10-Q 1 unify_10q.htm QUARTERLY REPORT

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

Form 10-Q

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended July 31, 2008

OR

o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 001-11807 ______________

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

Delaware
(State or other jurisdiction of
incorporation or organization)

94-2710559
(I.R.S. Employer Identification
Number)

1420 Rocky Ridge Drive, Suite 380
Roseville, California 95661
(Address of principal executive offices)

Telephone: (916) 218-4700
(Registrant’s telephone number, including area code)

2101 Arena Blvd, Suite 100
Sacramento, California 95834
(former address)

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

YES x NO o

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company x

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

YES o NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 6,981,249 shares of common stock, $0.001 par value, as of July 31, 2008.

UNIFY CORPORATION
FORM 10-Q

INDEX

PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial Statements	3

	Unaudited Condensed Consolidated Balance Sheets as of July 31, 2008 and	3
	April 30, 2008

	Unaudited Condensed Consolidated Statements of Operations for the three	4
	months ended July 31, 2008 and 2007

	Unaudited Condensed Consolidated Statements of Cash Flows for the three	5
	months ended July 31, 2008 and 2007

	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of	17
	Operations

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23

Item 4.	Controls and Procedures	24

PART II.	OTHER INFORMATION	25

Item 1.	Legal Proceedings	25

Item 6.	Exhibits	26

SIGNATURE		27

CERTIFICATIONS		28

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

UNIFY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

	July 31,			April 30,
	2008			2008
ASSETS
Current assets:
Cash and cash equivalents	$	3,098		$	2,692
Accounts receivable, net		3,583			5,092
Prepaid expenses and other current assets		519			529
Total current assets		7,200			8,313

Property and equipment, net		380			346
Goodwill		5,643			5,643
Intangibles, net		2,017			2,197
Other assets, net		168			179
Total assets	$	15,408		$	16,678

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	433		$	326
Current portion of long term debt		209			8
Accrued compensation and related expenses		1,137			1,661
Other accrued liabilities		682			895
Deferred revenue		5,428			6,580
Total current liabilities		7,889			9,470

Long term debt, net		1,143			1,334
Other long term liabilities		414			455

Commitments and contingencies		—			—

Stockholders’ equity:
Common stock		7			7
Additional paid-in capital		68,359			68,215
Accumulated other comprehensive income		128			119
Accumulated deficit		(62,532	)		(62,922	)
Total stockholders’ equity		5,962			5,419
Total liabilities and stockholders’ equity	$	15,408		$	16,678

See accompanying notes to condensed consolidated financial statements.

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

	Three Months Ended
	July 31,
	2008			2007
Revenues:
Software licenses	$	2,010		$	1,463
Services		3,017			2,498
Total revenues		5,027			3,961

Cost of Revenues:
Software licenses		200			47
Services		261			195
Total cost of revenues		461			242
Gross profit		4,566			3,719

Operating Expenses:
Product development		748			911
Selling, general and administrative		3,381			2,700
Total operating expenses		4,129			3,611
Income from operations		437			108
Other income (expense), net		(14	)		(316	)

Income (loss) before income taxes		423			(208	)
Provision for income taxes		32			10
Net income (loss)	$	391		$	(218	)

Net income (loss) per share:
Basic	$	0.06		$	(0.04	)
Dilutive	$	0.05		$	(0.04	)

Shares used in computing net income (loss) per share:
Basic		6,981			6,037
Dilutive		7,821			6,037

See accompanying notes to condensed consolidated financial statements.

