---

---

UNITED STATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C.
20549

______________________________________

Form 10-Q/A

|x                                                     |  | Quarterly report
      pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934 
|----------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------
|                                                      |  |                                                                                                     
|For the
      quarterly period ended January 31, 2007
|                                                     
|OR                                                   
|                                                     
|o                                                     |  | Transition report
      pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934
|                                                      |  |                                                                                                     
|Commission File Number: 001-11807                    
|______________________________________               
|                                                     

|UNIFY
      CORPORATION                                     
|------------------------------------------------------------
|(Exact name
      of registrant as specified in its charter)
|                                                            
|Delaware                                                    
|(State or
      other jurisdiction of                       
|incorporation
      or organization)                        

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

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

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

YES x    NO o

Indicate by check mark whether the
registrant is 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:
29,720,608 shares of common stock, $0.001 par value, as of February 28,
2007.

---

---

---

EXPLANATORY NOTE

Amendment No. 2 to the Quarterly
Report on Form 10-Q/AFor the Quarterly Period Ended January 31,
2007

In December 2007, an error was identified related to our accounting for the acquisition of Gupta Technologies LLC
(Gupta) in November 2006. The acquisition of Gutpa was part of a purchase and
exchange agreement whereby, in addition to acquiring Gupta, the Company also
sold its Insurance Risk Management Division. In accounting for the purchase and
exchange transaction, the Company incorrectly capitalized certain future
payments as direct costs of the sale and acquisition. The future payments should
have been expensed and in this filing the Company is restating its unaudited
condensed consolidated financial statements. The Company is also revising Item
4. Controls and Procedures.

2

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UNIFY CORPORATIONFORM 10-Q/A

INDEX

|PART I.        |  | FINANCIAL
      INFORMATION                                                                     | 4 
|-------------- |  | ----------------------------------------------------------------------------------------------- | --
|               |  |                                                                                                 |   
|Item 1.        |  | Financial
      Statements                                                                      | 4 
|               |  |                                                                                                 |   
|               |  | Unaudited Condensed
      Consolidated Balance Sheets as of January 31, 2007 Restated
      and | 4 
|               |  | April 30,
      2006                                                                            |   
|               |  |                                                                                                 |   
|               |  | Unaudited Condensed
      Consolidated Statements of Operations for the three and
      nine    | 5 
|               |  | months ended January 31,
      2007 Restated and 2006                                           |   
|               |  |                                                                                                 |   
|               |  | Unaudited Condensed
      Consolidated Statements of Cash Flows for the nine months             | 6 
|               |  | ended January 31, 2007
      Restated and 2006                                                  |   
|               |  |                                                                                                 |   
|               |  | Notes to Unaudited
      Condensed Consolidated Financial Statements                            | 7 
|               |  |                                                                                                 |   
|Item 2.        |  | Managements Discussion
      and Analysis of Financial Condition and Results of                | 21
|               |  | Operations                                                                                      |   
|               |  |                                                                                                 |   
|Item 3.        |  | Quantitative and
      Qualitative Disclosures about Market Risk                                | 28
|               |  |                                                                                                 |   
|Item 4.        |  | Controls and
      Procedures                                                                   | 29
|               |  |                                                                                                 |   
|PART II.       |  | OTHER
      INFORMATION                                                                         | 30
|               |  |                                                                                                 |   
|Item 1.        |  | Legal
      Proceedings                                                                         | 30
|               |  |                                                                                                 |   
|Item 6.        |  | Exhibits                                                                                        | 31
|              
|SIGNATURE      |  |                                                                                                 | 32
|               |  |                                                                                                 |   
|CERTIFICATIONS |  |                                                                                                 |   

3

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

UNIFY CORPORATIONUNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS(In
thousands)

|                                                                             | January 31,        |         |              
|---------------------------------------------------------------------------- | ------------------ | ------- | -------------
|                                                                             | **2007**           |         | **April 30,**
|                                                                             | **(****Restated)** |         | **2006**     
|ASSETS                                                                       |                    |         |              
|Current
      assets:                                                        |                    |         |              
|Cash and cash equivalents                                                    | $                  | 2,164   |              
|Accounts
      receivable, net                                               |                    | 4,590   |              
|Prepaid expenses and other current assets                                    |                    | 595     |              
|Assets of
      discontinued operations held for sale                        |                    |        |              
|Total current assets                                                         |                    | 7,349   |              
|                                                                            
|Property
      and equipment, net                                            |                    | 262     |              
|Investments                                                                  |                    | 214     |              
|Goodwill                                                                     |                    | 5,958   |              
|Intangibles,
      net                                                       |                    | 2,827   |              
|Other
      assets, net                                                      |                    | 1,157   |              
|Total
      assets                                                           | $                  | 17,767  |              
|                                                                            
|LIABILITIES AND STOCKHOLDERS' EQUITY                                         |                    |         |              
|Current
      liabilities:                                                   |                    |         |              
|Accounts payable                                                             | $                  | 665     |              
|Short-term
      borrowings and current portion of long-term debt            |                    | 1,089   |              
|Accrued compensation and related expenses                                    |                    | 959     |              
|Accrued acquisition costs                                                    |                    | 684     |              
|Other accrued liabilities                                                    |                    | 1,197   |              
|Deferred revenue                                                             |                    | 4,780   |              
|Liabilities of discontinued operations                                       |                    |        |              
|Total current liabilities                                                    |                    | 9,374   |              
|                                                                            
|Long-term
      debt, net of current portion                                 |                    | 6,637   |              
|Other long-term
      liabilities                                            |                    | 117     |              
|                                                                            
|Commitments
      and contingencies                                          |                    |        |              
|                                                                            
|Stockholders equity:                                                        |                    |         |              
|Common
      stock                                                           |                    | 30      |              
|Additional paid-in capital                                                   |                    | 65,586  |              
|Accumulated
      other comprehensive income (loss)                          |                    | (6      | )            
|Accumulated deficit                                                          |                    | (63,971 | )            
|Total
      stockholders equity                                             |                    | 1,639   |              
|Total liabilities and stockholders equity                                   | $                  | 17,767  |              
|                                                                            
|                                                                            
|See
      accompanying notes to condensed consolidated financial statements.

