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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 October 31, 2007

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                        | 94-2710559                     
|------------------------------- | -------------------------------
|(State or other jurisdiction of | (I.R.S. Employer Identification
|incorporation or organization)  | Number)                        

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.

YESx      NO     o

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).

YES    
o      NO     x

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

YES     oNO     x

Indicate the number of shares outstanding
of each of the issuers classes of common stock, as of the latest practicable
date: 6,680,433 shares of common stock, $0.001 par value, as of December 10,
2007.





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UNIFY CORPORATION FORM
10-Q

INDEX

|PART I.        |  | FINANCIAL INFORMATION                                                                                                             | 3 
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------- | --
|               |  |                                                                                                                                   |   
|Item 1.        |  | Financial Statements                                                                                                              | 3 
|               |  |                                                                                                                                   |   
|               |  | Unaudited Condensed Consolidated Balance Sheets as of
      October 31, 2007 andApril 30, 2007                                    | 3 
|               |  |                                                                                                                                   |   
|               |  | Unaudited Condensed Consolidated Statements of
      Operations for the three and sixmonths ended October 31, 2007 and
      2006 | 4 
|               |  |                                                                                                                                   |   
|               |  | Unaudited Condensed Consolidated Statements of Cash
      Flows for the six monthsended October 31, 2007 and 2006                 | 5 
|               |  |                                                                                                                                   |   
|               |  | Notes to Unaudited Condensed Consolidated Financial
      Statements                                                              | 6 
|               |  |                                                                                                                                   |   
|Item 2.        |  | Managements Discussion and Analysis of Financial
      Condition and Results ofOperations                                        | 17
|               |  |                                                                                                                                   |   
|Item 3.        |  | Quantitative and Qualitative Disclosures about Market
      Risk                                                                  | 24
|               |  |                                                                                                                                   |   
|Item 4.        |  | Controls and Procedures                                                                                                           | 24
|               |  |                                                                                                                                   |   
|PART II.       |  | OTHER INFORMATION                                                                                                                 | 25
|               |  |                                                                                                                                   |   
|Item 1.        |  | Legal Proceedings                                                                                                                 | 25
|               |  |                                                                                                                                   |   
|Item 6.        |  | Exhibits                                                                                                                          | 26
|              
|SIGNATURE      |  |                                                                                                                                   | 27
|               |  |                                                                                                                                   |   
|CERTIFICATIONS |  |                                                                                                                                   | 28

2

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PART I. FINANCIAL
INFORMATION

Item 1. Financial
Statements

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

|                                                 | October 31, |         | April 30,
|------------------------------------------------ | ----------- | ------- | ---------
|                                                 | 2007        |         | 2007     
|ASSETS                                           |             |         |          
|Current
      assets:                            |             |         |          
|Cash and cash equivalents                        | $           | 1,694   |          
|Accounts receivable, net                         |             | 3,925   |          
|Prepaid expenses and other current
      assets  |             | 444     |          
|Total current assets                             |             | 6,063   |          
|                                                
|Property and equipment, net                      |             | 189     |          
|Investments                                      |             | 39      |          
|Goodwill                                         |             | 5,635   |          
|Intangibles,
      net                           |             | 2,564   |          
|Other
      assets, net                          |             | 297     |          
|Total assets                                     | $           | 14,787  |          
|                                                
|LIABILITIES AND STOCKHOLDERS'
      EQUITY       |             |         |          
|Current
      liabilities:                       |             |         |          
|Accounts payable                                 | $           | 519     |          
|Current portion of long term
      debt          |             | 1,211   |          
|Accrued compensation and related
      expenses  |             | 939     |          
|Other accrued liabilities                        |             | 766     |          
|Accrued acquisition costs                        |             | 353     |          
|Deferred revenue                                 |             | 4,611   |          
|Total current liabilities                        |             | 8,399   |          
|                                                
|Long
      term debt, net                        |             | 4,300   |          
|Other long term
      liabilities                |             | 114     |          
|                                                
|Commitments and contingencies                    |             |        |          
|                                                
|Stockholders equity:                            |             |         |          
|Common stock                                     |             | 6       |          
|Additional paid-in capital                       |             | 65,976  |          
|Accumulated other comprehensive
      income     |             | 73      |          
|Accumulated deficit                              |             | (64,081 | )        
|Total stockholders equity                       |             | 1,974   |          
|Total liabilities and stockholders
      equity | $           | 14,787  |          

