UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

———————————



FORM 10-QSB



ýQUARTERY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2006



oTRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to ___________



Commission file number 000-51522





Vincera, Inc.

(Exact name of small business issuer as specified in its charter)



|                                                                                                                |  |                                     
|--------------------------------------------------------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                                                                        |  | 74-2912383                          
|(State or other jurisdiction of
incorporation or organization)                                                  |  | (I.R.S. Employer
Identification No.)
|611 South Congress Avenue, Suite 350
Austin, TX 78704
(Address of principal executive offices)

www.vincera.com



512-443-8749

(Issuers telephone number)




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 time period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for past 90 days.



YES ý NO o



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





State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date:  As of May 15, 2006, the registrant had 47,319,940, shares of common stock, par value $0.001, outstanding.







Transitional Small Business Issuer Disclosure Format:  YES o NO ý







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Index

PART I  FINANCIAL INFORMATION

2

ITEM 1.

FINANCIAL STATEMENTS

2

ITEM 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

15

ITEM 3.

CONTROLS AND PROCEDURES

29

PART II  OTHER INFORMATION

30

ITEM 1.

LEGAL PROCEEDINGS

30

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

31

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

31

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

31

ITEM 5.

OTHER INFORMATION

32

ITEM 6.

EXHIBITS AND REPORTS ON FORM 8-K

32









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INTRODUCTORY NOTE



This Report on Form 10-QSB for Vincera, Inc. (the Company) may contain forward-looking statements.  You can identify these statements by forward-looking words such as may, will, expect, intend, anticipate, believe, estimate, and continue or similar words. Forward-looking statements include information concerning possible or assumed future business success or financial results. You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. We believe that it is important to communicate future expectations to investors.  However, there may be events in the future that we are not able to accurately predict or control.  Accordingly, we do not undertake any obligation to update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.



The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties set forth under Risk Factors in this report and in our Form 10-KSB and any other periodic reports filed with the SEC.  Accordingly, to the extent that this Quarterly Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of the Company, please be advised that the Companys actual financial condition, operating results and business performance may differ materially from that projected or estimated by the Company in forward-looking statements.



1



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PART I  FINANCIAL INFORMATION

Item 1.

Financial Statements

|                                           |                                                                                                                                                                                   |                                             |              |                |   |              |                  
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------------ | -------------- | - | ------------ | -----------------
|VINCERA, INC.                             
|Balance Sheets                            
|As of March 31, 2006 and December 31, 2005
|                                           |                                                                                                                                                                                   |                                             |              | March 31,
2006 |   |              | December 31, 2005
|                                           |                                                                                                                                                                                   |                                             |              | (unaudited)    |   |              |                  
|Assets                                     |                                                                                                                                                                                   |                                             |              |                |  
|Current assets:                            |                                                                                                                                                                                   |                                             |              |                |  
|                                           | Cash and cash equivalents                                                                                                                                                         | $                                           | 36,084       |                | $ | 140,071     
|                                           | Accounts receivable, net                                                                                                                                                          |                                             | 4,871        |                |   | 17,000      
|                                           | Other current assets                                                                                                                                                              |                                             | 62,680       |                |   | 15,612      
|                                           | Total current assets                                                                                                                                                              |                                             | 103,635      |                |   | 172,683     
|Property and equipment:                    |                                                                                                                                                                                   |                                             |              |                |  
|                                           | Computer equipment and software                                                                                                                                                   |                                             | 55,962       |                |   | 77,230      
|                                           | Furniture and fixtures                                                                                                                                                            |                                             | 13,860       |                |   | 3,500       
|                                           | Total property and equipment                                                                                                                                                      |                                             | 69,822       |                |   | 80,730      
|                                           | Less accumulated depreciation and amortization                                                                                                                                    |                                             | (33,265)     |                |   | (53,178)    
|                                           | Net property and equipment                                                                                                                                                        |                                             | 36,557       |                |   | 27,552      
|                                           | Issuance costs, net of amortization                                                                                                                                               |                                             | 241,760      |                |   | 186,809     
|                                           | Software acquired                                                                                                                                                                 |                                             | 84,858       |                |   | 99,000      
|                                           | Total assets                                                                                                                                                                      |                                             | 466,810      |                |   | 486,044     
|Liabilities and Stockholders Equity       |                                                                                                                                                                                   |                                             |              |                |  
|Current liabilities:                       |                                                                                                                                                                                   |                                             |              |                |  
|                                           | Accounts payable and accrued liabilities                                                                                                                                          |                                             | 275,527      |                |   | 375,924     
|                                           | Accounts payable, related party                                                                                                                                                   |                                             | 51,143       |                |   | 14,096      
|                                           | Note payable, related party                                                                                                                                                       |                                             | 220,876      |                |   | 220,876     
|                                           | Deferred rent payable                                                                                                                                                             |                                             | 1,037        |                |   | 2,075       
|                                           | Deferred revenues                                                                                                                                                                 |                                             | 25,396       |                |   | 23,396      
|                                           | Accrued interest payable                                                                                                                                                          |                                             | 172,155      |                |   | 215,315     
|                                           | Subordinated notes payable                                                                                                                                                        |                                             | 650,000      |                |   | 800,000     
|                                           |                                                                                                                                                                                   | Total current liabilities                   |              | 1,396,134      |   |              | 1,651,682        
|                                           | Long-term leases                                                                                                                                                                  |                                             | 13,283       |                |   | -           
|                                           | Common stock, 12,863,540 and 10,615,909 issued and outstanding at March 31, 2006 and December 31, 2005, respectively, subject to registration rights agreement, at fair value     |                                             | 4,861,467    |                |   | 4,052,319   
|                                           | Derivative liability, contingent warrants issued with common stock sales                                                                                                          |                                             | 165,077      |                |   | 96,149      
|                                           | Derivative liability, warrants issued with common stock conversion from notes payable and accrued interest                                                                        |                                             | 45,989       |                |   | 41,803      
|                                           |                                                                                                                                                                                   | Total long term liabilities                 |              | 5,085,816      |   |              | 4,190,271        
|                                           |                                                                                                                                                                                   | Total liabilities                           |              | 6,481,950      |   |              | 5,841,953        
|Stockholders deficit:                     |                                                                                                                                                                                   |                                             |              |                |  
|                                           | Series A convertible preferred $.001 par value, 30,000,00 authorized, 2,454,690 and 2,869,285 shares issued and outstanding at March 31, 2006 and December 31, 2005, respectively |                                             | 2,454        |                |   | 2,869       
|                                           | Additional paid-in-capital  Series A Preferred                                                                                                                                   |                                             | 1,224,874    |                |   | 1,431,757   
|                                           | Common Stock, $.001 par value, 100,000,000 shares authorized and 31,570,569 and 31,155,974 shares issued and outstanding at March 31, 2006 and December 31, 2005, respectively    |                                             | 31,571       |                |   | 31,156      
|                                           | Additional paid-in-capital                                                                                                                                                        |                                             | 5,554,116    |                |   | 5,347,233   
|                                           | Note receivable from shareholders for purchase of stock                                                                                                                           |                                             | (6,250)      |                |   | (6,250)     
|                                           | Accumulated deficit                                                                                                                                                               |                                             | (12,821,905) |                |   | (12,162,674)
|                                           |                                                                                                                                                                                   | Total stockholders deficit                 |              | (6,015,140)    |   |              | (5,355,909)      
|                                           |                                                                                                                                                                                   | Total liabilities and stockholders' deficit | $            | 466,810        |   | $            | 486,044          

See accompanying notes to financial statements.



2



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|                                           |                                              |   |                |  |               
|------------------------------------------ | -------------------------------------------- | - | -------------- |  | --------------
|VINCERA, INC.                             
|Statement of Operations                   
|Three Months Ended March 31, 2006 and 2005
|                                           |                                              |   | March 31,
2006 |  | March 31,
2005
|                                           |                                              |   | (unaudited)    |  | (unaudited)   
|Revenues:                                  |                                              |   |                | 
|                                           | Royalties                                    | $ | 123,488        |  | 47,790        
|                                           | Licenses                                     |   | 4,500          |  | 6,500         
|                                           | Services                                     |   | 44,527         |  | 63,371        
|                                           | Total revenues                               |   | 172,515        |  | 117,661       
|Expenses:                                  |                                              |   |                | 
|                                           | Research and development                     |   | 260,786        |  | 195,579       
|                                           | Sales, marketing, general and administrative |   | 515,384        |  | 464,673       
|                                           | Depreciation and amortization                |   | 18,997         |  | 93,452        
|                                           | Total operating expenses                     |   | 795,167        |  | 753,704       
|                                           | Loss from operations                         |   | (622,652)      |  | (636,043)     
|                                           | Interest income (expense), net               |   | (60,611)       |  | (75,273)      
|                                           | Net loss                                     | $ | (683,263)      |  | (711,316)     
|                                           |                                              |   |                |  |               
|                                           | Basic and diluted loss per share             | $ | (0.02)         |  | (0.03)        
|                                           | Weighted average common shares outstanding:  |   | 32,941,367     |  | 24,072,882    
|                                           | Basic and fully diluted                      |  
|                                           |                                              |   |                |  |               

See accompanying notes to financial statements.



3



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|                                                          |                                              |                                                                                                                        |             |                |   |             |               
|--------------------------------------------------------- | -------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ----------- | -------------- | - | ----------- | --------------
|VINCERA, INC.                                            
|Statements of Cash Flows                                 
|Three Months Ended March 31, 2006 and 2005               
|                                                          |                                              |                                                                                                                        |             | March 31,
2006 |   |             | March 31,
2005
|                                                          |                                              |                                                                                                                        | (unaudited) |                |   | (unaudited)
|Cash flows from operating activities:                     |                                              |                                                                                                                        |             |                |  
|                                                          | Net loss                                     | $                                                                                                                      | (683,263)   |                | $ | (711,316)  
|                                                          |                                              | Adjustments to reconcile net loss to net cash used in operating activities                                             |             |                |   |             |               
|                                                          |                                              | Non cash adjustments:                                                                                                  |             |                |   |             |               
|                                                          |                                              | Issuance costs                                                                                                         |             | 33,026         |   |             | -             
|                                                          |                                              | Share based compensation expense                                                                                       |             | 24,032         |   |             | -             
|                                                          |                                              | Depreciation and amortization                                                                                          |             | 18,997         |   |             | 93,452        
|                                                          |                                              | Amortization issuance costs                                                                                            |             | 80,586         |   |             |               
|                                                          | Changes in operating assets and liabilities: |                                                                                                                        |             |                |   |            
|                                                          |                                              | Accounts receivable                                                                                                    |             | 12,129         |   |             | (55,434)      
|                                                          |                                              | Other current assets                                                                                                   |             | (47,068)       |   |             | 11,597        
|                                                          |                                              | Accounts receivable related party                                                                                      |             | -              |   |             | (2,700)       
|                                                          |                                              | Accounts payable and accrued liabilities                                                                               |             | (100,397)      |   |             | (70,130)      
|                                                          |                                              | Accounts payable related party                                                                                         |             | 37,047         |   |             | 2,700         
|                                                          |                                              | Deferred rent Payable                                                                                                  |             | (1,038)        |   |             | (1,037)       
|                                                          |                                              | Deferred revenue                                                                                                       |             | 2,000          |   |             | 13,854        
|                                                          |                                              | Interest payable                                                                                                       |             | (43,160)       |   |             | 75,273        
|                                                          |                                              | Net cash used in operating activities                                                                                  |             | (667,109)      |   |             | (643,741)     
|Cash flows from investing activities:                     |                                              |                                                                                                                        |             |                |  
|                                                          |                                              | Purchases of property and equipment                                                                                    |             | (10,908)       |   |             | (20,279)      
|                                                          |                                              | Net cash used in investing activities                                                                                  |             | (10,908)       |   |             | (20,279)      
|Cash flows from financing activities:                     |                                              |                                                                                                                        |             |                |  
|                                                          |                                              | Proceeds from sales of common stock                                                                                    |             | 574,030        |   |             | -             
|                                                          |                                              | Net cash provided by financing activities                                                                              |             | 574,030        |   |             | -             
|                                                          |                                              | Net decrease in cash and cash equivalents                                                                              |             | (103,987)      |   |             | (664,020)     
|                                                          |                                              | Cash and cash equivalents at beginning of period                                                                       |             | 140,071        |   |             | 907,653       
|                                                          |                                              | Cash and cash equivalents at end of period                                                                             | $           | 36,084         |   | $           | 243,663       
|                                                          |                                              |                                                                                                                        |             |                |   |             |               
|Cash paid for interest                                    | $                                            | -                                                                                                                      |             | $              | -
|Cash paid for income taxes                                | $                                            | -                                                                                                                      |             | $              | -
|                                                          |                                              |                                                                                                                        |             |                |  
|Supplemental disclosure of non-cash financing activities: |                                              |                                                                                                                        |             |                |  
|                                                          |                                              | Common stock issued in conversion of preferred stock                                                                   | $           | 207,298        |   | $           | -             
|                                                          |                                              | Common stock subject to registration rights agreement issued for conversion of subordinated notes payable and interest | $           | 187,891        |   | $           | -             
|                                                          |                                              |                                                                                                                        |             |                |   |             |               

See accompanying notes to financial statements.