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

	Three Months Ended July 31,
	2008			2007
Cash flows from operating activities:
Net income (loss)	$	391		$	(218	)
Reconciliation of net income (loss) to net cash provided by operating activities:
Depreciation		39			52
Loss on disposal of equipment		1			1
Amortization of intangible assets		180			184
Fulfillment of support obligations		—			(134	)
Amortization of discount on notes payable		12			51
Stock based compensation expense		142			43
Changes in operating assets and liabilities:
Accounts receivable		1,512			539
Prepaid expenses and other current assets		23			106
Other long term assets		(1	)		10
Accounts payable		108			284
Accrued compensation and related expenses		(510	)		(31	)
Other accrued liabilities		(217	)		(199	)
Accrued acquisition costs		—			(72	)
Deferred revenue		(1,154	)		(569	)
Other long term liabilities		67			(15	)
Net cash provided by operating activities		593			32
Cash flows from investing activities:
Acquisition, net of cash acquired		—			(264	)
Purchases of property and equipment		(74	)		(39	)
Payments on acquisition obligations		(110	)		—
Net cash used in investing activities		(184	)		(303	)
Cash flows from financing activities:
Proceeds from issuance of common stock		—			16
Borrowings under debt obligations		—			500
Principal payments under debt obligations		(2	)		(454	)
Net cash provided by (used in) financing activities		(2	)		62
Effect of exchange rate changes on cash		(1	)		15
Net increase (decrease) in cash and cash equivalents		406			(194	)
Cash and cash equivalents, beginning of period		2,692			2,064
Cash and cash equivalents, end of period	$	3,098		$	1,870
Supplemental cash flow information
Cash paid during the period for:
Interest	$	25		$	254
Taxes	$	—		$	14

See accompanying notes to condensed consolidated financial statements.

UNIFY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008

1. Basis of Presentation

The condensed consolidated financial statements have been prepared by Unify Corporation (the “Company”, “we”, “us”, “our”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). While the interim financial information contained in this filing is unaudited, such financial statements, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for a fair presentation. The results for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year. These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2008, as filed with the SEC.

Revenue Recognition

The Company generates revenue from software license sales and related services, including maintenance and support, and consulting services. The Company licenses its products to end-user customers, independent software vendors (“ISVs”), international distributors and value-added resellers (“VARs”). The Company’s 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 or special acceptance. With the exception of its Composer for Lotus Notes solution, the Company recognizes revenue for software license sales in accordance with Statement of Position (“SOP”) 97-2, Software Revenue Recognition. For Composer for Lotus Notes, the Company recognizes revenue for software licenses sales in accordance with Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts and Accounting Research Bulletin (“ARB”) 45, Long-Term Construction Type Contracts. The Company exercises judgment in connection with the determination of the amount of software and services revenue to be recognized in each accounting period. The nature of each licensing arrangement determines how revenues and related costs are recognized.

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

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

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

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

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

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

Recently Issued Accounting Standards

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

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

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

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. (SFAS No. 161). SFAS No. 161 requires enhanced disclosures about an entity’s derivative instruments and hedging activities with a view toward improving the transparency of financial reporting, and is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS No. 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. We are currently evaluating the impact, if any, of adopting SFAS No. 161 on our consolidated financial statements.

On May 9, 2008, the FASB issued FASB Staff Position No. APB 14-1(FSP APB 14-1), Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement. FSP APB 14-1 requires issuers of convertible debt that may be settled wholly or partly in cash when converted to account for the debt and equity components separately. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 and must be applied retrospectively to all periods presented. We are currently assessing the impact, if any, of FSP APB 14-1 on our consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position ("FSP") FAS 142-3, "Determination of Useful Life of Intangible Assets" ("FSP FAS 142-3"). FSP FAS 142-3 amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS 142, "Goodwill and Other Intangible Assets." FSP FAS 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. Earlier adoption is not permitted. We believe that the adoption of FSP FAS 142-3 will not have a material impact on our consolidated financial statements.

In May of 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” This statement identifies literature established by the FASB as the source for accounting principles to be applied by entities which prepare financial statements presented in conformity with generally accepted accounting principles (GAAP) in the United States. This statement is effective 60 days following approval by the SEC of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” This statement will require no changes in the Company’s financial reporting practices.