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 |       | Six Months Ended
|----------------------------------------------- | ------------------ | ----- | ----------------
|                                                | October 31,        |       | October
  31,   
|                                                | 2007               |       | 2006            
|Revenues:                                       |                    |       |                 
|Software licenses                               | $                  | 1,932 |                 
|Services                                        |                    | 3,017 |                 
|Total revenues                                  |                    | 4,949 |                 
|                                               
|Cost of Revenues:                               |                    |       |                 
|Software licenses                               |                    | 46    |                 
|Services                                        |                    | 296   |                 
|Total cost of revenues                          |                    | 342   |                 
|Gross profit                                    |                    | 4,607 |                 
|                                               
|Operating Expenses:                             |                    |       |                 
|Product development                             |                    | 796   |                 
|Selling, general and administrative             |                    | 2,857 |                 
|Total
      operating expenses                  |                    | 3,653 |                 
|Income (loss) from operations                   |                    | 954   |                 
|Other income
      (expense), net               |                    | (163  | )               
|Income from continuing operations before income |                    |       |                 
|taxes                                           |                    | 791   |                 
|Provision for
      income taxes                |                    | 99    |                 
|Income from continuing operations               |                    | 692   |                 
|Loss from discontinued operations               |                    |      |                 
|Net
      income (loss)                         | $                  | 692   |                 
|                                               
|Net income (loss) per share:                    |                    |       |                 
|Basic earnings per share:                       |                    |       |                 
|Continuing operations                           | $                  | 0.11  |                 
|Discontinued operations                         |                    |      |                 
|Net income (loss)                               | $                  | 0.11  |                 
|                                               
|Dilutive earnings per share:                    |                    |       |                 
|Continuing operations                           | $                  | 0.10  |                 
|Discontinued operations                         |                    |      |                 
|Net income (loss)                               | $                  | 0.10  |                 
|                                               
|Shares used in computing net income (loss) per  |                    |       |                 
|share:                                          |                    |       |                 
|Basic                                           |                    | 6,100 |                 
|Dilutive                                        |                    | 6,627 |                 

See accompanying notes to condensed
consolidated financial statements.

4

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

|                                                                                                          | Six Months Ended October 31,
|--------------------------------------------------------------------------------------------------------- | ----------------------------
|                                                                                                          | 2007                        
|Cash flows from operating activities:                                                                     |                             
|Net income (loss)                                                                                         | $                           
|Loss from discontinued operations                                                                         |                             
|Income 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 intangibles 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                                                                    |                             
|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 investing activities                                                                     |                             
|Net cash used in financing activities                                                                     |                             
|Net cash used in discontinued operations                                                                  |                             
|                                                                                                         
|Net 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 received (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 STATEMENTSOctober 31, 2007

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 rights of return,
stock rotation, 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 authorized purchaser of the
customer to be persuasive evidence that an arrangement exists such that revenue
can be recognized.

The Companys customer contracts include
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.

6

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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.

Recently Issued Accounting
Standards

In February 2006, the Financial Accounting
Standards Board (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, 2007, and interim periods within those fiscal years. We are
currently evaluating the impact of adopting 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.

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.

7

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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. 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).
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
$358,000 for the six months ended October 31, 2007 and is included in interest
expense. The unamortized amount of the discount on the notes payable was
$323,000 as of October 31, 2007 and $604,000 as of April 30, 2007 and is
included in long-term debt, net. As of October 31, 2007 and April 30, 2007 the
unamortized portion of debt issuance costs was $137,000 and $214,000,
respectively, which is included in other assets, net.

