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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

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Form 10-QSB

|x                                                        | Quarterly   report pursuant to Section 13 or 15(d) of the Securities Exchange   Act of 1934 
|-------------------------------------------------------- | --------------------------------------------------------------------------------------------
|                                                         |                                                                                             
|For the quarterly period ended October 31, 2006         
|                                                         |                                                                                             
|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   incorporation or organization) |  | (I.R.S.   Employer Identification   Number)
|                                                                   |  |                                            
|2101   Arena Blvd, Suite 100                                      
|Sacramento,   California 95834                                    
|(Address   of principal executive offices)                        
|                                                                  
|Telephone:   (916) 928-6400                                       
|(Registrants   telephone number, including area code)            

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

|Yes
x | No
o
|----- | ----

Indicate by check mark whether the registrant is 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
o | No
x
|----- | ----

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 29,523,608 shares of Common Stock, $0.001 par value, as of October 31, 2006.

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UNIFY CORPORATION FORM 10-QSB

INDEX

|PART I.        | FINANCIAL INFORMATION                                                                                                      | 3 
|-------------- | -------------------------------------------------------------------------------------------------------------------------- | --
|               |                                                                                                                            |   
|Item 1.        | Financial Statements                                                                                                       | 3 
|               |                                                                                                                            |   
|               | Unaudited Condensed Consolidated Balance   Sheets as of October 31, 2006 and April 30, 2006                                | 3 
|               |                                                                                                                            |   
|               | Unaudited Condensed Consolidated Statements   of Operations for the three and six months ended October 31, 2006 and   2005 | 4 
|               |                                                                                                                            |   
|               | Unaudited Condensed Consolidated Statements   of Cash Flows for the six months ended October 31, 2006 and 2005             | 5 
|               |                                                                                                                            |   
|               | Notes to Unaudited Condensed Consolidated   Financial Statements                                                           | 6 
|               |                                                                                                                            |   
|Item 2.        | Managements Discussion and Analysis of   Financial Condition and Results of Operations                                    | 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 |                                                                                                                           

2



PART I.  FINANCIAL INFORMATION

|Item 1. | Financial Statements
|------- | --------------------

UNIFY CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS(In thousands)

|                                                              |  | October   31,   2006 |         | April 30,   2006 |  
|------------------------------------------------------------- |  | -------------------- | ------- | ---------------- | -
|                                                              |  |                      |         |                  |  
|ASSETS                                                        |  |                      |         |                  |  
|Current assets:                                               |  |                      |         |                  |  
|Cash   and cash equivalents                                   |  | $                    | 1,357   |                  | $
|Accounts   receivable, net                                    |  |                      | 1,469   |                  |  
|Prepaid   expenses and other current assets                   |  |                      | 980     |                  |  
|Assets   of discontinued operations held for sale             |  |                      | 1,887   |                  |  
|                                                              |  |                      |         |                  |  
|Total   current assets                                        |  |                      | 5,693   |                  |  
|Property and equipment,   net                                 |  |                      | 200     |                  |  
|Other investments                                             |  |                      | 214     |                  |  
|Other assets, net                                             |  |                      | 197     |                  |  
|                                                              |  |                      |         |                  |  
|Total   assets                                                |  | $                    | 6,304   |                  | $
|                                                              |  |                      |         |                  |  
|LIABILITIES   AND STOCKHOLDERS EQUITY                        |  |                      |         |                  |  
|Current liabilities:                                          |  |                      |         |                  |  
|Accounts   payable                                            |  | $                    | 385     |                  | $
|Short-term   borrowings and current portion of long-term debt |  |                      | 81      |                  |  
|Other   accrued liabilities                                   |  |                      | 936     |                  |  
|Accrued   compensation and related expenses                   |  |                      | 478     |                  |  
|Deferred   revenue                                            |  |                      | 1,837   |                  |  
|Liabilities   of discontinued operations                      |  |                      | 1,151   |                  |  
|                                                              |  |                      |         |                  |  
|Total   current liabilities                                   |  |                      | 4,868   |                  |  
|Other long-term   liabilities                                 |  |                      | 79      |                  |  
|Commitments and   contingencies                               |  |                      |        |                  |  
|Stockholders equity:                                         |  |                      |         |                  |  
|Common   stock                                                |  |                      | 29      |                  |  
|Additional   paid-in capital                                  |  |                      | 63,996  |                  |  
|Accumulated   other comprehensive income                      |  |                      | 23      |                  |  
|Accumulated   deficit                                         |  |                      | (62,691 | )                |  
|                                                              |  |                      |         |                  |  
|Total   stockholders equity                                  |  |                      | 1,357   |                  |  
|                                                              |  |                      |         |                  |  
|Total   liabilities and stockholders equity                  |  | $                    | 6,304   |                  | $
|                                                              |  |                      |         |                  |  

See accompanying notes to condensed consolidated financial statements.

3



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

|                                                        |  | Three   Months Ended   October 31, |        | Six Months   Ended   October 31, |  
|------------------------------------------------------- |  | ---------------------------------- | ------ | -------------------------------- | -
|                                                        |  |                                    |        |                                  |  
|                                                        |  | 2006                               |        | 2005                             |  
|                                                        |  |                                    |        |                                  |  
|Revenues:                                               |  |                                    |        |                                  |  
|Software   licenses                                     |  | $                                  | 785    |                                  | $
|Services                                                |  |                                    | 1,405  |                                  |  
|                                                        |  |                                    |        |                                  |  
|Total   revenues                                        |  |                                    | 2,190  |                                  |  
|                                                        |  |                                    |        |                                  |  
|Cost of Revenues:                                       |  |                                    |        |                                  |  
|Software   licenses                                     |  |                                    | 31     |                                  |  
|Services                                                |  |                                    | 256    |                                  |  
|                                                        |  |                                    |        |                                  |  
|Total   cost of revenues                                |  |                                    | 287    |                                  |  
|                                                        |  |                                    |        |                                  |  
|Gross profit                                            |  |                                    | 1,903  |                                  |  
|                                                        |  |                                    |        |                                  |  
|Operating Expenses:                                     |  |                                    |        |                                  |  
|Product   development                                   |  |                                    | 391    |                                  |  
|Selling,   general and administrative                   |  |                                    | 1,307  |                                  |  
|                                                        |  |                                    |        |                                  |  
|Total   operating expenses                              |  |                                    | 1,698  |                                  |  
|                                                        |  |                                    |        |                                  |  
|Income   (loss) from continuing operations              |  |                                    | 205    |                                  |  
|Other income, net                                       |  |                                    | 86     |                                  |  
|                                                        |  |                                    |        |                                  |  
|Income   from continuing operations before income taxes |  |                                    | 291    |                                  |  
|Provision for income taxes                              |  |                                    |       |                                  |  
|                                                        |  |                                    |        |                                  |  
|Net   income from continuing operations                 |  |                                    | 291    |                                  |  
|Loss   from discontinued operations                     |  |                                    | (478   | )                                |  
|                                                        |  |                                    |        |                                  |  
|Net   income (loss)                                     |  | $                                  | (187   | )                                | $
|                                                        |  |                                    |        |                                  |  
|Net income (loss) per   share:                          |  |                                    |        |                                  |  
|Basic   earnings per share:                             |  |                                    |        |                                  |  
|Continuing   operations                                 |  | $                                  | 0.01   |                                  | $
|Discontinued   operations                               |  | $                                  | (0.02  | )                                | $
|Diliutive   earnings per share:                         |  |                                    |        |                                  |  
|Continuing   operations                                 |  | $                                  | 0.01   |                                  | $
|Discontinued   operations                               |  | $                                  | (0.02  | )                                | $
|Shares used in computing   net income (loss) per share: |  |                                    |        |                                  |  
|Basic                                                   |  |                                    | 29,524 |                                  |  
|Dilutive                                                |  |                                    | 29,524 |                                  |  

See accompanying notes to condensed consolidated financial statements.