4



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VINCERA, INC.

Notes to Unaudited Financial Statements



(1)

Organization

Vincera, Inc. (the Company) develops and markets software.  The software offering, Vincera Activity Manager, or VAM, enables publishers and providers of online information, such as Internet-based services, the information that is viewed on their websites, and their reports, electronic files, and software that are downloaded, to understand how their services are used by their subscribers.  This understanding will allow customers to improve their customer management business processes, such as customer upgrade management, customer retention management and license compliance management.  Its applications generate information that customers can use to increase the number of subscriptions, increase the average selling price of subscriptions and increase the rate at which subscribers renew their subscriptions.

The Company was incorporated in Texas in March 1999 under the name MoveMoney.com, Inc.  In December 2000, MoveMoney.com, Inc. changed its name to MoveMoney, Inc. and reincorporated in Delaware.  In January 2002, MoveMoney, Inc. changed its name to Smarte Solutions, Inc.  On August 23, 2004, Smarte Solutions, Inc. acquired Vincera Software, Inc. and concurrently changed its name to Vincera, Inc.

The consolidated financial statements and the notes of the Company as of March 31, 2006 and December 31, 2005, and for the three months ended March 31, 2006 and 2005 have been prepared by management without audit, pursuant to rules and regulations of the Securities Exchange Commission and should be read in conjunction with the December 31, 2005 audited financials statements contained in the Companys Form 10-KSB, filed April 17, 2006.  In the opinion of management, all normal, recurring adjustments necessary for the fair presentation of such financial information have been included.  The preparation of financials statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.

(2)

Summary of Significant Accounting Policies

(a)

Revenue Recognition

The Company derives revenue from software licenses, maintenance and services.  Software licenses for the Companys software typically contain multiple elements, including the product license, maintenance and/or other services.  The Company allocates the total fee among each deliverable based on the relative fair value of each of the deliverables determined based on vendor-specific objective evidence.  This objective evidence of fair value is specific to the Company and consists either of prices derived from sales of elements when they sold separately, such as the renewal rate for the maintenance element, or the price established by management for sale of elements in the ordinary course of business.

License fees include the software developed and licensed by the Company.  Certain software developed by the Company is licensed under contractual arrangements that, in addition to the delivery of software, require significant modification and customization of software.

Software not requiring significant modification or customization is recognized when persuasive evidence of an arrangement exists, delivery has occurred and the fee is fixed or determinable and probable of collection.

Services include installation, basic consulting, as well as software customization and modification to meet specific customer needs.  Professional service fees that are provided under long-term contracts to install and customize software developed by the Company or third parties are recognized using the percentage of completion method.  Progress to completion is measured using costs incurred or milestones achieved compared to estimated total costs or contract milestones.  Provisions for estimated losses under the percentage of completion method are made for the entire loss in the period in which they become evident.  Revenue allocated to training and consulting service elements is recognized as the services are performed. The Companys consulting services are not essential to the functionality of its products as: (i) such services are available from other vendors; and (ii) the Company has sufficient experience in providing such services.  Maintenance fees include technical support, bug fixes, and rights to upgrade on when-and-if-available basis associated with software licenses.  These fees are collected in advance and recognized ratably over the maintenance period.  Unrecognized maintenance fees are included in deferred revenue.

(b)

Customer Concentration

During three months ended March 31, 2006 and 2005, the Company experienced a revenue concentration in customers as shown in the table below.  The loss of these customers could have a materially adverse effect on financial results.



5



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VINCERA, INC.

Notes to Unaudited Financial Statements



(2)

Summary of Significant Accounting Policies (continued)

(b)

Customer Concentration

|           |      |     
|---------- | ---- | ----
|           | 2006 | 2005
|Customer A | 24%  | 41% 
|Customer B | 72%  | 53% 

(c)

Stock-Based Compensation

Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004), Share-Based Payment, (SFAS 123R) using the prospective-transition method.  Under this transition method, compensation expense recognized during the three months ended March 31, 2006 included: (a) compensation expense for all share-based

awards granted prior to, but not yet vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation expense for all share-based awards granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. In accordance with the modified-prospective-transition method, results for prior periods have not been restated. Before January 1, 2006, the Company accounted for its stock options using the intrinsic value method.

(d)

Converted Debt

The converted debt and the related warrants have been accounted for in accordance with Emerging Issues Task Force (EITF) No. 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios", EITF No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock," EITF 00-27, Application of Issue 98-5 to Certain Convertible Instruments, EITF 05-02 Meaning of Conventional Convertible Debt Instrument in Issue No. 00-19, and EIFT 05-04 The Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject to Issue No. 00-19.

(e)

Derivative Financial Instruments

The Company accounts for all derivative financial instruments in accordance with SFAS No. 133 and EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in Common Stock.  Derivative financial instruments are recorded as liabilities in the consolidated balance sheet, measured at fair value.  When available, quoted market prices are used in determining fair value.  However, if quoted market prices are not available, the Company estimates fair value using either quoted market prices of financial instruments with similar characteristics or other valuation techniques.

The value of the derivative liabilities relating to the warrants issued to purchase the Companys common stock in our financial statements are subject to the changes in the trading value of the Companys common stock and other assumptions.  As a result, our quarterly financial statements may fluctuate from quarter to quarter based on factors, such as the trading value of the Companys common stock, and the amount of shares converted by common stock holders in connection with the warrants.  Consequently, our financial position and results of operations may vary from quarter to quarter based on conditions other than the Companys operating revenues and expenses.  See Note (6) regarding valuation methods used for derivative liabilities.

Derivative financial instruments that are not designated as hedges or that do not meet the criteria for hedge accounting under SFAS No. 133 are recorded at fair value, with gains or losses reported currently in earnings.  All derivative financial instruments held by the Company as of March 31, 2006 and December 31, 2005 were not designated as hedges.

(f)

Loss per Common Share

Basic loss per share is based on the weighted effect of common shares issued and outstanding, and is calculated by dividing net loss by the weighted average shares outstanding during the period. Diluted loss per share is calculated by dividing net loss by the weighted average number of common shares used in the basic loss per share calculation plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding.

Incremental common shares attributable to the exercise of outstanding options and warrants totaling 7,971,425 and 6,059,195 as of March 31, 2006 and 2005, respectively, were excluded from the computation of diluted loss per share because the effect would be antidilutive.



6



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VINCERA, INC.

Notes to Unaudited Financial Statements



(3)

Liquidity and Capital Resources

The Company has experienced operating losses since inception because of efforts to market and develop its products.  There can be no assurance that the Company will ever achieve or sustain profitability or positive cash flow from its operations.

To date, the Company has funded its activities primarily through private equity offerings, which have included sales of common and preferred stock, and the issuance of promissory notes payable.

These factors, among others, raise substantial doubt about the Companys ability to continue as a going concern, and the Companys auditors included a going concern paragraph in connection with the Companys financial statements for the year ended December 31, 2005.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

To address its cash needs, the Company has engaged an investment banker and is currently in the process of raising funds through a private placement.  The Company intends to raise up to $10.225 million, with a minimum raise, or initial close, of $1.0 million, achieved in November 2005.  At the intended maximum raise of $10.225 million, the Company would have approximately $8.9 million in net proceeds.  The Company had received net cash proceeds of approximately $981 and $468 thousand on the first and second closes, respectively, of the private placement.  The Company will run out of cash in 2006 if it does not secure additional capital or does not generate sufficient cash through operations.

The Company is currently seeking consents and waivers from holders of approximately $650 thousand of Subordinated Notes to convert their shares and accrued interest into shares of Company common stock at $0.36 per share.  If the Company is unable to receive consent from all note holders, the Company would seek to renegotiate the terms and conditions of those notes, and the failure to do so would have a material adverse affect upon the Company.

(4)

Commitments and Contingencies

Litigation

The Company is involved in various claims and legal actions arising in the ordinary course of business.  Although the resolution of these matters is not currently known, in the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Companys financial position or results of operations.  The Company recently settled a lawsuit that it filed against Bit-Arts after the Company was notified by Bit-Arts that it believed the Company was in default of the license agreement between the Company and Bit-Arts (for failing to pay royalties, market their software and comply with licensing terms) and demanded that the Company cease incorporating Bit-Arts technology effective January 6, 2005.  The Company believed that it had not breached the agreement and filed a lawsuit in the Supreme Court of New York, County of New York on January 4, 2005 seeking a declaratory judgment that the Company had not breached the license agreement between Bit-Arts and the Company, seeking temporary and permanent injunctive relief and seeking damages resulting from Bit-Arts breaches of the agreement and tortious interference with the Companys customers.  The Company obtained a temporary restraining order on January 5, 2005.  Bit-Arts removed the case to the United States District Court for the Southern District of New York.  On February 10, 2005, the Company and Bit-Arts stipulated to the United States District Court, Southern District of New York, that the Action was settled pursuant to a Settlement and Amendment Agreement by and between the parties, and the case was dismissed with prejudice.  The Settlement Agreement released all claims of breach against both parties.  This allowed the Company to continue to sell and support its products that contain the Bit-Arts technology until December 31, 2005.  After December 31, 2005, Bit-Arts was contractually obligated to service and support the Companys customers who may be currently under a support contract, and the Company would continue to receive seventy percent (70%) of all revenues generated from Microsofts usage of the Companys products that are currently installed for the first six months of 2006, and then after June 30, 2006 until such time as Microsoft discontinues usage of the Companys products, the Company will receive fifty percent (50%) of all revenues generated from Microsofts usage of the Companys products.  After December 31, 2005, the Company removed all Bit-Arts technology from the Companys products and offerings, and the Company would not be entitled to any other revenues, with the exception of Microsoft, from the Bit-Arts technologies that the Company had licensed.

The Company has developed its own technologies for protecting the Companys customers IP that is distributed in electronic format through Portable Format Documents, or PDFs.  The Companys VAM solution does not rely on any technologies provided by Bit-Arts, so going-forward this settlement will not impact the Companys offerings.  In addition, the following occurred: (1) Bit-Arts provided the Company with a modified version of its technology that provides the full level of protection required by one of the Companys major customers; (2) Bit-Arts would not receive any payment of royalties for any royalty-bearing product sold by the Company until a current outstanding receivable from Bit-Arts to the Company in the



7



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VINCERA, INC.

Notes to Unaudited Financial Statements



(4)

Commitments and Contingencies (continued)

Litigation (continued)

amount of $56,573 had been extinguished; and (3) the Company transferred approximately 1.5% out of the 2.69% of stock in Bit-Arts back to Bit-Arts.  Subsequently, on September 30, 2005, the Company was notified that a petition in a case ancillary to a foreign proceeding was filed in the United States Bankruptcy Court for the Southern District of New York, requesting an order for relief under 11 U.S.C. Section 304.  The petitioners were Stephen Katz and David Birne (the Petitioners), as Joint Administrators of Bit-Arts, Ltd., debtor in a foreign proceeding.  In addition, the same petitioners filed a Verified Petition, pursuant to Section 304 of the Bankruptcy Code, to Commence a Case Ancillary to a Foreign Proceeding in the United States Bankruptcy Court for the Southern District of New York.  The petition stated that in July 2004 funding was being sought by Bit-Arts to continue operations.  Guildhall Trading Company Limited (Guildhall) made a loan that was advanced in a series of traunches from July 2004 to July 2005.  In connection with the loan, Guildhall was granted a security interest in substantially all of Bit-Arts assets.  Guildhall made formal demand on its outstanding debenture.  Consequently, on July 15, 2005 a petition for administration was presented by Guildhall to the High Court of England pursuant to Paragraph 14 of Section B1 of the Insolvency Act 1986.  By Order, dated July 1, 2005, the High Court appointed the Petitioners as the Administrators.  The petition sought that Bit-Arts assets located in the United States be afforded the same protection as their assets located in England.  On October 7, 2005, the United States Bankruptcy Court for the Southern District of New York granted the preliminary injunction order to the petitioners and on March 16, 2006 the United States Bankruptcy Court for the Southern District of New York granted the Order.  At the end of 2005, the Company was notified by the Administrators that the assets of Bit-Arts were sold to an undisclosed party.

Based on the bankruptcy proceedings, the Company had requested that the administrators for Bit-Arts either (i) provide support for the Companys current customers, or (ii) grant the Company access to the source code escrow for the Bit-Arts technologies so that the Company may continue to provide support for its current customers.  To date, the Companys requests have not been honored, but the Company will continue to pursue relief although at this point with the assets of Bit-Arts having been acquired by an undisclosed entity the Company believes that the likelihood of having its support needs addressed is very remote.  If the Company is not successful in either obtaining support or access to the source, the Company may lose some of its current customers and their associated royalties.  In addition, with the Companys focus on our new VAM solutions, the Company believes the impact to its revenues for Bit-Arts related technologies will be minimal.

The Companys new VAM solutions do not contain any Bit-Arts technologies, so the Company believes that the outcome of these proceedings will not impact the Companys offerings going-forward.  The Company has accrued $51,143 of royalties payable to Bit-Arts as of March 31, 2006 as accounts payable, related party on the balance sheet.