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.

8

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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 six months ended October 31, 2007
and 2006, 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 |   | Six Months Ended
|--------------------------------------- | ------------------ | - | ----------------
|                                        | October 31,        |   | October
  31,   
|                                        | 2007               |   | 2006            
|Revenue                                 | $                  |  |                 
|Loss from
      discontinued operations | $                  |  |                 

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 six months ended October 31, 2007, equity-based compensation expense
from operations was comprised of the following (in thousands):

|                                       |  | **Three Months
      Ended** |    | **Six Months
    Ended**
|-------------------------------------- |  | ---------------------------- | -- | ------------------------
|                                       |  | October 31,                  |    | **October 31,**         
|                                       |  | **2007**                     |    | **2006**                
|Cost of Sales                          |  | $                            |   |                         
|Product
      Development              |  | $                            | 7  |                         
|Selling, General and Administrative    |  | $                            | 37 |                         
|Total
      Equity-Based Compensation, |  |                              |    |                         
|Continuing
      Operations            |  | $                            | 44 |                         
|Equity-Based Compensation,             |  |                              |    |                         
|Discontinued Operations                |  | $                            |   |                         
|Total
      Equity-Based Compensation  |  | $                            | 44 |                         

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 October 31,
2007. 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 1.2 years.

9

---

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 October 31, 2007 and 2006, respectively:
expected option life, 12 months following vesting; stock volatility of 99% and
181%; risk-free interest rates of 4.1% and 4.8% 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.

A summary of the Companys stock option
activity for the period ended October 31, 2007 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                         |  | 235,300    |   |                    | $        | 2.56                      |                       |              |           |   |          
| | Exercised                       |  | (9,994     | ) |                    | $        | 1.76                      |                       |              |           |   |          
| | Canceled or expired             |  | (64,400    | ) |                    | $        | 3.30                      |                       |              |           |   |          
| | Outstanding at October 31, 2007 |  | 614,149    |   |                    | $        | 2.76                      |                       | 7.22         |           | $ | 1,313,335
| |                                
| | Exercisable at October 31, 2007 |  | 291,178    |   |                    | $        | 3.32                      |                       | 4.96         |           | $ | 634,978  

|(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 October 31, 2007 and October 31, 2006 was $10,000 and
$0, respectively. The total fair value of awards vested during the quarters
ended October 31, 2007 and October 31, 2006 was $27,000 and $26,000,
respectively.

A summary of the Companys nonvested stock
option activity for the period ended October 31, 2007 is as follows:

| |                               |  |            |              | Weighted
| | ----------------------------- |  | ---------- | ------------ | --------
| |                               |  |            | average fair
| |                               |  | **Shares** |              | value   
| | Nonvested at April 30, 2007   |  | 118,370    |              |         
| | Granted                       |  | 235,300    |              |         
| | Vested                        |  | (27,699    | )            |         
| | Canceled or expired           |  | (3,000     | )            |         
| | Nonvested at October 31, 2007 |  | 322,971    |              |         

10

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4.Goodwill and Intangible Assets

