply
        the
        standard prospectively. The adoption of this standard is not expected to
        have a
        material effect on the Company’s results of operations or financial
        position.
  In
        December 2004, the Financial Accounting Standards Board (FASB) issued Statement
        of Financial Accounting Standard (SFAS) No. 123R, “Share Based Payment”. SFAS
        123R is a revision of SFAS No. 123 “Accounting for Stock-Based Compensation”,
        and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”
        and its related implementation guidance. SFAS 123R establishes standards
        for the
        accounting for transactions in which an entity exchanges its equity instruments
        for goods or services. It also addresses transactions in which an entity
        incurs
        liabilities in exchange for goods or services that are based on the fair
        value
        of the entity’s equity instruments or that may be settled by the issuance of
        those equity instruments. SFAS 123R focuses primarily on accounting for
        transactions in which an entity obtains employee services in share-based
        payment
        transactions. SFAS 123R does not change the accounting guidance for share-based
        payment transactions with parties other than employees provided in SFAS 123
        as
        originally issued and Emerging Issues Task Force Issue No. 96-18, “Accounting
        for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
        or
        in Conjunction with Selling, Goods or Services”. SFAS 123R does not address the
        accounting for employee share ownership plans, which are subject to AICPA
        Statement of Position 93-6, “Employers’ Accounting for Employee Stock Ownership
        Plans”. SFAS 123R requires a public entity to measure the cost of employee
        services received in exchange for an award of equity instruments based on
        the
        grant-date fair value of the award (with limited exceptions). That cost will
        be
        recognized over the period during which an employee is required to provide
        service in exchange for the award - the requisite service period (usually
        the
        vesting period). SFAS 123R requires that the compensation cost relating to
        share-based payment transactions be recognized in financial statements. That
        cost will be measured based on the fair value of the equity or liability
        instruments issued. The scope of SFAS 123R includes a wide range of share-based
        compensation arrangements including share options, restricted share plans,
        performance-based awards, share appreciation rights, and employee share purchase
        plans. Public entities (other than those filing as small business issuers)
        will
        be required to apply SFAS 123R as of the first interim or annual reporting
        period that begins after June 15, 2005. Public entities that file as small
        business issuers will be required to apply SFAS 123R in the first interim
        or
        annual reporting period that begins after December 15, 2005. For nonpublic
        entities, SFAS 123R must be applied as of the beginning of the first annual
        reporting period beginning after December 15, 2005. The Company is evaluating
        the impact of adopting this standard on the Company’s results of operations and
        financial position.
  In
        March
        2005, the SEC staff issued Staff Accounting Bulletin No. 107 ("SAB 107")
        to give
        guidance on the implementation of SFAS No. 123R. The Company will consider
        SAB
        107 during the implementation of SFAS No. 123R.
  F-9
 Manaris
              Corporation
 (Formerly
              C-Chip Technologies Corporation)
 (Formerly
              A Development Stage Company)
 Notes
              to
              Consolidated Financial Statements
 June
              30,
              2005
 (Expressed
              in U.S. Dollars)
 
 2.  Summary
        of Significant Accounting Policies (continued)
  Financial
        Instruments and Concentrations
  Financial
        instruments include cash, accounts receivable, note receivable, accounts
        payable, accrued liabilities, short and long-term debt and related party
        payables. The fair values approximate their carrying values due to the immediate
        or short-term maturity of these financial instruments.
  The
        Company sells the majority of its products and services in Canada. The Company
        performs periodic credit evaluations of its ongoing customers and generally
        does
        not require collateral. Reserves are maintained for potential credit losses,
        which have not been historically significant. The Company invests its excess
        cash in deposits with major financial institutions.
  Net
        Loss
        Per Share
  The
        Company computes net loss per share in accordance with SFAS No. 128, “Earning
        per Share” (SFAS 128). SFAS 128 requires presentation of both basic and diluted
        net loss per share (EPS) on the face of the income statement. Basic net loss
        per
        share is computed by dividing the net loss for the year by the weighted average
        number of shares of common stock outstanding during the year. Diluted net
        loss
        per share is computed by dividing the net loss for the period by the weighted
        average number of shares of common stock and potential common stock outstanding
        during the period, if dilutive.
  Stock-Based
        Compensation
  The
        Company has elected to apply the intrinsic value method of accounting in
        accordance with Accounting Principles Board Opinion No. 25, “Accounting for
        Stock Issued to Employees” (APB 25). Under the intrinsic value method of
        accounting, compensation expense is recognized if the exercise price of the
        Company’s employee stock options is less than the market price of the underlying
        common stock on the date of grant. Stock-based compensation for employees
        is
        recognized on the straight-line basis over the vesting period of the individual
        options. Stock options granted to non-employees are accounted for under
        Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based
        Compensation” (SFAS 123), which establishes a fair value based method of
        accounting for stock-based awards, and recognizes compensation expense based
        on
        the fair value of the stock award or fair value of the goods and services
        received, whichever is more reliably measurable. Under the provisions of
        SFAS
        123, companies that elect to account for stock-based awards in accordance
        with
        the provisions of APB 25 are required to disclose the pro forma net income
        (loss) that would have resulted from the use of the fair value based method
        under SFAS 123.
  The
        Company also complies with the provisions of FASB Emerging Issues Task Force
        (“EITF”) Issue No. 96-18, *Accounting
        for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
        or
        in Conjunction with Selling, Goods or Services* (“EITF
        96-18”) with respect to stock option grants to non-employees who are consultants
        to the Company. EITF 96-18 requires variable plan accounting with respect
        to
        such non-employee stock options, whereby compensation associated with such
        options is measured on the date such options vest, and incorporates the
        then-current fair market value of the Company’s common stock into the option
        valuation model.
  During
        the year ended June 30, 2005, the Company granted 3,857,668 stock options,
        pursuant to a non-qualified stock option plan at exercise prices ranging
        from
        $0.00001 to $0.933 per share. Stock options granted to non-employees totalled
        1,492,668 of which 1,322,268 have vested. Stock options granted to employees
        vest over a period of one year.
  During
        the years ended June 30, 2005 and June 30, 2004 the Company recognized
        stock-based compensation for non-employees in the amount of $1,068,542 and
        $553,384 respectively. The Company also recognized stock based compensation
        of
        $148,000 ($303,000 in 2004) related to contingent consideration for the
        acquisition of Canadian Security Agency (2004) Inc. (Refer to Note
        3(c)).
  F-10
 Manaris
              Corporation
 (Formerly
              C-Chip Technologies Corporation)
 (Formerly
              A Development Stage Company)
 Notes
              to
              Consolidated Financial Statements
 June
              30,
              2005
 (Expressed
              in U.S. Dollars)
 
 2.  Summary
        of Significant Accounting Policies (continued)
  Stock-Based
        Compensation (continued)
  The
        fair
        value of the options granted during the period was measured at the date of
        grant
        using the Black-Scholes option pricing model with the following weighted-average
        assumptions:
  Year
                  Ended
                June
                  30,2005
              
              2004Risk
                  - free interest rate
              
              
              1.58
              %
              
              2.25
              %Expected
                  volatility
              
              
              43.84
              %
              
              185
              %Expected
                  life of stock options (in years)
              
              
              1.29
              
              
              1.0Assumed
                  dividends
              
              
              None
              
              
              None
  The
        following table illustrates the effect on net loss per share as if the fair
        value method had been applied to all grants of stock options:
  Year
                  ended
                June
                  30,2005
                $
              
              2004
                $Net
                  loss - as reported
              
              
              (6,230,943
              )
              
              (4,590,561
              )Add:
                  Stock-based compensation expense included in net loss -
                  as reported
              
              
              1,216,542
              
              
              856,384Deduct:
                  Stock-based compensation expense determined under fair value method
              
              
              (2,309,416
              )
              
              (1,520,398
              )Net
                  loss - pro forma
              
              
              (7,323,817
              )
              
              (5,254,575
              )Net
                  loss per share (basic and diluted) - as reported
              
              
              (0.15
              )
              
              (0.14
              )Net
                  loss per share (basic and diluted) - pro forma
              
              
              (0.18
              )
              
              (0.16
              )
  Revenue
        Recognition
  The
        Company’s C-Chip technology has generated limited commercial sales of products.
        The Company developed prototypes for testing by potential customers, which
        were
        billed for a portion of the costs incurred. Commercial product sales are
        recorded when shipped as part of a sales agreement, usually by customer purchase
        order. Certain product sales contain a small charge for after sales service
        for
        up to one year; such amounts are deferred and recognized as revenue when
        earned.
        Products carry a one-year replacement warranty and the level of actual warranty
        expense has not been material.
  The
        Company recognizes revenue in accordance with Securities and Exchange Commission
        Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition in Financial
        Statements.” Revenue is recognized only when the price is fixed or determinable,
        persuasive evidence of an arrangement exists, the service is performed, and
        collectibility is reasonably assured.
  Sales
        of
        security services commenced on the acquisition of Canadian Security Agency
        (2004) Inc. on February 17, 2004. Clients are provided security services
        with revenue recognized as services are performed.
  The
        CLI
        Group recognizes revenue for service contracts as the services are performed
        using a proportional performance model. Revenues from investigation contracts
        are reported on the percentage of completion method of accounting using
        measurements of progress toward completion appropriate for the work performed.
        Progress is generally based upon man-hours or costs incurred based upon the
        appropriate method for the type of job.
  Avensys
        Inc. recognizes revenues when goods are shipped and the risks and rewards
        have
        transferred to customers. Revenues are recorded net of rebates, discounts
        and
        sales returns. Avensys and its 70% owned subsidiary, specialize in developing,
        manufacturing and installing control and monitoring remote security
        solutions.
  F-11
 Manaris
              Corporation
 (Formerly
              C-Chip Technologies Corporation)
 (Formerly
              A Development Stage Company)
 Notes
              to
              Consolidated Financial Statements
 June
              30,
              2005
 (Expressed
              in U.S. Dollars)
 
 2.  Summary
        of Significant Accounting Policies (continued)
  Allowance
        for Uncollectible Accounts
  The
        Company continually monitors timely payments and assesses any collection
        issues.
        The allowance for doubtful accounts is based on the Company’s detailed
        assessment of the collectibility of specific customer accounts. Any significant
        customer accounts that are not expected to be collected are excluded from
        revenues.
  Property
        and Equipment
  Property
        and equipment are recorded at cost. Amortization is based on the following
        annual rates or period:
  Computer
                  equipment
              Straight-line
                  and declining balance
              30%-33
                  1/3%Furniture
                  and fixture
              Straight-line
                  and declining balance
              20%Leasehold
                  improvements
              Straight-line
              5
                  to 8 yearsSurveillance
                  equipment
              Declining
                  balance
              30%Communication
                  equipment
              Declining
                  balance
              20%Laboratory
                  equipment
              Straight-line
                  and declining balance
              20%Automotive
                  equipment and software
              Declining
                  balance
              30%Machinery
                  and office equipment
              Declining
                  balance
              20%
  Inventory
  Inventory
        consists of finished products available for sale to customers and components.
        Inventory is valued at the lower of cost and net realizable value. Cost is
        determined on a weighted average cost basis.
  Intangible
        Assets
  An
        acquired intangible asset that represents technology that has reached
        technological feasibility is capitalized at cost. Intangible assets with
        definite lives are reported at cost, less accumulated amortization. The Company
        does not have any identified intangible assets with an indefinite life. Acquired
        in-process research and development is charged to operations in the period
        of
        acquisition. The Company provides for amortization on a straight-line basis
        over
        the following periods:
  Customer lists
              3-10
                  yearsLicenses, patents and
                trademarks
              4-6 yearsNon-compete agreements
              4 years
  Acquired
        Goodwill
  Goodwill
        represents the excess of the purchase price of acquired assets over the fair
        values of the identifiable assets acquired and liabilities assumed. Pursuant
        to
        SFAS No. 141, the Company does not amortize goodwill, but tests for impairment
        of goodwill on an annual basis and at any other time if events occur or
        circumstances indicate that the carrying amount of goodwill may not be
        recoverable. Circumstances that could trigger an impairment test include
        but are
        not limited to: a significant adverse change in the business climate or legal
        factors; an adverse action or assessment by a regulator; unanticipated
        competition and loss of key personnel. Goodwill is tested for impairment
        using
        present value techniques of estimated future cash flows; or using valuation
        techniques based on multiples of earnings. If the carrying amount of goodwill
        exceeds the implied fair value of that goodwill, an impairment loss is charged
        to operations.
  Deferred
        Financing Costs
  Costs
        relating to long-term debt are deferred and amortized over the term of the
        related debt facilities.
  Research
        and Development Expenses and Tax Credits
  Research
        and development expenses are expensed as they incurred. Research and development
        tax credits are accounted for as a reduction of the income tax provision
        during
        the year in which the costs are incurred, provided that the Company is
        reasonably certain that the credits will be received. The investment tax
        credits
        must be examined and approved by the tax authorities and it is possible that
        the
        amounts granted will differ from the amounts recorded.
  F-12
 Manaris
              Corporation
 (Formerly
              C-Chip Technologies Corporation)
 (Formerly
              A Development Stage Company)
 Notes
              to
              Consolidated Financial Statements
 June
              30,
              2005
 (Expressed
              in U.S. Dollars)
 