2. Acquisitions

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

On November 20, 2006, the Company entered into various agreements with ComVest Capital LLC (“ComVest”) whereby ComVest, along with participation from Special Situations Funds, provided debt financing for the Gupta acquisition. The debt financing consisted of $5.35 million in convertible term notes and a revolver of up to $2.5 million. There are three tranches that comprise the convertible term notes: Tranche 1 is for $1,000,000, Tranche 2 is for $3,250,000 and Tranche 3 is for $1,100,000. The term loans have an interest rate of 11.25% and have repayment terms of 48 to 60 months. As of July 31, 2008, the remaining balance on the term notes is $1.3 million, net of discounts. The agreement was modified in April 2008, whereby the interest rate on the term loans has been decreased to 5% and all principal payments have been deferred until June 2009. As part of the debt financing the Company provided the lenders with 670,000 warrants to purchase common stock. There are 200,000 warrants to purchase common stock at a price of $1.35 per share, 270,000 warrants at a price of $1.60 per share and 200,000 warrants at a price of $1.90 per share. The warrants have an expiration date of October 31, 2012. In November 2007, ComVest elected to exercise 120,000 warrants to purchase common stock at a price of $1.35 per share. Additionally, the holder of the term notes may, at their option, upon written notice to Unify given at any time and from time to time from the date Unify has sufficient authorized, unissued and unreserved shares of common stock convert the outstanding principal and any accrued interest into shares of Unify common stock. Tranche 1 is convertible at $2.50 per common share and Tranches 2 and 3 are convertible at $5.00 per common share. Unify may require conversion of the convertible term notes if its common stock price closes at or above 160% of the applicable conversion price for 20 or more consecutive market days. In October 2007, the outstanding balance for Tranche 1 of $0.9 million was converted into 352,380 shares of common stock. Additionally, during the third quarter of fiscal 2008, $1.0 million of the outstanding balance for Tranche 2 was converted into 198,670 shares of common stock. The agreement provides for ComVest to have a security interest in substantially all of the Company’s assets. Unify capitalized $238,000 of debt issuance costs associated with the debt financing and also recorded a discount on the notes payable of approximately $743,000 that is attributed to the warrants that were issued in conjunction with the financing. The debt issuance costs and the discount on notes payable are being amortized using the effective interest method over the stated life of the related notes. The amortization of both the debt issuance costs and the discount on the notes payable was approximately $24,000 for the three months ended July 31, 2008 and is included in interest expense. The unamortized amount of the discount on the notes payable was $64,000 as of July 31, 2008 and $76,000 as of April 30, 2008 and is included in long-term debt, net. As of July 31, 2008 and April 30, 2008 the unamortized portion of debt issuance costs was $48,000 and $60,000, respectively, which is included in other assets, net.

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

Current assets	$	1,281
Property and equipment, net		99
Long term assets		71
Goodwill		6,161
Intangibles		2,950
Total assets	$	10,562

Current liabilities	$	2,844
Long term liabilities		18
Shareholders' equity		7,700
Total liabilities and shareholders' equity	$	10,562

Active Data Corporation

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

3. Stock Compensation Information

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

	Three Months Ended
	July 31,
	2008		2007
Cost of Sales	$	3	$	1
Product Development		22		6
Selling, General and Administrative		117		36
Total Equity-Based Compensation	$	142	$	43

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

Fiscal Year Ending April 30,	Amount
Remainder of 2009	$	511
2010		424
2011		411
2012		290
2013		6
Total	$	1,642

The cost above is expected to be recognized over a weighted-average period of 1.45 years.

The Company continues to use the Black-Scholes option pricing model to estimate fair value of equity awards, which requires the input of highly subjective assumptions, including the expected stock price volatility. The Company’s calculations are made using the Black-Scholes option pricing model, with the following weighted average assumptions for the three months ended July 31, 2008 and 2007, respectively: expected option life, 12 to 18 months following vesting; stock volatility of 89% and 96%; risk-free interest rates of 3.0% and 4.9% and no dividends during the expected term. Not all stock options that have been granted will be exercised. Accordingly, the Company’s calculation of equity-based compensation expense includes an adjustment for the estimated number of options that will be forfeited.

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

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

					Weighted
			Weighted		average remaining	Aggregate
			average		contractual	intrinsic
	Shares		exercise price		term (in years)	value (1)
Outstanding at April 30, 2008	760,017		$	3.23	7.35	$	2,699,038
Granted	406,900		$	6.15
Exercised	(500	)	$	2.55
Canceled or expired	(2,959	)	$	4.72
Outstanding at July 31, 2008	1,163,458		$	4.25	8.03	$	1,517,611

Exercisable at July 31, 2008	478,545		$	3.09	6.06	$	1,092,921

(1)

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

Total intrinsic value of awards exercised during the quarters ended July 31, 2008 and July 31, 2007 was $1,975 and $19,705, respectively. The total fair value of awards vested during the quarters ended July 31, 2008 and July 31, 2007 was $136,258 and $ 64,000, respectively.