4



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

|                                                                                              |  | Six Months   Ended   October 31, |       
|--------------------------------------------------------------------------------------------- |  | -------------------------------- | ------
|                                                                                              |  |                                  |       
|                                                                                              |  | 2006                             |       
|                                                                                              |  |                                  |       
|Cash flows from operating   activities:                                                       |  |                                  |       
|Net   loss                                                                                    |  | $                                | (941  
|Loss   from discontinued operations                                                           |  |                                  | (941  
|                                                                                              |  |                                  |       
|Income   from continuing operations                                                           |  |                                  |      
|Reconciliation   of income to net cash provided by (used in) continuing operating activities: |  |                                  |       
|Depreciation                                                                                  |  |                                  | 75    
|Loss   on disposal of equipment                                                               |  |                                  |      
|Amortization                                                                                  |  |                                  |      
|Stock   based expense                                                                         |  |                                  | 29    
|Changes   in operating assets and liabilities:                                                |  |                                  |       
|Accounts   receivable                                                                         |  |                                  | 1,909 
|Prepaid   expenses and other current assets                                                   |  |                                  | (474  
|Accounts   payable                                                                            |  |                                  | 31    
|Accrued   compensation and related expenses                                                   |  |                                  | (304  
|Other   accrued liabilities                                                                   |  |                                  | 219   
|Deferred   revenue                                                                            |  |                                  | (1,058
|                                                                                              |  |                                  |       
|Net cash provided by (used   in) continuing operating activities                              |  |                                  | 427   
|                                                                                              |  |                                  |       
|Cash flows from investing   activities:                                                       |  |                                  |       
|Purchases   of property and equipment                                                         |  |                                  | (32   
|                                                                                              |  |                                  |       
|Net cash used in investing   activities of continuing operations                              |  |                                  | (32   
|                                                                                              |  |                                  |       
|Cash flows from financing   activities:                                                       |  |                                  |       
|Proceeds   from issuance of common stock, net                                                 |  |                                  |      
|Short-term   borrowings                                                                       |  |                                  | 74    
|Principal   payments under debt obligations                                                   |  |                                  | (28   
|                                                                                              |  |                                  |       
|Net cash provided by   financing activities from continuing operations                        |  |                                  | 46    
|                                                                                              |  |                                  |       
|Effect of exchange rate   changes on cash                                                     |  |                                  | 12    
|Cash flows of discontinued   operations:                                                      |  |                                  |       
|Net   cash used in operating activities                                                       |  |                                  | (977  
|Net   cash used in investing activities                                                       |  |                                  |      
|Net   cash used in financing activities                                                       |  |                                  |      
|Net decrease in cash and   cash equivalents                                                   |  |                                  | (524  
|Cash and cash equivalents,   beginning of period                                              |  |                                  | 1,881 
|                                                                                              |  |                                  |       
|Cash and cash equivalents,   end of period                                                    |  | $                                | 1,357 
|                                                                                              |  |                                  |       
|Supplemental cash flow   information for continuing operations:                               |  |                                  |       
|Cash   paid during the period for:                                                            |  |                                  |       
|Interest                                                                                      |  | $                                | 1     

See accompanying notes to condensed consolidated financial statements.

5



UNIFY CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

|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). The Company qualifies as a small business filer and effective with this filing is changing its filing to use Form 10-QSB. Previous quarterly and annual filings of the Company have been made using Form 10-Q and Form 10-K, respectively. 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 for the fiscal year ended April 30, 2006 as filed with the SEC.

Revenue Recognition

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 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. With the exception of its NavRisk product, the Company recognizes revenue for software license sales in accordance with Statement of Position 97-2, Software Revenue Recognition. For the NavRisk product, the Company recognizes 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 Company exercises 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 determines how revenues and related costs are recognized.

With the exception of the NavRisk software application, the Companys products are generally sold with a perpetual license. The Company sells the NavRisk software under both perpetual and term licenses. Term licenses allow the customer to use the NavRisk software for a fixed period of time, generally 3 to 5 years, and at the conclusion of the term the customer must cease using the software or purchase a new license term. The customer does not receive any additional software during the license term. Under both perpetual and term licenses the customer can, at their discretion, elect to purchase related maintenance and support on an annual basis.

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.

For arrangements of $10,000 or more a signed noncancelable license agreement is required for revenue recognition. For arrangements that are less than $10,000 the Company considers a customer purchase order, a customer purchase requisition, or a sales quotation signed by an officer of the customer to be persuasive evidence that an arrangement exits such that revenue can be recognized.

For software license arrangements that do require significant modification or customization of the underlying software, revenue is recognized based on contract accounting under the provisions of Accounting Research Bulletin (ARB) 45, Long-Term Construction Type Contracts and Statement of Position (SOP) 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. This guidance is followed since contracts with customers purchasing the NavRisk application require significant configuration to the software and the configuration activities are essential to the functionality of the software. The Company is using the completed-contract method for revenue recognition as it has limited experience determining the accuracy of progress-to-completion estimates for installation hours and project milestones. Under the completed-contract method, 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. When a contract is completed, revenue is recognized and deferred costs are expensed.

6



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.

Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123(R), Share-Based Payment. This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily with respect to transactions in which employee services are obtained in exchange for share-based payment. Statement 123(R) was adopted by the Company effective May 1, 2006 and the impact of Statement 123(R) is reflected in Note 3.

In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections  A Replacement of APB No. 20 and FAS No. 3.  SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. SFAS No. 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The correction of an error in previously issued financial statements is not an accounting change. However, the reporting of an error correction involves adjustments to previously issued financial statements similar to those generally
applicable to reporting an accounting change retrospectively. Therefore, the reporting of a correction of an error by restating previously issued financial statements is also addressed by SFAS No. 154. SFAS No. 154 became effective for the Company in the first quarter of fiscal year 2007 and did not have a material impact on our financial position, cash flows or results of operations.