4

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

|                                                            | Three Months Ended |        | Nine Months Ended
|----------------------------------------------------------- | ------------------ | ------ | -----------------
|                                                            | January 31,        |        | January 31,      
|                                                            | 2007               |        |                  
|                                                            | (Restated)         |        | 2006             
|Revenues:                                                   |                    |        |                  
|Software licenses                                           | $                  | 1,538  |                  
|Services                                                    |                    | 1,772  |                  
|Total
      revenues                                        |                    | 3,310  |                  
|                                                           
|Cost of
      Revenues:                                     |                    |        |                  
|Software licenses                                           |                    | 217    |                  
|Services                                                    |                    | 224    |                  
|Total cost of
      revenues                                |                    | 441    |                  
|Gross profit                                                |                    | 2,869  |                  
|                                                           
|Operating
      Expenses:                                   |                    |        |                  
|Product
      development                                   |                    | 789    |                  
|Selling,
      general and administrative                   |                    | 2,578  |                  
|Total operating
      expenses                              |                    | 3,367  |                  
|Income (loss)
      from operations                         |                    | (498   | )                
|Other income (expense), net                                 |                    | (202   | )                
|Income (loss)
      from continuing operations before       |                    |        |                  
|income
      taxes                                          |                    | (700   | )                
|Provision for income
      taxes                            |                    | 77     |                  
|Income (loss)
      from continuing operations              |                    | (777   | )                
|Loss from
      discontinued operations                     |                    | (505   | )                
|Net
      loss                                              | $                  | (1,282 | )                
|                                                           
|Net income (loss) per
      share:                          |                    |        |                  
|Basic earnings per
      share:                             |                    |        |                  
|Continuing operations                                       | $                  | (0.02  | )                
|Discontinued operations                                     | $                  | (0.02  | )                
|Net loss per share                                          | $                  | (0.04  | )                
|                                                           
|Dilutive
      earnings per share:                          |                    |        |                  
|Continuing
      operations                                 | $                  | (0.02  | )                
|Discontinued operations                                     | $                  | (0.02  | )                
|Net loss
      per share                                    | $                  | (0.04  | )                
|                                                           
|Shares used in computing net
      income (loss) per share: |                    |        |                  
|Basic                                                       |                    | 29,678 |                  
|Dilutive                                                    |                    | 29,678 |                  

See accompanying notes to condensed consolidated
financial statements.

5

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UNIFY CORPORATIONUNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In
thousands)

|                                                                                           | Nine Months
      Ended
|------------------------------------------------------------------------------------------ | -----------------------
|                                                                                           | January 31,            
|                                                                                           | 2007                   
|                                                                                           | **(Restated)**         
|Cash flows
      from operating activities:                                                |                        
|Net
      loss                                                                             | $                      
|Loss from discontinued operations                                                          |                        
|Income (loss) from continuing
      operations                                             |                        
|                                                                                          
|Reconciliation of income (loss) to net cash used in continuing
      operating activities: |                        
|Depreciation                                                                               |                        
|Loss on disposal of equipment                                                              |                        
|Amortization                                                                               |                        
|Fulfillment of support obligations                                                         |                        
|Discount on notes payable                                                                  |                        
|Stock based expense                                                                        |                        
|Changes in operating assets and liabilities:                                               |                        
|Accounts
receivable                                                                        |                        
|Prepaid expenses and other current
    assets                                              |                        
|Other long term
    assets                                                                 |                        
|Accounts payable                                                                           |                        
|Accrued compensation and related
      expenses                                            |                        
|Other accrued liabilities                                                                  |                        
|Accrued acquisition costs                                                                  |                        
|Deferred revenue                                                                           |                        
|Other long term
    liabilities                                                            |                        
|Net cash
      used in continuing operating activities                                     |                        
|Cash flows
      from investing activities:                                                |                        
|Acquisition, net of cash acquired                                                          |                        
|Purchases of property and equipment                                                        |                        
|Net cash
      used in investing activities of continuing operations                       |                        
|Cash flows
      from financing activities:                                                |                        
|Proceeds from issuance of common stock, net                                                |                        
|Proceeds from debt obligations                                                             |                        
|Short-term borrowings                                                                      |                        
|Principal payments under debt obligations                                                  |                        
|Net cash
      provided by financing activities from continuing
operations                 |                        
|                                                                                          
|Effect of
      exchange rate changes on cash                                              |                        
|Cash flows of discontinued
      operations:                                               |                        
|Net cash used in operating activities                                                      |                        
|Net cash used
      in investing activities                                                |                        
|Net cash used in financing activities                                                      |                        
|                                                                                          
|Net
      increase (decrease) in cash and cash equivalents                                 |                        
|Cash and cash equivalents,
      beginning of period                                       |                        
|Cash and
      cash equivalents, end of period                                             | $                      
|                                                                                          
|Supplemental cash flow information for continuing
      operations:                        |                        
|Cash received
      (paid) during the period for:                                          |                        
|Interest                                                                                   | $                      
|See accompanying notes
      to condensed consolidated financial
statements.              

6

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UNIFY CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTSJanuary 31, 2007

1. Basis of Presentation and Restatement of
Financial Statements

Basis of Presentation

The condensed consolidated financial statements have
been prepared by Unify Corporation (the Company, we, us, our) pursuant
to the rules and regulations of the Securities and Exchange Commission (SEC).
While the interim financial information contained in this filing is unaudited,
such financial statements, in the opinion of management, reflect all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation. The results for interim periods are not
necessarily indicative of the results to be expected for the entire fiscal year.
These financial statements should be read in conjunction with the Consolidated
Financial Statements and Notes thereto, together with Managements Discussion
and Analysis of Financial Condition and Results of Operations, which are
included in the Companys Annual Report on Form 10-K for the fiscal year ended
April 30, 2006 as filed with the SEC.

Restatement

In December 2007, the Company determined
that due to an accounting error it would restate its consolidated financial
statements for the fiscal year ended April 30, 2007 included in its 2007 Annual
Report on Form 10-K and its condensed consolidated financial statements for the
quarters ended January 31, 2007 and July 31, 2007. The decision to restate the
consolidated financial statements was made by the Audit Committee of the
Companys Board of Directors. The restatement reflects the
identification of an error related to the accounting for the acquisition of
Gupta Technologies LLC (Gupta) in November 2006. The acquisition of Gutpa was
part of a purchase and exchange agreement whereby, in addition to acquiring
Gupta, the Company also sold its Insurance Risk Management Division. In
accounting for the purchase and exchange transaction, the Company incorrectly
capitalized $384,000 in future payments as direct costs of the sale and
acquisition. The future payments of $384,000 have been determined to be indirect
costs of the sale and should have been expensed. The restatement increases the Companys loss
from discontinued operations for the fiscal year ended April 30, 2007 and the
quarter ended January 31, 2007 by $384,000 and increases the Companys net loss
by the same amount. The restatement also decreases the amount reported as
goodwill by $384,000 as of April 30, 2007 and the quarters ended January 31,
2007 and July 31, 2007.

