---

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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549______________Form 10-Q

|x                                                     | Quarterly report pursuant to Section 13
      or 15(d) of the Securities Exchange Act of 1934 
|----------------------------------------------------- | ----------------------------------------------------------------------------------------------
|                                                      |                                                                                               
|For the quarterly period ended
      January 31, 2008
|                                                      |                                                                                               
|OR                                                   
|                                                      |                                                                                               
|o                                                     | Transition report pursuant to Section 13
      or 15(d) of the Securities Exchange Act of 1934
|                                                      |                                                                                               
|Commission File Number:
      001-11807______________

UNIFY CORPORATION(Exact name of registrant as specified in its
charter)

|**Delaware**(State or other
      jurisdiction ofincorporation or organization) | **94-2710559**(I.R.S.
      Employer IdentificationNumber)
|------------------------------------------------------------------------------- | ----------------------------------------------------------

2101 Arena Blvd, Suite
100Sacramento, California 95834(Address of principal executive offices)

Telephone: (916)
928-6400(Registrants telephone number,
including area code)

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.

YES  x NO o

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.

|Large accelerated filer o |  | Accelerated filer o |  | Non-accelerated filer o(Do not check if a smaller reporting
      company) |  | Smaller reporting company x
|------------------------- |  | ------------------- |  | -------------------------------------------------------------------------- |  | ---------------------------

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act),

YES  o     NO x

Indicate the number of shares outstanding
of each of the issuers classes of common stock, as of the latest practicable
date: 6,752,103 shares of common stock, $0.001 par value, as of January 31,
2008.

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UNIFY CORPORATIONFORM
10-Q

INDEX

|PART
      I.  | FINANCIAL INFORMATION                                                                  | 3 
|-------------- | -------------------------------------------------------------------------------------- | --
|               |                                                                                        |   
|Item
      1.  | Financial Statements                                                                   | 3 
|               |                                                                                        |   
|               | Unaudited Condensed Consolidated Balance Sheets as of January 31,
      2008 and       | 3 
|               | April 30, 2007                                                                         |   
|               |                                                                                        |   
|               | Unaudited Condensed Consolidated Statements of Operations for the
      three and nine | 4 
|               | months ended January 31, 2008 and 2007                                                 |   
|               |                                                                                        |   
|               | Unaudited Condensed Consolidated Statements of Cash Flows for the
      nine months    | 5 
|               | ended January 31, 2008 and 2007                                                        |   
|               |                                                                                        |   
|               | Notes to Unaudited Condensed Consolidated Financial
      Statements                   | 6 
|               |                                                                                        |   
|Item
      2.  | Managements Discussion and Analysis of Financial Condition and
      Results of       | 18
|               | Operations                                                                             |   
|               |                                                                                        |   
|Item
      3.  | Quantitative and Qualitative Disclosures about Market
      Risk                       | 25
|               |                                                                                        |   
|Item
      4.  | Controls and Procedures                                                                | 26
|               |                                                                                        |   
|PART
      II. | OTHER INFORMATION                                                                      | 27
|               |                                                                                        |   
|Item
      1.  | Legal Proceedings                                                                      | 27
|               |                                                                                        |   
|Item
      6.  | Exhibits                                                                               | 28
|              
|              
|SIGNATURE      |                                                                                        | 29
|               |                                                                                        |   
|CERTIFICATIONS |                                                                                        | 30

2

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PART I. FINANCIAL
INFORMATION

Item 1. Financial
Statements

UNIFY CORPORATION AND SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEETS(In thousands)

|                                                 | January 31, |         | April 30,
|------------------------------------------------ | ----------- | ------- | ---------
|                                                 | 2008        |         | 2007     
|ASSETS                                           |             |         |          
|Current
      assets:                            |             |         |          
|Cash and cash equivalents                        | $           | 1,722   |          
|Accounts receivable, net                         |             | 6,044   |          
|Prepaid expenses and other current
      assets  |             | 695     |          
|Total current assets                             |             | 8,461   |          
|                                                
|Property and equipment, net                      |             | 174     |          
|Investments                                      |             | 39      |          
|Goodwill                                         |             | 5,637   |          
|Intangibles,
      net                           |             | 2,359   |          
|Other assets, net                                |             | 255     |          
|Total assets                                     | $           | 16,925  |          
|                                                
|LIABILITIES AND STOCKHOLDERS' EQUITY             |             |         |          
|Current
      liabilities:                       |             |         |          
|Accounts payable                                 | $           | 194     |          
|Current portion of long term debt                |             | 1,211   |          
|Accrued compensation and related
      expenses  |             | 1,305   |          
|Accrued acquisition costs                        |             | 215     |          
|Other accrued liabilities                        |             | 794     |          
|Deferred revenue                                 |             | 5,889   |          
|Total current liabilities                        |             | 9,608   |          
|                                                
|Long term debt, net                              |             | 2,998   |          
|Other long term
      liabilities                |             | 116     |          
|                                                
|Commitments and contingencies                    |             |        |          
|                                                
|Stockholders equity:                            |             |         |          
|Common stock                                     |             | 7       |          
|Additional paid-in capital                       |             | 67,115  |          
|Accumulated other comprehensive
      income     |             | 82      |          
|Accumulated deficit                              |             | (63,001 | )        
|Total stockholders equity                       |             | 4,203   |          
|Total liabilities and stockholders
      equity | $           | 16,925  |          

See accompanying notes to condensed
consolidated financial statements.

3

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UNIFY CORPORATION AND
SUBSIDIARIESUNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share
data)

|                                                      |  | Three Months Ended |       | Nine Months Ended
|----------------------------------------------------- |  | ------------------ | ----- | -----------------
|                                                      |  | January 31,        |       | January 31,      
|                                                      |  | 2008               |       | 2007             
|Revenues:                                             |  |                    |       |                  
|Software licenses                                     |  | $                  | 2,973 |                  
|Services                                              |  |                    | 2,869 |                  
|Total
      revenues                                  |  |                    | 5,842 |                  
|                                                     
|Cost of Revenues:                                     |  |                    |       |                  
|Software licenses                                     |  |                    | 36    |                  
|Services                                              |  |                    | 407   |                  
|Total cost
      of revenues                          |  |                    | 443   |                  
|Gross profit                                          |  |                    | 5,399 |                  
|                                                     
|Operating Expenses:                                   |  |                    |       |                  
|Product development                                   |  |                    | 929   |                  
|Selling, general and administrative                   |  |                    | 3,160 |                  
|Total
      operating expenses                        |  |                    | 4,089 |                  
|Income (loss) from operations                         |  |                    | 1,310 |                  
|Other income
      (expense), net                     |  |                    | (189  | )                
|Income (loss) from continuing operations
      before |  |                    |       |                  
|income taxes                                          |  |                    | 1,121 |                  
|Provision for
      income taxes                      |  |                    | 41    |                  
|Income (loss) from continuing
      operations        |  |                    | 1,080 |                  
|Loss from discontinued operations                     |  |                    |      |                  
|Net income (loss)                                     |  | $                  | 1,080 |                  
|                                                     
|Net income (loss) per share:                          |  |                    |       |                  
|Basic earnings per share:                             |  |                    |       |                  
|Continuing
      operations                           |  | $                  | 0.16  |                  
|Discontinued
      operations                         |  |                    |      |                  
|Net income
      (loss)                               |  | $                  | 0.16  |                  
|                                                     
|Dilutive earnings per share:                          |  |                    |       |                  
|Continuing
      operations                           |  | $                  | 0.14  |                  
|Discontinued
      operations                         |  |                    |      |                  
|Net income
      (loss)                               |  | $                  | 0.14  |                  
|                                                     
|                                                     
|Shares used in computing net income (loss) per share: |  |                    |       |                  
|Basic                                                 |  |                    | 6,626 |                  
|Dilutive                                              |  |                    | 7,581 |                  

See accompanying notes to condensed
consolidated financial statements.

4

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UNIFY CORPORATION AND
SUBSIDIARIESUNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)

|                                                                                                                |  | Nine Months Ended January
      31,
|--------------------------------------------------------------------------------------------------------------- |  | -----------------------------------
|                                                                                                                |  | 2008                               
|Cash flows from operating activities:                                                                           |  |                                    
|Net income (loss)                                                                                               |  | $                                  
|Loss from discontinued
      operations                                                                         |  |                                    
|Income (loss) from continuing operations                                                                        |  |                                    
|Reconciliation of net
      income (loss) to net cash provided (used) by continuing operating
      activities: |  |                                    
|Gain on sale of other investments                                                                               |  |                                    
|Depreciation                                                                                                    |  |                                    
|Amortization of intangible assets                                                                               |  |                                    
|Fulfillment of support obligations                                                                              |  |                                    
|Amortization of discount on notes payable                                                                       |  |                                    
|Stock based compensation expense                                                                                |  |                                    
|Changes in operating assets and liabilities:                                                                    |  |                                    
|Accounts receivable                                                                                             |  |                                    
|Prepaid expenses and other current
      assets                                                                 |  |                                    
|Other long term assets                                                                                          |  |                                    
|Accounts payable                                                                                                |  |                                    
|Accrued compensation and related
      expenses                                                                 |  |                                    
|Other accrued liabilities                                                                                       |  |                                    
|Accrued acquisition costs                                                                                       |  |                                    
|Deferred revenue                                                                                                |  |                                    
|Other long term liabilities                                                                                     |  |                                    
|Net cash
      provided by (used in) continuing operating activities                                            |  |                                    
|Cash flows from investing activities:                                                                           |  |                                    
|Acquisition, net of cash acquired                                                                               |  |                                    
|Purchases of property and
      equipment                                                                       |  |                                    
|Payments on acquisition obligations                                                                             |  |                                    
|Proceeds from sale of
      other investments                                                                   |  |                                    
|Net cash used in
      investing activities of continuing operations                                            |  |                                    
|Cash flows from financing activities:                                                                           |  |                                    
|Proceeds from issuance of common stock                                                                          |  |                                    
|Short-term
      borrowings                                                                                     |  |                                    
|Borrowings under revolver                                                                                       |  |                                    
|Borrowings under debt
      obligations                                                                         |  |                                    
|Payments on revolver                                                                                            |  |                                    
|Principal payments under
      debt obligations                                                                 |  |                                    
|Net cash
      provided by (used in) financing activities from continuing
      operations                      |  |                                    
|Effect of exchange rate changes on cash                                                                         |  |                                    
|Cash flows of
      discontinued operations:                                                                    |  |                                    
|Net cash used in
      operating activities                                                                     |  |                                    
|Net cash used in
      discontinued operations                                                                  |  |                                    
|Net increase (decrease) in cash and cash equivalents                                                            |  |                                    
|Cash and cash
      equivalents, beginning of period                                                            |  |                                    
|Cash and cash equivalents, end of period                                                                        |  | $                                  
|Supplemental
      noncash investing and financing activities:                                                  |  |                                    
|Conversion of convertible debt to
      equity                                                                  |  | $                                  
|Conversion of acquisition accrued liabilities to
      equity                                                   |  | $                                  
|Acceleration of discount
      on notes payable                                                                 |  | $                                  
|Supplemental
      cash flow information for continuing operations:                                             |  |                                    
|Cash paid during the
      period for:                                                                          |  |                                    
|Interest                                                                                                        |  | $                                  
|Taxes                                                                                                           |  | $                                  

See accompanying notes to condensed
consolidated financial statements.