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments  An Amendment of FAS Statements No. 133 and 150. SFAS No. 155 (a) permits fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, (b) clarifies that certain instruments are not subject to the requirements of SFAS 133, (c) establishes a requirement to evaluate interests in securitized financial assets to identify interests that may contain an embedded derivative requiring bifurcation, (d) clarifies what may be an embedded derivative for certain concentrations of credit risk and (e) amends SFAS 140 to eliminate certain

7



prohibitions related to derivatives on a qualifying special-purpose entity. SFAS No. 155 is required to be adopted in fiscal years beginning after September 15, 2006. We do not expect the adoption of this accounting pronouncement to have a material impact on our financial position, cash flows or results of operations.

In June 2006, the Financial Accounting Standards Board (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. This Interpretation will be effective for fiscal years beginning after December 15, 2006, and will be applicable for Unify in the first quarter of fiscal 2008. We are currently evaluating the impact of this Interpretation on our consolidated financial statements.

In September 2006, the SEC released Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 provides interpretive guidance on the SECs views regarding the process of quantifying materiality of financial statement misstatements. SAB 108 is effective for fiscal years ending after November 15, 2006, and early application for the first interim period of the same fiscal year is encouraged. We are currently evaluating the impact of adopting SAB 108 on our consolidated financial statements.

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 September 2006, the FASB issued Statement No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158). SFAS 158 requires companies to recognize the overfunded or underfunded status of a defined benefit post-retirement plan as an asset or liability in their balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income, effective for fiscal years ending after December 15, 2006. SFAS 158 also requires companies to measure the funded status of the plan as of the date of its fiscal year-end, with limited exceptions, effective for fiscal years ending after December 15, 2008. We are currently evaluating the impact of adopting SFAS 158 on our consolidated financial statements.

|2. | Purchase and Exchange Agreement with Halo Technology   Holdings and Discontinued Operations
|-- | -------------------------------------------------------------------------------------------

On March 14, 2006, the Company entered into an Agreement and Plan of Merger with Halo Technology Holdings Inc. (Halo). Under the terms of the merger agreement Halo would acquire all of the outstanding stock of Unify. On September 13, 2006, Halo and Unify entered into a Termination Agreement terminating the merger agreement.

On September 13, 2006, the Company entered into a Purchase and Exchange Agreement with Halo whereby Unify agreed to purchase 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.

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 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 54 months. The revolver has an interest rate of prime plus 2.25% and has a maturity date of October 31, 2010. As part of the financing, ComVest received 2,010,000 warrants and Special Situations Funds received 1,340,000 warrants. The warrants are for the purchase of common stock at prices from $0.27 to $0.38. The agreements provide for ComVest to have a security interest in substantially all of the Companys assets.

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the results of Companys IRM division and ViaMode software product have been reported as discontinued operations for the three and six months ended October 31, 2006 and 2005, respectively. In addition, the assets and liabilites of the IRM division and

8



the ViaMode software product have been reclassified as held for sale in the Balance Sheet at October 31, 2006 and April 30, 2006. The divestures 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 UBS-Americas segment. Operating results for the IRM division and ViaMode software product are summarized as follows (in thousands):

|                                    |  | Three   Months Ended   October 31, |      | Six Months   Ended   October 31, |  
|----------------------------------- |  | ---------------------------------- | ---- | -------------------------------- | -
|                                    |  |                                    |      |                                  |  
|                                    |  | 2006                               |      | 2005                             |  
|                                    |  |                                    |      |                                  |  
|Revenue                             |  | $                                  | 147  |                                  | $
|Loss from discontinued   operations |  | $                                  | (478 | )                                | $

Assets and liabilities of the IRM division and the ViaMode product as of April 30, 2006 and October 31, 2006 were as follows (in thousands):

|                                            |  | October   31,   2006 |       | April 30,   2006 |  
|------------------------------------------- |  | -------------------- | ----- | ---------------- | -
|                                            |  |                      |       |                  |  
|Accounts receivable                         |  | $                    | 117   |                  | $
|Other assets                                |  |                      | 163   |                  |  
|Property and equipment,   net               |  |                      | 20    |                  |  
|Intangible, net                             |  |                      | 182   |                  |  
|Goodwill                                    |  |                      | 1,405 |                  |  
|                                            |  |                      |       |                  |  
|Total   assets                              |  | $                    | 1,887 |                  | $
|                                            |  |                      |       |                  |  
|Accounts payable                            |  | $                    | 7     |                  | $
|Other accrued liabilities                   |  |                      | 681   |                  |  
|Accrued compensation and   related expenses |  |                      | 101   |                  |  
|Deferred revenue                            |  |                      | 362   |                  |  
|                                            |  |                      |       |                  |  
|Total   liabilities                         |  | $                    | 1,151 |                  | $
|                                            |  |                      |       |                  |  

Intangibles, net of amortization and Goodwill disposed of in the divestiture of the IRM division amounted to $182,000 and $1,405,000, respectively. No amortization expense was recorded in the second quarter ended October 31, 2006 as the related assets were held for sale for the entire quarter. The ViaMode software asset had no intangibles or goodwill associated with it.

|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 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, 2006, equity-based compensation expense was comprised of the following (in thousands):

9



|                                                         |  | Three   Months   Ended   October 31, 2006 |    | Six Months   Ended   October 31, 2006 |  
|-------------------------------------------------------- |  | ----------------------------------------- | -- | ------------------------------------- | -
|                                                         |  |                                           |    |                                       |  
|Cost of Sales                                            |  | $                                         | 1  |                                       | $
|Product Development                                      |  |                                           | 3  |                                       |  
|Selling, General and   Administrative                    |  |                                           | 9  |                                       |  
|                                                         |  |                                           |    |                                       |  
|Total Equity-Based   Compensation, Continuing Operations |  |                                           | 13 |                                       |  
|Equity-Based Compensation,   Discontinued Operations     |  |                                           | 14 |                                       |  
|                                                         |  |                                           |    |                                       |  
|Total Equity-Based   Compensation                        |  | $                                         | 27 |                                       | $
|                                                         |  |                                           |    |                                       |  

The cost above is expected to be recognized over a weighted-average period of 1.2 years.

The impact of equity-based compensation expense on net earnings and earnings per share for the three and six months ended October 31, 2006, can be found in the pro forma table in this footnote. The Company currently estimates that equity-based compensation expense will reduce basic and diluted earnings per share in fiscal 2007 by less than $0.01. 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, 2006. This table does not include an estimate for future grants that may be issued (amounts in thousands).

|FYE               |  |        |     | 
|----------------- |  | ------ | --- | 
|April 30,         |  | Amount |    
|                  |  |        |    
|Remainder of 2007 |  | $      | 24  | 
|2008              |  |        | 47  | 
|2009              |  |        | 37  | 
|2010              |  |        | 7   | 
|                  |  |        |     | 
|Total             |  | $      | 115 | 
|                  |  |        |     | 

As permitted by SFAS No. 148, prior to the adoption of SFAS No. 123(R) the Company accounted for equity award expense under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, under which no compensation was recognized in the Companys financial statements for the three and six months ended October 31, 2005. In connection with the modified prospective method, disclosures made for periods prior to the adoption of SFAS No. 123(R) do not reflect restated amounts.