The following table reflects the impact of
the restatement on the Companys Unaudited Condensed Consolidated Statements of
Operations for the three and nine months ended January 31, 2007 (in thousands,
except per share data):

|                                   |  | Three Months Ended   |       | Nine Months Ended   
|---------------------------------- |  | -------------------- | ----- | --------------------
|                                   |  | January 31,
    2007 |       | January 31,
    2007
|                                   |  | Amounts              |       |                     
|                                   |  | Previously           |       | As                  
|                                   |  | Reported             |       | Restated            
|Loss from discontined operations   |  | $                    | (121  | )                   
|Net
      loss                     |  |                      | (898  | )                   
|                                  
|Net loss per share:                |  |                      |       |                     
|Basic earnings per share:          |  |                      |       |                     
|Continuing operations              |  | $                    | (0.02 | )                   
|Discontinued operations            |  |                      | (0.01 | )                   
|Net loss per share                 |  | $                    | (0.03 | )                   
|                                  
|Net loss per share:                |  |                      |       |                     
|Dilutive earnings per
      share: |  |                      |       |                     
|Continuing operations              |  | $                    | (0.02 | )                   
|Discontinued operations            |  |                      | (0.01 | )                   
|Net loss per share                 |  | $                    | (0.03 | )                   

7



---

The following table reflects the impact of
the restatement on the Companys Unaudited Condensed Consolidated Balance Sheet
for period ended January 31, 2007 (in thousands):

January 31, 2007AmountsPreviously
    
    AsReported
    
    RestatedASSETSGoodwill
    
    $
    6,342
    
    
    $
    5,958Total Assets
    
    
    18,151
    
    
    
    17,767LIABILITIES
      AND STOCKHOLDERS' EQUITYAccrued acquisition costs
    
    $
    
    
    
    $
    684Other accrued liabilities
    
    
    1,881
    
    
    
    1,197Accumulated deficit
    
    
    (63,587
    )
    
    
    (63,971
    )Total stockholders' equity
    
    
    2,023
    
    
    
    1,639Total liabilities and stockholders' equity
    
    
    18,151
    
    
    
    17,767


The following table reflects the impact of
the restatement on the Companys Unaudited Condensed Statement of Cash Flows for
the nine months ended January 31, 2007 (in thousands):

Nine Months EndedJanuary 31,
    2007AmountsPreviously
    
    AsReported
    
    RestatedNet loss
    
    $
    (1,838
    )
    
    $
    (2,222
    )Loss from
      discontinued operations
    
    
    (1,061
    )
    
    
    (1,445
    )Other accrued liabilities
    
    
    (371
    )
    
    
    (1,055
    )Accrued
      acquisition costs
    
    
    
    
    
    
    684Acquisition, net of cash acquired
    
    
    (6,104
    )
    
    
    (5,720
    )Net cash used in
      investing activities of continuing operations
    
    
    (6,164
    )
    
    
    (5,780
    )Net cash used in operating activities
    
    
    (1,060
    )
    
    
    (1,444
    )





8


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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.

For software license arrangements that do not require
significant modification or customization of the underlying software, revenue is
recognized when the software product or service has been shipped or
electronically delivered, the license fees are fixed and determinable,
uncertainties regarding customer acceptance are resolved, collectibility is
probable and persuasive evidence of an arrangement exists.

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

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
Contractsand 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.

9

---

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 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.

10

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In June 2006, the Financial Accounting Standards
Board (FASB) issued Interpretation (FIN) No. 48Accounting 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 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 February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial
Liabilities("SFAS 159"). SFAS 159 provides companies
with an option to report selected financial assets and liabilities at fair value
at specified election dates. SFAS 159 is effective for fiscal years beginning
after November 15, 2007. We are currently assessing the impact, if any, of SFAS
159 on our consolidated financial statements.

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 all
of the outstanding stock of Gupta Technologies LLC (Gupta) from Halo in
exchange for (i) the Companys Insurance Risk Management (IRM) division, (ii)
the Companys ViaMode software, (iii) $6,100,000 in cash, and (iv) the amount,
if any, by which Guptas net working capital exceeds IRMs net working capital
at the close of the transaction. The Companys acquisition of Gupta was
consummated on November 20, 2006. The total purchase price for Gupta was $7.8
million. Gupta was founded in 1984 and is a leading producer of secure,
small-footprint, embeddable databases and enterprise application development
tools. The acquisition resulted in additional revenue and market share in the
Companys core markets and significantly enhances the distribution channels
through which the Companys products can be sold. Gupta is headquartered in
Redwood Shores, California and has offices in Germany and the UK and has
distributors and partners in more than 40 countries around the world. Guptas
results of operations are included in the Companys results from the date of
acquisition, November 20, 2006, to January 31, 2007.

11

---

On November 20, 2006, the Company entered into
various agreements with ComVest Capital LLC (ComVest) whereby ComVest, along
with participation from Special Situations Funds, provided debt financing for
the Gupta acquisition. The debt financing consisted of $5.35 million in
convertible term notes and a revolver of up to $2.5 million. There are three
tranches that comprise the convertible term notes, Tranche 1 is for $1,000,000,
Tranche 2 is for $3,250,000 and Tranche 3 is for $1,100,000. The term loans have
an interest rate of 11.25% and have repayment terms of 48 to 60 months. As part
of the debt financing the Company provided the lenders with 3,350,000 warrants
to purchase common stock. There are 1,000,000 warrants to purchase common stock
at a price of $0.27 per share, 1,350,000 warrants at a price of $0.32 per share
and 1,000,000 warrants at a price of $0.38 per share. The warrants have an
expiration date of October 31, 2012.Additionally, the
holder of the term notes may, at their option, upon written notice to Unify
given at any time and from time to time from the date Unify has sufficient
authorized, unissued and unreserved shares of common stock convert the
outstanding principal and any accrued interest into shares of Unify common
stock. Tranche 1 is convertible at $0.50 per common share and Tranches 2 and 3
are convertible at $1.00 per common share. Unify may require conversion of the
convertible term notes if its common stock price closes at or above 160% of the
applicable conversion price for 20 or more consecutive market days. The
agreement provides for ComVest to have a security interest in substantially all
of the Companys assets.

Unaudited Pro Forma Financial Information

The unaudited financial information in the table
below summarizes the combined results of the operations of Unify and Gupta, on a
pro forma basis, as though the companies had been combined as of May 1, 2005.
The pro forma information gives effect to the acquisition of Gupta and the sale
of both the Companys IRM division and its ViaMode Product. The pro forma
information also assumes the financing raised in connection with the acquisition
took place on May 1, 2005.

The unaudited pro forma financial information
combines the historical results of Unify for the twelve months ended April 30,
2006 and the six months ended October 31, 2006 and, due to differences in our
reporting periods, the historical results of Gupta for the twelve months ended
June 30, 2006 and the six months September 30, 2006.

| |                                             |  | Twelve
      months   |        |                        |  |  
| | ------------------------------------------- |  | --------------------- | ------ | ---------------------- |  | -
| |                                             |  | ended
      April 30, |        | Six
      months ended
| | (in thousands, except per share
      data) |  | 2006                  |        | October 31, 2006      
| | Total
      revenues                        |  | $                     | 21,600 |                        |  | $
| | Net income                                  |  | $                     | 1,320  |                        |  | $
| | Basic net
      income per share            |  | $                     | 0.05   |                        |  | $
| | Diluted net income per
      share          |  | $                     | 0.04   |                        |  | $

The unaudited pro forma information is not
necessarily indicative of the operational results or of the financial position
that would have occurred if the acquisition had been consummated on the dates
indicated, nor is it necessarily indicative of future operating results or
financial position of the consolidated enterprise.

Acquisition Related Charges

Acquisition related charges associated with the Gupta
Purchase totaled approximately $610,000 for the three and nine months ended
January 31, 2007 and related entirely to the acquisition of Gupta on November
20, 2006. The charges consisted of integration-related professional services of
$24,000, professional fees of $110,000, personnel related costs for transitional
employees of $398,000 and stock-based compensation expenses of $78,000.
Stock-based compensation included in acquisition related charges resulted from
the acceleration of unvested options for IRM division employees that were
terminated in conjunction with the sale of the IRM division to Halo. Expenses
associated with disposal of the Insurance Risk Management Division for the three
months ended January 31 2007, were $419,000.