Scott McAllister, one of the Companys shareholders, filed a lawsuit against the Company in the 261st Judicial District Court in Travis County, Texas, on January 14, 2005, asserting that the Company breached an alleged oral contract, promissory estoppel, and fraud in a 2003 stock transaction.  On June 6, 2005, the lawsuit was amended by the plaintiffs to include Mr. Mark Eshelman, the Companys current Director of Sales Development and former executive officer and board member, and Mr. Bala Vishwanath, the Companys former Chairman, CEO and CSO, as defendants in this lawsuit.  Mr. McAllister is seeking damages of $189,000 plus attorneys fees.  Mr. McAllister claims that he is owed these sums for services allegedly performed, and promises made by the Company, in connection with the Companys securities offerings.  The services allegedly performed were the introduction of Fifth Street Capital LLC to the Company, whereby Mr. McAllister believes he is entitled to a commission for all monies raised by Fifth Street Capital LLC on behalf of the Company, including the Bridge Loan and the proposed initial public offering that the Company withdrew in July 2005.  The alleged promises made were regarding the (4) Companys performance and the status of fund raising in 2003.  The Company denies the allegations and intends to vigorously defend this lawsuit.  On March 1, 2006, Mr. McAllister amended his pleadings and dismissed the fraud claims against the Company and the claims against Mr. Eshelman and Mr. Vishwanath.  The trial ended on April 6, 2006 and the jury found in favor of the Company and the lawsuit was dismissed.

Michael B. Shapiro, former CEO of the Company (at the time the Company was known as Smarte Solutions) has filed a lawsuit against the Company and Mr. Bala Vishwanath, the Companys former Chairman, CEO and CSO, in the 126th Judicial District Court in Travis County, Texas on March 22, 2005 which was served on the Company on April 4, 2005, asserting that the Company breached various agreements, made representations regarding compensation that were false, and made promises regarding his compensation that were false.  Mr. Shapiro is seeking damages of the reasonable value of the stock options that were alleged to have been either refused to be granted or allowed to be exercised by the Company, reasonable value of the



8



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VINCERA, INC.

Notes to Unaudited Financial Statements



(4)

Commitments and Contingencies (continued)

Litigation (continued)

services provided to the Company while acting as the CEO and while acting on the Companys advisory board (which has been estimated to be at least $400,000 by Mr. Shapiro), punitive damages, attorneys fees, all costs of the proceedings, interest on said sums as provided by law, and such other and further relief to which Mr. Shapiro may show himself justly entitled.  Although the Company denies the allegations alleged in the suit, the Company has determined that it was in the Companys best interest to enter into a settlement agreement with Mr. Shapiro.  On February 27, 2006, the Company, Mr. Vishwanath, and Mr. Shapiro signed the settlement agreement and the agreement has been submitted to the bankruptcy court which is handling Mr. Shapiros proceeding.  The Company received approval of the settlement from the bankruptcy court, and upon execution of a mutual release by all parties, the settlement will be final and the Company will be required to pay the former officer and stockholder $35,000 which was accrued at the end of 2005, and 90,000 shares of common stock.

CRS, LLC (CRS), a Washington limited liability company, filed a lawsuit against the Company in the United States District Court for the Western District of Washington in Seattle on June 14, 2005.  The suit was originally filed by CRS against Bit-Arts, LTD., a foreign company, and Bit-Arts, Inc., a Delaware corporation, alleging patent infringement of two patents by making, using, selling and/or offering for sale without authorization, products which embody one or more claims of the patents.  The Company was added to the amended complaint on June 14, 2005 because the Company was the exclusive distributor of the Bit-Arts products allegedly infringing on the two patents, and the Company continues to have a license to distribute the Bit-Arts products through November 2006.  CRS was seeking: (a) the defendants be adjudged to have infringed the patents; (b) all parties be permanently restrained and enjoined from directly or indirectly infringing on the patents; (c) an accounting and award of damages by reason of the infringement; (d) an award of prejudgment and post judgment interest, exemplary damages and costs; (e) award of damages, punitive damages, attorneys fees, and prejudgment interest; and (f) CRS be awarded such other relief as the Court may deem just, equitable, and proper.  If the Company were to be unsuccessful in its defense of this lawsuit, and if the CRS were to be able to establish substantial damages, the Company could be forced to pay an amount, currently unknown, which could have an adverse effect on the Companys business.  In addition, although the Company believes that the Company would be entitled to indemnification in whole or in part for any damages and costs of defense, there could be no assurance that the Company would be successful on the indemnification claim or recover all or a portion of any damages assessed or expenses incurred, especially in light of the filing for receivership and the sales of the assets of Bit-Arts to an undisclosed entity at the end of 2005.

On February 28, 2006, the Company entered into a settlement agreement with CRS, LLC (CRS), whereby for the amount of $35,000 CRS dismissed the lawsuit against the Company with prejudice and agreed not to sue the Company in the future for patent infringement arising out of the sales of Bit-Arts products that occurred prior to the execution of the settlement agreement.

Operating Leases

In February 2006, the Company entered into a two-year lease for office space, and future minimum payments are $82,775 in 2006, $90,300 in 2007 and $7,525 in 2008.

(5)

Notes Payable

Subordinated Notes Payable

During June through August of 2004, the Company issued $2,429,710, in Subordinated Promissory Notes (Subordinated Notes).  The Subordinated Notes carry an interest rate of 10%, are subordinate to the other credit agreements and trade payables of the Company, and have maturity dates of one year from their respective issuance dates.  The Subordinated Notes are subject to a Security Agreement whereby the Company has granted a security interest in certain collateral to secure the payment of the Subordinated Notes and other obligations.  Concurrent with the issuance of the Subordinated Notes, the Company had issued Stock Purchase Warrants equal to 7% of the principal amount of the Notes to purchase Common Stock in the Company.  Each warrant holder shall have the right to purchase Common Stock of the Company from time to time on and before the earlier of (i) immediately prior to the consummation of a best efforts commitment, underwritten public offering or (ii) until the third anniversary date following the grant date of each Stock Purchase Warrant.  Each Stock Purchase Warrant shall expire and be of no further force or effect upon the earliest of (i) the third anniversary date following the grant date of each Stock Purchase Warrant, (ii) twelve (12) months following the consummation of a best efforts commitment, underwritten public offering (Public Offering), (iii) the sale of all or substantially all of the Companys assets, or (iv) immediately prior to any merger or consolidation of the Company in which the Company is not the surviving entity. Each warrant granted is fully vested and is



9



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VINCERA, INC.

Notes to Unaudited Financial Statements



(5)

Notes Payable (continued)

Subordinated Notes Payable (continued)

exercisable at a price per share equal to (i) the per share price of the Companys Common Stock issued in a Public Offering or (ii) $0.50 in the event a Public Offering does not occur. No value was assigned to the stock purchase warrants at the time based on the then estimated value of the common stock of $0.05 per share.

From June to August 2005, the Subordinated Notes matured, but were not repaid by the Company and were in default.  From September through December 31, 2005, the Company received consents from certain holders of the Subordinated Notes to convert the principal and interest to shares of the Companys common stock at $0.36 per share by canceling their indebtedness. The Company converted Subordinated Notes and accrued interest totaling $1,770,455 into 4,917,930 shares of common stock at $0.36 per share and issued warrants to purchase 2,458,965 common shares at $0.50 per share.  These warrants expire 18 months from the date of the Companys final close of the private placement (Note 3).

As compensation to the placement agent, the Company paid commissions of approximately $124,000 in cash, and issued 49,179 common stock shares, warrants to purchase 344,255 common shares at $0.36 per share, and warrants to purchase 196,717 common shares at $0.594 per share.  These warrants are exercisable for a period of 18 months from the date of the final close of the private placement (Note 3).  The fair value of the common stock and warrants totaled approximately $35,000.  A total of approximately $158,000 was charged to consulting fees related to this transaction.

One note holder with a principal amount of $100,000 requested repayment of the note in cash.  The Company paid approximately $56,370 in principal and interest to the holder during 2005, and the remaining $50,000 was purchased by another investor and converted in the first quarter of 2006.

During the three months ended March 31, 2006, the Company converted additional principal and interest totaling $179,973 into 483,258 shares of common stock at $0.36 per share and issued warrants to purchase 241,649 common shares at $0.50 per share.  These warrants expire 18 months from the date of the Companys final close of the private placement (Note 3).

As compensation to the placement agent for the notes converted during the three months ended March 31, 2006, the Company paid commissions of approximately $13,000 in cash, and issued 4,833 common stock shares, warrants to purchase 33,828 common shares at $0.36 per share, and warrants to purchase 19,330 common shares at $0.594 per share.  These warrants are exercisable for a period of 18 months from the date of the final close of the private placement (Note 3).  The fair value of the common stock and warrants totaled approximately $5,850.  A total of approximately $33,000 was charged to consulting fees related to this transaction.

Note Payable Related Party

On November 2, 2005 an Officer of the Company issued a note with a principal amount of $40,000 and a maturity date of the initial close of the escrow account for the private placement, or in any event not later than November 30, 2005.  The note carries an interest rate of 6.375% with similar terms as the other short-term promissory note holders.  The note also provides for a warrant for 30,560 shares of the Companys common stock at an exercise price of $0.50 per share with an expiration date of 18 months from the date of the final closing of the private placement.  The fair value of this warrant was not material and has been aggregated with the warrants issued with notes payable below converted at the same time.  This note has not been repaid and the Company is accruing interest per the note agreement.  The Company intends to pay this note on or before the final close of the private placement.

As a condition of the Vincera Software, Inc. acquisition, the Company assumed notes payable to certain former officers and employees of Vincera Software, Inc. with a balance due of $180,876.  The Company is currently in default on these notes and accruing interest at 1.5% per month as long as the notes remain unpaid.  The Company intends to pay these notes on or before the final close of the private placement.

(6)

Common Stock

The Company is authorized to issue 100,000,000 shares of common stock.  Each common stockholder is entitled to one vote per share of common stock owned.

During the year ended December 31, 2005, the Company issued 7,053,777 of shares of common stock upon conversion of 7,053,777 of Series A Preferred stock.



10



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VINCERA, INC.

Notes to Unaudited Financial Statements



(6)

Common Stock (continued)

On November 2, 2005, the Company had an interim close of the private placement of 3,027,698 shares of its common stock to accredited investors for a cash price of $0.36 per share. Each investor also received a five year warrant to purchase common shares representing twenty-five percent of their investment at an exercise price of $0.36 per share.  These warrants are only exercisable if the Company does not have an effective registration statement on or before 120 days from the date of the final close of the offering and were valued at approximately $83,000 and have been capitalized as issuance costs. The gross proceeds of the offering were $1,089,972.  Legal expenses were approximately $27,000, the placement agent received a cash fee of approximately $77,000 and was issued 30,277 shares of common stock, a warrant to purchase 211,939 shares of common stock at an exercise price of $0.36 per share, and a warrant to purchase 121,108 shares of common stock at an exercise price of $0.594 per share.  These warrants are exercisable for a period of 18 months from the date of the final close of the private placement.  The shares of Common stock and warrants issued to the placement agent were valued at $22,000 and have been recorded as capitalized issuance costs.

During 2005 Company issued a total of 17,699,061 shares of common stock through sales, conversion of preferred stock (Note 6), and conversion of debt (Note 5).  These common shares, with the exception of the shares issued for the conversion of preferred stock, are subject to a registration rights agreement whereby the Company must use its best effort to register its common stock within 120 days after the closing of the private placement.  The Company is also required to issue penalty warrants in an aggregate of 3,215,890 shares of common stock to the purchasers of the common stock should the Company be unable to comply with the registration statement timeline defined in the common stock agreement.

These warrants have been valued at $96,149 using the Black-Scholes model with the following assumptions: exercise price of $ 0.36 per share; dividend yield rate of 0%, volatility factor of 25%, and risk free interest rate of 4.25% and a term of 18 to 60 months.

The shares of common stock issued in 2005 through the sale of these securities, and through the conversion of notes payable are subject to an agreement to register these shares.  As the registration of common stock is not within the control of the Company, and the potential damages for failure to register are not immaterial, these shares have been recorded as a liability in accordance with EITF 00-19.  These instruments were measured at fair value and will be marked to market each quarter with the change in fair value recorded in the income statement based on fair value of the Companys common stock.

During the three months ended March 31, 2006, the Company issued 414,595 of shares of common stock in exchange for 414,595 of Series A Preferred stock.

Additionally, during the three months ended March 31, 2006, the Company issued a total of 2,662,226 shares of common stock through sales, conversion of preferred stock (Note 7), and conversion of debt (Note 5).  These common shares, with the exception of the shares issued for the conversion of preferred stock, are subject to a registration rights agreement whereby the Company must use its best effort to register its common stock within 120 days after the closing of the private placement.  The Company is also required to issue penalty warrants in an aggregate of 667,179 shares of common stock to the purchasers of the common stock should the Company be unable to comply with the registration statement timeline defined in the common stock agreement.  These warrants have been valued at $50,324 using the Black-Scholes model with the following assumptions: exercise prices of $0.36 to $0.50 per share; dividend yield rate of 0%, volatility factor of 25%, and risk free interest rate of 4.25% and at terms of 18 to 60 months.