5

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UNIFY CORPORATION AND SUBSIDIARIESNOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTSJanuary 31, 2008

1. Basis of
Presentation

The condensed consolidated financial
statements have been prepared by Unify Corporation (the Company, we, us,
our) pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). While the interim financial information contained in this
filing is unaudited, such financial statements, in the opinion of management,
reflect all adjustments (consisting only of normal recurring adjustments) which
the Company considers necessary for a fair presentation. The results for interim
periods are not necessarily indicative of the results to be expected for the
entire fiscal year. These financial statements should be read in conjunction
with the Consolidated Financial Statements and Notes thereto, together with
Managements Discussion and Analysis of Financial Condition and Results of
Operations, which are included in the Companys Annual Report on Form 10-K/A for
the fiscal year ended April 30, 2007, as filed with the SEC.

Revenue Recognition  Continuing
Operations

The Company generates revenue from
software license sales and related services, including maintenance and support,
and consulting services. The Company licenses its products to end-user
customers, independent software vendors (ISVs), international distributors and
value-added resellers (VARs). The Companys products are generally sold with a
perpetual license. The Companys contracts with ISVs, VARs and international
distributors do not include special considerations such as price protection,
special acceptance or warranty provisions. The Company recognizes revenue for
software license sales in accordance with Statement of Position (SOP)
97-2,Software Revenue
Recognition. For software license
arrangements that do not require significant modification or customization of
the underlying software, revenue is recognized when the software product or
service has been shipped or electronically delivered, the license fees are fixed
and determinable, uncertainties regarding customer acceptance are resolved,
collectibility is probable and persuasive evidence of an arrangement exists.

The Company considers a signed
noncancelable license agreement, a customer purchase order, a customer purchase
requisition, or a sales quotation signed by and authorized purchaser of the
customer to be persuasive evidence that an arrangement exists such that revenue
can be recognized.

The Companys customer contracts may
contain multi-element arrangements that include a delivered element (a software
license) and undelivered elements (such as maintenance and support and/or
consulting). The value allocated to the undelivered elements is unbundled from
the delivered element based on vendor-specific objective evidence (VSOE) of the
fair value of the maintenance and support and/or consulting, regardless of any
separate prices stated within the contract. VSOE of fair value is defined as:
(i) the price charged when the same element is sold separately, or (ii) if the
element has not yet been sold separately, the price for the element established
by management having the relevant authority when it is probable that the price
will not change before the introduction of the element into the marketplace. The
Company then allocates the remaining balance to the delivered element (a
software license) regardless of any separate prices stated within the contract
using the residual method as the fair value of all undelivered elements is
determinable.

We defer revenue for any undelivered
elements, and recognize revenue for delivered elements only when the fair values
of undelivered elements are known, uncertainties regarding customer acceptance
are resolved, and there are no customer-negotiated refund or return rights
affecting the revenue recognized for delivered elements. If we cannot
objectively determine the fair value of any undelivered element included in
bundled software and service arrangements, we defer revenue until all elements
are delivered and services have been performed, or until fair value can
objectively be determined for any remaining undelivered elements.

An assessment of the ability of the
Companys customers to pay is another consideration that affects revenue
recognition. In some cases, the Company sells to undercapitalized customers. In
those circumstances, revenue recognition is deferred until cash is received, the
customer has established a history of making timely payments or the customers
financial condition has improved. Furthermore, once revenue has been recognized,
the Company evaluates the related accounts receivable balance at each period end
for amounts that we believe may no longer be collectible. This evaluation is
largely done based on a review of the financial condition via credit agencies
and historical experience with the customer. Any deterioration in credit
worthiness of a customer may impact the Companys evaluation of accounts
receivable in any given period.

6

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Revenue from support and maintenance
activities, which consist of fees for ongoing support and unspecified product
updates, are recognized ratably over the term of the maintenance contract,
typically one year, and the associated costs are expensed as incurred.
Consulting service arrangements are performed on a best efforts basis and are
generally billed under time-and-materials arrangements. Revenues and expenses
relating to providing consulting services are recognized as the services are
performed.

Revenue Recognition  Discontinued
Operations

For the discontinued product, NavRisk, the
Company recognized revenue for software licenses sales in accordance with
Statement of Position 81-1,Accounting for
Performance of Construction-Type and Certain Production-Type
Contractsand Accounting Research Bulletin
(ARB) 45,Long-Term Construction Type
Contracts. The majority of the software
license arrangements required significant modification or customization of the
underlying software, therefore, revenue was recognized based on contract
accounting under the provisions of Accounting Research Bulletin
45,Long-Term Construction Type
Contractsand Statement of Position
81-1,Accounting for Performance of
Construction-Type and Certain Production-Type Contractsusing the completed-contract method. The Company exercised
judgment in connection with the determination of the amount of software and
services revenue to be recognized in each accounting period. The nature of each
licensing arrangement determined how revenues and related costs were
recognized.

Recently Issued Accounting Standards

In February 2006, the FASB issued SFAS No.
155,Accounting for Certain Hybrid Financial
Instruments  An Amendment of FAS Statements No. 133 and 150. SFAS No. 155: (a) permits fair value re-measurement for any
hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation, (b) clarifies that certain instruments are not
subject to the requirements of SFAS 133, (c) establishes a requirement to
evaluate interests in securitized financial assets to identify interests that
may contain an embedded derivative requiring bifurcation, (d) clarifies what may
be an embedded derivative for certain concentrations of credit risk, and (e)
amends SFAS 140 to eliminate certain prohibitions related to derivatives on a
qualifying special-purpose entity. SFAS No. 155 became effective for the Company
in the first quarter of fiscal year 2008 and did not have a material impact on
our financial position, cash flows or results of operations.

In June 2006, the FASB issued
Interpretation (FIN) No. 48,Accounting for
Uncertainty in Income Taxes - An Interpretation of FASB Statement No.
109. This Interpretation prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return, and provides guidance on derecognition classification, interest and
penalties, accounting in interim periods, disclosure, and transition. FIN No. 48
is effective for fiscal years beginning after December 15, 2006 and was
applicable for Unify in the first quarter of fiscal year 2008. The adoption of
FIN No. 48 did not have a material impact on our financial position, cash flows
or results of operations.

In September 2006, the FASB issued
Statement No. 157,Fair Value Measurements
(SFAS 157). SFAS 157 defines fair value,
establishes a framework and gives guidance regarding the methods used for
measuring fair value, and expands disclosures about fair value measurements.
SFAS 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2008, and interim periods within those fiscal years. We are
currently assessing the impact, if any, of SFAS 157 on our consolidated
financial statements.

In February 2007, the FASB issued SFAS No.
159,The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS 159).
SFAS 159 provides companies with an option to report selected financial assets
and liabilities at fair value at specified election dates. SFAS 159 is effective
for fiscal years beginning after November 15, 2007. We are currently assessing
the impact, if any, of SFAS 159 on our consolidated financial statements.

In June 2006, the FASB reached a consensus
on EITF Issue No. 06-3,How Taxes Collected
from Customers and Remitted to Governmental Authorities Should Be Presented in
the Income Statement (That Is, Gross versus Net Presentation). EITF 06-3 indicates that the income statement presentation
on either a gross basis or a net basis of the taxes within the scope of the
issue is an accounting policy decision that should be disclosed. EITF 06-3 was
effective for interim and annual periods beginning after December 15, 2006. We
present the taxes within the scope of EITF 06-3 on a net basis.

In December 2007, the FASB issued
Statement No. 160,Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51. The standard changes the accounting for noncontrolling
(minority) interests in consolidated financial statements including the
requirements to classify noncontrolling interests as a component of consolidated
stockholders equity, and the elimination of minority interest accounting in
results of operations with earnings attributable to noncontrolling interests
reported as part of consolidated earnings. Additionally, Statement 160 revises
the accounting for both increases and decreases in a parents controlling
ownership interest. Statement 160 is effective for fiscal years beginning after
December 15, 2008, with early adoption prohibited. We are currently assessing
the impact, if any, of SFAS 160 on our consolidated financial statements.

7

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In December 2007, the FASB issued SFAS No.
141 (revised),Business
Combinations. The standard changes the
accounting for business combinations including the measurement of acquirer
shares issued in consideration for a business combination, the recognition of
contingent consideration, the accounting for pre-acquisition gain and loss
contingencies, the recognition of capitalized in-process research and
development, the accounting for acquisition-related restructuring cost accruals,
the treatment of acquisition related transaction costs and the recognition of
changes in the acquirers income tax valuation allowance. Statement 141(R) is
effective for fiscal years beginning after December 15, 2008, with early
adoption prohibited. We are currently assessing the impact, if any, of SFAS
141(R) on our consolidated financial statements.

In December 2007, the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 110 ("SAB 110") to
permit entities, under certain circumstances to continue to use the "simplified"
method, in developing estimates of expected term of "plain-vanilla" share
options in accordance with Statement No. 123R Share-Based Payment. SAB 110
amended SAB 107 to permit the use of the "simplified" method beyond December 31,
2007. We believe that the adoption of SAB 110 will not have a material impact on
our consolidated financial statements.