Discontinued Operations

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 nine months ended January 31, 2007 and 2006, respectively. In
addition, the assets and liabilities of the IRM division and the ViaMode
software product have been reclassified as held for sale in the Balance Sheet at
April 30, 2006. The divestitures of these businesses were made pursuant to the
Companys strategy to refocus on its core software development and embedded
database products.

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

12

---

|                                        | Three
      Months Ended |      | Nine
      Months Ended
|--------------------------------------- | ------------------------ | ---- | -----------------------
|                                        | January 31,              |      | January 31,            
|                                        | 2007                     |      | 2006                   
|Revenue                                 | $                        | 32   |                        
|Loss from discontinued
      operations | $                        | (505 | )                      

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

|                                                | April
      30,
|----------------------------------------------- | ---------------
|                                                | 2006           
|Accounts
      receivable                       | $              
|Other assets                                    |                
|Property
      and equipment, net               |                
|Intangibles,
      net                          |                
|Goodwill                                        |                
|Total assets                                    | $              
|                                               
|Accounts
      payable                          | $              
|Other accrued
      liabilities                 |                
|Accrued
      compensation and related expenses |                
|Deferred
      revenue                          |                
|Total liabilities                               | $              

Intangibles, net of amortization and goodwill
disposed of in the divestiture of the IRM division amounted to $212,000 and
$1,405,000, respectively. No amortization expense was recorded in the third
quarter ended January 31, 2007, as the related assets were held for sale prior
to their divestiture on November 20, 2006. 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 nine months ended January 31, 2007, equity-based
compensation expense was comprised of the following (in thousands):

Three
      Months Ended
    
    Nine
      Months EndedJanuary
      31,
    
    January
      31,2007
    
    2007Cost of
      Sales
    $
    
    
    $
    1Product
      Development
    
    
    
    
    5Selling,
      General and Administrative
    
    1
    
    
    24Total Equity-Based
      Compensation, Continuing Operations
    
    1
    
    
    30Equity-Based Compensation, Discontinued Operations
    
    3
    
    
    32Total Equity-Based
      Compensation
    $
    4
    
    $
    62


The cost above is expected to be recognized over a
weighted-average period of 1.62 years.

13

---

The impact of equity-based compensation expense on
net earnings and earnings per share for the three and nine months ended January
31, 2007, 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 January 31, 2007. This table does not include an estimate for
future grants that may be issued (amounts in thousands).

FYEApril 30,
    
    AmountRemainder
      of 2007
    
    $
    122008
    
    
    472009
    
    
    382010
    
    
    21Total
    
    $
    118


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 nine months ended January
31, 2006. 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 nine
months ended January 31, 2007 and 2006. 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
    
    Nine
      Months EndedJanuary 31,
    
    January 31,2007
    
    2006
    
    2007
    
    2006Net loss as
      reported
    $
    (1,282
    )
    
    $
    (688
    )
    
    $
    (2,222
    )
    
    $
    (795
    )Add: stock-based employee
      compensation included
    
    4
    
    
    
    
    
    
    
    62
    
    
    
    in reported
      net lossLess:
      stock-based employee compensation expense,determined under fair value method for all awards
    
    (4
    )
    
    
    (24
    )
    
    
    (62
    )
    
    
    (213
    )Pro forma net
      loss
    $
    (1,282
    )
    
    $
    (712
    )
    
    $
    (2,222
    )
    
    $
    (1,008
    )Net loss
      per share (basic and diluted), as reported
    $
    (0.04
    )
    
    $
    (0.02
    )
    
    $
    (0.08
    )
    
    $
    (0.03
    )Net loss per share (basic
      and diluted), pro forma
    $
    (0.04
    )
    
    $
    (0.02
    )
    
    $
    (0.08
    )
    
    $
    (0.03
    )


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 January 31, 2007 and 2006, respectively:
expected option life, 12 months following vesting; stock volatility of 195% and
233%; risk-free interest rates of 4.65% and 4.4% and no dividends during the
expected term. Not all stock options that have been granted will be exercised.
Accordingly, the Companys calculation of equity-based compensation expense
includes an adjustment for the estimated number of options that will be
forfeited.

Under the 2001 Stock Option Plan (the 2001 Option
Plan), the Company may grant options to purchase up to 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.

14

---

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

WeightedWeighted
    
    average remaining
    
    Aggregateaverage
    
    contractual
    
    intrinsicShares
    
    exercise price
    
    term (in
      years)
    
    value(1)Outstanding
      at April 30, 2006
    2,644,914
    
    
    $
    0.82
    
    6.60
    
    $
    171,848Granted
    375,000
    
    
    $
    0.27Exercised
    
    
    
    $
    Canceled or expired
    (161,312
    )
    
    $
    0.78Outstanding
      at January 31, 2007
    2,858,602
    
    
    $
    0.75
    
    6.32
    
    $
    25,049Exercisable at January 31,
      2007
    2,245,308
    
    
    $
    0.86
    
    5.52
    
    $
    17,399


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

Total intrinsic value of awards exercised during the
quarters ended January 31, 2007 and January 31, 2006 was $0 for both periods.
The total fair value of awards vested during the quarters ended January 31, 2007
and January 31, 2006 was $130,002 and $30,773, respectively.

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

Weightedaverage
      fairShares
    
    valueNonvested
      at April 30, 2006
    777,792
    
    
    $
    0.43Granted
    382,500
    
    
    $
    0.27Vested
    (451,599
    )
    
    $
    0.42Canceled or expired
    (80,778
    )
    
    $
    0.56Nonvested
      at January 31, 2007
    627,915
    
    
    $
    0.30


15

---

4.Goodwill and Intangible Assets

The following tables present details of the Companys
goodwill and intangible assets as of January 31, 2007 and April 30, 2006 (in
thousands). The April 30, 2006 amounts relate entirely to the Companys IRM
division which was sold on November 20, 2006. The January 31, 2007 amounts
relate entirely to the purchase of Gupta Technologies LLC on November 20, 2006.
See Note 2:

Gross
    
    
    
    
    
    Netcarrying
    
    Accumulated
    
    carrying
    
    EstimatedJanuary 31, 2007
    
    amount
    
    amortization
    
    amount
    
    useful
      lifeInfinite
      Lives:Goodwill
    
    $
    5,958
    
    $
    
    
    
    $
    5,958
    
    Finite
      Lives:Customer-related
    
    
    1,500
    
    
    (50
    )
    
    
    1,450
    
    5 yearsTechnology-based
    
    
    1,050
    
    
    (44
    )
    
    
    1,006
    
    4
      yearsTrademarks
    
    
    300
    
    
    (12
    )
    
    
    288
    
    4 yearsTrade name
    
    
    100
    
    
    (17
    )
    
    
    83
    
    1
      yearTotal
    
    $
    8,908
    
    $
    (123
    )
    