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

			Weighted
			average fair
	Shares		value
Nonvested at April 30, 2008	338,490		$	2.66
Granted	406,900		$	3.45
Vested	(57,205	)	$	2.38
Canceled or expired	(2,521	)	$	4.07
Nonvested at July 31, 2008	685,664		$	3.03

4. Goodwill and Intangible Assets

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

	Gross					Net
	carrying		Accumulated			carrying		Estimated
July 31, 2008	amount		amortization			amount		useful life
Infinite Lives:
Goodwill	$	5,643	$	—		$	5,643	—
Finite Lives:
Customer-related		1,500		(500	)		1,000	5 years
Technology-based		1,050		(438	)		612	4 years
Trademarks		300		(125	)		175	4 years
Trade name		100		(100	)		—	1 year
Technologies		288		(84	)		204	4 years
Customer lists		36		(10	)		26	4 years
Total	$	8,917	$	(1,257	)	$	7,660

	Gross					Net
	carrying		Accumulated			carrying		Estimated
April 30, 2008	amount		amortization			amount		useful life
Infinite Lives:
Goodwill	$	5,643	$	—		$	5,643	—
Finite Lives:
Customer-related		1,500		(425	)		1,075	5 years
Technology-based		1,050		(372	)		678	4 years
Trademarks		300		(106	)		194	4 years
Trade name		100		(100	)		—	1 year
Technologies		288		(66	)		222	4 years
Customer lists		36		(8	)		28	4 years
Total	$	8,917	$	(1,077	)	$	7,840

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 the three months ended July 31, 2008, was $180,000. Amortization expense for the fiscal year ended April 30, 2008, was $770,000 and was related to the Gupta and Active Data acquisitions. The estimated future amortization expense related to intangible assets as of July 31, 2008, is as follows (in thousands):

Fiscal Year Ending April 30,	Amount
Remainder of 2009		539
2010		719
2011		578
2012		181
2013		—
Total	$	2,017

Goodwill at July 31, 2008, represents the excess of the Gupta and Active Data Corporation purchase prices over the sum of the amounts assigned to assets acquired less liabilities assumed. The Company believes the acquisition of Gupta and Active Data Corporation will produce the following results:

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

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

5. Credit Facility

On November 20, 2006, the Company entered into a revolving credit note agreement with ComVest Capital LLC. Under the terms of the agreement the Company can borrow up to $2.5 million. As of July 31, 2008, there was no amount 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 (7.25% as of July 31, 2008 and April 30, 2008).

6. Long-Term Debt

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

	July 31,			April 30,
	2008			2008
Convertible notes payable to ComVest Capital LLC, interest rate of 5%, payable in
installments through September 30, 2010. These notes include certain negative
covenants and the Company is in compliance with such covenants.	$	1,400		$	1,400

Revolving note payable to ComVest Capital LLC, interest rate of prime plus 2.25% and
a maturity date of November 30, 2010		—			—

Capital leases payable, payable in monthly installments through June 2010		16			18
		1,416			1,418
Less discount on notes payable, net		(64	)		(76	)
Less current portion		(209	)		(8	)
Total long term debt, net	$	1,143		$	1,334

7. Other Long-Term Liabilities

In France, the Company is subject to mandatory employee severance costs associated with a statutory government regulated plan covering all employees. The plan provides for one month of severance for the first five years of service with an employer and one fifth of one year of severance for every one year of service thereafter. In order to receive their severance payment the employee may not retire before age 65 and must be employed at the time of retirement. As of July 31, 2008 and April 30, 2008 the amount of severance is $121,000 and $108,000, respectively. Also, included in other long term liabilities as of July 31, 2008 and April 30, 2008 is $74,000 and $115,000, respectively, related to the onetime charge associated with abandoning the German office and $219,000 of deferred tax liabilities for both periods.

8. Maintenance Contracts

The Company offers maintenance contracts to its customers at the time they enter into a product license agreement and renew those contracts and at the customers’ option, generally 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 during the periods are as follows (in thousands):

	Three Months Ended
	July 31,
	2008			2007
Deferred maintenance revenue beginning balance	$	6,130		$	5,500
Deferred maintenance revenue recognized during period		(2,856	)		(2,361	)
Deferred maintenance revenue of new maintenance contracts		1,944			1,806
Deferred maintenance revenue ending balance	$	5,218		$	4,945

9. Income Taxes

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

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

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

10. Comprehensive Income

Comprehensive income includes net income (loss) and net foreign currency translation adjustments. A comprehensive gain on foreign currency translations for the three months ended July 31, 2008 and 2007 was $9,000 and $18,000, respectively.