 2.  Summary
        of Significant Accounting Policies (continued)
  Contingent
        Consideration
  In
        connection with the Company’s acquisition of Canadian Security Agency (2004)
        Inc., if certain future internal performance goals are later satisfied, the
        aggregate consideration for the acquisition will be increased. Such additional
        consideration, if earned, will be paid in the form of additional shares of
        the
        Company’s common stock now held in escrow. Any additional consideration paid
        will be allocated between goodwill, stock-based compensation expense and
        deferred compensation. The measurement, recognition and allocation of contingent
        consideration are accounted for using the following principles:
  *Measurement
        and Recognition*
 In
        accordance with SFAS No. 141, Business Combinations (“SFAS 141”),
        contingent consideration is recorded when a contingency is satisfied and
        additional consideration is issued or becomes issuable. The Company records
        the
        additional consideration issued or issuable in connection with the acquisition
        when a specified internal performance goal is met. For additional consideration
        paid in stock, the Company calculates the amount of additional consideration
        using the closing price of its common stock on the date the performance goal
        is
        satisfied.
  *Amount
        Allocated to Goodwill*
 In
        accordance with EITF No. 95-8, Accounting for Contingent Consideration
        Paid
        to the Shareholders of an Acquired Enterprise in a Purchase Business Combination
        (“EITF 95-8”) and FIN 44, the portion of additional consideration issuable
        to holders of unrestricted common stock and fully vested options as of the
        acquisition date is recorded as additional purchase price, as the consideration
        is unrelated to continuing employment with the Company. Such portion is
        allocated to goodwill.
  *Amount
        Allocated to Stock-Based Compensation Expense*
 In
        accordance with EITF 95-8, the intrinsic value associated with additional
        consideration related to stock or options that vest between the acquisition
        date
        and the date at which the contingency is satisfied is recorded as an immediate
        charge to stock-based compensation expense because the consideration is related
        to continuing employment with the Company.
  *Amount
        Allocated to Deferred Compensation*
 Additional
        consideration related to options and restricted stock that remain unvested
        when
        the contingency is satisfied is recorded as deferred compensation expense
        under
        EITF 95-8 and FIN 44, as such consideration will only be earned to
        the
        extent that the holder of such options or restricted stock continues to be
        employed by the Company and meets the vesting requirements. The amount recorded
        as deferred compensation is based upon the intrinsic value of the restricted
        stock and unvested options at the date at which the contingency is satisfied.
        The Company amortizes such deferred compensation over the remaining vesting
        period of the underlying restricted stock and unvested options. In the event
        that a holder does not fully vest in the restricted stock or unvested options,
        the unamortized portion of deferred compensation is eliminated.
  Income
        Tax
  Potential
        benefits of income tax losses are not recognized in the accounts until
        realization is more likely than not. The Company has adopted SFAS No. 109
        as of
        its inception and has incurred net operating losses. Pursuant to SFAS 109
        the
        Company is required to compute tax asset benefits for net operating losses
        carried forward. Potential benefit of net operating losses have not been
        recognized in these financial statements because the Company cannot be assured
        it is more likely than not it will utilize the net operating losses carried
        forward in future years.
  Shipping
        and Handling Costs
  The
        Company’s shipping and handling costs are included in cost of
        sales.
  F-13
 Manaris
                  Corporation
 (Formerly
                  C-Chip Technologies Corporation)
 (Formerly
                  A Development Stage Company)
 Notes
                  to
                  Consolidated Financial Statements
 June
                  30,
                  2005
 (Expressed
                  in U.S. Dollars)
 2.  Summary
        of Significant Accounting Policies (continued)
  Restricted
        Marketable Securities
  The
        Company defines marketable securities as income yielding securities that
        can be
        readily converted into cash. An irrevocable letter of credit for $81,606
        (CDN$100,000) was issued to an individual who personally guaranteed a loan
        of
        the Company’s Avensys subsidiary. A term deposit which matures in June 2006 and
        with an interest rate of 1.3% is designated as a guarantee for this same
        amount.
  Litigation
        and Settlement Costs
  From
        time
        to time, the Company is involved in disputes, litigation and other legal
        actions
        in the normal course of operations. In accordance with SFAS 5, the
        Company
        records a charge to operations equal to at least the minimum estimated liability
        for a loss contingency when both of the following conditions are met:
        (i) information available prior to issuance of the financial statements
        indicates that it is probable that an asset had been impaired or a liability
        had
        been incurred at the date of the financial statements and (ii) the
        range of
        loss can be reasonably estimated.
  Warranty
        Expense
  The
        Company’s products typically carry a one year warranty. The Company establishes
        reserves for estimated product warranty costs at the time revenue is recognized
        based upon its historical warranty experience, and additionally for any known
        product warranty issues. The Company has not incurred any significant warranty
        expense during the years ended June 30, 2005 and 2004.
  Reclassifications
  Certain
        reclassifications have been made to the prior year’s financial statements to
        conform to the current period’s presentation.
 
 
 3.  Business
        Combinations
  On
        February 28, 2005, the Company acquired two businesses. These acquisitions
        have
        been accounted for using the purchase method and the consolidated financial
        statements include the results of operations for these businesses from the
        date
        of acquisition. In accordance with SFAS No. 141 ‘’Business Combinations’’,
        the Company allocated the purchase price to the tangible and intangible assets
        acquired and liabilities assumed, including in-process research and development,
        based on their estimated fair values. The excess purchase price over those
        fair
        values is recorded as goodwill. The fair values assigned to tangible and
        intangible assets acquired and liabilities assumed are based on an independent
        valuation analysis using estimates and assumptions provided by management,
        and
        other information compiled by management, including valuations that utilize
        established valuation techniques appropriate for the security industry. In
        accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”,
        goodwill and purchased intangibles with indefinite lives are not amortized
        but
        will be reviewed at least annually for impairment. Purchased intangibles
        with
        finite lives will be amortized on a straight-line basis over their respective
        estimated useful lives.
  a)
              CLI
  In
        February 2005, the Company acquired, through its wholly-owned subsidiary
        corporation, 6327915 Canada, Inc., all of the outstanding shares of 9151-3929
        Quebec Inc. (“Quebec”) and 3826961 Canada Inc. (“Canada”). Quebec and Canada
        collectively own 100% of 3428249 Canada Inc. 3428249 Canada Inc. owns 100%
        of
        Chartrand Laframboise Inc. a company specializing in the security field and
        100%
        of 9126-7641 Quebec Inc., a company specializing in the credit management
        and
        verification. Quebec, Canada, 3428249 Canada Inc., Chartrand Laframboise
        Inc.,
        and 9126-7641 Quebec Inc. (hereinafter collectively referred to as “CLI”) were
        purchased for a total consideration of $3,859,611 including acquisition costs
        of
        $42,817. The acquisition costs were accounted for as a purchase price adjustment
        to goodwill.
  The
        purchase price was $2,436,251 (CDN$3,000,000) in cash and a $1,380,543
        (CDN$1,700,000) Secured Convertible Debenture with interest of 9% payable
        quarterly and maturing in five years. At the option of the holders, but not
        before the sixth month following the closing date, the debenture is convertible
        into 1,700,000 shares of the Company’s common stock at price of $0.82 per share.
        The debenture is secured by the universality of all of the moveable property
        of
        the wholly-owned subsidiary, 3428249 Canada Inc.
 F-14
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
 3.  Business
          Combinations (continued)
  a)  CLI
        (continued)
  CLI’s
        principal services include investigation, surveillance, undercover agents,
        background verification, business intelligence, security consulting and labor
        management conflict.
  The
        purchase price was allocated to the following assets and
        liabilities:
  $Current
                  assets
              
              
              578,224Property
                  and equipment
              
              
              192,340Non-compete
                  agreement
              
              
              574,133Customer
                  lists
              
              
              380,811Current
                  liabilities
              
              
              (341,280
              )Bank
                  indebtedness
              
              
              (43,809
              )Long-term
                  debt - current portion
              
              
              (74,829
              )Long-term
                  debt
              
              
              (5,411
              )Other
                  liabilities
              
              
              (19,757
              )Excess
                  purchase consideration (goodwill)
              
              
              2,576,3723,816,794
  The
        purchase price allocation was preliminary and subject to change if the Company
        obtains additional information concerning the fair values of certain tangible
        assets and liabilities of CLI. During the three months ended March 31, 2005,
        the
        Company adjusted the net tangible assets acquired and increased goodwill
        by
        approximately $235,000 due to purchase price adjustments.
  Net
        Tangible Assets
  The
        acquisition cost has been allocated to the assets and liabilities according
        to
        their estimated fair value at the acquisition date.
  Amortizable
        Intangible Assets
  The
        customer lists consist of information about customers such as their name,
        contact information, order history and demographic information. The income
        approach using a discounted cash flow approach was used to estimate the fair
        value of the customer list, more specifically, the multi-period excess earnings
        method. This method is predicated on the theory that the value of an asset
        or
        investment is the present value of future cash flows discounted at a rate
        commensurate with the time value of money and the underlying risks of the
        subject investment. The Company is amortizing the fair value of the customer
        list on a straight-line basis over the remaining estimated useful life of
        ten
        years.
  The
        non-compete agreements represent an agreement by the seller to refrain from
        competing with the Company. The agreement normally restricts the seller from
        competing in the same line of business for a certain period of time. The
        comparative business valuation method was used to estimate the fair value.
        This
        approach assumes that in the absence of such agreement, the sellers would
        be
        free to compete and take business away, thus reducing sales and profitability.
        The Company is amortizing the fair value of the non-compete agreements on
        a
        straight-line basis over the remaining estimated life of four
        years.
 F-15
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
 
 3.  Business
        Combinations (continued)
  b)
              Avensys
                  Inc.
  On
        February 28, 2005, the Company completed its acquisition of Avensys Inc.
        (“Avensys”). The acquisition resulted in the issuance of 10,400,002 restricted
        shares of the Company’s common shares having a fair value of $0.75 per share and
        a total value of $7,800,000 (before discounting as discussed below) in exchange
        for 15,746,369 shares of Avensys which constituted all of the issued and
        outstanding common stock of Avensys. The Company also purchased and cancelled
        all of the outstanding Avensys stock options for a total of $312,652
        (CDN$385,000). The beneficiaries of the options received $187,592 (CDN$231,000)
        on February 28, 2005 and will receive the balance of $124,970 (CDN$154,000)
        on
        or before December 31, 2005. The Company issued 427,432 restricted shares
        of
        common stock as a finder’s fee to an unrelated party. The Company incurred
        direct costs associated with the acquisition of $45,000 (CDN$55,413). The
        total
        value of the cancelled stock options, finders fee and direct costs were
        accounted for as purchase price adjustments to goodwill. The 10,400,002
        restricted shares are to be released from escrow over the eighteen months
        after
        acquisition. As a result the value of restricted stock paid was discounted
        in
        the amount of $166,414.
   Avensys
        offers leading edge fiber optics sensor technology to monitor a variety of
        environments, including air, water, soil as well as buildings and
        infrastructures. Avensys specializes in providing solutions to monitor different
        types of environments, solving environmental monitoring problems, from micro
        scale in-building sensing systems to macro scale wireless landslide and flood
        warning systems in different countries, covering air, water and soil as well
        as
        the security of materials and infrastructures, employing a wide range of
        technologies including Optical Fiber Sensing Technology.
  The
        purchase price was allocated to the following assets and
        liabilities:
  $Current
                  assets
              
              3,499,635Property
                  and equipment
              
              523,898Customer
                  list
              
              701,621Other
                  assets
              
              101,511Current
                  liabilities
              
              (2,358,108)License
                  agreements
              
              2,085,357In-process
                  research and development
              
              386,749Bank
                  Indebtedness
              
              (1,202,483)Long-term
                  debt - current portion
              
              (122,829)Long-term
                  debt
              
              (1,453,966)Other
                  liabilities
              
              (16,678)Excess
                  purchase consideration (goodwill)
              
              5,488,8797,633,586
  The
        purchase price allocation is preliminary and subject to change if the Company
        obtains additional information concerning the fair values of certain tangible
        assets and liabilities of Avensys.
  Net
        Tangible Assets
  The
        acquisition cost has been allocated to the assets and liabilities according
        to
        their estimated fair value at the acquisition date.
 F-16
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
 
 3.  Business
        Combinations (continued)
  b)  Avensys
        Inc. (continued)
  Amortizable
        Intangible Assets
  Customer
        list represents information about customers such as their name, contact
        information, order history and demographic information. The income approach
        using a discounted cash flow method was used to estimate the fair value of
        the
        customer list, more specifically, the multi-period excess earnings method.
        This
        method is predicated on the theory that the value of an asset or investment
        is
        the present value of future cash flows discounted at a rate commensurate
        with
        the time value of money and the underlying risks of the subject investment.
        The
        Company is amortizing the fair value of the customer list on a straight-line
        basis over the remaining estimated useful life of ten years.
  License
        agreements represent a combination of processes, patents, and trade secrets
        that
        were used for existing and in-process technology. These intangible assets
        were
        valued using the income approach method. This method estimates fair value
        based
        on the earnings and cash flow capacity of an asset. The Company is amortizing
        the fair value of these assets over the remaining estimated useful life of
        six
        years on a straight-line basis.
  Acquired
        In-process Research and Development
  Of
        the
        total purchase price, $386,749 has been allocated to in-process research
        and
        development (“IPR&D”) and was charged to operations. Projects that qualify
        as IPR&D represent those that have not yet reached technological feasibility
        and which have no alternative future use. Technological feasibility is defined
        as being equivalent to a beta-phase working prototype in which there is no
        remaining risk relating to the development. At the time of acquisition, Avensys
        had multiple IPR&D efforts under way for certain current and future product
        lines. These efforts included physical sensors, interrogation units, chemical
        sensors and limnimeters. In applying the discounted cash flow method, the
        value
        of the acquired technology was estimated by discounting to present value
        the
        free cash flows expected to be generated by the products with which the
        technology is associated, over the remaining economic life of the technology.
        To
        distinguish between the cash flows attributable to the underlying technology
        and
        the cash flows attributable to other assets available for generating product
        revenues, adjustments were made to provide for a fair return to property
        and
        equipment, working capital, and other assets that provide value to the product
        lines.
  c)  Canadian
        Security Agency (2004) Inc.
  On
        February 17, 2004 the Company acquired all the issued and outstanding shares
        of
        Canadian Security Agency (2004) Inc. (“CSA”) in exchange for 1,600,000
        restricted common shares of the Company. CSA is in the business of providing
        guard and security services in Montreal, Canada. Pursuant to the terms of
        the
        acquisition agreement, 600,000 shares were released on closing and 1,000,000
        shares were held in escrow as contingent consideration related to revenue
        targets and repayment of a note receivable. The note receivable, originally
        in
        the amount of $473,271, is due from the seller on or before February 17,
        2005.
        The released shares were recorded at their fair value of $468,000. The Company
        used the purchase method of accounting for the CSA acquisition as at February
        17, 2004 based on management’s best estimate of fair values.
  The
        purchase price was allocated to the following assets and
        liabilities:
  $Note
                  receivable
              
