DAEGIS INC. - FORM 10-Q/A

Attached files

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EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER UNDER 18 U.S.C SECTION 1350 - DAEGIS INC.	exhibit32-1.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER UNDER SECTION 302 - DAEGIS INC.	exhibit31-1.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER UNDER 18 U.S.C SECTION 1350 - DAEGIS INC.	exhibit32-2.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER UNDER SECTION 302 - DAEGIS INC.	exhibit31-2.htm

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

Form 10-Q/A
Amendment No. 1

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

For the quarterly period ended October 31, 2009

OR

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

Commission File Number: 001-11807
______________________

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

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

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)

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	Smaller reporting company x
		(Do not check if a smaller reporting company)

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: 10,121,857 shares of common stock, $0.001 par value, as of November 30, 2009.

EXPLANATORY NOTE

We are filing this amendment to our Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2009, which was originally filed with the Securities and Exchange Commission on December 14, 2009 (the “Original Filing”), to include restated financial statements as described in Note 2 to the condensed consolidated financial statements. The financial statements are being restated due to adoption of certain accounting provisions in Accounting Standards Codification (ASC) 815 - “Derivatives and Hedging — Contracts in Entity’s Own Equity”, which became effective for us on May 1, 2009. The anti-dilution price protection features in the Company’s outstanding common stock warrants require these warrants to be accounted for as liabilities and measured at fair value. The restated financial statements reflect the reclassification of the Company’s common stock warrants from stockholders’ equity to a warrant liability, and accounts for changes in the fair value of the common stock warrant liability in the statement of operations. See Note 2 to our consolidated financial statements.

The revisions relate to non-operating and non-cash items as of and for the quarterly period ended October 31, 2009. ASC 815 did not impact the Company’s financial statements for periods ending April 30, 2009 or earlier. The restatement does not result in a change in the Company’s previously reported revenues, cash flows from operations, or total cash and cash equivalents shown in its financial statements for the quarterly period ended October 31, 2009.

The items of the Original Filing which are amended and restated by this Quarterly Report on Form 10-Q/A as a result of the foregoing are:

Part I — Item 1 — Financial Statements
Part I — Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part I – Item 4 – Controls and Procedures
Part II — Item 1A — Risk Factors

For the convenience of the reader, this Quarterly Report on Form 10-Q/A sets forth the Original Filing in its entirety. Other than as described above, none of the other disclosures in the Original Filing have been amended or updated. Among other things, forward looking statements made in the Original Filing have not been revised to reflect events that occurred or facts that became known to the Company after the filing of the Original Filing, and such forward-looking statements should be read in their historical context. Accordingly, this Quarterly Report on Form 10-Q/A should be read in conjunction with the Company’s filings with the Securities and Exchange Commission subsequent to the Original Filing.

UNIFY CORPORATION
FORM 10-Q/A

INDEX

PART I.	FINANCIAL INFORMATION	4

Item 1.	Financial Statements	4

	Unaudited Condensed Consolidated Balance Sheets as of October 31, 2009 and April 30, 2009	4

	Unaudited Condensed Consolidated Statements of Operations for the three and six months	5
	ended October 31, 2009 and 2008

	Unaudited Condensed Consolidated Statements of Cash Flows for the six months	6
	ended October 31, 2009 and 2008

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27

Item 4.	Controls and Procedures	27

PART II.	OTHER INFORMATION	29

Item 1.	Legal Proceedings	29

Item 6.	Exhibits	30

SIGNATURE		31

CERTIFICATIONS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

UNIFY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

	October 31,			April 30,
	2009			2009
	(As Restated)
	See Note 2
ASSETS
Current assets:
Cash and cash equivalents	$	2,215		$	6,147
Accounts receivable, net		9,275			4,501
Prepaid expenses and other current assets		880			717
Total current assets		12,370			11,365

Property and equipment, net		437			472
Goodwill		17,670			6,425
Intangibles, net		10,401			2,720
Other assets, net		311			99
Total assets	$	41,189		$	21,081