2. Acquisitions and Discontinued
Operations

Purchase and Exchange Agreement with
Halo Technology Holdings and Discontinued Operations

On September 13, 2006, the Company entered
into a Purchase and Exchange Agreement with Halo Technology Holdings, Inc.
whereby Unify agreed to purchase all of the outstanding stock of Gupta
Technologies LLC (Gupta) from Halo in exchange for: (i) the Companys
Insurance Risk Management (IRM) division, (ii) the Companys ViaMode software,
(iii) $6,100,000 in cash, and (iv) the amount, if any, by which Guptas net
working capital exceeds IRMs net working capital at the close of the
transaction. The Companys acquisition of Gupta was consummated on November 20,
2006. The total purchase price for Gupta was $7.7 million. Gupta was founded in
1984 and is a leading producer of secure, small-footprint, embeddable databases
and enterprise application development tools. The acquisition resulted in
additional revenue and market share in the Companys core markets and
significantly enhances the distribution channels through which the Companys
products can be sold. Guptas headquarters was in Redwood Shores, California
with offices in Germany and the UK and has distributors and partners in more
than 40 countries around the world. Guptas results of operations are included
in the Companys results from the date of acquisition.

On November 20, 2006, the Company entered
into various agreements with ComVest Capital LLC (ComVest) whereby ComVest,
along with participation from Special Situations Funds, provided debt financing
for the Gupta acquisition. The debt financing consisted of $5.35 million in
convertible term notes and a revolver of up to $2.5 million. There are three
tranches that comprise the convertible term notes: Tranche 1 is for $1,000,000,
Tranche 2 is for $3,250,000 and Tranche 3 is for $1,100,000. The term loans have
an interest rate of 11.25% and have repayment terms of 48 to 60 months. As part
of the debt financing the Company provided the lenders with 670,000 warrants to
purchase common stock. There are 200,000 warrants to purchase common stock at a
price of $1.35 per share, 270,000 warrants at a price of $1.60 per share and
200,000 warrants at a price of $1.90 per share. The warrants have an expiration
date of October 31, 2012. In November 2007, ComVest elected to exercise 120,000
warrants to purchase common stock at a price of $1.35 per share. Additionally,
the holder of the term notes may, at their option, upon written notice to Unify
given at any time and from time to time from the date Unify has sufficient
authorized, unissued and unreserved shares of common stock convert the
outstanding principal and any accrued interest into shares of Unify common
stock. Tranche 1 is convertible at $2.50 per common share and Tranches 2 and 3
are convertible at $5.00 per common share. Unify may require conversion of the
convertible term notes if its common stock price closes at or above 160% of the
applicable conversion price for 20 or more consecutive market days. In October
2007, the outstanding balance for Tranche 1 of $0.9 million was converted into
352,380 shares of common stock (See Note 6). Additionally, during the third
quarter of fiscal 2008, $1.0 million of the outstanding balance for Tranche 2
was converted into 198,670 shares of common stock (See Note 6). The agreement
provides for ComVest to have a security interest in substantially all of the
Companys assets. Unify capitalized $238,000 of debt issuance costs associated
with the debt financing and also recorded a discount on the notes payable of
approximately $743,000 that is attributed to the warrants that were issued in
conjunction with the financing. The debt issuance costs and the discount on
notes payable are being amortized using the effective interest method over the
stated life of the related notes. The amortization of both the debt issuance
costs and the discount on the notes payable was approximately $257,000 for the
nine months ended January 31, 2008 and is included in interest expense. The
unamortized amount of the discount on the notes payable was $190,000 as of
January 31, 2008 and $604,000 as of April 30, 2007 and is included in long-term
debt, net. As of January 31, 2008 and April 30, 2007 the unamortized portion of
debt issuance costs was $100,000 and $214,000, respectively, which is included
in other assets, net.

8

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The Gupta purchase price was allocated to
tangible and intangible assets acquired and liabilities assumed based on their
estimated fair values at the acquisition date, November 20, 2006. The
determination of goodwill and intangibles is based on the results of an
independent valuation experts report. The excess of the purchase price over the
fair value of net assets acquired was allocated to goodwill. The Company
believes the fair values assigned to the assets acquired and liabilities assumed
were based on reasonable assumptions. The following table summarizes the fair
values of net assets acquired and represents the opening balance sheet for Gupta
Technologies LLC as of the acquisition date, November 20, 2006 (in thousands):

|Current assets                                   | $ | 1,281 
|------------------------------------------------ | - | ------
|Property and
      equipment, net                |   | 99    
|Long term assets                                 |   | 71    
|Goodwill                                         |   | 6,161 
|Intangibles                                      |   | 2,950 
|Total assets                                     | $ | 10,562
|                                                
|Current liabilities                              | $ | 2,844 
|Long term
      liabilities                      |   | 18    
|Shareholders' equity                             |   | 7,700 
|Total liabilities and shareholders'
      equity | $ | 10,562



Active Data Corporation

On May 22, 2007, the Company purchased
privately held Active Data Corporation (ADC) for approximately $420,000 plus
potential earn-out payments over a two year period following the acquisition.
ADC provided application migration software that added Microsofts .NET
functionality to Unifys Team Developer product and provided an additional
application migration solution for the Company. Pursuant to the terms of the
purchase agreement, Unify acquired all the outstanding stock of ADC. ADC did not
represent the addition of a significant subsidiary as the investment in ADC was
less than 10% of the Companys assets, ADCs total assets at date of acquisition
were less than 10% of Unifys assets and ADCs net loss represented less than
10% of Unifys net loss. The acquisition of Active Data did not have a material
impact on the financials of Unify and the results of operations for Active Data
Corporation are included in the Companys results from the date of acquisition.
The ADC purchase price was allocated to tangible and intangible assets acquired
and liabilities assumed based on their estimated fair values. The determination
of goodwill and intangibles is based on the results of a report prepared by an
independent valuation expert. The excess of the purchase price over the fair
value of net assets acquired was allocated to goodwill. The Company believes the
fair values assigned to the assets acquired and liabilities assumed were based
on reasonable assumptions.

Discontinued Operations

In accordance with SFAS No. 144,Accounting for the Impairment or Disposal of
Long-Lived Assets,the results of the
Companys IRM division and ViaMode software product have been reported as
discontinued operations for the quarter and nine months ended January 31, 2008
and 2007 respectively. The divestitures of these businesses in November 2006
were made pursuant to the Companys strategy to refocus on its core software
development and embedded database products.

The IRM division sold and marketed the
NavRisk application. The NavRisk application is a policy administration and
underwriting software application used by underwriters, administrators and risk
managers of risk pools, risk retention groups, captives and self-insured
entities. ViaMode is a software and services solution that is used for driver
performance management within the transportation industry. Both IRM and
ViaModes historic revenues were the result of sales solely in North America.
The IRM division was previously reported as a separate segment and ViaMode was
included in the Americas segment. Operating results for the IRM division and
ViaMode software product are summarized as follows (in thousands):

|                                        |  | Three Months Ended |   | Nine Months Ended
|--------------------------------------- |  | ------------------ | - | -----------------
|                                        |  | January 31,        |   | January 31,      
|                                        |  | 2008               |   | 2007             
|Revenue                                 |  | $                  |  |                  
|Loss from
      discontinued operations |  | $                  |  |                  

9

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3. Stock Compensation
Information

Effective May 1, 2006, the Company adopted
the provisions of Statement of Financial Accounting Standards (SFAS) No.
123(R),Share-Based Payment,using the modified version of prospective application. Under
this method, compensation expense includes the estimated fair value of equity
awards vested during the reported period. Expense for equity awards vested is
determined based on the grant date fair value previously calculated for pro
forma disclosures under SFAS No. 148, Accounting for Stock-Based CompensationTransition and DisclosureAn
Amendment of FASB Statement No. 123. For the
quarter and nine months ended January 31, 2008, equity-based compensation
expense from operations was comprised of the following (in
thousands):

|                                                             |  | Three Months Ended |    | Nine Months Ended
|------------------------------------------------------------ |  | ------------------ | -- | -----------------
|                                                             |  | January 31,        |    | January 31,      
|                                                             |  | 2008               |    | 2007             
|Cost of Sales                                                |  | $                  | 1  |                  
|Product
      Development                                    |  |                    | 8  |                  
|Selling, General and Administrative                          |  |                    | 49 |                  
|Total
      Equity-Based Compensation, Continuing Operations |  | $                  | 58 |                  
|Equity-Based Compensation, Discontinued Operations           |  |                    |   |                  
|Total
      Equity-Based Compensation                        |  | $                  | 58 |                  

The following table shows remaining
unrecognized compensation expense from continuing operations on a pre-tax basis
related to all types of nonvested equity awards outstanding as of January 31,
2008. This table does not include an estimate for future grants that may be
issued (amounts in thousands).

|Fiscal Year Ending April
      30, |  | Amount
|---------------------------------- |  | ------
|Remainder of 2008                  |  | $     
|2009                               |  |       
|2010                               |  |       
|2011                               |  |       
|2012                               |  |       
|Total                              |  | $     

The cost above is expected to be
recognized over a weighted-average period of 1.34 years.

The Company continues to use the
Black-Scholes option pricing model to estimate fair value of equity awards,
which requires the input of highly subjective assumptions, including the
expected stock price volatility. The Companys calculations are made using the
Black-Scholes option pricing model, with the following weighted average
assumptions for the three months ended January 31, 2008 and 2007, respectively:
expected option life, 12 months following vesting; stock volatility of 120% and
195%; risk-free interest rates of 3.1% and 4.65% and no dividends during the
expected term. Not all stock options that have been granted will be exercised.
Accordingly, the Companys calculation of equity-based compensation expense
includes an adjustment for the estimated number of options that will be
forfeited.

Under the 2001 Stock Option Plan (the
2001 Option Plan), the Company may grant options to purchase up to 595,000
shares of common stock to eligible employees, directors, and consultants at
prices not less than the fair market value at the date of grant for incentive
stock options and not less than 85% of the fair market value at the date of
grant for non-statutory stock options. Options granted under the 2001 Stock
Option Plan generally vest over four years, are exercisable to the extent
vested, and expire 10 years from the date of grant. Under the 1991 Stock Option
Plan (the 1991 Option Plan) which expired as of March 2001, the Company was
able to grant options to eligible employees, directors and consultants at prices
not less than the fair market value at the date of grant for incentive stock
options and not less than 85% of the fair market value at the date of grant for
non-statutory stock options. Options granted under the 1991 Option Plan
generally vest over four years, are exercisable to the extent vested, and expire
10 years from the date of grant. On February 22, 2008, the Companys
stockholders approved an increase in the number of options issuable under the
2001 Option Plan to an aggregate of 1,200,000 shares of common stock.