    $
    8,785


Gross
    
    
    
    
    
    Netcarrying
    
    Accumulated
    
    carrying
    
    EstimatedApril 30,
      2006
    
    amount
    
    amortization
    
    amount
    
    useful
      lifeInfinite
      Lives:Goodwill
    
    $
    1,405
    
    $
    
    
    
    $
    1,405
    
    Finite
      Lives:Technology-based
    
    
    200
    
    
    (83
    )
    
    
    117
    
    3 yearsCustomer-related
    
    
    164
    
    
    (69
    )
    
    
    95
    
    3
      yearsTotal
    
    $
    1,769
    
    $
    (152
    )
    
    $
    1,617


Acquired finite-lived intangibles are generally
amortized on a straight line basis over their estimated useful life. The useful
life of finite-lived intangibles is the period over which the asset is expected
to contribute directly or indirectly to future cash flows of the Company.
Intangible assets amortization expense for continuing operations for both the
three months and nine months ended January 31, 2007, was $123,000 and was
related entirely to the Gupta acquisition. Amortization expense for the fiscal
year ended April 30, 2006, was $152,000 and was related entirely to the IRM
division that was sold on November 20, 2006. The estimated future amortization
expense related to intangible assets as of January 31, 2007, is as follows (in
thousands):

| | Fiscal Year Ending April 30, |  | Amount
| | ---------------------------- |  | ------
| | Remainder
      2007         |  | $     
| | 2008                         |  |       
| | 2009                         |  |       
| | 2010                         |  |       
| | 2011                         |  |       
| | 2012                         |  |       
| | Total                        |  | $     

Goodwill at January 31, 2007, represents the excess
of the Gupta purchase price over the sum of the amounts assigned to assets
acquired less liabilities assumed. The Company believes the acquisition of Gupta
will produce the following results:

- Increased Market Presence and Opportunities:The combination of the Company and Gupta should increase the
  combined companys market presence and opportunities for growth in sales and
  earnings.
- Enhanced Product Mix:The
  complementary nature of the Companys products with those of Gupta should
  benefit current customers of both companies and provide the combined company
  with the ability to access new customers.

16

---

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

The Company believes these primary factors
support the amount of goodwill recognized as a result of the purchase price for
Gupta. Goodwill will be tested for impairment on an annual basis as of April 30,
and between annual tests if indicators of potential impairment exist, using a
fair-value-based approach in accordance with FASB 142,Goodwill and Other Intangible Assets. The determination of goodwill and intangibles is based on
the preliminary results of an independent valuation experts report. The
preliminary results are subject to adjustment upon finalization of the valuation
report which is expected to be completed by the end of the Companys fourth
quarter which ends April 30, 2007.

5. Credit Facility

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.

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

6. Long-Term Debt

The Companys debt consists of the
following at January 31, 2007 and April 30, 2006 (in thousands):

January 31,
    
    April 30,2007
    
    2006Note payable to a financial institution repaid in September
      2006
    $
    
    
    
    $
    26Note payable,
      bears no interest, payable in installments through March 15,
      2007
    
    99
    
    
    
    Convertible notes payable to ComVest Capital LLC, interest rate of
      11.25%, payable ininstallments through October 31, 2011
    
    5,350
    
    
    
    Revolving note payable to ComVest Capital LLC, interest rate of
      prime plus 2.25% anda maturity date
      of November 30, 2010
    
    2,250Capital leases payable, payable in monthly installments through
      June 2010
    
    27
    
    
    
    107,726
    
    
    
    36Less current portion
    
    (1,089
    )
    
    
    (33
    )$
    6,637
    
    
    $
    3


7. Other Long-Term
Liabilities

In France, the Company is subject to
mandatory employee severance costs associated with a statutory government
regulated plan covering all employees. The plan provides for one month of
severance for the first five years of service with an employer and one fifth of
one year of severance for every one year of service thereafter. In order to
receive their severance payment the employee may not retire before age 65 and
must be employed at the time of retirement. The balance for severance
obligations as of January 31, 2007, was $102,000 and the balance as of April 30,
2006, was $77,000. Included in other long-term liabilities also, as of January
31, 2007, is $15,000 for deferred rent.

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 either as a percentage of the value of the
related license agreement or as fixed dollar amount for the maintenance period.
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. The maintenance contracts may provide the
customer with unspecified product maintenance updates and customer support
services or they may also include product upgrades as part of maintenance.
Revenue from maintenance contracts is initially deferred and then recognized
ratably over the term of the agreements.

17

---

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

Three Months Ended
    
    Nine Months EndedJanuary
      31,
    
    January
      31,2007
    
    2006
    
    2007
    
    2006Deferred maintenance revenue beginning balance
    $
    1,790
    
    
    $
    1,814
    
    
    $
    2,820
    
    
    $
    2,849Deferred
      maintenance revenue recognized during period
    
    (1,609
    )
    
    
    (1,264
    )
    
    
    (4,055
    )
    
    
    (3,787
    )Deferred maintenance revenue of new maintenance
      contracts
    
    4,486
    
    
    
    2,367
    
    
    
    5,902
    
    
    
    3,855Deferred
      maintenance revenue ending balance
    $
    4,667
    
    
    $
    2,917
    
    
    $
    4,667
    
    
    $
    2,917


9. Comprehensive Loss

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

Three Months Ended
    
    Nine Months EndedJanuary 31,
    
    January
  31,2007
    
    2006
    
    2007
    
    2006Net loss
    $
    (1,282
    )
    
    $
    (688
    )
    
    $
    (2,222
    )
    
    $
    (795
    )Foreign currency
      translation loss
    
    (29
    )
    
    
    (2
    )
    
    
    (25
    )
    
    
    (49
    )Total comprehensive loss
    $
    (1,311
    )
    
    $
    (690
    )
    
    $
    (2,247
    )
    
    $
    (844
    )


18

---

10. 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. 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 January 31, 2007 and 2006, and the nine-month periods ended January 31,
2007 and 2006, 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
    
    Nine Months EndedJanuary 31,
    
    January 31,2007
    
    2006
    
    2007
    
    2006Net loss (Numerator):Net loss, basic
      and diluted
    $
    (1,282
    )
    
    $
    (688
    )
    
    $
    (2,222
    )
    
    $
    (795
    )Shares (Denominator):Weighted average
      shares of common stock outstanding, basic
    
    29,678
    
    
    
    29,148
    
    
    
    29,575
    
    
    
    29,065Effect of dilutive securities (stock options and
      warrants)
    
    
    
    
    
    
    
    
    
    Weighted average
      shares of common stock outstanding, diluted
    
    29,678
    
    
    
    29,148
    
    
    
    29,575
    
    
    
    29,065Per Share Amount:Net loss per
      share, basic
    $
    (0.04
    )
    
    $
    (0.02
    )
    
    $
    (0.08
    )
    
    $
    (0.03
    )Effect of dilutive securities
    
    
    
    
    
    
    
    
    
    Net loss per
      share, diluted
    $
    (0.04
    )
    
    $
    (0.02
    )
    