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

|                     |  | Gross    |       |              |   | Net      |   |                
|-------------------- |  | -------- | ----- | ------------ | - | -------- | - | ---------------
|                     |  | carrying |       | Accumulated  |   | carrying |   | **Estimated**  
|October 31,
    2007 |  | amount   |       | amortization |   | amount   |   | **useful life**
|Infinite Lives:      |  |          |       |              |   |          |   |                
|Goodwill             |  | $        | 5,635 |              | $ |         |   |                
|Finite Lives:        |  |          |       |              |   |          |   |                
|Customer-related     |  |          | 1,536 |              |   | (279     | ) |                
|Technology-based     |  |          | 1,338 |              |   | (270     | ) |                
|Trademarks           |  |          | 300   |              |   | (69      | ) |                
|Trade name           |  |          | 100   |              |   | (92      | ) |                
|Total                |  | $        | 8,909 |              | $ | (710     | ) |                
|                    
|                    
|                     |  | Gross    |       |              |   | Net      |   |                
|                     |  | carrying |       | Accumulated  |   | carrying |   | **Estimated**  
|**April 30, 2007**   |  | amount   |       | amortization |   | amount   |   | **useful life**
|Infinite Lives:      |  |          |       |              |   |          |   |                
|Goodwill             |  | $        | 5,283 |              | $ |         |   |                
|Finite Lives:        |  |          |       |              |   |          |   |                
|Customer-related     |  |          | 1,500 |              |   | (125     | ) |                
|Technology-based     |  |          | 1,050 |              |   | (109     | ) |                
|Trademarks           |  |          | 300   |              |   | (31      | ) |                
|Trade name           |  |          | 100   |              |   | (42      | ) |                
|Total                |  | $        | 8,233 |              | $ | (307     | ) |                

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 six months ended October 31, 2007, was $403,000. Amortization expense for
the fiscal year ended April 30, 2007, was $121,000 and was related entirely to
the acquisition of Gupta. The estimated future amortization expense related to
intangible assets as of October 31, 2007, 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 October 31, 2007,
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.

11

---

- *Operating Efficiencies:*The
  combination of the Company with Gupta and Active Data Corporation provides the
  opportunity for potential economies of scale and cost
  savings.

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 |  |   | 372   |  
| | Adjustments to Goodwill                                |  |   | (20   | )
| | Goodwill as of
      October 31, 2007                  |  | $ | 5,635 |  

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 October 31,
2007, $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 (10% as of October 31, 2007 and
10.5% as of April 30, 2007).

6. Long-Term Debt

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

| |                                                                                                                                                                                                                                                     |  | October 31, |        | April 30,
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------ | ---------
| |                                                                                                                                                                                                                                                     |  | 2007        |        | 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. |  | $           | 3,964  |          
| |                                                                                                                                                                                                                                                    
| | 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                                                                                                                                                               |  |             | 20     |          
| |                                                                                                                                                                                                                                                     |  |             | 5,834  |          
| | Less
      discount on notes payable, net                                                                                                                                                                                                           |  |             | (323   | )        
| | Less current
      portion                                                                                                                                                                                                                          |  |             | (1,211 | )        
| | Total
      long term debt, net                                                                                                                                                                                                                     |  | $           | 4,300  |          

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. 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 fully amortized in the second quarter of
fiscal 2008. The amount of discount that was expensed as a result of the
conversion of the convertible debt was approximately $167,000.

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 October 31, 2007,
and April 30, 2007, was $114,000 and $121,000, respectively and is reflected as
other long-term liabilities.

12

---

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** |        | **Six Months
    Ended**
| | --------------------------------------------------------------- |  | ---------------------------- | ------ | ------------------------
| |                                                                 |  | **October 31,**              |        | **October 31,**         
| |                                                                 |  | **2007**                     |        | 2006                    
| | Deferred maintenance revenue beginning balance                  |  | $                            | 4,945  |                         
| | Deferred
      maintenance revenue recognized during period     |  |                              | (2,734 | )                       
| | Deferred maintenance revenue of new maintenance
      contracts |  |                              | 2,375  |                         
| | Deferred
      maintenance revenue ending balance               |  | $                            | 4,586  |                         

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 recognize
interest and penalties accrued on any unrecognized tax benefits as a component
of income tax expense. As of October 31, 2007, 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 October
31, 2007.

10. Comprehensive Income

Comprehensive income includes net loss and
foreign currency translation gains. A comprehensive gain on foreign currency
translations for the three months ended October 31, 2007 and 2006, was $10,000
and $0, respectively. A comprehensive gain on foreign currency translations for
the six months ended October 31, 2007 and 2006, was $29,000 and $4,000,
respectively.