10

---

A summary of the Companys stock option
activity for the period ended January 31, 2008 is as follows:

|                                |  |         |   |                |          |                 |                         | Weighted         |           |   |          
|------------------------------- |  | ------- | - | -------------- | -------- | --------------- | ----------------------- | ---------------- | --------- | - | ---------
|                                |  |         |   |                | Weighted |                 | average
      remaining |                  | Aggregate
|                                |  |         |   |                | average  |                 | contractual             |                  | intrinsic
|                                |  | Shares  |   | exercise price |          | term (in years) |                         | **value****(1)**
|Outstanding at April 30, 2007   |  | 453,243 |   |                | $        | 2.92            |                         | 6.46             |           | $ | 277,608  
|Granted                         |  | 374,500 |   |                | $        | 3.55            |                         |                  |           |   |          
|Exercised                       |  | (9,994  | ) |                | $        | 1.76            |                         |                  |           |   |          
|Canceled or expired             |  | (65,400 | ) |                | $        | 3.27            |                         |                  |           |   |          
|Outstanding at January 31, 2008 |  | 752,349 |   |                | $        | 3.22            |                         | 7.5              |           | $ | 2,759,309
|                               
|Exercisable at January 31, 2008 |  | 317,780 |   |                | $        | 3.23            |                         | 5.05             |           | $ | 1,327,559

|(1) | Aggregate intrinsic value is
      defined as the difference between the current market value and the
      exercise price and is estimated using the closing price of the Companys
      common stock on the last trading day of the periods ended as of the dates
      indicated.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Total intrinsic value of awards exercised
during the quarters ended January 31, 2008 and January 31, 2007 was $0 for both
periods as there were no options exercised. The total fair value of awards
vested during the quarters ended January 31, 2008 and January 31, 2007 was
$48,400 and $130,000, respectively.

A summary of the Companys nonvested stock
option activity for the period ended January 31, 2008 is as follows:

|                              |         |   |       | Weighted    
|----------------------------- | ------- | - | ----- | ------------
|                              |         |   |       | average fair
|                              | Shares  |   | value
|Nonvested at April 30, 2007   | 118,370 |   |       | $           
|Granted                       | 374,500 |   |       | $           
|Vested                        | (54,842 | ) |       | $           
|Canceled or expired           | (3,459  | ) |       | $           
|Nonvested at January 31, 2008 | 434,569 |   |       | $           

11

---

4.Goodwill and Intangible
Assets

The following tables present details of
the Companys goodwill and intangible assets as of January 31, 2008 and April
30, 2007 (in thousands).

|                 |  | Gross    |       |              |   |          |   | Net         |   |      
|---------------- |  | -------- | ----- | ------------ | - | -------- | - | ----------- | - | -----
|                 |  | carrying |       | Accumulated  |   | carrying |   | Estimated  
|January 31, 2008 |  | amount   |       | amortization |   | amount   |   | useful life
|Infinite Lives:  |  |          |       |              |   |          |   |             |   |      
|Goodwill         |  | $        | 5,637 |              | $ |         |   |             | $ | 5,637
|Finite Lives:    |  |          |       |              |   |          |   |             |   |      
|Customer-related |  |          | 1,536 |              |   | (356     | ) |             |   | 1,180
|Technology-based |  |          | 1,338 |              |   | (354     | ) |             |   | 984  
|Trademarks       |  |          | 300   |              |   | (117     | ) |             |   | 183  
|Trade
      name |  |          | 100   |              |   | (88      | ) |             |   | 12   
|Total            |  | $        | 8,911 |              | $ | (915     | ) |             | $ | 7,996

|                 |  | Gross    |       |              |   |          |   | Net         |   |      
|---------------- |  | -------- | ----- | ------------ | - | -------- | - | ----------- | - | -----
|                 |  | carrying |       | Accumulated  |   | carrying |   | Estimated  
|April 30, 2007   |  | amount   |       | amortization |   | amount   |   | useful life
|Infinite Lives:  |  |          |       |              |   |          |   |             |   |      
|Goodwill         |  | $        | 5,283 |              | $ |         |   |             | $ | 5,283
|Finite Lives:    |  |          |       |              |   |          |   |             |   |      
|Customer-related |  |          | 1,500 |              |   | (125     | ) |             |   | 1,375
|Technology-based |  |          | 1,050 |              |   | (109     | ) |             |   | 941  
|Trademarks       |  |          | 300   |              |   | (31      | ) |             |   | 269  
|Trade
      name |  |          | 100   |              |   | (42      | ) |             |   | 58   
|Total            |  | $        | 8,233 |              | $ | (307     | ) |             | $ | 7,926

Acquired finite-lived intangibles are
generally amortized on a straight line basis over their estimated useful life.
The useful life of finite-lived intangibles is the period over which the asset
is expected to contribute directly or indirectly to future cash flows of the
Company. Intangible assets amortization expense for continuing operations for
the nine months ended January 31, 2008, was $607,000. Amortization expense for
the fiscal year ended April 30, 2007, was $307,000 and was related entirely to
the acquisition of Gupta. The estimated future amortization expense related to
intangible assets as of January 31, 2008, is as follows (in thousands):

|Fiscal Year Ending April
      30, |  | Amount
|---------------------------------- |  | ------
|Remainder of 2008                  |  | $     
|2009                               |  |       
|2010                               |  |       
|2011                               |  |       
|2012                               |  |       
|Total                              |  | $     

Goodwill is included in the Companys
Americas segment as part of corporate assets. Goodwill at January 31, 2008,
represents the excess of the Gupta and Active Data Corporation purchase prices
over the sum of the amounts assigned to assets acquired less liabilities
assumed. The Company believes the acquisition of Gupta and Active Data
Corporation will produce the following results:

- Increased Market Presence and
  Opportunities:The combination of the
  Company with Gupta and Active Data Corporation should increase the combined
  companys market presence and opportunities for growth in sales and earnings.
- Enhanced Product Mix:The complementary nature of the Companys products with
  those of Gupta and Active Data Corporation should benefit current customers of
  both companies and provide the combined company with the ability to access new
  customers.
- Operating
  Efficiencies:The combination of the
  Company with Gupta and Active Data Corporation provides the opportunity for
  potential economies of scale and cost savings.

12

---

The Company believes these primary factors
support the amount of goodwill recognized as a result of the purchase price for
Gupta and Active Data Corporation. Goodwill will be tested for impairment on an
annual basis as of April 30, and between annual tests if indicators of potential
impairment exist, using a fair-value-based approach in accordance with FASB
142,Goodwill and Other Intangible
Assets. The determination of goodwill and
intangibles is based on the results of an independent valuation experts report.

Changes in the carrying amount of goodwill
for fiscal 2008 were as follows (in millions):

|Goodwill as of April 30, 2007                          | $ | 5,283 |  
|------------------------------------------------------ | - | ----- | -
|Goodwill for
      Active Date Corporation acquisition |   | 374   |  
|Adjustments to Goodwill                                |   | (20   | )
|Goodwill as of
      January 31, 2008                  | $ | 5,637 |  

5. Credit Facility

On November 20, 2006, the Company entered
into a revolving credit note agreement with ComVest Capital LLC. Under the terms
of the agreement the Company can borrow up to $2.5 million. As of January 31,
2008, $1.85 million was outstanding on the revolver. The amount that can be
borrowed under the revolver is based on the amount of eligible foreign and
domestic accounts receivable outstanding. The revolver has an expiration date of
November 30, 2010, and the Company incurs interest expense on funds borrowed at
the prevailing prime rate plus 2.25% per annum (8.25% as of January 31, 2008 and
10.5% as of April 30, 2007).

6. Long-Term Debt

The Companys debt consists of the
following at January 31, 2008 and April 30, 2007 (in thousands):

|                                                                                            | January 31, |        | April 30,
|------------------------------------------------------------------------------------------- | ----------- | ------ | ---------
|                                                                                            | 2008        |        | 2007     
|Convertible notes payable to ComVest Capital LLC, interest rate of
      11.25%, payable in |             |        |          
|installments through October 31, 2011. These notes include certain
      negative covenants |             |        |          
|and the Company is in compliance with such covenants.                                       | $           | 2,530  |          
|                                                                                           
|Revolving note payable to ComVest Capital LLC, interest rate of
      prime plus 2.25% and  |             |        |          
|a maturity date of November 30, 2010                                                        |             | 1,850  |          
|                                                                                           
|Capital leases payable, payable in monthly installments through
      June 2010             |             | 19     |          
|                                                                                            |             | 4,399  |          
|Less discount on notes payable, net                                                         |             | (190   | )        
|Less current
      portion                                                                  |             | (1,211 | )        
|Total long term debt, net                                                                   | $           | 2,998  |          

Under the terms of the convertible note
payable agreements Unify may require conversion of the convertible term notes if
its common stock price closes at or above 160% of the applicable conversion
price for 20 or more consecutive market days. In the third quarter of fiscal
2008, the Companys stock price was at a price for 20 consecutive days such that
the Company was able to require the conversion of one of the convertible notes
into common stock. In October 2007, $0.9 million of debt was converted into
352,380 shares of common stock and in the third quarter of fiscal 2008, $1.0
million of debt was converted into 198,670 shares of common stock. Additionally,
as a result of the conversion of convertible debt in to common stock, the
related discount on notes payable associated with the converted debt was
accelerated by being charged directly to additional paid-in capital. For the
three and nine months ended January 31, 2008, the amount of discount that was
accelerated as a result of the conversion of the convertible debt was
approximately $74,000 and $241,000, respectively.

Subsequent to January 31, 2008, $1.1
million of convertible notes payable with ComVest Capital LLC was converted into
226,000 shares of common stock.

7. Other Long-Term
Liabilities

In France, the Company is subject to
mandatory employee severance costs associated with a statutory government
regulated plan covering all employees. The plan provides for one month of
severance for the first five years of service with an employer and one fifth of
one year of severance for every one year of service thereafter. In order to
receive their severance payment the employee may not retire before age 65 and
must be employed at the time of retirement. The balance as of January 31, 2008,
and April 30, 2007, was $116,000 and $121,000, respectively and is reflected as
other long-term liabilities. Also included in other long term liabilities as of
April 30, 2007 is $13,000 in deferred rent.