The following table presents equity-based compensation expense included in our financial statements for the three and six months ended October 31, 2006 and 2005. The table illustrates the pro forma effects on net earnings and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, to equity-based compensation.

|                                                                                                     |  | Three   Months Ended   October 31, |       | Six Months   Ended   October 31, |  
|---------------------------------------------------------------------------------------------------- |  | ---------------------------------- | ----- | -------------------------------- | -
|                                                                                                     |  |                                    |       |                                  |  
|                                                                                                     |  | 2006                               |       | 2005                             |  
|                                                                                                     |  |                                    |       |                                  |  
|Net income (loss) as   reported                                                                      |  | $                                  | (187  | )                                | $
|Add: stock-based employee   compensation included in reported net loss                               |  |                                    | 27    |                                  |  
|Less: stock-based employee   compensation expense, determined under fair value method for all awards |  |                                    | (27   | )                                |  
|                                                                                                     |  |                                    |       |                                  |  
|Pro forma net loss                                                                                   |  | $                                  | (187  | )                                | $
|                                                                                                     |  |                                    |       |                                  |  
|Net loss per share (basic   and diluted), as reported                                                |  | $                                  | (0.01 | )                                | $
|Net loss per share (basic   and diluted), pro forma                                                  |  | $                                  | (0.01 | )                                | $

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 were made with the following weighted average assumptions for the three months ended October 31, 2006 and 2005, respectively:  expected option life, 12 months following vesting; stock volatility of 176% and 233%; risk-free interest rates of 4.7% and 3.9% and no dividends during the expected term. The Companys calculations are based on the single option approach and forfeitures are recognized as they occur.

10



Under the 2001 Stock Option Plan (the 2001 Option Plan), the Company may grant options to purchase up to 2,975,000 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, 2006 is as follows:

|                                  |  | Shares |           | Weighted   average   exercise price |   | Weighted-   average remaining   contractual   term (in years) |  | Aggregate   intrinsic   value (1) |     
|--------------------------------- |  | ------ | --------- | ----------------------------------- | - | ------------------------------------------------------------- |  | --------------------------------- | ----
|                                  |  |        |           |                                     |   |                                                               |  |                                   |     
|Outstanding at April 30,   2006   |  |        | 2,644,914 |                                     | $ | 0.82                                                          |  |                                   | 6.60
|Granted                           |  |        | 25,000    |                                     | $ | 0.32                                                          |  |                                   |     
|Exercised                         |  |        |          |                                     | $ |                                                              |  |                                   |     
|Canceled   or expired             |  |        | (120,821  | )                                   | $ | 0.86                                                          |  |                                   |     
|                                  |  |        |           |                                     |   |                                                               |  |                                   |     
|Outstanding at October 31,   2006 |  |        | 2,549,093 |                                     | $ | 0.81                                                          |  |                                   | 6.11
|                                  |  |        |           |                                     |   |                                                               |  |                                   |     
|Exercisable at October 31,   2006 |  |        | 1,960,138 |                                     | $ | 0.92                                                          |  |                                   | 5.39

|   
|---
|(1)

Total intrinsic value of awards exercised during the quarters ended October 31, 2006 and October 31, 2005 was $0 for both periods. The total fair value of awards vested during the quarters ended October 31, 2006 and October 31, 2005 was $26,326 and $31,816, respectively.

A summary of the Companys nonvested stock option activity for the period ended October 31, 2006 is as follows:

|                                |  | Shares |          | Weightedaverage fairvalue |  
|------------------------------- |  | ------ | -------- | ------------------------- | -
|                                |  |        |          |                           |  
|Nonvested at April 30,   2006   |  |        | 777,792  |                           | $
|Granted                         |  |        | 25,000   |                           | $
|Vested                          |  |        | (145,299 | )                         | $
|Canceled   or expired           |  |        | (76,195  | )                         | $
|                                |  |        |          |                           |  
|Nonvested at October 31,   2006 |  |        | 581,298  |                           | $
|                                |  |        |          |                           |  

11



|4. | Goodwill and Intangible Assets
|-- | ------------------------------

The following tables present details of the Companys goodwill and intangible assets as of October 31, 2006 and April 30, 2006 (in thousands) and relates entirely to the Companys IRM division which was sold and is reported as discontinued operations with these assets reported as held for sale. See Note 2:

|October 31, 2006 |  | Gross   carrying   amount |       | Accumulated   amortization |   | Net   carrying   amount |   | Estimated   useful life |      
|---------------- |  | ------------------------- | ----- | -------------------------- | - | ----------------------- | - | ----------------------- | -----
|                 |  |                           |       |                            |   |                         |   |                         |      
|Infinite Lives:  |  |                           |       |                            |   |                         |   |                         |      
|Goodwill         |  | $                         | 1,405 |                            | $ |                        |   | $                       | 1,405
|Finite Lives:    |  |                           |       |                            |   |                         |   |                         |      
|Technology-based |  |                           | 200   |                            |   | (100                    | ) |                         | 100  
|Customer-related |  |                           | 164   |                            |   | (82                     | ) |                         | 82   
|                 |  |                           |       |                            |   |                         |   |                         |      
|Total            |  | $                         | 1,769 |                            | $ | (182                    | ) | $                       | 1,587
|                 |  |                           |       |                            |   |                         |   |                         |      

|April 30, 2006   |  | Grosscarryingamount |       | Accumulatedamortization |   | Netcarryingamount |   | Estimateduseful life |      
|---------------- |  | ------------------- | ----- | ----------------------- | - | ----------------- | - | -------------------- | -----
|                 |  |                     |       |                         |   |                   |   |                      |      
|Infinite Lives:  |  |                     |       |                         |   |                   |   |                      |      
|Goodwill         |  | $                   | 1,405 |                         | $ |                  |   | $                    | 1,405
|Finite Lives:    |  |                     |       |                         |   |                   |   |                      |      
|Technology-based |  |                     | 200   |                         |   | (83               | ) |                      | 117  
|Customer-related |  |                     | 164   |                         |   | (69               | ) |                      | 95   
|                 |  |                     |       |                         |   |                   |   |                      |      
|Total            |  | $                   | 1,769 |                         | $ | (152              | ) | $                    | 1,617
|                 |  |                     |       |                         |   |                   |   |                      |      

Acquired finite-lived intangibles are generally amortized on a straight line basis over their estimated useful life. Goodwill and intangible assets presented above are included in Assets held for sale as they are included in discontinued operations. Intangible assets amortization expense for the three months and six months ended October 31, 2006, was $0 and $30,000, respectively. No amortization expense was recorded in the second quarter ended October 31, 2006, as the related assets were held for sale for the entire quarter.

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.

|5. | Credit Facility
|-- | ---------------

On August 2, 2006, the company extended the Silicon Valley Bank revolving line of credit. This credit facility was to expire August 3, 2006; however, it was extended until November 3, 2006. On November 3, 2006, the Companys revolving line of credit with Silicon Valley Bank expired and was not renewed. At the expiration the Company had no amounts outstanding on the line of credit.