13

---

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 six months ended October 31, 2006, because of our reported net loss,
potentially dilutive securities were excluded from the per share computations
due to their antidilutive effect.

|                                                             |  | Three Months Ended |       | Six Months Ended
|------------------------------------------------------------ |  | ------------------ | ----- | ----------------
|(in
      thousands, except per share amounts)               |  | October 31,        |       | October
  31,   
|                                                             |  | 2007               |       | 2006            
|Income from continuing operations                            |  | $                  | 692   |                 
|Loss from
      discontinued operations                      |  |                    |      |                 
|Net income (loss)                                            |  | $                  | 692   |                 
|                                                            
|Weighted average shares of common stock outstanding, basic   |  |                    | 6,100 |                 
|Effect of
      dilutive securities                          |  |                    | 527   |                 
|Weighted average shares of common stock outstanding, diluted |  |                    | 6,627 |                 
|                                                            
|Earnings (loss) per share of common stock:                   |  |                    |       |                 
|Basic:                                                       |  |                    |       |                 
|Continuing operations                                        |  | $                  | 0.11  |                 
|Discontinued operations                                      |  |                    |      |                 
|Total                                                        |  | $                  | 0.11  |                 
|                                                            
|Assuming dilution:                                           |  |                    |       |                 
|Continuing operations                                        |  | $                  | 0.10  |                 
|Discontinued operations                                      |  |                    |      |                 
|Total                                                        |  | $                  | 0.10  |                 

Potentially dilutive securities that are
not included in the diluted net loss calculation because they would be
antidilutive are employee stock options of 446,721 and 140,903 for the three
months ended October 31, 2007 and 2006, respectively and common stock warrants
of 1,157,387 as of October 31, 2007, and no warrants as of October 31,
2006.

14

---

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.

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

| |                                                                | **Three Months Ended** |        | Six Months Ended
| | -------------------------------------------------------------- | ---------------------- | ------ | ----------------
| |                                                                | **October 31,**        |        | October 31,     
| |                                                                | **2007**               |        | 2006            
| | Total revenues:                                                |                        |        |                 
| | Americas (1)                                                   | $                      | 2,026  |                 
| | Europe (1)                                                     |                        | 2,923  |                 
| | Total revenues from continuing operations                      |                        | 4,949  |                 
| | Total revenues from discontinued operations                    |                        |       |                 
| | Total revenues                                                 | $                      | 4,949  |                 
| |                                                               
| | Operating Income (loss):                                       |                        |        |                 
| | Americas (2)                                                   | $                      | (1,052 | )               
| | Europe                                                         |                        | 2,006  |                 
| | Total operating income (loss) from continuing
      operations |                        | 954    |                 
| | Total operating loss from discontinued operations              |                        |       |                 
| | Total operating income (loss)                                  | $                      | 954    |                 
| |                                                               
| | Interest income (3)                                            | $                      | 4      |                 
| | Interest expense
      (3)                                     | $                      | 297    |                 

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

| |                                       | October
  31,
| | ------------------------------------- | -------------
| |                                       | 2007         
| | Assets:                               |              
| | Americas                              | $            
| | Europe                                |              
| | Total assets of continuing operations |              
| | Assets held for sale                  |              
| | Total assets                          | $            

15

---

Total intersegment revenues were as
follows (in thousands):

| |                              | Three Months Ended |     | Six Months Ended
| | ---------------------------- | ------------------ | --- | ----------------
| |                              | October 31,        |     | October
  31,   
| |                              | 2007               |     | 2006            
| | Intersegment revenues:       |                    |     |                 
| | Americas                     | $                  | 379 |                 
| | Europe                       |                    | 603 |                 
| | Total intercompany revenues: | $                  | 982 |                 

|(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 second
      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.
|   

16

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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,
NXJ, Team Developer, ACCELL, VISION, DataServer, and SQLBase. Our customers are
corporate end-user IT departments, ISVs and our worldwide 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.