13

---

8. Maintenance
Contracts

The Company offers maintenance contracts
to its customers at the time they enter into a product license agreement and
renew those contracts, at the customers option, annually thereafter. These
maintenance contracts are priced as a percentage of the value of the related
license agreement. The specific terms and conditions of these initial
maintenance contracts and subsequent renewals vary depending upon the product
licensed and the country in which the Company does business. Generally,
maintenance contracts provide the customer with unspecified product maintenance
updates and customer support services. Revenue from maintenance contracts is
initially deferred and then recognized ratably over the term of the agreements.

Changes in the Companys deferred
maintenance revenue from continuing operations during the periods are as follows
(in thousands):

|                                                            |  | Three Months Ended |        | Nine Months Ended
|----------------------------------------------------------- |  | ------------------ | ------ | -----------------
|                                                            |  | January 31,        |        | January 31,      
|                                                            |  | 2008               |        | 2007             
|Deferred maintenance revenue beginning balance              |  | $                  | 4,586  |                  
|Deferred
      maintenance revenue recognized during period |  |                    | (2,734 | )                
|Deferred maintenance revenue of new maintenance contracts   |  |                    | 3,675  |                  
|Deferred
      maintenance revenue ending balance           |  | $                  | 5,527  |                  

9. Income Taxes

The Company adopted the provisions of FASB
Interpretation (FIN) No. 48,Accounting for
Uncertainty in Income Taxes, on May 1, 2007.
As required by Interpretation 48, which clarifies Statement 109,Accounting for Income Taxes, the Company recognizes the financial statement benefit of a tax
position only after determining that the relevant tax authority would more
likely than not sustain the position following an audit. For tax positions
meeting the more-likely-than-not threshold, the amount recognized in the
financial statements is the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the relevant tax
authority. At the adoption date, the Company applied Interpretation 48 to all
tax positions for which the statute of limitations remained open.

The amount of unrecognized tax benefits as
of May 1, 2007, was approximately $18.6 million. Realization of unrecognized tax
benefits is dependent upon future earnings, the timing and amount of which are
uncertain. Accordingly, the unrecognized tax benefits have been fully offset by
a valuation allowance. There have been no material changes in unrecognized tax
benefits since May 1, 2007.

The Company is subject to income taxes in
the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax
regulations within each jurisdiction are subject to the interpretation of the
related tax laws and regulations and require significant judgment to apply. In
general, the Company is no longer subject to U.S. federal, state and local, or
non-U.S. income tax examinations by tax authorities for the fiscal years before
2004. The Company does not believe there will be any material changes in its
unrecognized tax positions over the next 12 months. Therefore, no reserves for
uncertain income tax positions have been recorded pursuant to FIN No. 48. The
adoption of FIN No. 48 did not have a material effect on the Companys
consolidated financial position or results of operations.

The Companys policy is to recognized
interest and penalties accrued on any unrecognized tax benefits as a component
of income tax expense. As of January 31, 2008, the Company did not have any
accrued interest or penalties associated with any unrecognized tax benefits, nor
did the Company record any interest expense in the three months ended January
31, 2008.

10. Comprehensive
Income

Comprehensive income (loss) includes net
income (loss) and net foreign currency translation adjustments. A comprehensive
gain (loss) on foreign currency translations for the three months ended January
31, 2008 and 2007 was $8,000 and ($29,000), respectively. A comprehensive gain
(loss) on foreign currency translations for the nine months ended January 31,
2008 and 2007 was $37,000 and ($25,000), respectively.

14

---

11. Reverse Stock Split

On June 24, 2007, the Company implemented
a 1 for 5 reverse stock split. The reverse stock split had been previously
approved by the Companys stockholders as part of the Companys March 29, 2007
Annual Meeting.

12. Income (Loss) Per
Share

Basic earnings per share is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding during the reporting period. Diluted earnings (loss) per share is
computed similar to basic earnings per share except that it reflects the
potential dilution that could occur if dilutive securities or other obligations
to issue common stock were exercised or converted into common stock. For the
three and nine months ended January 31, 2007, because of our reported net loss,
potentially dilutive securities were excluded from the per share computations
due to their antidilutive effect.

|                                                             |  | Three Months Ended |       | Nine Months Ended
|------------------------------------------------------------ |  | ------------------ | ----- | -----------------
|(in
      thousands, except per share amounts)               |  | January 31,        |       | January 31,      
|                                                             |  | 2008               |       | 2007             
|Income (loss) from continuing operations                     |  | $                  | 1,080 |                  
|Loss from
      discontinued operations                      |  |                    |      |                  
|Net income (loss)                                            |  | $                  | 1,080 |                  
|                                                            
|Weighted average shares of common stock outstanding, basic   |  |                    | 6,626 |                  
|Effect of
      dilutive securities (1)                      |  |                    | 955   |                  
|Weighted average shares of common stock outstanding, diluted |  |                    | 7,581 |                  
|                                                            
|Earnings (loss) per share of common stock:                   |  |                    |       |                  
|Basic:                                                       |  |                    |       |                  
|Continuing
      operations                                  |  | $                  | 0.16  |                  
|Discontinued
      operations                                |  |                    |      |                  
|Total                                                        |  | $                  | 0.16  |                  
|                                                            
|Assuming dilution:                                           |  |                    |       |                  
|Continuing
      operations                                  |  | $                  | 0.14  |                  
|Discontinued
      operations                                |  |                    |      |                  
|Total                                                        |  | $                  | 0.14  |                  

|(1) | Potentially dilutive securities are
      not included in the calculation of diluted net loss because they
      would be antidilutive were employee stock options of 12,168 and
      24,810 for the three and nine months ended January 31, 2007,
      respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15

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13. Segment Information

FASB Statement No. 131,Disclosures about Segments of an Enterprise and Related
Information, establishes standards for
reporting information about operating segments. Operating segments are defined
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker, or
decision making group, in deciding how to allocate resources and in assessing
performance. Our chief operating decision maker is our Chief Executive Officer.
We are organized geographically. While our Chief Executive Officer evaluates
results in a number of different ways, our geographic structure is the primary
basis for which the allocation of resources and financial results are assessed.
The Company maintains two segments that sell and market application development
software and related services. The segments are the Americas, which includes the
Companys international distributors, and Europe, including the UK, France,
Germany and other direct European customers. Previously, the Company also
maintained a reportable segment for its Insurance Risk Management (IRM)
division. The IRM division sold and marketed the NavRisk application. In
November 2006, the IRM division and the Companys ViaMode software product were
sold. In the tables below, the IRM division and the Companys ViaMode software
product comprise the amounts presented as discontinued operations.

Included in the European segment there is
one customer that represented $1.1 million and $1.6 million of total revenues
for the three and nine months ended January 31, 2008, respectively.

Financial information for the Companys
reportable segments is summarized below (in thousands):

|                                                               |  | Three Months Ended |       | Nine Months Ended
|-------------------------------------------------------------- |  | ------------------ | ----- | -----------------
|                                                               |  | January 31,        |       | January 31,      
|                                                               |  | 2008               |       | 2007             
|Total revenues:                                                |  |                    |       |                  
|Americas (1)                                                   |  | $                  | 2,838 |                  
|Europe (1)                                                     |  |                    | 3,004 |                  
|Total revenues from continuing
      operations                |  |                    | 5,842 |                  
|Total revenues from discontinued
      operations              |  |                    |      |                  
|Total
      revenues                                           |  | $                  | 5,842 |                  
|                                                              
|Operating income (loss):                                       |  |                    |       |                  
|Americas (2)                                                   |  | $                  | (800  | )                
|Europe                                                         |  |                    | 2,110 |                  
|Total operating income (loss) from
      continuing operations |  |                    | 1,310 |                  
|Total operating loss from discontinued
      operations        |  |                    |      |                  
|Total
      operating income (loss)                            |  | $                  | 1,310 |                  
|                                                              
|Interest income (3)                                            |  | $                  | 3     |                  
|Interest expense
      (3)                                     |  | $                  | 223   |                  

Total assets by segment were as follows
(in thousands):

|                   | January 31,
|------------------ | -----------
|                   | 2008       
|Assets:            |            
|Americas           | $          
|Europe             |            
|Total
      assets | $          

16

---

Total intersegment revenues were as
follows (in thousands):

|                                   |  | Three Months Ended |     | Nine Months Ended
|---------------------------------- |  | ------------------ | --- | -----------------
|                                   |  | January 31,        |     | January 31,      
|                                   |  | 2008               |     | 2007             
|Intersegment revenues:             |  |                    |     |                  
|Americas                           |  | $                  | 323 |                  
|Europe                             |  |                    | 508 |                  
|Total
      intercompany revenues: |  | $                  | 831 |                  

|(1) | The Company allocates revenues to operating segments
      based on the location of the country where the license is installed or
      service is delivered. The accounting policies of the segments are the same
      as those described in Note 1.                                                                                                                                                                    
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) | Americas operating income (loss) is net of corporate
      product development and general and administrative expenses.                                                                                                                                                                                                                                                                                                   
|   
|(3) | Interest income and interest expense were primarily
      attributable to corporate assets located in the Americas for the periods
      presented. Interest expense in the third quarter of fiscal 2008 consists
      primarily of interest incurred on notes payable resulting from a debt
      financing in conjunction with the acquisition of Gupta and also the
      amortization of related debt issuance costs.

17

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UNIFY CORPORATION

Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations

The discussion in this Quarterly Report
on Form 10-Q contains forward-looking statements that have been made pursuant to
the provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations, estimates and
projections about the software industry and certain assumptions made by the
Companys management. Words such as anticipates, expects, intends,
plans, believes, seeks, estimates, variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict; therefore,
actual results may differ materially from those expressed or forecasted in any
such forward-looking statements. Such risks and uncertainties include, but are
not limited to, those set forth herein under Volatility of Stock Price and
General Risk Factors Affecting Quarterly Results and in the Companys Annual
Report on Form 10-K under Business  Risk Factors. Unless required by law, the
Company undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
However, readers should carefully review the risk factors set forth in other
reports or documents the Company files from time to time with the SEC,
particularly the Companys Annual Report on Form 10-K, Quarterly Reports on Form
10-Q and any Current Reports on Form 8-K.

The following discussion should be read in
conjunction with the unaudited Condensed Consolidated Financial Statements and
Notes thereto in Part I, Item 1 of this Quarterly Report on Form 10-Q and with
the audited Consolidated Financial Statements and Notes thereto, together with
Managements Discussion and Analysis of Financial Condition and Results of
Operations, which are included in the Companys Annual Report on Form 10-K/A for
the fiscal year ended April 30, 2007, as filed with the SEC.

