UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-K/A

|(Mark One) |  |                                                                                                     
|---------- |  | ----------------------------------------------------------------------------------------------------
|x          |  | ANNUAL REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934    
|           |  | For the fiscal year ended April 30,
      2007                                                      
|           |  | OR                                                                                                  
|o          |  | TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934

For the transition period
from                                  
 toCommission File Number: 001-11807

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

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

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

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

Securities registered pursuant to
Section 12(b) of the Act: None

Securities registered pursuant to
Section 12(g) of the Act: Common Stock, $0.001
par value

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.YES o  NOx

Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15 of the Act.YES oNO x

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 if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of the Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act (check
one):

Large accelerated filer 
      o
    Accelerated filer  o
    Non-accelerated filer  x


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

The aggregate market value of the
voting and non-voting common equity held by non-affiliates of the registrant was
$4,348,339 based on the number of shares held by non-affiliates of the
registrant as of April 30, 2007, and computed by reference to the reported last
sale price of common stock on October 31, 2006, which is the last business day
of the registrants most recently completed second fiscal quarter. Shares of
common stock held by each officer and director and by each person who owns 5% or
more of the outstanding common stock have been excluded in that such persons may
be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes. As of June 30,
2007, the registrant had 6,037,901 shares of common stock
outstanding.

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EXPLANATORY NOTE

Amendment No. 1 to the Annual Report
on Form 10-K/AFor the Fiscal Year Ended April 30, 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 consolidated financial statements. The Company is
also revising Item 9A. Controls and Procedures.

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PART I

A Caution about Forward-Looking
Statements:

The
discussion in this Annual Report on Form 10-K/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,
projects, and 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 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 Securities and Exchange
Commission (the SEC), particularly the Companys Quarterly Reports on Form
10-Q and any Current Reports on Form 8-K.

Special Note on Reverse Stock
Split

Effective as of 11:59 p.m. Eastern
time on June 24, 2007, Unify completed a 1-for-5 reverse split of its
outstanding shares of common stock. All share numbers and all exercise and
conversion prices in this report are presented as adjusted for the reverse stock
split.

ITEM 1.BUSINESS

The Company

Unify (the
Company, we, us or our) is a global provider of application development,
data management and application modernization solutions that enable
Service-Oriented Architecture (SOA). Our suite of migration solutions, easy to
use development software and maintenance-free embedded databases allows
customers to modernize and maximize their application environment. For
organizations needing to modernize their systems, we help businesses
service-enable legacy applications to support SOA initiatives. Based on market
requirements, our solutions help companies increase speed and agility, improve
asset reuse, lower IT costs and reduce risks and exposures.

Unifys strategy
is to work with organizations to Enable SOA. We help businesses modernize and
service-enable mission-critical legacy applications in support of
enterprise-wide SOA initiatives. Based on market requirements for application
modernization, our solutions help companies increase speed and agility, improve
asset reuse, lower IT costs, reduce business risks and exposures, and free
information previously locked within proprietary systems. The Company sells and
markets its application development and database software and services and
modernization solutions through two segments. The segments are the Americas,
which includes the Companys international distributors, and Europe, which
includes the UK, France, Germany and other direct European customers.

Unify
expanded its 27-year heritage and technology innovation with the November 2006
acquisition of GUPTA Technologies LLC (Gupta), a complementary application
development and data management software company. Unify now serves more than
3,000 end user corporate information technology departments (IT), customers,
35 distributors and 250 software value-added resellers (VARs), solutions
integrators (SIs) and independent software vendors (ISVs) partners across
the globe. Our clients represent diverse industries including energy, financial
services, government, health care, insurance, manufacturing, retail,
telecommunications and more. We market and sell products directly in the United
States, Australia, UK, Germany and France, and indirectly through worldwide
distributors in Europe, Middle East and Africa (EMEA), Asia Pacific and Latin
America in more than 50 countries.

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Over the
past five years we have expanded our product offering to adapt to evolving
market requirements. Our SOA enablement products include Composer for Lotus
Notes and NXJ Developer; our application development product families include
Team Developer, ACCELL and VISION; and our data management software includes
SQLBase and DataServer.

Unify was
initially incorporated in California in 1980 and later reincorporated in
Delaware on April 10, 1996. We are headquartered in Sacramento, California, and
have offices in Germany, France and the United Kingdom (UK). Our headquarters
office is located at 2101 Arena Blvd., Suite 100, Sacramento, California 95834.
Our telephone number is (916) 928-6400 and our website address is
http://www.unify.com.

Products

Prior to the
acquisition of Gupta, the Company was comprised of technology products that
included NXJ Developer, 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.

Composer Solutions

TheComposertechnology is specifically
designed for customers that need to modernize and migrate proprietary
applications to a Service-Oriented Architecture (SOA) for either the .NET or
J2EE platforms.Composer for Lotus
Notesis targeted at companies with IBM Lotus
Notes® applications proliferated throughout the enterprise, Composer integrates
with the .NET and Java platforms, leverages open standards via an SOA
environment, and provides the capabilities and technology necessary for a
comprehensive migration of template and custom Notes applications. Composer
modernizes Notes applications to enable organizations to share data previously
locked in proprietary systems, reduce application license costs, and improve
integration and collaboration within the enterprise.

Rapid Application Development
Products

NXJ
Developer®is a powerful visual development
tool for the rapid development of innovative Web 2.0 Rich Internet Applications
based on a Service-Oriented Architecture (SOA). NXJ Developer is distinguished
by its combination of intuitive visual design, flexible SOA programming, and
ease of integration with both Java code and .Net business logic via Web
services. The combination of AJAX-rich client technology, Web services,
reporting and portal integration make NXJ Developer a powerful and competitive
solution for delivering SOA-based Rich Internet Applications.NXJ Enterprise® includes
all of the powerful technology of NXJ Developer but adds workflow, reporting and
portal integration for delivering enterprise class SOA and web-based
applications.

Team
Developer®is a visual object-oriented rapid
application development product that is proven to shorten the development cycle
by providing developers the tools needed to quickly design, develop and deploy
Windows solutions. Team Developer provides a completely integrated visual
development environment that includes a database explorer, integrated reporting
tool, team-oriented source code management facility, and a powerful component
developer facility that enables programmers to automate and customize the
development environment.

ACCELL®is a highly productive 4GL
application development suite and database software for developing and deploying
data-rich, database-driven applications. 4GL is a fourth generation programming
language designed to allow users to develop applications, particularly for the
purpose of querying databases and producing reports. The ACCELL products support
interfaces to leading database products including Unify DataServer, IBM DB2,
Informix, Microsoft SQL Server, Oracle and Sybase. The ACCELL product suite
includes ACCELL/Web, ACCELL/SQL and ACCELL/IDS.

- ACCELL/Web  enables our customers with existing ACCELL/SQL
  applications to convert them into fully featured graphical web-based
  applications without rewriting the application or modifying the source
  code.
- ACCELL/SQL  is our powerful 4GL-based rapid application
  development software for developing client/server applications. ACCELL/SQL
  connects to Unify, Oracle, Sybase and Informix databases creating a fast
  application performance environment.
- ACCELL/IDS  powerful 4GL-based rapid application
  development software for applications that connect to Unifys DataServer ELS
  database.

VISION®is a powerful graphical,
client/server application development system that allows for rapid creation and
easy modification of complex business applications based on 4GL technology.
Unify VISION consists of an object-oriented, repository-based component
framework designed to enable developers to rapidly create and easily modify
application components. VISION also contains an application server to allow
organizations to integrate custom-built and packaged applications with the
Internet.

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Database Management
Products

- SQLBase® is a fully relational, high performance, embedded
  database that allows organizations to manage data closer to the customer,
  where capturing and organizing information is becoming increasingly critical.
  SQLBase provides what other database companies cannot deliver: a
  self-recovering, maintenance-free embedded database architecture that enables
  IT, ISVs and VARs to focus on their solution, rather than the underlying
  database technology.
- DataServer®  A high performance enterprise relational
  database management system with minimal maintenance and memory requirements.
  It can quickly accommodate the growth of user requirements over time, making
  it an attractive choice for mission critical applications. DataServer makes it
  easy for developers to create graphical applications and migrate existing
  database applications to enterprise network and Internet
  environments.
- DataServer® ELS  A high performance, easily embeddable
  database. Its small footprint and proven reliability make it an industry
  favorite for embedded applications that require relational
  databases.

Discontinued Products

As part of
our acquisition of Gupta on November 20, 2006, the Company sold its IRM division
and ViaMode software product to Halo.

IRMs
primary product was NavRisk. NavRisk is an end-to-end policy administration and
underwriting solution used by the underwriters, administrators and risk managers
of risk pools, risk retention groups, captives and other self-insured entities.
NavRisk is used to enable proactive risk management and administration of
alternative risk groups by automating the complete policy cycle including
renewal processing, rating, policy certificates, quoting, premium invoicing,
reporting, loss control and communications with customers or members. NavRisk
automates and enables data consolidation, tracking and valuing of exposures, all
aspects of quoting and invoicing of premiums and the issuance of final policy
certificates and endorsements. NavRisk integrates with claims and accounting
systems for comprehensive real-time reporting and analysis on all lines of
business.

ViaMode is a
transportation software and services solution delivered in partnership by Unify
and one of our domain partners. The ViaMode solution combines a software
application built on Unify NXJ with professional services for driver performance
management within the transportation industry.

Customers

Unifys
customers include corporate information technology departments (IT), software
value-added resellers (VARs), solutions integrators (SIs) and independent
software vendors (ISVs) from a variety of industries, including insurance,
financial services, healthcare, government, manufacturing, retail, education,
and more. In fiscal 2007 and 2005 no single customer accounted for 10% or more
of revenues. In fiscal 2006, one customer accounted for approximately 12% of
total revenue.

Sales, Marketing and Distribution

Unifys
products and professional services are marketed and distributed to customers
globally using a combination of a direct corporate sales force and indirect
distribution channels, including ISVs, VARs, SIs and worldwide distributors. The
indirect sales channels leverage Unifys sales, support and consulting resources
to provide complete solutions to our customers.

Unifys
direct sales organization consists of sales representatives and pre-sales
consultants. Our North America sales representatives are located primarily in
our headquarters in Sacramento, California. Unify markets its products
internationally through offices in the UK, Germany and France. Unify has
distributors in Asia Pacific, Europe, Japan, Latin and South America, Russia and
South Africa. International revenues accounted for 73%, 70% and 64% of total
revenues in fiscal 2007, 2006 and 2005, respectively.

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Unifys
marketing is focused on generating demand and marketing awareness for Unify
products including efforts to support the direct and indirect sales channels.
Marketing activities include e-business initiatives, strategic demand
generation, public relations, customer communications, trade shows and our Web
site.

As of April
30, 2007, Unify had 20 employees engaged in sales and marketing activities, 9 in
North America and 11 in Europe.

Customer Support and Professional
Services

Unifys
customer support and professional services organizations play an important role
in maintaining customer satisfaction, facilitating license sales and enabling
customers to successfully architect, design, develop, deploy and manage
applications.

Customer Support and Maintenance

Unify
provides customer support via telephone, Web, e-mail and fax from its support
centers located in California, Germany, France, Brazil and Australia.
Distribution partners provide telephone support to international customers with
technical assistance from the U.S.-based support personnel who also respond to
e-mail inquiries. Customers are offered tailored support service levels
including response time, information reporting, and other features, such as
24-hour a day, seven-day a week support. During each of the past three fiscal
years, over 75% of our support and maintenance customers have renewed their
annual support contracts.

Consulting

Unify offers
a full range of consulting services ranging from application implementation
services including delivering a proof of concept to completed applications using
our technology infrastructure. Our products allow companies to maximize return
on investment, get to market quickly or be more efficient. Consulting services
include: project implementations and application updates, business
process-centric application development, Web-enablement, technology/knowledge
transfer, application architecture audits and database tuning. The level of
consulting services is tailored to customer-defined needs and includes
development plans, hands-on development tasks and project management.

Education

Unify offers
education courses provided on a regularly scheduled basis at Unify training
centers located in Sacramento, California and Paris, France. We also offer
on-site training at customer facilities.

As of April
30, 2007, we had a total of 14 employees engaged in providing professional
services, 8 in support and 6 in consulting and training. Of those employees, 8
were located in the United States and 6 were located in Europe.

Product Development

We focused
our development efforts primarily on the Composer and NXJ products. Following
the acquisition of Gupta, we also focused development efforts on both Guptas
SQLBase and Team Developer products. We expect to release new versions of
SQLBase and Team Developer in the second quarter of fiscal 2008. During fiscal
2007, we developed and released Unify NXJ Version 11, enhanced our Composer for
Lotus Notes application migration product and also updated some of our database
and tools products. Unifys product development expenses for fiscal 2007, 2006,
and 2005, were $2.4 million, $1.6 million and $2.8 million,
respectively.

Most of Unifys current software
products have been developed internally; however, we have licensed certain
software components from third parties and we may do so again in the future. We
are committed to delivering products that meet customer and market needs today
and in future periods.

Unifys
product development activities are conducted at the Sacramento, California
headquarters facility. As of April 30, 2007, we had a total of 16 employees in
product development, including 12 software development engineers.

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Intellectual Property

Unify relies
on a combination of copyright, trademark and trade-secret laws, non-disclosure
agreements and other methods to protect our proprietary technology. Despite
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our products or to obtain and use information that we regard as
proprietary. Policing unauthorized use of our products is difficult, and while
we are unable to determine the extent to which piracy of our software products
exists, software piracy can be expected to be a persistent problem. In addition,
the laws of some foreign countries in which we sell products do not protect our
proprietary rights as fully as do the laws of the United States. There can be no
assurance that our means of protecting our proprietary rights in the United
States or abroad will be adequate or that competition will not independently
develop similar technology.

Although
there are no pending lawsuits against Unify regarding infringement of any
existing patents or other intellectual property rights and we have not received
any notices that we are infringing or allegedly infringing the intellectual
property rights of others, there can be no assurance that infringement claims
will not be asserted by third parties in the future. If any such claims are
asserted, there can be no assurance that we will be able to defend such claim or
obtain licenses on reasonable terms. Our involvement in any patent dispute or
any other intellectual property dispute or action to protect trade secrets and
know-how may have an adverse effect on our business, operating results, and
financial condition. Adverse determinations in any litigation may subject us to
significant liabilities to third parties, require us to seek licenses from third
parties, and prevent us from developing and selling its products. Any of these
situations could have an adverse effect on our business, operating results and
financial condition.

Unify is
dependent on third-party suppliers for certain software which is embedded in
some of our products. Although we believe that the functionality provided by
software which is licensed from third parties is obtainable from multiple
sources or could be developed by us if any such third-party licenses were
terminated or not renewed or if these third parties fail to develop new products
in a timely manner, we could be required to develop an alternative approach to
developing products, which could require payment of additional fees to third
parties, internal development costs and delays and might not be successful in
providing the same level of functionality. Such delays, increased costs, or
reduced functionality could adversely affect our business, operating results,
and financial condition.

Competition

The market
for Unifys software is intensely competitive, subject to rapid change and
significantly affected by new product introductions and other activities of
market participants. Our products and software solutions compete in the market
with dozens of other companies that provide application platform suites,
integrated services environments and business process management infrastructure
software. These competitors include BEA Systems, IBM, Microsoft Corporation and
Oracle Corporation. All of these competitors are large, well capitalized
companies with significantly greater financial, technical and marketing
resources as well as greater name recognition and larger customer bases. The
Unify solutions are competitive from a technical capability, rich interface and
ease of use, service and pricing perspectives, but our competitors have greater
brand recognition and perceived financial strength.

The Company
generally derives sales from new project initiatives, additional deployment of
existing applications and product upgrades. As a result, the key competitive
factor is generally the decision by a customer as to whether or not to begin a
new project initiative or upgrade or keep things status quo. Organizations
choose Unify software for a variety of factors including the ability to build
and implement applications quickly, the knowledge of Unifys software among its
IT developers, the high level of customer service and support Unify provides and
our price point which gives customers a cost-effective solution to their
business problem. Organizations will typically choose a competitor because of
their perceived financial strength.

As new
products and technologies are introduced, increased competition could result in
fewer customer orders, reduced prices and reduced gross margins, any one of
which could adversely affect our business, operating results, and financial
condition. In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties, thereby increasing the ability of their products to address the
needs of our prospective customers. Accordingly, it is possible that new
competitors or alliances among current and new competitors may emerge and gain
significant market share. Such competition could adversely affect our ability to
sell additional licenses and maintenance and support renewals on favorable
terms.

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Employees

As of April
30, 2007, we had a total of 63 employees, including 16 in product development,
20 in sales and marketing, 14 in customer support, consulting, and training, and
13 in finance, operations and general administration. Of these employees, 43
were located in the United States and 20 were located in Europe.

Unifys
success depends in large part on its ability to attract and retain qualified
employees, particularly senior management, engineering, direct sales and support
personnel. The competition for such employees is intense. There can be no
assurance that we will be successful in attracting or retaining key employees.
Any failure we have in attracting and retaining qualified senior management,
engineering, direct sales, and support personnel could adversely affect our
business, operating results, and financial condition. None of our employees are
represented by a collective bargaining agreement, nor have we experienced any
work stoppage. We consider our relations with our employees to be good.

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WHERE YOU CAN FIND MORE
INFORMATION

You are
advised to read this Form 10-K/A in conjunction with other reports and documents
that we file from time to time with the SEC. In particular, please read our
Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K that we may
file from time to time. You may obtain copies of these reports directly from us
or from the SEC and the SECs Public Reference Room at 100 F Street, N.E.
Washington, D.C. 20549. In addition, the SEC maintains information for
electronic filers (including Unify) at its website at www.sec.gov. We make
available free of charge on or through our Internet website located at
www.unify.com our SEC filings on Forms 10-K, 10-Q and 8-K and any amendments to
those filings as soon as reasonably practicable after electronic filing with the
SEC.

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RISK FACTORS

In evaluating the Companys
business, readers should carefully consider the business risks discussed in this
section in addition to the other information presented in this Annual Report on
Form 10-K/A and in ourother filings with the SEC.

The conversion ratio of the convertible
notes and the exercise price of the warrants may be substantially below the
market price of our stock at the time of exercise which could potentially have a
negative impact our stock price.

In conjunction with the acquisition
of Gupta, we obtained debt financing that included convertible notes in the
principal amount of $5,350,000 and we also issued 670,000 warrants. The
convertible notes resulting from our debt financing are currently convertible
into our common stock at a fixed ratio of $2.50 per share for $1,000,000 of the
convertible notes and $5.00 per share for the remaining $4,350,000 of
convertible notes. The warrants are exercisable at fixed exercise prices ranging
from $1.35 per share to $1.90 per share. Subject to certain exceptions, these
conversion ratios and exercise prices are subject to downward adjustment in the
event we issue additional shares of common stock at prices below the
then-current conversion ratio or exercise price. Conversion of the notes or
exercise of the warrants is only likely to occur at such time as the conversion
ratio or exercise price, as the case may be, is lower than the current market
price for our stock. Issuance of common stock at a price below our current
market price would have a dilutive effect on current stockholders and could
potentially have a negative impact on our stock price.

If we default on any secured loan, all
or a portion of our assets could be subject to forfeiture.

To finance
the cash portion of the acquisition of Gupta and provide working capital, we
entered into a Revolving Credit and Term Loan Agreement (the Loan Agreement)
with ComVest on November 20, 2006. Under the Loan Agreement, we granted to
ComVest a first priority security interest in substantially all of our
assets. If we default on the Loan Agreement and are unable to cure the default
pursuant to the terms of the agreement, our lender could take possession of any
or all assets in which it holds a security interest, including intellectual
property, and dispose of those assets to the extent necessary to pay off the
debts, which could seriously harm our business. Furthermore, we may enter into
other secured credit or loan agreements in the future.

If we are unable to register the shares
underlying the convertible notes and warrants issued pursuant to the Loan
Agreement in a timely fashion we may be required to pay liquidated damages.

We entered
into a registration rights agreement with the investors under the Loan Agreement
pursuant to which we agreed to register the shares of common stock issuable on
conversion of the notes and exercise of the warrants. Recent changes in SEC
policy with respect to transactions has made it more difficult to register
shares in transactions such as the transaction contemplated by the Loan
Agreement. Pursuant to the loan agreement we were required to have the shares
registered on or before May 19, 2007 or be subject to a penalty equal to $1,000
for each day the registration statement is not effective, up to an aggregate
maximum of $500,000. While we have filed a registration statement with SEC for
the shares, to date we have not received SEC approval to have the related
registration statement made effective. We have not obtained an extension or
waiver from the investor with respect to registration statement being deemed
effective and we may be required to pay to the investors a cash fee per the loan
agreement. As of July 18, 2007, we have paid a total of $12,000 in liquidated
damages under this provision.

We are subject to intense
competition.

We have
experienced and expect to continue to experience intense competition from
current and future competitors including BEA Systems, IBM, Microsoft
Corporation, and Oracle Corporation. Often, these competitors have significantly
greater financial, technical, marketing and other resources than Unify, in
addition to having greater name recognition and more extensive customer bases.
As a result, our competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sale of their products than we
can.

In addition,
current and potential competitors may make strategic acquisitions or establish
cooperative relationships among themselves or with third parties, thereby
increasing the ability of their products to address the needs of our prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. Such competition could adversely affect our ability to sell additional
licenses and maintenance and support renewals on terms favorable to us. Further,
competitive pressures could require us to reduce the price of our products and
related services, which could adversely affect our business, operating results,
and financial condition. There can be no assurance that we will be able to
compete successfully against current and future competition, and the failure to
do so would have an adverse effect upon our business, operating results and
financial condition.

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The markets in which we compete are
subject to rapid technological change.

The markets
in which we compete are characterized by rapid technological change, frequent
introductions of new and enhanced products, changes in customer demands and
evolving industry standards. The introduction of products embodying new
technologies and the emergence of new industry standards can render existing
products obsolete and unmarketable.

Our future
success will depend in part upon our ability to address the increasingly
sophisticated needs of customers by developing new product functionality and
enhancements that keep pace with technological developments, emerging industry
standards and customer requirements.

There can be
no assurance that our products will continue to be perceived by our customers as
technologically advantageous or that we will not experience difficulties that
delay or prevent the sale of enhancements to existing products that meet with a
significant degree of market acceptance. If the release dates of any future
product enhancements, or new products are delayed or if when released they fail
to achieve market acceptance, our business, operating results, and financial
condition would be adversely affected.

We are dependent on indirect sales
channels.

A
significant portion of our revenues are derived from indirect sales channels,
including ISVs, VARs and distributors. ISVs, VARs and distributors accounted for
approximately 61%, 51% and 51% of our software license revenues for fiscal 2007,
2006 and 2005, respectively. Our success therefore depends in part upon the
performance of our indirect sales channels, over which we have limited
influence. Our ability to achieve significant revenue growth in the future
depends in part on maintaining and expanding our indirect sales channels
worldwide. The loss of any major partners, either to competitive products
offered by other companies or to products developed internally by those
partners, or the failure to attract effective new partners, could have an
adverse effect on our business, operating results, and financial
condition.

There are numerous risks associated
with our international operations and sales.

Revenues
derived from our international customers accounted for 73%, 70% and 64% of our
total revenues, with the remainder from North America, in fiscal 2007, 2006 and
2005, respectively. If the revenues generated by our international operations
are not adequate to offset the expense of maintaining such operations, our
overall business, operating results and financial condition will be adversely
affected. There can be no assurance that we will continue to be able to
successfully market, sell and deliver our products in these markets. Although we
have had international operations for a number of years, there are certain
unique business challenges and risks inherent in doing business outside of North
America, and such challenges and risks can vary from region to region. These
include unexpected changes in regulatory requirements; export restrictions,
tariffs and other trade barriers; difficulties in staffing and managing foreign
operations; longer payment cycles; problems in collecting accounts receivable;
political instability; fluctuations in currency exchange rates; seasonal
reductions in business activity during the summer months in Europe and other
parts of the world; unfamiliar or unusual business practices; and potentially
adverse tax consequences, any of which could adversely impact the success of our
international operations. There can be no assurance that one or more of these
factors will not have an adverse effect on our future international operations
and, consequently, on our business, operating results and financial condition.
In addition, the Companys subsidiaries and distributors in Europe and Japan
operate in local currencies. If the value of the U.S. dollar increases relative
to foreign currencies, our business, operating results and financial condition
could be adversely affected.