The line of credit had a borrowing limit of $1 million. There were no amounts outstanding under the line of credit as of October 31, 2006.  The line was secured by qualifying foreign and domestic accounts receivable. The Company incurs interest expense on funds used at the prevailing prime rate plus two percent per annum. The prime rate used in the determination of interest shall not be less than 4.0%.

12



|6. | Long-Term Debt
|-- | --------------

The Companys debt consists of the following at October 31, 2006 and April 30, 2006 (in thousands):

|                                                                                  |  | October   31,   2006 |     | April 30,   2006 |  
|--------------------------------------------------------------------------------- |  | -------------------- | --- | ---------------- | -
|                                                                                  |  |                      |     |                  |  
|Note payable to a   financial institution repaid in September 2006                |  | $                    |    |                  | $
|Note payable, bears no   interest, payable in installments through March 15, 2007 |  |                      | 74  |                  |  
|Capital lease payable,   payable in monthly installments through August 2007      |  |                      | 7   |                  |  
|                                                                                  |  |                      |     |                  |  
|                                                                                  |  |                      | 81  |                  |  
|Less current portion                                                              |  |                      | (81 | )                |  
|                                                                                  |  |                      |     |                  |  
|                                                                                  |  | $                    |    |                  | $
|                                                                                  |  |                      |     |                  |  

|7. | Other Long-Term Liabilities
|-- | ---------------------------

In February 2005, the Company acquired all of the issued and outstanding equity securities of Acuitrek, Inc. which became the Companys IRM division. As part of the Acuitrek acquisition the Company assumed a royalty payable of $600,000 as established by the 2001 funded software development and license arrangement with Acuitreks first customer. A minimum royalty is payable in quarterly installments equal to two percent of all gross revenues received from the sale or licensing of the NavRisk product through June 11, 2011. The royalty payable is included in Liabilities of discontinued operations. Any remaining royalty balance as of June 11, 2011, shall become fully due and payable on such date. The Company accrued the estimated costs of providing future support and maintenance services for the support and maintenance contracts as of the acquisition date. The future support obligation periods ranged from less than a year to greater than twenty (20)
additional years. The future support obligation is included in Liabilities of discontinued operations. The IRM division has been sold and is reported as discontinued operations with this long-term liability reported as a liability of discontinued operations. See Note 2.

The Companys other long-term liabilities consists of the following at October 31, 2006 and April 30, 2006 (in thousands):

|                                                         |  | October   31,   2006 |    | April 30,   2006 |  
|-------------------------------------------------------- |  | -------------------- | -- | ---------------- | -
|                                                         |  |                      |    |                  |  
|Long-term debt, net of   current portion                 |  | $                    |   |                  | $
|Other long-term   liabilities                            |  |                      | 79 |                  |  
|                                                         |  |                      |    |                  |  
|Total long-term   liabilities from continuing operations |  | $                    | 79 |                  | $
|                                                         |  |                      |    |                  |  

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.

|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.

13



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

|                                                            |  | Three   Months Ended   October 31, |        | Six Months   Ended   October 31, |  
|----------------------------------------------------------- |  | ---------------------------------- | ------ | -------------------------------- | -
|                                                            |  |                                    |        |                                  |  
|                                                            |  | 2006                               |        | 2005                             |  
|                                                            |  |                                    |        |                                  |  
|Deferred maintenance   revenue beginning balance            |  | $                                  | 2,249  |                                  | $
|Deferred maintenance   revenue recognized during period     |  |                                    | (1,226 | )                                |  
|Deferred maintenance revenue   of new maintenance contracts |  |                                    | 761    |                                  |  
|                                                            |  |                                    |        |                                  |  
|Deferred maintenance   revenue ending balance               |  | $                                  | 1,784  |                                  | $
|                                                            |  |                                    |        |                                  |  

|9. | Comprehensive Loss
|-- | ------------------

The Companys total comprehensive income (loss) for the periods shown was as follows (in thousands):

|                                    |  | Three   Months Ended   October 31, |      | Six Months   Ended   October 31, |  
|----------------------------------- |  | ---------------------------------- | ---- | -------------------------------- | -
|                                    |  |                                    |      |                                  |  
|                                    |  | 2006                               |      | 2005                             |  
|                                    |  |                                    |      |                                  |  
|Net income (loss)                   |  | $                                  | (187 | )                                | $
|Foreign currency   translation gain |  |                                    |     |                                  |  
|                                    |  |                                    |      |                                  |  
|Total   comprehensive income (loss) |  | $                                  | (187 | )                                | $
|                                    |  |                                    |      |                                  |  

14



|10. | Earnings (Loss) Per Share
|--- | -------------------------

SFAS No. 128, Earnings per Share, requires a dual presentation of basic and diluted income per share (EPS). Basic EPS excludes dilution and is computed by dividing net income (loss) attributable to common stockholders by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (e.g. convertible preferred stock, warrants, and common stock options) were exercised or converted into common stock. Potential common shares in the diluted EPS computation are excluded for the three-month period ended October 31, 2006, and the six-month periods ended October 31, 2006 and 2005, as their effect would be antidilutive. The following is a reconciliation of the numerators and denominators of the basic and diluted income per share computations for the periods indicated (in thousands, except per share data):

|                                                                                                 |  | Three   Months Ended   October 31, |        | Six Months   Ended   October 31, |  
|------------------------------------------------------------------------------------------------ |  | ---------------------------------- | ------ | -------------------------------- | -
|                                                                                                 |  |                                    |        |                                  |  
|                                                                                                 |  | 2006                               |        | 2005                             |  
|                                                                                                 |  |                                    |        |                                  |  
|Net income (loss) (Numerator):                                                                   |  |                                    |        |                                  |  
|Net income (loss), basic   and diluted                                                           |  | $                                  | (187   | )                                | $
|                                                                                                 |  |                                    |        |                                  |  
|Shares (Denominator):                                                                            |  |                                    |        |                                  |  
|Weighted average shares of   common stock outstanding, basic                                     |  |                                    | 29,524 |                                  |  
|Effect of dilutive   securities (stock options)                                                  |  |                                    |       |                                  |  
|                                                                                                 |  |                                    |        |                                  |  
|Weighted average shares of   common stock outstanding, diluted                                   |  |                                    | 29,524 |                                  |  
|                                                                                                 |  |                                    |        |                                  |  
|Per Share Amount:                                                                                |  |                                    |        |                                  |  
|Net income (loss) per   share, basic                                                             |  | $                                  | (0.01  | )                                | $
|Effect of dilutive   securities                                                                  |  |                                    |       |                                  |  
|                                                                                                 |  |                                    |        |                                  |  
|Net income (loss) per   share, diluted                                                           |  | $                                  | (0.01  | )                                | $
|                                                                                                 |  |                                    |        |                                  |  
|Weighted average   anti-dilutive stock options excluded from diluted net income (loss) per share |  |                                    | 2,512  |                                  |  
|                                                                                                 |  |                                    |        |                                  |  