              
              473,271Accounts
                  receivable
              
              
              149,328Advances
                  from the Company
              
              
              (203,897
              )Property
                  and equipment
              
              
              8,347Bank
                  indebtedness
              
              
              (93,567
              )Accounts
                  payable
              
              
              (74,488
              )Accrued
                  liabilities
              
              
              (176,846
              )Goodwill
              
              
              385,852468,000
  F-17
 Manaris
              Corporation
 (Formerly
              C-Chip Technologies Corporation)
 (Formerly
              A Development Stage Company)
 Notes
              to
              Consolidated Financial Statements
 June
              30,
              2005
 (Expressed
              in U.S. Dollars)
  3.  Business
        Combinations (continued)
  c)  Canadian
        Security Agency (2004) Inc. (continued)
  The
        Company performed an annual impairment assessment of the carrying value of
        the
        goodwill recorded in connection with the CSA acquisition in June 2004 as
        required under SFAS No. 142. In accordance with SFAS 142, the implied fair
        value
        of goodwill was determined in the same manner as that which is utilized to
        estimate the amount of goodwill recognized in a business
        combination.
  The
        Company estimated the fair value of its CSA reporting unit primarily using
        the
        discounted cash flow method. The discounted cash flows for CSA were based
        on
        discrete five year financial forecasts developed by management for planning
        purposes and consistent with those distributed to the Company’s Board of
        Directors.
  Upon
        completion of the annual impairment assessment for the year ended June 2005,
        the
        Company determined the carrying value of the CSA reporting unit exceeded
        its
        estimated fair value. As a result, the Company charged operations with a
        goodwill impairment loss of $63,774 (2004: $278,852).
  The
        primary factors resulting in the impairment charge were: (i) the loss of
        some
        customers due to consolidation in the industry and (ii) lower revenue growth
        projections based on performance to date.
  Accounting
        for Contingent Consideration
  In
        connection with its acquisition of Canadian Security Agency (2004) Ltd.,
        the
        Company reserved additional shares of its common stock for issuance to a
        former
        shareholder of the acquired company upon satisfaction of certain future internal
        performance goals.
   The
        following table presents activity in the Company’s common stock reserved for
        issuance upon satisfaction of future internal performance goals related to
        the
        purchase of CSA:
  Shares
                #Balance
                  at June 30, 2004
              
              
              700,000Shares
                  reserved for certain future internal performance goals
              
              
              —Shares
                  earned - valued at $148,000
              
              
              (200,000
              )Shares
                  cancelled
              
              
              —Balance
                  at June 30, 2005
              
              
              500,000
  In
        September 2005 the Company reached a settlement with the former shareholder
        of
        CSA, which included the transfer of 200,000 shares from escrow. Refer to
        Note
        16(d)(ii).
   The
        following table presents the allocation of contingent consideration earned
        in
        connection with the satisfaction of the internal performance goals of CSA
        and
        payment received to reduce the note receivable (Refer to Note
        9(b)):
  June
                  30
              
              June
                  302005
              
              2004$
              
              $Allocation
                  of contingent consideration earned
              
              
              148,000
              
              
              303,000Goodwill
              
              
              —
              
              
              —Stock-based
                  compensation expense
              
              
              148,000
              
              
              303,000Deferred
                  compensation
              
              
              —
              
              
              —Total
              
              
              148,000
              
              
              303,000
  See
        Note 2 for a detailed explanation of the accounting policy relating
        to the
        measurement, recognition and allocation of contingent
        consideration.
 F-18
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
 
 3.  Business
        Combinations (continued)
  d)  Condensed
        Balance Sheets (unaudited)
  The
        following table presents details of the unaudited condensed balance sheets
        of
        acquired companies at the dates of acquisition:
  Fiscal
                2005
                Acquisitions
                $
              
              Fiscal
                2004
                Acquisition
                $Current
                  Assets
              
              
              4,047,946
              
              
              154,523Property
                  and Equipment
              
              
              716,238
              
              
              8,347Goodwill
              
              
              1,886,284
              
              
              398,837Other
                  Assets
              
              
              448,843
              
              
              —Total
                  Assets
              
              
              7,099,311
              
              
              561,707Current
                  Liabilities
              
              
              4,142,744
              
              
              646,093Long-Term
                  Debt
              
              
              1,748,082
              
              
              —Other
                  Liabilities
              
              
              20,146
              
              
              —Redeemable
                  Preferred Shares
              
              
              195,712
              
              
              —Total
                  Liabilities
              
              
              6,106,684
              
              
              646,093Stockholders’
                  Equity (Deficit)
              
              
              992,627
              
              
              (84,386
              )Total
                  Liabilities and Stockholders’ Equity
              
              
              7,099,311
              
              
              561,707
  The
        Company’s fiscal 2005 acquisitions represent the purchase of Avensys and CLI
        Group on February 28, 2005. The fiscal 2004 acquisition represents
        the
        February 17, 2004 purchase of CSA.
  In
        connection with purchase transactions, the Company incurred acquisition costs
        of
        $766,272 and $41,556 in fiscal 2005 and 2004, respectively.
  e)  Pro
        Forma
        Results (unaudited)
  The
        pro
        forma data of the Company set forth below gives effect to the purchase
        transactions completed in fiscal 2005 and 2004 as if they had occurred at
        the
        beginning of fiscal 2004. The unaudited pro forma financial information is
        not
        intended to represent or be indicative of the consolidated results of operations
        or financial condition of the Company that would have been reported had the
        acquisition been completed as of the dates presented, and should not be taken
        as
        representative of the future consolidated results of operations or financial
        condition of the Company.
  Years
                  Ended
                June
                  30,2005
              
              2004(In
                  thousands, except per share amounts)
              
              $
              
              $Pro
                  forma net revenues
              
              
              15,582
              
              
              15,568Pro
                  forma net loss
              
              
              (7,131
              )
              
              (5,665
              )Pro
                  forma net loss per share (basic and diluted)
              
              
              (0.14
              )
              
              (0.13
              )
  4.  Acquisition
        of Assets
  On
        January 21, 2005, the Company acquired the assets related to Markus 360
        including the source code, the intellectual property, the trademark and all
        customers. The purchase price was $125,000 paid with 164,474 restricted common
        shares of the Company. In parallel, the Company entered into a distribution
        agreement with Multi-Hexa Laval Inc. (“Multi-Hexa”) which will receive 10%
        royalties of each gross sale of the software up to a maximum of $812,084
        (CDN$1,000,000) for the intellectual property. The Company conceded an hypothec
        on all the rights related to the software, up to an amount of $243,625
        (CDN$300,000) in royalties and will need to be executed within the five years
        following the closing date. In case of default all the rights in the software
        will retrocede to Multi-Hexa without compensation. The Company performed
        an
        impairment analysis at year end and determined there was no future benefit
        related to the purchase of Markus 360. As a result the net book value of
        $117,200 was charged to operations.
 F-19
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
 
 5.  Variable
        Interest Entity
  The
        Financial Accounting Standards Board (“FASB”) finalized FASB Interpretation No.
        46R, “Consolidation of Variable Interest Entities—An Interpretation of ARB51”
        (“FIN46R”) in December 2003. FIN46R expands the scope of ARB51 and can require
        consolidation of "variable interest entities” (“VIEs”). Once an entity is
        determined to be a VIE, the party with the controlling financial interest,
        the
        primary beneficiary, is required to consolidate it. During the year ended
        June
        30, 2005 the Company’s wholly owned subsidiary, Avensys, Inc. (“Avensys”),
        transferred its research activities to Avensys Labs Inc. (“ALI”). Avensys owns
        49% of ALI and the two entities have entered an Agreement (“the Agreement”)
        where ALI will perform research and development activities for Avensys. The
        Agreement is for a period of five years and can be renewed for two years.
        ALI
        will provide Avensys a commercialization license for products developed and
        in
        return receive a royalty of 5% of sales generated. Avensys sold intellectual
        property related to R&D projects to ALI in return for 500,000 preferred
        shares redeemable for $408,030 (CDN$500,000). ALI provides R&D for Avensys
        only, however it may enter into agreements with third parties in the future.
        ALI
        has no other financing other than received from Avensys.
  As
        a
        result of the above, ALI has been included in the consolidated financial
        statements as of June 30, 2005 since Avensys holds a controlling financial
        interest and is the primary beneficiary. The impact to the consolidated balance
        sheet include the approximate additions to current assets of $162,000, net
        property and equipment of $106,000, and current liabilities of $70,000. The
        impact to the consolidated statement of operations was an increase in research
        and development expenses of $94,000.
 
 
 6.  Goodwill
        and Purchased Intangible Assets
  The
        following table presents details of the Company’s purchased intangible assets
        with definite lives:
  Weighted
                Average
                  Life in Years
              
              Cost
                $
              
              Accumulated
                  Amortization
                $
              
              June
                  30,
                2005
                Net
                  Book
                Value
                $
                (audited)
              
              June
                  30,
                2004
                Net
                  Book
                Value
                $
                (audited)Licenses,
                  patents and trademarks
              
              
              5.6
              
              
              2,197,241
              
              
              194,554
              
              
              2,002,687
              
              
              52,290Technology
              
              
              1.7
              
              
              574,285
              
              
              323,010
              
              
              251,275
              
              
              394,835Non-compete
                  agreements
              
              
              3.7
              
              
              574,133
              
              
              48,000
              
              
              526,133
              
              
              —Customers
                  lists
              
              
              9.5
              
              
              1,109,077
              
              
              36,400
              
              
              1,072,677
              
              
              —Total
                  intangible assets
              
              
              6.0
              
              
              4,454,736
              
              
              601,964
              
              
              3,852,772
              
              
              447,125
  Amortization
        expense of purchased intangible assets included in operating expenses are
        as
        follows:
  Years
                  Ended
                June
                  30,
                $2005
              
              2004$
              
              $Amortization
                  expense of purchased intangibles
              
              
              
              
              
              373,180
              
              162,520
 F-20
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
 
 6.  Goodwill
        and Purchased Intangible Assets (continued)
  The
        estimated future amortization expense of purchased intangible assets with
        definite lives for the next five years is as follows:
 
 2006
              
              $
              772,6022007
              
              
              732,1662008
              
              
              610,0812009
              
              
              574,9332010
              
              
              457,200Thereafter
              
              
              705,790$
              3,852,772
  The
        changes in the carrying amount of goodwill during the years ended June 30,
        2005
        and 2004 is as follows:
  Security
                  and Investigation Services
              
              Security
                  and Monitoring
                Devices
              
              TotalBalance
                  as of June 30, 2003
              
              $
              —
              
              $
              —
              
              $
              —Purchase
                  CSA (Note 3(c))
              
              
              385,852
              
              
              —
              
              
              385,852Impairment
                  of goodwill during fiscal 2004
              
              
              (278,852
              )
              
              —
              
              
              (278,852
              )Balance
                  as of June 30,2004
              
              
              107,000
              
              
              —
              
              
              107,000Goodwill
                  acquired during the period (Notes 3(a)(b))
              
              
              3,004,620
              
              
              6,679,608
              
              
              9,684,228Impairment
                  of goodwill during fiscal 2005
              
              
              (63,774
              )
              
              —
              
              
              (63,774
              )Total
              
              $
              3,047,846
              
              $
              6,679,608
              
              $
              9,727,454
  There
        were impairment indicators during the year ended June 30, 2005 as shown above.
        Since the carrying amount of CSA’s goodwill exceeded the estimated fair values
        of that reporting unit, an impairment loss was charged to operations. (Refer
        to
        Note 17 for description of reporting segments).
 
 
 7.  Balance
        Sheet Details
 June
                  30,
                2005
                $
              
              June
                  30,
                2004
                $Other
                  ReceivablesGrants
                  receivable
              
              
              59,110
              
              
              —Investment
                  tax credits receivable
              
              
              596,417
              
              
              —Sales
                  tax receivable
              
              
              111,545
              
              
              —Other
              
              
              132,176
              
              
              —899,248
              
              
              —InventoryRaw
                  materials
              
              
              261,445
              
              
              8,295Work
                  in process
              
              
              102,966
              
              
              9,605Finished
                  goods
              
              
              733,365
              
              
              137,7801,097,776
              
              
              155,680Accrued
                  LiabilitiesPayroll
                  and benefits
              
              
              693,040
              
              
              125,785Sales
                  taxes payable
              
              
              323,934
              
              
              64,521Income
                  taxes payable
              
              
              98,007
              
              
              —Accrual
                  for litigation costs
              
              
              160,392
              
              
              —Royalties
                  payable
              
              
              236,144
              
              
              —Other
              
              
              509,610
              
              
              42,3992,021,127
              
              
              232,705
 F-21
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
 
 8.  Property
        and Equipment
 Cost
                $
              
              Accumulated
                  Amortization
                $
              
              June
                  30,
                2005
                Net
                  Book
                Value
                $
              
              June
                  30,
                2004
                Net
                  Book Value
                $Automotive
                  equipment
              
              
              34,627
              
              
              17,318
              
              
              17,309
              
              
              —Computers
              
              
              608,248
              
              
              475,300
              
              
              132,948
              
              
              40,532Communication
                  equipment
              
              
              51,477
              
              
              33,229
              
              
              18,248
              
              
              —Furniture
                  and fixtures
              
              
              407,577
              
              
              330,353
              
              
              77,224
              
              
              9,215Laboratory
                  equipment
              
              
              399,449
              
              
              161,527
              
              
              237,922
              
              
              —Leasehold
                  improvements
              
              
              80,488
              
              
              53,919
              
              
              26,569
              
              
              3,551Machinery
                  and office equipment
              
              
              315,391
              
              
              179,126
              
              
              136,265
              
              
              28,976Software
              
              
              78,229
              
              
              42,384
              
              
              35,845
              
              
              —Surveillance
                  equipment
              
              
              127,293
              
              
              100,786
              
              
              26,507
              
              
              —2,102,779
              
              
              1,393,942
              
              
              708,837
              
              
              82,274Office
                  equipment under capital leases
              
              
              37,930
              
              
              15,692
              
              
              22,238
              
              
              —Total
                  property and equipment
              
              
              2,140,709
              
              
              1,409,634
              
              
              731,075
              
              
              82,274Depreciation
                  during the period
              
              
              
              
              
              
              