17

---

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 rights of return,
stock rotation, 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 exists such that revenue can be
recognized.

The Companys customer contracts include
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.

18

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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
Contracts and 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
Contracts and Statement of Position
81-1,Accounting for Performance of
Construction-Type and Certain Production-Type Contracts using 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 October 31, 2007, 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 October 31, 2007, 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 October 31, 2007, the Company had approximately $41.5 million in
federal net operating loss carryforwards that begin to expire in fiscal year
2008 through 2026, approximately $6.2 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 $3.5 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.

19

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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** |   |   | **Six
      Months Ended** |      
| | ---------------------------------------------------- | ---------------------------- | - | - | -------------------------- | -----
| |                                                      | October 31,                  |   |   | October 31,                |      
| |                                                      | **2007**                     |   |   | **2006**                   |      
| | Revenues:                                            |                              |   |   |                            |      
| | Software licenses                                    | 39.0                         |   | % |                            | 35.8 
| | Services                                             | 61.0                         |   | % |                            | 64.2 
| | Total revenues                                       | 100.0                        |   | % |                            | 100.0
| |                                                     
| | Cost of Revenues:                                    |                              |   |   |                            |      
| | Software licenses                                    | 1.0                          |   | % |                            | 1.4  
| | Services                                             | 6.0                          |   | % |                            | 11.7 
| | Total cost of revenues                               | 7.0                          |   | % |                            | 13.1 
| |                                                     
| | Gross profit                                         | 93.0                         |   | % |                            | 86.9 
| |                                                     
| | Operating Expenses:                                  |                              |   |   |                            |      
| | Product development                                  | 16.1                         |   | % |                            | 17.9 
| | Selling, general and administrative                  | 57.7                         |   | % |                            | 59.7 
| | Total operating expenses                             | 73.8                         |   | % |                            | 77.6 
| | Income (loss) from operations                        | 19.2                         |   | % |                            | 9.3  
| | Other income
      (expense), net                    | (3.3                         | ) | % |                            | 3.9  
| | Income from continuing operations before
      taxes | 15.9                         |   | % |                            | 13.2 
| | Provision for
      income taxes                     | (2.0                         | ) | % |                            |     
| | Income from continuing operations                    | 13.9                         |   | % |                            | 13.2 
| | Loss from discontinued operations, net of taxes      | 0.0                          |   | % |                            | (21.8
| | Net (loss )                                          | 13.9                         |   | % |                            | (8.6 

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 77% and 68% of total revenues in the six months ended October 31
of fiscal year 2008 and 2007, respectively.

Total revenues in the second quarter of
fiscal 2008 were $5.0 million, an increase of $2.8 million. This represents an
increase of 127% over the second quarter of fiscal 2007 revenues of $2.2
million. Total software license revenues in the second quarter of fiscal 2008
were $1.9 million, an increase of $1.1 million. This represents an increase of
138% over the second quarter of fiscal 2007 revenues of $0.8 million. The
increase in software license revenues in the second 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 several
high dollar value orders in Russia and also one large order in France. 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
second quarter of fiscal 2008 were $3.0 million, an increase of $1.6 million.
This represents an increase of 114% over the second quarter of fiscal 2007
revenues of $1.4 million. Total revenues for the six months ended October 31,
2007 were $8.9 million, an increase of $5.0 million. This represents an increase
of 128% over the six month period of fiscal 2007 revenues of $3.9 million. Total
software license revenues for the six months ended October 31, 2007 were $3.4
million, an increase of $2.2 million. This represents an increase of 183%
increase over the six month period of fiscal 2007 revenues of $1.2 million.
Total services revenues for the six months ended October 31, 2006 were $5.5
million, an increase of $2.8 million. This represents an increase of 104% over
the six month period of fiscal 2007 revenues of $2.7 million.