The shares of common stock issued in 2005 and the three months ended March 31, 2006 through the sale of these securities, and through the conversion of notes payable are subject to an agreement to register these shares.  As the registration of common stock is not within the control of the Company, and the potential damages for failure to register are material, these shares have been recorded as a liability in accordance with EITF 00-19.  These instruments were measured at fair value and will be marked to market each quarter with the change in fair value recorded in the income statement based on fair value of the Companys common stock.

(7)

Preferred Stock

During 2003, the Company converted notes payable and accrued interest totaling $3,677,266 to 7,354,562 shares of $0.001 par value, Series A Preferred Stock at $0.50 per share.  During the same period an additional 2,568,500 shares of Series A Preferred Stock was sold for $1,284,250.  Each Series A Preferred Stockholder is entitled to one vote per share of Series A Preferred Stock owned.



11



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VINCERA, INC.

Notes to Unaudited Financial Statements



(7)

Preferred Stock (continued)

In connection with the sale of the promissory notes payable that were converted to Series A Preferred Stock in 2003, the Company issued warrants to purchase 2,154,028 shares of Series A Preferred Stock.  No value was assigned to the warrants when issued, as the value of these warrants was zero.  These warrants allow for the purchase of Series A Preferred Stock at $0.50 per share and expire in November 2011.

Each share of Series A Preferred Stock shall automatically be converted by the Company into shares of common stock at the Series A Conversion Price at the time in effect immediately upon the Companys sale of its common stock in a public offering pursuant to a registration statement filed under the Securities Act of 1933, as amended.  The Series A Conversion Price in effect for an offering discussed at the time was $0.50 per share, therefore the Preferred Stock is convertible into 9,923,062 shares of common stock.  The preferred stock can be converted to common stock at the option of the holder at any time into shares of the Company common stock, initially at a conversion price of $0.50 per share, subject to adjustment upon the issuance of shares of our common stock (or securities convertible into shares of our common stock) at a price per share less than the conversion price of the Series A shares then in effect.  Additionally, the liquidation preference of Series A Preferred Stock is in the amount equal to their stated value of $0.50 per share plus declared and unpaid dividends.  The holders of the Series A shares shall be entitled to receive, when and as declared by the Companys board, but only out of funds that are legally available, cash dividends at the rate of 8% per year.  The holders of the Series A preferred shares are entitled to vote equally with the shares of the Companys common stock, and in addition are entitled to elect one member of the Companys board of directors.  The Series A Preferred Stock does not have any contractual registration rights.

The Company is authorized to issue up to 30,000,000 shares of preferred stock, of which 15,000,000 shares have been designated as Series A Convertible Preferred Stock.

In conjunction with the Companys private placement and the filing of the Companys Form 10-SB, the Company has sought and received the consent of the holders of 7,468,372 shares of the Series A Preferred Stock to convert into 7,468,372 shares of the Companys common stock, of which 414,595 was converted during the three months ended March 31, 2006. These shareholders continue to hold warrants to purchase 2,154,028 shares of Series A Preferred Stock.  These warrants do not have any contractual registration rights.

The Company is seeking the consents and waivers for conversion of the remaining shares as well as consents converting the warrants to purchase preferred shares into warrants to purchase the Companys common stock.  There is no assurance that the Company can obtain the necessary consents and waivers to convert the remaining shares, which could have a material adverse effect upon the Company.

(8)

Common Stock Option/Stock Incentive Plan

The Companys 2002 Stock Incentive Plan (the Plan) was approved in November 2002.  The Plan provides for a means by which individuals may be given an opportunity to benefit from increases in the value of the common stock through the granting of the following Stock Awards: Incentive Stock Options, Nonstatutory Stock Options, stock bonuses and rights to acquire restricted stock.  In 2004, the Board of Directors increased the maximum shares to 9,000,000.  Incentive Stock Options issued prior to the approval of the Plan are in addition to the total allowed through the Plan.

Incentive Stock Options may be granted only to employees.  Other Stock Awards may be granted to employees, non-employee members of the Board of Directors and others.  The provisions of separate options need not be identical, but each option shall include the following provisions:

1.

Term  No Incentive Stock Option shall be exercisable after the expiration of ten years from the date it was granted.

2.

Exercise Price of an Incentive Stock Option - The exercise price shall not be less than the fair market value of the common stock on the date the option is granted.  Additional restrictions apply to certain shareholders as defined in the Plan.

3.

Exercise Price of a Nonstatutory Stock Option  The exercise price shall not be less than 20% of the fair market value of the common stock on the date the option is granted.

Under the Plan, stock bonuses and restricted stock awards in the form of shares of common stock may be issued directly to employees, members of the Board of Directors, or other individuals. Shares of common stock issued as stock bonuses may vest immediately, or in one or more installments, at the discretion of the Board of Directors.  Recipients of stock bonuses and restricted stock awards have full stockholder rights with respect to any shares of common stock issued, regardless of whether such shares are vested.  During the three months ended March 31, 2006 and 2005 and the year ended December 31, 2005, no shares of common stock were issued as stock bonuses or restricted stock awards.



12



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VINCERA, INC.

Notes to Unaudited Financial Statements



(8)

Common Stock Option/Stock Incentive Plan (continued)

Stock options issued under the Plan have vesting schedules as determined by the Board of Directors, which are generally four years.  Unless terminated at an earlier date by action of the Board of Directors, the Plan terminates on November 4, 2012.

Prior to January 1, 2006, options granted to non-employees were recorded at their intrinsic value in accordance with APB 25.  These options were issued pursuant to the Plan and are reflected in the disclosures below.

No options were issued during the three months ended March 31, 2006 or March 31, 2005.

Prior to the approval of the Plan, the Company issued stock options through the direct actions of the Board of Directors.  Options representing a total of 2,707,000 shares as of March 31, 2006 and as of December 31, 2005 were issued in this manner, outside of the Plan.

Under the Companys Plan, of the 9,000,000 shares that are authorized to be issued, the Company has:

·

Options to purchase 3,360,000 shares of the Companys common stock have been issued under the Plan and are outstanding as of March 31, 2006;

·

The Company may issue up to an additional 3,636,458 options, stock bonus awards or restricted stock awards (including as a result of options to purchase 5,361,438 shares that were granted under the Plan, have expired and are available for future grants under the Plan); and

·

Options to purchase 2,003,542 shares have been exercised and are no longer available for future grants.

A summary of activity in common stock options for the three months ended March 31, 2006 and year ended December 31, 2005 is as follows, and includes options granted through the Plan and outside the Plan:

|                                      |           |                          |                                
|------------------------------------- | --------- | ------------------------ | -------------------------------
|                                      | Shares    | Range of Exercise Prices | Weighted-Average Exercise Price
|Options outstanding December 31, 2005 | 6,267,000 | $0.001-$0.36             | $0.06                          
|Options granted                       | -         | -                        | -                              
|Options exercised                     | -         | -                        | -                              
|Options forfeited                     | (200,000) | $0.36                    | $0.36                          
|Options outstanding March 31, 2006    | 6,067,000 | $0.001-$0.36             | $0.06                          

The following is a summary of options outstanding and exercisable at March 31, 2006:

|                  |                                                 |                                                        |                                
|----------------- | ----------------------------------------------- | ------------------------------------------------------ | -------------------------------
|                  | Number of Shares Subject to Options Outstanding | Weighted Average Remaining Contractual Life (in Years) | Weighted Average Exercise Price
|Vested            | 3,766,651                                       | 5.0                                                    | $0.06                          
|Unvested          | 2,300,349                                       | 9.3                                                    | $0.18                          
|Total Outstanding | 6,067,000                                       | 6.7                                                    | $0.11                          



Compensation expense related to the Companys share-based awards during the three months ended March 31, 2006 was $24,032.  The pro forma expense for the Companys share based awards for the three months ended March 31, 2005 and the effect on net loss and earnings per share is as follows:





13



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VINCERA, INC.

Notes to Unaudited Financial Statements



(8)

Common Stock Option/Stock Incentive Plan (continued)



|                                                                                                                                                |   |                                  
|----------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------------------------------
|                                                                                                                                                |   | Three Months Ended March 31, 2005
|Net loss, as reported                                                                                                                           | $ | (711,316)                        
|Deduct: Total stock based employee compensation expense determined under the fair value based method for all awards, net of related tax effects |   | (2,047)                          
|Pro forma net loss                                                                                                                              | $ | (713,363)                        
|Net loss per share:                                                                                                                             |   |                                  
|Basic and diluted - as reported                                                                                                                 | $ | (0.03)                           
|Basic and diluted - pro forma                                                                                                                   | $ | (0.03)                           

At March 31, 2006, there was approximately $403,076 of unrecognized compensation expense related to unvested share-based awards granted under the Companys stock option plan.  The expense is expected to be recognized over a weighted-average period of 4.5 years.

(9)

Note Receivable from Stockholder

In November and December 2003, individuals exercised options to purchase 200,000 shares of common stock and the Board of Directors agreed to accept notes totaling $10,000 as consideration.  These notes bear interest at 4% per annum and all unpaid principal and interest is due in November 2006.  One of the notes for $3,750 was paid in January 2004.  The remaining 125,000 shares of common stock collateralize the remaining note of $6,250.

(10)

Subsequent Events

In April 2006, the Company had an interim close of the private placement of 1,552,211 shares of its common stock to 11 accredited investors for a cash price of $0.36 per share.  Each investor also received a five year common stock purchase warrant for 25% of their investment at an exercise price of $0.50 per share, which warrants are only exercisable if the Company does not have an effective registration statement on or before 120 days from the date of the final close of the offering.  The aggregate proceeds of the offering were $558,796.  The placement agent received a fee of approximately $39,115, a warrant to purchase 108,655 shares of common stock at an exercise price of $0.36, a warrant to purchase 37,629 shares of common stock at an exercise price of 40,594 per share and 15,522 shares of common stock.  These warrants are exercisable for a period of 18 months from the date of the final close of the offering.

On May 4, 2006, the Company was served with three lawsuits by three of its subordinated promissory note holders.  The plaintiffs are: Agincourt, L.P., Charles M. Gray, and Thomas G. Reagan, and each lawsuit asserts a claim for breach of contract, alleging that the Company has failed to pay the principal and interest due and owing under each of the three subordinated promissory notes issued to these plaintiffs.  The lawsuits claim that the principal and interest under each note was due and payable in July 2005, and the Company has failed to pay the notes when due.  The Agincourt, L.P. lawsuit alleges a principal amount due and owing of $100,000, and the Gray and Reagan lawsuits allege a principal amount due and owing of $50,000 each.  Each of the lawsuits also seeks to recover interest on the principal amount of 10%, plus all reasonable and necessary attorneys fees and costs.  The lawsuits are styled, Agincourt, LP v. Vincera Inc., f/k/a Smarte Solutions, Inc., in the 126th Judicial District Court of Travis County Texas, Charles M. Gray v. Vincera Inc., f/k/a Smarte Solutions, Inc., in the 98th Judicial District Court of Travis County Texas, and Thomas G. Reagan v. Vincera Inc., f/k/a Smarte Solutions, Inc., in the 200th Judicial District Court of Travis County Texas.  The Company has had preliminary discussions with counsel for these three plaintiffs and if the lawsuits are not resolved, then the Company will respond in a timely fashion and take the necessary steps to defend the lawsuits.  No amounts have been accrued for these lawsuits because we have not determined them.



14



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Item 2.

Managements Discussion and Analysis or Plan of Operations

The information presented in this section should be read in conjunction with our audited financial statements and related notes for the periods ended December 31, 2005 and 2004 included in our Form 10-KSB, as well as the information contained in the financial statements, including the notes thereto, appearing elsewhere in this report.  This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties.  Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled Risk Factors and elsewhere in this report.



Summary of Financial Information



|                               |                                          |           |  |          
|------------------------------ | ---------------------------------------- | --------- |  | ---------
|                               | Three Months Ended
March 31,
(unaudited)
|                               |                                          | 2006      |  | 2005     
|Statements of Operations Data: |                                          |           |  |          
|Revenues                       | $                                        | 172,515   |  | 117,661  
|Total operating expenses       | $                                        | 875,753   |  | 753,704  
|Operating loss                 | $                                        | (703,238) |  | (636,043)
|Net loss                       | $                                        | (683,263) |  | (711,316)
|Net loss per common share      | $                                        | (0.02)    |  | (0.03)   



|                          |             |                      |  |                         |  |  |  |  | 
|------------------------- | ----------- | -------------------- |  | ----------------------- |  |  |  |  | 
|                          |             | As of
March 31, 2006 |  | As of December 31, 2005
|                          | (unaudited) |                      | 
|Balance Sheet Data:       |             |                      |  |                        
|Cash and cash equivalents | $           | 36,084               |  | 140,071                
|Intangibles               | $           | 326,618              |  | 285,809                
|Total assets              | $           | 466,810              |  | 486,044                
|Short term liabilities    | $           | 1,396,134            |  | 1,651,682              
|Long term liabilities     | $           | 5,085,816            |  | 4,190,271              
|Total liabilities         | $           | 6,481,950            |  | 5,841,953              
|Stockholders (deficit)   | $           | (6,015,140)          |  | (5,355,909)            





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Overview



We license our software to companys that provide online access to their proprietary information for a fee.  This fee is usually in the form of a subscription that a user or a company will purchase for the rights to access and use the proprietary information.  Companies that provide their proprietary information online typically do so through the following methods:



·

information made available online, typically by a download over the Internet, such as research reports regarding businesses, industries, products or services;

·

electronic files containing information sought by users of our customers that can be viewed over the Internet, such as Web sites; and

·

software programs that can be downloaded from a software providers Web site, or used directly through the Internet without having to download any software.