              
              88,639
              
              
              14,936
  9.  Related
        Party Transactions/Balances
  a)
              The
                  Company has received management services from officers and shareholders.
                  These related parties also paid certain operating expenses on behalf
                  of
                  the Company and advanced funds for working capital. The total amount
                  due
                  to officers and/or shareholders at June 30, 2005 is $476,646 (June
                  30,
                  2004: $230,726). The amounts due are non-interest bearing, unsecured,
                  and
                  have no fixed terms of repayment.
  b)
              The
                  note receivable was due from the original owner and former President
                  of
                  Canadian Security Agency (2004) Inc., and is delinquent as of June
                  30,
                  2005. The Company has taken a provision against the note for the
                  full
                  amount. The note receivable from a related party was unsecured,
                  non-interest bearing and was due on or before February 17,
                  2005.
   10.  Loans
        Payable
  a)
              CSA
                  has bank indebtedness of $269,272 (CDN$329,965) at June 30, 2005
                  within a
                  Corporate Credit Line facility in the amount of CDN$400,000, fluctuating
                  with cash flow and collection of accounts receivable. Interest
                  is charged
                  at Canada bank prime plus 2% per annum. The facility is secured
                  by a
                  movable hypothec over accounts receivable and inventory of CSA;
                  unlimited
                  personal guarantee by the former sole owner of CSA, supported by
                  collateral second mortgage on his personal residence and subrogation
                  of
                  the shareholder loan and salary bonus. Upon the departure in April
                  2005 of
                  the former sole owner of CSA and the withdrawing of his guarantees
                  with
                  the Bank, the Bank proceeded with a demand of repayment of his
                  line of
                  credit with CSA . The position of the Bank was repurchased in July
                  2005 by
                  the Company and the Company is now subrogated in all the Bank’s rights .
                  The Bank’s proceedings were therefore
                  terminated.
  b)
              CLI
                  has a credit agreement for an authorized amount of $264,550 (CDN$320,000),
                  renewable yearly. Any utilized portion bears interest at the Bank’s prime
                  rate plus 1,25% and is secured by a general assignment of CLI’s accounts
                  receivable and CLI is required to respect certain financial ratios.
                  As at
                  June 30, 2005, there was an outstanding amount of $82,571 (CDN$101,183)
                  and CLI is in compliance with all financial
                  ratios.
  c)
              Avensys
                  has designated the accounts receivable and inventories to guarantee
                  the
                  line of credit. The line of credit, for an authorized amount of
                  $1,109,842
                  (CDN$1,360,000), bears interest at the Canada bank prime rate plus
                  1.5%
                  and is currently in renegotiation.
  d)
              An
                  irrevocable letter of credit for $81,606 (CDN$100,000) has also
                  been
                  issued to an individual who has personally guaranteed a loan of
                  the
                  Company. A term deposit is lodged as a guarantee for this same
                  amount.
 F-22
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
 
 10.  Loans
        Payable (continued)
 
 e)
              The
                  Company’s wholly-owned subsidiary, C-Chip Technologies Corporation (North
                  America) has an unsecured credit facility for an amount of $1,000,000
                  (principal and interest) to finance service fees and inventory
                  that bears
                  interest at 15% per annum. All receipts from sales revenues will
                  be placed
                  into a designated bank account and be used to reimburse any amount
                  owed
                  pursuant to the credit facility. Amounts not paid within twelve
                  months of
                  the execution of the credit facility will become payable in full.
                  As at
                  June 30, 2005, there was an outstanding amount of
                  $320,127.
 
 
 
 11.  Long-Term
        Debt
 June
                  30,
                2005
                $
              
              June
                  30,
                2004
                $Mortgage
                  loan secured by the universality of Avensys’ tangible and intangible
                  movables, (CDN$406,000), interest is prime rate plus 2.75%, payable
                  in
                  monthly instalments of CDN$7,000 plus interest, maturing in May
                  2010
              
              
              331,320
              
              
              —Note
                  payable, interest is prime rate, payable in six monthly payments,
                  maturing
                  in October 2005
              
              
              44,720
              
              
              —Note
                  payable on demand (CDN$16,382) without interest
              
              
              13,369
              
              
              —Note
                  payable (CDN$12,778) without interest maturing in May 2006
              
              
              10,428
              
              
              —Note
                  payable (CDN$60,000) without interest, payable in monthly instalments
                  of
                  $5,440 (CDN$6,667), maturing in March 2006
              
              
              48,964
              
              
              —Note
                  payable (CDN$5,000) without interest maturing in 2006
              
              
              4,080
              
              
              —Note
                  payable (CDN$15,202) without interest, payable in monthly instalments
                  of
                  $691, maturing in April 2007
              
              
              12,406
              
              
              —Redeemable
                  preferred shares, 241 Class D shares issued by CLI. Non voting,
                  non
                  participating and redeemable at the holder’s option with a 1% monthly
                  dividend on the redemption price.
              
              
              196,670
              
              
              —Obligations
                  under capital leases, maturing at various dates until 2009, payable
                  in
                  instalments totalling $7,188 (CDN$8,808) in 2006 and 2007, $5,406
                  (CDN$6,624) in 2008 and $1,379 (CDN$5,406) in 2009
              
              
              21,161
              
              
              —683,118
              
              
              —Instalments
                  due within one year
              
              
              199,878
              
              
              —Long-term
                  debt
              
              
              483,240
              
              
              —
  Principal
        payments on long-term debt for the next five years are:
  $2006
              
              
              199,8782007
              
              
              276,5212008
              
              
              73,9552009
              
              
              69,9282010
              
              
              62,836Total
              
              
              683,118
 F-23
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
 
 12.  Convertible
        Debentures
 June
                  30,
                2005
                $
              
              June
                  30,
                2004
                $Senior
                  secured convertible debentures at 7%, payments of $233,750 for
                  20 months
                  beginning June 16, 2005, interest payable each June and December,
                  maturing
                  January 31, 2007, principal amount of $4,675,000 (Note 12
                  (a))
              
              
              557,284
              
              
              —Secured
                  convertible debentures at 9%, maturing February 2010, principal
                  amount of
                  $1,387,302 (CDN$1,700,000) (Note 12 (b))
              
              
              1,387,302
              
              
              —Unsecured
                  convertible debentures at 15%, maturing September 2005, principal
                  amount
                  of $397,829 (CDN$487,500) (Note 12 (c))
              
              
              336,152
              
              
              —Unsecured
                  convertible debentures at 12% maturing September 2007, principal
                  amount of
                  $326,424 (CDN$400,000) (Note 12 (d))
              
              
              300,002
              
              
              —2,580,740
              
              
              —Instalments
                  due within one year
              
              
              893,436
              
              
              —Long-term
                  debt
              
              
              1,687,304
              
              
              —
  Principal
        payments on the convertible debentures for the next five years are:
  $2006
              
              
              893,4362007
              
              
              —2008
              
              
              300,0022009
              
              
              —2010
              
              
              1,387,302Total
              
              
              2,580,740
  a)  Senior
        Secured Convertible Debentures
  On
        February 16, 2005, the Company issued Senior Secured Convertible Notes Series
        A
        (“Notes”) and Series E and F Warrants (See Note 13(b)) for an aggregate
        principal amount of $4,675,000.
  In
        accordance with EITF 98-5 “ *Accounting
        for Convertible Securities with Beneficial Conversion Features or Contingently
        Adjustable Conversion Ratios* ”
        and
        with EITF 00-27 “ *Application
        of Issue No. 98-5 to Certain Convertible Instruments* ”,
        the
        Company allocated $1,863,870 to the Warrants Series E, $339,456 to the Warrants
        Series F and recognized an embedded beneficial conversion feature of $2,470,674
        accounted for as additional paid in capital and an equivalent discount against
        the Notes. The carrying amount of the Notes will be increased monthly by
        periodic accretion under the interest method. The Company remains obligated
        for
        the entire contractual balance of the Notes of $4,675,000.
  These
        Notes bear interest at 9% per year from February 16, 2005 until the first
        principal payment date on June 16, 2005 and 7% per year after this date.
        Principal on these Notes shall be paid in twenty (20) equal monthly instalments
        of $233,750. Interest on these Notes shall be payable on the last day of
        June
        and December of each year commencing on June 30, 2005.
  All
        payments of interest shall be made, at the option of the Company, (a) in
        cash;
        (b) by the issuance of additional Series A Notes in the principal amount
        equal
        to the interest payment due; or (c) in shares of common stock of the Company
        valued at 90% of the average price of such security in the most recent five
        trading days (“Market Price”).
  All
        payments of principal shall be made, at the option of the Company, (a) in
        cash
        with a premium equal to 10% of the cash amount paid; or (b) in shares of
        common
        stock of the Company valued at 85% of the Market Price.
 F-24
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
 
 12.  Convertible
        Debentures (continued)
  a)  Senior
        Secured Convertible Debentures
  All
        payments made by the issuance of shares will be acceptable only if the issuance
        of the shares of the Company has first been registered with the Securities
        and
        Exchange Commission.
  The
        holders of these Notes have the right, at their option at any time, to convert
        some or all of the Notes including the principal amount and the amount of
        any
        accrued but unpaid interest into a number of common shares of the Company
        valued
        initially at $0.65 per share, subject to certain adjustments as described
        in the
        purchase agreement.
  In
        connection with the placement of these Notes, the Company issued Warrant
        Series:
        1B1, 1B2, 1B3, 1B4, and 1B5 granting the right to acquire up to 881,538 shares
        of the Company’s common stock at prices ranging from $0.01 to $0.75 per share
        (see Note 14(d)) and expiring from three months following the date of their
        Registration until February 16, 2010.
  The
        Company valued the warrants at $486,586 and recognized this amount to additional
        paid in capital of Warrants Series 1B1, 1B2, 1B3, 1B4, and 1B5 and as deferred
        issue expenses for the Notes and issue expenses for the Warrants Series E
        and
        F.
  To
        secure
        payment of the principal amount of the Notes and the interest thereon, the
        Company hypothecated, in favour of the note holders, the universality of
        all of
        the immovable and movable assets, corporeal and incorporeal, present and
        future
        of the Company.
  The
        purchase agreement of these Notes contain certain covenants (a) related to
        the
        conduct of the business of the Company and its subsidiaries; (b) related
        to
        creation or assumption of lien other than liens created pursuant to the Security
        Documents and Permitted Liens, as defined in the purchase agreement; (c)
        for so
        long as at least $2,500,000 principal amount of these Notes remain outstanding,
        the Company shall not, without the consent of holders representing at least
        50%
        of the then outstanding principal amount, create, incur, guarantee, issue,
        assume or in any manner become liable in respect of any indebtedness, other
        than
        permitted indebtedness or issue other securities that rank senior to these
        Notes
        provided however that the Company may have outstanding bank debt.
  b)  Secured
        Convertible Debentures
  On
        February 14, 2005, the Company issued debentures of an aggregate principal
        amount of $1,380,543 related to the acquisition of the CLI Group.
  These
        debentures bear interest at 9% per year from February 14, 2005. Principal
        on
        these Notes shall be paid on February 14, 2010. Interest on these debentures
        shall be payable on the first day beginning of quarter, commencing on May
        1,
        2005.
  The
        holders of these Debentures have the right, at their option at any time,
        to
        convert in part or all of the Debentures into a total number of 1,700,000
        common
        stock of the Company valued initially at $0.82 per share.
  To
        secure
        payment of the principal amount of the debentures and the interest thereon,
        the
        Company hypothecated, in favour of the debenture holders, the universality
        of
        all of the movable assets, corporeal and incorporeal, present and future
        of its
        wholly-owned subsidiary 3828249 Canada Inc.
  The
        purchase agreement of these debentures contain certain covenants related
        to the
        conduct of the business of the Company and its subsidiaries.
  c)  Unsecured
        Convertible Debentures
  With
        the
        acquisition of Avensys, the Company assumed 15% unsecured convertible debentures
        having a nominal value of $918,068 (CDN$1,125,000) and maturing on September
        1,
        2007. When the debentures were originally issued, Avensys recorded an equity
        component of $378,445 (CDN$463,747) and a liability component of $539,623
        (CDN$661,253), for a total of $918,068 (CDN$1,125,000). In April 2005, the
        Company issued 680,000 shares in settlement of $520,238 (CDN$637,500) of
        the
        debentures outstanding. The remainder of the debentures, $397,829 (CDN$487,500)
        was replaced by a new 15% unsecured debenture. The new debenture is convertible
        into shares of the Company using the following formula: principal and interest
        divided by a 17.5% discount on the 10 day weighted average price of the
        Company’s shares. At year-end the discount related to the conversion feature is
        $61,677.
 F-25
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
 
 12.  Convertible
        Debentures (continued)
  d)  Unsecured
        Convertible Debentures
  With
        the
        acquisition of Avensys, the Company also assumed 12% unsecured convertible
        debentures having a nominal value of $652,848 (CDN$800,000) and maturing
        on
        September 1, 2007. When the debentures were originally issued, Avensys recorded
        an equity component of $305,857 (CDN$374,797) and a liability component of
        $346,991 (CDN$425,203), for a total of $652,848 (CDN$800,000). In April 2005,
        the Company issued 426,667 shares in settlement of $326,424 (CDN$400,000)
        of the
        debentures outstanding. The remainder of the debentures, $326,424 (CDN$400,000)
        was modified to be convertible into 330,251 shares of the Company. At year-end
        the discount related to the conversion feature is $26,422.
 
 
 13.  Common
        Stock
  Fiscal
        Year Ended June 30, 2005
  a)
              During
                  the year ended June 30, 2005, the Company issued 2,120,501 common
                  shares
                  for total proceeds of $205,012 from the exercise of stock
                  options.
  b)
              During
                  the year ended June 30, 2005, a total of 176,767 stock options
                  were
                  exercised after issuance to settle outstanding payables in the
                  amount of
                  $127,327.
  c)
              During
                  the year ended June 30, 2005, the Company issued 121,250 restricted
                  common
                  shares and 95,193 common shares for total proceeds of $2 following
                  the
                  exercise of 216,443 Series IB1 warrants.
  d)
              In
                  May 2005, the Company issued 120,000 restricted common shares with
                  a value
                  of $79,200 for consulting fees.
  e)
              In
                  April 2005, the Company issued 1,106,667 restricted common shares
                  valued
                  at $830,000 following the conversion of convertible
                  debentures.
  f)
              In
                  April 2005, the Company issued 258,000 restricted common shares
                  valued at
                  $175,182 as a finder’s fee and 32,260 restricted common shares valued at
                  $32,260 as a consultant’s fee related to the acquisition of Avensys Inc. A
                  total of 159,458 restricted common shares valued at $146,701 were
                  issued
                  as a finder’s fee related to the acquisition of CLI Group (Notes 3(a) and
                  (b)).
  g)
              In
                  January 2005, the Company issued 164,474 restricted common shares
                  with a
                  value of $125,000 for the purchase price of Markus 360 (Note
                  4).
  h)
              In
                  March 2005, the Company issued 10,400,002 restricted common shares
                  having
                  a value of $7,633,586 for the acquisition of Avensys Inc. The Company
                  issued 432,427 restricted common shares valued at $324,320 as finder’s fee
                  related to the acquisition of Avensys Inc. (Note 3(b)).
  Fiscal
        Year Ended June 30, 2004
  a)
              During
                  the year ended June 30, 2004, the Company issued 788,206 restricted
                  common
                  shares for service valued at $261,534 being 50% of the market price
                  of the
                  Company’s stock at the date the services were
                  contracted.
  b)
              During
                  the year ended June 30, 2004, the Company issued 1,591,418 common
                  shares
                  for total proceeds of $339,618 from the exercise of stock
                  options.
  c)
              During
                  the nine months ended March 31, 2004 the Company issued 3,873,637
                  common
                  shares at $0.55 per share for total cash proceeds of $1,630,000,
                  before
                  offering costs of $82,319, and settlement of the $500,000 promissory
                  note
                  under a private placement of units consisting of one common share
                  and one
                  common share purchase warrant. The common share purchase warrants
                  expire
                  in two years and have an exercise price of $1.00 per share The
                  Company’s
                  promissory note of $500,000 was redeemed for 909,091 units as part
                  of this
                  issue.
 F-26
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
 
  13.  Common
        Stock (continued)
  Fiscal
        Year Ended June 30, 2004 (continued)
  d)
              In
                  July 2003 a Debenture Payable, including accrued interest, was
                  converted
                  into 3,910,120 restricted shares at a 15% discount from market,
                  using the
                  face value of $2,000,000. This resulted in a discount on conversion
                  of
                  debt in the amount of $1,418,451, which is included in additional
                  paid-in
                  capital.
  e)
              In
                  April 2004 the Company issued 2,538,462 common shares for total
                  cash
                  proceeds of $1,650,000 before offering costs of $143,209 under
                  a private
                  placement of units consisting of one common share and one common
                  share
                  purchase warrant exercisable for a period of two years at an exercise
                  price of $1.10 per share.
  f)
              In
                  February 2004 the Company issued 1,600,000 common shares for the
                  acquisition of Canadian Security Agency (2004)
                  Inc.
 