For the second quarter of fiscal 2008 and
2007, total revenues from the Americas were 41% and 49% of total revenues,
respectively. Total revenue from the Americas in absolute dollars was $2.0
million for the second quarter of fiscal 2008 and $1.1 million for the second
quarter of fiscal 2007. Total revenue from our European territory was $2.9
million in the second quarter of fiscal 2008 and $1.1 million for the second
quarter of fiscal 2007. On a percentage basis, revenue from our European
territory was 59% for the second quarter of fiscal 2008 and 51% for fiscal
2007.

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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 $46,000 and $31,000 for the second quarter of fiscal 2008 and
fiscal 2007, respectively. For the six months ended October 31, 2007 and 2006,
cost of software licenses was $93,000 and $69,000, 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. Total cost of
services was $0.3 million for both the second quarter of fiscal 2008 and fiscal
2007. Our cost of services as a percent of services revenues was 10% and 18% in
the second quarter of fiscal 2008 and fiscal 2007, respectively. The favorable
decrease in the percentage of cost of service expenses to services revenue in
fiscal 2008 was the result of adding over $1.1 million in maintenance service
revenues while also enjoying positive economies of scale relative to expenses as
a result of our acquisition of Gupta. For the six months ended October 31, 2007
and 2006, cost of services was $0.5 million.

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 second quarter of fiscal
2008 were $0.8 million compared to $0.4 million in the same period of fiscal
2007. The increase in product development costs was the addition of the Gupta
product development team plus additional outsourced development costs associated
with efforts to develop a new release of Guptas Team Developer product. For the
six months ended October 31, 2007 and 2006, product development costs were $1.7
million and $0.8 million, respectively.

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 $2.9 million in the second quarter of
fiscal 2008 and $1.3 million for the second 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 second quarter of
fiscal 2008 and fiscal 2007 our SG&A expenses as a percent of total revenues
was 58% and 60%, respectively. The major components of SG&A for the second
quarter of fiscal 2008 were sales expenses of $1.4 million, marketing expenses
of $0.4 million and general and administrative expenses of $1.1 million. For the
second quarter of fiscal 2007, the major components of SG&A were sales
expenses of $0.6 million, marketing expenses of $0.1 million and general and
administrative expenses of $0.6 million. SG&A expenses were $5.6 million and
$2.7 million for the six months ended October 31, 2007 and 2006, respectively.
In the six months ended October 31, 2007 and 2006, our SG&A expenses as a
percent of total revenues was 62% and 68%, respectively. The major components of
SG&A for the six month period ended October 31, 2007 were sales expenses of
$2.7 million, marketing expenses of $0.7 million and general and administrative
expenses of $2.2 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
second quarter of fiscal 2008 and 2007 was $297,000 and $1,000, respectively.
Interest expense for the six months ended October 31, 2007 and 2006 was $576,000
and $2,500, 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. 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 fully amortized
in the second quarter of fiscal 2008. Foreign exchange gains for the second
quarter of fiscal 2008 were $26,000. Foreign exchange rate losses for the second
quarter of fiscal 2007 were $2,300. Foreign exchange gains for the six months
ended October 31, 2007 and 2006 were $56,000 and $0, respectively. Included in
other income (expense) in the six months ended October 31, 2007 is an expense of
$116,000 for penalties associated with commitments related to a registration
statement. Pursuant to the debt financing agreement entered into with ComVest in
conjunction with the Gupta acquisition, the Company is subject to a $1,000 per
day penalty for each day following six months from the date of the financing
that the shares of ComVest are not registered and deemed effective by the SEC.
As of September 13, 2007, the Company had completed the SEC filings and is no
longer incurring any penalties. Included in other income is $90,000 relating to
the sale of the Companys Arango Software International stock in September
2007.