    $
    (0.08
    )
    
    $
    (0.03
    )Weighted average anti-dilutive stock options and warrants
      excludedfrom diluted net loss per share
    
    12,561
    
    
    
    5,144
    
    
    
    7,435
    
    
    
    5,173


19

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11. Segment Information

FASB Statement No. 131,Disclosures about Segments of an Enterprise and Related
Information, establishes standards for
reporting information about operating segments. Operating segments are defined
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker, or
decision making group, in deciding how to allocate resources and in assessing
performance. Our chief operating decision maker is our Chief Executive Officer.
We are organized geographically. While our Chief Executive Officer evaluates
results in a number of different ways, our geographic structure is the primary
basis for which the allocation of resources and financial results are assessed.
The Company maintains two segments 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, Germany 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 |        | Nine Months Ended
|----------------------------------------------------------------- | ------------------ | ------ | -----------------
|                                                                  | January
      31,  |        | January
  31,    
|                                                                  | 2007               |        | 2006             
|Total revenues:                                                   |                    |        |                  
|Americas                                                          | $                  | 1,422  |                  
|Europe                                                            |                    | 1,888  |                  
|Total revenues from continuing operations                         |                    | 3,310  |                  
|Total revenues from discontinued operations                       |                    | 32     |                  
|Total revenues                                                    | $                  | 3,342  |                  
|                                                                 
|Operating Income (loss):                                          |                    |        |                  
|Americas                                                          | $                  | (1,516 | )                
|Europe                                                            |                    | 1,018  |                  
|Total operating income (loss) from continuing
      operations    |                    | (498   | )                
|Total operating loss from discontinued
      operations           |                    | (505   | )                
|Total operating loss                                              | $                  | (1,003 | )                
|                                                                 
|Interest income                                                   | $                  | 4      |                  
|                                                                 
|Total assets by segment were as
      follows (in thousands):    
|                                                                  | January 31,        |        | April 30,        
|                                                                  | 2007               |        | 2006             
|Assets:                                                           |                    |        |                  
|Americas                                                          | $                  | 14,716 |                  
|Europe                                                            |                    | 3,051  |                  
|Total assets of continuing operations                             | $                  | 17,767 |                  
|Assets held for sale                                              |                    |       |                  
|Total assets                                                      | $                  | 17,767 |                  
|                                                                 
|Total intersegment revenues were as
      follows (in thousands):
|                                                                  | Three Months Ended |        | Nine Months Ended
|                                                                  | January 31,        |        | January 31,      
|                                                                  | 2007               |        | 2006             
|Intersegment revenues:                                            |                    |        |                  
|Americas                                                          | $                  | 175    |                  
|Europe                                                            |                    | 382    |                  
|Total intercompany revenues                                       | $                  | 557    |                  

20

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UNIFY CORPORATION

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

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

The following discussion should be read in
conjunction with the unaudited Condensed Consolidated Financial Statements and
Notes thereto in Part I, Item 1 of this Quarterly Report on Form 10-Q/A 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 60 months. The revolver has an interest rate of prime plus 2.25%
and has a maturity date of November 30, 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.

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, and the Company acquired Gupta. Unify is headquartered in
Sacramento, California with a subsidiary office in France and a sales office in
the United Kingdom (UK). As a result of the Gupta acquisition, the Company
added a subsidiary office in Germany, a sales office in the UK and an office in
Redwood Shores, California.

21

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Prior to the acquisition of Gupta, the
Company was comprised of technology products that included Unify NXJ, Unify
Composer, ACCELL, DataServer and the VISION product families. Guptas products
include a popular database application, SQLBase, and a well-known set of
application development tools, Team Developer. SQLBase is a relational database
product that allows companies to manage data closer to the customer, where
capturing and organizing information is becoming increasingly critical. This
product is designed for applications being deployed in situations where there
are little or no technical resources to support and administer databases or
applications. Team Developer is a visual object-oriented rapid application
development tool that is proven to shorten the development cycle; providing
developers the tools to quickly design, develop and deploy their Windows or
Linux solutions. The Companys customers include corporate information
technology departments (IT), software value-added resellers (VARs),
solutions integrators (SIs) and independent software vendors (ISVs) from a
variety of industries, including insurance, financial services, healthcare,
government, manufacturing and many other industries. We market and sell products
directly in the United States, UK, Germany and France, and indirectly through
worldwide distributors in Australia, Asia Pacific and Latin America with
customers in more than 60 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 which was sold through its
IRM division, 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.

22

---

For software license arrangements that do
not require significant modification or customization of the underlying
software, revenue is recognized when the software product or service has been
shipped or electronically delivered, the license fees are fixed and
determinable, uncertainties regarding customer acceptance are resolved,
collectibility is probable and persuasive evidence of an arrangement exists.

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

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 Contractsand 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 may consist of fees for ongoing support, unspecified product
updates or product upgrades, 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.

23

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Valuation of Long-Lived Assets

Our long-lived assets are comprised of
long-term investments. At January 31, 2007, 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 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 January 31, 2007, we have
approximately $6 million of deferred tax assets related principally to net
operating loss carryforwards, reserves and other accruals, deferred revenue, and
foreign tax credits. The Companys ability to utilize net operating loss
carryforwards may be subject to certain limitations in the event of a change in
ownership. A valuation allowance has been recorded to offset these deferred tax
assets. The ability of the Company to ultimately realize its deferred tax assets
will be contingent upon the Company achieving taxable income. There can be no
assurance that this will occur in amounts sufficient to utilize the deferred tax
assets. Should we determine that we would be able to realize the deferred tax
assets in the future in excess of the recorded amount, an adjustment to the
deferred tax asset would increase income in the period such determination was
made.

Results of Operations

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

|                                                            | Three Months Ended |   |   | Nine Months Ended |      
|----------------------------------------------------------- | ------------------ | - | - | ----------------- | -----
|                                                            | January
      31,  |   |   | January
      31, |      
|                                                            | 2007               |   |   | 2006              |      
|Revenues:                                                   |                    |   |   |                   |      
|Software licenses                                           | 46.5               |   | % |                   | 33.3 
|Services                                                    | 53.5               |   | % |                   | 66.7 
|Total revenues                                              | 100.0              |   | % |                   | 100.0
|                                                           
|Cost of Revenues:                                           |                    |   |   |                   |      
|Software licenses                                           | 6.5                |   | % |                   | 4.8  
|Services                                                    | 6.8                |   | % |                   | 14.0 
|Total cost of revenues                                      | 13.3               |   | % |                   | 18.8 
|                                                           
|Gross profit                                                | 86.7               |   | % |                   | 81.2 
|                                                           
|Operating Expenses:                                         |                    |   |   |                   |      
|Product development                                         | 23.8               |   | % |                   | 17.5 
|Selling, general and administrative                         | 77.9               |   | % |                   | 68.0 
|Total operating expenses                                    | 101.7              |   | % |                   | 85.5 
|Income (loss) from operations                               | (15.0              | ) | % |                   | (4.3 
|Other income (expense), net                                 | (6.1               | ) | % |                   | 0.7  
|Income (loss) from continuing operations before
      taxes | (21.1              | ) | % |                   | (3.6 
|Provision for income taxes                                  | (2.30              | ) | % |                   |     
|Income (loss) from continuing operations                    | (23.4              | ) | % |                   | (3.6 
|Loss from discontinued operations, net of
      taxes       | (15.3              | ) | % |                   | (30.9
|Net loss                                                    | (38.7              | ) | % |                   | (34.5

24

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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 third quarter in fiscal 2007 were $3.3 million, an
increase of $1.3 million, or 65% from fiscal 2006 third quarter revenues of $2.0
million. The increase in total revenue was the result of the Gupta acquisition
in November 2006. Total revenues for Gupta for the three months ended January
31, 2007 were $1.3 million. Total revenues from continuing operations for the
nine months ended January 31, 2007, were $7.2 million, an increase of $0.4
million, or 6% from fiscal 2006, when revenues for the same period were $6.8
million.