 
 14.  Stock
        Options and Warrants
  a)
              Fiscal
                  year ended June 30, 2005
  During
        the fiscal year ended June 30, 2005 the Company granted 2,365,000 stock options
        to employees with exercise prices ranging from $0.20 to $0.92 and which vest
        over a period of one year. The Company granted 1,492,668 stock options to
        non-employees with exercise prices ranging from $0.0001 to $0.648 and which
        vest
        immediately. Also a total of 176,767 stock options were issued to settle
        outstanding payables of $127,327. During the year ended June 30, 2005 a total
        of
        460,400 stock options were cancelled. The Company charged stock-based
        compensation expense of $1,068,542 to operations relating to stock options
        and
        $148,000 relating to contingent consideration earned during the fiscal year
        ended June 30, 2005.
  b)
              Fiscal
                  year ended June 30, 2004
  During
        the fiscal year ended June 30,2004, the company granted 2,183,918 stock options
        pursuant to the Plan at weighted average exercise price of $0.47. The Company
        charged stock-based compensation expense of $553,384 to operations relating
        to
        stock options and $303,000 relating to contingent consideration earned during
        the fiscal year ended June 30, 2004.
  c)  Stock
        options
  On
        June
        15, 2004 the Company filed a Form S-8 Registration Statement with the US
        Securities and Exchange Commission to register 5,000,000 shares of common
        stock
        pursuant to the Company's 2004 Nonqualified Stock Option Plan (“the Plan’). The
        determination of those eligible to receive options under this plan, and the
        amount, type, price and timing of each stock option and the terms and conditions
        shall rest at the sole discretion of the Company's Compensation Committee,
        subject to the provisions of this Plan. A total of 2,198,814 options under
        the
        Plan remain available for issuance.
  A
        summary
        of the changes in the Company’s common share stock options is presented
        below:
  June
                  30, 2005
              
              June
                  30, 2004Number
              
              Weighted
                  Average Exercise
                Price
              
              Number
              
              Weighted
                  Average Exercise
                PriceBalance,
                  beginning of year
              
              
              2,742,500
              
              $
              0.40
              
              
              2,425,000
              
              $
              0.20Granted
              
              
              3,857,668
              
              
              0.47
              
              
              2,183,918
              
              
              0.47Exercised
              
              
              (2,297,268
              )
              
              (0.09
              )
              
              (1,591,418
              )
              
              (0.21
              )Forfeited/Expired
              
              
              (460,400
              )
              
              (0.50
              )
              
              (275,000
              )
              
              (0.20
              )Balance,
                  end of year
              
              
              3,842,500
              
              $
              0.65
              
              
              2,742,500
              
              $
              0.40
  F-27
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
  14.  Stock
        Options and Warrants (continued)
  c)  Stock
        options (continued)
  Additional
        information regarding options outstanding as at June 30, 2005 is as
        follows:
  Outstanding
              
              ExercisableRange
                  of
                Exercise
                  prices
                $
              
              Number
                  of
                shares
              
              Weighted
                average
                remaining
                contractual
                life
                  (years)
              
              Weighted
                average
                exercise
                  price
                $
              
              Number
                  of
                shares
              
              Weighted
                average
                exercise
                  price
                $0.00
                  - 0.25
              
              
              602,500
              
              
              3.00
              
              
              0.20
              
              
              602,500
              
              
              0.200.26
                  - 0.50
              
              
              10,000
              
              
              5.00
              
              
              0.45
              
              
              —
              
              
              —0.51
                  - 0.75
              
              
              1,772,500
              
              
              4.21
              
              
              0.67
              
              
              2,005,000
              
              
              0.630.76
                  - 1.00
              
              
              1,457,500
              
              
              4.53
              
              
              0.76
              
              
              667,500
              
              
              0.833,842,500
              
              
              4.13
              
              
              0.65
              
              
              3,275,000
              
              
              0.61
  The
        weighted average fair value of options granted for the fiscal years ended
        June
        30, 2005 and 2004 was $0.24 and $0.47, respectively.
  Common
                  shares reserved for issuance:
              
              June
                  30, 2005
                $Stock
                  options:Options
                  outstanding
              
              
              3,842,500Reserved
                  for future issuance
              
              
              2,198,814Warrants
                  outstanding
              
              
              14,390,652Conversion
                  of senior secured convertible notes
              
              
              8,486,383Conversion
                  of secured convertible debentures
              
              
              2,154,739Total
                  common shares reserved for future issuance
              
              
              31,073,088
  d)  Warrants
        outstanding
  Common
        share purchase warrants issued in February 2005 with the private placement
        of
        the Senior Secured Convertible Notes Series A (“Notes”) and outstanding at June
        30, 2005 are as follows:
  i)
              5,394,131
                  Series E warrants exercisable at $0.75 each and expiring in February
                  2010.
  ii)
              1,798,077
                  Series F warrants exercisable at $0.70 each and expiring in February
                  2006.
  iii)
              120,192
                  Series IB1 warrants exercisable at $0.00001 each and expiring in
                  February
                  2010.
  iv)
              215,385
                  Series IB2 warrants exercisable at $0.65 each and expiring in February
                  2010.
  v)
              323,076
                  Series IB3 warrants exercisable at $0.75 each and expiring in February
                  2010.
  vi)
              107,692
                  Series IB4 warrants exercisable at $0.70 each and expiring in February
                  2006.
  vii)
              20,000
                  Series IB5 warrants exercisable at $0.75 each and expiring three
                  (3)
                  months following the effectiveness of a Registration Statement
                  to be filed
                  with the Securities and Exchange Commission and expiring in February
                  2006.
  Common
        share purchase warrants issued with the private placements of common shares
        during the year ended June 30, 2004 are as follows:
  i)
              3,873,637
                  warrants exercisable at $1.00 each; with expiration dates ranging
                  from
                  August 2005 through February 2006.
  ii)
              2,538,462
                  warrants exercisable at $1.10 each and expiring in April 2006.
  F-28
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
 
 15.  Comprehensive
        Loss
  The
        Company's accumulated other comprehensive loss consists of the accumulated
        net
        unrealized gains or losses on foreign currency translation adjustments. At
        June
        30, 2005 the Company had an accumulated foreign currency translation loss
        of
        $364,415.
  The
        component of comprehensive loss was as follows:
  June
                  30,
                2005
                $
              
              June
                  30,
                2004
                $Net
                  loss
              
              
              (6,230,943
              )
              
              (4,590,561
              )Foreign
                  currency translation adjustment
              
              
              (374,275
              )
              
              9,860Comprehensive
                  loss
              
              
              (6,605,218
              )
              
              (4,580,701
              )
 
 
 16.  Contingencies
        and Commitments
  a)
              Vehicle
                  lease commitments are as follows:
  2006
              
              
              47,0462007
              
              
              17,9602008
              
              
              4,501$
              69,507
  b)
              The
                  Company leases premises for its various offices located across
                  Canada.
                  Total rent expense was $218,318 (2004 - $38,000). Minimum lease
                  payments
                  for the next five years are $409,775 in 2006, $181,329 in 2007,
                  $108,454
                  in 2008, $105,417 in 2009, and $91,068 in
                  2010.
  c)
              CSA
                  has bank indebtedness of $269,272 at June 30, 2005 within a Corporate
                  Credit Line facility in the amount of CDN$400,000, fluctuating
                  with cash
                  flow and collection of accounts receivable. Interest is charged
                  at Canada
                  bank prime plus 2% per annum. The facility is secured by a movable
                  hypothec over accounts receivable and inventory of CSA; unlimited
                  personal
                  guarantee by the former sole owner of CSA, supported by collateral
                  second
                  mortgage on his personal residence and subrogation of the shareholder
                  loan
                  and salary bonus. Upon the departure in April 2005 of the former
                  sole
                  owner of CSA and the withdrawing of his guarantees with the financial
                  institution, the financial institution proceeded with a demand
                  of
                  repayment of his line of credit with CSA. The position of the financial
                  institution was repurchased in July 2005 by the Company which is
                  now
                  subrogated in all the financial institution’s rights. The financial
                  institution’s proceedings were therefore
                  terminated.
  d)
              Litigation
                  and Settlement Costs
  i)
              A
                  lawsuit was filed on July 15, 2005, under Quebec law, in the District
                  of
                  Montreal, Province of Quebec, for a total of $81,600 (CND$100,000)
                  with
                  regards to alleged expenses incurred by the plaintiff for the purchase
                  of
                  anti-theft product known as the “Hawk 200”. The Company intends to contest
                  the case vigorously and, in the event of an unfavorable outcome,
                  the
                  amount of any damages will be charged to the earnings of the quarter
                  and
                  is not expected to have a material adverse impact on our financial
                  condition.
  ii)
              A
                  lawsuit was filed on July 15, 2005, under Quebec law, in the District
                  of
                  Montreal, Province of Quebec, for a total of $506,000 (CND$620,000)
                  with
                  regards to alleged breach of employment contract and wrongful dismissal
                  of
                  Charles Finkelstein. This lawsuit was settled on September 2, 2005
                  for an
                  amount of $81,600 (CND$100,000) and the transfer of 200,000 shares
                  of the
                  Company, currently held in escrow. The parties exchanged, under
                  this
                  agreement, a complete and final release regarding their business
                  and
                  employment relationship.
 F-29
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
 
 16.  Contingencies
        and Commitments (continued)
  d)  Litigation
        and Settlement Costs (continued)
  iii)
              A
                  lawsuit was filed on June 30, 2005 under Quebec law, in the District
                  of
                  Montreal, Province of Quebec pertaining to a claim in the amount
                  of
                  $88,900 (CDN$108,900) for alleged wrongful and unnecessary use
                  of force in
                  the exercise of the Company’s employee security duties. The Company
                  intends to contest the case vigorously and, in the event of an
                  unfavorable
                  outcome, the amount of any damages will be charged to the earnings
                  of the
                  quarter and is not expected to have a material adverse impact on
                  our
                  financial condition.
  iv)
              A
                  motion was filed under Quebec law, in the district of Montreal,
                  Province
                  of Quebec, totalling $69,600 (CDN$85,348) for an unpaid contract
                  of
                  credit. The Company intends to contest the case vigorously and,
                  in the
                  event of an unfavorable outcome, the amount of any damages is not
                  expected
                  to have a material adverse impact on our financial
                  condition.
  v)
              A
                  lawsuit was filed under Quebec law, in the district of Laval, Province
                  of
                  Quebec, totalling $66,351 (CDN$81,306) for compensatory damages
                  and
                  $12,240 (CDN$15,000) in punitive and exemplary damages. The claim
                  alleges
                  that the Company submitted erroneous evidence that was based on
                  racial
                  profiling which led to the arrest of the plaintiff. The Company
                  intends to
                  contest the case vigorously and, in the event of an unfavorable
                  outcome,
                  the amount of any compensatory damages will be covered by the Company’s
                  insurance policy. The punitive and exemplary damages will be charged
                  to
                  the earnings of the quarter and is not expected to have a material
                  adverse
                  impact on our financial condition.
  e)
              Other
                  Contingencies
  i)
              The
                  Company’s subsidiary, Canadian Security’s Agency, has a current
                  outstanding balance for source deductions on payroll expenses of
                  $70,600
                  (CDN$86,539), an amount of $38,700 (CDN$47,427) owed to ADP as
                  well as
                  $250,380 (CDN$306,815) for GST and PST payments and $50,000 (CDN$61,000)
                  for unpaid penalties and interest. The Company has no knowledge
                  of any
                  other pending fines or penalties that may be related
                  hereto.
  ii)
              On
                  August 24, 2005, following a Special Warrant Offer, (“the Offer”) the
                  Company received notice from the United States Securities and Exchange
                  Commission (“SEC”) inquiring about details regarding the Offer. The
                  Company has replied accordingly and is waiting for a response from
                  the
                  SEC. (Refer to Note 19(a)).
 