The reverse stock split may have an
effect on the trading market for our shares.

The reduction in the number of
issued and outstanding shares occasioned by the reverse stock split resulted in
an increase in the market price of our Common Stock, although such price
increase is not necessarily in proportion to the ratio of the reverse stock
split. The trading price of our Common Stock depends on many factors, including
many which are beyond our control. A higher stock price may increase investor
interest and reduce resistance of brokerage firms to recommend the purchase of
our Common Stock. On the other hand, to the extent that negative investor
sentiment regarding our Common Stock is not based on our underlying business
fundamentals, the reverse stock split may not overcome such sentiment enough to
increase our stock price. In addition, the liquidity of our Common Stock may be
adversely affected by the reduced number of shares outstanding after the reverse
stock split, and the reverse stock split will increase the number of
stockholders who own odd lots, which consist of blocks of fewer than 100
shares. Stockholders who hold odd lots may be required to pay higher brokerage
commissions when they sell their shares and may have greater difficulty in
making sales.

Our stock price may be subject to
volatility.

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

11

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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.

Our quarterly operating results may be
subject to fluctuations and seasonal variability.

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

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

We expect
that our operating results will continue to be affected by the continually
challenging IT economic environment as well as by seasonal trends. In
particular, we anticipate relatively weak demand in the fiscal quarters ending
July 31 and October 31 as a result of reduced business activity in Europe during
the summer months.

Our products are subject to lengthy
sales cycles.

Our products
are used to implement comprehensive solutions including policy administration
and underwriting, transportation labor standards evaluations and
process-centric, composite applications. As a result, the licensing and
implementation of our applications and applications built using our products
generally involve a five to ten week implementation time and a significant
commitment of management attention and resources by prospective customers.
Accordingly, our sales cycle is subject to delays associated with the long
approval process that typically accompanies significant initiatives or capital
expenditures. Our business, operating results, and financial condition could be
adversely affected if customers reduce or delay orders. There can be no
assurance that we will not continue to experience these and additional delays in
the future. Such delays may contribute to significant fluctuations of quarterly
operating results in the future and may adversely affect those
results.

Our software products could contain
defects and could be subject to potential release delays.

Software
products frequently contain errors or defects, especially when first introduced
or when new versions or enhancements are released. Although we have not
experienced adverse effects resulting from any such defects or errors to date,
there can be no assurance that, despite testing by us and current and potential
customers, defects and errors will not be found in current versions, new
versions or enhancements after commencement of commercial shipments, resulting
in loss of revenues, delay in market acceptance, or unexpected re-programming
costs, which could have an adverse effect upon our business, operating results
and financial condition. Additionally, if the release dates of any future Unify
product line additions or enhancements are delayed or if, when released, they
fail to achieve market acceptance, our business, operating results, financial
condition and cash flows would be adversely affected.

12

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Our license agreements may not protect
us from product liability claims.

The license
agreements we have with our customers typically contain provisions designed to
limit our exposure to potential product liability claims. It is possible,
however, that the limitation of liability provisions contained in these license
agreements may not be effective as a result of existing or future federal, state
or local laws or ordinances or unfavorable judicial decisions. The sale and
support of current and future products may involve the risk of such claims, any
of which are likely to be substantial in light of the use of these products in
the development of core business applications. A successful product liability
claim brought against the Company could have an adverse effect upon our
business, operating results, and financial condition.

We rely upon technology from certain
third-party suppliers.

Unify is
dependent on third-party suppliers for software which is embedded in some of its
products. We believe that the functionality provided by software which is
licensed from third parties is obtainable from multiple sources or could be
developed by the Company. However, if any such third-party licenses were
terminated, or not renewed, or if these third parties fail to develop new
products in a timely manner, we could be required to develop an alternative
approach to developing such products, which could require payment of additional
fees to third parties, internal development costs and delays and might not be
successful in providing the same level of functionality. Such delays, increased
costs or reduced functionality could adversely affect our business, operating
results and financial condition.

We may be subject to violations of our
intellectual property rights.

Unify relies
on a combination of copyright, trademark and trade secret laws, non-disclosure
agreements and other intellectual property protection methods to protect its
proprietary technology. Despite our efforts to protect proprietary rights,
unauthorized parties may attempt to copy aspects of our products or obtain and
use information that we regard as proprietary. Policing unauthorized use of our
products is difficult, and while we are unable to determine the extent to which
piracy of our technology exists, piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights as fully as do the laws of the United States. There can be no
assurance that our means of protecting our proprietary rights will be adequate
and, to the extent such rights are not adequate, other companies could
independently develop similar products using similar technology.

Although
there are no pending lawsuits against us regarding infringement of any existing
patents or other intellectual property rights, and we have received no notices
that we are infringing or allegedly infringing the intellectual property rights
of others, there can be no assurance that such infringement claims will not be
asserted by third parties in the future. If any such claims are asserted, there
can be no assurance that we will be able to defend such claim or if necessary
obtain licenses on reasonable terms. Our involvement in any patent dispute or
other intellectual property dispute or action to protect trade secrets and
know-how may have an adverse effect on our business, operating results, and
financial condition. Adverse determinations in any litigation may subject us to
significant liabilities to third parties, require that we seek licenses from
third parties and prevent us from developing and selling our products. Any of
these situations could have an adverse effect on our business, operating
results, and financial condition.

Unify may not successfully integrate
Gupta into its business and operations.

Prior to
the consummation of the Purchase and Exchange, Gupta and Unify operated as
separate entities. Unify may experience material negative consequences to its
business, financial condition or results of operations if it cannot successfully
integrate Guptas operations with Unifys. The integration of companies that
have previously been operated separately involves a number of risks, including,
but not limited to:

- demands on management related to the significant increase in
  the size of the business for which they are responsible;
- diversion of managements attention from the management of
  daily operations to the integration of operations, whether perceived or
  actual;
- management of employee relations across
  facilities;
- difficulties in the assimilation of different corporate
  cultures and practices, as well as in the assimilation and retention of broad
  and geographically dispersed personnel and operations;
- difficulties and unanticipated expenses related to the
  integration of departments, systems (including accounting systems),
  technologies, books and records, procedures and controls (including internal
  accounting controls, procedures and policies), as well as in maintaining
  uniform standards, including environmental management
  systems;
- expenses of any undisclosed or potential liabilities;
  and
- Unifys ability to maintain its customers Guptas customers
  after the acquisition.

Successful
integration of Guptas operations with Unifys depends on Unifys ability to
manage the combined operations, to realize opportunities for revenue growth
presented by broader product offerings and expanded geographic coverage and to
eliminate redundant and excess costs. If Unifys integration efforts are not
successful, Unify may not be able to maintain the levels of revenues, earnings
or operating efficiency that it and Gupta achieved or might achieve
separately.

Our success is dependent upon the
retention of key personnel and we may be unable to retain key
employees.

Our future
performance depends on the continued service of key technical, sales and senior
management personnel. With the exception of Unifys president and chief
executive officer, there are no other Unify technical, sales, executive or
senior management personnel bound by an employment agreement. The loss of the
services of one or more of our officers or other key employees could seriously
harm our business, operating results and financial condition. Future success
also depends on our continuing ability to attract and retain highly qualified
technical, sales and managerial personnel. Competition for such personnel is
intense, and we may fail to retain our key technical, sales and managerial
employees, or attract, assimilate or retain other highly qualified technical,
sales and managerial personnel in the future.

Rapid growth may significantly strain
the resources of the Company.

If we are
able to achieve rapid and successful market acceptance of our current and future
products, we may undergo a period of rapid growth. This expansion may
significantly strain management, financial, customer support, operational and
other resources. To accommodate this anticipated growth, we are continuing to
implement a variety of new and upgraded operating and financial systems,
procedures and controls, including the improvement of our internal management
systems. There can be no assurance that such efforts can be accomplished
successfully. Any failure to expand these areas in an efficient manner could
have an adverse effect on our business, operating results, and financial
condition. Moreover, there can be no assurance that our systems, procedures and
controls will be adequate to support our future operations.

13

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Our disclosure controls and procedures
and our internal control over financial reporting may not be effective to detect
all errors or to detect and deter wrongdoing, fraud or improper activities in
all instances.

While we believe we currently have
adequate internal control over financial reporting, our management does not
expect that our disclosure controls and procedures or our internal control over
financial reporting will prevent all errors and fraud. In designing our control
systems, management recognizes that any control system, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance of
achieving the desired control objectives. Further the design of a control system
must reflect the necessity of considering the cost-benefit relationship of
possible controls and procedures. Because of inherent limitations in any control
system, no evaluation of controls can provide absolute assurance that all
control issues and instances of wrongdoing, if any, that may affect our
operations, have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, that breakdowns can occur
because of simple error or mistake and that controls may be circumvented by
individual acts by some person, by collusion of two or more people or by
managements override of the control. The design of any control system also is
based in part upon certain assumptions about the likelihood of a potential
future event, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Because of the
inherent limitations in cost-effective control systems, misstatements due to
error or wrongdoing may occur and not be detected. Over time, it is also
possible that controls may become inadequate because of changes in conditions
that could not be, or were not, anticipated at inception or review of the
control systems. Any breakdown in our control systems, whether or not
foreseeable by management, could cause investors to lose confidence in the
accuracy of our financial reporting and may have an adverse impact on our
business and on the market price for Unifys common stock.

ITEM 2.PROPERTIES

Unifys
principal administrative offices and headquarters are in Sacramento, California
where we lease a 38,000 square foot facility. We also lease offices in Redwood
Shores, California, the United Kingdom, Germany and France. We believe that our
existing facilities are adequate for our needs and that suitable additional or
alternative space will be available on commercially reasonable terms as needed.

ITEM 3.LEGAL PROCEEDINGS

The Company
is subject to legal proceedings and claims that arise in the normal course of
business. If such matters arise, the Company cannot assure that it would prevail
in such matters, nor can it assure that any remedy could be reached on mutually
agreeable terms, if at all. Due to the inherent uncertainties of litigation,
were there any such matters, the Company would not be able to accurately predict
their ultimate outcome. As of April 30, 2007, there were no current proceedings
or litigation involving the Company that management believes would have a
material adverse impact on its financial position, results of operations, or
cash flows.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS

The Company
held its Annual Meeting of Stockholders on March 29, 2007. As part of the
meeting, the election of Board members was voted on by the Companys
stockholders. Elected to serve on the board were Steven D. Whiteman, Richard M.
Brooks, Robert J. Majteles, Tery R. Larrew and Todd E. Wille. All board members
elected to serve were previously board members for the Company. The elected
board members will serve until the next Annual Meeting of Stockholders and until
their respective successors are duly elected and qualified.

As part of
the Annual Meeting, stockholders voted on the nominees for director and ratified
the appointment of Grant Thornton LLP as the Companys auditors for the fiscal
year ending April 30, 2007. Stockholders also voted to effect a reverse stock
split of the Companys common stock at a ratio of not less than one-for-three
and not more than one-for-ten at any time prior to June 30, 2007. Following are
the results of the annual meeting.

14

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|1. |  | The election of each of the
      nominees for director were approved with the following votes:
|-- |  | -----------------------------------------------------------------------------------------------
|   |  |                                                                                                

| |                          |  | In Favor  |  | Withheld
| | ------------------------ |  | --------- |  | --------
| | Steven
      D. Whiteman |  | 3,966,336 |  | 575,230 
| | Richard M.
      Brooks  |  | 4,148,610 |  | 392,956 
| | Robert
      J. Majteles |  | 4,021,229 |  | 520,337 
| | Tery R.
      Larrew     |  | 4,148,510 |  | 393,056 
| | Todd E.
      Wille      |  | 4,024,570 |  | 516,996 

|2. |  | The proposal to amend our
      Certificate of Incorporation to effect a reverse stock split of our common
      stock at a ratio of not less than one-for-three and not more than
      one-for-ten at any time prior to June 30, 2007, with the exact ratio to be
      set at a whole number within this range to be determined by our board of
      directors in its discretion, was approved as 3,612,221 shares voted
      in favor of the amendment, representing 60.8% of the shares voted at the
      meeting. This was sufficient to pass the amendment.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|3. |  | The proposal to ratify the
      selection of Grant Thornton LLP as the Companys independent auditors for
      the fiscal year ending April 30, 2007 was approved as 4,369,323
      shares voted in favor of the amendment, representing 73.5% of the shares
      voted at the meeting. This was sufficient to pass the
  amendment.                                                                                                                                                                                                                             

15

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PART II

|ITEM 5. |  | MARKET FOR REGISTRANTS COMMON
      EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES
|------- |  | ------------------------------------------------------------------------------------------------------------------------

Market Information for Common Stock

During
fiscal 2007, Unifys common stock was traded on the Over-The-Counter Bulletin
Board (OTC BB) under the symbol UNFY.OB. The following table sets forth the
average high and low bid quotations as reported on the over-the-counter market
for shares of our common stock for the periods indicated. Such quotations
reflect prices between dealers, do not include retail mark-ups, mark-downs or
commissions and may not represent actual transactions.

High
    
    LowFiscal 2007Fourth Quarter
    
    $
    2.85
    
    $
    1.45Third
      Quarter
    
    
    1.55
    
    
    1.10Second Quarter
    
    
    1.90
    
    
    1.00First
      Quarter
    
    
    2.30
    
    
    1.60Fiscal 2006Fourth Quarter
    
    $
    2.45
    
    $
    1.70Third
      Quarter
    
    
    2.20
    
    
    1.50Second Quarter
    
    
    2.10
    
    
    1.55First
      Quarter
    
    
    2.80
    
    
    1.75


Common Stockholders of Record

At June
30, 2007, there were approximately 295 stockholders of record of the Companys
common stock, as shown in the records of our transfer agent, excluding
stockholders whose stock was held in nominee or street name by brokers.

Dividends

We have
never paid dividends on our common stock and our present policy is to retain
anticipated future earnings for use in our business.

Equity Compensation Plan
Information

Unify
maintains a compensation plan that provides for the issuance of its Common Stock
to officers, directors, other employees or consultants. This plan is known as
the 2001 Stock Option Plan (the Option Plan) and it was approved by the
stockholders. The 1991 Stock Option Plan, which had a ten-year life, has expired
and has therefore ceased to be available for new grants. In fiscal 2003, the
Board adopted, without a need for shareholder approval, the 2002 Director
Restricted Stock Plan (the Director Restricted Stock Plan) as part of a
program to provide compensation we felt was necessary to attract, retain and
reward members of our Board of Directors who were willing to provide the time
and energy that we believe is required to meet our business goals. The following
table sets forth information regarding outstanding options and shares reserved
for future issuance under the foregoing plans as of April 30, 2007:

16

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|                                                              |  |                    |  |                   |      |                    | Number
      of 
|------------------------------------------------------------- |  | ------------------ |  | ----------------- | ---- | ------------------ | ----------------
|                                                              |  |                    |  |                   |      |                    | shares          
|                                                              |  |                    |  |                   |      |                    | remaining       
|                                                              |  |                    |  |                   |      |                    | available       
|                                                              |  |                    |  |                   |      |                    | for
      future
|                                                              |  | Number
      of    |  |                   |      |                    | issuance        
|                                                              |  | shares to
      be |  | Weighted-         |      | under
      equity
|                                                              |  | issued
      upon  |  | average           |      | compensation      
|                                                              |  | exercise
      of  |  | exercise price of |      | plans             
|                                                              |  | outstanding        |  | outstanding       |      | [excluding        
|                                                              |  | options,           |  | options,          |      | shares            
|                                                              |  | warrants
      and |  | warrants and      |      | reflected
      in
|                                                              |  | rights             |  | rights            |      | column
      (a)] 
|Plan Category                                                 |  | (a)                |  | (b)               |      | (c)               
|Equity
      compensation plans approved by stockholders (1)  |  | 326,750            |  | $                 | 2.00 |                    | 163,111         
|Equity compensation
      plans not approved by stockholders: |  |                    |  |                   |      |                    |                 
|Director Restricted Stock Plan
      (2)                      |  | 96,137             |  | $                 | 2.45 |                    | 3,862           
|Non-Registered Options (3)                                    |  | 95,000             |  | $                 | 1.70 |                    | 0               

|(1) |  | Comprised entirely of shares
      reserved for future issuance under the Option Plan.                                                                                                                                                                      
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                             
|(2) |  | There are 100,000 shares
      authorized under the Director Restricted Stock Plan, of which 96,137
      shares were awarded by and were outstanding on April 30, 2007. As of April
      30, 2007 there were 3,862 shares available for future
    awards.
|   
|(3) |  | In fiscal 2003, the Board
      authorized the issuance of non-registered non-plan stock options for
      individual senior level executive recruitment.                                                                                                   

Material Features of Director
Restricted Stock Plan

On May 1,
2002 the Board approved the Director Restricted Stock Plan as part of
a compensation program designed to attract and retain independent members for
our board of directors. The maximum aggregate number of shares of common stock
that may be issued under the Director Restricted Stock Plan is 100,000. In
fiscal 2007 there were no shares awarded under this plan. As of April 30, 2007
there is a balance of 3,862 shares reserved for future awards under this
plan.

Material Features of Individual
non-Registered Stock Options

As of April
30, 2007 the Board granted options to purchase up to 40,000 shares of common
stock under individual, non-plan option agreements. The options and shares
issuable under such agreements are restricted securities under the Securities
Act and may not be issued or sold except under an effective registration
statement or an applicable exemption there from. The non-plan option agreements
contain substantially similar terms as options issued under our Option Plan.

17

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ITEM 6.SELECTED FINANCIAL DATA

The
following selected consolidated financial data should be read in conjunction
with the Companys Consolidated Financial Statements and Notes thereto in Item 8
and Managements Discussion and Analysis of Financial Condition and Results of
Operations in Item 7.

|                                                      |  | Years Ended April 30,                      
|----------------------------------------------------- |  | -------------------------------------------
|                                                      |  | 2007                                       
|                                                      |  | (As Restated)                              
|                                                      |  | (In
      thousands, except per share data)
|Consolidated Statement of Operations Data:            |  |                                            
|Revenues:                                             |  |                                            
|Software licenses                                     |  | $                                          
|Services                                              |  |                                            
|Total revenues                                        |  |                                            
|Cost of
      Revenues:                               |  |                                            
|Software licenses                                     |  |                                            
|Services                                              |  |                                            
|Total cost of revenues                                |  |                                            
|Gross
      profit                                    |  |                                            
|Operating Expenses:                                   |  |                                            
|Product development                                   |  |                                            
|Selling, general and administrative                   |  |                                            
|Write-down of other investments                       |  |                                            
|Total operating expenses                              |  |                                            
|Income (loss) from
      operations                   |  |                                            
|Interest expense                                      |  |                                            
|Other
      income (expense), net                     |  |                                            
|Income (loss) before
      income taxes               |  |                                            
|Provision
      (benefit) for income taxes            |  |                                            
|Income (loss) from continuing
      operations        |  | $                                          
|Loss from discontinued operations                     |  |                                            
|Net
      income (loss)                               |  | $                                          
|                                                     
|Net income (loss) per share:                          |  |                                            
|Basic earnings per share:                             |  |                                            
|Continuing operations                                 |  | $                                          
|Discontinued operations                               |  | $                                          
|Net income (loss) per share                           |  | $                                          
|                                                     
|Dilutive earnings per share:                          |  |                                            
|Continuing operations                                 |  | $                                          
|Discontinued operations                               |  | $                                          
|Net
      income (loss) per share                     |  | $                                          
|Shares used in computing net income (loss) per share: |  |                                            
|Basic                                                 |  |                                            
|Diluted                                               |  |                                            
|Consolidated Balance
      Sheet Data (As Restated):  |  |                                            
|Cash and cash equivalents                             |  | $                                          
|Working capital (deficit)                             |  |                                            
|Total assets                                          |  |                                            
|Long term debt, net                                   |  |                                            
|Total stockholders' equity                            |  |                                            

18

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|ITEM 7. |  | MANAGEMENTS DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
  OPERATIONS
|------- |  | ---------------------------------------------------------------------------------------------

The
following discussion of the financial condition and results of operations of the
Company contains forward-looking statements that involve risks and uncertainties
and should be read in conjunction with the cautionary language applicable to
such forward-looking statements described above in A Caution About
Forward-Looking Statements found before Item 1 of this Form 10-K/A. You should
not place undue reliance on these forward-looking statements which speak only as
of the date of this Annual Report on Form 10-K/A. The following discussion
should also be read in conjunction with the Consolidated Financial Statements
and Notes thereto in Item 8. The Companys actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, the Risk Factors discussed
in this Annual Report and in the Companys other filings with the
SEC.

Overview

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

On September
13, 2006, the Company entered into a Purchase and Exchange Agreement (Purchase
Agreement) with Halo Technology Holdings, Inc. (Halo) whereby Unify agreed to
purchase 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
Purchase and Exchange). The Companys acquisition of Gupta was consummated on
November 20, 2006. As a result of the Gupta acquisition the Companys fiscal
2007 financial results include approximately five months of Gupta
operations.

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 and for working
capital, consisting of convertible term loans totaling $5.35 million and a
revolving credit facility of up to $2.5 million. The term loans have an interest
rate of 11.25% and have terms of 48 to 60 months. The revolver has an interest
rate of prime plus 2.25% and has a maturity date of November 30, 2010. As part
of the financing, ComVest received 402,000 warrants and Special Situations
Funds received 268,000 warrants. The warrants are for the purchase of common
stock at prices from $1.35 to $1.90 per share. The agreements provide for
ComVest to have a security interest in substantially all of the Companys
assets.

In February
2005, Unify acquired privately-held Acuitrek Inc. (Acuitrek), a provider of
policy administration and underwriting solutions for the alternative risk
market. The acquisition was the result of a strategy to penetrate underserved
specialty markets with our solutions and led to the formation of the Unify IRM
division. However, with the sale of the Companys IRM division and ViaMode
software asset to Halo, Acuitrek, Inc. was sold to Halo. In connection with this
sale, the Company amended the terms of the agreement under which it had
purchased Acuitrek, Inc. in February 2005.

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

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

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

19

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

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

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
products are generally sold with a perpetual license. The Companys contracts
with ISVs, VARs and international distributors do not include special
considerations such as rights of return, stock rotation, price protection,
special acceptance or warranty provisions. With the exception of its
discontinued product, NavRisk, the Company recognizes revenue for software
license sales in accordance with Statement of Position (SOP) 97-2,Software Revenue Recognition. For the discontinued product, NavRisk, the Company
recognized revenue for software licenses sales in accordance with Statement of
Position 81-1,Accounting for Performance of
Construction-Type and Certain Production-Type Contractsand Accounting Research Bulletin (ARB) 45,Long-Term Construction Type Contracts. The 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.

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 our
discontinued product, NavRisk, software license arrangements that require
significant modification or customization of the underlying software, revenue is
recognized based on contract accounting under the provisions of Accounting
Research Bulletin 45,Long-Term Construction
Type Contractsand Statement of Position
81-1,Accounting for Performance of
Construction-Type and Certain Production-Type Contractsusing the completed-contract method.

The
Company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.

20

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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.

Valuation of Long-Lived Assets

Our
long-lived assets are comprised of long-term investments. At April 30, 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 impairment charges in the future.

Deferred Tax Asset Valuation Allowance

As of April
30, 2007, we had 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.