Total software licenses revenue from
continuing operations in the third quarter of fiscal 2007 were $1.5 million, an
increase of $0.8 million from fiscal 2006, primarily as a result of the Gupta
acquisition. For both the nine months ended January 31, 2007 and 2006, software
licenses revenue from continuing operations was $2.7 million. Total services
revenues from continuing operations in the third quarter of fiscal 2007 were
$1.8 million, an increase of $0.5 million from the third quarter of fiscal 2006.
The increase in services revenue was primarily the result of maintenance
revenues resulting from the Gupta acquisition which totaled $0.3 million in the
third quarter of fiscal 2007. Services revenue from continuing operations was
$4.5 million for the first nine months of fiscal 2007 compared to $4.1 million
for the same period in fiscal 2006.

Consulting revenue from continuing
operations for both the third quarter for fiscal 2007 and 2006 was $0.1 million.
Consulting revenue from continuing operations for the nine months ended January
31, 2007 was $0.4 million compared to $0.3 million for the same period in fiscal
2006.

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 $217,000 for the third quarter of fiscal 2007, and
$95,000 for the third quarter of fiscal 2006. Cost of software licenses in
fiscal 2007 was higher in fiscal 2007 because we wrote off approximately
$150,000 of third-party licensed technologies that will not have a future
benefit to the Companys product portfolio. For the nine months ended January
31, 2007, cost of software licenses was $286,000 compared to $355,000 for the
nine months ended January 31, 2006. 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 training services. Total cost of services was $0.2 million for
the third quarter of fiscal 2007 and $0.3 million for the third quarter of
fiscal 2006. Cost of services for the nine months ended January 31, 2007 and
2006 was $0.8 million and $0.9 million, respectively.

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 $0.8 million in the third quarter of
fiscal 2007 and $0.3 million in the third quarter of fiscal 2006. The $0.5
million increase was the result of additional product development expenses
resulting from the Gupta acquisition. The Gupta expenses consisted primarily of
salaries and employee benefits for product development staff and also for costs
of offshore consultants that were engaged to assist with development of Guptas
Team Developer product. The project has been completed and the use of these
offshore consultants has been significantly reduced to a three-person
maintenance team for the remainder of the fiscal year. For the nine months ended
January 31, 2007, product development costs were $1.6 million compared to $1.3
million for the nine months ended January 31, 2006.

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. Each of these expense
areas increased significantly in the third quarter of fiscal 2007 as a result of
the Gupta acquisition that was consummated on November 20, 2006. SG&A
expenses were $2.6 million for the third quarter in fiscal 2007 and $1.4 million
for the same period in fiscal 2006. Salaries and employee benefits for the Gupta
employees was the largest reason that SG&A costs increased in the third
quarter of 2007 compared to the same period of fiscal 2006. The major components
of SG&A for continuing operations in the third quarter of fiscal 2007 were
sales expenses of $1.4 million, marketing expenses of $0.2 million and general
and administrative expenses of $1.0 million. The major components of SG&A
for continuing operations in the third quarter of fiscal 2006 were sales
expenses of $0.8 million, marketing expenses of $0.2 million and general and
administrative expenses of $.04 million. SG&A expenses were $5.2 million for
the nine months ended January 31, 2007 and $4.1 million for the nine months
ended January 31, 2006. The increase for the nine months in fiscal 2007 over
fiscal 2006 was the result of the Gupta acquisition.

25

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Other Income (Expense), Net

For the three months ended January 31,
2007 net other expenses were $202,000. Included in the third quarter amount is
approximately $200,000 in interest expense related to the debt financing
obtained in conjunction with the November 20, 2006 acquisition of Gupta. For the
three months ended January 31, 2006 net other income was $15,000.

Provision for Income Taxes

No federal or state tax provisions were
recorded in the three and nine-month periods ended January 31, 2007, as the
Company has net operating loss carryforwards. The Company recorded $77,000 in
foreign income taxes for the three months ended January 31, 2007.

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. The Companys IRM division and its
ViaMode software product were sold to Halo on November 20, 2006. Loss from
discontinued operations for the three months ended January 31, 2007 and 2006,
was $0.5 million and $0.6 million, respectively. For the nine months ended
January 31, 2007 and 2006, loss from discontinued operations was $1.4 million
and $1.1 million, respectively.

Liquidity and Capital
Resources

At January 31, 2007, the Company had cash
and cash equivalents of $2.2 million, compared to $1.9 million at April 30,
2006. Accounts receivable at January 31, 2007 were $4.6 million compared to $3.4
million at April 30, 2006.

On August 2, 2006, the Company extended
its line of credit arrangement with Silicon Valley Bank. The line expired on
November 3, 2006, and was not renewed. Upon expiration the Company had no
outstanding debt under the line of credit.

On November 20, 2006 the Company purchased
Gupta Technologies LLC (Gupta) in accordance with a related Purchase and
Exchange Agreement with Halo Technology Holdings, Inc. (Halo) whereby Unify
agreed to purchase Gutpa 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.

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, provided 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 60 months. The revolver has an interest rate of prime plus 2.25%
and has a maturity date of November 30, 2010. As of January 31, 2006 the Company
had $2.25 million outstanding on the revolver.

Overall, cash has increased by $0.3
million for the first nine months of fiscal 2007. Cash flows from continuing
operations used by operating activities were $0.1 million for the first nine
months of fiscal 2007, compared to a usage of cash from operations of $0.6
million for the first nine months of fiscal 2006. Primary reasons operating cash
was used in the first nine months of fiscal 2007 were the result of a net loss
of $0.8 million, an increase in other long term assets of $0.2 million, a
decrease in accounts payable of $0.5 million, a decrease in other accrued
liabilities of $1.1 million and a decrease in accrued compensation of $0.5
million offset by an increase in deferred revenue of $1.9 million, an increase
in accrued acquisition costs of $0.7 million, depreciation of $0.1 million,
amortization of $0.1 and stock based expense of $0.1 million.