 
 17.  Segment
        Disclosures
  The
        Company adopted SFAS No. 131, “Disclosure About Segments of an Enterprise and
        Related Information”, during the previous year. . Reporting segments are based
        upon the Company’s internal organization structure, the manner in which the
        Company’s operations are managed, the criteria used by the Company’s chief
        operating decision-maker to evaluate segment performance, the availability
        of
        separate financial information, and overall materiality
        considerations.
  The
        Security and Monitoring Devices reporting segment is comprised of the operations
        of C-Chip Technology North America and Avensys. The Security and Investigative
        Services reporting segment is comprised of the operations of CSA and
        CLI.
  Direct
        contribution consists of revenues less direct costs. Direct costs include
        specific costs of net revenues, sales and marketing expenses, and general
        and
        administrative expenses over which segment managers have direct discretionary
        control, such as marketing and sales programs, customer support expenses,
        bank
        charges and bad debt write-offs. Expenses over which segment managers do
        not
        currently have discretionary control, such as site operations costs, product
        development expenses, and general and administrative costs, are monitored
        by
        corporate management and are not evaluated in the measurement of segment
        performance.
 F-30
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
 
 17.  Segment
        Disclosures (continued)
  Fiscal
        2005:
  Security
                  and
                Investigative
                Services
              
              Security
                  and
                Monitoring
                Devices
              
              Consolidated$
              
              $
              
              $Net
                  revenues from external customers
              
              
              3,440,609
              
              
              3,580,619
              
              
              7,021,228Cost
                  of net revenues
              
              
              2,360,042
              
              
              2,306,458
              
              
              4,666,500Marketing
                  and sales expense
              
              
              218,094
              
              
              732,666
              
              
              950,760Administrative
                  expense
              
              
              1,032,226
              
              
              3,704,417
              
              
              4,736,643Bad
                  debt write-offs
              
              
              47,750
              
              
              —
              
              
              47,750Direct
                  costs
              
              
              3,658,112
              
              
              6,743,541
              
              
              10,401,653Direct
                  contribution
              
              
              (217,503
              )
              
              (3,162,922
              )
              
              (3,380,425
              )Operating
                  expenses and indirect costs of net revenues
              
              
              
              
              
              
              
              
              (1,989,088
              )Loss
                  from operations
              
              
              
              
              
              
              
              
              (5,369,513
              )Debenture
                  interest, accretion and conversion
              
              
              
              
              
              
              
              
              (878,511
              )Interest
                  and penalties expense
              
              
              
              
              
              
              
              
              (19,449
              )Net
                  loss before non-controlling interest
              
              
              
              
              
              
              
              
              (6,267,473
              )Non-controlling
                  interest
              
              
              
              
              
              
              
              
              (1,257
              )Net
                  loss before income tax benefit
              
              
              
              
              
              
              
              
              (6,268,730
              )Income
                  tax benefit
              
              
              
              
              
              
              
              
              37,787Net
                  Loss
              
              
              
              
              
              
              
              
              (6,230,943
              )
  Fiscal
        2004:
  Security
                  and
                Investigative
                Services
              
              Security
                  and
                Monitoring
                Devices
              
              Consolidated$
              
              $
              
              $Net
                  revenues from external customers
              
              
              830,676
              
              
              210,222
              
              
              1,040,898Cost
                  of net revenues
              
              
              559,352
              
              
              102,487
              
              
              661,839Marketing
                  and sales expense
              
              
              58,955
              
              
              237,435
              
              
              296,390Administrative
                  expense
              
              
              88,060
              
              
              639,109
              
              
              727,169Bad
                  debt write-offs
              
              
              1,987
              
              
              17,619
              
              
              19,606Direct
                  costs
              
              
              708,354
              
              
              996,650
              
              
              1,705,004Direct
                  contribution
              
              
              122,322
              
              
              (786,428
              )
              
              (664,106
              )Operating
                  expenses and indirect costs of net revenues
              
              
              
              
              
              
              
              
              2,479,388Loss
                  from operations
              
              
              
              
              
              
              
              
              (3,143,494
              )Debenture
                  interest, accretion and conversion
              
              
              
              
              
              
              
              
              (1,437,473
              )Interest
                  expense
              
              
              
              
              
              
              
              
              (9,594
              )Net
                  Loss
              
              
              
              
              
              
              
              
              (4,590,561
              )
  F-31
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
 
 17.  Segment
        Disclosures (continued)
  The
        Company’s long-lived assets are allocated as follows:
  2005
              
              2004$
              
              $Security
                  and Investigative Services
              
              
              202,943
              
              
              8,747Security
                  and Monitoring Devices
              
              
              528,132
              
              
              73,527Total
                  long-lived assets
              
              
              731,075
              
              
              82,274
  All
        the
        Company’s long-lived assets are located in Canada.
  The
        Company has three geographic business areas: North America, Europe & Asia.
        Total revenues in Canada were $5,629,067 during the year ended June 30, 2005.
        During the year ended June 30, 2005, revenue from one customer of the Company’s
        Security and Monitoring Devices segment represented approximately $866,915
        of
        consolidated revenues. The Company has one customer representing approximately
        $673,476 of the accounts receivable total as of June 30, 2005.
  Geographic
        Information
  2005
              
              2004Revenues
              
              $
              
              $North
                  America
              
              
              6,100,744
              
              
              1,040,898Europe
              
              
              657,520
              
              
              —Asia
              
              
              262,964
              
              
              —Total
              
              
              7,021,228
              
              
              1,040,898
 
 
 18.  Income
        Tax
  The
        Company utilizes the liability method of accounting for income taxes as set
        forth in SFAS No. 109, “Accounting for Income Taxes”. Under the liability
        method, deferred taxes are determined based on the temporary differences
        between
        the financial statement and tax bases of assets and liabilities using enacted
        tax rates. A valuation allowance is recorded when it is more likely than
        not
        that some of the deferred tax assets will not be realized. The Company has
        incurred combined U.S. and Canadian operating losses of $10,934,000 which
        expire
        starting in 2015. Pursuant to SFAS 109 the Company is required to compute
        tax
        asset benefits for net operating losses carried forward. The potential benefit
        of net operating losses has not been recognized in these financial statements
        because the Company cannot be assured it is more likely than not it will
        utilize
        the net operating losses carried forward in future years.
  A
        reconciliation of the benefit for income taxes at the combined U.S. and Canadian
        tax rate compared to the Company’s effective tax rate is as
        follows:
  June
                  30,2005
              
              2004$
              
              $Income
                  tax at Federal US statutory rate (recovery)
              
              
              (2,118,521
              )
              
              (1,560,791
              )Increase
                  (decrease) resulting from:Stock
                  based compensation not deductible
              
              
              401,061
              
              
              291,171Non-deductible
                  interest
              
              
              126,861
              
              
              5,653Unrecognized
                  deductible temporary differences
              
              
              1,347,024
              
              
              1,263,967Income
                  tax rate differential of foreign subsidiaries
              
              
              199,355
              
              
              —Non-deductible
                  items and other elements
              
              
              71,902
              
              
              —Other
              
              
              (65,469
              )
              
              —Income
                  tax benefit
              
              
              (37,787
              )
              
              —
 F-32
 Manaris
                Corporation
 (Formerly
                C-Chip Technologies Corporation)
 (Formerly
                A Development Stage Company)
 Notes
                to
                Consolidated Financial Statements
 June
                30,
                2005
 (Expressed
                in U.S. Dollars)
 
 18.  Income
        Tax (continued)
  Deferred
        tax assets and liabilities and the amount of the valuation allowance are
        as
        follows:
  June
                  30,2005
              
              2004$
              
              $Deferred
                  tax assets:Net
                  tax losses carried forward
              
              
              3,446,960
              
              
              406,382Difference
                  between book and tax depreciation
              
              
              83,298
              
              
              —Reserves
                  and accruals not deductible for tax purposes
              
              
              42,833
              
              
              83,201Research
                  and development tax credits
              
              
              621,022
              
              
              —Impairment
                  of intangible assets
              
              
              —
              
              
              96,784Valuation
                  allowance
              
              
              (3,195,417
              )
              
              (586,367
              )998,696
              
              
              —Deferred
                  tax liabilities:Difference
                  between book and tax depreciation
              
              
              (981,560
              )
              
              —Investment
                  tax credits
              
              
              (17,136
              )
              
              —Total
                  deferred net tax assets
              
              
              —
              
              
              —
  For
        the
        years ended June 30, 2005 and 2004, the valuation allowance established against
        the deferred tax assets increased by $2,609,050 and $561,207,
        respectively.
  For
        Canadian income tax purposes the Company has approximately $1,561,684 of
        Scientific Research and Experimental Development expenses available indefinitely
        to reduce taxable income in future years.
 
 In
        assessing the recoverability of deferred tax assets, management considers
        whether it is more likely than not that some portion or all of the deferred
        tax
        assets will not be realized. The ultimate realization of deferred tax assets
        is
        dependent upon the generation of future taxable income during the periods
        in
        which those temporary differences become deductible. Management considers
        the
        scheduled reversal of deferred tax liabilities, projected future taxable
        income,
        and tax planning strategies in making this assessment. The amount of the
        deferred tax asset considered realizable could change materially in the near
        term based on future taxable income during the carry forward
        period.
 