21

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Results of Operations

The
following table sets forth our consolidated statement of operations expressed as
a percentage of total revenues for the periods indicated:

|                                                                   |  | Years Ended April 30, |  
|------------------------------------------------------------------ |  | --------------------- | -
|                                                                   |  | **2007**              |  
|                                                                   |  | (As Restated)         |  
|Revenues:                                                          |  |                       |  
|Software licenses                                                  |  | 39.6                  |  
|Services                                                           |  | 60.4                  |  
|Total revenues                                                     |  | 100.0                 |  
|Cost of
      revenues:                                            |  |                       |  
|Software licenses                                                  |  | 3.4                   |  
|Services                                                           |  | 9.1                   |  
|Total cost of revenues                                             |  | 12.5                  |  
|Gross profit                                                       |  | 87.5                  |  
|Operating
      expenses:                                          |  |                       |  
|Product development                                                |  | 21.1                  |  
|Selling, general and administrative                                |  | 74.3                  |  
|Total operating expenses                                           |  | 95.4                  |  
|Income (loss) from operations                                      |  | (7.9                  | )
|Interest expense                                                   |  | (4.7                  | )
|Other income (expense),
      net                                  |  | 1.2                   |  
|Income (loss) from continuing operations before income
      taxes |  | (11.4                 | )
|Provision for income
      taxes                                   |  | 0.7                   |  
|Income (loss) from continuing operations                           |  | (12.1                 | )
|Loss from discontinued operations, net of taxes                    |  | (12.9                 | )
|Net loss                                                           |  | (25.0                 | )

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. Revenues from our distributor, ISV and VAR indirect channels
accounted for approximately 61%, 51%, and 51% of our software license revenues
for fiscal 2007, 2006 and 2005, respectively. International revenues include all
our software license and service revenues from customers located outside North
America. International revenues accounted for 73%, 70%, and 64% of total
revenues in fiscal years 2007, 2006 and 2005, respectively.

Total
revenues in fiscal 2007 were $11.2 million, an increase of $1.1 million or 11%
from fiscal 2006 revenues of $10.1 million. The increase in total revenue was
primarily the result of an increase in maintenance service revenues resulting
from the Gupta acquisition. Total software license revenues in fiscal 2007 were
$4.4 million, a decrease of $0.4 million or 8% from fiscal 2006. In March 2006,
the Company announced that it had entered into a merger agreement to be acquired
by Halo and in September 2006, the Company announced the termination of the
merger agreement with Halo and also announced that it would be purchasing Gupta
from Halo and selling its IRM division to Halo. The purchase of Gupta and sale
of IRM was consummated on November 20, 2006. While the Company has experienced a
slowdown in the sale of new software licenses for its database and development
products, this factor was further negatively impacted by the variety of merger
and acquisition announcements during fiscal 2007. Total services revenues were
$6.8 million in fiscal 2007, an increase of $1.4 million or 26% from fiscal
2006. The maintenance revenues from the Unify database and development products
from prior to the Gupta acquisition were up slightly as evidence of customer
satisfaction with these Unify products. The increase in services revenues was
primarily the result of additional maintenance revenues resulting from the Gupta
acquisition. Total revenues in fiscal 2006 were $10.1 million, a decrease of
$1.1 million or 10% from fiscal 2005 revenues of $11.2 million. In fiscal 2006
we had fewer higher dollar software license contracts than in the previous year
causing a decrease in software license revenue compared to fiscal 2005. Total
software license revenues in fiscal 2006 were $4.8 million for a decrease of
$0.3 million or 6% from fiscal 2005, while total service revenues of $5.4 in
fiscal 2006 decreased by $0.7 million or 11% from fiscal 2005.

22

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For fiscal
2007 and 2006, total revenues from the Americas were 27% and 30% of total
revenues, respectively. Total revenue from the Americas in absolute dollars was
$3.0 million for both fiscal 2007 and fiscal 2006. Total revenue from our
European territory was $6.3 million for fiscal 2007 and $5.3 million for fiscal
2006. On a percentage basis, revenue from our European territory was 57% for
fiscal 2007 and 52% for fiscal 2006. For fiscal 2007 and 2006, total revenues
from international distributors were 16% and 18% of total revenues,
respectively. Total revenue from the international distributors in absolute
dollars was $1.9 million for fiscal 2007 and $1.8 million for fiscal
2006.

Cost of Revenues

Cost of
Software Licenses.Cost of software licenses
consists primarily of product packaging and production costs as well as the
amortization of royalties and license fees paid for licensed technology. 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 software licenses
was $0.4 million for both fiscal 2007 and 2006. In fiscal 2005 cost of software
licenses was $0.3 million.

Cost of
Services.Cost of services consists primarily
of employee, facilities and travel costs incurred in providing customer support
under software maintenance contracts and consulting and implementation services.
Total cost of services was $1.0 million for fiscal 2007, $1.1 million for fiscal
2006 and $1.4 million for fiscal 2005. Our cost of services as a percent of
services revenues was 15% in fiscal 2007, 21% in fiscal 2006 and 24% in 2005.
The favorable decrease in the percentage of cost of service expenses to services
revenue in fiscal 2007 was the result of economies of scale relative to our cost
structure and an increase in services revenue, both of which where direct
results of our acquisition of Gupta.

Operating Expenses

Product
Development.Product development expenses
consist primarily of employee and facilities costs incurred in the development
and testing of new products and in the porting of new and existing products to
additional hardware platforms and operating systems. Product development costs
in fiscal 2007 were $2.4 million compared to $1.6 million in fiscal 2006. The
increase in product development costs was the addition of the Gupta product
development team plus additional outsourced development costs associated with
efforts to enhance Guptas Team Developer product. In fiscal 2005 product
development costs were $2.8 million. The decrease in product development costs
from fiscal 2005 to 2006 was the result of shifting some development resources
to the IRM division in fiscal 2006. These expenses are reflected in the loss
from discontinued operations in fiscal 2006.

Selling,
General and Administrative.Selling, general
and administrative (SG&A) expenses consist primarily of salaries and
benefits, marketing programs, travel expenses, professional services, facilities
expenses and bad debt expense. SG&A expenses were $8.3 million in fiscal
2007, $5.8 million for 2006 and $8.7 million for 2005. In fiscal 2006, the
Company had a focused initiative to contain SG&A expenses with the largest
reduction in expenses compared to fiscal 2005 being in the sales and marketing
areas. The increase in SG&A costs in fiscal 2007 is the result of adding
Gupta staff in the areas of sales, marketing and administrative services.
Included also in fiscal 2007 expenses are $0.5 million in costs resulting from
the aborted merger with Halo Technology Holdings and the acquisition of Gupta.
These expenses consisted primarily of legal, accounting and printing costs. As a
percentage of total revenue, SG&A expenses were 74% in fiscal 2007, 57% in
fiscal 2006 and 77% in fiscal 2005. We expect SG&A costs as a percentage of
total revenues to decrease in the future as we complete the Gupta integration
and recognize additional economies of scale as a result of the acquisition. We
do however, expect to incur some additional costs in fiscal 2008 related to our
implementation of Sarbanes-Oxley Section 404 requirements. The major components
of SG&A for fiscal 2007 were sales expenses of $4.1 million, marketing
expenses of $0.6 million and general and administrative expenses of $3.6
million. For fiscal 2006, the major components of SG&A were sales expenses
of $3.0 million, marketing expenses of $0.7 million, and general and
administrative expenses of $2.1 million. The major components of SG&A for
fiscal 2005 were sales expenses of $4.9 million, marketing expenses of $1.4
million and general and administrative expenses of $2.4 million.In fiscal 2005,
SG&A expenses included $1.1 million of expenses associated with a reduction
in the North American and UK sales management teams and the conversion of the UK
subsidiary to a sales office.

Write-down of Other Investments.We
continue to periodically review the recorded value of our investments. We record
an investment impairment charge if and when we believe an investment has
experienced a decline in market value that is other than temporary. Future
adverse changes in market conditions or poor operating results of an investment
could result in losses or an inability to recover the carrying value of the
investment, thereby possibly requiring impairment charges in the
future.

23

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Interest
Expense.Interest expense is primarily the
result of interest from outstanding debt and was $527,000, $11,000 and $23,000
in fiscal 2007, 2006 and 2005, respectively. Fiscal 2007 interest expense
consists primarily of interest incurred on notes payable resulting from a debt
financing in conjunction with the acquisition of Gupta and also the amortization
of related debt issuance costs.

Other
Income (Expense).Other income (expense), net
consists primarily of foreign exchange gains and losses and interest earned by
the Company on our cash and cash equivalents. Other income (expense) was
$136,000, $61,000 and $71,000 in fiscal 2007, 2006 and 2005, respectively.

Provision
for Income Taxes.For fiscal 2007, the
Company recorded $82,000 in foreign tax expense and no expense for state or
federal taxes. For fiscal 2006, the Company recorded no state, federal or
foreign tax expense. For fiscal 2005, the Company recorded expenses of $9,000
for state income taxes. At April 30, 2007, the Company had approximately $40.7
million in federal net operating loss carryforwards that begin to expire in
fiscal year 2008 through 2026, approximately $6.2 million in state net operating
loss carryforwards that expire in fiscal years 2013 to 2016, approximately $0.6
million in foreign net operating loss carryforwards that do not expire and
approximately $3.5 million in capital loss carryforwards that expire in 2010.
The Companys ability to utilize these net operating loss carryforwards may be
subject to certain limitations in the event of a change in ownership.

Liquidity and Capital Resources

At April 30,
2007, the Company had cash and cash equivalents of $2.1 million, compared to
$1.9 million at April 30, 2006. The Company had accounts receivable of $4.4
million as of April 30, 2007 and $3.3 million as of April 30, 2006.

On November
20, 2006, the Company entered into various agreements with ComVest whereby
ComVest, along with participation from Special Situations Funds, provided debt
financing for the Gupta acquisition and for working capital, consisting of
convertible term loans totaling $5.35 million and a revolving credit facility of
up to $2.5 million. The term loans have an interest rate of 11.25% and have
terms of 48 to 60 months. The revolver has an interest rate of prime plus 2.25%
and has a maturity date of November 30, 2010. As part of the financing, ComVest
received 402,000 warrants and Special Situations Funds
received 268,000 warrants. The warrants are for the purchase of common
stock at prices from $1.35 to $1.90 per share. The agreements provide for
ComVest to have a security interest in substantially all of the Companys
assets.

We believe
that existing cash, $2.1 million as of April 30, 2007, along with forecasted
operating cash flows for fiscal year 2008 and the ComVest credit facility, will
provide us with sufficient working capital for us to meet our operating plan for
fiscal year 2008. The fiscal 2008 operating plan assumes normal operations for
the Company, capital expenditures of approximately $50,000 and required interest
and principal payments on debt.

In fiscal
2008, we plan to aggressively market our Composer product and we also anticipate
releasing new versions of Team Developer, SQLBase, NXJ and DataServer which will
have enhanced functionality. The fiscal 2008 plan requires few additional
strategic investments in sales, marketing or implementation services. We believe
our fiscal 2008 plan will generate positive cash flow as a result of increased
product sales for Composer, new license sales from the release of new versions
of our Team Developer, SQLBase and NXJ products and a focused initiative to
contain expenses and optimize economies of scale as a result of the Gupta
acquisition. However, there is no assurance our plans will be successful.

Operating
Cash Flows.In fiscal 2007, we had cash flows
from continuing operations of $0.5 million. This compares to fiscal 2006 and
2005 where cash flows from continuing operations were a negative $39,000 and a
negative $2.2 million, respectively. Cash flows provided by operations for
fiscal 2007 principally resulted from a $2.6 million increase in deferred
revenue, a $0.4 million decrease in accounts receivable, a $0.2 million increase
in prepaid expenses and other current assets, a $0.5 million increase in accrued
acquisition costs, $0.3 million in amortization, $0.2 million in depreciation
and $0.1 million in stock based expenses. Offsetting these amounts was a loss
from continuing operations for fiscal year 2007 of $1.4 million, a decrease of
$0.7 million in accrued compensation and related expenses, a $0.5 million
decrease in accounts payable, a decrease of $0.8 million in other accrued
liabilities, an increase of $0.2 million in other long term assets and
fulfillment of support obligations of $0.2 million.

24

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In fiscal 2006, negative operating
cash flow of $39,000 from continuing operations principally resulted from a $0.9
million increase in accounts receivable, a $0.3 million decrease in accounts
payable, a $0.3 million decrease in other accrued liabilities and a $0.1 million
decrease in deferred revenue. Offsetting these amounts was an increase of $0.1
million prepaid expense and other current assets, a $0.1 million increase in
accrued compensation and related expenses, $0.1 million in stock based expenses,
$0.2 million in depreciation and income from continuing operations of $1.2
million.

In fiscal 2005, we had negative cash
flows from continuing operations totaling $2.2 million. The negative operating
cash flow principally resulted from $2.0 million in net loss, a $0.4 million
decrease in other accrued liabilities, a $0.4 million decrease in deferred
revenue, a $0.1 million decrease in accrued compensation, and a $0.1 million
increase in prepaid expenses and other current assets. Offsetting these amounts
was a $0.4 million decrease in accounts receivable, a $0.1 million increase in
accounts payable and $0.2 million in depreciation.

Investing
Cash Flows .Cash used in investing activities
for continuing operations was a negative $5.8 million for fiscal 2007. The use
of cash consisted of $5.8 million expended for the acquisition of Gupta and $0.1
million for the purchase of property and equipment. Cash used in investing
activities for continuing operations was $41,000 in fiscal 2006 and $0.2 million
in fiscal 2005. The use of cash in investing activities for continuing
operations for both fiscal 2006 and fiscal 2005 was entirely related to the
purchase of property and equipment.

Financing
Cash Flows.Net cash provided by financing
activities for continuing operations in fiscal 2007 was $7.0 million. Sources of
cash from financing activities included $7.7 million from borrowings and $0.2
million from the proceeds of the issuance of common stock. In fiscal 2007 $1.0
million in cash was used to make principal payments on debt obligations. In
fiscal 2006 cash provided by financing activities was $42,000 and was the result
of cash payments of $1.6 million for principal payments on debt offset by
proceeds from borrowings of $1.4 million and proceeds of $0.1 million from the
issuance of common stock. The cash provided in fiscal 2005 of $0.1 million was
the result of $0.1 million from the proceeds of the issuance of common stock
from stock options exercises and purchases under the employee stock purchase
plan. In fiscal 2005, principal payments on debt of $1.7 million were offset by
borrowings under debt obligations of $1.7 million also.

A summary of certain contractual
obligations as April 30, 2007 is as follows (in thousands):

Payments Due by
  Period1
      year or
    
    
    
    
    
    
    
    After 5Contractual
    Obligations
    
    Total
    
    less
    
    2-3 years
    
    4-5 years
    
    yearsLong
      term debt, net
    
    $
    5,350
    
    $
    1,352
    
    $
    1,489
    
    $
    1,489
    
    $
    1,020Revolver note
    
    
    1,500
    
    
    
    
    
    
    
    
    1,500
    
    
    Other
      long-term liabilities
    
    
    108
    
    
    
    
    
    
    
    
    
    
    
    108Capital
leases
    
    
    25
    
    
    9
    
    
    7
    
    
    8
    
    
    1Operating leases
    
    
    1,549
    
    
    1,180
    
    
    368
    
    
    1
    
    
    Total Contractual Cash
      Obligations
    
    $
    8,532
    
    $
    2,541
    
    $
    1,864
    
    $
    2,998
    
    $
    1,129


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.

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.

25

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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.

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

In September
2006, the SEC released Staff Accounting Bulletin (SAB) No. 108,Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements. SAB 108 provides guidance on how
the effects of the carryover or reversal of prior year misstatements should be
considered in quantifying a current year misstatement. In some situations,
companies will be required to record errors that occurred in prior years even
though those errors were immaterial for each year in which they arose. Companies
may choose to either restate all previously presented financial statements or
record the cumulative effect of such errors as an adjustment to retained
earnings at the beginning of the period in which SAB 108 is applied. SAB 108 is
effective for fiscal years ending after November 15, 2006 and was adopted by the
Company in fiscal 2007. The adoption of SAB 108 by the Company did not have a
material impact on our financial position, results of operations or cash
flows.

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. The Company does not believe SFAS 158 will 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.

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

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ITEM 7A.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 $2.1 million at April 30, 2007. Unify had no
short-term investments at April 30, 2007.

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

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
April 30, 2007, the Company had $2.1 million in such payables denominated in
euros and a total $2.1 million in receivables denominated in euros and pounds
sterling. The Company encourages prompt payment of intercompany balances in
order to minimize its exposure to currency fluctuations, but it engages in no
hedging activities to reduce the risk of such fluctuations. A hypothetical ten
percent change in foreign currency rates could have a significant impact on the
Companys business, operating results and financial position. The Company has
not experienced material exchange losses on intercompany balances in the past;
however, due to the substantial volatility of currency exchange rates, among
other factors, it cannot predict the effect of exchange rate fluctuations on its
future business, operating results and financial position.

ITEM 8.FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

See Part IV,
Item 15 (a) for an index to the financial statements and supplementary financial
information, which are filed, as part of this report.

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ITEM 9.CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure
Controls and Procedures. Under the supervision and with the participation of
our management, including our chief executive officer and chief financial
officer, we evaluated the effectiveness of our disclosure controls and
procedures, as such term is defined under Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended. Based upon that evaluation, our
chief executive officer and chief financial officer concluded that our
disclosure controls were effective as of the end of the period covered by
this annual report, except for the potential impact from reporting the Gupta acquisition, as more fully disclosed in Note 2 to the audited consolidated financials statements contained in 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 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 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.

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 nonroutine 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 fiscal year April 30, 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
audited consolidated financials statements contained in 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 or any of Guptas
subsidiaries.

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PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT

The following table sets forth
certain information concerning our executive officers as of the date May 31,
2007.

Executive Officers

ExecutiveOfficerName
    
    Current Position with
      Company
    
    Age
    
    SinceTodd E.
      Wille
    
    President and Chief Executive Officer
    
    44
    
    2000Steven D.
    Bonham
    
    Vice President and
      Chief Financial Officer
    
    50
    
    2005Kevin
      Kane
    
    Vice
      President and General Manager, Composer Solutions
    
    39
    
    2007Mark Bygraves
    
    Vice President, Sales 
      Europe, Middle East and Africa
    
    50
    
    2007Frank
      Verardi
    
    Vice
      President, Sales - Americas and Asia Pacific
    
    58
    
    2001Duane George
    
    Vice President,
      Development and Technical Services
    
    49
    
    2007David
    Drager
    
    Vice President,
      Product Management
    
    46
    
    2007


Unify has a
board of directors consisting of five (5) members. Set forth below is
information with respect to their ages as of May 31, 2007, as well as their
positions and offices held with the Company. Each director holds office until
the next Annual Meeting of Stockholders and until his successor is duly elected
and qualified.

DirectorName
    
    Current Position with
      Company
    
    Age
    
    SinceSteven
      D. Whiteman
    
    Chairman of Board
    
    56
    
    1997Richard M.
    Brooks
    
    Director and Audit
      Committee Chair
    
    53
    
    2005Robert
      J. Majteles
    
    Director
    
    42
    
    2004Tery R.
Larrew
    
    Director
    
    53
    
    2002Todd E.
      Wille
    
    President and Chief Executive Officer
    
    44
    
    2000


Executive Officers

Todd E.
Willehas served as president and chief
executive officer since November 2000. He rejoined the Company in October 2000
as the chief operating officer and acting chief financial officer. Mr. Wille
originally joined Unify in August 1995 as the corporate controller. In September
1997, Mr. Wille was promoted to vice president, finance and chief financial
officer. In March 1998, Mr. Wille left the Company and joined FRx Software
Corporation as the vice president of finance and chief financial officer.
Subsequently, Mr. Wille was promoted to senior vice president of operations. Mr.
Wille received a B.A. degree in business administration with concentrations in
accounting and finance and management information systems from Wartburg College.

Steven D.
Bonhamjoined the Company in June 2005, as
vice president of finance and administration and chief financial officer. Before
joining Unify, Mr. Bonham served eight years as chief financial officer for
LexisNexis/Examen, a subsidiary of LexisNexis. Prior to LexisNexis/Examen, Mr.
Bonham spent nine years with Foundation Health Corp., a former Fortune 500
publicly traded managed care insurance company, most recently serving as the
vice president of finance for Foundations California Heath Plan. Mr. Bonham, a
licensed certified public accountant, has a B.S. degree in accounting from
California State University, Sacramento.

Kevin
Kanejoined Unify in January 2007 and is
responsible for driving market adoption for the Company's service-oriented
architecture (SOA) modernization product portfolio. He brings demonstrated sales
success in growing top-line revenue for several enterprise software companies.
Most recently he served as the global sales director for Sacramento, California
based Meridian Systems, selling SOA applications to the construction industry.
Additionally, Mr. Kane has lead sales organizations at industry leading software
companies, which were then acquired, including VIEO, now Cesura; Dazel Corp.,
acquired by Hewlett Packard; Tivoli Systems, acquired by IBM; Beyond Software,
acquired by NEON Systems; and Sterling Software, acquired by Computer
Associates. Mr. Kane received his bachelors degree in business management from
Saint Marys College of California.

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Mark
Bygravesjoined the Company in November 2006
as part of the acquisition of Gupta Technologies and was appointed as an officer
on May 1, 2007. Mr. Bygraves is responsible for driving the Unify channel sales
programs together with day to day operational responsibilities for Northern
Europe, Middle East and Africa (EMEA). Mr. Bygraves has worked in the IT
industry for 20 years, holding a number of senior positions, most recently as
Director of Channels at Hitachi Data Systems, where he established a partner
program in the United Kingdom and Europe for their range of Storage RAID Arrays.
Mr. Bygraves was also Sales Director of Transformation Software, running their
Storage Division and was responsible for creating channel markets for companies
such as Legato, Veritas and StorageTek. He was also instrumental in
transitioning Network Associates direct business to a channel model on a
worldwide basis.

Frank
Verardihas served in an executive officer
position since 2000. Mr. Verardi is currently responsible for driving the Unify
channel sales programs together with day to day operational responsibilities for
the Americas and Asia Pacific regions. Mr. Verardi served as vice president and
general manager of Unify Business Solutions from May 2005 to April 2007, where
he oversaw the sales and marketing for the Companys technology products. From
June 2003 to April 2005, he served as vice president of technical services, and
from May 2001 to May 2003, he served as vice president of worldwide sales and
marketing. Prior to these positions, Mr. Verardi served in various management
positions, including vice president of worldwide professional services, vice
president of worldwide product delivery and customer support, and director of
client services. Mr. Verardi joined the Company in August 1988. Before joining
Unify, Mr. Verardi held various positions with Computer Sciences Corporation,
including director of commercial professional services.Mr. Verardi received a B.S. degree in computer science from California
State University, Chico.

Duane
Georgehas served as vice president of
development and technology since July 2006 and was appointed as an officer on
May 1, 2007. Mr. George is responsible for Unifys Technical Services Group
which includes product development, customer support, consulting, training,
documentation, quality control and assurance. Mr. George joined Unify in 1995
and has been a core member of the support, consulting and product development
teams. Mr. George has been in the information technology and engineering
industries for over 25 years. He began his career as an engineer with the
Department of Defense managing the acquisition and implementation of Computer
Aided Design and Manufacturing (CAD/CAM) systems. He eventually moved into
software development, customer support and project management with an emphasis
on customer satisfaction. He earned his B.S. in engineering from Brigham Young
University in Provo, Utah.

David
Drager joined the company in May 2007 as vice president of product
management. Before joining Unify, Mr. Drager was the president of Active Data
Corporation from its founding in 1990 till it acquisition by Unify in May 2007.
At Active Data, Mr. Drager was an architect of several products including
Sabertooth®, SalCompliance and QuickWork. At Active Data, Mr. Drager also ran
migration & software development projects for ADP, Toyota, Con Edison,
Constellation Energy, Northrop Grumman, Sunoco, PG & E & the State of
Maryland. Prior to Active Data Corporation, Mr. Drager worked at Arity
Corporation where he developed Arity / Expert an expert system shell and worked
on the Arity Prolog team. Mr. Drager earned an M.S.E. in Computer and
Information Science from the Moore School of Electrical Engineering at the
University of Pennsylvania.