The companies that provide their proprietary information online spans the major market segments of financial, insurance, healthcare and government.  Although our products can be used by this broad group of companies, we have focused our initial efforts on companies where their primary business is publishing and providing their proprietary information online, through the Internet, on a subscription basis. Companies that make up this segment include publishers of financial information, publishers of reports from analysts on key trends and market segments, and publishers of software products that are offered as an Internet-based service, which means that their customers can use their software products through the Internet without having to download any software.

Through our Vincera Activity Manager (VAM) software, we provide our customers a means to improve their customer-facing functions, such as customer retention management, customer upgrade management and license compliance management.  Improvement in these processes are achieved by our customers through the monitoring, capturing, analysis, and reporting of key intelligence about the ways in which their subscribers interact with and use their online information.  By improving these business processes, our customers can reduce costs while simultaneously maximizing the value of each of their subscribers.

Our VAM product is comprised of a number of software products such as:

·

VAMRetention to help publishers and providers of online information maximize the number of subscribers that renew subscriptions during each subscription period;

·

VAMUpgrade to help publishers and providers of online information identify subscribers with need for additional products or services and successfully upgrade these subscribers to the appropriate subscription level;

·

VAMCompliance to help publishers and providers of online information monitor and capture which subscribers are in violation of their license policies based on excessive or unauthorized use of the online information and services; and

·

VAMDistributiontohelp publishers and providers of online informationmanage access to their online information and ensure that only properly authorized subscribers benefit from the intellectual property they have valid licenses to use.

We currently provide VAM to publishers and providers of online information. Hoovers Online, Lincoln Financial Group, Microsoft, and Sony are some of our largest customers.

Going forward, we have decided to concentrate our sales efforts in North America and we intend to roll out regional marketing efforts in Europe and other parts of the world as we develop sales and marketing alliances in those areas.  As we grow, we must continue to build our support and services capabilities, because customer satisfaction is a primary value of our company and we believe a key element in our overall success.

We are refining our product offerings to include products targeted at large enterprises such as those found in the Fortune 5000. We believe that we will be able to participate in markets that offer significant growth opportunities by continuing to orient our offerings within the Business Activity Management, or BAM, market.  BAM is described as the union of two established and mature sectors in the software industry, business intelligence, and business process management.  Business intelligence, or BI, software products allows businesses to monitor, analyze, and report on their data to reveal the trends and insights needed to make better business decisions.  Business process management, or BPM, software products enables the automation and coordination of the many tasks and resources, such as people, time and electronic information, that make up a business process, such as customer retention and order processing.  Products generally available in the BAM market are designed to:

·

monitor user activity regarding the access and download of a companys online information, electronic files and software;

·

capture user related data associated with that activity, such as who the user is, what data is being downloaded, and where is the data being downloaded to;



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·

provide analysis of the captured user related data; and

·

generate reports that are most frequently associated with marketing, sales, and product management functions.

We sell our products through flexible licensing, such as a subscription-based model and a one-time license fee with annual maintenance and support (which provides for enhancements to the product and customer support).  Professional services, such as consulting and education, are a key part of our overall solution to our customers.  By providing these professional services, we are able to work with our customers to help them achieve the success and return on investment they require from their investment in our technologies.

Sources of Revenues

We derived substantially all of our revenues from licensing our products and royalties from the use of our protection products and providing related services.  Customers pay us license fees for the right to use our products for a fixed or perpetual term.

Our licensing arrangements may also include the provision of services.  Services revenues are comprised of revenues from professional services, such as consulting services and maintenance and support services.  Consulting services include a range of services such as installation, implementation, and non-complex interface development for the customers specific applications.  Maintenance and support services represent technical support of our software products and include the right to unspecified product upgrades on an if-and-when available basis.

Critical Accounting Policies and Estimates



We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the U.S.  In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. In many cases, we could reasonably have used different accounting policies and estimates.  In some cases changes in the accounting estimates are reasonably likely to occur from period to period.  Accordingly, actual results could differ materially from our estimates.  To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected.  We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.  We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below.  Our management has reviewed our critical accounting policies and estimates with our board of directors.

Revenue Recognition



Revenue consists of licensing of software, maintenance, and professional services.  We do not recognize revenue for agreements with rights of return, refundable fees, cancellation rights, or acceptance clauses until such rights to return, refund or cancellation have expired or acceptance has occurred.



We recognize revenue in accordance with Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9, and Securities and Exchange Commission Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements as revised by SAB 104.



Where software licenses are sold with maintenance or other services, we allocate the total fee to the various elements based on the fair values of the elements specific to us.  We determine the fair value of each element in the arrangement based on vendor-specific objective evidence (VSOE) of fair value.  VSOE of fair value is based upon the normal pricing and discounting practices for those products and services when sold separately and, for support services, is additionally measured by the renewal rate. If we do not have VSOE for one of the delivered elements of an arrangement, but do have VSOE for all undelivered elements, we use the residual method to record revenue.  Under the residual method, the arrangement fee is first allocated to the undelivered elements based upon their VSOE of fair value; the remaining arrangement fee, including any discount, is allocated to the delivered element.  If the residual method is not used, discounts, if any, are applied proportionately to each element included in the arrangement based on each elements fair value without regard to the discount.  License fees include the software developed and licensed by us.  We also license some of our software under contractual arrangements that, in addition to the delivery of software, require significant modification and customization of software.  Under these arrangements, services include installation, basic consulting, as well as software customization and modification to meet specific customer needs.  Professional service fees that we provide under long-term contracts to install and customize software developed by us or third parties are recognized using the percentage of completion method.  Progress to completion is measured using costs incurred or milestones achieved compared to estimate total costs or contract milestones.  Provisions for estimated losses under the percentage of completion method are made for the entire loss in the period in which they become evident.



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Revenue allocated to license fees is recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, we have no significant remaining obligations with regard to implementation, and collection of a fixed or determinable fee is probable.  We consider all payments outside our normal payment terms, including all amounts due in excess of one year, to not be fixed and determinable, and such amounts are recognized as revenue as they become due.  If collectibility is not considered probable, revenue is recognized when the fee is collected.  For software arrangements where we are obligated to perform professional services for implementation, we do not consider delivery to have occurred or customer payment to be probable of collection until no significant obligations with regard to implementation remain.  Generally, this would occur when substantially all service work has been completed in accordance with the terms and conditions of the customers implementation requirements but may vary depending on factors such as an individual customers payment history or order type (e.g., initial versus follow-on).



Revenue allocated to maintenance and support is recognized ratably over the maintenance term (typically one year).  Revenue allocated to training and consulting service elements is recognized as the services are performed.  Our consulting services are not essential to the functionality of our products as (i) such services are available from other vendors and (ii) we have sufficient experience in providing such services.



Vincera does not recognize revenue for agreements with rights of return, refundable fees, cancellation rights, or acceptance clauses until such rights to return, refund, or cancel have expired or acceptance has occurred.  Currently Vincera offers its customers no legal right of return / refund upon cancellation of the purchase.  However, Vincera accepts returns and refunds money to customers within 30 days of purchase as a matter of business practice.  Vincera does not recognize revenue if it has been notified by the customer its intent to cancel the purchase and seek refund should the cancellation occur within the 30 day window.  Additionally, we offer standard warranty to its customers which includes legal right of refund / cancellation of the contract should we not be able to deliver upon its obligations under the contracts.  Vincera estimates its sales return allowance based on historical experience with customers, its ability to meet all the obligations arising from contracts, and other factors which may be unique to each of the contracts.  As of March 31, 2006 and 2005 and December 31, 2005, Vincera did not have any sales return allowance.



We follow very specific and detailed guidelines, discussed above, in determining revenues, however, certain judgments and estimates are made and used to determine revenue recognized in any accounting period.  Material differences may result in the amount and timing of revenue recognized for any period if different conditions were to prevail.  For example, in determining whether collection is probable, we assess our customers ability and intent to pay.  Our actual experience with respect to collections could differ from our initial assessment if, for instance, unforeseen declines in the overall economy occur and negatively impact our customers financial condition.



Converted Debt



The converted debt and the related warrants have been accounted for in accordance with Emerging Issues Task Force (EITF) No. 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios", EITF No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock," EITF 00-27, Application of issue 98-5 to Certain Convertible Instruments, EITF 05-02 Meaning of Conventional Convertible Debt Instrument in Issue No. 00-19, and EIFT 05-04 The Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject to Issue No. 00-19.

Derivative Financial Instruments

The Company accounts for all derivative financial instruments in accordance with SFAS No. 133.  Derivative financial instruments are recorded as liabilities in the consolidated balance sheet, measured at fair value.  When available, quoted market prices are used in determining fair value.  However, if quoted market prices are not available, the Company estimates fair value using either quoted market prices of financial instruments with similar characteristics or other valuation techniques.



The value of the derivative liabilities relating to the warrants issued to purchase the Companys common stock in our financial statements are subject to the changes in the trading value of the Companys common stock and other assumptions.  As a result, our quarterly financial statements may fluctuate from quarter to quarter based on factors, such as the trading value of the Companys common stock, the amount of shares converted by common stock holders in connection with the warrants.  Consequently, our financial position and results of operations may vary from quarter to quarter based on conditions other than the Companys operating revenues and expenses.  See Note (10) regarding valuation methods used for derivative liabilities.  Derivative financial instruments that are not designated as hedges or that do not meet the criteria for hedge accounting under SFAS No. 133 are recorded at fair value, with gains or losses reported currently in earnings.  All derivative financial instruments held by the Company as of March 31, 2006 and December 31, 2005 were not designated as hedges.





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Stock-Based Compensation

Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004), Share-Based Payment, (SFAS 123R) using the prospective-transition method.  Under this transition method, compensation expense recognized during the three months ended March 31, 2006 included: (a) compensation expense for all share-based awards granted prior to, but not yet vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation expense for all share-based awards granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. In accordance with the modified-prospective-transition method, results for prior periods have not been restated.  Before January 1, 2006, the Company accounted for its stock options using the intrinsic value method.





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RESULTS OF OPERATIONS



In view of our limited operating history and changes in the general economic climate, we believe that period-to-period comparisons of revenues and operating results are not necessarily meaningful and should not be relied upon as indications of future performance.  Our prospects must be considered in light of the risks, expenses and difficulties encountered by companies in new and rapidly evolving markets.



The following 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 U.S. generally accepted accounting principles.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.  Estimates and assumptions are reviewed periodically, and actual results may differ from these estimates under different assumptions or conditions.



Comparisons of the Three Months Ended March 31, 2006 and 2005

|                 |   |                    |               |          |       | 
|---------------- | - | ------------------ | ------------- | -------- | ----- | 
|                 |   | Three Months Ended | Variance     
|                 |   | March 31,          | 2006 vs. 2005
|                 |   | 2006               | 2005          | $        | %    
|Total revenues   | $ | 172,515            | 117,661       | 54,854   | 47 % 
|Royalty revenues | $ | 123,488            | 47,790        | 75,698   | 158 %
|License revenues | $ | 4,500              | 4,500         | -        | 0 %  
|Service          | $ | 44,527             | 65,371        | (20,844) | (32%)

Total Revenues.  Revenues increased to 172,515 for the three months ended March 31, 2006 from $117,661 for the three months ended March 31, 2005, an increase of 47%.  The increase in revenues for the three months ended March 31, 2006 reflects an increase in royalties as one customer increased the usage in their Games Division of our protection software.  The professional services number decreased in the period ended March 31, 2006 as we moved our focus to the acquisition of new customers for our VAM products.  We signed contracts for two new partners, whom we will have a revenue sharing arrangement when they are fully operational with our products, and one new customer whom we will have a monthly license fee after we implement our solution within their site.  For the three month period ended March 31, 2006, our two largest customers accounted for 96% of our total revenues.

Royalty Revenues.  As our customers protect their intellectual property with our products, they may pay us a royalty fee based on the licensing arrangement that we have with each customer.  For the three months ended March 31, 2006 the increase in royalties was due to the increased usage of our protection software within one customers Games Division.  As we make the transition to the enterprise market with our VAM solutions, we expect that royalty revenues will decrease.

License Revenues.  The license revenues for the three months ended March 31, 2006 and 2005 remained the same as we continue to have one customer on a quarterly subscription payment.  We have been focused on developing our new solutions and reducing our dependencies on third party products, especially from Bit-Arts.  As a result, we have not sought new customers until our own internally developed protection technologies were ready for the market, and we made that transition during the end of this quarter.  We anticipate that the license revenues will increase as we begin to enter into subscription based and perpetual licenses of our applications to a wider customer base.

Services Revenues.  The decrease in services revenues for the three months ended March 31, 2006 compared to the year earlier period was primarily due to refocusing some of our resources on presales activities surrounding our new products.  We expect our services revenues to increase as we move towards the enterprise software model and offer professional services and software support and maintenance services.