26

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Cash from continuing operations used in
investing activities for the first nine months of fiscal 2007 was $6.2 million.
The use of cash was the result of a $6.1 million cash payment to Halo to
purchase Gupta and $60,000 for capital expenditures during the nine month
period. Cash from continuing operations used in investing activities for the
nine months ended January 31, 2006 was $33,000 and was related entirely to
capital expenditures. Cash provided by financing activities from continuing
operations for the first nine months of fiscal 2007 and fiscal 2006, was $7.7
million and $0.7 million, respectively. The increase in cash provided by
financing activities in the first nine months of fiscal 2007 was primarily the
result of a debt financing related to the purchase of Gupta. As part of the debt
financing the Company borrowed $7.6 million. The cash provided by financing for
the nine months ended January 31, 2006 that totaled $0.7 million was the result
of short-term borrowings of $0.7 million .The Companys cash flow also reflects
a decrease in cash of $0.1 million for both the first nine months of fiscal 2007
and 2006, as a result of the effect of currency exchange rates related to
international operations.

Cash used by discontinued operations for
the first nine month period of fiscal 2007 and fiscal 2006 was $1.4 million and
$1.0 million, respectively.

A summary of certain contractual
obligations from continuing operations as of January 31, 2007, is as follows (in
thousands):

|                                   |  | Payments Due by
      Period
|---------------------------------- |  | ----------------------------
|                                   |  |                             
|Contractual
      Obligations      |  | Total                       
|Short-term borrowings              |  | $                           
|Debt
      financing               |  |                             
|Revolver note                      |  |                             
|Other long-term
      liabilities  |  |                             
|Capital lease obligations          |  |                             
|Operating
      leases             |  |                             
|Total contractual cash obligations |  | $                           

Volatility of Stock Price and General
Risk Factors Affecting Quarterly Results

Unifys common stock price has been and is
likely to continue to be subject to significant volatility. A variety of factors
could cause the price of the common stock to fluctuate, perhaps substantially,
including: announcements of developments related to our business; fluctuations
in the operating results and order levels of Unify or its competitors; general
conditions in the computer industry or the worldwide economy; announcements of
technological innovations; new products or product enhancements from us or our
competitors; changes in financial estimates by securities analysts; developments
in patent, copyright or other intellectual property rights; 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.

27

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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 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 $2.2 million
at January 31, 2007. Unify had no short-term investments at January 31,
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
November 30, 2010. Should the prime interest rate increase during the life of
the revolver, the Company would have exposure to interest rate risk if it has a
large balance outstanding on the revolver.

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

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

Due to the substantial volatility of
currency exchange rates, among other factors, the Company cannot predict the
effect of exchange rate fluctuations on its future operating results. Although
Unify takes into account changes in exchange rates over time in its pricing
strategy, it does so only on an annual basis, resulting in substantial pricing
exposure as a result of foreign exchange volatility during the period between
annual pricing reviews. The Company also has currency exchange rate exposures on
intercompany accounts receivable and intercompany accounts payable related to
activities with the Companys subsidiaries in France, Germany and the UK. At
January 31, 2007, the Company had $2.2 million in such payables denominated in
euros and a total $0.9 million in receivables denominated in euros and pounds
sterling. The Company encourages prompt payment of intercompany balances in
order to minimize its exposure to currency fluctuations, but it engages in no
hedging activities to reduce the risk of such fluctuations. A hypothetical ten
percent change in foreign currency rates could have a significant impact on the
Companys business, operating results and financial position. The Company has
not experienced material exchange losses on intercompany balances in the past;
however, due to the substantial volatility of currency exchange rates, among
other factors, it cannot predict the effect of exchange rate fluctuations on its
future business, operating results and financial position.

28

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Item 4. Controls and
Procedures



(a) Evaluation of Disclosure
Controls and Procedures. Under the supervision and with the participation of our
management, including our chief executive officer and chief financial officer,
we evaluated thc 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, except for the potential impact from reporting the Gupta acquisition, as more fully disclosed in Note 2 to the unaudited condensed consolidated financials statements under Part 1, Item 1 of this report. We are currently in the process of assessing and integrating Gupta disclosure
controls and procedures into our financial reporting systems and expect to
complete our integration activities over a period of 12 months from the
acquisition date (November 20, 2006). Prior to being acquired by Unify, Gupta
was a subsidiary of a public company, Halo Technology Holdings, Inc. In
conjunction with Halos Form 10-KSB filing for the year ended June 30, 2006,
Halos management reported no concerns relative to disclosure controls or
procedures for Gupta Technologies LLC (Gupta) or any of Guptas subsidiaries.

In December 2007, the Company
determined that due to an accounting error it would restate its consolidated
financial statements for the fiscal year ended April 30, 2007 included in its
2007 Annual Report on Form 10-K and its condensed consolidated financial
statements for the quarters ended January 31, 2007 and July 31, 2007. The
decision to restate thc consolidated financial statements was made by the Audit
Committee of the Companys Board of Directors. The restatement reflects the
identification of an error related to the accounting for the
acquisition of Gupta Technologies LLC (Gupta) in November 2006. The
acquisition of Gutpa was part of a purchase and exchange agreement whereby, in
addition to acquiring Gupta, the Company also sold its Insurance Risk Management
Division. In accounting for the purchase and exchange transaction, the Company
incorrectly capitalized $384,000 in future payments as direct costs of the sale
and acquisition. The future payments of $384,000 have been determined to be
indirect costs of the sale and should have been expensed. The restatement increases the
Companys loss from discontinued operations for the fiscal year ended April 30,
2007 and the quarter ended January 31, 2007 by $384,000 and increases the
Companys net loss by the same amount. The restatement also dccreases the amount
reported as goodwill by $384,000 as of April 30, 2007 and the quarters ended
January 31, 2007 and July 31, 2007.

As a result of the error noted above, the Company
identified a significant deficiency in internal control related to the accounting for non-routine
complex transactions. In the future, the Company
intends to engage an outside accounting expert to advise it regarding any complex
non-routine transactions to ensure accounting entries are properly recorded. The
Company believes this change to our system of disclosure and procedure controls
will be adequate to provide reasonable assurance that the information required
to be disclosed in our Exchange Act reports is recorded, processed, summarized
and reported correctly.

(b) Changes in Internal
Controls. There have been no changes in our internal controls over financial
reporting that occurred during the quarter ended January 31, 2007, that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting, except for the potential impact from
reporting the Gupta acquisition, as more fully disclosed in Note 2 to the
unaudited condensed consolidated financials statements under Part 1, Item 1 of
this report. We are currently in the process of assessing and integrating Gupta
financial reporting into our financial reporting systems and expect to complete
our integration activities over a period of 12 months from the acquisition date
(November 20, 2006). Prior to being acquired by Unify, Gupta was a subsidiary of
a public company, Halo Technology Holdings, Inc. In conjunction with Halos Form
10-KSB filing for the year ended June 30, 2006, Halos management reported no
concerns relative to internal controls for Gupta Technologies LLC (Gupta) or
any of Guptas subsidiaries.

29

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UNIFY CORPORATION

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Litigation

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

30

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|Item 6. Exhibits
|----------------
|                
|                
|31.1            
|                
|31.2            
|                
|32.1            
|                
|32.2            
|                

31

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UNIFY
CORPORATIONSIGNATURE

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

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

32

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