 
 19.  Subsequent
        Events
  a)
              In
                  July 2005 the Company made a Special Warrant Offer (the “Offer”) to all
                  Class A Series A, Series E, and Series F warrant holders. A total
                  of
                  $2,576,168 was raised under this Offer. Under the terms of the
                  Offer,
                  each holderparticipating in the Offer, by exercising any Series E Warrants
                  at $0.35
                  per share, received new Series G Incentive Warrants (the “Series G
                  Incentive Warrants”) and new Series I Incentive Warrants (the “Series I
                  Incentive Warrants”), each in an amount equal to one hundred percent
                  (100%) of the number of shares of the Company’s common stock issued upon
                  exercise ofthe
                  Series EWarrants pursuant to the Offer. A total of 3,797,976 Series E Warrants
                  were exercised which prompted the issuance of 3,797,976 Series
                  G Incentive
                  Warrants and 3,797,976 Series I Incentive
                  Warrants.
  Holders
        who participated in the Offer by the exercise of any Class A Warrants, Series
        A
        Warrants or Series F Warrants received new Series H Incentive Warrants (the
        “Series H Incentive Warrants”) and new Series J incentive warrants (the “Series
        J Incentive Warrants”), each in an amount equal to twenty-five percent (25%) and
        fifty percent (50%), respectively, of the number of shares of the Company’s
        common stock issued upon exercise of the
        Class
        A Warrants, the Series A Warrants or the Series F Warrants
        pursuant to the Offer. A total of 3,562,359 Class A Warrants, Series A Warrants
        and Series F Warrants were exercised which prompted the issuance of 890,590
        Series H Warrants and 1,781,180 Series J Warrants.
  As
        a
        result of the Offer, the Company, pursuant to the Warrants in effect, adjusted
        the respective Warrants accordingly.
  Following
        the Offer, the Company received notice from the SEC inquiring about details
        regarding the Offer and the registration amendment. The Company has replied
        accordingly and is waiting for a response from the SEC.
  F-33
 Manaris
              Corporation
 (Formerly
              C-Chip Technologies Corporation)
 (Formerly
              A Development Stage Company)
 Notes
              to
              Consolidated Financial Statements
 June
              30,
              2005
 (Expressed
              in U.S. Dollars)
  19.  Subsequent
        Events (continued)
  b)
              In
                  order to take account for the Company’s default on its principal and
                  interest payment that was due on June 23, 2005, the Company offered
                  its
                  investors the option to receive payment of the principal payment
                  in freely
                  tradable shares. The shares issued in lieu of cash were valued
                  at 85% of
                  the market price (5 day volume weighted average price). In addition,
                  since
                  a notice was sent under 10 business days indicating the Company’s intent
                  to pay in shares, the Company increased the amount of the principal
                  to be
                  reimbursed by ten percent.
  c)
              In
                  July 2005 the Company issued shares of common stock for a consideration
                  per share less than the conversion price in effect, which constitutes
                  a
                  “Trigger Issuance” under the Senior Secured Convertible Note of February
                  16, 2005. Consequently, some investors pursuant to the Senior Secured
                  Convertible Note exercised their right to convert part of the Note
                  into
                  common shares. A total of $815,985 of the Senior Secured Convertible
                  Note
                  was converted. Having made four principal payments, the balance
                  remaining
                  on the Note Agreement totals
                  $2,971,647.
  d)
              On
                  September 22, 2005, the Company decided to cease operations of
                  its wholly
                  owned subsidiary, Canadian Security Agency (2004) Inc. ("CSA"),
                  a provider
                  of security services. As a result, CSA has entered into an agreement
                  pursuant to which CSA will sell its customer list for CDN$100,000.
                  The
                  Company has owned CSA since February
                  2004.
  e)
              Refer
                  to Note 16(d)(i) and (ii) for litigation and settlement costs subsequent
                  to June 30, 2005.
  F-34
 **ITEM
        8.**  **CHANGES
        IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE**
  We
        have
        no changes in or disagreements with our independent accountants regarding
        accounting and financial disclosure.
  **ITEM
        8A.**  **CONTROLS
        AND PROCEDURES**
  **(a)**  ***Evaluation
        of Disclosure Controls and Procedures:*** Disclosure controls and procedures are designed to ensure that information
        required to be disclosed in the reports filed or submitted under the Exchange
        Act is recorded, processed, summarized and reported, within the time period
        specified in the SEC's rules and forms. Disclosure controls and procedures
        include, without limitation, controls and procedures designed to ensure that
        information required to be disclosed in the reports filed under the Exchange
        Act
        is accumulated and communicated to management, including the Chief Executive
        Officer and Chief Financial Officer, as appropriate, to allow timely decisions
        regarding required disclosure. As of the end of the period covered by this
        report, the Company carried out an evaluation, under the supervision and
        with
        the participation of the Company's management, including the Company's Chief
        Executive Officer and Chief Financial Officer, of the effectiveness of the
        design and operation of the Company's disclosure controls and procedures.
        Based
        upon and as of the date of that evaluation, the Chief Executive Officer and
        Chief Financial Officer concluded that the Company's disclosure controls
        and
        procedures are effective to ensure that information required to be disclosed
        in
        the reports the Company files and submits under the Exchange Act is recorded,
        processed, summarized and reported as and when required.
  41
  **(b)**  ***Changes
        in Internal Control over Financial Reporting:*** There
        were no changes in the Company's internal control over financial reporting
        identified in connection with the Company evaluation of these controls as
        of the
        end of the period covered by this report that could have significantly affected
        those controls subsequent to the date of the evaluation referred to in the
        previous paragraph, including any correction action with regard to significant
        deficiencies and material weakness.
  There
        were no significant changes in the Company's internal controls or in other
        factors that could significantly affect these controls subsequent to the
        date of
        their evaluation, including any significant deficiencies or material weaknesses
        of internal controls that would require corrective action.
  **ITEM
        8B. OTHER INFORMATION.**
  On
        July
        15 th ,
        2005,
        the Company held a special meeting of shareholders. The purpose of the meeting
        was to amend the Company’s Articles of Incorporation to reflect the name change
        from C-Chip Technologies Corporation to Manaris Corporation, as well as to
        increase the Company’s authorized common stock from 100,000,000 shares of common
        stock to 500,000,000 shares of common stock, $0.00001 par value. Votes were
        solicited by proxy and from those who were present at the meeting. Both the
        name
        change and the increase in authorized common stock were approved.
  **PART
        III**
  **ITEM
        9.**  **DIRECTORS,
        OFFICERS, PROMOTERS AND CONTROL PERSONS COMPLIANCE WITH SECTION 16(a) OF
        THE
        EXCHANGE ACT**
  **Directors
        and Officers**
  The
        directors and officers, their ages and positions held as of October 1, 2005
        are
        listed below. Each director serves until our next annual meeting of the
        stockholders or unless they resign earlier. The Board of Directors elects
        officers and their terms of office are at the discretion of the Board of
        Directors.
  **Name**
                **Age**
                **Position
                    Held**Robert
                    Clarke
                61
                Chairman
                    of the Board of DirectorsJohn
                    Fraser
                59
                President
                    and Chief Executive Officer since September 16, 2005, and
                    DirectorCherry
                    Lee
                40
                DirectorStephane
                    Solis
                47
                President,
                    Chief Executive Officer and a Director until September 16,
                    2005Andre
                    Monette
                47
                Chief
                    Financial Officer, Secretary and
                    Treasurer
  42
  The
        following describes the business experience during the past five years of
        our
        directors and executive officers, including for each director, other
        directorships held in reporting companies. There are no family relationships
        among any of the persons listed.
  Robert
        Clarke, Chairman of the Board of Directors. Mr. Clarke has been our Chairman
        of
        the Board of Directors since January 2003. He has been Chairman and Chief
        Executive Officer of 7bridge Capital, since June 2000, a private venture
        capital
        group based in Hong Kong. Since October 1998, Mr. Clarke has been Chairman
        of
        the Board of Directors of Asia Payment Systems, Inc. (OTCBB: APYM) During
        the
        last five years, Mr. Clarke has served as a Director and as President and
        Chief
        Executive Officer at various times of ePhone Telecom Inc. (OTCBB: EPHO) as
        follows: He served as the Chairman of the Board of Directors from April 1999
        until July 21, 2000 and again from December 1, 2000 to September 12, 2002.
        Mr.
        Clarke also served as the President and Chief Executive Officer of ePhone
        from
        June 3, 1999 to August 8, 1999, and also from March 9, 20000 until April
        1, 2000
        and again from December 1, 2000 to July 1, 2001. During two periods he was
        CEO
        but not President. These periods were from August 8, 1999 to March 9, 2000
        and
        from April 1, 2001 to July 2001. He carried out the functions normally
        associated with the offices he held and in particular during the periods
        when he
        held the office of CEO he was responsible for the overall direction and
        operation of the company. From January 1997 to November 1997, Mr. Clarke
        was
        President, CEO and a Director of WaveRider Communications Inc (OTCBB: WAVC).
        He
        resigned as President in November 1997, but carried on as Director and CEO
        for
        an additional month until December 1997. Mr. Clarke was a Director and Chairman
        of TEK Digitel Corp. (OTCBB: TEKI) from June 1998 until September 1999, but
        had
        no executive responsibilities and was paid no compensation. During the period
        July 1998 to August 1999 Mr. Clarke was a director of Innofon.Com Inc.
        (OTCBB:INNF).
  John
        Fraser, Director and President and Chief Executive Officer. Mr. Fraser has
        served as a Director since January 2003, and as our Secretary and Treasurer
        from
        January 2003 until September 16, 2005. On September 16, 2005, Mr. Fraser
        was
        appointed as our President and Chief Executive Officer for a minimum period
        of
        three months, replacing Stephane Solis. He was a partner for twenty years
        with
        KPMG Canada until January 1998. For the last four years of his career with
        KPMG,
        he was Vice Chairman of the firm and responsible for the Canadian management
        consulting division. In January 1998, he started providing consulting services
        to professional services and high technology start-up firms, which services
        he
        continues to provide to this day, and since January 1999, under the name
        J G
        Fraser & Associates Inc. In February 2004, J G Fraser & Associates
        became a partner in Catalyst Consulting, a private Canadian consulting firm
        providing management consulting services to law firms and law departments
        in
        Canada and internationally. From July 1999 to August 2002, Mr. Fraser was
        a
        director of ePhone Telecom Inc. (OTCBB: EPHO). Mr. Fraser has been a director
        of
        Asia Payment Systems, Inc. (OTCBB: APYM) since September 2002. From June
        2000 to
        May 2003, Mr. Fraser was a director of Walters Forensic Engineering, a public
        engineering firm based in Toronto, Canada. (CDNX: YWL). He is a director
        of
        7bridge Capital, a private venture capital group based in Hong Kong. He is
        also
        a director and immediate past Chairman of Hincks Dellcrest, a non-profit
        organization located in Toronto, Canada.
  43
  Cherry
        Lim, Director. Ms. Lim has served as a Director since January 2003. Ms. Lim
        has
        extensive professional experience in manufacturing and Telecommunications
        in
        Asia. She began her career in manufacturing, and before migrating to Singapore,
        she worked with a Hong Kong-based conglomerate assisting the top management
        in
        the operation of manufacturing facilities in the region and in negotiating
        various technology transfer projects to Mainland China. Since 1990 she has
        worked in telecoms, first for SingTel in Singapore and then Deustsche Telekom
        in
        Hong Kong; and in 1996 she joined eGlobe, Inc. At eGlobe, which she left
        as
        Director, Business Development in 2000, she was responsible for spearheading
        and
        fostering partnerships with major Telcos and ISPs in the Asia Pacific region.
        Ms. Lim is now President of 7bridge Systems (HK) Limited, a Hong Kong based
        telecommunications company. Ms. Lim is now CEO of Tsing-tech Innovations
        Company
        Limited, a Hong Kong based company specializing in technology investment
        and
        technology management with a focus in technology transfer for commercialization.
        Ms. Lim joined Tsing-Tech from 7bridge Capital Partners Ltd., which is a
        privately-held company investing in IT and Telecom startups.
  Stephane
        Solis, President and Chief Executive Officer until September 16, 2005. Mr.
        Solis
        served as our President, Chief Executive Officer and as a Director from January
        2003 until September 16, 2005. Mr. Solis began his career in 1985 with Midland
        Doherty Inc., a predecessor of Merrill Lynch Canada Inc., as a Research Analyst
        in the communications and media sector. In 1990, he joined a Montreal subsidiary
        of Lombard Odier, one of the largest private banks in Switzerland, where
        he
        provided investment advice on Canadian companies to a select clientele. In
        1993,
        he co-founded GLS Capital Inc., an institutional research boutique specializing
        in the information technology sector. In 1995, Mr. Solis sold GLS Capital
        Inc.
        to Yorkton Securities Inc. and joined Yorkton's corporate finance team and
        managed the company's operations in Montreal. At Yorkton, Mr. Solis was focused
        on the financing, both private and public, of emerging companies, mostly
        in the
        information technology sector. In 1998, he joined Groome Capital.com Inc.
        to
        work in corporate finance. Since mid 2000, Mr. Solis has been consultant
        to a
        number of small and emerging high-tech companies. He joined Manaris in November
        2000, first as consultant, then in March 2001 as its Chief Financial Officer
        and, since January 2003 as its President and Chief Executive Officer. Mr.
        Solis
        has been an officer of the Company since January 2003. He is also a Director
        of
        Equilar Capital Corporation since March 2001. Between May 2001 and August
        2001,
        he was Director of Innofone.com (OTCBB: INNF). Mr. Solis resigned as President
        and Chief Executive Officer of Manaris and all of its subsidiaries on September
        16 th ,
        2005.
  Andre
        Monette, Chief Financial Officer. Mr. Monette has served as our Chief Financial
        Officer since January 2005 and as our Secretary and Treasurer since September
        2005. He began his career in September 1979 with Raymond, Chabot, Martin,
        Pare
& Associes, as an auditor. In April 1984, he joined the North American
        subsidiaries of Lombard Odier & Cie private bankers, Geneva, Switzerland and
        as a Senior Manager and he carried out, until September 2002, various functions
        within the Group. From 1985 to 2002, he served as Vice President of Finance
        and
        Administration of Lombard Odier Company of Canada, a holding company offering
        administrative and information technology services to affiliated companies.
        From
        1989 to 2002, he also served as President, Chief Executive Officer and Director
        of Transatlantic Securities Company, a registered securities broker/dealer
        member of The New York Stock Exchange. He was in 2002, Treasurer of Lombard
        Odier Trust Company, an investment adviser providing portfolio management
        to
        private clients and securities custody. From 1999 to 2002, he was Treasurer
        of
        Lombard Odier Holdings (US) Inc. which had two wholly-owned subsidiaries,
        Lombard, Odier, Inc, an investment adviser registered with the SEC and Lombard,
        Odier, Securities Inc, a broker-dealer intermediary registered with the SEC
        and
        NASD. From October 2002 to December 2003 he was self-employed. In January
        2004
        he joined Caisse de Depot et de Placement du Quebec, a financial institution,
        as
        an operational Risk Manager. Mr. Monette was unemployed from October 2004
        to
        January 2005. Mr. Monette is a Chartered Accountant and a Chartered Financial
        Analyst. He received his Bachelor in Business Administration from the Ecole
        des
        Hautes Etudes Commerciales de Montreal.
  44
  Compliance
        with Section 16(a) of the Exchange
        Act
  Section
        16(a) of the Securities Exchange Act of 1934, as amended (the "1934 Act")
        requires officers and directors of a company with securities registered pursuant
        to Section 12 of the 1934 Act, and persons who own more than 10% of the
        registered class of such company's equity securities, to file reports of
        ownership and changes in ownership with the Securities and Exchange Commission
        (the "SEC"). Officers, directors and greater than 10% stockholders are required
        by SEC regulation to furnish the subject company with copies of all Section
        16(a) forms filed. All reports required to be filed under Section 16 during
        the
        last fiscal year have been filed.
  **Audit
        Committee and Charter**
  We
        have
        an audit committee charter. Under the charter, the committee is comprised
        of all
        of our officers and directors. None of directors are deemed independent.
        All
        directors also hold positions as our officers. A copy of our audit committee
        charter is filed as an exhibit to this report. Our audit committee is
        responsible for: (1) selection and oversight of our independent accountant;
        (2)
        establishing procedures for the receipt, retention and treatment of complaints
        regarding accounting, internal controls and auditing matters; (3) establishing
        procedures for the confidential, anonymous submission by our employees of
        concerns regarding accounting and auditing matters; (4) engaging outside
        advisors; and, (5) funding for the outside auditory and any outside advisors
        engagement by the audit committee. A copy of our audit committee charter
        is
        filed as an exhibit to this report.
  **Audit
        Committee Financial Expert**
  We
        have
        no financial expert. We plan to add an independent and financial expert to
        our
        audit committee during fiscal year 2006.
  **Code
        of Ethics**
  We
        have
        adopted a corporate code of ethics. A copy of the code of ethics is filed
        as an
        exhibit to this report. We believe our code of ethics is reasonably designed
        to
        deter wrongdoing and promote honest and ethical conduct; provide full, fair,
        accurate, timely and understandable disclosure in public reports; comply
        with
        applicable laws; ensure prompt internal reporting of code violations; and
        provide accountability for adherence to the code.
  45
  Disclosure
        Committee and
        Charter
  We
        have a
        disclosure committee charter. The purpose of the committee is to provide
        assistance to the Chief management team in fulfilling their responsibilities
        regarding the identification and disclosure of material information about
        us and
        the accuracy, completeness and timeliness of our financial reports. A copy
        of
        our disclosure committee charter is filed with this report. The disclosure
        committee is currently inactive. We plan to activate the disclosure committee
        during fiscal year 2006.
  **ITEM
        10.     EXECUTIVE COMPENSATION**
  The
        following table sets forth information with respect to compensation paid
        by us
        to our officers and directors during the three most recent fiscal
        years.
  **Summary
        Compensation Table**
 **Long
                    Term Compensation****Annual
                    Compensation**
                
                **Awards**
                
                **Payouts****(a)**
                
                **(b)**
                
                **(c)**
                
                **(d)**
                
                **(e)**
                
                **(f)**
                
                **(g)**
                
                **(h)**
                
                **(i)****Other****Annual**
                
                **Restricted**
                
                **Securities****Compen-**
                
                **Stock**
                
                **Underlying**
                
                **LTIP**
                
                **All
                    Other****Name
                    and Principal**
                
                
                
                **Salary**
                
                **Bonus**
                
                **sation**
                
                **Award(s)**
                
                **Options
                    /**
                
                **Payouts**
                
                **Compens-****Position
                    [1]**
                
                **Year**
                
                **($)**
                
                **($)**
                
                **($)**
                
                **($)**
                
                **SARs
                    (#)**
                
                **($)**
                
                **ation
                    ($)**Stephane
                    Solis
                
                2005
                
                86,709
                
                
                
                0
                
                0
                
                500,000
                
                
                
                0President
                    and Chief
                
                2004
                
                67,164
                
                0
                
                6,644
                
                0
                
                0
                
                0
                
                0Executive
                    Officer
                
                2003
                
                18,775
                
                0
                
                2,086
                
                0
                
                500,000
                
                0
                
                0(resigned
                    Sept. 2005)Andre
                    Monette
                
                2005
                
                25,112
                
                0
                
                0
                
                0
                
                150,000
                
                0
                
                0Treasurer
                    and Chief
                
                2004
                
                0
                
                0
                
                0
                
                0
                
                0
                
                0
                
                0Financial
                    Officer
                
                2003
                
                0
                
                0
                
                0
                
                0
                
                0
                
                0
                
                0(since
                    Sept. 2005 and Feb 2005 respectively)Robert
                    Clarke
                
                2005
                
                0
                
                0
                
                0
                
                0
                
                150,000
                
                0
                
                0Chairman
                    of the
                
                2004
                
                0
                
                0
                
                0
                
                0
                
                0
                
                0
                
                0Board
                    of Directors
                
                2003
                
                0
                
                0
                
                0
                
                0
                
                250,000
                
                0
                
                0John
                    Fraser
                
                2005
                
                0
                
                0
                
                0
                
                0
                
                75,000
                
                0
                
                0Secretary
                    &
                
                2004
                
                0
                
                0
                
                0
                
                0
                
                0
                
                0
                
                0Director
                
                2003
                
                0
                
                0
                
                0
                
                0
                
                200,000
                
                0
                
                0(appointed
                    President and CEO Sept 2005)Cherry
                    Lee
                
                2005
                
                0
                
                0
                
                0
                
                0
                
                75,000
                
                0
                
                0Director
                
                2004
                
                0
                
                0
                
                0
                
                0
                
                0
                
                0
                
                0(resigned
                    Sept 2005)
                
                2003
                
                0
                
                0
                
                0
                
                0
                
                200,000
                
                0
                
                0Benjamin
                    Leboe
                
                2005
                
                0
                
                0
                
                0
                
                0
                
                350,000
                
                0
                
                62,096Treasurer
                    and Chief
                
                2004
                
                0
                
                0
                
                0
                
                0
                
                0
                
                0
                
                38,750Financial
                    Officer
                
                2003
                
                0
                
                0
                
                0
                
                0
                
                200,000
                
                0
                
                8,340(resigned
                    Feb 2005)Claude
                    Pellerin
                
                2005
                
                0
                
                0
                
                0
                
                0
                
                50,000
                
                0
                
                61,589Vice
                    President
                
                2004
                
                0
                
                0
                
                0
                
                0
                
                0
                
                0
                
                36,950(resigned
                    Oct 2004)
                