Board of Directors

Steven D.
Whitemanhas served as a director of the
Company since May 1997. In August 2004, he was appointed chairman of the board.
Mr. Whiteman previously served as the president and chief executive officer of
Intesource, an Internet based procurement service specifically for the food
industry. From June 2000 to May 2002, he worked as an independent consultant.
From May 1993 until June 2000, Mr. Whiteman served as president of Viasoft, Inc.
(Viasoft), a publicly traded software products and services company. From
February 1994 to June 2000, Mr. Whiteman also served as chief executive officer
and director of Viasoft, and from April 1997 to June 2000, he served as chairman
of the board of directors. Mr. Whiteman is also a director of Intesource,
Actuate Corporation, and Netpro. Mr. Whiteman holds a B.A. degree in business
administration from Taylor University and a M.B.A. from the University of
Cincinnati.

Richard
M. Brookswas appointed director in August
2005. Since September 2006, Mr. Brooks has been a partner with Tatum LLC, a
national Executive consulting services Company. Mr. Brooks previously served as
chief executive officer for VantageMed from April 2002 to December 2004. In
addition, Mr. Brooks served as a director of VantageMed Corporation from March
2001 to January 2005 and was appointed chairman of that board in May of 2002.
Prior to being appointed CEO at VantageMed, Mr. Brooks served as a managing
member of Brooks and Donde LLC, a financial and information technology company.
From June 1998 to June 2001, Mr. Brooks served on the board of directors of
NetStream, Inc., a communications and IT managed services company which he
co-founded. He was also treasurer from May 2000 to June 2001, and served as the
chief financial officer from June 1998 to May 2000, for NetStream, Inc. Mr.
Brooks received a B.S. in business administration from Oregon State University.

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Tery R.
Larrewhas served as a director of the
Company since May 2002. Mr. Larrew served as the President and CEO of Vericept
Corporation, a provider of network-based early warning and misuse prevention
solutions, headquartered in Denver, Colorado. Prior to joining Vericept in 2002,
Mr. Larrew co-founded IQ3G, a mobile services company, in 2000. From 1999 to
2000, Mr. Larrew was the chairman and chief executive officer of a start-up
e-communication company, UPDATE Systems, Inc. Mr. Larrew also serves as the
chief executive officer of Pinnacle Management, which he reformed in 1998. From
1996 to 1998, Mr. Larrew served on the executive management team of
Metromail/CIC. He is a graduate of Colorado State University with a B.S. degree
in business administration and a minor in finance and marketing.

Robert J.
Majtelesjoined our board in April 2004. Mr.
Majteles founded Treehouse Capital, LLC, a firm focused on blending value and
growth investment disciplines to make active investments in later-stage
technology companies in 2001. In addition to Unify, Mr. Majteles is on the Board
of Directors of Adept Technology, Inc., Macrovision Corporation, Vertical
Communications, Inc., and WorldHeart Corporation. Mr. Majteles received a law
degree from Stanford University and an undergraduate degree from Columbia
University. Additionally, Mr. Majteles is a lecturer at the Lester Center for
Entrepreneurship, Haas School of Business, University of California, Berkeley
and is a Member of the Board of Trustees of the Head-Royce School, Oakland,
California.

Audit Committee

We have
established an audit committee, the primary responsibilities of which are to
oversee the accounting and financial reporting processes of our company as well
as our affiliated and subsidiary companies, and to oversee the internal and
external audit processes. The audit committee also assists the board of
directors in fulfilling its oversight responsibilities by reviewing the
financial information which is provided to stockholders and others, and the
system of internal controls which management and the board of directors have
established. The audit committee oversees the independent auditors, including
their independence and objectivity. However, the committee members are not
acting as professional accountants or auditors, and their functions are not
intended to duplicate or substitute for the activities of management and the
independent auditors. The audit committee is empowered to retain independent
legal counsel and other advisors as it deems necessary or appropriate to assist
the audit committee in fulfilling its responsibilities, and to approve the fees
and other retention terms of the advisors.

The audit
committee is comprised of three members, each of whom was elected by the board
of directors. Richard Brooks, Tery Larrew, and Steven Whiteman currently serve
as our audit committee members. Our board of directors has determined that each
of the members of our audit committee is independent, as defined under and
required by the federal securities laws and the rules of the Nasdaq. Our board
of directors has determined that Mr. Brooks qualifies as an audit committee
financial expert under the federal securities laws and that each member of the
audit committee has the financial sophistication required under the rules of
the Nasdaq . Mr. Brooks is the chairman of the audit committee.

Compensation Committee

We have
established a compensation committee, the primary responsibilities of which are
to periodically review and approve the compensation and other benefits for our
employees, officers and independent directors, including reviewing and approving
corporate goals and objectives relevant to the compensation of our executive
officers in light of those goals and objectives, and setting compensation for
these officers based on those evaluations. Our compensation committee also
administers and has discretionary authority over the issuance of stock awards
under our stock compensation plans.

The
compensation committee has in the past, and may in the future, delegate
authority to review and approve the compensation of our employees to certain of
our executive officers, including with respect to stock option grants made to
under our Stock Option Plan. Even where the compensation committee has not
delegated authority, our executive officers typically make recommendations to
the compensation committee regarding compensation to be paid to our employees
and the size of stock option and stock grants.

The
compensation committee is comprised of three members, Messrs. Larrew, Majteles
and Whiteman. Mr. Larrew is the chairman of the compensation committee. The
board has determined that Mr. Larrew meets the independence requirements of the
Nasdaq Marketplace Rules.

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Code of Conduct and
Ethics

Our board of
directors has adopted a code of conduct and ethics that establishes the
standards of ethical conduct applicable to all directors, officers and employees
of our company. The code addresses, among other things, conflicts of interest,
compliance with disclosure controls and procedures and internal control over
financial reporting, corporate opportunities and confidentiality requirements.
The audit committee is responsible for applying and interpreting our code of
conduct and ethics in situations where questions are presented to it. The board
has adopted a Code of Business Conduct that applies to all our employees,
officers and directors. Links to this material is available on Unifys website
at www.unify.com.

ITEM 11.EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

We provide
what we believe is a competitive total compensation package to our executive
management team through a combination of base salary, an annual cash incentive
plan, a long-term equity incentive compensation plan and broad-based benefits
programs. We place significant emphasis on pay for performance-based incentive
compensation programs, which make payments when certain company or revenue goals
are achieved. This Compensation Discussion and Analysis explains our
compensation philosophy, policies and practices with respect to our chief
executive officer, chief financial officer, and the other three most
highly-compensated executive officers, which are collectively referred to as the
named executive officers.

The Objectives of Our Executive
Compensation Program

Our
compensation committee is responsible for establishing and administering our
policies governing the compensation for our executive officers. Our executive
officers are elected by our board of directors. Our compensation committee is
composed entirely of non-employee independent directors. The primary goals of
the compensation committee with respect to executive compensation are to attract
and retain the most talented and dedicated executives possible, to tie annual
and long-term cash and equity incentives to achievement of specified performance
objectives, and to align executives incentives with stockholder value creation.
To achieve these goals, the compensation committee intends to implement and
maintain compensation plans that tie a substantial portion of executives
overall compensation to our financial and operational performance, as measured
by metrics such as revenue, revenue growth and profitability. The compensation
committee evaluates individual executive performance with a goal of setting
compensation at levels the committee believes are comparable with executives in
other companies of similar size and stage of development operating in the
software industry while taking into account our relative performance and our own
strategic goals. During fiscal 2007, we retained a compensation consultant to
review our policies and procedures with respect to executive and board
compensation. The compensation committee used the results of the consultants
analysis to evaluate the appropriateness of compensation levels for our
executives compared to other companies of similar size.

Our
compensation committee meets outside the presence of all of our executive
officers, including the named executive officers, to consider appropriate
compensation for our chief executive officer, or CEO. For all other named
executive officers, the committee meets outside the presence of all executive
officers except our CEO, Mr. Wille, who reviews each other named executive
officers performance with the committee and makes recommendations to the
compensation committee with respect to the appropriate base salary, cash bonus
incentives and equity incentives. The compensation committee considers the
annual performance of the executive officer, the importance of the executive
position to the Company, the past salary history of the executive officer and
the contributions to be made by the executive officer to us. The compensation
committee also reviews the analyses and recommendations of the executive
compensation consultant retained by the committee. After considering the
relevant information, the compensation committee establishes the annual
compensation package for our executive officers.

We use the following principles to
guide our decisions regarding executive compensation:

Allocation between long-term and
currently paid out compensation.     The
compensation we currently pay consists of base pay and annual cash incentive
compensation. The long-term compensation consists entirely of stock awards or
stock options pursuant to our 2001 Stock Option Plan. The allocation between
long-term and currently paid out compensation is based on an analysis of how the
enterprise software industry and companies of similar size in the general
technology market use long-term and currently paid compensation to pay their
executive officers.

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Allocation between cash and non-cash
compensation.     It is our intent to allocate all currently paid compensation and annual
incentive pay in the form of cash and all long-term compensation in the form of
stock awards and/or stock options to purchase our common stock. We consider
competitive market analyses when determining the allocation between cash and
non-cash compensation.

Provide compensation opportunities
targeted at market median
levels.     To attract and retain executives with the ability and the experience
necessary to lead us and deliver strong performance to our stockholders, we
strive to provide a total compensation package that is competitive with total
compensation provided by our industry peer group. We benchmark our salary and
target incentive levels and practices as well as our performance results in
relation to other comparable general technology and enterprise software
companies of similar size in terms of revenue and market capitalization. In
fiscal 2007, we engaged a compensation consultant to provide us with a
comprehensive evaluation of our executive compensation program. The consultant
used multiple data sources, including confidential market compensation surveys
and public survey data to enable them to compare our company to others with
similar attributes.

We target
base salaries and target total compensation to result in annual salaries equal
to the market median (50th percentile) pay level. We believe our executive
compensation packages are reasonable when considering our business strategy, our
compensation philosophy and the competitive market pay data.

Require performance goals to be
substantially achieved in order for the majority of the target pay levels to be
earned.     Our executive compensation program emphasizes pay for performance.
Performance is measured based on the achievement of company and divisional
performance goals established by our board of directors relative to our board of
director approved annual business plan. The goals for our company and divisional
measures are established so that target attainment is not assured. The
attainment of these company and divisional goals will require significant effort
on the part of our executives.

Offer the same comprehensive
benefits package to all full-time
employees.     We provide a competitive benefits package to all full-time employees
which includes health and welfare benefits, such as medical, dental, vision
care, disability insurance, life insurance benefits, and a 401(k) savings plan.
We have no structured executive perquisite benefits (e.g., club memberships or
company vehicles) for any executive officer, including the named executive
officers, and we currently do not provide any deferred compensation programs or
supplemental pensions to any executive officer, including the named executive
officers.

Provide fair and equitable
compensation.     We provide a total compensation program that we believe will be perceived
by both our executive officers and our stockholders as fair and equitable. In
addition to conducting analyses of market pay levels and considering individual
circumstances related to each executive officer, we also consider the pay of
each executive officer relative to each other executive officer and relative to
other members of the management team. We have designed the total compensation
programs to be consistent for our executive management team.

Our Executive Compensation Program
Elements

Overall, our
executive compensation programs are designed to be consistent with the
objectives and principles set forth above. For each fiscal year, the
compensation committee will select, in its discretion, the executive officers of
the Company or its subsidiaries who are to participate in the Companys
incentive plans. The compensation committee will establish the terms and
conditions applicable to any award granted under the plan and a participant will
be eligible to receive an award under the plan in accordance with such terms and
conditions. Awards will be paid in whole or in part in cash, common stock or
other property and will generally be paid in the first quarter following
completion of a given fiscal year. The actual amount of any discretionary bonus
payment will be determined following a review of each executives individual
performance and contribution to our strategic goals. The plan does not fix a
maximum payout for any officers annual discretionary incentive payment. With
the exception of the Companys chief executive officer, no other executive
officers have an employment agreement. The basic elements of our executive
compensation programs are summarized below:

33

---

Base
Salary.Base salaries for our executives are
established based on the scope of their responsibilities, taking into account
competitive market compensation paid by other companies for similar positions.
Generally, we believe that executive base salaries should be targeted near the
median of the range of salaries for executives in similar positions with similar
responsibilities at comparable companies, in line with our compensation
philosophy. Base salaries are reviewed annually, and adjusted from time to time
to realign salaries with market levels after taking into account individual
responsibilities, performance and experience. For 2007, this review occurred in
the fourth quarter.

Management Incentive Plan.The
Company, through the compensation committee, maintains an annual Management
Incentive Plan (MIP) such that executives of the Company can receive an
incentive payment based the achievement of pre-defined objectives. The incentive
plan awards are intended to compensate officers for achieving financial and
operational goals and for achieving individual annual performance objectives.
These objectives vary depending on the individual executive, but relate
generally to the Companys financial results. The Companys financial
performance did not meet the MIP pre-defined objective for fiscal 2007.
Therefore, no MIP cash incentive bonuses were paid for fiscal 2007.

Long-Term
Equity Incentive Program.We believe that
long-term performance is achieved through an ownership culture that encourages
such performance by our executive officers through the use of stock and
stock-based awards. Our stock compensation guidelines have been established to
provide certain of our employees, including our executive officers, with
incentives to help align those employees interests with the interests of
stockholders. The compensation committee believes that the use of stock and
stock-based awards is a significant component in enabling the company to achieve
its compensation goals. We do maintain stock award guidelines and all stock
awards are made at the direction of the compensation committee. We believe that
the aggregate equity ownership levels for our executive officers should be set
near competitive median levels for comparable companies. For fiscal 2007, this
review occurred in the fourth quarter.

Options
and Stock Awards.Our 2001 Stock Option Plan
authorizes us to grant options to purchase shares of common stock to our
employees, directors and consultants. Our compensation committee is the
administrator of the stock option plan. Stock option grants are made at the
commencement of employment and, occasionally, following a significant change in
job responsibilities or to meet other special retention or performance
objectives. The compensation committee reviews and approves stock option awards
to executive officers based upon a review of competitive compensation data, its
assessment of individual performance, a review of each executives existing
long-term incentives, and retention considerations. Periodic stock option grants
are made at the discretion of the compensation committee to eligible employees
and, in appropriate circumstances, the compensation committee considers the
recommendations of members of management, such as Mr. Wille, our Chief Executive
Officer. In 2007, certain named executive officers were awarded stock options
and stock awards in the amounts indicated in the section entitled Grants of
Plan Based Awards. These grants included stock awards and options grants made
in November 2006, in recognition of their contributions to our company relating
to the negotiation and subsequent closing of our acquisition of Gupta and
securing the related debt financing.

Other Compensation.In accordance with our compensation philosophy, the
compensation committee may, in its discretion, revise, amend or authorize any
changes to the executive officers compensation or benefits as deemed necessary.
In fiscal 2007, the compensation committee awarded a discretionary bonus to the
companys chief executive officer, Todd Wille, in the amount of $25,000 and to
its chief financial officer, Steven Bonham, in the amount of $15,000 primarily
for their efforts related to the acquisition of Gupta and the completion of the
related debt financing.

Tax Deductibility of Executive
Compensation

Limitations
on deductibility of compensation may occur under Section 162(m) of the Internal
Revenue Code which generally limits the tax deductibility of compensation paid
by a public company to its chief executive officer and certain other highly
compensated executive officers to $1 million in the year the compensation
becomes taxable to the executive officer. There is an exception to the limit on
deductibility for performance-based compensation that meets certain
requirements.

34

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Compensation Committee
Report

The
Compensation Committee is comprised entirely of independent directors. The
Committee has reviewed the Compensation Discussion and Analysis required by Item
402(b) of Regulation S-K with management and, based on such review and
discussions, the Committee recommended to our board of directors that the
Compensation Discussion and Analysis be included in this annual
report.Submitted by the Compensation
Committee:Tery R. Larrew, Robert J. Majteles, Steven D. Whiteman.

SUMMARY COMPENSATION TABLE

The
following table sets forth information concerning the compensation earned during
the fiscal years ended April 30, 2007, 2006 and 2005 by President and Chief
Executive Officer, our Chief Financial Officer, one other most
highly-compensated officer and two former executive officers who would have been
included among the highly compensated if they were still employed by the Company
for services rendered in all capacities to the Company for the last three (3)
fiscal years:

|                              |  |      |  |        |         |       |   |        | Stock  |        | Option |              | Sales
      Commission |              | All
      Other |       |        
|----------------------------- |  | ---- |  | ------ | ------- | ----- | - | ------ | ------ | ------ | ------ | ------------ | ---------------------- | ------------ | --------------- | ----- | -------
|Name and
      Principal      |  |      |  | Salary |         | Bonus |   | Awards |        | Awards |        | Compensation |                        | Compensation |                 | Total
|Position                      |  | Year |  | $ (1)  |         | $ (2) |   | $ (3)  |        | $ (4)  |        | $ (5)        |                        | $            |                 | $    
|Todd E.
      Wille (6)       |  | 2007 |  | $      | 220,000 |       |  |        | 34,540 | (7)    |       |              |                       |              | 25,000          | (8)   | 279,540
|President and Chief Executive |  | 2006 |  |        | 220,000 |       |  |        |       |        |       |              |                       |              |                |       | 220,000
|Officer                       |  | 2005 |  |        | 220,000 |       |  |        |       |        |       |              |                       |              |                |       | 220,000
|                             
|Steven
      D. Bonham (9)    |  | 2007 |  |        | 175,000 |       |  |        | 8,800  | (10)   |       |              |                       |              | 15,000          | (11)  | 198,800
|Chief Financial Officer       |  | 2006 |  |        | 142,900 |       |  |        |       |        | 69,240 | (12)         |                       |              |                |       | 212,140
|                              |  | 2005 |  |        |        |       |  |        |       |        |       |              |                       |              |                |       |       
|                             
|Frank
      Verardi (13)      |  | 2007 |  |        | 125,000 |       |  |        |       |        |       |              | 64,663                 |              |                |       | 189,663
|Vice President, Americas and  |  | 2006 |  |        | 143,750 |       |  |        |       |        |       |              | 31,768                 |              |                |       | 175,518
|Asia Pacific                  |  | 2005 |  |        | 150,000 |       |  |        |       |        | 8,884  | (14)         | 8,610                  |              |                |       | 167,494
|                             
|Former
      Officers:        |  |      |  |        |         |       |   |        |        |        |        |              |                        |              |                 |       |        
|                             
|David
      M. Glende (15)    |  | 2007 |  |        | 75,001  |       |  |        |       |        |       |              |                       |              |                |       | 75,001 
|Former Vice President of      |  | 2006 |  |        | 157,150 |       |  |        |       |        |       |              |                       |              |                |       | 157,150
|Products, IRM                 |  | 2005 |  |        | 158,000 |       |  |        |       |        | 8,884  | (16)         |                       |              |                |       | 166,884
|                             
|Daniel
      S. Romine (17)   |  | 2007 |  |        | 75,000  |       |  |        |       |        |       |              |                       |              |                |       | 75,000 
|Former Vice President and     |  | 2006 |  |        | 140,000 |       |  |        |       |        |       |              |                       |              | 323,700         | (18)  | 463,700
|General Manager, IRM          |  | 2005 |  |        | 30,000  |       |  |        |       |        | 55,525 | (19)         |                       |              |                |       | 85,525 

|(1) |  | Includes amounts, if any,
      deferred at the named executive officers option under Unify Corporations
      401(k) plan.                                                                                                                                                                                                                                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                               
|(2) |  | Includes amounts, if any, paid
      under the Companys Management Incentive Plan (MIP).                                                                                                                                                                                                                                                                                                                   
|   
|(3) |  | The value of stock awards granted
      to our executive officers equals the number of shares granted multiplied
      by the share price on the date of the grant.                                                                                                                                                                                                                                           
|   
|(4) |  | The value of option awards
      granted to our executive officer has been estimated pursuant to SFAS No.
      123(R) for fiscal years 2005, 2006 and 2007. In fiscal 2007, the Company
      adopted SFAS No. 123(R) and began to record stock option expenses. Our
      executive officers will not realize the estimated value of these awards in
      cash until these awards are vested and exercised.
|   
|(5) |  | Represents commissions earned and
      paid pursuant to the Companys sales commission plans.                                                                                                                                                                                                                                                                                                                
|   
|(6) |  | Mr. Wille was appointed president
      and chief executive officer in November 2000.                                                                                                                                                                                                                                                                                                                         
|   
|(7) |  | Relates to a stock grant of
      31,400 shares of common stock to Mr. Wille on November 16,
  2006.                                                                                                                                                                                                                                                                                                          
|   
|(8) |  | Represents a discretionary bonus
      awarded by the Compensation Committee.                                                                                                                                                                                                                                                                                                                                 

35

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|(9)  |  | Mr. Bonham joined the Company in
      June 2005 as chief financial officer.                                                                                                                                                                                                                                                     
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  |                                                                                                                                                                                                                                                                                                                                  
|(10) |  | Relates to a stock grant of 8,000
      shares of common stock to Mr. Bonham on November 16, 2006.                                                                                                                                                                                                                               
|    
|(11) |  | Represents a
      discretionary bonus awarded by the Compensation
  Committee.                                                                                                                                                                                                                                                  
|    
|(12) |  | Represents the aggregate fair
      market value of options to purchase 40,000 shares of common stock granted
      to Mr. Bonham upon hiring on June 27, 2005 with an exercise price of $1.85
      per share.                                                                                                                  
|    
|(13) |  | Mr. Verardi was appointed to the
      position of Vice President, Sales for the Americas and Asia Pacific in May
      2007. Prior to that, he held the position of vice president and general
      manager of the Unify Business Solutions division.                                                                          
|    
|(14) |  | Represents the aggregate fair
      market value of options to purchase 4,000 shares of common stock granted
      to Mr. Verardi on February 2, 2005 with an exercise price of $2.30 per
      share.                                                                                                                           
|    
|(15) |  | Mr. Glende was appointed vice
      president of products for the Insurance Risk Management (IRM) division
      and chief technology officer in March 2005. The Company sold the IRM
      division to Halo on November 20, 2006 and at that time Mr. Glende became
      an employee of Halo.                                
|    
|(16) |  | Represents the aggregate fair
      market value of options to purchase 4,000 shares of common stock granted
      to Mr. Glende on February 2, 2005 with an exercise price of $2.30 per
      share.                                                                                                                            
|    
|(17) |  | Mr. Romine joined the Company in
      February 2005 as vice president and general manager of the Insurance Risk
      Management (IRM) division. The Company sold the IRM division to Halo on
      November 20, 2006 and at that time Mr. Romine became an employee of
      Halo.                                           
|    
|(18) |  | Represents earn-out payments made
      in accordance with the agreement related to Unifys purchase of Acuitrek,
      Inc. from Mr. Romine in February 2005. The compensation is comprised of
      common stock of $140,000, tax gross up payment of $40,400, performance
      bonus of $8,300 and cash payments of $135,000.
|    
|(19) |  | Represents the aggregate fair
      market value of options to purchase 25,000 shares of common stock granted
      to Mr. Romine on February 2, 2005 with an exercise price of $2.30 per
      share.                                                                                                                           

Grants of Plan-Based Awards

The compensation committee approved
option awards under our 2001 Stock Option Plan to certain of our named
executives in fiscal 2005, 2006 and 2007 and awarded stock to Mr. Wille and Mr.
Bonham in 2007. Set forth below is information regarding awards granted during
fiscal 2005, 2006 and 2007.

|                       | 
|---------------------- | 
|                       | 
|                       | 
|                       | 
|                       | 
|                       | 
|Name                   | 
|Todd E.
      Wille    | 
|                      
|Steven D.
      Bonham | 
|                       | 
|                      
|Kevin
      Kane       | 
|                      
|Mark
      Bygraves    | 
|                      
|Frank
      Verardi    | 
|                      
|Duane
      George     | 
|                       | 
|                       | 

|(1) |  | All options were granted with an exercise
      price equal to the fair market value per share of the common stock on the
      date of grant, as determined by the fair market value of the Companys
      common stock on that day.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

36

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Stock Option Plans

Our 2001
Stock Option Plan (the 2001 Option Plan) is administered by our compensation
committee. The objectives of the plan include attracting, motivating and
retaining key personnel and promoting our success by linking the interests of
our employees, directors and consultants with our success.