11. Reverse Stock Split

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

12. Income (Loss) Per Share

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

(in thousands, except per share amounts)	Three Months Ended July 31,
	2008		2007
Net income (loss)	$	391	$	(218	)

Weighted average shares of common stock outstanding, basic		6,981		6,037
Effect of dilutive securities		840		—
Weighted average shares of common stock outstanding, diluted		7,821		6,037

Earnings (loss) per share of common stock:
Basic	$	0.06	$	(0.04	)
Diluted	$	0.05	$	(0.04	)

The dilutive securities above represent only those stock options, warrants and convertible debt whose exercise prices were less than the average market price of the stock during the respective periods and therefore were dilutive. The number of shares of stock options excluded from the above amount because their exercise prices exceeded the average market price of the stock was 390,305 as of July 31, 2008. For the three months ended July 31, 2007, potentially dilutive securities that are not included in the calculation of diluted net loss because they would be antidilutive were employee stock options and commons stock warrants of 110,315 and 670,000, respectively.

13. Segment Information

FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our Chief Executive Officer. We have evaluated our approach for making operating decisions and assessing the performance of our business and, beginning in the first quarter of fiscal year 2009, we have determined that we have two reportable segments: Database and Development Products (“DDP”) and our Modernization & Migration Products. Prior to the first quarter of fiscal year 2009, the Company maintained reportable segments based on its geographic structure, the segments were the Americas and Europe. The accounting policies of the segments are the same as those described in Note 1. We evaluate performance based on gross margins (total revenues less costs of licenses and services) before operating costs. We do not manage our operating costs on a segment basis as many of our sales, marketing and support personnel regularly work with product from both segments. Additionally, we do not track assets by segment and therefore asset disclosures by segment are not relevant and are not presented.

For the first quarter of fiscal 2009 and 2008, total revenue from the United States was $1.7 million and $1.9 million, respectively. Total revenue from all other countries was $3.3 million in the first quarter of fiscal 2009 and $2.1 million for the first quarter of fiscal 2008. Total long-lived assets as of July 31, 2008 and 2007, for the United States, was $8.1 million and $9.1 million, respectively. Total assets in all other countries were $100,000 as of July 31, 2008 and $130,000 as of July 31, 2007.

Financial information for the Company’s reportable segments is summarized below (in thousands). Fiscal 2008 segment information has been reclassified to conform to the fiscal 2009 presentation.

	Three Months Ended
	July 31,
	2008		2007
Total revenues:
Database and Development Products	$	4,528	$	3,939
Modernization and Migration Products		499		22
Total revenues	$	5,027	$	3,961

Cost of Revenue:
Database and Development Products	$	300	$	234
Modernization and Migration Products		161		8
Total Cost of Revenue	$	461	$	242

Gross Profit:
Database and Development Products	$	4,228	$	3,705
Modernization and Migration Products		338		14
Total Gross Profit	$	4,566	$	3,719

14. Subsequent Event

On August 25, 2008, the Company listed its common stock on the NASDAQ under a new symbol UNFY. Prior to listing on the NASDAQ the Company traded its stock over-the-counter on the “bulletin board” under the stock symbol UFYC.OB.

UNIFY CORPORATION

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

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

The following discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and Notes thereto in Part I, Item 1 of this Quarterly Report on Form 10-Q and with the audited Consolidated Financial Statements and Notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2008, as filed with the SEC.

Overview

Unify (the “Company”, “we”, “us” or “our”) is a global provider of application modernization, data management and application development solutions. Our migration solutions, development software and embedded databases allow customers to modernize and maximize their application environment. Our award-winning technologies help organizations drive business optimization, improve collaboration, increase customer service and reduce costs. Unify’s strategy is to help businesses modernize mission-critical legacy applications and data. 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 application development and database software and services and modernization solutions through two segments. The segments are the Database and Development Products (“DDP”) and our Modernization & Migration Products.