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	716		$	685
Current portion of long term debt		1,733			1,663
Accrued compensation and related expenses		2,021			1,178
Common stock warranty liability		1,011			—
Other accrued liabilities		6,497			905
Deferred revenue		12,579			5,617
Total current liabilities		24,557			10,048

Long term debt, net		811			837
Other long term liabilities		1,469			893

Commitments and contingencies		—			—

Stockholders’ equity:
Common stock		10			7
Additional paid-in capital		78,802			69,941
Accumulated other comprehensive income (loss)		105			(113	)
Accumulated deficit		(64,565	)		(60,532	)
Total stockholders’ equity		14,352			9,303
Total liabilities and stockholders’ equity	$	41,189		$	21,081

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						Six Months Ended
	October 31,						October 31,
	2009			2008			2009			2008
	(As Restated)						(As Restated)
	See Note 2						See Note 2
Revenues:
Software licenses	$	1,413		$	1,987		$	2,815		$	3,549
Services		3,991			3,170			6,848			6,116
Migration solutions		1,683			644			1,936			1,163
Total revenues		7,087			5,801			11,599			10,828

Cost of Revenues:
Software licenses		51			89			145			139
Services		773			298			1,210			548
Migration solutions		653			358			716			518
Total cost of revenues		1,477			745			2,071			1,205
Gross profit		5,610			5,056			9,528			9,623

Operating Expenses:
Product development		1,749			682			3,152			1,431
Selling, general and administrative		5,127			3,342			9,944			6,722
Total operating expenses		6,876			4,024			13,096			8,153
Income (loss) from operations		(1,266	)		1,032			(3,568	)		1,470
Other income (expense):
Gain from change in fair value of common stock warrant liability		264			—			60			—
Other, net		(76	)		(151	)		5			(166	)
Total other income (expense)		188			(151	)		65			(166	)
Income (loss) before income taxes		(1,078	)		881			(3,503	)		1,304
Provision for income taxes		58			156			66			188
Net income (loss)	$	(1,136	)	$	725		$	(3,569	)	$	1,116

Net income (loss) per share:
Basic	$	(0.11	)	$	0.10		$	(0.39	)	$	0.16
Dilutive	$	(0.11	)	$	0.10		$	(0.39	)	$	0.15

Shares used in computing net income (loss) per share:
Basic		10,119			6,981			9,243			6,981
Dilutive		10,119			7,605			9,243			7,666

See accompanying notes to condensed consolidated financial statements.

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

	Six Months Ended October 31,
	2009			2008
	(As Restated) See Note 2
Cash flows from operating activities:
Net income (loss)	$	(3,569	)	$	1,116

Reconciliation of net income (loss) to net cash provided by (used in) operating activities:
Depreciation		122			86
Loss on disposal of equipment		-			2
Amortization of intangible assets		1,176			360
Amortization of discount on notes payable		19			24
Stock based compensation expense		326			291
Gain from change in fair value of common stock warrant liability		(60	)		-
Changes in operating assets and liabilities:
Accounts receivable		(4,033	)		299
Prepaid expenses and other current assets		545			(115	)
Other long term assets		15			-
Accounts payable		(1,360	)		106
Accrued compensation and related expenses		(344	)		(417	)
Other accrued liabilities		(1,248	)		325
Accrued acquisition costs		(16	)		-
Deferred revenue		4,762			(1,261	)
Other long term liabilities		(186	)		26
Net cash provided by (used in) operating activities		(3,851	)		842

Cash flows from investing activities:
Acquisition, net of cash acquired		59			-
Purchases of property and equipment		(29	)		(151	)
Payments on acquisition obligations		-			(110	)
Net cash provided by (used in) investing activities		30			(261	)

Cash flows from financing activities:
Borrowings on revolving line of credit		350			-
Principal payments under debt obligations		(716	)		(11	)
Net cash used in financing activities		(366	)		(11	)
Effect of exchange rate changes on cash		255			(384	)
Net increase (decrease) in cash and cash equivalents		(3,932	)		186
Cash and cash equivalents, beginning of period		6,147			2,692
Cash and cash equivalents, end of period	$	2,215		$	2,878
Supplemental cash flow information:
Cash paid during the period for:
Interest	$	68		$	42
Taxes	$	11		$	-

Supplemental non-cash financing activities:
Common stock issued in conjunction with acquisition	$	3		$	-

See accompanying notes to condensed consolidated financial statements.