15



|11. | Segment Information
|--- | -------------------

The Company maintains two segments for the Unify Business Solutions (UBS) division that sells and markets application development software and related services. The segments are the Americas, which includes the Companys international distributors, and Europe, including the UK, France and other direct European customers. The Company also previously 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   October 31, |       | Six Months   Ended   October 31, |  
|---------------------------------------------------------- |  | ---------------------------------- | ----- | -------------------------------- | -
|                                                           |  |                                    |       |                                  |  
|                                                           |  | 2006                               |       | 2005                             |  
|                                                           |  |                                    |       |                                  |  
|Total revenues:                                            |  |                                    |       |                                  |  
|UBS-Americas                                               |  | $                                  | 1,066 |                                  | $
|UBS-Europe                                                 |  |                                    | 1,124 |                                  |  
|                                                           |  |                                    |       |                                  |  
|Total   revenues from continuing operations                |  |                                    | 2,190 |                                  |  
|Total   revenues from discontinued operations              |  |                                    | 147   |                                  |  
|                                                           |  |                                    |       |                                  |  
|Total   revenues                                           |  | $                                  | 2,337 |                                  | $
|                                                           |  |                                    |       |                                  |  
|Operating Income (loss):                                   |  |                                    |       |                                  |  
|UBS-Americas                                               |  | $                                  | (168  | )                                | $
|UBS-Europe                                                 |  |                                    | 373   |                                  |  
|                                                           |  |                                    |       |                                  |  
|Total   operating income (loss) from continuing operations |  |                                    | 205   |                                  |  
|Total   operating loss from discontinued operations        |  |                                    | (478  | )                                |  
|                                                           |  |                                    |       |                                  |  
|Total   operating loss                                     |  | $                                  | (273  | )                                | $
|                                                           |  |                                    |       |                                  |  
|Interest income                                            |  | $                                  | 15    |                                  | $
|                                                           |  |                                    |       |                                  |  

Net revenues by geographic area were as follows (in thousands):

|                                              |  | Three   Months Ended   October 31, |       | Six Months   Ended   October 31, |  
|--------------------------------------------- |  | ---------------------------------- | ----- | -------------------------------- | -
|                                              |  |                                    |       |                                  |  
|                                              |  | 2006                               |       | 2005                             |  
|                                              |  |                                    |       |                                  |  
|Total revenues:                               |  |                                    |       |                                  |  
|Americas                                      |  | $                                  | 706   |                                  | $
|International   Distributors                  |  |                                    | 360   |                                  |  
|Central   Europe-Germany, Benelux, Others     |  |                                    | 288   |                                  |  
|United   Kingdom                              |  |                                    | 259   |                                  |  
|France                                        |  |                                    | 577   |                                  |  
|                                              |  |                                    |       |                                  |  
|Total revenues from   continuing operations   |  |                                    | 2,190 |                                  |  
|Total revenues from   discontinued operations |  |                                    | 147   |                                  |  
|                                              |  |                                    |       |                                  |  
|Total revenues                                |  | $                                  | 2,337 |                                  | $
|                                              |  |                                    |       |                                  |  

16



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-QSB 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-QSB 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 for the fiscal year ended April 30, 2006, as filed with the SEC.

Overview

Unify (the Company, we, us or our) provides software development and data management solutions to a global base of customers, partners and distributors. Our solutions deliver a broad set of capabilities for automating business processes, integrating and extending existing applications in a Service Oriented Architecture (SOA) environment and delivering collaborative and actionable information. Through our industry expertise and market-leading technologies, we help organizations drive business optimization, apply governance, and increase customer services.

Our products include application development and data management software that helps our customers automate and streamline business processes and extend existing applications with SOA. By consolidating, automating and managing data, our customers see increases in efficiencies and services, as well as reductions in costs.

On March 14, 2006, the Company entered into an Agreement and Plan of Merger with Halo Technology Holdings Inc. (Halo). Under the terms of the merger agreement Halo would acquire all of the outstanding stock of Unify. On September 13, 2006, Halo and Unify entered into a Termination Agreement terminating the merger agreement.

On September 13, 2006, the Company entered into a Purchase and Exchange Agreement with Halo whereby Unify agreed to purchase Gutpa 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.

In order to provide funding for the acquisition of Gupta, Unify obtained debt financing from ComVest Capital LLC (ComVest). On November 20, 2006, the Company entered into various agreements with ComVest whereby ComVest, along with participation from Special Situations Funds, would provide debt financing consisting of three 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 are to be repaid over a period of 48 to 54 months. The revolver has an interest rate of prime plus 2.25% and has a maturity date of October 31, 2010. As part of the financing, ComVest received 2,010,000 warrants and Special Situations Funds received 1,340,000 warrants. The warrants are for the purchase of common stock at prices from $0.27 to $0.38. The agreements provide for ComVest to have a security interest in substantially all of the Companys assets.

17



Prior to Unifys acquisition of Gupta, the Company was comprised of two divisions, the Unify Business Solutions (UBS) division and the Insurance Risk Management (IRM) division. As part of the Purchase and Exchange Agreement with Halo the IRM division was sold to Halo on November 20, 2006. Unify is  headquartered in Sacramento, California with a subsidiary office in France and a sales office in the United Kingdom (UK). UBS is comprised of our technology products including Unify NXJ, Unify Composer, ACCELL, DataServer and the VISION product families. UBS 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 and many other industries. We market and

sell products directly in the United States, UK and France, and indirectly through worldwide distributors in Australia, Brazil and Latin America with customers in more than 45 countries. Until its sale to Halo, our Insurance Risk Management (IRM) division provided a policy administration and underwriting solution, NavRisk, for the alternative risk market. The alternative risk market includes public entity risk pools made up of cities, counties, special districts, third party administrators and insurance carriers that administer self-insurance funds for public entities, captives and other self-insured groups.

Unifys mission is to deliver application development and data management technology solutions that give customers a highly productive and rich user experience while adhering to the open standards of SOA.  Our strategy is to leverage our award-winning Web services and process automation technology to deliver a broad set of solutions that streamline and automate processes and workflow; present rich user experiences; and deliver consolidated actionable information from multiple sources. We believe our technology portfolio creates a unique and compelling offering in the marketplace as we offer customers a better way to build, integrate, and maintain business applications cost effectively.

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

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 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. With the exception of its NavRisk product, the Company recognizes revenue for software license sales in accordance with Statement of Position 97-2, Software Revenue Recognition. For the NavRisk product, the Company recognizes 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 Company exercises 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 determines how revenues and related costs are recognized.

With the exception of the NavRisk software application, the Companys products are generally sold with a perpetual license. The Company sells the NavRisk software under both perpetual and term licenses. Term licenses allow the customer to use the NavRisk software for a fixed period of time, generally 3 to 5 years, and at the conclusion of the term the customer must cease using the software or purchase a new license term. The customer does not receive any additional software during the license term. Under both perpetual and term licenses the customer can, at their discretion, elect to purchase related maintenance and support on an annual basis.

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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.

For arrangements of $10,000 or more a signed noncancelable license agreement is required for revenue recognition. For arrangements that are less than $10,000 the Company considers 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.