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 Roseville, California, with sales 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 and reseller representing more than 50 countries.

Our application modernization solutions help organizations migrate and maximize investments in their existing applications and data. Our Modernization and Migration Solutions, and Software products are built to increase productivity, eliminate risk and substantially reduce time and costs. Our application development and data management software products include Team Developer, SQLBase, SQLBase Treasury, NXJ, DataServer, VISION, ACCELL and Sabertooth. Our Modernization and Migration Solution, Composer for Lotus Notes delivers a like-for-like migration of Lotus Notes applications to the Microsoft .NET and SharePoint platforms.

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 or special acceptance. With the exception of its Composer for Lotus Notes solution, the Company recognizes revenue for software license sales in accordance with Statement of Position (“SOP”) 97-2, Software Revenue Recognition. For Composer for Lotus Notes the Company recognized revenue for software licenses sales in accordance with Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts and Accounting Research Bulletin (“ARB”) 45, Long-Term Construction Type Contracts. The 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, collectability is probable and persuasive evidence of an arrangement exists.

Deferred Tax Asset Valuation Allowance

As of May 1, 2008, we had approximately $18.3 million of deferred tax assets related principally to net operating loss carryforwards, reserves and other accruals, 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 is no assurance that this will occur in amounts sufficient to utilize the deferred tax assets. Should we determine that we would be able to realize the deferred tax assets in the future in excess of the recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. At May 1, 2008, the Company had approximately $44.4 million in federal net operating loss carryforwards that begin to expire in fiscal year 2009 through 2027, approximately $11.0 million in state net operating loss carryforwards that expire in fiscal years 2013 to 2017, approximately $0.7 million in foreign net operating loss carryforwards that do not expire, and approximately $4.3 million in capital loss carryforwards that expire in 2010.

Results of Operations

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

	Three Months Ended
	July 31,
	2008			2007
Revenues:
Software licenses	40.0		%	36.9		%
Services	60.0		%	63.1		%
Total revenues	100.0		%	100.0		%

Cost of Revenues:
Software licenses	4.0		%	1.2		%
Services	5.2		%	4.9		%
Total cost of revenues	9.2		%	6.1		%

Gross profit	90.8		%	93.9		%

Operating Expenses:
Product development	14.9		%	23.0		%
Selling, general and administrative	67.2		%	68.2		%
Total operating expenses	82.1		%	91.2		%
Income from operations	8.7		%	2.7		%
Other income (expense), net	(0.3	)	%	(8.0	)	%
Income (loss) from continuing operations before taxes	8.4		%	(5.3	)	%
Provision for income taxes	0.6		%	(0.2	)	%
Net income (loss )	7.8		%	(5.5	)	%

Total Revenues

The Company generates revenue from software license sales and related services, including maintenance and support, and consulting services. We license our software through our direct sales force in the United States and Europe, and through indirect channels comprised of distributors, ISVs, VARs, and other partners worldwide.

Total revenues in the first quarter of fiscal 2009 were $5.0 million, an increase of $1.1 million. This represents an increase of 27% over the first quarter of fiscal 2008 revenues of $4.0 million. Total software license revenues in the first quarter of fiscal 2009 were $2.0 million, an increase of $0.5 million from the first quarter of fiscal 2008. This represents an increase of 37% over the first quarter of fiscal 2008 revenues of $1.5 million. The increase in software license revenues in the first quarter of fiscal 2009 was primarily the result of the growth of our Composer for Lotus Notes business. Total services revenues in the first quarter of fiscal 2009 were $3.0 million, an increase of $0.5 million. This represents an increase of 21% over the first quarter of fiscal 2008 revenues of $2.5 million. The increase in services revenue is the result of reporting a full quarter’s maintenance revenue in the first quarter of fiscal 2009 as compared to fiscal 2008 when the reported maintenance revenue was reduced by the write-down of deferred revenue as required by purchase accounting related to the acquisition of Gupta Technologies LLC in November 2006.

For the first quarter of fiscal 2009 and 2008, total revenues from the United States were 35% and 47% of total revenues, respectively. Total revenue from the United States in absolute dollars was $1.7 million for the first quarter of fiscal 2009 and $1.9 million for the first quarter of fiscal 2008. Total revenue from all other countries was $3.3 million in the first quarter of fiscal 2009 and $2.1 million for the first quarter of fiscal 2008. On a percentage basis, revenue from other countries was 65% for the first quarter of fiscal 2009 and 53% for fiscal 2008.