Provision for Income Taxes.For the second quarter of fiscal 2008, the
Company recorded $99,000 in foreign income tax expense and no expense for state
or federal income taxes. For the six months ended October 31, 2007, the Company
recorded $10,000 in federal income tax, $99,000 in foreign income tax and no
state income tax.

21

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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 six
months ended October 31, 2007 and 2006, 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 |   | Six Months Ended
|--------------------------------------- | ------------------ | - | ----------------
|                                        | October 31,        |   | October 31,     
|                                        | 2007               |   | 2006            
|Revenue                                 | $                  |  |                 
|Loss from
      discontinued operations | $                  |  |                 

Liquidity and Capital
Resources

At October 31, 2007, the Company had cash
and cash equivalents of $1.7 million, compared to $2.1 million at April 30,
2007. The Company had accounts receivable of $4.1 million as of October 31,
2007, and $4.4 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. 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. The 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 October 31, 2007, 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,
capital expenditures of approximately $50,000 and required interest and
principal payments on debt.

Operating Cash Flow. For the first six months of fiscal 2008 cash used by
continuing operations was $0.1 million. This compares to cash flows provided by
continuing operations of $0.4 million for the first six months of fiscal 2007.
Cash flows used by operations for the first six months of fiscal 2008
principally resulted from a $1.0 million decrease in deferred revenue, a
decrease of $0.2 million in other accrued liabilities, a decrease of $0.4
million in accrued acquisition costs, a decrease of $0.3 million in fulfillment
of support obligations and a $0.1 million decrease in accounts payable.
Offsetting these amounts was net income of $0.5 million from continuing
operations, a decrease of $0.4 million in accounts receivable, a decrease of
$0.2 million in prepaid expenses and other current assets, a decrease in
amortization of discount on notes payable of $0.1 million, $0.1 million in
depreciation and $0.4 million in amortization of intangibles.

For the first six months of fiscal 2007,
the positive operating cash flows of $0.4 million from continuing operations
principally resulted from a $2.0 million decrease in accounts receivable and an
increase in other accrued liabilities of $0.2 million. Offsetting this was a net
loss from continuing operations of $0.9 million, a decrease in deferred revenue
of $1.1 million, a $0.3 million decrease in accrued compensation and an increase
in prepaid expenses and other current assets of $0.5 million.

Investing Cash Flows. Cash used in investing activities for continuing operations
was $0.1 million for the first six months of fiscal 2008. The use of cash
consisted of $0.2 million expended related to the acquisition of Active Data
Corporation, $0.1 million for the purchase of property and equipment and
payments on acquisitions of $0.1 million. Offsetting this was a decrease in
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 $32,000 for the first six
months of fiscal 2007 and was related entirely to the purchase of property and
equipment.

22

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Financing Cash Flows.Net cash provided by financing activities for continuing
operations for the first six months of fiscal 2008 was $0.1 million. Cash from
financing activities was primarily the result of $1.0 million from borrowings
under the Companys revolver note. Offsetting this were payments on our revolver
of $1.0 million and payments on our notes payable of $0.2 million. In the first
six months of fiscal 2007 cash provided by financing activities was $46,000 and
was the result of borrowings offset by principle payments on the debt
obligations.

A summary of certain contractual
obligations as October 31, 2007 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 |  | $                               

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.

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.

23

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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 October 31, 2007. Unify had no short-term investments at October 31, 2007.

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 October 31, 2007, 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
October 31, 2007, the Company had $2.4 million in such payables denominated in
euros and a total $2.4 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.

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 six months of fiscal year 2008 that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.

24

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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:
      December 14, 2007 | Unify
      Corporation                     
|----------------------------- | --------------------------------------------
|                              | (Registrant)                                
|                             
|                              | By:                                         
|                             
|                              | /s/ STEVEN D. BONHAM                        
|                              | Steven D. Bonham                            
|                              | Chief
      Financial Officer               
|                              | (Principal Financial and Accounting Officer)

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