Prior to the
2001 Option Plan, the Company had a 1991 Stock Options Plan (the 1991 Option
Plan) which expired as of March 2001. Under the 1991 Option Plan, 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.

Options Available for
Issuance     Under the 2001 Stock Option Plan, the Company may grant options to
purchase up to 595,000 shares of common stock to eligible employees,
directors, and consultants at prices not less than the fair market value at the
date of grant for incentive stock options and not less than 85% of the fair
market value at the date of grant for non-statutory stock options. As of April
30, 2007, there were 163,111 options available under the 2001 Option
Plan.

Term of
Options     The term of each option is ten years from the date of the grant of the
option, unless a shorter period is established for incentive stock options or
the administrator of the 2001 Stock Option Plan establishes a shorter period.

Vesting
Schedule     Options granted under our 2001 Stock Option Plan, unless waived or
modified in a particular option agreement or by action of the compensation
committee, vest over a four year period. The options generally have no vesting
until the end of one year at which time they become 25% vested. Following the
first year, the options generally vest monthly on a ratable basis over the next
three years. At the end of four years the options are fully vested.

Administration     The compensation committee has full discretionary authority to
determine all matters relating to options granted under the plan. The
compensation committee has the authority to determine the persons eligible to
receive options, the number of shares subject to each option, the exercise price
of each option, any vesting schedule, any acceleration of the vesting schedule
and any extension of the exercise period.

Amendment and
Termination     Our board of directors has authority to suspend, amend or terminate the
plan, except as would adversely affect participants rights to outstanding
awards without their consent. As the plan administrator, our compensation
committee has the authority to interpret the plan and options granted under the
plan and to make all other determinations necessary or advisable for plan
administration.

Other Stock Options

In fiscal
2003, the Board authorized the issuance of non-registered non-plan stock options
(Non-Plan Options) for individual senior level executive recruitment. These
Non-Plan Options are granted pursuant to written agreements that are not subject
to the terms of the 2001 Option Plan, but have similar terms and conditions. The
options and shares issuable under the Non-Plan Options are restricted securities
under the Securities Act and may not be issued or sold except under an effective
registration statement or an applicable exemption there from. The Non-Plan
Option agreements contain substantially similar terms as options issued under
our 2001 Option Plan, including vesting schedule and option term. During fiscal
2007, the Board granted options to purchase 40,000 shares of common stock using
Non-Plan Option agreements.

37

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Other Benefits

Retirement Savings
Opportunity     The Company maintains a 401(k) employee retirement savings plan. Eligible
employees may contribute up to 100% of their pre-tax salary, but not more than
statutory limits. We match a portion of employee contributions, currently
50% of the first 6% of compensation deferred. We do not provide an option
for our employees to invest in our common stock in the 401(k) plan.

Health and Welfare
Benefits     All full-time employees, including our named executive officers, may
participate in our health and welfare benefit programs, including medical,
dental and vision care coverage, disability insurance and life
insurance.

Employment Agreements and Termination
and Change of Control Agreements

We have an
employment agreement with Mr. Wille, our president and chief executive officer
which became effective October 1, 2000. Under the agreement, he receives an
annual salary, subject to Board adjustment, of $220,000, and is eligible to
receive bonuses upon Unify achieving certain benchmarks in its business plan.
Following a merger of the Company or sale of substantially all of its assets,
the unvested portion of all options held by Mr. Wille as of the date of the
transaction will automatically vest. Should Mr. Wille be terminated without
cause or resign for good reason, all options held by Mr. Wille will have the
benefit of twelve (12) additional months of vesting and he will receive an
amount equal to twelve (12) months salary and the continuation of health
benefits for 12 months following termination.

Change in Control

Under our
1991 and 2001 Stock Option Plans, should we merge with or be otherwise acquired
by another company in a transaction where our stockholders do not retain a
majority of the voting stock, a Change of Control occurs. If there is a Change
of Control and the successor company fails to either assume the outstanding
options or substitute substantially equivalent options for its own stock, the
vesting of all outstanding Unify options shall accelerate to become fully vested
and immediately exercisable. Any outstanding options will terminate if they are
not exercised upon consummation of the merger or assumed or replaced by the
successor corporation.

38

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Outstanding Equity Awards at April 30,
2007

The following table summarizes the outstanding equity award
holdings by our named executive officers.

|                       | 
|---------------------- | 
|                       | 
|                       | 
|                       | 
|                       | 
|                       | 
|                       | 
|Name                   | 
|Todd E.
      Wille    | 
|                       | 
|                       | 
|                      
|Steven D.
      Bonham | 
|                      
|Kevin Kane             | 
|                      
|Mark
      Bygraves    | 
|                      
|Frank
      Verardi    | 
|                       | 
|                       | 
|                       | 
|                       | 
|                      
|Duane
      George     | 
|                       | 
|                       | 
|                       | 
|                       | 
|                       | 
|                       | 

Option Exercises and Stock Vested

There have been no exercises of stock options by our named executive
officers during the last fiscal year. On November 16, 2006, Mr. Wille was
awarded 31,400 shares of common stock that was fully vested upon award. Also on
November 16, 2006, Mr. Bonham was awarded 8,000 shares of common stock that was
fully vested upon award.

Compensation of Directors

In May 2002, the
Companys Board of Directors adopted the following compensation program for its
non-employee (independent) members. This program has several components
described in the table below. The compensation for each individual Director is
assessed by the other members of the Board and is generally based upon the
degree and quality of his/her participation in Board activities. Even though the
director compensation program provides for the issuance of an annual stock
retainer and annual stock option, no such awards were made to any non-employee
directors for the year ended April 30, 2007.

39

---

|                              | 
|----------------------------- | 
|                              | 
|                              | 
|Annual Cash Retainer (1)      | 
|                             
|Annual Stock Retainer (2)     | 
|                             
|Annual Stock Option Grant (3) | 
|                             
|Meeting Fees (4)              | 
|                             
|Consulting (5)                | 

|(1) |  | Unify will pay non-employee
      directors an annual cash retainer fee of $10,000 which will be paid in
      four quarterly payments of $2,500 each. Payments are to be made no later
      than five business days after the end of each fiscal quarter (August 5th,
      November 5th, February 5th and May 5th).                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(2) |  | Directors are eligible for an
      annual stock retainer up to the equivalent of $10,000 worth of restricted
      stock under the 2002 Director Restricted Stock Plan (a copy of which is
      available upon request to the Company). Such restricted stock may not be
      sold for a period of twelve (12) months from the date of issuance and is
      for services to be rendered during the upcoming fiscal year                                                                                                                                                                                                                                                                                                                         
|   
|(3) |  | Directors are eligible for an
      annual stock option grant of up to 4,000 shares of Unify common stock
      under the Companys then current stock option program. Eligibility will be
      determined by the Board and will be based on several factors from the
      prior fiscal year, including the financial performance of the Company, the
      Directors personal contribution to the Company and any other relevant
      factors or events. The stock option grant, if any, will be made in June of
      each year and the exercise price shall be equivalent to the fair market
      value of the stock at the time of the option grant. Any such option grant
      will vest monthly over a period of thirty-six (36) months.
|   
|(4) |  | Non-employee directors are
      eligible to receive fees for attending Board and related committee (such
      as the audit committee, nominating and corporate Governance committee and
      compensation committee) meetings. Directors receive $1,000 for each
      on-site meeting attended and $500 for each conference call meeting. Unify
      will typically hold a Board meeting and any committee meetings on the same
      day, which will be considered as one meeting for the purpose of
      calculating meeting fees.                                                                                                                                                                                                          
|   
|(5) |  | Directors may be requested to
      provide certain consulting services to Unify. Should this take place,
      Unify shall pay a Director one thousand dollars ($1,000) per day, with a
      half-day minimum. Unify shall reimburse a Director for all travel expenses
      incurred in accordance with its Travel and Entertainment
  Policy.                                                                                                                                                                                                                                                                                                                                                                                                  

40

---

The following table details the
Companys committee structure and committee membership information.

|                         | 
|------------------------ | 
|                         | 
|Name of Director (1)     | 
|Todd E.
      Wille      | 
|Richard M.
      Brooks  | 
|Tery R.
      Larrew     | 
|Robert J.
      Majteles | 
|Steven
      D. Whiteman | 

|(1) |  | With the exception of Mr. Wille,
      the companys CEO, all other board members are non-employees.     
|--- |  | ---------------------------------------------------------------------------------------------------------
|    |  |                                                                                                          
|(2) |  | The Disclosure Committee is
      chaired by the Companys Chief Financial Officer, Steven D.
    Bonham.

The following table
sets forth certain information with respect to our non-employee director
compensation during the fiscal year ended April 30, 2007.

Director Compensation Table

|                         |  | Fees Earned or |        |                        |   |                         |   |      
|------------------------ |  | -------------- | ------ | ---------------------- | - | ----------------------- | - | -----
|                         |  | Paid in Cash   |        | Stock Awards
      (1) |   | Option
      Awards (1) |   | Total
|Name                     |  | ($)            |        | ($)                    |   | ($)                     |   | ($)  
|Richard
      M. Brooks  |  | $              | 26,000 |                        |  |                         |  |      
|Tery R. Larrew           |  |                | 15,000 |                        |  |                         |  |      
|Robert
      J. Majteles |  |                | 14,000 |                        |  |                         |  |      
|Steven D.
      Whiteman |  |                | 24,000 |                        |  |                         |  |      

|(1) |  | Even though the director
      compensation program provides for the issuance of and annual stock
      retainer and annual stock option, no such awards were made to any
      non-employee directors for the year ended April 30,
  2007.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Director Restricted Stock Plan

In fiscal
2003, the Board adopted, without a need for shareholder approval, the 2002
Director Restricted Stock Plan (the Director Restricted Stock Plan) as part of
a program to provide compensation we felt was necessary to attract, retain and
reward members of our Board of Directors who were willing to provide the time
and energy that we believe is required to meet our business goals. The maximum
aggregate number of shares of common stock that may be issued under the Director
Restricted Stock Plan is 100,000 shares. In May of each year, each independent
director is eligible for a fully vested restricted stock award for the number of
shares which is equal to $10,000 divided by the fair market value of a share of
stock on the award date. There were no shares awarded in the fiscal 2007 under
this Director Plan and there is a balance of 3,862 shares reserved for future
awards at April 30, 2007.

Indemnification of Officer and Directors

Unifys
Restated Certificate of Incorporation (the Certificate) limits the liability
of our directors to the maximum extent permitted by Delaware law. Delaware law
provides that a corporations certificate of incorporation may contain a
provision eliminating or limiting the personal liability of a director for
monetary damages for breach of their fiduciary duties as directors, except for
liability for (i) any breach of their duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law, or (iv) any transactions from which
the director derived an improper personal benefit. Our bylaws call for us to
indemnify our directors, executive officers, and trustees to the fullest extent
permitted by law. We believe that such indemnification covers negligence and
gross negligence. Our bylaws also permit us to secure insurance on behalf of any
executive officer, director, employee or other agent for any liability arising
out of his or her actions in such capacity (subject to certain exclusions),
regardless of whether the bylaws permit indemnification.

41

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive
officers, directors and persons who beneficially own more than ten percent (10%)
of Unifys common stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission (SEC). Such
persons are required by SEC regulations to furnish us with copies of all Section
16(a) reports filed by them.

Based solely
upon our review of such reports furnished to us and written representations from
certain reporting persons, we believe that all filing requirements applicable to
our executive officers, directors and more than ten percent (10%) stockholders
for the fiscal year ended April 30, 2007, were met.

STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

The
following table sets forth certain information as of June 30, 2007 with
respect to the beneficial ownership of our common stock by: (i) each member of
our board of directors; (ii) each of our named executives; (iii) all of our
directors and executive officers as a group; and (iv) each stockholder who is
known to us to own beneficially more than 5% of our outstanding common stock.
The following beneficial ownership table assumes full conversion of the
convertible term notes resulting from the debt financing in conjunction with the
acquisition of Gupta. The number of shares in the following table includes
the effect of the five for one reverse stock split that occurred on
June 24, 2007.

Shares Owned (1)PercentageNumber
    of
    
    ofName of Beneficial
      Owner
    
    Shares
    
    ClassDirectorsSteven D. Whiteman (2)
    
    44,453
    
    *Tery R. Larrew (3)
    
    44,998
    
    *Robert J. Majteles (4)
    
    6,511
    
    *Richard M. Brooks (5)
    
    7,533
    
    *Executive
      OfficersTodd E. Wille (6)
    
    189,854
    
    3.10
    %Steven D. Bonham (7)
    
    29,666
    
    *Kevin Kane (8)
    
    5,833
    
    *Mark Bygraves (9)
    
    -
    
    *Frank Verardi (10)
    
    68,889
    
    1.13
    %Duane George (11)
    
    16,279
    
    *David Drager (12)
    
    1,875
    
    *All directors and executive officers as a group (9
      persons) (13)
    
    415,890
    
    6.66
    %5%
      StockholdersAWM
      Investment Company, Inc. (14)
    
    2,593,337
    
    35.52
    %c/o Special Situations Funds153 East 53rd Street, 55th
      FloorNew York, NY 10022-4611Diker
      Management LLC (15)
    
    692,703
    
    11.47
    %745 Fifth Avenue, Suite 1409New York, NY 10151ComVest
      Capital, LLC (16)
    
    1,164,000
    
    16.16
    %One North Clematis, Suite 300West Palm Beach, FL 33401


42

---

____________________

|*    |  | Less than 1%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(1)  |  | Number of shares beneficially
      owned and the percentage of shares beneficially owned are based
      on 6,037,901 shares of the Companys common stock outstanding as
      of June 30, 2007. Beneficial ownership is determined in accordance
      with the rules of the Securities and Exchange Commission. In computing the
      number of shares beneficially owned by a person and the percentage
      ownership of that person, shares of common stock subject to options or
      warrants held by that person that are currently exercisable, or will
      become exercisable within 60 days of June 30, 2007, are deemed
      outstanding. Such shares, however, are not deemed outstanding for purposes
      of computing the percentage ownership of any other person. Except as
      indicated in the footnotes to this table, the persons named in the table
      have sole voting and investment power with respect to all shares of common
      stock shown as beneficially owned by them, subject to community property
      laws where applicable. Unless otherwise indicated, the individuals in the
      table may be contacted in care of Unify Corporation, 2101 Arena Blvd,
      Suite 100, Sacramento, California 95834.
|    
|(2)  |  | Includes 19,805 shares subject to
      options held by Mr. Whiteman exercisable within 60 days of June 30,
      2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(3)  |  | Includes 12,500 shares subject to
      options held by Mr. Larrew exercisable within 60 days of June 30,
      2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(4)  |  | Includes 500 shares subject
      to options held by Mr. Majteles exercisable within 60 days of June 30,
      2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|(5)  |  | Includes 3,833 shares subject to
      options held by Mr. Brooks exercisable within 60 days of June 30,
      2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|(6)  |  | Includes 91,875 shares subject to
      options held by Mr. Wille exercisable within 60 days of June 30,
      2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|(7)  |  | Includes 21,666 shares subject to
      options held by Mr. Bonham exercisable within 60 days of June 30,
      2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(8)  |  | Includes 5,833 shares subject to
      options held by Mr. Kane exercisable within 60 days of June 30,
      2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|(9)  |  | Mr. Bygraves has not been granted
      any options which are exercisable within 60 days of June 30,
    2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|(10) |  | Includes 37,500 shares subject to
      options held by Mr. Verardi exercisable within 60 days of June 30,
      2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(11) |  | Includes 13,845 shares subject to
      options held by Mr. George exercisable within 60 days of June 30,
      2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(12) |  | Includes 1,875 shares subject to
      options held by Mr. Drager exercisable within 60 days of June
      30, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|(13) |  | Includes 415,890 shares
      subject to options and exercisable within 60 days of June 30,
    2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(14) |  | AWM Investment Company, Inc. is a
      hedge fund management firm based in New York. The firm is owned by David
      Greenhouse and Austin Marxe. They manage the Special Situations Fund III,
      L.P., Special Situations Cayman Fund L.P., Special Situations Private
      Equity Fund, L.P., and Special Situations Tech. Fund, L.P.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|(15) |  | Diker Management, LLC is a
      Registered Investment Advisor of certain managed accounts and investment
      funds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(16) |  | ComVest Capital, LLC is a private
      equity firm based in West Palm Beach, Florida.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS

Amounts
Due from Officers, Directors and Principal Stockholders.Except for advances of reimbursable expenses we have made no
other loans to executive officers, directors, stockholders or other affiliates.
Any such loan must be approved by a majority of those board members who are
independent of and have no interest in the transaction.

One of our
directors, Robert J. Majteles, is the managing member of Treehouse Capital,
which has an agreement with Special Situations Funds (SSF), the largest
stockholder of Unify, pursuant to which Treehouse, through Mr. Majteles,
provides certain management and financial advisory services for SSF on request.
As a result, Treehouse is entitled to 10% of Special Situations Funds net gain
(as defined) or net loss (as defined) on its investment in Unify during the term
of the agreement, offset by certain fees that may be paid by Unify to Treehouse
or Mr. Majteles directly. Mr. Majteles does not have or share voting or
dispositive power over any securities held by Special Situations
Funds.

43

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES

Audit Fees

Fees billed
by our principal accountant, Grant Thornton LLP, for fiscal 2007 and fiscal 2006
audit services totaled approximately $265,000 and $239,000,
respectively. This includes fees associated with the annual audit, review
of the Companys quarterly reports on Form 10-Q and the statutory audit required
for our French subsidiary.

Audit-Related Fees

Audit-related service fees billed by Grant Thornton for fiscal 2007 and
fiscal 2006 were approximately $55,000 and $26,000, respectively. The fiscal
2007 fees primarily related to activities associated with the acquisition of
Gupta Technologies, LLC and the fiscal 2006 fees were related to the review of
S-4 filings for the proposed Halo merger.

Tax Fees

Fees billed
by our principal tax accountant, Macias Gini & OConnell LLP, for tax
services in fiscal 2007 and 2006 were $21,000 and $30,000, respectively. Tax
fees consisted of amounts incurred for tax compliance, tax advice and tax
planning.

Other Fees

Our principal accountant, Grant
Thornton LLP, had no other fees for fiscal year 2007 and fiscal year
2006.

Pre-Approval Policies and
Procedures

The Audit
Committee has adopted a policy that requires advance approval of all audit,
audit-related, tax services, and other services performed by the independent
auditor. The policy provides for pre-approval by the Audit Committee of
specifically defined audit and non-audit services. Unless the specific service
has been pre-approved with respect to that year, the Audit Committee must
approve the permitted service before the independent auditor is engaged to
perform it.

44

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES

(a)The following documents are filed
as part of this Annual Report on Form 10-K/A:

1.Consolidated Financial
Statements

Page NumberReport of Grant Thornton LLP, Independent Registered Public
      Accounting Firm
    47Consolidated
      Balance Sheets as of April 30, 2007 (Restated) and 2006
    48Consolidated Statements of Operations for the years ended April
      30, 2007 (Restated), 2006 and 2005
    49Consolidated
      Statements of Stockholders Equity for the years ended April 30, 2007
      (Restated), 2006 and 2005
    50Consolidated Statements of Cash Flows for the years ended April
      30, 2007 (Restated), 2006 and 2005
    51Notes to
      Consolidated Financial Statements
    52


All other
schedules are omitted because they are not applicable, or the required
information is shown in the Consolidated Financial Statements or Notes thereto.

2. ExhibitsSee Item 15(b) below.

(b)Exhibits

|Exhibit No. |     | Description
|----------- | --- | -----------
|2           | .1  |            
|            |     |            
|3           | .1  |            
|            |     |            
|3           | .2  |            
|            |     |            
|3           | .3  |            
|           
|4           | .1  |            
|            |     |            
|4           | .2  |            
|            |     |            
|4           | .3  |            
|            |     |            
|4           | .4  |            
|            |     |            
|4           | .5  |            
|            |     |            
|4           | .6  |            
|            |     |            
|4           | .7  |            
|            |     |            
|4           | .8  |            
|            |     |            
|4           | .9  |            
|            |     |            
|4           | .10 |            
|            |     |            
|4           | .11 |            
|            |     |            
|4           | .12 |            
|           
|10          | .1* |            
|            |     |            
|10          | .2* |            
|            |     |            
|10          | .3* |            
|            |     |            
|10          | .4  |            

45

---

|Exhibit No. |    | Description
|----------- | -- | -----------
|10          | .5 |            
|            |    |            
|10          | .6 |            
|            |    |            
|10          | .7 |            
|            |    |            
|10          | .8 |            
|           
|14          |    |            
|            |    |            
|21          | .1 |            
|            |    |            
|23          | .1 |            
|            |    |            
|31          | .1 |            
|            |    |            
|31          | .2 |            
|            |    |            
|32          | .1 |            
|            |    |            
|32          | .2 |            

|(1)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form S-1 Registration
      Statement (No. 333-3834) declared effective by the Securities and Exchange
      Commission on June 14, 1996.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form 10-K on December 22,
      2000.                                                                                                    
|    
|(3)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form 10-K on July 30,
      2001.                                                                                                        
|    
|(4)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form 10-Q on March 14,
      2002.                                                                                                       
|    
|(5)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form 10-K on July 17,
      2003.                                                                                                        
|    
|(6)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form 10-K on July 21,
      2004.                                                                                                        
|    
|(7)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form 8-K on February 2,
      2005.                                                                                                      
|    
|(8)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form 10-K on July 28,
      2005.                                                                                                        
|    
|(9)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form 10-K on July 31,
      2006.                                                                                                        
|    
|(10) |  | Incorporated by
      reference to the exhibit filed with Registrants Form 8-K on September 20,
      2006.                                                                                                    
|    
|(11) |  | Incorporated by
      reference to the exhibit filed with Registrants Form 8-K on November 29,
      2006.                                                                                                     
|    
|*    |  | Exhibit pertains to a management
      contract or compensatory plan or arrangement.                                                                                                                            

46

---

SIGNATURES

Pursuant to
the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

UNIFYCORPORATIONBy:
    /s/
      TODDE.
      WILLETodd E. WillePresident and Chief Executive Officer


Dated: December 14, 2007

Pursuant to
the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant and in the
capacities on the dates indicated.

|/s/ TODDE. WILLE                  |  | President and Chief
      Executive Officer        |  | December 14, 2007
|--------------------------------- |  | -------------------------------------------------- |  | -----------------
|Todd E. Wille                     |  | (Principal Executive
      Officer)                |  |                  
|                                 
|/s/
      STEVEND.
      BONHAM   |  | Vice President and
      Chief Financial Officer   |  | December 14, 2007
|Steven D. Bonham                  |  | (Principal Financial
      and Accounting Officer) |  |                  
|                                 
|/s/
      STEVEND.
      WHITEMAN |  | Director and Chairman
      of the Board           |  | December 14, 2007
|Steven D. Whiteman                |  |                                                    |  |                  
|                                 
|/s/
      ROBERTJ.
      MAJTELES |  | Director                                           |  | December 14, 2007
|Robert J. Majteles                |  |                                                    |  |                  
|                                 
|/s/
      TERYR.
      LARREW     |  | Director                                           |  | December 14, 2007
|Tery R. Larrew                    |  |                                                    |  |                  
|                                 
|/s/
      RICHARDM.
      BROOKS  |  | Director                                           |  | December 14, 2007
|Richard M. Brooks                 |  |                                                    |  |                  

47

---

Report of Grant Thornton LLP,
Independent Registered Public Accounting Firm

Board of Directors and Stockholders of
Unify Corporation

We have
audited the accompanying consolidated balance sheets of Unify Corporation and
subsidiaries as of April 30, 2007 and 2006, and the related consolidated
statements of operations, stockholders equity, and cash flows for each of the
three years in the period ended April 30, 2007. These financial statements are
the responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Unify Corporation and
subsidiaries as of April 30, 2007 and 2006, and the results of their
operations and their cash flows for each of the three years in the period ended
April 30, 2007 in conformity with accounting principles generally accepted in
the United States of America.