Cost of Revenues

Cost of Software Licenses. Cost of software licenses consists primarily of expenses associated with employees involved in modernization migration projects, royalty payments and the amortization of purchased technology from third parties that is amortized ratably over the technology’s expected useful life. Cost of software licenses was $200,000 and $47,000 for the first quarter of fiscal 2009 and fiscal 2008, respectively. The increase in cost of software licenses represents the implementation costs for the Composer for Lotus Notes software license revenues that were recorded in the first quarter.

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 services. Cost of services was $261,000 and $195,000 for the first quarter of fiscal 2009 and fiscal 2008, respectively.

Operating Expenses

Product Development. Product development expenses consist primarily of employee and facilities costs incurred in the development and testing of new products and in the porting of new and existing products to additional hardware platforms and operating systems. Product development costs in the first quarter of fiscal 2009 were $0.7 million compared to $0.9 million in the same period of fiscal 2008.

Selling, General and Administrative. Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and benefits, marketing programs, travel expenses, professional services, facilities expenses and bad debt expense. SG&A expenses were $3.4 million in the first quarter of fiscal 2009 and $2.7 million for the first quarter of fiscal 2008. The increase in SG&A costs in fiscal 2009 is the result of adding sales and technical staff in our Composer business and increased costs related to accounting, tax and legal services. The major components of SG&A for the first three months of fiscal 2009 were sales expenses of $1.7 million, marketing expenses of $0.2 million and general and administrative expenses of $1.5 million. For the first quarter of fiscal 2008, the major components of SG&A were sales expenses of $1.3 million, marketing expenses of $0.3 million and general and administrative expenses of $1.1 million.

Other Income (Expense), Net. Other income (expense), net consists primarily of interest expense, foreign exchange gains and losses and interest earned by the Company on our cash and cash equivalents. Interest expense for the first quarter of fiscal 2009 and 2008 was $47,000 and $279,000, respectively. Interest expense consists primarily of interest incurred on notes payable resulting from a debt financing in conjunction with the acquisition of Gupta plus the amortization of related debt issuance costs and the amortization of the discount on notes payable. The decrease in interest expense in fiscal 2009 primarily relates to the decrease in notes payable as a result of the repayment and conversion of debt to equity in fiscal 2008.

Provision for Income Taxes. For the first quarter of fiscal 2009, the Company recorded $32,000 in federal and state income tax. For the first quarter of fiscal 2008, the Company recorded $10,000 in federal tax expense and no expense for state or foreign taxes.

Liquidity and Capital Resources

At July 31, 2008, the Company had cash and cash equivalents of $3.1 million, compared to $2.7 million at April 30, 2008. The Company had net accounts receivable of $3.6 million as of July 31, 2008, and $5.1 million as of April 30, 2008.

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 had an initial interest rate of 11.25% and have repayment terms of 48 to 60 months. The agreement was modified in April 2008, whereby the interest rate on the term loans has been decreased to 5% and all principal payments have been deferred until June 2009. 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 the existing cash balance of $3.1 million as of July 31, 2008, along with forecasted operating cash flows for fiscal year 2009 and the ComVest revolver credit facility, will provide us with sufficient working capital for us to meet our operating plan for fiscal year 2009. The fiscal 2009 operating plan assumes normal operations for the Company and the required debt service payments.

Operating Cash Flow. For the first quarter of fiscal year 2009 cash provided by operations was $0.6 million. This compares to cash flows provided by operations of $32,000 for the first three months of fiscal 2008. Cash flows provided by operations for the first three months of fiscal 2009 principally resulted from $0.4 million in net income, a decrease of $1.5 million in accounts receivable, an increase of $0.1 million in accounts payable, and increase of $0.1 million in other long term liabilities, $0.2 million in amortization of intangible assets and $0.1 million of stock based compensation expense. Offsetting these amounts was a decrease of $0.5 million in accrued compensation and related expenses, a decrease of $1.2 million in deferred revenue and an increase of $0.2 million in other accrued liabilities.