                2003
                
                0
                
                0
                
                0
                
                0
                
                100,000
                
                0
                
                18,955
  [1]
            All compensation received by the
        officers and directors has been disclosed.
 46
  **Option/SAR
        Grants**
  There
        are
        no stock option, retirement, pension, or profit sharing plans for the benefit
        of
        our officers and directors, other than our 2003 and 2004 Incentive Stock
        Option
        Plans. Under these Plans, the board of directors is vested with discretionary
        authority to grant options to persons furnishing services to us. There were
        10,000,000 shares in the plans. 3,958,686 shares have been issued as a result
        of
        the exercise of options, 3,842,500 options are outstanding and 2,198,814
        shares
        remain in the plan.
  **Option
        Grants to Officers and Directors During the Last Fiscal
        Year**
  **Number
                    of**
                **%
                    of Total****Securities**
                **Options/SARs****Underlying**
                **Granted
                    to****Options/SARs**
                **Employees
                    in**
                **Exercise
                    of Base****Name**
                **Granted
                    (#)**
                **Fiscal
                    Year**
                **Price
                    ($/Sh)**
                **Expiration
                    Date**Stephane
                    Solis
                500,000
                21%
                $0.68
                09/14/2009Robert
                    Clarke
                150,000
                6.34%
                $0.68
                09/14/2009Cherry
                    Lim
                75,000
                3.17%
                $0.68
                09/14/2009John
                    Fraser
                75,000
                3.17%
                $0.68
                09/14/2009Benjamin
                    Leboe
                350,000
                14.80%
                $0.68
                09/14/2009Claude
                    Pellerin
                50,000
                2.11%
                $0.68
                09/14/2009Andre
                    Monette
                150,000
                6.34%
                $0.81
                02/14/2010
  47
  **Aggregated
        option/SAR Exercised by Officers and Directors in Last Fiscal Year and FY-End
        Option/SAR Values**
  **Number
                    of Securities****Underlying
                    Unexercised**
                **Value
                    of Unexercised In-****Options/SARs
                    at FY-End**
                **the-Money
                    Options/SARs****Shares**
                **Value**
                **(#)**
                **at
                    FY-End ($)****Acquired
                    on**
                **Realized****Name**
                **Exercised
                    (#)**
                **($)**
                **Exercisable**
                **Unexercisable**
                **Exercisable**
                **Unexercisable**Stephane
                    Solis
                0
                
                1,000,000
                
                150,000Robert
                    Clarke
                250,000
                $154,000
                150,000
                
                0Cherry
                    Lim
                200,000
                $131,000
                75,000
                
                0John
                    Fraser
                200,000
                $18,900
                75,000
                
                0Benjamin
                    Leboe
                170,000
                $49,600
                380,000
                
                15,000Claude
                    Pellerin
                100,000
                20,235
                50,000
                
                0Andre
                    Monette
                0
                
                37,500
                
                0
  **Future
        Compensation of Our Officers**
  For
        the
        fiscal year ending June 30, 2006, we intend to pay John Fraser, our president
        and chief executive officer, a base salary of $173,000 and grant him 500,000
        stock purchase options priced at the market on the date of grant.
  For
        the
        fiscal year ending June 30, 2006, we intend to pay Andre Monette, our treasurer
        and chief financial officer, a base salary of approximately $115,000. We
        are
        currently in negotiation with Mr. Andre Monette to determine his bonus plan.
        As
        part of his remuneration, he has been awarded 150,000 options with an exercise
        price of $0.81US for the twelve month period ending February 14,
        2006.
  **Long-Term
        Incentive Plan Awards**
  We
        do not
        have any long-term incentive plans that provide compensation intended to
        serve
        as incentive for performance to occur over a period longer than one fiscal
        year,
        whether such performance is measured by reference to our financial performance,
        our stock price, or any other measure other than our 2003 and 2004 Incentive/or
        Nonqualified Stock Option Plans.
  **Compensation
        of Directors**
  We
        do not
        have any plans to pay our directors any money. We do intend to grant our
        directors options for serving on our board of directors. For fiscal year
        ending
        June 30, 2006, we have not determined the compensation that we may grant
        our
        directors.
  **Indemnification**
  Pursuant
        to the articles of incorporation and bylaws of the corporation, we may indemnify
        an officer or director who is made a party to any proceeding, including a
        lawsuit, because of his position, if he acted in good faith and in a manner
        he
        reasonably believed to be in our best interest. In certain cases, we may
        advance
        expenses incurred in defending any such proceeding. To the extent that the
        officer or director is successful on the merits in any such proceeding as
        to
        which such person is to be indemnified, we must indemnify him against all
        expenses incurred, including attorney's fees. With respect to a derivative
        action, indemnity may be made only for expenses actually and reasonably incurred
        in defending the proceeding, and if the officer or director is judged liable,
        only by a court order. The indemnification is intended to be to the fullest
        extent permitted by the laws of the state of Nevada.
  48
  Regarding
        indemnification for liabilities arising under the Securities Act of 1933
        which
        may be permitted to directors or officers pursuant to the foregoing provisions,
        we are informed that, in the opinion of the Securities and Exchange Commission,
        such indemnification is against public policy, as expressed in the Act and
        is,
        therefore unenforceable.
  **ITEM
        11.**  **SECURITY
        OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**
  The
        following table represents the shares of common stock owned by each officer,
        director, and owner of 5% or more of our common stock. The address for each
        person is our address at 1155
        René-Lévesque Blvd. West Suite #2720, Montreal, Québec, Canada H3B
        2K8.
  **Direct
                    Amount of**
                
                
                
                **Percent
                    of****Name
                    of Beneficial Owner**
                
                **Beneficial
                    Owner**
                
                **Position**
                
                **Class
                    [4]**Stephane
                    Solis
                
                1,050,000
                [2]
                
                President,
                    Chief Executive Officer and Director until September 16, 2005[6]
                
                0.00%Robert
                    Clarke
                
                150,000
                [1]
                
                Chairman
                    of the Board of Directors
                
                0.00%John
                    Fraser
                
                170,000
                [3]
                
                President
                    and Chief Executive Officer since September 16, 2005 and a Director[6]
                
                0.00%Cherry
                    Lim
                
                75,000
                [1]
                
                Director
                
                0.00%Andre
                    Monette
                
                150,000
                [1]
                
                Chief
                    Financial Officer, Secretary and Treasurer
                
                0.00%**All
                    officer and Directors as a Group (5 Persons)**
                
                **1,595,000**
                [4]
                
                
                
                **0.00%**Capex
                    Investments Ltd
                
                6,039,560
                [5]
                
                
                
                11.02%315
                    St. James CourtSt.
                    Denis StreetPort
                    LouisRepublic
                    of MauritiusCede
                    & Co.
                
                36,134,705
                
                
                
                
                65.96%PO
                    Box 222Bowling
                    Green StationNew
                    York, NY
  49
  [1]The
        foregoing figures
        include unexercised options. No outstanding shares are currently owned by
        this
        person.
 [2]Includes
        50,000 shares of
        common stock and an unexercised option to acquire 1,000,000 shares.
 [3]Includes
        95,000 shares of
        common stock and an unexercised option to acquire 75,000 shares.
 [4] Includes
        unexercised option shares.
 [5] This
        company is controlled by members of our Board of Directors.
 [6] On
        September 16, 2005, Stephane Solis, resigned as President and Chief Executive
        Officer. Under the terms of the agreement, Mr. Solis received 600 000options
        exercisable at $0.00001 (not included in table above). Following the resignation
        of Mr. Solis, John Fraser was appointed CEO and President. Under the agreement,
        John Fraser will receive 500,000 options exercisable at current market prices
        (not included in table above).
  The
        persons named above are our parents and promoters within the meaning of such
        terms under the Securities Act of 1933 by virtue of their direct and indirect
        stock holdings.
  **Changes
        in Control**
  To
        the
        knowledge of management, there are no present arrangements or pledges of
        our
        securities that may result in a change in control of our Company.
  **ITEM
        12.**  **CERTAIN
        RELATIONSHIPS AND RELATED TRANSACTIONS**
  The
        Company obtained Treasurer/Chief Financial Officer and Vice President/Legal
        Counsel services from firms in which certain officers and/or shareholders
        have a
        significant interest. Payments for these services are included in Item 10.
        other
        compensation.
  The
        amount due to officers and/or shareholders at June 30, 2005 is $476,646 (June
        30, 2004: $230,726). The amounts due are non-interest bearing, unsecured,
        and
        have no fixed terms of repayment.
  **ITEM
        13. EXHIBITS**
  10.1
              Resignation
                  of Stephane Solis (incorporated by reference to Form 8-K filed
                  with the
                  SEC on September 22, 2005).
  50
  10.2
              Confidential
                  Agreement, Final Release and Indemnity Agreement Between Manaris
                  Corporation and Stephane Solis (incorporated by reference to Form
                  8- K
                  filed with the SEC on September 22, 2005).10.3
              Employment
                  Agreement between Manaris Corporation and John G. Fraser (incorporated
                  by
                  reference to the Form 8-K/A filed with the SEC on October 11,
                  2005).10.4
              Press
                  Release on Special Warrant Offer (incorporated by reference to
                  the Form
                  8-K filed with the SEC on August 9, 2005).10.5
              Purchase
                  Agreement dated February 16, 2005 (incorporated by reference to
                  the Form
                  SB-2 filed by the Company on May 9, 2005).10.6
              Chartrand
                  Laframboise Agreement signed on February 14, 2005 (incorporated
                  by
                  reference to the Form SB-2 filed by the Company on May 9,
                  2005).10.7
              Avensys
                  Agreement signed on February 14, 2005 (incorporated by reference
                  to the
                  Form SB-2 filed by the Company on May 9, 2005).10.8
              SERIES
                  E WARRANTS signed on February 16, 2005 (incorporated by reference
                  to the
                  Form SB-2 filed by the Company on May 9, 2005).10.9
              SERIES
                  F WARRANTS signed on February 16, 2005 (incorporated by reference
                  to the
                  Form SB-2 filed by the Company on May 9, 2005).10.10
              SERIES
                  IB1 WARRANTS (incorporated by reference to the Form SB-2 filed
                  by the
                  Company on May 9, 2005).10.11
              SERIES
                  IB2 WARRANTS (incorporated by reference to the Form SB-2 filed
                  by the
                  Company on May 9, 2005).10.12
              SERIES
                  IB3 WARRANTS (incorporated by reference to the Form SB-2 filed
                  by the
                  Company on May 9, 2005).10.13
              SERIES
                  IB4 WARRANTS (incorporated by reference to the Form SB-2 filed
                  by the
                  Company on May 9, 2005).10.14
              SERIES
                  IB5 WARRANTS (incorporated by reference to the Form SB-2 filed
                  by the
                  Company on May 9, 2005).10.15
              Series
                  A Convertible Note, signed on February 16, 2005 (incorporated by
                  reference
                  to the Form SB-2 filed by the Company on May 9, 2005).31.1
              Certification
                    by Chief Executive Officer pursuant to Sarbanes Oxley Section
                    302
  51
  31.2
                    Certification
                        by Chief Financial Officer pursuant to Sarbanes Oxley Section
                        30232.1
                    Certification
                        by Chief Executive Officer pursuant to 18 U.S. C. Section
                        135032.2
                    Certification
                        by Chief Financial Officer pursuant to 18 U.S. C. Section
                        1350
  **ITEM
        14.**  **PRINCIPAL
        ACCOUNTING FEES AND SERVICES** ****
  **(1)
          Audit Fees**
  The
        aggregate fees billed for each of the last two fiscal years for professional
        services rendered by the principal accountant for our audit of annual financial
        statements and review of financial statements included in our Form 10-QSBs
        or
        services that are normally provided by the accountant in connection with
        statutory and regulatory filings or engagements for those fiscal years was:
 2005
                $84,7362004
                $18,450
  **(2)
            Audit-Related Fees**
  The
          aggregate fees billed in each of the last two fiscal years for assurance
          and
          related services by the principal accountants that are reasonably related
          to the
          performance of the audit or review of our financial statements and are
          not
          reported in the preceding paragraph:
  2005
                $22,1252004
                nil
  **(3)
            Tax Fees**
  The
          aggregate fees billed in each of the last two fiscal years for professional
          services rendered by the principal accountant for tax compliance, tax advice,
          and tax planning was:
  2005
                $8002004
                $2,015
  **(4)
            All Other Fees**
  The
          aggregate fees billed in each of the last two fiscal years for the products
          and
          services provided by the principal accountant, other than the services
          reported
          in paragraphs (1), (2), and (3) was:
  2005
                nil2004
                nil
 52
  (5)
          Our audit committee's pre-approval policies and procedures described
        in
        paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were that the audit committee
        pre-approve all accounting related activities prior to the performance of
        any
        services by any accountant or auditor.
  (6)
          The percentage of hours expended on the principal accountant's engagement
        to audit our financial statements for the most recent fiscal year that were
        attributed to work performed by persons other than the principal accountant's
        full time, permanent employees was 0%.
  53
  **SIGNATURES**
  Pursuant
        to the requirements of Section 13 or 15(d) of the Securities and Exchange
        Act of
        1934, the Registrant has duly caused this report to be signed on its behalf
        by
        the undersigned, thereunto duly authorized, on this 13 th day of
        October, 2005.
  **MANARIS
                    CORPORATION**(Registrant)BY:
                /s/
                    John FraserJohn
                    Fraser, President and Chief ExecutiveOfficer
                  (Principal
                    Executive Officer)BY:
                /s/
                    Andre MonetteAndre
                    Monette, Chief Financial Officer, Secretary and Treasurer and
                    (Principal
                    Financial and Accounting
                    Officer)
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed below by the following person on behalf of the Registrant and in the
        capacities.
  **Signatures**
                
                **Title**
                
                **Date**/s/
                    John Fraser
                
                President
                    and Chief Executive Officer
                
                October
                    13, 2005John
                    Fraser
                
                (Principal
                    Executive Officer)/s/
                    Andre Monette
                
                Chief
                    Financial Officer, Secretary and Treasurer
                
                October
                    13, 2005Andre
                    Monette
                
                (Principal
                    Financial and Accounting)
                    Officer/s/
                    Robert G. Clarke
                
                Chairman
                    of the Board of Directors
                
                October
                    13, 2005Robert
                    G. Clarke/s/
                    Cherry Lim
                
                Director
                
                October
                    13, 2005Cherry
                    Lim
  54