UNIFY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2009

Restatement of Historical Financial Statements

As discussed in Note 2, the accompanying Consolidated Balance Sheet as of October 31, 2009 and the Consolidated Statements of Operations for the three and six months ended October 31, 2009, and the Cash Flows for the six months ended October 31, 2009 have been restated.

1. Basis of Presentation

The condensed consolidated financial statements have been prepared by Unify Corporation (the “Company”, “we”, “us”, “our”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying condensed consolidated financial statements include our accounts and those of our subsidiaries that we control due to ownership of a controlling interest. Intercompany transactions and balances have been eliminated. 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, 2009, 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. Additionally, the Company generates revenue from its migration solutions products. 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. The Company exercises judgment in connection with the determination of the amount of revenue to be recognized in each accounting period. The nature of each contractual 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.

For fixed price arrangements that require significant modification or customization of software, the Company uses the percentage-of-completion method for revenue recognition. Under the percentage-of-completion method, progress towards completion is measured by labor hours.

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

The Company’s customer contracts may 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 may be billed under time-and-materials arrangements or fixed price arrangements. Revenues and expenses relating to providing consulting services are recognized as the services are performed.

Recently Issued Accounting Standards

In June 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that establishes the Accounting Standards Codification (“Codification” or "ASC") as the single source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supercedes all existing non-SEC accounting literature not included in the Codification. The FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates, which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification. GAAP is not intended to be changed as a result of the FASB’s Codification project, but it will change the way guidance is organized and presented. As a result, these changes will have a significant impact on how companies reference GAAP in their financial statements and in their accounting policies for financial statements issued for interim and annual periods ending after September 15, 2009. The Company has implemented the Codification in this Quarterly Report by providing a plain English approach when describing any new or updated authoritative guidance.

In May 2009, the FASB issued authoritative guidance for the accounting and reporting of subsequent events that occur between the balance sheet date and issuance of financial statements. Issuers will be required to recognize the effects, if material, of subsequent events in the financial statements if the subsequent event provides additional evidence about conditions that existed as of the balance sheet date. The issuer must also disclose the date through which subsequent events have been evaluated and the nature of any nonrecognized subsequent events. This guidance became effective for financial reporting periods ending after June 15, 2009. The Company evaluated its October 31, 2009 financial statements for subsequent events through December 11, 2009, the date the financial statements were available to be issued.

In October 2009, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. The new guidance will become effective for Unify beginning May 1, 2011, with earlier adoption permitted. The Company is currently assessing the impact of the adoption of this guidance.

2. Restatement of Financial Statements

We have restated our previously issued condensed consolidated financial statements as of and for the three and six months ended October 31, 2009 to correct errors in the accounting for certain common stock warrants. Specifically, we previously classified as equity instruments common stock warrants that should have been classified as derivative liability instruments based on the terms of the warrants and the applicable accounting guidance.

We have historically accounted for common stock warrants as equity instruments. Certain provisions of ASC 815 - “Derivatives and Hedging — Contracts in Entity’s Own Equity” became effective for us on May 1, 2009. The anti-dilution price protection features in the Company’s outstanding warrants require these common stock warrants to be accounted for as liabilities and measured at fair value. The restated financial statements reflect the reclassification of the Company’s common stock warrants from stockholders’ equity to a common stock warrant liability, and accounts for changes in the fair value of the common stock warrant liability in the statement of operations. Accordingly, on May 1, 2009, the Company reduced additional paid-in capital and increased accumulated deficit by $608,850 and $461,897, respectively, and recorded $1,070,747 as a common stock warrant liability.