Overview

Unify (the Company, we, us or our)
is a global provider of application development and data management software,
and Service-Oriented Architecture (SOA) enablement application modernization
solutions. Our suite of migration solutions, easy to use development software
and no-maintenance-required embedded databases enable customers to enhance their
SOA environment by improving time-to-market metrics, increasing collaboration
and service-enabling legacy information. Specifically, our products include
embedded and enterprise data management systems, application development
software for legacy application modernization and rich Internet application
development, and SOA application modernization solutions.

Today, Unifys customers include corporate
information technology departments (IT), software value-added resellers
(VARs), solutions integrators (SIs) and independent software vendors
(ISVs) from a variety of industries, including insurance, financial services,
healthcare, government, manufacturing, retail, education, and more. We are
headquartered in Sacramento, California, with offices in Australia, France,
Germany, and the United Kingdom (UK). We market and sell products directly in
the United States, Europe, and Australia and indirectly through global
distributors representing more than 50 countries.

Our mission is to enable customers to
modernize mission critical applications while maximizing legacy investments in
SOA. Our software and solutions give customers a rich user experience, quality
information and a high degree of customer satisfaction.

Our strategy is to work with IT
organizations to Enable SOA. Our software and solutions help businesses
modernize and service-enable mission critical legacy applications in support of
enterprise-wide SOA initiatives. Based on market requirements for SOA-based
application modernization, our strategy aims to help companies increase speed
and agility, consolidate information from multiple sources, improve asset reuse,
lower IT costs, reduce business risks and exposures, and free information
previously locked within proprietary systems.

The Company sells and markets application
development and database software and services and modernization solutions
through two segments. The segments are the Americas, which includes the
Companys international distributors, and Europe, which includes the UK, France,
Germany and other direct European customers.

Our technology products include Composer
for Lotus Notes, NXJ Developer and NXJ Enterprise, Team Developer, ACCELL,
VISION, DataServer, SQLBase and SQL Base Treasury, and Sabertooth. Our customers
are corporate end-user IT departments, ISVs and worldwide partners and
distributors. The Company is committed to providing exceptional technology to
this customer base and to continue to meet their current and future technology
needs. Services to our extensive customer base include sales and marketing,
support, and professional services.

18

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Critical Accounting
Policies

The following discussion and analysis of
the Companys financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. 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 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 values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The areas that require
significant judgment are as follows.

Revenue Recognition  Continuing
Operations

The Company generates revenue from
software license sales and related services, including maintenance and support,
and consulting services. The Company licenses its products to end-user
customers, independent software vendors (ISVs), international distributors and
value-added resellers (VARs). The Companys products are generally sold with a
perpetual license. The Companys contracts with ISVs, VARs and international
distributors do not include special considerations such as price protection,
special acceptance or warranty provisions. The Company recognizes revenue for
software license sales in accordance with Statement of Position (SOP)
97-2,Software Revenue
Recognition. For software license
arrangements that do not require significant modification or customization of
the underlying software, revenue is recognized when the software product or
service has been shipped or electronically delivered, the license fees are fixed
and determinable, uncertainties regarding customer acceptance are resolved,
collectibility is probable and persuasive evidence of an arrangement exists.

The Company considers a signed
noncancelable license agreement, a customer purchase order, a customer purchase
requisition, or a sales quotation signed by an officer of the customer to be
persuasive evidence that an arrangement exits such that revenue can be
recognized.

The Companys customer contracts may
contain multi-element arrangements that include a delivered element (a software
license) and undelivered elements (such as maintenance and support and/or
consulting). The value allocated to the undelivered elements is unbundled from
the delivered element based on vendor-specific objective evidence (VSOE) of the
fair value of the maintenance and support and/or consulting, regardless of any
separate prices stated within the contract. VSOE of fair value is defined as:
(i) the price charged when the same element is sold separately, or (ii) if the
element has not yet been sold separately, the price for the element established
by management having the relevant authority when it is probable that the price
will not change before the introduction of the element into the marketplace. The
Company then allocates the remaining balance to the delivered element (a
software license) regardless of any separate prices stated within the contract
using the residual method as the fair value of all undelivered elements is
determinable.

We defer revenue for any undelivered
elements, and recognize revenue for delivered elements only when the fair values
of undelivered elements are known, uncertainties regarding customer acceptance
are resolved, and there are no customer-negotiated refund or return rights
affecting the revenue recognized for delivered elements. If we cannot
objectively determine the fair value of any undelivered element included in
bundled software and service arrangements, we defer revenue until all elements
are delivered and services have been performed, or until fair value can
objectively be determined for any remaining undelivered elements.

An assessment of the ability of the
Companys customers to pay is another consideration that affects revenue
recognition. In some cases, the Company sells to undercapitalized customers. In
those circumstances, revenue recognition is deferred until cash is received, the
customer has established a history of making timely payments or the customers
financial condition has improved. Furthermore, once revenue has been recognized,
the Company evaluates the related accounts receivable balance at each period end
for amounts that we believe may no longer be collectible. This evaluation is
largely done based on a review of the financial condition via credit agencies
and historical experience with the customer. Any deterioration in credit
worthiness of a customer may impact the Companys evaluation of accounts
receivable in any given period.

Revenue from support and maintenance
activities, which consist of fees for ongoing support and unspecified product
updates, are recognized ratably over the term of the maintenance contract,
typically one year, and the associated costs are expensed as incurred.
Consulting service arrangements are performed on a best efforts basis and are
generally billed under time-and-materials arrangements. Revenues and expenses
relating to providing consulting services are recognized as the services are
performed.

19

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Revenue Recognition  Discontinued
Operations

For the discontinued product, NavRisk, the
Company recognized revenue for software licenses sales in accordance with
Statement of Position 81-1,Accounting for
Performance of Construction-Type and Certain Production-Type
Contractsand Accounting Research Bulletin
(ARB) 45,Long-Term Construction Type
Contracts. The majority of the software
license arrangements required significant modification or customization of the
underlying software, therefore, revenue was recognized based on contract
accounting under the provisions of Accounting Research Bulletin
45,Long-Term Construction Type
Contractsand Statement of Position
81-1,Accounting for Performance of
Construction-Type and Certain Production-Type Contractsusing the completed-contract method. The Company exercised
judgment in connection with the determination of the amount of software and
services revenue to be recognized in each accounting period. The nature of each
licensing arrangement determined how revenues and related costs were
recognized.

Valuation of Long-Lived Assets

Our long-lived assets are comprised of
long-term investments. At January 31, 2008, we had $39,000 in long-term
investments, which are accounted for under the cost method. In September 2007,
the Company sold all of its stock in Arango Software International (ASI) as
part of a stock repurchase plan offered by ASI. At the time of the sale, the
Company had a carrying value of $175,000 for the ASI stock. Proceeds from the
sale of the ASI stock were $264,000. The gain on the sale of the ASI stock is
included in other income. We assess the valuation of long-lived assets whenever
circumstances indicate that there is a decline in carrying value below cost that
is other-than-temporary. Several factors can trigger an impairment review such
as significant underperformance relative to expected historical or projected
future operating results and significant negative industry or economic trends.
In assessing potential impairment for such investments, we consider these
factors as well as the forecasted financial performance. When such decline in
value is deemed to be other-than-temporary, we recognize an impairment loss in
the current period operating results to the extent of the decline. Future
adverse changes in market conditions or poor operating results could result in
losses or an inability to recover the carrying value of the long-term
investments that is not currently reflected in the investments carrying value,
thereby, possibly requiring impairment charges in the future.

Deferred Tax Asset Valuation
Allowance

As of January 31, 2008, we had
approximately $18.6 million of deferred tax assets related principally to net
operating loss carryforwards, reserves and other accruals, deferred revenue, and
foreign tax credits. The Companys ability to utilize net operating loss
carryforwards may be subject to certain limitations in the event of a change in
ownership. A valuation allowance has been recorded to offset these deferred tax
assets. The ability of the Company to ultimately realize its deferred tax assets
will be contingent upon the Company achieving taxable income. There can be no
assurance that this will occur in amounts sufficient to utilize the deferred tax
assets. Should we determine that we would be able to realize the deferred tax
assets in the future in excess of the recorded amount, an adjustment to the
deferred tax asset would increase income in the period such determination was
made. At January 31, 2008, the Company had approximately $41.5 million in
federal net operating loss carryforwards that begin to expire in fiscal year
2008 through 2026, approximately $5.9 million in state net operating loss
carryforwards that expire in fiscal years 2013 to 2016, approximately $0.6
million in foreign net operating loss carryforwards that do not expire, and
approximately $4.0 million in capital loss carryforwards that expire in 2010.
The Companys ability to utilize these net operating loss carryforwards may be
subject to certain limitations in the event of a change in ownership.

20

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Results of Operations

The following table sets forth, for the
periods indicated, certain financial data as a percentage of total revenue:

|                                                            |  | Three Months Ended |   | Nine Months Ended
|----------------------------------------------------------- |  | ------------------ | - | -----------------
|                                                            |  | **January 31,**    |   | **January 31,**  
|                                                            |  | 2008               |   | 2007             
|Revenues:                                                   |  |                    |   |                  
|Software licenses                                           |  | 50.9%              |   |                  
|Services                                                    |  | 49.1%              |   |                  
|Total
      revenues                                        |  | 100.0%             |   |                  
|                                                           
|Cost of Revenues:                                           |  |                    |   |                  
|Software licenses                                           |  | 0.6%               |   |                  
|Services                                                    |  | 7.0%               |   |                  
|Total cost
      of revenues                                |  | 7.6%               |   |                  
|                                                           
|Gross profit                                                |  | 92.4%              |   |                  
|                                                           
|Operating Expenses:                                         |  |                    |   |                  
|Product development                                         |  | 15.9%              |   |                  
|Selling, general and administrative                         |  | 54.1%              |   |                  
|Total operating expenses                                    |  | 70.0%              |   |                  
|Income (loss) from operations                               |  | 22.4%              |   |                  
|Other income
      (expense), net                           |  | (3.2%              | ) |                  
|Income (loss) from continuing operations
      before taxes |  | 19.2%              |   |                  
|Provision for
      income taxes                            |  | (0.7%              | ) |                  
|Income (loss) from continuing
      operations              |  | 18.5%              |   |                  
|Loss from discontinued operations, net of
      taxes       |  | 0.0%               |   |                  
|Net income (loss )                                          |  | 18.5%              |   |                  

Total Revenues

The Company generates revenue from
software license sales and related services, including maintenance and support,
and consulting services. We license our software through our direct sales force
in the United States and Europe, and through indirect channels comprised of
distributors, ISVs, VARs, and other partners worldwide. International revenues
accounted for 78% and 70% of total revenues in the nine months ended January 31
of fiscal year 2008 and 2007, respectively. For the third quarters of fiscal 2008
and 2007, international revenues accounted for 81% and 72% of total revenues,
respectively.