As discussed
in Note 1 to the consolidated financial statements, in 2007 the Company changed
its method of accounting for share-based payments in accordance with the
guidance provided in Statement of Financial Accounting Standards No. 123(R),Share Based Payment.

As discussed in Note 21, the accompanying consolidated financial
statements as of and for the year ended April 30, 2007 have been
restated.

/s/ GRANT THORNTON LLPReno,
NevadaJuly 17, 2007 (except for Foonote 21 as to which the date is December
14, 2007)

48

---

UNIFY CORPORATION AND
SUBSIDIARIES

CONSOLIDATED BALANCE
SHEETS

(In thousands, except per share
data)

|                                                                                |  | April 30,           |         |          
|------------------------------------------------------------------------------- |  | ------------------- | ------- | ---------
|                                                                                |  | 2007                |         | April 30,
|                                                                                |  | (As
      Restated) |         | 2006     
|ASSETS                                                                          |  |                     |         |          
|Current
    assets:                                                             |  |                     |         |          
|Cash
      and cash equivalents                                                 |  | $                   | 2,064   |          
|Accounts receivable, net of allowances of $193 in 2007, and $48 in
      2006   |  |                     | 4,219   |          
|Accounts receivable-related party                                               |  |                     | 8       |          
|Prepaid expenses and other current assets                                       |  |                     | 520     |          
|Assets of discontinued operations held for sale                                 |  |                     |        |          
|Total current assets                                                            |  |                     | 6,811   |          
|                                                                               
|Property and equipment, net                                                     |  |                     | 229     |          
|Other
      investments                                                         |  |                     | 214     |          
|Goodwill                                                                        |  |                     | 5,283   |          
|Intangibles,
    net                                                            |  |                     | 2,643   |          
|Other
      assets, net of allowances of $213 in 2007, and $246 in
2006         |  |                     | 474     |          
|Total assets                                                                    |  | $                   | 15,654  |          
|                                                                               
|LIABILITIES AND STOCKHOLDERS'
    EQUITY                                        |  |                     |         |          
|Current
      liabilities:                                                      |  |                     |         |          
|Accounts payable                                                                |  | $                   | 620     |          
|Current portion of long term debt                                               |  |                     | 1,361   |          
|Accrued compensation and related expenses                                       |  |                     | 804     |          
|Accrued acquisition costs                                                       |  |                     | 508     |          
|Other accrued liabilities                                                       |  |                     | 1,284   |          
|Deferred revenue                                                                |  |                     | 5,577   |          
|Liabilities of discontinued operations                                          |  |                     |        |          
|Total current liabilities                                                       |  |                     | 10,154  |          
|                                                                               
|Long
      term debt, net                                                       |  |                     | 4,910   |          
|Other long term
      liabilities                                               |  |                     | 121     |          
|                                                                               
|Commitments and contingencies                                                   |  |                     |        |          
|                                                                               
|Stockholders equity:                                                           |  |                     |         |          
|Preferred stock, $0.001 par value; 5,000,000 shares authorized; no
      shares |  |                     |         |          
|issued or outstanding                                                           |  |                     |        |          
|Common stock, $0.001 par value; 40,000,000 shares
      authorized, 6,029,201   |  |                     |         |          
|and 5,904,721 shares outstanding in 2007 and
    2006                           |  |                     | 30      |          
|Additional paid-in capital                                                      |  |                     | 64,949  |          
|Accumulated other comprehensive income                                          |  |                     | 45      |          
|Accumulated deficit                                                             |  |                     | (64,555 | )        
|Total stockholders equity                                                      |  |                     | 469     |          
|Total liabilities and stockholders equity                                      |  | $                   | 15,654  |          

See accompanying notes

49

---

UNIFY CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands, except per share
data)

Years Ended April
      30,**2007****(As
      Restated)**
    
    2006
    
    2005Revenues:Software
      licenses
    
    $
    4,432
    
    
    $
    4,759
    
    
    $
    5,118Services
    
    
    6,755
    
    
    
    5,384
    
    
    
    6,085Total revenues
    
    
    11,187
    
    
    
    10,143
    
    
    
    11,203Cost of
      Revenues:Software
      licenses
    
    
    377
    
    
    
    448
    
    
    
    337Services
    
    
    1,024
    
    
    
    1,106
    
    
    
    1,430Total cost of revenues
    
    
    1,401
    
    
    
    1,554
    
    
    
    1,767Gross
      profit
    
    
    9,786
    
    
    
    8,589
    
    
    
    9,436Operating Expenses:Product
      development
    
    
    2,360
    
    
    
    1,643
    
    
    
    2,813Selling, general and administrative
    
    
    8,314
    
    
    
    5,801
    
    
    
    8,673Total
      operating expenses
    
    
    10,674
    
    
    
    7,444
    
    
    
    11,486Income (loss) from operations
    
    
    (888
    )
    
    
    1,145
    
    
    
    (2,050
    )Other
      Income (Expense):Interest
      expense
    
    
    (527
    )
    
    
    (11
    )
    
    
    (23
    )Other, net
    
    
    136
    
    
    
    61
    
    
    
    71Other expense, net
    
    
    (391
    )
    
    
    50
    
    
    
    48Income (loss) from continuing operations before
    incometaxes
    
    
    (1,279
    )
    
    
    1,195
    
    
    
    (2,002
    )Provision for income
      taxes
    
    
    82
    
    
    
    
    
    
    
    9Income (loss) from continuing operations
    
    $
    (1,361
    )
    
    $
    1,195
    
    
    $
    (2,011
    )Loss from
      discontinued operations
    
    
    (1,445
    )
    
    
    (1,823
    )
    
    
    (353
    )Net
      loss
    
    $
    (2,806
    )
    
    $
    (628
    )
    
    $
    (2,364
    )Net income (loss)
      per share:Basic earnings per
      share:Continuing operations
    
    $
    (0.23
    )
    
    $
    0.21
    
    
    $
    (0.36
    )Discontinued operations
    
    
    (0.24
    )
    
    
    (0.32
    )
    
    
    (0.07
    )Net loss per share
    
    $
    (0.47
    )
    
    $
    (0.11
    )
    
    $
    (0.43
    )Dilutive earnings per share:Continuing operations
    
    $
    (0.23
    )
    
    $
    0.20
    
    
    $
    (0.36
    )Discontinued operations
    
    
    (0.24
    )
    
    
    (0.31
    )
    
    
    (0.07
    )Net loss per share
    
    $
    (0.47
    )
    
    $
    (0.11
    )
    
    $
    (0.43
    )Shares used in
      computing net income (loss) per share:Basic
    
    
    5,927
    
    
    
    5,803
    
    
    
    5,555Diluted
    
    
    5,927
    
    
    
    5,875
    
    
    
    5,555


See accompanying notes

50

---

UNIFY CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY

(In thousands, except per share
data)

|                                                          |  |                    |  |         |    |               |            |                     |       |               | Accumulated |        |   |        |       |         |               |  |   |        |  
|--------------------------------------------------------- |  | ------------------ |  | ------- | -- | ------------- | ---------- | ------------------- | ----- | ------------- | ----------- | ------ | - | ------ | ----- | ------- | ------------- |  | - | ------ | -
|                                                          |  |                    |  |         |    |               | Additional |                     | Other |               |             |        |   |        | Total |         | Comprehensive
|                                                          |  | Common
      Stock |  | Paid-In |    | Comprehensive |            | Accumulated         |       | Stockholders |             | Income
|                                                          |  | Shares             |  | Amount  |    | Capital       |            | Income
      (loss) |       | Deficit       |             | Equity |   | (Loss)
|Balances at April 30, 2004                                |  | 5,454,784          |  | $       | 27 |               | $          | 63,205              |       |               | $           | 18     |   |        | $     | (58,758 | )             |  | $ | 4,492  |  
|Comprehensive
      loss                                  |  |                    |  |         |    |               |            |                     |       |               |             |        |   |        |       |         |               |  |   |        |  
|Net
      loss from continued operations                  |  |                   |  |         |   |               |            |                    |       |               |             |       |   |        |       | (2,011  | )             |  |   | (2,011 | )
|Net loss from
      discontinued operations               |  |                   |  |         |   |               |            |                    |       |               |             |       |   |        |       | (353    | )             |  |   | (353   | )
|Translation adjustments                                   |  |                   |  |         |   |               |            |                    |       |               |             | 55     |   |        |       |        |               |  |   | 55     |  
|Total comprehensive
      loss                            |  |                    |  |         |    |               |            |                     |       |               |             |        |   |        |       |         |               |  |   |        |  
|Issuance of common stock                                  |  | 104,166            |  |         | 1  |               |            | 249                 |       |               |             |       |   |        |       |        |               |  |   | 250    |  
|                                                         
|Costs
      related to private placement                  |  |                   |  |         |   |               |            | (93                 | )     |               |             |       |   |        |       |        |               |  |   | (93    | )
|                                                         
|Issuance of common stock warrants                         |  |                   |  |         |   |               |            | 3                   |       |               |             |       |   |        |       |        |               |  |   | 3      |  
|                                                         
|Net
      exercise of common stock warrants               |  | 13,603             |  |         |   |               |            |                    |       |               |             |       |   |        |       |        |               |  |   |       |  
|                                                         
|Exercise of stock options                                 |  | 53,834             |  |         |   |               |            | 83                  |       |               |             |       |   |        |       |        |               |  |   | 83     |  
|                                                         
|Issuance of common stock under employee                   |  |                    |  |         |    |               |            |                     |       |               |             |        |   |        |       |         |               |  |   |        |  
|stock
      purchase plan                                 |  | 53,632             |  |         |   |               |            | 101                 |       |               |             |       |   |        |       |        |               |  |   | 101    |  
|Stock-based
      compensation                            |  | 8,511              |  |         |   |               |            | 40                  |       |               |             |       |   |        |       |        |               |  |   | 40     |  
|Balances at April 30, 2005                                |  | 5,688,530          |  |         | 28 |               |            | 63,588              |       |               |             | 73     |   |        |       | (61,122 | )             |  |   | 2,567  |  
|Comprehensive
      loss                                  |  |                    |  |         |    |               |            |                     |       |               |             |        |   |        |       |         |               |  |   |        |  
|Net
      income from continued operations                |  |                   |  |         |   |               |            |                    |       |               |             |       |   |        |       | 1,195   |               |  |   | 1,195  |  
|Net loss from
      discontinued operations               |  |                   |  |         |   |               |            |                    |       |               |             |       |   |        |       | (1,823  | )             |  |   | (1,823 | )
|Translation adjustments                                   |  |                   |  |         |   |               |            |                    |       |               |             | (54    | ) |        |       |        |               |  |   | (54    | )
|Total comprehensive
      loss                            |  |                    |  |         |    |               |            |                     |       |               |             |        |   |        |       |         |               |  |   |        |  
|Issuance of common stock                                  |  | 88,527             |  |         | 1  |               |            | 172                 |       |               |             |       |   |        |       |        |               |  |   | 173    |  
|Exercise of stock
      options                           |  | 62,523             |  |         |   |               |            | 58                  |       |               |             |       |   |        |       |        |               |  |   | 58     |  
|                                                         
|Issuance of common stock under employee                   |  |                    |  |         |    |               |            |                     |       |               |             |        |   |        |       |         |               |  |   |        |  
|stock
      purchase plan                                 |  | 42,060             |  |         |   |               |            | 62                  |       |               |             |       |   |        |       |        |               |  |   | 62     |  
|                                                         
|Stock-based compensation                                  |  | 23,081             |  |         |   |               |            | 57                  |       |               |             |       |   |        |       |        |               |  |   | 57     |  
|Balances at April 30,
      2006                          |  | 5,904,721          |  |         | 29 |               |            | 63,937              |       |               |             | 19     |   |        |       | (61,750 | )             |  |   | 2,235  |  
|Comprehensive loss                                        |  |                    |  |         |    |               |            |                     |       |               |             |        |   |        |       |         |               |  |   |        |  
|Net loss from continued
      operations                  |  |                   |  |         |   |               |            |                    |       |               |             |       |   |        |       | (1,361  | )             |  |   | (1,361 | )
|Net
      loss from discontinued operations (As Restated) |  |                   |  |         |   |               |            |                    |       |               |             |       |   |        |       | (1,445  | )             |  |   | (1,445 | )
|Translation
      adjustments                             |  |                   |  |         |   |               |            |                    |       |               |             | 26     |   |        |       | 1       |               |  |   | 27     |  
|Total
      comprehensive loss                            |  |                    |  |         |    |               |            |                     |       |               |             |        |   |        |       |         |               |  |   |        |  
|Issuance of common
      stock                            |  |                   |  |         |   |               |            | 43                  |       |               |             |       |   |        |       |        |               |  |   | 43     |  
|Exercise of stock options                                 |  | 85,080             |  |         | 1  |               |            | 152                 |       |               |             |       |   |        |       |        |               |  |   | 153    |  
|Fair value of warrants
      issued                       |  |                   |  |         |   |               |            | 743                 |       |               |             |       |   |        |       |        |               |  |   | 743    |  
|Stock-based compensation                                  |  | 39,400             |  |         |   |               |            | 74                  |       |               |             |       |   |        |       |        |               |  |   | 74     |  
|Balances at April
      30, 2007 (As Restated)            |  | 6,029,201          |  | $       | 30 |               | $          | 64,949              |       |               | $           | 45     |   |        | $     | (64,555 | )             |  | $ | 469    |  

See accompanying notes

51

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UNIFY CORPORATION AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)

|                                                                                             |  | Years Ended April
  30,
|-------------------------------------------------------------------------------------------- |  | -----------------------
|                                                                                             |  | 2007(As Restated)      
|Cash
      flows from operating activities:                                                  |  |                        
|Net
      loss                                                                               |  | $                      
|Loss from discontinued operations                                                            |  |                        
|Income (loss) from continuing operations                                                     |  |                        
|Reconciliation of income (loss) to net cash provided by (used in)
      continuing operating |  |                        
|Depreciation                                                                                 |  |                        
|Loss on disposal of property                                                                 |  |                        
|Amortization                                                                                 |  |                        
|Fulfillment of support obligations                                                           |  |                        
|Amortization of 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                                              |  |                        
|Accrued acquisition costs                                                                    |  |                        
|Other accrued liabilities                                                                    |  |                        
|Deferred revenue                                                                             |  |                        
|Net
      cash provided by (used in) continuing operating activities                         |  |                        
|Cash
      flows from investing activities:                                                  |  |                        
|Acquisition, net of cash acquired                                                            |  |                        
|Purchases of property and equipment                                                          |  |                        
|Decrease in other assets                                                                     |  |                        
|Net
      cash used in investing activities of continuing operations                         |  |                        
|Cash
      flows from financing activities:                                                  |  |                        
|Proceeds from issuance of common stock                                                       |  |                        
|Borrowings under debt obligations                                                            |  |                        
|Principal payments under debt obligations                                                    |  |                        
|Net
      cash provided by (used in) financing activities from continuing
      operations   |  |                        
|                                                                                            
|Effect
      of exchange rate changes on cash                                                |  |                        
|                                                                                            
|Cash
      flows of discontinued operations:                                                 |  |                        
|Net cash
      used in operating activities                                                  |  |                        
|Net cash used in investing activities                                                        |  |                        
|Net cash
      used in financing activities                                                  |  |                        
|Net
      cash used in discontinued operations                                               |  |                        
|                                                                                            
|Net
      increase (decrease) in cash and cash equivalents                                   |  |                        
|Cash and cash
      equivalents, beginning of year                                           |  |                        
|Cash
      and cash equivalents, end of year                                                 |  | $                      
|                                                                                            
|Supplemental cash flow information for continuing
    operations:                            |  |                        
|Cash
      received (paid) during the year for interest, net                                 |  | $                      
|Cash paid during the year for income taxes                                                   |  | $                      
|                                                                                            
|Supplemental non-cash financing activities:                                                  |  |                        
|Warrants
      issued in conjuction with the issuance of long term debt                      |  | $                      

See accompanying notes

52

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UNIFY CORPORATIONNOTES TO CONSOLIDATED
FINANCIAL STATEMENTSApril 30, 2007

Note 1. The Company and Summary of
Significant Accounting Policies

The Company

Unify (the
Company, we, us or our) is a global provider of application development,
data management and application modernization solutions that enable
Service-Oriented Architecture (SOA). Our suite of migration solutions, easy to
use development software and maintenance-free embedded databases allows
customers to modernize and maximize their application environment. For
organizations needing to modernize their systems, we help businesses
service-enable legacy applications to support SOA initiatives. Based on market
requirements, our solutions help companies increase speed and agility, improve
asset reuse, lower IT costs and reduce risks and exposures.

Basis of Presentation

The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated.

The
functional currency of the Companys foreign subsidiaries is their local
currency. Assets and liabilities denominated in foreign currencies are
translated into U.S. dollars at period-end exchange rates. Income and expense
accounts are translated at average rates of exchange in effect during the
reporting period. Foreign currency transaction gains or losses are included in
other income, net. Foreign currency adjustments resulting from the translation
process are excluded from net loss and recorded in other comprehensive loss. At
April 30, 2007, the Company had $982,000 in foreign banks.

The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplate continuation of the Company as a going concern. However, the
Company sustained substantial losses from operations in fiscal 2005 and fiscal
2007 and from discontinued operations for both fiscal 2007 and fiscal 2006. In
fiscal 2006 and 2005, the Company used, rather than provided, cash in its
operations.

In view of
the matters described in the preceding paragraph, recoverability of a major
portion of the recorded asset amounts shown in the accompanying balance sheet as
of April 30, 2007 is dependent upon continued operations of the Company, which
in turn is dependent upon the Companys ability to meet its financing
requirements on a continuing basis, to maintain present financing, and to
succeed in its future operations. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or amounts of and classification of liabilities that might be necessary
should the Company be unable to continue in existence.

Management
has taken steps to revise its operating and financial requirements, which it
believes are sufficient to provide the Company with the ability to continue in
existence. These steps include limiting staff additions, minimizing capital
expenditures, timely billing and collection for services and products provided
to customers, reducing variable expenses such as consultants, marketing and
travel and maintaining access to other sources of cash via credit lines and
capital markets. Additionally, management believes the acquisition of Gupta
Technologies LLC will positively impact future financial results as the
acquisition has provided operating efficiencies, enhanced the Companys mix of
products and increased the Companys market presence and market
opportunities.

Use of Estimates

The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates include the
assessment of the carrying value of the other investments, valuation of goodwill
and other intangible assets, valuation allowance for deferred taxes and the
allowance for doubtful accounts for accounts receivable, long-term receivables
and notes receivable. Actual results could differ from these estimates.

53

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Cash Equivalents

Cash
equivalents are highly liquid investments with original maturities of three
months or less when purchased and are stated at cost. Cash equivalents consist
primarily of demand deposits with banks and money market funds.

Fair Value of Financial
Instruments

The carrying
amounts of cash and cash equivalents, accounts receivable and accounts payable
approximate fair value because of the short-term maturity of these instruments.
The fair values of the Company's long term borrowings are estimated based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements and such values approximate the fair value of the borrowings as of
fiscal year end.

Concentrations of Credit Risk and
Credit Evaluations

Financial
instruments potentially subjecting the Company to concentrations of credit risk
consist primarily of cash, cash equivalents and accounts receivable. The Company
places its cash and cash equivalents primarily with four financial institutions.
The Company licenses its products principally to companies in the United States,
Europe, and Japan and no single customer accounted for 10% or more of
consolidated revenues in the years ended April 30, 2007 and 2005. For the year
ended April 30, 2006, the Company did have one customer that accounted for 12%
of consolidated revenues. The Company performs periodic credit evaluations of
its customers and generally does not require collateral. Allowances are
maintained for potential credit losses. International revenues include all our
software license and service revenues from customers located outside North
America. International revenues accounted for 73%, 70% and 64% of total revenues
in fiscal years 2007, 2006 and 2005, respectively.

Allowance for Doubtful
Accounts

An allowance
for doubtful accounts is established to ensure trade receivables are not
overstated due to uncollectibility. Bad-debt reserves are maintained for all
customers based on a variety of factors, including the length of time
receivables are past due, significant one-time events and historical experience.
Additional reserves for individual accounts are recorded when the Company
becomes aware of a customers inability to meet its financial obligations, such
as in the case of bankruptcy filings or deterioration in the customers
operating results or financial position. If circumstances related to customers
change, estimates of the recoverability of receivables would be further
adjusted. Following is a schedule that details activity for the allowance for
doubtful accounts and the allowance for long-term accounts and notes
receivable.

|                                            |  |                  |  | Charges      |   |             |      |              |                 
|------------------------------------------- |  | ---------------- |  | ------------ | - | ----------- | ---- | ------------ | ----------------
|                                            |  | Balance
      at |  | (Credits) to |   |             |      |              | Balance
      at
|                                            |  | Beginning        |  | Operating    |   | Write-offs  |      | End
      of
|                                            |  | of Year          |  | Expenses     |   | of Accounts |      | Year        
|                                            |  | (In thousands)  
|Allowance for doubtful accounts receivable: |  |                  |  |              |   |             |      |              |                 
|Year ended April 30,
      2005             |  | 175              |  | 27           |   |             | (7   | )            |                 
|Year
      ended April 30, 2006             |  | 195              |  | (109         | ) |             | (38  | )            |                 
|Year ended April 30,
      2007             |  | 48               |  | 204          |   |             | (59  | )            |                 
|                                           
|Allowance for long-term accounts and notes  |  |                  |  |              |   |             |      |              |                 
|receivable  reflected in other assets:     |  |                  |  |              |   |             |      |              |                 
|Year
      ended April 30, 2005             |  | 357              |  | -            |   |             | (179 | )            |                 
|Year
      ended April 30, 2006             |  | 178              |  | 71           |   |             | (3   | )            |                 
|Year
      ended April 30, 2007             |  | 246              |  | (33          | ) |             | -    |              |                 

Other Investments

The Company carries other
investments at the lower of cost or estimated fair value (Note 5).

54

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Property and Equipment

Property and
equipment are stated at cost. Depreciation is recorded on a straight-line basis
over the estimated useful lives of the related assets, generally three to five
years. Leasehold improvements are amortized over the shorter of their estimated
useful lives or the lease term.

Capitalized Software

Under the
criteria set forth in Statement of Financial Accounting Standard (SFAS) No. 86Accounting for the Costs of Computer Software
to be Sold, Leased or Otherwise Marketed,
capitalization of software development costs begins upon the establishment of
technological feasibility of the product. With respect to the Companys software
development process, technological feasibility is established upon completion of
a working model. To date, the Companys products have been released shortly
after reaching technological feasibility. Therefore, development costs incurred
after completion of a working model and prior to general release have not been
significant. Accordingly, no software development costs have been capitalized by
the Company to date.

Long-Lived Assets

The Company
evaluates its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets or intangibles
may be in excess of fair value or not recoverable. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.

The Company
periodically reevaluates the original assumptions and rationale utilized in the
establishment of the carrying value and estimated useful lives of the long-lived
assets. The criteria used for these evaluations include managements estimate of
the assets continuing ability to generate income from operations and positive
cash flows in future periods.

Goodwill

Goodwill is
the excess of cost of an acquired entity over the amounts assigned to assets
acquired and liabilities assumed in a business combination. Goodwill is not
amortized. Goodwill is 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. No impairment of goodwill has been identified during
any of the periods presented (Note 6).

Intangible Assets

Intangible
assets are amortized using the straight-line method over their estimated period
of benefit. We evaluate the recoverability of intangible assets periodically and
take into account events or circumstances that warrant revised estimates of
useful lives or that indicate that impairment exists. All of our intangible
assets are subject to amortization. No impairments of intangible assets have
been identified during any of the periods (Note 6).