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|                                  |               |                    |          |          |       
|--------------------------------- | ------------- | ------------------ | -------- | -------- | ------
|                                  |               | Three Months Ended | Variance
|March 31,                         | 2006 vs. 2005
|                                  |               | 2006               | 2005     | $        | %     
|Research and Development          | $             | 260,786            | 195,579  | 65,207   | 33 %  
|Sales, General and Administrative | $             | 515,384            | 464,673  | 50,711   | 11 %  
|Depreciation and Amortization     | $             | 18,997             | 93,452   | (74,455) | (80 %)
|Interest expense                  | $             | 60,611             | 75,273   | (14,662) | (19%) 

Research and Development.  Research and development expenses consist of employee salaries, benefits, consulting costs and the cost of software development tools and expenses associated with the development of new products, enhancements of the existing products, quality assurance and support activities.  Research and development expenses do not include rent or facilities cost because they were immaterial.  Research and development expense in the three months ended March 31, 2006 were attributable to development of our products and enhancements to our protection technologies, both of which remain in development.  For the three months ended March 31, 2006, research and development expenses were attributable to enhancements for our full product line, which are ongoing. As a percentage of our overall expenses, research and development costs accounted for 30% and 26% for the three month periods ended March 31, 2006 and 2005, respectively.  The increase is primarily due to additional headcount in the engineering group   While we intend to continue to invest in research and development and expect to incur additional expenses for employees and/or consultants as we develop our VAM products and lessen our dependence on third-party royalty-bearing products, including the licensed technology from Bit-Arts, we are not able to project the nature and timing of remaining efforts for completion, estimated completion date or similar information, because our development efforts will be determined by customer requirements and availability of funds.

Sales, General and Administrative.  Sales, general and administrative expenses consist of salaries, benefits, and related costs of our sales, marketing, administrative, finance, business operations and information technology personnel, sales commissions, travel and entertainment expenses, costs of our marketing programs, collateral materials, rent and facilities costs, as well as legal, marketing, and accounting services.  As a percentage of overall expenses, sales, general and administrative expenses accounted for 59% and 62% for the three month periods ended March 31, 2006 and 2005, respectively.

The increase in sales, general and administrative expenses in the three months ended March 31, 2006 over 2005 is due primarily to an increase in salaries, marketing expenses, and the subordinated debt placement agent fees with a decrease in legal fees.

We expect in future periods that the percentage of sales and general and administrative to the overall expenses will increase and research and development expenses will decrease as a percentage of total expenses as we take our products to market.

Depreciation and Amortization.  The decrease in depreciation and amortization expense in the three months ended March 31, 2006 as compared to the same period in 2005 is primarily due to the impairment write off of intangibles at December 31, 2005, resulting in reduced amortization expense compared to the same period in 2005.

Interest Expense.  Interest expense decreased during the three months ended March 31, 2006 as compared to the same period in 2005 due to the conversion of the Convertible Promissory Notes Payable and all but $650,000 of the Subordinated Notes Payable.  We anticipate that the interest expense will decrease in future periods upon the conversion of the remaining Subordinated Notes Payable and the other notes payable, if we are successful in obtaining the conversion of those securities, but will see an increase as the amortization costs from the private placement are amortized.

Provision for Income Taxes and Net Operating Losses.  We have incurred operating losses for all fiscal years from inception through March 31, 2006, and therefore have not recorded a provision for income taxes.  We have recorded a valuation allowance for the full amount of our deferred tax assets, which are primarily net operating loss carryforwards because of the uncertainty regarding the realization of these carryforwards.

LIQUIDITY AND CAPITAL RESOURCES



Our net cash at March 31, 2006 was approximately $36,084.  In September 2005 we engaged an investment banking firm, Fifth Street Capital, LLC (Fifth Street), to act as our exclusive advisor in a private placement.  We seek to raise up to $10.225 million through the sale of our common stock in a private placement.  Through the private placement, we intend to raise up to $10.225



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million, with a minimum raise of $1.0 million, which we achieved in November 2005.  At the intended maximum raise of $10.225 million, we would have approximately $8.9 million in net proceeds.  We have closed on approximately $2 million through April 2006.  Concurrent with the private placement we are seeking consents and waivers of approximately $650 thousand in subordinated note holders, to convert to shares of our common stock at $.36 per share, although there can be no assurance that we will obtain their consent.  If we are unable to receive consent from all note holders, we would seek to renegotiate the terms and conditions of those notes.



Additionally, we may not be able to raise additional capital through our private placement, nor generate sufficient cash flow from operations, which would have a material adverse affect on the Company.  Our expansion plans are critical to obtaining profitability and a shortage of funds would hinder those expansion plans and put into doubt our ability to become cash flow positive and profitable.



At March 31, 2006, we had outstanding approximately $650 thousand of Subordinated Promissory Notes which bear interest at the rate of 10% per annum and we are currently in default on these notes.  We are seeking consents from the holders of these subordinated promissory notes to convert the principal and interest to shares of our common stock at $.36 per share by canceling their indebtedness.  At March 31, 2006, we had outstanding approximately $40,000 in a promissory note outstanding which is payable to one of our officers and is in default.  We plan to pay this note on or before the final close of the private placement.

Our independent registered public accounting firm has stated in their report included in our 2005 Annual Report that we have incurred losses from operations and have limited working capital that raise substantial doubt about our ability to continue as a going concern.  We hope to continue to fund operations through additional debt and equity financing arrangements that we believe may be sufficient to fund our capital expenditures, working capital, and other cash requirements for the year ending December 31, 2006.  The successful outcome of future financing activities cannot be determined at this time and there are no assurances that if achieved, we will have sufficient funds to execute our intended business plan or generate positive operational results.

Contractual Obligations

None.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of March 31, 2006 and at December 31, 2005.

Risk Factors

We have incurred significant losses and anticipate losses in the future, and as a result, our independent registered public accounting firms report contains a statement that our net loss and limited working capital raise substantial doubt about our ability to continue as a going concern.

We have incurred operating losses since our inception, including net losses of $3.4 million and $2.5 million for the years ended December 31, 2004 and 2005, respectively, and we expect to continue incurring losses for the foreseeable future.  As of March 31, 2006, we had an accumulated deficit of $12.8 million.  To date, we have funded our operations principally through the sale of our stock and promissory notes, as well as our revenues.  We anticipate that our operating expenses will increase substantially in the foreseeable future as we increase our sales and marketing activities, and continue to develop our technology, products, and services. We will need to generate significant revenues to achieve profitability, and we cannot assure you that we will ever realize revenues at such levels.  We also expect to incur product development, sales and marketing and administrative expenses significantly in excess of our revenues after costs, and, as a result, we expect to continue to incur losses for the foreseeable future. If we do achieve profitability in any period, we may not be able to sustain or increase our profitability on a quarterly or annual basis.

As a result, our independent registered public accounting firmhasstated in their report included in our 2005 Annual Report that we have incurred losses from operations and have limited working capital that raise substantial doubt about our ability to continue as a going concern.  This going concern paragraph could adversely impact our future financing activities and there are no assurances that we will have sufficient funds to execute our intended business plan or generate positive operational results.

We have limited capital resources and additional funding may not be available to us or may not be available on acceptable terms.

At March 31, 2006, we had approximately $36,084 in cash and cash equivalents.  We anticipate, if our fund raising activities are not successful, we will not have sufficient liquidity to meet expected expenses beyond June 2006.  At March 31, 2006, we had outstanding approximately $650,000 of subordinated promissory notes which bear interest at the rate of 10% per annum with maturity



22



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dates which range from June through August 2005.  We are seeking waivers and consents to convert the remaining principal and interest to common stock.  If we are unable to convert these notes, we would have to renegotiate the payments or risk adverse legal action.  On May 4, 2006, we were served with three lawsuits by three of its subordinated promissory note holders.  The plaintiffs are: Agincourt, L.P., Charles M. Gray, and Thomas G. Reagan, and each lawsuit asserts a claim for breach of contract, alleging that the Company has failed to pay the principal and interest due and owing under each of the three subordinated promissory notes issued to these plaintiffs.  There is currently one short term note outstanding with a principal amount of $40,000 and a maturity date of November 30, 2005, which we are currently in default.



In April of 2006, we had a third close on our private placement of 764,711 shares of common stock at $0.36 per share.  Gross proceeds were $275,296 with the Company receiving $185,012 after expenses.



We have the authority to issue up to 100,000,000 shares of common stock and to issue options and warrants to purchase shares of our common stock and 30,000,000 shares of our preferred stock without stockholder approval.  These future issuances could be at values substantially below the price paid for our common stock by our current stockholders.



We will be required to raise additional funds to continue our operations.  If we are unsuccessful in raising additional funds, we will likely be forced to cease operations and our common stock would be worthless.  This financing may not be available in sufficient amounts or on terms acceptable to us and may be dilutive to existing stockholders.  We filed a registration statement on Form SB-2 (SEC Registration Statement No. 333-120676) with the Securities and Exchange Commission in November 2004 and we subsequently withdrew the registration statement in July 2005.  There can be no assurance that this withdrawal will not have a material adverse effect on our ability to raise additional funds in the future.



If adequate and acceptable financing is not available, we will not be able to repay our existing indebtedness and we would have to delay development or commercialization of certain of our products or eliminate some or all of our development activities.  We may also reduce our sales and marketing or other resources devoted to our products.  Any of these options could reduce our sales growth and result in continued net losses.

Our promissory notes (all of which are in default) and our convertible preferred stock are senior to our shares of common stock and may adversely impact Vincera and our common stockholders or have a material adverse effect on Vinceras ability to continue its operations.



We have outstanding approximately $650 thousand in Subordinated Promissory Notes (the Notes) and 2,454,690 shares of preferred stock (the Preferred Stock, and, together with the Notes, the Senior Securities).  These Notes are currently in default, and the holders of the Notes could sue Vincera to demand repayment of the Notes, which would have a material adverse effect on our financial condition and possibly require us to seek bankruptcy court protection.  The terms of the Senior Securities may have a material adverse effect on Vincera and our financial condition and results of operations.  The Preferred Stock has a liquidation preference in the amount of approximately $1.2 million, plus accrued and unpaid dividends, and the Notes have an outstanding balance of principal and interest of approximately $832 thousand as of March 31, 2006, all of which must be paid before common stockholders would receive any funds from their investment in Vincera in the event of liquidation, including some changes of control.  The Senior Securities could also materially and adversely affect the ability of Vincera to raise funds necessary to continue our business.  We intend to seek the conversion of the Senior Securities to shares of common stock, although there is no assurance that we will be successful in this effort.

Due to our limited operating history and the uncertain market acceptance of our products, we may never achieve significant revenues and may have difficulty accurately predicting revenues for future periods and appropriately budgeting for expenses.



We have generated a total of $997,501 in revenues since January 1, 2003, with $172,515 generated in the three months ended March 31, 2006, $153,587 generated in the year ended December 31, 2004, and $331,729 in the year ended December 31, 2005.  Our net loss for the three months ended March 31, 2006 is $683,263.  We are uncertain whether our products will achieve market acceptance such that our revenues will increase or whether we will be able to achieve significant revenues.  Therefore, we have a very limited ability to predict future revenues.  With our limited operating experience, the uncertain market acceptance for our products, and other factors that are beyond our control, it difficult for us to accurately forecast our quarterly and annual revenues.  Most of our expenses are fixed in the short term or incurred in advance of anticipated revenues.  As a result, we may not be able to decrease our expenses, if desired, in a timely manner to offset any revenues shortfall.  If our revenues do not increase as anticipated, we will continue to incur significant losses.





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We depend on a small number of key customers for a high percentage of our revenues and the loss of a significant customer could result in a substantial decline in our revenues and increase in our losses.

Our customer base and a majority of our revenues are highly concentrated among a very limited number of customers and the loss of any one of these customers would have a material adverse impact on our revenues and ability to achieve profits.  Historically, we have derived the majority of our revenues from a relatively small number of customers.  Two customers accounting for 96% of our revenues for the three months ended March 31, 2006 and two customers accounted for 94% of revenues in the three months ended March 31, 2005.

Undetected errors or failures in our software could result in loss or delay in the market acceptance for our products or lost sales.



Because our software products and the environments in which they operate are complex, our software may contain errors that can be detected at any point in their lifecycle.  While we continually test our products for errors, errors in our products may be found in the future even after our products have been commercially introduced.  Detection of any significant errors may result in, among other things, loss of, or delay in, market acceptance and sales of our products, diversion of development resources, injury to our reputation, increased service and warranty costs, license terminations or renegotiations or costly litigation.  Additionally, because our products support or rely on other systems and applications, any software errors or bugs in these systems or applications may result in errors in the performance of our software, and it may be difficult or impossible to determine where the error resides.

We may initiate patent infringement or patent interference actions or other litigation to protect our intellectual property, or be forced to defend similar claims against us, which could be costly.



Our success is dependent upon our ability to protect our proprietary technologies included in our Vincera Activity Management software.  We rely on our patent applications, trade secrets, copyrights, know-how, trademarks, license agreements, and contractual provisions to establish our intellectual property rights.  These legal means, however, afford only limited protection and may not adequately protect our rights.

Claims or litigation, including claims involving patent or intellectual property infringement claims, could harm our business and result in:

·

Substantial damages, settlement or related costs, including indemnification of customers for any infringement by our VAM software on rights of third parties;

·

Diversion of our limited management and financial resources to litigate infringement claims;

·

Our discontinuing the use and sale of products that infringe the rights of others;

·

Our expending significant resources to develop non-infringing technology as alternatives to infringing technology; and

·

Our obtaining licenses to infringed technology.