Total revenues in the third quarter of
fiscal 2008 were $5.8 million, an increase of $2.5 million over the third
quarter of fiscal 2007. This represents an increase of 76% over the third
quarter of fiscal 2007 revenues of $3.3 million. Total software license revenues
in the third quarter of fiscal 2008 were $3.0 million, an increase of $1.4
million over the third quarter of fiscal 2007. This represents an increase of
93% over the third quarter of fiscal 2007 revenues of $1.5 million. The increase
in software license revenues in the third quarter of fiscal 2008 was primarily
the result of the acquisition of Gupta in November 2006 and the closure of
several high dollar value orders. In particular, we closed $1.1 million in
Russian orders. The increase in total revenue was primarily due to the
acquisition of Gupta in November 2006 which resulted in both an increase in
maintenance service revenues and an increase in software license revenue. Total
services revenues in the third quarter of fiscal 2008 were $2.9 million, an
increase of $1.1 million. This represents an increase of 62% over the third
quarter of fiscal 2007 revenues of $1.8 million. Total revenues for the nine
months ended January 31, 2008 were $14.8 million, an increase of $7.5 million.
This represents an increase of 104% over the nine month period of fiscal 2007
revenues of $7.2 million. Total software license revenues for the nine months
ended January 31, 2008 were $6.4 million, an increase of $3.7 million. This
represents an increase of 135% increase over the nine month period of fiscal
2007 revenues of $2.7 million. Total services revenues for the nine months ended
January 31, 2008 were $8.4 million, an increase of $3.9 million. This represents
an increase of 85% over the nine month period of fiscal 2007 revenues of $4.5
million.

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Cost of Revenues

Cost of Software Licenses.Cost of software licenses consists primarily
of expenses associated with royalty payments and the amortization of purchased
technology from third parties that is amortized ratably over the technologys
expected useful life. Cost of software licenses was $36,000 and $217,000 for the
third quarter of fiscal 2008 and fiscal 2007, respectively. For the nine months
ended January 31, 2008 and 2007, cost of software licenses was $129,000 and
$286,000, respectively.

Cost of Services.Cost of services consists primarily of employee, facilities
and travel costs incurred in providing customer support under software
maintenance contracts and consulting and implementation services. Cost
of services was $407,000 and $224,000 for the third quarter of fiscal 2008
and fiscal 2007, respectively. Our cost of services as a percent of services
revenues was 14% and 13% in the third quarter of fiscal 2008 and fiscal 2007,
respectively. For the nine months ended January 31, 2008 and 2007, cost of
services was $0.9 million and $0.8 million, respectively.

Operating Expenses

Product Development.Product development expenses consist primarily of employee and
facilities costs incurred in the development and testing of new products and in
the porting of new and existing products to additional hardware platforms and
operating systems. Product development costs in the third quarter of fiscal 2008
were $0.9 million compared to $0.8 million in the same period of fiscal 2007.
For the nine months ended January 31, 2008 and 2007, product development costs
were $2.6 million and $1.6 million, respectively. The increase in product
development costs was due to the addition of product development resources
resulting from the acquisitions of Gupta and Active Data Corporation, plus
additional outsourced development costs in the first and second quarters
associated with efforts to develop a new release of Guptas Team Developer
product.

Selling, General and Administrative.Selling, general and administrative
(SG&A) expenses consist primarily of salaries and benefits, marketing
programs, travel expenses, professional services, facilities expenses and bad
debt expense. SG&A expenses were $3.2 million in the third quarter of fiscal
2008 and $2.6 million for the third quarter of fiscal 2007. The increase in
SG&A costs in fiscal 2008 is the result of adding Gupta staff in the areas
of sales, marketing and administrative services. In the third quarter of fiscal
2008 and fiscal 2007 our SG&A expenses as a percent of total revenues was
54% and 78%, respectively. The major components of SG&A for the third
quarter of fiscal 2008 were sales expenses of $1.5 million, marketing expenses
of $0.4 million and general and administrative expenses of $1.3 million. For the
third quarter of fiscal 2007, the major components of SG&A were sales
expenses of $1.4 million, marketing expenses of $0.2 million and general and
administrative expenses of $1.0 million. SG&A expenses were $8.7 million and
$5.2 million for the nine months ended January 31, 2008 and 2007, respectively.
In the nine months ended January 31, 2008 and 2007, our SG&A expenses as a
percent of total revenues was 59% and 72%, respectively. The major components of
SG&A for the nine month period ended January 31, 2008 were sales expenses of
$4.2 million, marketing expenses of $1.0 million and general and administrative
expenses of $3.5 million.

Other Income (Expense),
Net.Other income (expense), net consists
primarily of interest expense, foreign exchange gains and losses and interest
earned by the Company on our cash and cash equivalents. Interest expense for the
third quarter of fiscal 2008 and 2007 was $223,000 and $204,000, respectively.
Interest expense for the nine months ended January 31, 2008 and 2007 was
$799,000 and $207,000, respectively. Fiscal 2008 interest expense consists
primarily of interest incurred on notes payable resulting from a debt financing
in conjunction with the acquisition of Gupta plus the amortization of related
debt issuance costs and the amortization of the discount on notes payable. Under
the terms of the convertible note payable agreements, Unify may require
conversion of the convertible term notes if its common stock price closes at or
above 160% of the applicable conversion price for 20 or more consecutive market
days. In the second quarter of fiscal 2008, the Companys stock price was at a
price for 20 consecutive days such that the Company was able to require the
conversion of one of the convertible notes into common stock. In October 2007,
$0.9 million of debt was converted into 352,380 shares of common stock. In the
third quarter of fiscal 2008, $1.0 million of debt was converted into 198,670
shares of common stock voluntarily by the debt holders. As a result of the
conversion of convertible debt in to common stock, the related discount on notes
payable associated with the converted debt was accelerated by being charged
directly to additional paid-in capital. Foreign exchange rate gains for the
third quarter of fiscal 2008 were $44,000. Foreign exchange rate losses for the
third quarter of fiscal 2007 were $1,300. Foreign exchange rate gains (losses)
for the nine months ended January 31, 2008 and 2007 was $100,000 and ($1,400),
respectively. Included in other income (expense) in the nine months ended
January 31, 2008 is an expense of $116,000 for penalties associated with
commitments related a registration statement. Included in other income (expense)
for the nine months ended January 31, 2008 is $90,000 relating to the sale of
the Companys Arango Software International stock in September 2007.

22

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Provision for Income Taxes.For the third quarter of fiscal 2008, the
Company recorded $29,000 in federal income tax and $12,000 in state income tax.
For the nine months ended January 31, 2008, the Company recorded $39,000 in
federal income tax, $99,000 in foreign income tax and $12,000 in state income
tax. No federal or state tax provisions were recorded in the three and nine
months periods ended January 31, 2007, as the Company had net operating loss
carryforwards. The Company recorded $77,000 in foreign income taxes for the
three months ended January 31, 2007.

Discontinued Operations

In accordance with SFAS No. 144,Accounting for the Impairment or Disposal of
Long-Lived Assets,the results of the
Companys IRM division and ViaMode software product, which were sold in November
2006, have been reported as discontinued operations for the quarter and nine
months ended January 31, 2008 and 2007, respectively. The divestitures of these
businesses were made pursuant to the Companys strategy to refocus on its core
software development and embedded database products.

The IRM division sold and marketed the
NavRisk application. The NavRisk application is a policy administration and
underwriting software application used by underwriters, administrators and risk
managers of risk pools, risk retention groups, captives and self-insured
entities. ViaMode is a software and services solution that is used for driver
performance management within the transportation industry. Both IRM and
ViaModes historic revenues were the result of sales solely in North America.
The IRM division was previously reported as a separate segment and ViaMode was
included in the Americas segment. Operating results for the IRM division and
ViaMode software product are summarized as follows (in thousands):

|                                        |  | Three Months Ended |   | Nine Months Ended
|--------------------------------------- |  | ------------------ | - | -----------------
|                                        |  | January 31,        |   | January 31,      
|                                        |  | 2008               |   | 2007             
|Revenue                                 |  | $                  | - |                  
|Loss from
      discontinued operations |  | $                  | - |                  

Liquidity and Capital
Resources

At January 31, 2008, the Company had cash
and cash equivalents of $1.7 million, compared to $2.1 million at April 30,
2007. The Company had net accounts receivable of $6.0 million as of January 31,
2008 and $4.2 million as of April 30, 2007.

On November 20, 2006, the Company entered
into various agreements with ComVest whereby ComVest, along with participation
from Special Situations Funds, provided debt financing for the Gupta acquisition
and for working capital, consisting of convertible term loans totaling $5.35
million and a revolving credit facility of up to $2.5 million. The term loans
have an interest rate of 11.25% and have terms of 48 to 60 months. The revolver
has an interest rate of prime plus 2.25% and has a maturity date of November 30,
2010. In October 2007, the outstanding balance for Tranche 1 of $0.9 million was
converted into 352,380 shares of common stock. Additionally, in the third
quarter of fiscal 2008, $1.0 million of the outstanding balance of Tranche 2 was
converted into 198,670 shares of common stock. As part of the financing, ComVest
received 402,000 warrants and Special Situations Funds received 268,000
warrants. The warrants are for the purchase of common stock at prices from $1.35
to $1.90 per share. In November 2007, ComVest elected to exercise 120,000
warrants to purchase common stock at $1.35 per share. The debt financing
agreements provide for ComVest to have a security interest in substantially all
of the Companys assets.

We believe that existing cash, $1.7
million as of January 31, 2008, along with forecasted operating cash flows for
fiscal year 2008 and the ComVest credit facility will provide us with sufficient
working capital for us to meet our operating plan for fiscal year 2008. The
fiscal 2008 operating plan assumes normal operations for the Company and
required interest and principal payments on debt.