For software license arrangements that do require significant modification or customization of the underlying software, revenue is recognized based on contract accounting under the provisions of Accounting Research Bulletin (ARB) 45, Long-Term Construction Type Contracts and Statement of Position (SOP) 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts.  This guidance is followed since contracts with customers purchasing the NavRisk application require significant configuration to the software and the configuration activities are essential to the functionality of the software.  The Company is using the completed-contract method for revenue recognition as it has limited experience determining the accuracy of progress-to-completion estimates for installation hours and project milestones.  Under the completed-contract method, 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. When a contract is completed, revenue is recognized and deferred costs are expensed.

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 consists of fees for ongoing support and unspecified product updates, is 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.

Valuation of Long-Lived Assets

Our long-lived assets are comprised of long-term investments. At October 31, 2006, we had $214,000 in long-term investments, which are accounted for under the cost method. 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

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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 additional impairment charges in the future.

Deferred Tax Asset Valuation Allowance

As of October 31, 2006, we have approximately $5 million of deferred tax assets related principally to net operating loss carryforwards, reserves and other accruals, deferred revenue, and foreign tax credits. 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.

Results of Operations

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

|                                                  |  | Three   Months Ended   October 31, |       | Six Months   Ended   October 31, | 
|------------------------------------------------- |  | ---------------------------------- | ----- | -------------------------------- | 
|                                                  |  |                                    |       |                                  | 
|                                                  |  | 2006                               |       | 2005                             | 
|                                                  |  |                                    |       |                                  | 
|Revenues:                                         |  |                                    |       |                                  | 
|Software   licenses                               |  |                                    | 35.8  | %                                | 
|Services                                          |  |                                    | 64.2  | %                                | 
|                                                  |  |                                    |       |                                  | 
|Total   revenues                                  |  |                                    | 100.0 | %                                | 
|                                                  |  |                                    |       |                                  | 
|Cost of Revenues:                                 |  |                                    |       |                                  | 
|Software   licenses                               |  |                                    | 1.4   | %                                | 
|Services                                          |  |                                    | 11.7  | %                                | 
|                                                  |  |                                    |       |                                  | 
|Total   cost of revenues                          |  |                                    | 13.1  | %                                | 
|                                                  |  |                                    |       |                                  | 
|Gross profit                                      |  |                                    | 86.9  | %                                | 
|                                                  |  |                                    |       |                                  | 
|Operating Expenses:                               |  |                                    |       |                                  | 
|Product   development                             |  |                                    | 17.9  | %                                | 
|Selling,   general and administrative             |  |                                    | 59.7  | %                                | 
|                                                  |  |                                    |       |                                  | 
|Total   operating expenses                        |  |                                    | 77.6  | %                                | 
|                                                  |  |                                    |       |                                  | 
|Income   (loss) from continuing operations        |  |                                    | 9.3   | %                                | 
|Other income, net                                 |  |                                    | 3.9   | %                                | 
|                                                  |  |                                    |       |                                  | 
|Income   from continuing operations before taxes  |  |                                    | 13.2  | %                                | 
|Provision for income taxes                        |  |                                    |      | %                                | 
|                                                  |  |                                    |       |                                  | 
|Net   income from continuing operations           |  |                                    | 13.2  | %                                | 
|Loss from discontinued   operations, net of taxes |  |                                    | (21.8 | )%                               | 
|                                                  |  |                                    |       |                                  | 
|Net   income (loss)                               |  |                                    | (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. Total revenues from continuing operations for the second quarter in fiscal 2007 were $2.2 million, a decrease of $0.2 million, or 8% from fiscal 2006 second quarter revenues of $2.4 million. Total revenues from continuing operations for the six months ended October 31, 2006 were $3.9 million, a decrease of $.9 million, or 19% from fiscal 2006 when revenues for the same period were $4.8 million.

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The reduction in total revenue is entirely related to a decrease in software license revenues on a year over year basis. For the last several years we have experienced a revenue decline in our mature database and tools product as we are no longer attracting the volume of new customers we have historically, and existing customers are considering competitors products for new projects more often.

Total software licenses revenue from continuing operations in the second quarter of fiscal 2007 were $0.8 million, a decrease of $0.2 million from fiscal 2006. For the six months ended October 31, 2006, software license revenue from continuing operations was $1.2 million compared to $2.1 for the six months ended October 31, 2005. Total services revenues from continuing operations in the second quarter of fiscal 2007, were $1.4 million, an increase of $0.1 million from the second quarter of fiscal 2006. Services revenue from continuing operations was $2.7 million for the first six months of fiscal 2007, and was $2.8 million for the same period in fiscal 2006.

Consulting revenue from continuing operations for the second quarter for fiscal 2007 and 2006, was $0.2 and $0.1 million respectively.  Consulting revenue from continuing operations for the six months ended October 31, 2006 and 2005, was $0.3 million.

Cost of Revenues

Cost of software licenses from continuing operations consists primarily of product packaging and production costs as well as the amortization of royalties and license fees paid for licensed technology. Cost of software licenses was $31,000 for the second quarter of fiscal 2007, and $121,000 for the second quarter of fiscal 2006. For the six months ended October 31, 2006, cost of software licenses was $69,000 compared to $260,000 for the six months ended October 31, 2005. Cost of software licenses was higher in fiscal 2006 than fiscal 2007, because of higher costs associated with order processing and shipping in fiscal 2006. Costs associated with royalties and other direct production costs are expensed as incurred at the time of the sale and purchased technology from third parties are amortized ratably over their expected useful lives.

Cost of services from continuing operations 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 the second quarter of fiscal 2007 and fiscal 2006. Costs for consulting and training services were $0.1million for the second quarter of fiscal 2007 and fiscal 2006. Product support costs were $0.2 million in the second quarter of both fiscal 2007 and fiscal 2006.

Product Development

Product development expenses from continuing operations 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 were $0.4 million in the second quarter of fiscal 2007 and fiscal 2006. For the six months ended October 31, 2006 product development costs were $0.8 million compared to $0.9 million for the six months ended October 31, 2005.

Selling, General and Administrative

Selling, general and administrative (SG&A) expenses from continuing operations consist primarily of salaries and benefits, marketing programs, travel expenses, professional services, facilities expenses and bad debt expense or recoveries. SG&A expenses were $1.3 million for the second quarter in fiscal 2007, and $1.3 million for the same period in fiscal 2006. The major components of SG&A in the second quarter of fiscal 2007, were sales expenses of $0.6 million, marketing expenses of $0.1 million and general and administrative expenses of $0.6 million. Included in the general and administrative expenses in the second quarter of fiscal 2007, was $132,000 in legal, accounting and printer expenses related to the proposed merger with Halo that was subsequently terminated. For the second quarter of fiscal 2006, the major components of SG&A were sales expenses of $0.6 million, marketing expenses of $0.2 million, and general and
administrative expenses of $0.5 million.

Discontinued Operations

Beginning in the second quarter of fiscal 2007, the Companys IRM division and its ViaMode software product were classified as discontinued operations. Loss from discontinued operations for the three months ended October 31, 2006 and 2005, was $0.5 million and $0.3 million, respectively and for the six months ended October 31, 2006 and 2005, loss from discontinued operations was $0.9 million and $0.5 million, respectively. .