We have hired employees and consultants who were past employees of our competitors, and may continue to do so in the future.  As a result, one or more of our competitors could file lawsuits against us alleging the infringement of their trade secrets and other intellectual property. Although we do not believe we have infringed upon the intellectual property of our competitors, such lawsuits could divert our attention and resources from our business operations.



In addition, we have sold in the past and may in the future sell our software in foreign countries and the laws of some of these countries may not protect our intellectual property to the same extent as U.S. laws, if at all, and we may be unable to protect our rights in proprietary technologies in these countries.



We are involved in litigation, and may in the future be involved in additional litigation, including product liability claims, which may result in substantial expense and may divert our attention from the implementation of our business strategy.



From time to time, we have been, and may continue to be subject to legal claims related to our business.  These may include actions for regulatory non-compliance, customer and shareholder complaints, and failure to meet financial obligations.  We have been subject to legal proceedings.  While we believe these claim were without merit, we were forced to spend funds to pay defense costs and settlements.  We may also become subject to additional claims, which may result in substantial expense and may divert our attention from the implementation of our business strategy.



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In addition, errors, defects or other performance problems in our software could result in financial or other damages to our customers.  They could seek damages from us for losses associated with these errors, defects or other performance problems.  If successful, these claims could have a material adverse effect on our business, operating results or financial condition.  Although we possess errors and omissions insurance, there is no guarantee that our insurance would be enough to cover the full amount of any loss we might suffer.  Our license agreements typically contain provisions designed to limit our exposure to product liability claims, but existing or future laws or unfavorable judicial decisions could negate these limitation of liability provisions.  We have not experienced any material product liability claims to date.  However, a product liability claim brought against us, even if unsuccessful, could be time consuming and costly to defend and could harm our reputation.

We depend on third-party licenses and open-source code for our products.

We rely on software technologies, which we license from third parties and acquire from open-source providers for use in our products to perform key functions and provide additional functionality.  Because our products incorporate software developed and maintained by third parties, we are, to an extent, dependent upon those third parties' ability to maintain or enhance their current products, to develop new products on a timely and cost-effective basis, and to respond to emerging industry standards and other technological changes.  Further, these third-party technology licenses may not always be available to us on commercially reasonable terms or at all.

If our agreements with third-party vendors are not renewed or the third-party software, including open-source code technologies, fails to address the needs of our software products, we would be required to find alternative software products or technologies of equal performance or functionality.  We cannot assure you that we would be: able to replace the functionality provided by third-party software if we lose the license to this software; it becomes obsolete or incompatible with future versions of our products; or is otherwise not adequately maintained or updated.

We recently settled a legal proceeding with one of these third-party licensors, Bit-Arts, Ltd., which required us to seek alternative technologies by December 31, 2005.  In September 2005, Bit-Arts, Ltd. filed for bankruptcy protection, and at the end of 2005 we believe that the assets of Bit-Arts were sold to an undisclosed party which may further inhibit our ability to support some of our products.

Our software sales, particularly those to enterprise customers, are often dependent on our ability to provide a significant level of professional services to our customers and we may not be able to provide these services.

Clients that license our software typically engage our professional services to assist with the installation, training, consulting, and implementation of our software.  We believe that growth in our software sales depends to a significant degree on our ability to provide our clients with these services.  New services personnel will require training and education and take time to reach full productivity.  We may not be able to recruit the service personnel we need or retain our current providers of this service because competition of qualified personnel is intense.  We are in a relatively new market and only a limited number of individuals have the skills needed to provide the services that our clients require.  To meet our needs for service personnel, we may also need to use third-party consultants to supplement our own service personnel.

Customer and end-user resistance, including as a result of privacy concerns, could deter current and potential users from using our products.

Third parties may attempt to breach our security or that of our customers.  We may be liable to our customers for any breach in security and any breach could harm our customers, our business and our reputation.  In addition, our software contains features, which may allow us, or our customers to control, monitor or collect data from computers running our software.  Therefore, we may be subject to claims associated with invasion of privacy or inappropriate disclosure, use or loss of this information.  Any imposition of liability, particularly liability that is not covered by insurance or is in excess of insurance coverage, could harm our reputation and our business and operating results.  In addition, computers, including those that use our software, are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays or loss of data.  We may be required to expend significant capital and other resources to further protect against security breaches or to rectify problems caused by any security breach.

From time to time, concerns have been expressed by governmental authorities and consumer groups regarding privacy rights.  In the event a government authority were to determine that our products, such as Vincera Activity Manager, and services compromise the privacy of users and others in violation of legislation that may be enacted in the future, we could be forced to modify our software and services.  In addition, concerns about our collection, use or sharing of personal information or other privacy-related matters, even if



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unfounded, could damage our reputation, result in delays of acceptance of our products by current and potential customers, and harm our operating results.

It is also possible that there could be significant consumer resistance to our copy protection software products, as consumers may feel that copy protection degrades the quality of the original or that they are entitled to copy CDs, because no technology has been used in the past to prevent copying.  It is not clear whether our software and content provider customers will deploy any of our copy protection solutions if there is sustained consumer resistance.  To date, we have seen limited acceptance of our technology and some customers are not completely satisfied with effectiveness and playability levels of the protected content.  If the software and their Intellectual Property (IP) content providers conclude that delivering increasingly meaningful volumes of IP content and software that include our technologies generate unacceptable consumer backlash, our revenues potentially may be adversely affected.

We are exposed to risks associated with expanding our technologies through strategic acquisitions and investments.



We have expanded our technology base in the past through strategic acquisitions and investments in companies with complementary technologies or intellectual property, including Old Vincera and Bit-Arts, and we intend to do so in the future.  Negotiating or completing any potential future acquisitions entail a number of risks that could affect our business and operating resulting, including:

·

financing for future acquisitions may not be available on favorable terms, or at all, because of our relatively small size and lack of profitable operations;

·

negotiating the terms of the acquisition successfully, because of our relative inexperience in acquisitions;

·

integrating the acquired business, products, technologies or employees into our existing business and operation, because of our relative inexperience in integrating acquisitions and our small management team;

·

risks associated with entering markets in which we lack prior experience, or the acquisition may not enhance our business in any current markets;

·

difficulties in retaining business relationships with suppliers and customers of the acquired companies;

·

potential disruption of our ongoing business and detraction of our management, because of the small size of our management team;

·

potential loss of key personnel; and

·

future acquisitions may not be well-received by the investment community.

We have not entered into any agreements regarding any future acquisitions and cannot ensure that we will be able to identify or complete any acquisition in the future.

If we acquire businesses, new products or technologies in the future, we may be required to amortize significant amounts of identifiable intangible assets and we may record significant amounts of goodwill that will be subject to annual testing for impairment.  We have in the past (for example our acquisition of Bit-Arts technology) and may in the future be required to write off all or part of one or more of these investments that could harm our business.  If we consummate one or more future acquisitions in which the consideration consists of stock or other securities, our existing stockholders ownership could be significantly diluted.  If we were to proceed with one or more future acquisitions in which the consideration included cash, we could be required to use a substantial portion of our available cash.  Acquisition activities could adversely impact our operating margins depending upon the financial models of the businesses acquired.

Our strategic investments may involve joint development, joint marketing, or entry into new business ventures, or new technology licensing.  Any joint development efforts may not result in the successful introduction of any new products by us or a third party, and any joint marketing efforts may not result in increased demand for our products.

We depend on key personnel to manage our business and develop new products in a rapidly changing market, and if we are unable to retain our current personnel and hire additional personnel, our ability to develop and sell our products could be impaired.



We believe our future success will depend in large part upon our ability to attract and retain highly skilled managerial, engineering and sales and marketing personnel.  In particular, due to the small size of our executive management team and early stage of our business, we believe that our future success is highly dependent on David Malmstedt, our Chief Executive Officer and President, Kevin Schick, our Chief Marketing Officer, to provide continuity in the execution of our growth plans.  We do not carry key-man life insurance on executives.  While we have severance arrangement in place with Mr. Malmstedt, we do not have long-term



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employment agreements in place with any of our employees.  During May 2006, our Chief Technology Officer left the Company.  The loss of the services of any of our other key employees, the inability to attract or retain qualified personnel in the future or delays in hiring required personnel, particularly engineers and sales personnel, could delay the development and introduction of, and negatively impact our ability to sell, our products, especially if we experience rapid growth, which would place additional strains on our small management team.



Our intellectual property protection technologies face risks from defeat technologies such as hackers.



Two of the key capabilities of our software, Vincera Activity Manager, are the ability to protect intellectual property and provide electronic license management.  A number of devices and techniques have been available, and currently are available, that may enable third parties to defeat our copy protection, intellectual property protection, and electronic license management technologies.  Moreover, our technologies are not effective against professional duplication and processing equipment.  A number of factors could cause copyright holders to choose not to use our technologies, including a perception that the inability of our technology to deter professional hackers renders our technology less useful, the commercial availability of products that defeat our copy protection technologies or any significant reduction in the effectiveness of our technologies to deter consumer copying or piracy.



The success of our business depends on the use by software and content publishers of our technologies.

If IP content providers and software companies were to determine that the benefits of our protection technology do not justify the cost of licensing our technologies, then demand for our technologies would decline.

Any future growth in revenues will depend on growth in the various digital content providers, increased use of our technologies on a larger volume of IP content and software or increases in usage fees or royalties.  To increase or maintain our market penetration, we must continue to persuade content owners that the cost of licensing our technologies is outweighed by the increase in revenues that content owners gain as a result of using copy protection, such as revenues from additional sales of the copy protected material or subsequent revenues from other distribution channels.

We have been successful historically in licensing our copy protection technologies to control unauthorized casual consumer copying.  Other content piracy sources include peer-to-peer file sharing services and PC-based disc copying software.  To the extent that our customers spend money to prevent or litigate against these other piracy sources, they may reduce spending on our technology.  Additionally, if our customers are unable to prevent their content from becoming available through these other piracy sources, they may consider our technology to be less valuable.

Legislative initiatives seeking to weaken copyright law or new governmental regulation and resulting legal uncertainties could harm our business by limiting our ability to sell our products and resulting in delayed or lost revenues.



A key differentiator for our software, Vincera Activity Manager, is the ability to collect and store unique information about individuals, which is known as personally identifiable information.  United States federal and foreign government regulations may, in the future, direct the way our Vincera Activity Manager products are sold and implemented, due to their access of personally identifiable information.  Through regulation, these governments may approve and require use of competing technologies, products, or implementation methodologies.  Such government regulations may not endorse or specifically exclude use of our technologies and products in the marketplace.  Such industry-wide regulations could severely limit our ability to sell our Vincera Activity Manager products in the United States and abroad.

Our telephone and computer networks are subject to security and stability risks that could expose us to litigation or liability.



Our Vincera Activity Manager products include online business activities that depend to a great extent on the ability to transmit confidential information and licensed intellectual property securely over private and public networks.  Any compromise of our ability to transmit such information and data securely or reliably, and any costs associated with preventing or eliminating such problems, could harm our business.  Online transmissions are subject to a number of security and stability risks, including:

·

our own or licensed encryption and authentication technology, and access and security procedures, may be compromised, breached or otherwise be insufficient to ensure the security of customer information or intellectual property;

·

we could experience unauthorized access, computer viruses, system interference or destruction, denial of service attacks and other disruptive problems, whether intentional or accidental, that may inhibit or prevent access to our websites or use of our products and services;



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·

someone could circumvent our security measures and misappropriate our, our partners or our customers' proprietary information or content or interrupt operations, or jeopardize our licensing arrangements, which are contingent on our sustaining appropriate security protections;

·

our computer systems could fail and lead to service interruptions; or

·

our network of facilities may be affected by natural disaster, terrorist attack or other catastrophic events.

The occurrence of any of these or similar events could damage our business, by hurting our ability to distribute products and services and collect revenues, threatening the proprietary or confidential nature of our technology, harming our reputation, and exposing us to litigation or liability.  We may be required to expend significant capital or other resources to protect against the threat of security breaches, hacker attacks, or system malfunctions or to alleviate problems caused by such breaches, attacks, or failures.



Changes in the use of the Internet for delivery of our Vincera Activity Manager and other software or IP content may result in lost revenues.



Our Vincera Activity Manager products are designed to support the use by our customers of the Internet to deliver, deploy, or activate their software or digital media and content for their end users.  The revenues we generate from our products depend on increased acceptance and use of the Internet by our customers' end users as a medium of delivery of software and digital media and content.  Acceptance and use of the Internet may not continue to develop at historical rates, and a sufficiently broad base of business customers may not adopt or continue to use the Internet to conduct their operations.  Demand and market acceptance for recently introduced services and products over the Internet are subject to a high level of uncertainty, and there are few proven services and products.  Our revenues and potential profitability could be harmed if our customers and potential customers do not use our products because:



·

the necessary communication and computer technology underlying the Internet and other online services do not effectively support any expansion that may occur;



·

new standards and protocols are not developed in a timely manner; or



·

concerns about security, reliability, cost, ease of use, accessibility, quality of service, privacy or other factors results in the Internet not remaining a viable commercial marketplace, inhibiting the development of electronic commerce and reducing the need for and desirability of our products and services.