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
products are generally sold with a perpetual license. The Companys contracts
with ISVs, VARs and international distributors do not include special
considerations such as rights of return, stock rotation, price protection,
special acceptance or warranty provisions. With the exception of its
discontinued product, NavRisk, the Company recognizes revenue for software
license sales in accordance with Statement of Position 97-2,Software Revenue Recognition. For the discontinued product, NavRisk, the Company recognized revenue
for software licenses sales in accordance with Statement of Position (SOP)
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.

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.

55

---

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 our
discontinued product, NavRisk, software license arrangements that require
significant modification or customization of the underlying software, revenue is
recognized based on contract accounting under the provisions of ARB 45,Long-Term Construction Type
Contractsand Statement of Position 81-1,Accounting for Performance of
Construction-Type and Certain Production-Type Contractsusing the completed-contract method.

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

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

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

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

Warranties and Indemnification

The Company
offers a limited warranty for product and service sales that generally provide
the customer a sixty-day warranty period against defects. To date, the Company
has not incurred any material costs as a result of such warranties and has not
accrued any liabilities related to such obligations in the accompanying
consolidated financial statements.

The
Companys license agreements generally include certain provisions for
indemnifying customers against liabilities if its product or services infringe
upon a third-partys intellectual property rights. To date, the Company has not
incurred any material costs as a result of such indemnifications and has not
accrued any liabilities related to such obligations in the accompanying
consolidated financial statements.

56

---

Stock-Based Compensation

Effective
May 1, 2006, the Company adopted the provisions of 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 fiscal years ended
April 30, 2007 and 2006, stock-based compensation expense was comprised of the
following (in thousands):

April
      30, 2007
    
    April
      30, 2006Cost of
      Sales
    
    $
    2
    
    $
    Product
      Development
    
    
    7
    
    
    Selling, General and Administrative
    
    
    33
    
    
    Total Equity-Based
      Compensation, Continuing Operations
    
    
    42
    
    
    Equity-Based Compensation, Discontinued Operations
    
    
    32
    
    
    Total Equity-Based
      Compensation
    
    $
    74
    
    $
    


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 April 30, 2007. This table does not include an
estimate for future grants that may be issued (amounts in thousands).

Fiscal Year
      Ended April 30,
    
    Amount2008
    
    $
    482009
    
    
    392010
    
    
    22Total
    
    $
    109


The cost above is expected to be
recognized over a weighted-average period of 1.50 years.

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 twelve months ended April 30, 2006 and April 30, 2005. In
connection with the modified prospective method, disclosures made for periods
prior to the adoption of SFAS No. 123(R) do not reflect restated
amounts.

The following table illustrates the
effect on net loss and net loss per share if Unify had applied the fair value
recognition provisions of SFAS 123, to stock-based employee compensation (in
thousands, except per share amounts):

Year Ended April
30,2007
    
    2006
    
    2005Income
      (loss) from continuing operations
    
    $
    (1,361
    )
    
    $
    1,195
    
    
    $
    (2,011
    )Loss from discontinued
      opearations
    
    
    (1,445
    )
    
    
    (1,823
    )
    
    
    (353
    )Net
      loss as reported
    
    $
    (2,806
    )
    
    $
    (628
    )
    
    $
    (2,364
    )Add:
      stock-based employee compensation includedin reported net loss
    
    
    74
    
    
    
    119
    
    
    
    40Less: stock-based
      employee compensation expense,determined
      under fair value method for all awards
    
    
    (74
    )
    
    
    (289
    )
    
    
    (583
    )Pro
      forma net loss
    
    $
    (2,806
    )
    
    $
    (798
    )
    
    $
    (2,907
    )Net
      loss per share (basic and diluted), as reported
    
    $
    (0.47
    )
    
    $
    (0.11
    )
    
    $
    (0.43
    )Net loss per share
      (basic and diluted), pro forma
    
    $
    (0.47
    )
    
    $
    (0.14
    )
    
    $
    (0.52
    )


57

---

The Company continues to use the
Black-Scholes option pricing model to estimate fair value of equity awards,
which requires the input of highly subjective assumptions, including the
expected stock price volatility. The Companys calculations are made using the
Black-Scholes option pricing model, with the following weighted average
assumptions: expected option life, 12 months following vesting; stock
volatility, 193% in fiscal 2007, 207% in fiscal 2006 and 223% in fiscal 2005;
risk-free interest rates, 4.7% in fiscal 2007, 4.3% in fiscal 2006 and 3.3% in
fiscal 2005; 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.

A summary of the Companys stock
option activity for the fiscal year ended April 30, 2007 is as follows:

WeightedWeighted
    
    average
      remaining
    
    Aggregateaverage
    
    contractual
    
    intrinsicShares
    
    exercise price
    
    term (in years)
    
    value (1)Outstanding at April 30, 2006
    
    528,982
    
    
    $
    4.10
    
    6.60
    
    $
    171,848Granted
    
    79,000
    
    
    $
    1.35Exercised
    
    (85,080
    )
    
    $
    1.80Canceled or expired
    
    (69,660
    )
    
    $
    11.45Outstanding at April 30, 2007
    
    453,242
    
    
    $
    2.90
    
    6.46
    
    $
    277,608


|(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.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The total
intrinsic value of awards exercised during the year ended April 30, 2007 and
2006 was $75,215 and $51,544, respectively. The total fair value of awards
vested during the year ended April 30, 2007 and 2006 was $131,748 and $120,980,
respectively.

A summary of the Companys nonvested
stock option activity for the fiscal year ended April 30, 2007 is as follows:

Weightedaverage fairShares
    
    valueNonvested at April 30, 2006
    
    155,558
    
    
    $
    2.15Granted
    
    79,000
    
    
    $
    0.95Exercised
    
    (101,597
    )
    
    $
    2.05Canceled or expired
    
    (16,801
    )
    
    $
    2.75Nonvested at April 30, 2007
    
    116,160
    
    
    $
    1.40


Income Taxes

Deferred
taxes are recorded for the difference between the financial statement and tax
basis of the Companys assets and liabilities and net operating loss
carryforwards. A valuation allowance is recorded to reduce deferred tax assets
to an amount whose realization is more likely than not. U.S. income taxes are
not provided on the undistributed earnings of foreign subsidiaries as they are
considered to be permanently invested.

Loss Per Share

Statement of
Financial Accounting Standards No. 128,Earnings per Share, requires a dual
presentation of basic and diluted income (loss) per share (EPS). Basic EPS
excludes dilution and is computed by dividing net income attributable to common
stockholders by the weighted average of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock (e.g. convertible preferred
stock, warrants, and common stock options) were exercised or converted into
common stock. Potential common shares in the diluted EPS computation are
excluded for fiscal years 2007 and 2005 as their effect would be antidilutive.
For fiscal 2006 there are approximately 72,800 potential common shares included
in the diluted EPS computation.

58

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Comprehensive Loss

Comprehensive loss includes net loss and comprehensive loss. The
Companys components of other comprehensive loss are gains and losses on foreign
currency translation.

Segment Reporting

The Company
maintains two segments that sell and market application development software and
related services. The segments are the Americas, which includes the Companys
international distributors, and Europe, which includes the UK, France, Germany
and other direct European customers.

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 1.

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.

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

59

---

In
September 2006, the SEC released Staff Accounting Bulletin (SAB) No. 108,Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements. SAB 108 provides guidance on how
the effects of the carryover or reversal of prior year misstatements should be
considered in quantifying a current year misstatement. In some situations,
companies will be required to record errors that occurred in prior years even
though those errors were immaterial for each year in which they arose. Companies
may choose to either restate all previously presented financial statements or
record the cumulative effect of such errors as an adjustment to retained
earnings at the beginning of the period in which SAB 108 is applied. SAB 108 is
effective for fiscal years ending after November 15, 2006 and was adopted by the
Company in fiscal 2007. The adoption of SAB 108 by the Company did not have a
material impact on our financial position, results of operations or cash flows.

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. The Company does not believe
SFAS 158 will 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.

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

Reclassifications

Certain
items in the fiscal 2006 and 2005 consolidated financial statements have
been reclassified to conform to the fiscal 2007 presentation. These
reclassifications had no effect on operating results or stockholders
equity.

Note 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 $7.7 million. Gupta was founded in 1984 and is a leading producer of secure,
small-footprint, embeddable databases and enterprise application development
tools. The acquisition resulted in additional revenue and market share in the
Companys core markets and significantly enhances the distribution channels
through which the Companys products can be sold. Guptas headquarters was in
Redwood Shores, California with offices in Germany and the UK and has
distributors and partners in more than 40 countries around the world. Guptas
results of operations are included in the Companys results from the date of
acquisition, November 20, 2006, to April 30, 2007.

60

---

On November 20, 2006, the Company
entered into various agreements with ComVest Capital LLC (ComVest) whereby
ComVest, along with participation from Special Situations Funds, provided debt
financing for the Gupta acquisition. The debt financing consisted of $5.35
million in convertible term notes and a revolver of up to $2.5 million. There
are three tranches that comprise the convertible term notes, Tranche 1 is for
$1,000,000, Tranche 2 is for $3,250,000 and Tranche 3 is for $1,100,000. The
term loans have an interest rate of 11.25% and have repayment terms of 48 to 60
months. As part of the debt financing the Company provided the lenders with
670,000 warrants to purchase common stock. There are 200,000 warrants to
purchase common stock at a price of $1.35 per share, 270,000 warrants at a price
of $1.60 per share and 200,000 warrants at a price of $1.90 per share. The
warrants have an expiration date of October 31, 2012. Additionally, the holder
of the term notes may, at their option, upon written notice to Unify given at
any time and from time to time from the date Unify has sufficient authorized,
unissued and unreserved shares of common stock convert the outstanding principal
and any accrued interest into shares of Unify common stock. Tranche 1 is
convertible at $2.50 per common share and Tranches 2 and 3 are convertible at
$5.00 per common share. Unify may require conversion of the convertible term
notes if its common stock price closes at or above 160% of the applicable
conversion price for 20 or more consecutive market days. The agreement provides
for ComVest to have a security interest in substantially all of the Companys
assets. We capitalized $238,000 of debt issuance costs associated with the debt
financing and also recorded a discount on the notes payable of approximately
$743,000 that is attributed to the warrants that were issued in conjunction with
the financing. The debt issuance costs and the discount on notes payable are
being amortized using the effective interest method over the stated life of the
related notes. The amortization of both the debt issuance costs and the discount
on the notes payable was approximately $163,000 in fiscal 2007 and is included
in interest expense. The unamortized amount of the discount on the notes payable
was $604,000 as of April 30, 2007 and is included in long-term debt, net. As of
April 30, 2007 the unamortized portion of debt issuance costs was $214,000 which
is included in other assets, net.

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

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


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.

61

---

The unaudited pro
forma financial information combines the historical results of Unify for the
twelve months ended April 30, 2007 and 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.

Year ended April 30,(in thousands, except per share
      data)
    
    2007
    
    2006Total
      revenues
    
    $
    19,363
    
    $
    21,600Net income
    
    $
    957
    
    $
    (728
    )Basic
      net income per share
    
    $
    0.16
    
    $
    (0.13
    )Diluted net income per
      share
    
    $
    0.16
    
    $
    (0.13
    )


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.

Discontinued
Operations

In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of
Long-Lived Assets, the results of the
Companys IRM division and ViaMode software product have been reported as
discontinued operations for the years ended April 30, 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 Americas segment. Operating results for the IRM division and
ViaMode software product are summarized as follows (in thousands):

Year ended April
30,2007
    
    2006
    
    2005Revenue
    
    $
    541
    
    
    $
    1,106
    
    
    $
    101Loss from discontinued
      operations
    
    $
    (1,445
    )
    
    $
    (1,823
    )
    
    $
    (353
    )


62

---

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

April 30,2006Accounts receivable
    $
    114Other
      assets
    
    200Property and equipment, net
    
    23Intangibles,
      net
    
    212Goodwill
    
    1,405Total assets
    $
    1,954Accounts payable
    $
    26Other accrued
      liabilities
    
    737Accrued compensation and related expenses
    
    105Deferred
      revenue
    
    416Total liabilities
    $
    1,284


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 once 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.

Note 3. Acquisition of
Acuitrek

On February 2, 2005, the Company acquired all of the issued and
outstanding equity securities of Acuitrek, Inc. Acuitrek Inc., is a software
provider of policy administration and underwriting solutions for the public
entity self insured and risk pools insurance market. As part of the November 20,
2006 acquisition of Gupta, Acuitrek, Inc., which comprised the companys IRM
division, was sold to Halo Technology Holdings, Inc. Following is the opening
balance sheet, including the purchase price allocation adjustments, for Acuitrek
as of the acquisition date, February 2, 2005 (in thousands):

Current assets
    $
    142Property and
      equipment, net
    
    27Goodwill
    
    1,070Technology based
      intangible
    
    200Customer based intangible
    
    164Total assets
    $
    1,603Current liabilities
    $
    512Long-term
      liabilities
    
    636Shareholders equity
    
    455Total
      liabilities and shareholders equity
    $
    1,603


The unaudited financial information in the table below summarizes the
combined results of operations of Unify and Acuitrek, on a pro forma basis, as
though the companies had been combined as of the beginning of each of the
periods presented. The pro forma financial information is presented for
informational purposes only and is not indicative of the results of operations
that would have been achieved if the acquisition had taken place at the
beginning of each of the periods presented.

63

---

The unaudited pro forma financial
information in fiscal 2005 combines the historical results for Unify for the
year ended April 30, 2005, which includes the Acuitrek results for the three
months ended April 30, 2005 and the historical results for Acuitrek for the nine
months ended December 31, 2004. The unaudited pro forma financial information in
fiscal 2004 combines the historical results for Unify for the year ended April
30, 2004 and the historical results for Acuitrek for the twelve months ended
March 31, 2004.

Year
      ended April 30,2005
    
    2004Unaudited(in thousands, except per
      share data)Total revenues
    $
    11,973
    
    
    $
    12,190Net income
      (loss)
    
    (2,568
    )
    
    
    (1,592
    )Basic net income (loss) per share
    $
    (0.43
    )
    
    $
    (0.27
    )Diluted net
      income (loss) per share
    $
    (0.43
    )
    
    $
    (0.27
    )


Note 4. Property and
Equipment

Property and equipment at April 30,
2007 and 2006 consisted of the following (in thousands):

2007
    
    2006Equipment
    $
    2,046
    
    
    $
    2,027Furniture and
      leasehold improvements
    
    942
    
    
    
    8912,988
    
    
    
    2,918Less accumulated
      depreciation and amortization
    
    (2,759
    )
    
    
    (2,674
    )Property and equipment, net
    $
    229
    
    
    $
    244


Note 5. Other Investments

Other investments
represent stock in closely held companies, which are accounted for under the
cost method. The Companys ownership interest in both Arango Software
International, Inc. (Arango) and Unify Japan KK, is less than 15%.

At
April 30, 2007 and 2006 other investments consisted of the following (in
thousands):

2007
    
    2006Arango
      Software International, Inc.
    $
    175
    
    $
    175Unify Japan KK
    
    39
    
    
    39$
    214
    
    $
    214


Unify Japan KK is a
Japanese corporation that is a master distributor for the Company in Japan.
Sales to Unify Japan KK in fiscal 2007, 2006 and 2005 were $0.2 million, $0.3
million and $0.5 million, respectively. Accounts receivable from Unify Japan KK
as of April 30, 2007 and 2006 were $7,900 and $76,100, respectively.

The Company holds a
minority interest in Arango, a privately held corporation located in Panama. The
Company records an investment impairment charge if and when the Company believes
an investment has experienced a decline in market value 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. Future adverse changes in market
conditions or poor operating results of Arango could result in losses or an
inability to recover the carrying value of the investment that is not currently
reflected in the investments carrying value, thereby possibly requiring an
impairment charge in the future.

64

---

Note 6. Goodwill and Intangible
Assets

The following tables
present details of the Companys goodwill and intangible assets as of April 30,
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
April 30, 2007 amounts relate entirely to the purchase of Gupta Technologies LLC
and the sale of the Companys IRM division on November 20, 2006. See Note
2.

Gross
    
    
    
    
    
    Netcarrying
    
    Accumulated
    
    carrying
    
    EstimatedApril 30,
    2007
    
    amount
    
    amortization
    
    amount
    
    useful lifeInfinite
      Lives:Goodwill
    
    $
    5,283
    
    $
    
    
    
    $
    5,283
    
    Finite
      Lives:Customer-related
    
    
    1,500
    
    
    (125
    )
    
    
    1,375
    
    5
      yearsTechnology-based
    
    
    1,050
    
    
    (109
    )
    
    
    941
    
    4 yearsTrademarks
    
    
    300
    
    
    (31
    )
    
    
    269
    
    4
      yearsTrade name
    
    
    100
    
    
    (42
    )
    
    
    58
    
    1 yearTotal
    
    $
    8,233
    
    $
    (307
    )
    
    $
    7,926Gross
    
    
    
    
    
    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 fiscal 2007 was $307,000 and was related entirely to the Gupta
acquisition. Amortization expense for the fiscal year ended April 30, 2006, was
$121,000 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 April 30, 2007, is as follows (in thousands):

Fiscal Year Ending April
      30,
    
    Amount2008
    
    
    6962009
    
    
    6382010
    
    
    6382011
    
    
    4962012
    
    
    175Total
    
    $
    2,643


Goodwill is included in
the Companys Americas segment as part of corporate assets. Goodwill at April
30, 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.
- Operating Efficiencies:The combination of the Company
  and Gupta provides the opportunity for potential economies of scale and cost
  savings.

65

---

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 results of an independent valuation experts
report.

Note 7. 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 April 30, 2007, $1.50 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
April 30, 2007).

Note 8. Long-Term Debt

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

April 30,
    
    
    April
      30,2007
    
    
    2006Note
      payable to a financial institution repaid in September 2006
    $
    
    
    
    $
    26Convertible notes payable to ComVest Capital LLC, interest rate of
      11.25%,payable in installments through October 31, 2011. These notes
      include certainnegative covenants and the Company is in compliance with such
      covenants.
    
    5,350
    
    
    
    Revolving note
      payable to ComVest Capital LLC, interest rate of prime plus2.25% and a
      maturity date of November 30, 2010
    
    1,500
    
    
    
    Capital leases payable, payable in monthly installments through
      June 2010
    
    25
    
    
    
    106,875
    
    
    
    36Less discount on notes payable, net
    
    (604
    )
    
    
    Less current portion
    
    (1,361
    )
    
    
    (33
    )Total long
      term debt, net
    $
    4,910
    
    
    $
    3


66

---

A summary of long term debt obligations as April 30,
2007 is as follows (in thousands):

Fiscal Year Ending April
      30,
    
    Amount2008
    
    $
    1,3612009
    
    
    1,4962010
    
    
    2,9972011
    
    
    8832012
    
    
    1386,875Unamortized
      discount on notes payable
    
    
    (604
    )Current portion of long
      term debt
    
    
    (1,361
    )Total long
      term debt, net
    
    $
    4,910


Note 9. Other Long Term Liabilities

In France, the Company
is subject to mandatory employee severance costs associated with a statutory
government regulated plan covering all employees. The plan provides for one
month of severance for the first five years of service with an employer and one
fifth of one year of severance for every one year of service thereafter. In
order to receive their severance payment the employee may not retire before age
65 and must be employed at the time of retirement. The balance as of April 30,
2007 and 2006 is $108,000 and $77,000, respectively and is reflected as other
long-term liabilities. Also included in other long term liabilities as of April
30, 2007 is $13,000 in deferred rent.

Note 10. Maintenance Contracts

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

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

Year Ended
    
    Year Ended
    
    Year EndedApril 30,
    
    April
      30,
    
    April 30,2007
    
    2006
    
    2005Deferred
      maintenance revenue beginning balance
    $
    2,810
    
    
    $
    2,837
    
    
    $
    3,081Deferred maintenance
      revenue recognized during period
    
    (6,155
    )
    
    
    (4,976
    )
    
    
    (5,448
    )Deferred
      maintenance revenue of new maintenancecontracts
    
    8,845
    
    
    
    4,949
    
    
    
    5,204Deferred maintenance
      revenue ending balance
    $
    5,500
    
    
    $
    2,810
    
    
    $
    2,837


Note 11. Stockholders Equity

Preferred Stock

The Company may issue
up to 5,000,000 shares of preferred stock in one or more series upon
authorization by its board of directors. The board of directors, without further
approval of the stockholders, is authorized to fix the dividend rights and
terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, and any other rights, preferences, privileges and
restrictions applicable to each series of preferred stock.

67

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Stock Option Plan

Under the 2001 Stock
Option Plan (the 2001 Option Plan), the Company may grant options to purchase
up to 595,000 shares of common stock to eligible employees, directors, and
consultants at prices not less than the fair market value at the date of grant
for incentive stock options and not less than 85% of the fair market value at
the date of grant for non-statutory stock options. Options granted under the
2001 Stock Option Plan generally vest over four years, are exercisable to the
extent vested, and expire 10 years from the date of grant. In fiscal year 2007,
we granted 55,000 option shares on a four-year vesting schedule to the
management team outside of the 2001 Stock Option Plan. 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. Of the options outstanding as of April
30, 2007 in the table below, 39,400 expired in May 2007 and were cancelled as
they were not exercised.

A
summary of stock option activity is as follows:

WeightedAverageNumber
      of
    
    ExerciseShares
    
    PriceOutstanding
      at April 30, 2004
    594,511
    
    
    $
    4.60Granted (weighted average
      fair value of $2.05)
    251,900
    
    
    2.35Exercised
    (53,834
    )
    
    1.55Cancelled/expired
    (224,101
    )
    
    2.75Outstanding
      at April 30, 2005
    568,476
    
    
    4.60Granted (weighted average
      fair value of $1.55)
    95,000
    
    
    1.90Exercised
    (62,523
    )
    
    1.75Cancelled/expired
    (71,971
    )
    
    8.10Outstanding
      at April 30, 2006
    528,982
    
    
    4.10Granted (weighted average
      fair value of $1.35)
    79,000
    
    
    1.35Exercised
    (85,080
    )
    
    1.80Cancelled/expired
    (69,660
    )
    
    11.45Outstanding
      at April 30, 2007
    453,242
    
    
    2.90


Additional information regarding
options outstanding at April 30, 2007 is as follows:

Options Outstanding
    
    Options
      ExercisableAverage
    
    Weighted
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    AverageNumber
    
    Contractual
    
    Exercise
    
    Number
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    Life (Years)
    
    Price
    
    Outstanding
    
    Price$ 
      1.10 -   1.25
    
    68,000
    
    6.68
    
    $
    1.20
    
    38,000
    
    $
    1.251.30
      -   1.30
    
    65,400
    
    4.55
    
    
    1.30
    
    65,400
    
    
    1.301.40 -   1.45
    
    48,500
    
    8.98
    
    
    1.45
    
    9,500
    
    
    1.401.60
      -   1.85
    
    62,050
    
    8.27
    
    
    1.80
    
    31,827
    
    
    1.801.95 -   2.50
    
    70,100
    
    7.67
    
    
    2.25
    
    54,591
    
    
    2.302.60
      -   2.70
    
    4,500
    
    8.09
    
    
    2.60
    
    4,000
    
    
    2.602.75 -   2.75
    
    85,300
    
    5.02
    
    
    2.75
    
    85,300
    
    
    2.753.25 - 29.40
    
    47,892
    
    3.32
    
    
    10.80
    
    44,774
    
    
    11.2530.15 - 32.50
    
    1,200
    
    2.07
    
    
    31.70
    
    1,200
    
    
    31.70


Options to purchase
379,573 and 394,634 shares at weighted average prices of $4.80 and $5.60 were
exercisable at April 30, 2006 and 2005. At April 30, 2007, there were 163,111
shares reserved for future grants under the Stock Option Plan.