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Provision for Income Taxes

No federal or state tax provisions were recorded in the three and six-month period ended October 31, 2006, as the Company has significant net operating loss carryforwards.

Liquidity and Capital Resources

At October 31, 2006, the Company had cash and cash equivalents of $1.4 million, compared to $1.9 million at April 30, 2006. Working capital from continuing operations at the end of the second quarter of fiscal 2007, was $0.1 million compared to $1.0 million at the end of fiscal 2006.

On August 2, 2006, the Company extended its line of credit arrangement with Silicon Valley Bank. This line of credit was to expire on August 3, 2006, but the line was extended until November 3, 2006. The line expired on November 3, 2006 and was not renewed. As of October 31, 2006 the Company had no outstanding debt under the line of credit. The line of credit had a borrowing limit of $1.0 million. The line of credit was secured by qualifying foreign and domestic accounts receivable. The Company will incur interest expense on borrowings of the line of credit at the prevailing prime rate plus 2.0%. The prime rate used to calculate interest shall not be less than 4.0%.

On September 13, 2006, the Company entered into a Purchase and Exchange Agreement with Halo Technology Holdings, Inc. (Halo) whereby Unify agreed to purchase Gutpa 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.

In order to provide funding for the acquisition of Gupta, Unify obtained debt financing from ComVest Capital LLC (ComVest). On November 20, 2006, the Company entered into various agreements with ComVest whereby ComVest, along with participation from Special Situations Funds, would provide debt financing consisting of three 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 are to be repaid over a period of 48 to 54 months. The revolver has an interest rate of prime plus 2.25% and has a maturity date of October 31, 2010.

Overall, cash has decreased by $0.5 million for the first six months of fiscal 2007. Cash flows from continuing operations provided by operating activities were $0.4 million for the first six months of fiscal 2007, compared to a usage of cash from operations of $0.5 million for the first six months of fiscal 2006. Primary reasons operating cash was provided in the first six months of fiscal 2007 were the result of the decrease in accounts receivable of $1.9 million from collections, an increase in other liabilities of $0.2 million and depreciation of $0.1 million offset by the decrease in deferred revenue of $1.1 million, a decrease in accrued compensation of $0.3 million and an increase in prepaid expenses and other current assets of $0.5 million. The increase in prepaid expenses and other current assets is primarily the result of a $0.5 million payment made in the second quarter of fiscal 2007, to Halo Technology Holdings, Inc. as a deposit related to the Gupta
Technologies acquisition.

Cash from continuing operations used in investing activities for the first six months of fiscal 2007 and fiscal 2006, was $32,000 and $24,000 respectively, and was the result of the purchase of equipment. Cash used in financing activities from continuing operations for the first six months of fiscal 2007 and fiscal 2006 was $0.1 million and $0.7 million, respectively. The Companys cash flow also reflects an increase in cash of $12,000 for the first six months of fiscal 2007, as a result of the effect of currency exchange rates related to international operations.

Cash used by discontinued operations for the first six month period of fiscal 2007 and fiscal 2006, was $1.0 million and $0.6 million, respectively.

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A summary of certain contractual obligations from continuing operations as of October 31, 2006, is as follows (in thousands):

|                                     |  | Payments   Due by Period |      
|------------------------------------ |  | ------------------------ | -----
|                                     |  |                          |      
|Contractual Obligations              |  | Total                    |      
|                                     |  |                          |      
|Short-term borrowings                |  | $                        | 74   
|Capital lease obligations            |  |                          | 7    
|Other long-term   liabilities        |  |                          | 79   
|Operating leases                     |  |                          | 1,568
|                                     |  |                          |      
|Total contractual cash   obligations |  | $                        | 1,728
|                                     |  |                          |      

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; 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.

The Companys quarterly operating results have varied significantly in the past, and the Company expects that its operating results are likely to vary significantly from time to time in the future. Such variations result from, among other factors, the following:  the size and timing of significant orders and their fulfillment; demand for the Companys products; ability to sell new products; the number, timing and significance of product enhancements and new product announcements by the Company and its competitors; ability of the Company to attract and retain key employees; the Companys ability to integrate and manage acquisitions; seasonality; changes in pricing policies by the Company or its competitors; realignments of the Companys organizational structure; changes in the level of the Companys operating expenses; changes in the Companys sales incentive plans; budgeting cycles of the Companys customers; customer
order deferrals in anticipation of enhancements or new products offered by the Company or its 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 be difficult to forecast. Revenues may also be difficult to forecast because the market for software continues to evolve and the Companys sales cycle, from initial evaluation to purchase and the provision of maintenance services, can be lengthy and vary substantially from customer to customer. Because the Company normally ships products within a short time after it receives an order, it typically does not

23



have any material backlog. As a result, to achieve its quarterly revenue objectives, the Company is 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, the Company generally recognizes a substantial portion of its license revenues at the end of a quarter. As the Companys expense levels are based in significant part on the Companys expectations as to future revenues and are therefore relatively fixed in the short term, if revenue levels fall below expectations, operating results are likely to be disproportionately adversely affected. The Companys operating results are generally negatively affected by seasonal trends as it experiences weaker demand in the first and second quarters of the fiscal year as a result of reduced business activity in the summer months, particularly in Europe.

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 $1.4 million at October 31, 2006. Unify had no short-term investments at October 31, 2006. Additionally, the Company does not believe its exposure to interest rate risk is material for debt as of October 31, 2006. On a combined basis, the current and long-term portions of debt and short-term borrowings totaled $81,000 in the second quarter of fiscal 2007.

In November 2006, the Company entered into a revolving credit facility agreement with ComVest Capital LLC whereby ComVest would provide up to $2.5 million through the revolving credit facility. The revolver has an interest rate of prime plus 2.25% and has a maturity date of October 31, 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.

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 owed to the Company as a result of local currency sales of software licenses by the Companys international subsidiary in France. At October 31, 2006, the Company had $0.2 million in such receivables denominated in Euros. 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 would have an insignificant 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.

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(b)  Changes in Internal Controls. There have been no changes in our internal controls over financial reporting that occurred during the quarter ended October 31, 2006, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

UNIFY CORPORATION

|PART II. | OTHER   INFORMATION
|-------- | -------------------

Item 1.  Legal Proceedings

Litigation

The Company is subject to legal proceedings and claims that arise in the normal course of business. If such matters arise, the Company cannot assure that it would prevail in such matters, nor can it assure that any remedy could be reached on mutually agreeable terms, if at all. Due to the inherent uncertainties of litigation, were there any such matters, the Company would not be able to accurately predict their ultimate outcome. As of October 31, 2006, there were no current proceedings or litigation involving the Company that management believes would have a material adverse impact on its financial position, results of operations, or 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 13, 2006 | Unify Corporation
|----------------------- | -----------------
|                        | (Registrant)     
|                        |                  
|                        |                  
|                        | By:              
|                        |                  
|                        |                  
|                        |                  
|                        |                  

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