In the first quarter of fiscal 2008, we had cash flows from continuing operations of $32,000. Cash flows provided by operations for the first quarter of fiscal 2008 principally resulted from a $0.5 million decrease in accounts receivable, a $0.3 million increase in accounts payable, a $0.1 million decrease in prepaid expenses and other current assets, $0.2 million in amortization and $0.1 million in depreciation. Offsetting these amounts was a loss from continuing operations for the first quarter of fiscal year 2008 of $0.2 million, a decrease of $0.6 million in deferred revenue, a decrease of $0.2 million in other accrued liabilities, a decrease of $0.1 million in accrued acquisition costs and a decrease of $0.1 million in fulfillment of support obligations.

Investing Cash Flows. Cash used in investing activities was $0.2 million for the first three months of fiscal 2009. The use of cash consisted of $0.1 million expended related to the acquisition of Active Data Corporation and $0.1 million for the purchase of property and equipment. Cash used in investing activities was $0.3 million for the first three months of fiscal 2008. The use of cash consisted of $0.3 million expended related to the acquisition of Active Data Corporation and $39,000 for the purchase of property and equipment.

Financing Cash Flows. Net cash used in financing activities for the first three months of fiscal 2009 was $2,000. Cash used in financing activities was the result of principal payments on the Company’s capital lease obligations. Net cash provided by financing activities in the first quarter of fiscal 2008 was $0.1 million. Cash from financing activities was the result of $0.5 million from borrowings under the Company’s revolver note and $0.5 million in cash was used to make principal payments on debt obligations.

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

	Payments Due by Period
			1 year		2-3		4-5		After 5
Contractual Obligations	Total		or less		years		years		years
Long-term debt	$	1,400	$	201	$	1,163	$	36		—
Revolver note		—		—		—		—		—
Other long-term liabilities		121		—		—		—		121
Capital leases		16		8		8		—		—
Operating leases		3,198		313		662		579		1,644
Total contractual cash obligations	$	4,735	$	522	$	1,833	$	615	$	1,765

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

Volatility of Stock Price and General Risk Factors Affecting Quarterly Results

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

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

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

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk. The Company’s exposure to market rate risk for changes in interest rates relates primarily to its investment portfolio, which consists of cash equivalents. Cash equivalents are highly liquid investments with original maturities of three months or less and are stated at cost. Cash equivalents are generally maintained in money market accounts which have as their objective preservation of principal. The Company does not believe its exposure to interest rate risk is material for cash and cash equivalents, which totaled $3.1 million as of July 31, 2008. Unify had no short-term investments at July 31, 2008.

In November 2006, the Company entered into a revolving credit facility agreement with ComVest whereby ComVest would provide up to $2.5 million through a revolving credit facility. The revolver has an interest rate of prime plus 2.25% and has a maturity date of November 30, 2010. Should the prime interest rate increase during the life of the revolver, the Company would have exposure to interest rate risk if it has a large balance outstanding on the revolver. As of July 31, 2008, there was no amount 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 operations in France, Germany and the UK. At July 31, 2008, the Company had $2.3 million in such payables denominated in euros and a total $0.6 million in receivables denominated in euros and pounds sterling. The Company encourages prompt payment of intercompany balances in order to minimize its exposure to currency fluctuations, but it engages in no hedging activities to reduce the risk of such fluctuations. A hypothetical ten percent change in foreign currency rates could have a significant impact on the Company’s business, operating results and financial position. The Company has not experienced material exchange losses on intercompany balances in the past; however, due to the substantial volatility of currency exchange rates, among other factors, it cannot predict the effect of exchange rate fluctuations on its future business, operating results and financial position.

Item 4. Controls and Procedures

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

(b) Changes in Internal Controls. There have been no changes in our internal controls over financial reporting that occurred during the first three months of fiscal year 2009 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

UNIFY CORPORATION

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Litigation

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

Item 6. Exhibits

		Exhibits
4.1		Amendment to ComVest term loan dated April 30, 2008

31.1		Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer under 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer under 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

UNIFY CORPORATION
SIGNATURE

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

Date: September 4, 2008	Unify Corporation
	(Registrant)

	By:

	/s/ STEVEN D. BONHAM
	Steven D. Bonham
	Chief Financial Officer
	(Principal Financial and Accounting Officer)