Operating Cash Flow. For the first nine months of fiscal 2008 cash provided by
continuing operations was $0.3 million. This compares to cash flows used by
continuing operations of $0.1 million for the first nine months of fiscal 2007.
Cash flows provided by operations for the first nine months of fiscal 2008
principally resulted from $1.6 million in net income from continuing operations,
an increase of $0.5 million in accrued compensation and related expenses, an
increase of $0.3 million in deferred revenue, $0.6 million in amortization of
intangible assets and $0.2 million of discount on notes payable. Offsetting
these amounts was an increase of $1.7 million in accounts receivable, a decrease
of $0.4 million in accounts payable, a decrease of $0.3 million in fulfillment
of support obligations and a decrease of $0.4 million in accrued acquisition
costs.

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For the first nine months of fiscal 2007,
the cash flows used by continuing operations of $0.1 million principally
resulted from $0.8 million in net loss from continuing operations, a decrease of
$0.5 million in accrued compensation and related expenses, a decrease of $0.5
million in accounts payable, a decrease of $1.1 million in other accrued
liabilities and an increase of $0.2 million in other long term assets.
Offsetting this was an increase of $1.9 million in deferred revenue, an increase
of $0.7 in accrued acquisition costs, $0.1 million in depreciation and $0.1
million in amortization of intangible assets.

Investing Cash Flows. Cash used in investing activities for continuing operations
was $0.3 million for the first nine months of fiscal 2008. The use of cash
consisted of $0.4 million expended related to the acquisition of Active Data
Corporation and $0.1 million for the purchase of property and equipment.
Offsetting this were proceeds from the sale of other assets of $0.3 million as a
result of the sale of stock related to our investment in Arango Software
International. Cash used in investing activities for continuing operations was
$5.8 million for the first nine months of fiscal 2007. The use of cash consisted
of $5.7 million expended related to the acquisition of Gupta Technologies LLC
and $0.1 million for the purchase of property and equipment.

Financing Cash Flows.Net cash used in financing activities for continuing
operations for the first nine months of fiscal 2008 was $0.4 million. Cash used
in financing activities was primarily the result of $1.0 million for payments on
the Companys revolver note and $0.4 million of principle payments on the debt
obligations. Offsetting this was $1.0 million of borrowings under the revolver.
In the first nine months of fiscal 2007, cash provided by financing activities
was $7.7 million and was the result of $2.3 million of borrowings under the
revolver and $5.4 million of borrowings under debt obligations.

A summary of certain contractual
obligations as January 31, 2008 is as follows (in thousands):

|                                         |  | Payments Due by
      Period
|---------------------------------------- |  | ----------------------------
|                                         |  |                             
|Contractual
      Obligations            |  | Total                       
|Long-term debt                           |  | $                           
|Revolver
      note                      |  |                             
|Other long-term liabilities              |  |                             
|Capital
      leases                     |  |                             
|Operating leases                         |  |                             
|Total
      contractual cash obligations |  | $                           

In January 2008, the Company entered into
a lease agreement for office furniture. The lease is expected to commence in
April 2008 and will be recorded as a capital lease in the amount of $115,000.

Volatility of Stock Price and General
Risk Factors Affecting Quarterly Results

Unifys common stock price has been and is
likely to continue to be subject to significant volatility. A variety of factors
could cause the price of the common stock to fluctuate, perhaps substantially,
including: announcements of developments related to our business; fluctuations
in the operating results and order levels of Unify or its competitors; general
conditions in the computer industry or the worldwide economy; announcements of
technological innovations; new products or product enhancements from us or our
competitors; changes in financial estimates by securities analysts; developments
in patent, copyright or other intellectual property rights; and developments in
our relationships with our customers, distributors and suppliers; legal
proceedings brought against the Company or its officers; and significant changes
in our senior management team. In addition, in recent years the stock market in
general, and the market for shares of equity securities of many high technology
companies in particular, have experienced extreme price fluctuations which have
often been unrelated to the operating performance of those companies. Such
fluctuations may adversely affect the market price of our common stock.

Unifys stock trades over-the-counter on
the bulletin board. Companies whose shares trade over-the-counter generally
receive less analyst coverage and their shares are more thinly traded than stock
that is traded on the NASDAQ National Market System or a major stock exchange.
Our stock is therefore subject to greater price volatility than stock trading on
national market systems or major exchanges.

24

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Unifys quarterly operating results have
varied significantly in the past and we expect that they could vary
significantly in the future. Such variations could result from the following
factors: the size and timing of significant orders and their fulfillment; demand
for our products; the quantity, timing and significance of our product
enhancements and new product announcements or those of our competitors; our
ability to attract and retain key employees; seasonality; changes in our pricing
or our competitors; realignments of our organizational structure; changes in
the level of our operating expenses; incurrence of extraordinary operating
expenses, changes in our sales incentive plans; budgeting cycles of our
customers; customer order deferrals in anticipation of enhancements or new
products offered by us or our competitors; product life cycles; product defects
and other product quality problems; currency fluctuations; and general domestic
and international economic and political conditions.

Due to the foregoing factors, quarterly
revenues and operating results may vary on a quarterly basis. Revenues and
quarterly results may vary because software technology is rapidly evolving, and
our sales cycle, from initial evaluation to purchase and the providing of
maintenance services, can be lengthy and varies substantially from customer to
customer. Because we normally deliver products within a short time of receiving
an order, we typically do not have a backlog of orders. As a result, to achieve
our quarterly revenue objectives, we are dependent upon obtaining orders in any
given quarter for shipment in that quarter. Furthermore, because many customers
place orders toward the end of a fiscal quarter, we generally recognize a
substantial portion of our software license revenues at the end of a quarter.
Our expense levels largely reflect our expectations for future revenue and are
therefore somewhat fixed in the short term.

Item 3. Quantitative and Qualitative
Disclosures about Market Risk

Interest Rate Risk. The Companys exposure to market rate risk for changes in
interest rates relates primarily to its investment portfolio, which consists of
cash equivalents. Cash equivalents are highly liquid investments with original
maturities of three months or less and are stated at cost. Cash equivalents are
generally maintained in money market accounts which have as their objective
preservation of principal. The Company does not believe its exposure to interest
rate risk is material for cash and cash equivalents, which totaled $1.7 million
as of January 31, 2008. Unify had no short-term investments at January 31, 2008.

In November 2006, the Company entered into
a revolving credit facility agreement with ComVest whereby ComVest would provide
up to $2.5 million through a revolving credit facility. The revolver has an
interest rate of prime plus 2.25% and has a maturity date of November 30, 2010.
Should the prime interest rate increase during the life of the revolver, the
Company would have exposure to interest rate risk if it has a large balance
outstanding on the revolver. As of January 31, 2008, there was $1.85 million
outstanding on the revolver.

Unify does not use derivative financial
instruments in its short-term investment portfolio, and places its investments
with high quality issuers only and, by policy, limits the amount of credit
exposure to any one issuer. The Company is averse to principal loss and attempts
to ensure the safety of its invested funds by limiting default, market and
reinvestment risk.

Foreign Currency Exchange Rate
Risk. As a global concern, the Company faces
exposure to adverse movements in foreign currency exchange rates. These
exposures may change over time as business practices evolve and could have an
adverse impact on the Companys business, operating results and financial
position. Historically, the Companys primary exposures have related to local
currency denominated sales and expenses in Europe, Japan and Australia. For
example, when the U.S. dollar strengthens against the major European currencies,
it results in lower revenues and expenses recorded for those regions when
translated into U.S. dollars.

Due to the substantial volatility of
currency exchange rates, among other factors, the Company cannot predict the
effect of exchange rate fluctuations on its future operating results. Although
Unify takes into account changes in exchange rates over time in its pricing
strategy, it does so only on an annual basis, resulting in substantial pricing
exposure as a result of foreign exchange volatility during the period between
annual pricing reviews. The Company also has currency exchange rate exposures on
intercompany accounts receivable and intercompany accounts payable related to
activities with the Companys subsidiaries in France, Germany and the UK. At
January 31, 2008, the Company had $2.3 million in such payables denominated in
euros and a total $2.7 million in receivables denominated in euros and pounds
sterling. The Company encourages prompt payment of intercompany balances in
order to minimize its exposure to currency fluctuations, but it engages in no
hedging activities to reduce the risk of such fluctuations. A hypothetical ten
percent change in foreign currency rates could have a significant impact on the
Companys business, operating results and financial position. The Company has
not experienced material exchange losses on intercompany balances in the past;
however, due to the substantial volatility of currency exchange rates, among
other factors, it cannot predict the effect of exchange rate fluctuations on its
future business, operating results and financial position.

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Item 4. Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our
management, including our chief executive officer and chief financial officer,
we evaluated the effectiveness of our disclosure controls and procedures, as
such term is defined under Rule 13a-15(e) promulgated under the Securities
Exchange Act of 1934, as amended. Based upon that evaluation, our chief
executive officer and chief financial officer concluded that our disclosure
controls were effective as of the end of the period covered by this quarterly
report.

(b)Changes in Internal Controls. There
have been no changes in our internal controls over financial reporting that
occurred during the first nine months of fiscal year 2008 that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.

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UNIFY CORPORATION

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Litigation

The Company is subject to legal
proceedings and claims arising in the ordinary course of business. The Company
intends to vigorously assert its rights and defend itself in any litigation that
may arise from such claims. While the ultimate outcome and resolution of these
matters could affect the results of operations in future periods, and while
there can be no assurance with respect thereto, management believes after final
disposition, any financial impact to the Company would not be material to the
Companys consolidated financial position, results of operations and cash flows.

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Item 6. Exhibits

|     | Exhibits                                                                                                                                              
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 | Certification of Chief Executive Officer under Section 302 of the
      Sarbanes-Oxley Act of 2002.                                                   
|     |                                                                                                                                                       
|31.2 | Certification of Chief Financial Officer under Section 302 of the
      Sarbanes-Oxley Act of 2002.                                                   
|     |                                                                                                                                                       
|32.1 | Certification of Chief Executive Officer under 18 U.S.C Section
      1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
|     |                                                                                                                                                       
|32.2 | Certification of Chief Financial Officer under 18 U.S.C Section
      1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.

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UNIFY
CORPORATIONSIGNATURE

Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.

|Date: March 5,
      2008 | Unify
      Corporation                           
|------------------------- | --------------------------------------------------
|                          | (Registrant)                                      
|                         
|                          | By:                                               
|                         
|                          | /s/ STEVEN D. BONHAM                              
|                          | Steven D.
      Bonham                            
|                          | Chief Financial
      Officer                     
|                          | (Principal
      Financial and Accounting Officer)

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