Conversely, some of our other products, such as IP content and packaged software copy protection, are designed to be applied to packaged media offered by some of our customers and we receive royalties based on the number of units produced.  If delivery of these customers' products using the Internet were to continue to increase, especially due to the increasing penetration of broadband Internet capabilities in the consumer marketplace, our revenues from packaged media may be adversely affected and not replaced by Internet-based revenues.



We intend to seek to be listed on the OTC Electronic Bulletin Board, which imposes listing requirements and can be a volatile market.



We intend to seek to have our common stock quoted on the Over-the-Counter Electronic Bulletin Board Market, or OTCBB, although we may not be successful.  We expect trading volume to be low in our shares.  Consequently, the purchase or sale of only a few shares of our stock may affect the market and may result in wide swings in price and in volume.



The OTCBB rules require that we be a reporting issuer under Section 12 of the Securities Exchange Act of 1934 and remain current in our reports under Section 13 to remain quoted on the OTCBB.  If we fail to remain current on our reporting requirements, we could be removed from the OTCBB.  As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to make a market in our securities and the ability of stockholders to sell their securities in the secondary market.



We may grant stock options and warrants and restricted stock which could reduce your ownership interest.



Awards under our 2002 Stock Option Plan and outside of this plan would reduce the percentage ownership interest of all stockholders.  Options to purchase 6,067,000 common shares, and warrants to purchase 7,394,954 shares were outstanding as of March 31, 2006.  We anticipate that we will issue additional shares and warrants in connection with our efforts to raise additional



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funds.  We will grant additional options, warrants, and/or shares of restricted stock in the future.  The issuance of shares upon the exercise of these options and warrants, and restricted stock grants may result in dilution to our stockholders.



Our certificate of incorporation, bylaws, and Delaware corporate law contain provisions which could delay or prevent a change in control even if the change in control would be beneficial to our stockholders.



Delaware law as well as our certificate of incorporation and bylaws contain provisions that could delay or prevent a change in control of our company, even if it were beneficial to our stockholders to do so.  These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock.  These provisions:



·

authorize the issuance of preferred stock that can be created and issued by the board of directors without prior stockholder approval to increase the number of outstanding shares and deter or prevent a takeover attempt and could result in a class of outstanding securities that would have preferences with respect to voting rights and dividends and in liquidation over the common stock;

·

prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;

·

prohibit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;

·

provide that our board of directors is divided into three classes, each serving staggered three-year terms;

·

preclude the ability of stockholders to call special meetings of stockholders; and

·

establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

In addition, Section 203 of the Delaware General Corporation Law imposes restrictions on business combinations such as mergers between us and a holder of 15% or more or our voting stock.



Due to the adoption of accounting regulations that require companies to expense stock options, our earnings will decrease and our stock price may decline.



We have historically issued a relatively large number of options to our employees because we believe that employee stock options are an important element of total compensation and because we have had limited cash resources to pay cash compensation to our employees.  The FASB has implemented rule changes requiring expensing of stock options that we implemented January 1, 2006.  If we continue to support broad-based employee stock option grants we may suffer a material, negative impact upon our future earnings because of the deduction of these amounts from our net income as an expense.  This could cause the market price of our stock to decline.  Alternatively, if we cut back on employee stock option grants, we may lose an important benefit that impacts the recruiting and retention of quality employees, especially given our relative lack of cash for cash compensation, and our business could be harmed because we would be unable to attract qualified employees to implement our business plans.



Item 3.

Controls and Procedures

Our management, including our Chief Executive Officer (our Principal Executive Officer and Principal Financial Officer), has evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the period ended March 31, 2006, the period covered by this Quarterly Report on Form 10-QSB. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of March 31, 2006 to ensure the timely collection, evaluation and disclosure of information relating to our company that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.



There were no changes in our internal controls over financial reporting that have materially affected, or are reasonable likely to materially affect, our internal controls over financial reporting during the three months ended March 31, 2006.



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PART II  OTHER INFORMATION



Item 1.

Legal Proceedings

The Company has settled or reached agreements on all of its outstanding lawsuits.



Scott McAllister, one of the Companys shareholders, filed a lawsuit against the Company in the 261st Judicial District Court in Travis County, Texas, on January 14, 2005, asserting that the Company breached an alleged oral contract, promissory estoppel, and fraud in a 2003 stock transaction.  On June 6, 2005, the lawsuit was amended by the plaintiffs to include Mr. Mark Eshelman, the Companys current Director of Sales Development and former executive officer and board member, and Mr. Bala Vishwanath, the Companys former Chairman, CEO and CSO, as defendants in this lawsuit.  Mr. McAllister is seeking damages of $189,000 plus attorneys fees.  Mr. McAllister claims that he is owed these sums for services allegedly performed, and promises made by the Company, in connection with the Companys securities offerings.  The services allegedly performed were the introduction of Fifth Street Capital LLC to the Company, whereby Mr. McAllister believes he is entitled to a commission for all monies raised by Fifth Street Capital LLC on behalf of the Company, including the Bridge Loan and the proposed initial public offering that the Company withdrew in July 2005.  The alleged promises made were regarding the (4) Companys performance and the status of fund raising in 2003.  The Company denies the allegations and intends to vigorously defend this lawsuit.  On March 1, 2006, Mr. McAllister amended his pleadings and dismissed the fraud claims against the Company and the claims against Mr. Eshelman and Mr. Vishwanath.  The trial ended on April 6, 2006 and the jury found in favor of the Company and the lawsuit was dismissed.



Michael B. Shapiro, former CEO of the Company (at the time the Company was known as Smarte Solutions) has filed a lawsuit against the Company and Mr. Bala Vishwanath, the Companys former Chairman, CEO and CSO, in the 126th Judicial District Court in Travis County, Texas on March 22, 2005 which was served on the Company on April 4, 2005, asserting that the Company breached various agreements, made representations regarding compensation that were false, and made promises regarding his compensation that were false.  Mr. Shapiro is seeking damages of the reasonable value of the stock options that were alleged to have been either refused to be granted or allowed to be exercised by the Company, reasonable value of the services provided to the Company while acting as the CEO and while acting on the Companys advisory board (which has been estimated to be at least $400,000 by Mr. Shapiro), punitive damages, attorneys fees, all costs of the proceedings, interest on said sums as provided by law, and such other and further relief to which Mr. Shapiro may show himself justly entitled.  Although the Company denies the allegations alleged in the suit, the Company has determined that it was in the Companys best interest to enter into a settlement agreement with Mr. Shapiro.  On February 27, 2006, the Company, Mr. Vishwanath, and Mr. Shapiro signed the settlement agreement and the agreement has been submitted to the bankruptcy court which is handling Mr. Shapiros proceeding. The Company received approval of the settlement from the bankruptcy court, and upon execution of a mutual release by all parties, the settlement will be final and the Company will be required to pay the former officer and stockholder $35,000 which was accrued at the end of 2005, and 90,000 shares of common stock.



CRS, LLC (CRS), a Washington limited liability company, filed a lawsuit against the Company in the United States District Court for the Western District of Washington in Seattle on June 14, 2005.  The suit was originally filed by CRS against Bit-Arts, LTD., a foreign company, and Bit-Arts, Inc., a Delaware corporation, alleging patent infringement of two patents by making, using, selling and/or offering for sale without authorization, products which embody one or more claims of the patents.  The Company was added to the amended complaint on June 14, 2005 because the Company was the exclusive distributor of the Bit-Arts products allegedly infringing on the two patents, and the Company continues to have a license to distribute the Bit-Arts products through November 2006.  CRS was seeking: (a) the defendants be adjudged to have infringed the patents; (b) all parties be permanently restrained and enjoined from directly or indirectly infringing on the patents; (c) an accounting and award of damages by reason of the infringement; (d) an award of prejudgment and post judgment interest, exemplary damages and costs; (e) award of damages, punitive damages, attorneys fees, and prejudgment interest; and (f) CRS be awarded such other relief as the Court may deem just, equitable, and proper.  If the Company were to be unsuccessful in its defense of this lawsuit, and if the CRS were to be able to establish substantial damages, the Company could be forced to pay an amount, currently unknown, which could have an adverse effect on the Companys business. In addition, although the Company believes that the Company would be entitled to indemnification in whole or in part for any damages and costs of defense, there could be no assurance that the Company would be successful on the indemnification claim or recover all or a portion of any damages assessed or expenses incurred, especially in light of the filing for receivership and the sales of the assets of Bit-Arts to an undisclosed entity at the end of 2005.  On February 28, 2006, the Company entered into a settlement agreement with CRS, LLC (CRS), whereby for the amount of $35,000 CRS dismissed the lawsuit against the Company with prejudice and agreed not to sue the Company in the future for patent infringement arising out of the sales of Bit-Arts products that occurred prior to the execution of the settlement agreement.



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On May 4, 2006, the Company was served with three lawsuits by three of its subordinated promissory note holders.  The plaintiffs are: Agincourt, L.P., Charles M. Gray, and Thomas G. Reagan, and each lawsuit asserts a claim for breach of contract, alleging that the Company has failed to pay the principal and interest due and owing under each of the three subordinated promissory notes issued to these plaintiffs.  The lawsuits claim that the principal and interest under each note was due and payable in July 2005, and the Company has failed to pay the notes when due.  The Agincourt, L.P. lawsuit alleges a principal amount due and owing of $100,000, and the Gray and Reagan lawsuits allege a principal amount due and owing of $50,000 each.  Each of the lawsuits also seeks to recover interest on the principal amount of 10%, plus all reasonable and necessary attorneys fees and costs.  The lawsuits are styled, Agincourt, LP v. Vincera Inc., f/k/a Smarte Solutions, Inc., in the 126th Judicial District Court of Travis County Texas, Charles M. Gray v. Vincera Inc., f/k/a Smarte Solutions, Inc., in the 98th Judicial District Court of Travis County Texas, and Thomas G. Reagan v. Vincera Inc., f/k/a Smarte Solutions, Inc., in the 200th Judicial District Court of Travis County Texas.  The Company has had preliminary discussions with counsel for these three plaintiffs and if the lawsuits are not resolved, then the Company will respond in a timely fashion and take the necessary steps to defend the lawsuits.  No amounts have been accrued for these lawsuits because we have not determined them.



Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended March 31, 2006, the Company converted principal and interest on promissory notes totaling $179,973 into 483,258 shares of common stock at $0.36 per share and issued warrants to purchase 241,649 common shares at $0.50 per share.  These warrants expire 18 months from the date of the Companys final close of the private placement  As compensation to the placement agent for the notes converted, the Company paid commissions of approximately $13,000 in cash, and issued 4,833 common stock shares, warrants to purchase 33,828 common shares at $0.36 per share, and warrants to purchase 19,330 common shares at $0.594 per share.  These warrants are exercisable for a period of 18 months from the date of the final close of the private placement.



During the three months ended March 31, 2006, the Company issued 414,595 of shares of common stock upon conversion of 414,595 of Series A Preferred stock.



In April 2006, the Company had an interim close of the private placement of 1,552,211 shares of its common stock to 11 accredited investors for a cash price of $0.36 per share.  Each investor also received a five year common stock purchase warrant for 25% of their investment at an exercise price of $0.50 per share, which warrants are only exercisable if the Company does not have an effective registration statement on or before 120 days from the date of the final close of the offering. The aggregate proceeds of the offering were $558,796.  The placement agent received a fee of approximately $39,115, a warrant to purchase 108,655 shares of common stock at an exercise price of $0.36, a warrant to purchase 37,629 shares of common stock at an exercise price of 40,594 per share and 15,522 shares of common stock.  These warrants are exercisable for a period of 18 months from the date of the final close of the offering.



These issuances were made pursuant to a private placement to a limited number of accredited investors and was exempt from registration under Rule 506 under Section 4(2) of the Securities Act of 1933.



Item 3.

Defaults Upon Senior Securities

The Company has approximately $650,000 of Subordinated Promissory Notes that are in default.  Total arrearages as of March 31, 2006 were approximately $778,047 including accrued interest.  The Company is seeking waivers and consents to convert this debt and interest into shares of the Companys common stock.



The Company is in default upon a $40,000 note payable to an officer of the Company.  Total arrearages as of March 31, 2006 were $40,630 including accrued interest.



The Company is currently in default on notes issued in connection with the Vincera Software, Inc. acquisition, accruing interest at 1.5% per month as long as the notes remain unpaid.  Total arrearages as of March 31, 2006 were $201,296, including accrued interest.



Item 4.

Submission of Matters to a Vote of Security Holders

None.



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Item 5.

Other Information

None.

Item 6.

Exhibits and Reports on Form 8-K

|            |  |                                                                                                                                                                              
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                  
|31.1        |  | Certification of Chief Executive Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act                                                                      
|31.2        |  | Certification of Principal Financial Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act                                                                  
|32.1        |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|                                                                                                                                                                                                             
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|VINCERA, INC.

By:/s/ David R. Malmstedt
David R. Malmstedt, President and Chief Executive Officer (Duly Authorized Signatory and Principal Executive, Financial and Accounting Officer)

Date:  May 15, 2006
|                                                                                                                                                                                                             









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