68

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Restricted Stock

On May 1, 2002, the
Company established the 2002 Director Restricted Stock Plan (Director
Restricted Stock Plan) as part of a compensation program designed to attract
and retain independent members for our board of directors. The maximum aggregate
number of shares of common stock that may be issued under the Director
Restricted Stock Plan is 100,000. In May, each independent director is eligible
for a fully vested restricted stock award for the number of shares which is
equal to $10,000 divided by the fair market value of a share of stock at the
award date. There were no shares awarded under the plan in fiscal 2007 and
23,080 shares awarded under the plan in fiscal 2006, leaving a balance of 3,862
shares reserved for future awards at April 30, 2007.

Private Placement

On April 23, 2004, the
Company issued through a private placement 1,126,780 shares of common stock to a
group of institutional investors at a price of $3.55 per share and 5-year
warrants to purchase an aggregate of 450,712 shares of common stock at an
exercise price of $4.50 per share. Net proceeds from the private placement were
$3,696,000, net of estimated accrued costs of $304,000. The Companys actual
costs for the private placement were $397,000 which resulted in a further
reduction of additional paid-in-capital of $93,000 during fiscal
2005.

Due to the initial
issuance of shares in the acquisition of Acuitrek in February 2005, which caused
the application of the anti-dilution provision of the warrants, the warrant
exercise price has been adjusted to $4.45 per share and the total number of
warrant shares purchasable on exercise of the warrants has increased to 454,543
shares. The debt financing on November 20, 2006 in conjunction with the
acquisition of Gupta Technologies LLC (see Note 2) also caused the application
of the anti-dilution provision and the warrant exercise price was adjusted to
$4.15 per share and the number of warrant shares purchasable on exercise of the
warrants has increased to 487,387 shares. Under certain circumstances, where the
closing bid price of a share of common stock equals or exceeds $9.00,
appropriately adjusted for any stock split, reverse stock split, stock dividend
or other reclassification or combination of common stock, for 20 consecutive
trading days commencing after the registration statement covering the warrants
shares has been declared effective, the Company, upon 20 days prior written
notice to the warrant holders within one business day immediately following the
end of such 20 day trading period, may call the warrants for 25% of the shares
of the common stock initially purchasable pursuant to the warrants at a
redemption price equal to $0.05 per share of common stock then purchasable
pursuant to the warrants. If the call conditions are met again during the 30 day
period immediately after consummation of a previous call, the Company may once
again call the warrants for an additional increment of 25% of the shares of
common stock initially purchasable pursuant to the warrants or such less amount
as shall then remain purchasable and in the same manner and subject to the same
notice requirements as the initial call, until all of the shares have been
called.

Note 12. Income Taxes

For fiscal 2007, the
Company recorded $82,000 for foreign tax expense and no expense for state or
federal taxes. For fiscal 2006, the Company recorded no state, federal or
foreign tax expense. For fiscal 2005, the Company recorded expenses of $9,000
for various taxes.

Income (loss) from
continuing operations before income taxes and provision for income taxes, which
consisted solely of current tax expense, for the years ended April 30 were as
follows (in thousands):

2007
    
    2006
    
    2005Domestic
    $
    (1,546
    )
    
    $
    1,165
    
    $
    (1,315
    )Foreign
    
    267
    
    
    
    30
    
    
    (687
    )Total
      income (loss) before income taxes
    $
    (1,279
    )
    
    $
    1,195
    
    $
    (2,002
    )Foreign taxes
    $
    82
    
    
    $
    
    
    $
    Federal and state
      income taxes
    
    
    
    
    
    
    
    
    9Provision for income
      taxes
    $
    82
    
    
    $
    
    
    $
    9


69

---

The provision for
income taxes for the years ended April 30, 2007, 2006 and 2005 differs from the
amounts computed by applying the statutory U.S. federal income tax rate to
pretax loss as a result of the following (in thousands):

2007
    
    2006
    
    2005Computed
      tax benefit
    $
    (824
    )
    
    $
    (214
    )
    
    $
    (801
    )Increases (reductions) in
      tax expense resulting from:Change in valuation allowance for deferred tax assets
    
    14,321
    
    
    
    (15,560
    )
    
    
    710Expiration of net
      operating loss carryforwards
    
    (13,024
    )
    
    
    15,460
    
    
    
    Change in deferred revenue
    
    (1,088
    )
    
    
    
    
    
    
    Other
    
    697
    
    
    
    314
    
    
    
    100Provision
      for income taxes
    $
    82
    
    
    $
    
    
    
    $
    9


The Company provides
deferred income taxes which reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and for income tax purposes. Significant components of the Companys
deferred tax assets and liabilities at April 30 were as follows (in
thousands):

2007
    
    2006Deferred
      tax assets:Non-currentNet operating loss carryforwards
    $
    14,649
    
    
    $
    1,625Capital loss
      carryforward
    
    1,515
    
    
    
    1,724Foreign tax credits
    
    
    
    
    
    46Current deferred tax assets
      (liabilities)Deferred revenue
    
    2,151
    
    
    
    1,063Allowance for
      losses on accounts receivable
    
    97
    
    
    
    39Reserves and other accruals
    
    200
    
    
    
    (206
    )Total deferred
      tax assets
    $
    18,612
    
    
    $
    4,291Valuation allowance
    
    (18,612
    )
    
    
    (4,291
    )Net deferred tax
      assets
    $
    
    
    
    $
    


Realization of deferred
tax assets is dependent upon future earnings, the timing and amount of which are
uncertain. Accordingly, the net deferred tax assets have been fully offset by a
valuation allowance. The valuation allowance increased by $14.3 in fiscal 2007,
decreased by $15.6 million in fiscal 2006 and increased by $0.7 million in
fiscal 2005. At April 30, 2007, the Company had approximately $40.7 million in
federal net operating loss carryforwards that begin to expire in fiscal year
2008 through 2026, approximately $6.2 million in state net operating loss
carryforwards that expire in fiscal years 2013 to 2016 and approximately $0.6
million in foreign net operating loss carryforwards that do not expire,
approximately $3.5 million in capital loss carryforwards that expire in 2010.
The Companys ability to utilize these net operating loss carryforwards may be
subject to certain limitations in the event of a change in ownership.

Note 13. Other Income (Expenses)

Other income (expenses), net for the
years ended April 30, consisted of the following (in thousands):

2007
    
    2006
    
    2005Interest
      income
    $
    45
    
    $
    109
    
    
    $
    59Foreign currency exchange
      loss
    
    15
    
    
    (48
    )
    
    
    (3
    )Other
    
    76
    
    
    
    
    
    
    15Other income (expenses), net
    $
    136
    
    $
    61
    
    
    $
    71


Note 14. Earnings (loss) per
Share

Basic
earnings per share is computed by dividing net income (loss) by the weighted
average number of common shares outstanding during the reporting period. Diluted
earnings (loss) per share is computed similar to basic earnings per

70

---

share except that it reflects the
potential dilution that could occur if dilutive securities or other obligations
to issue common stock were exercised or converted into common stock. For fiscal
2007 and fiscal 2005, because of our reported net loss, potentially dilutive
securities were excluded from the per share computations due to their
antidilutive effect. For fiscal 2006 there are approximately 72,800 potential
common shares included in the diluted EPS computation.

(in
      thousands, except per share amounts)
    Years
      Ended April 30,2007
    
    2006
    
    2005Income (loss) from continuing operations
    $
    (1,361
    )
    
    $
    1,195
    
    
    $
    (2,011
    )Loss from
      discontinued operations
    
    (1,445
    )
    
    
    (1,823
    )
    
    
    (353
    )Net loss
    $
    (2,806
    )
    
    $
    (628
    )
    
    $
    (2,364
    )Weighted average shares of common stock outstanding,
      basic
    
    5,927
    
    
    
    5,803
    
    
    
    5,555Effect of dilutive securities
    
    
    
    
    
    72
    
    
    
    Weighted average shares of common stock outstanding,
    diluted
    
    5,927
    
    
    
    5,875
    
    
    
    5,555Earnings (loss) per share of common stock:Basic:Continuing operations
    $
    (0.23
    )
    
    $
    0.21
    
    
    $
    (0.36
    )Discontinued operations
    
    (0.24
    )
    
    
    (0.32
    )
    
    
    (0.07
    )Total
    $
    (0.47
    )
    
    $
    (0.11
    )
    
    $
    (0.43
    )Assuming dilution:Continuing operations
    $
    (0.23
    )
    
    $
    0.20
    
    
    $
    (0.36
    )Discontinued operations
    
    (0.24
    )
    
    
    (0.31
    )
    
    
    (0.07
    )Total
    $
    (0.47
    )
    
    $
    (0.11
    )
    
    $
    (0.43
    )


Potentially
dilutive securities that are not included in the diluted net loss calculation
because they would be antidilutive are employee stock options of 453,200,
529,000 and 568,400 as of April 30, 2007, 2006 and 2005 respectively, and common
stock warrants of 1,124,600 as of April 30, 2007 and 454,600 as of April 30,
2006 and 2005.

Note 15. Related Party
Transactions

Unify has an
investment of less than 15% in Unify Japan KK who is the Companys master
distributor in Japan. Sales to Unify Japan KK in fiscal 2007, 2006 and 2005 were
$0.2 million, $0.3 million and $0.5 million, respectively. Accounts receivable
from Unify Japan KK as of April 30, 2007 and 2006 were $7,900 and $76,100,
respectively.

Transaction with an
Officer

As part of
the acquisition of Acuitrek (see Note 3), the Company assumed a note payable to
a major stockholder of Acuitrek that was paid in full on July 12,
2005.

Note 16. Employee Retirement
Plan

The Company
maintains a 401(k) profit sharing plan (the 401(k) Plan). Eligible employees
may contribute up to 100% of their pre-tax annual compensation to the 401(k)
Plan, subject to certain statutory limitations. The Company can, at its
discretion, voluntarily match the participating employees contributions not to
exceed 6% of each employees annual compensation. In fiscal years 2007, 2006 and
2005, the Company contributed $72,000, $59,000 and $47,000, respectively, to the
401(k) Plan.

71

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Note 17. Commitments and
Contingencies

Operating Leases

The Company
leases office space and equipment under non-cancelable operating lease
arrangements expiring at various dates through fiscal 2011. Future minimum
rental payments under these leases as of April 30, 2007 are as follows (in
thousands):

Years Ending April 30,2008
    
    1,1802009
    
    2302010
    
    1382011
    
    1$
    1,549


Rent expense
under operating leases was $1,095,500, $1,038,400 and $1,117,100 for the years
ended April 30, 2007, 2006 and 2005, respectively.

Litigation

The Company
is subject to legal proceedings and claims that arise in the normal course of
business. If such matters arise, the Company cannot assure that it would prevail
in such matters, nor can it assure that any remedy could be reached on mutually
agreeable terms, if at all. Due to the inherent uncertainties of litigation,
were there any such matters, the Company would not be able to accurately predict
their ultimate outcome. As of April 30, 2007, there were no current proceedings
or litigation involving the Company that management believes would have a
material adverse impact on its financial position, results of operations, or
cash flows.

Note 18. Segment
Information

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

72

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

For the
      Twelve Months Ended April 30,2007
    
    2006
    
    2005Total revenues:Americas (1)
    $
    4,851
    
    
    $
    4,889
    
    
    $
    5,792Europe (1)
    
    6,336
    
    
    
    5,254
    
    
    
    5,411Total revenues from continuing operations
    
    11,187
    
    
    
    10,143
    
    
    
    11,203Total revenues from discontinued operations
    
    541
    
    
    
    1,106
    
    
    
    101Total revenues
    $
    11,728
    
    
    $
    11,249
    
    
    $
    11,304Operating Income (loss):Americas (2)
    $
    (4,081
    )
    
    $
    (1,238
    )
    
    $
    (3,192
    )Europe
    
    3,193
    
    
    
    2,383
    
    
    
    1,142Total operating income (loss) from continuing operations
    
    (888
    )
    
    
    1,145
    
    
    
    (2,050
    )Total operating loss from discontinued operations
    
    (1,445
    )
    
    
    (1,823
    )
    
    
    (353
    )Total operating loss
    $
    (2,333
    )
    
    $
    (678
    )
    
    $
    (2,403
    )Interest income (3)
    $
    45
    
    
    $
    109
    
    
    $
    59Interest expense
      (3)
    $
    527
    
    
    $
    11
    
    
    $
    23


73

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|Total assets by segment
      were as follows (in thousands):                           |                                             |        |      |   |        |  |   |       
|--------------------------------------------------------------------------------------- | ------------------------------------------- | ------ | ---- | - | ------ |  | - | ------
|                                                                                        | As of April
      30,                      
|                                                                                        | 2007                                        |        | 2006 |   | 2005  
|Assets:                                                                                 |                                             |        |      |   |        |  |   |       
|Americas                                                                                | $                                           | 11,990 |      | $ | 4,218  |  | $ | 5,323 
|Europe                                                                                  |                                             | 3,664  |      |   | 2,179  |  |   | 2,295 
|Total assets of continuing operations                                                   | $                                           | 15,654 |      | $ | 6,397  |  | $ | 7,618 
|Assets held for sale                                                                    |                                             |       |      |   | 1,954  |  |   | 1,872 
|Total assets                                                                            | $                                           | 15,654 |      | $ | 8,351  |  | $ | 9,490 
|                                                                                       
|Total intersegment
      revenues were as follows (in thousands):                       |                                             |        |      |   |        |  |   |       
|                                                                                        | For the
      Twelve Months Ended April 30,
|                                                                                        | 2007                                        |        | 2006 |   | 2005  
|Intersegment revenues:                                                                  |                                             |        |      |   |        |  |   |       
|Americas                                                                                | $                                           | 490    |      | $ | 982    |  | $ | 1,639 
|Europe                                                                                  |                                             | 611    |      |   |       |  |   | 3     
|Total intercompany revenues                                                             | $                                           | 1,101  |      | $ | 982    |  | $ | 1,642 
|                                                                                       
|Depreciation (5)                                                                        | $                                           | 185    |      | $ | 169    |  | $ | 183   
|Captial expenditures
      (5)                                                          | $                                           | 63     |      | $ | 41     |  | $ | 208   
|                                                                                       
|Revenues and long-lived assets by geographic area were as follows
      (in thousands): |                                             |        |      |   |        | 
|                                                                                       
|Total
      revenues:                                                                   |                                             |        |      |   |        |  |   |       
|Americas                                                                                | $                                           | 2,986  |      | $ | 3,048  |  | $ | 4,014 
|International Distributors                                                              |                                             | 1,865  |      |   | 1,841  |  |   | 1,778 
|Subtotal
      Americas                                                                 |                                             | 4,851  |      |   | 4,889  |  |   | 5,792 
|United Kingdom                                                                          |                                             | 984    |      |   | 1,128  |  |   | 1,388 
|Central Europe - Germany, Benelux, Other                                                |                                             | 3,039  |      |   | 2,349  |  |   | 1,776 
|France                                                                                  |                                             | 2,313  |      |   | 1,777  |  |   | 2,247 
|Subtotal
      Europe                                                                   |                                             | 6,336  |      |   | 5,254  |  |   | 5,411 
|Discontinued operations                                                                 |                                             | 541    |      |   | 1,106  |  |   | 101   
|Total revenues                                                                          | $                                           | 11,728 |      | $ | 11,249 |  | $ | 11,304
|                                                                                       
|Long-lived assets:                                                                      |                                             |        |      |   |        |  |   |       
|Americas                                                                                | $                                           | 241    |      | $ | 47     |  | $ | 77    
|Europe                                                                                  |                                             | 237    |      |   | 132    |  |   | 107   
|Corporate Assets                                                                        |                                             | 8,365  |      |   | 479    |  |   | 601   
|Total long-lived assets                                                                 | $                                           | 8,843  |      | $ | 658    |  | $ | 785   

74

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|(1) |  | The Company allocates revenues to
      operating segments based on the location of the country where the license
      is installed or service is delivered. The accounting policies of the
      segments are the same as those described in Note 1.                                                                        
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Americas operating income (loss)
      is net of corporate product development and general and administrative
      expenses.                                                                                                                                                                                                 
|   
|(3) |  | Interest income and interest
      expense were primarily attributable to corporate assets located in the
      Americas for the periods presented. Interest income and interest expense
      in the Americas and Europe were not significant in those
  periods.                                                            
|   
|(4) |  | Corporate assets are located in
      the Americas and consist primarily of cash equivalents, investments,
      purchased technology and related maintenance contracts, property and
      equipment, intangibles, goodwill and intercompany receivables from
      Europe.                                                  
|    |  |                                                                                                                                                                                                                                                                                                                               
|(5) |  | The majority of the Companys capital
      expenditures are incurred for product development (which occurs
      exclusively in the Americas) and for corporate infrastructure.
      Consequently, capital expenditures and depreciation expense were primarily
      attributable to the Americas in the periods
presented.

Note 19. Subsequent
Events

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

On May 22,
2007 the Company purchased privately held Active Data Corporation. Active Data
Corporation provides application migration software that will add Microsofts
..NET functionality to Unifys Team Developer product and provide an additional
application migration solution for the Company. Pursuant to the terms of the
purchase agreement, Unify acquired all the outstanding stock of Active Data
Corporation for cash, a note payable over the next twelve months and future
earn-out payments.

75

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Note 20. Quarterly Results of
Operations (Unaudited)

The following interim financial
information presents the fiscal 2007 and 2006 results on a quarterly
basis:

|                                                            | Quarter Ended                              
|----------------------------------------------------------- | -------------------------------------------
|                                                            | July
      31,                             
|                                                            | (In thousands, except per share
      data)
|Year ended 2007:                                            |                                            
|Total revenues                                              | $                                          
|Gross margin                                                | $                                          
|Net income (loss) from continuing operations                | $                                          
|Net income (loss) from discontinued
      operations        | $                                          
|Net loss                                                    | $                                          
|                                                            |                                            
|Net income (loss) per share:                                |                                            
|Basic earnings per share:                                   |                                            
|Continuing
      operations                                 | $                                          
|Discontinued operations                                     |                                            
|Net loss per
      share                                    | $                                          
|                                                            |                                            
|Dilutive earnings per
share:                                |                                            
|Continuing operations                                       | $                                          
|Discontinued
      operations                               |                                            
|Net loss per share                                          | $                                          
|                                                            |                                            
|Shares used in computing net income (loss)
      per share: |                                            
|Basic                                                       |                                            
|Diluted                                                     |                                            
|                                                            |                                            
|Year ended 2006:                                            |                                            
|Total revenues                                              | $                                          
|Gross margin                                                | $                                          
|Net income (loss) from continuing operations                | $                                          
|Net income (loss) from discontinued
      operations        | $                                          
|Net income (loss)                                           | $                                          
|                                                            |                                            
|Net income (loss) per share:                                |                                            
|Basic earnings per share:                                   |                                            
|Continuing
      operations                                 | $                                          
|Discontinued operations                                     |                                            
|Net loss per
      share                                    | $                                          
|                                                            |                                            
|Dilutive earnings per
share:                                |                                            
|Continuing operations                                       | $                                          
|Discontinued
      operations                               |                                            
|Net loss per share                                          | $                                          
|                                                            |                                            
|Shares used in computing net income (loss)
      per share: |                                            
|Basic                                                       |                                            
|Diluted                                                     |                                            

76



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Note 21. 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 Consolidated
Statement of Operations for the year ended April 30, 2007 (in thousands, except
per share data):

Year EndedApril 30, 2007AmountsPreviously
    
    AsReported
    
    RestatedLoss from discontined operations
    $
    (1,061
    )
    
    $
    (1,445
    )Net
      loss
    $
    (2,422
    )
    
    $
    (2,806
    )Net loss per share:Basic earnings per share:Continuing operations
    $
    (0.23
    )
    
    $
    (0.23
    )Discontinued operations
    
    (0.18
    )
    
    
    (0.24
    )Net loss per share
    $
    (0.41
    )
    
    $
    (0.47
    )Net loss per share:Dilutive earnings per
      share:Continuing operations
    $
    (0.23
    )
    
    $
    (0.23
    )Discontinued operations
    
    (0.18
    )
    
    
    (0.24
    )Net loss per share
    $
    (0.41
    )
    
    $
    (0.47
    )


77

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The following table reflects the impact of the restatement on the
Companys Consolidated Balance Sheet for the fiscal year ended April 30,
2007 (in thousands):

April 30, 2007AmountsPreviously
    
    AsReported
    
    RestatedASSETSGoodwill
    $
    5,667
    
    
    $
    5,283Total Assets
    $
    16,038
    
    
    $
    15,654LIABILITIES AND STOCKHOLDERS' EQUITYAccrued acquisition costs
    $
    -
    
    
    $
    508Other accrued liabilities
    $
    1,792
    
    
    $
    1,284Accumulated deficit
    $
    (64,171
    )
    
    $
    (64,555
    )Total stockholders' equity
    $
    853
    
    
    $
    469Total liabilities and stockholders' equity
    $
    16,038
    
    
    $
    15,654


The following
table reflects the impact of the restatement on the Companys Consolidated
Statement of Cash Flow for the year ended April 30, 2007 (in thousands):

Year EndedApril 30, 2007AmountsPreviously
    
    AsReported
    
    RestatedNet loss
    $
    (2,422
    )
    
    $
    (2,806
    )Loss from
      discontinued operations
    $
    (1,061
    )
    
    $
    (1,445
    )Other accrued liabilities
    $
    (331
    )
    
    $
    (839
    )Accrued
      acquisition costs
    $
    -
    
    
    $
    508Acquisition, net of cash acquired
    $
    (6,188
    )
    
    $
    (5,804
    )Net cash used in
      investing activities of continuing operations
    $
    (6,251
    )
    
    $
    (5,867
    )Net cash used in operating activities of discontinued
      operations
    $
    (1,061
    )
    
    $
    (1,445
    )


78

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**INDEX OF EXHIBITS**

|Exhibit No. |     | Description
|----------- | --- | -----------
|2           | .1  |            
|            |     |            
|3           | .1  |            
|            |     |            
|3           | .2  |            
|            |     |            
|3           | .3  |            
|           
|4           | .1  |            
|            |     |            
|4           | .2  |            
|            |     |            
|4           | .3  |            
|            |     |            
|4           | .4  |            
|            |     |            
|4           | .5  |            
|            |     |            
|4           | .6  |            
|            |     |            
|4           | .7  |            
|            |     |            
|4           | .8  |            
|            |     |            
|4           | .9  |            
|            |     |            
|4           | .10 |            
|            |     |            
|4           | .11 |            
|            |     |            
|4           | .12 |            
|           
|10          | .1* |            
|            |     |            
|10          | .2* |            
|            |     |            
|10          | .3* |            
|            |     |            
|10          | .4  |            
|            |     |            
|10          | .5  |            
|            |     |            
|10          | .6  |            
|            |     |            
|10          | .7  |            
|            |     |            
|10          | .8  |            
|           
|14          |     |            
|            |     |            
|21          | .1  |            
|            |     |            
|23          | .1  |            
|            |     |            
|31          | .1  |            
|            |     |            
|31          | .2  |            
|            |     |            
|32          | .1  |            
|            |     |            
|32          | .2  |            

|(1)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form S-1 Registration
      Statement (No. 333-3834) declared effective by the Securities and Exchange
      Commission on June 14, 1996.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form 10-K on December 22,
      2000.                                                                                                    
|    
|(3)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form 10-K on July 30,
      2001.                                                                                                        
|    
|(4)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form 10-Q on March 14,
      2002.                                                                                                       
|    
|(5)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form 10-K on July 17,
      2003.                                                                                                        
|    
|(6)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form 10-K on July 21,
      2004.                                                                                                        
|    
|(7)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form 8-K on February 2,
      2005.                                                                                                      
|    
|(8)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form 10-K on July 28,
      2005.                                                                                                        
|    
|(9)  |  | Incorporated by
      reference to the exhibit filed with Registrants Form 10-K on July 31,
      2006.                                                                                                        
|    
|(10) |  | Incorporated by
      reference to the exhibit filed with Registrants Form 8-K on September 20,
      2006.                                                                                                    
|    
|(11) |  | Incorporated by
      reference to the exhibit filed with Registrants Form 8-K on November 29,
      2006.                                                                                                     
|    
|*    |  | Exhibit pertains to a management
      contract or compensatory plan or arrangement.                                                                                                                            

79

---