The accompanying quarterly financial statements have been restated to report the common stock warrants issued in November 2006 and April 2009 as derivative liabilities measured at estimated fair value, calculated using an open form option pricing model:

	Number of Warrants
	Outstanding at					Expiration of	Fair Value of Warrants at
Issuance Date	October 31, 2009		Exercise Price			Warrants	October 31, 2009
							(in thousands)
November 20, 2006		80,000		$	1.35	October 31, 2012		$	131
November 20, 2006		270,000		$	1.60	October 31, 2012		$	404
November 20, 2006		200,000		$	1.90	October 31, 2012		$	269
April 24, 2009		190,182		$	2.75	April 24, 2014		$	206

The following tables summarize the effect of the restatement on the specific items presented in our historical consolidated financial statements included in our Quarterly Report on Form 10-Q for the quarter ended October 31, 2009:

Consolidated Balance Sheet	October 31, 2009			October 31, 2009
(in thousands)	(As previously			(As restated)
	reported)
Current liabilities:
Common stock warrant liability	$	-		$	1,011
Total current liabilities		23,546			24,556

Stockholders' equity:
Additional paid-in-capital		79,411			78,802
Accumulated deficit		(64,163	)		(64,565	)
Total stockholders' equity		15,363			14,352

Consolidated Statements of Operations	Three Months Ended						Six Months Ended
(in thousands)	October 31, 2009						October 31, 2009
	(As previously						(As previously
	reported)			(As restated)			reported)			(As restated)
Gain from change in fair value of common
stock warrant liability	$	-		$	264		$	-		$	60

Loss before income taxes		(1,342	)		(1,078	)		(3,563	)		(3,503	)
Net loss		(1,400	)		(1,136	)		(3,629	)		(3,569	)
Loss per share, basic and dilutive		(0.14	)		(0.11	)		(0.39	)		(0.39	)

Consolidated Statement of Cash Flows	Six Months Ended
(in thousands)	October 31, 2009
	(As previously
	reported)			(As restated)
Cash flows from operating activities:
Net loss	$	(3,629	)	$	(3,569	)
Gain from change in fair value of common stock warrant liability		-			(60	)
Net cash used in operating activities		(3,851	)		(3,851	)

3. Acquisitions

Active Data Corporation

On May 22, 2007, the Company purchased privately held Active Data Corporation (“ADC”) for approximately $420,000 plus earn-out payments of $97,000. 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. The acquisition of ADC did not have a material impact on the financials of Unify and the results of operations for ADC 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 management’s determination of their estimated fair values. 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.

CipherSoft Inc.

On January 30, 2009, the Company purchased privately held CipherSoft Inc. (“CipherSoft”), headquartered in Calgary, Canada, for approximately $628,000 plus the assumption of debt of $1,032,000 and future potential royalty payments to be paid over a four year period following the acquisition. The royalty payments are based on a percentage of revenue and will increase goodwill upon being earned. As of October 31, 2009, royalty payments earned totaled $64,000. CipherSoft is a leading Oracle partner for modernization and migration of Oracle applications and provides an additional application migration solution for the Company. Pursuant to the terms of the purchase agreement, Unify acquired all the outstanding stock of CipherSoft. CipherSoft did not represent the addition of a significant subsidiary.

The CipherSoft purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on management’s determination of their estimated fair values at the acquisition date, January 30, 2009. Intangible assets include technologies of $1,060,000, non-competition agreements of $85,000, consulting agreements of $110,000 and trade names of $80,000. 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 CipherSoft as of the acquisition date, January 30, 2009 (in thousands):

Current assets	$	236
Long term assets		22
Goodwill		780
Intangibles		1,335
Total assets	$	2,373

Current Liabilities	$	1,099
Long term liabilities		646
Total liabilities assumed	$	1,745

Total consideration	$	628

AXS-One Inc.

On June 30, 2009, the Company acquired all of the issued and outstanding shares of common stock and warrants of AXS-One. The common stock and warrants were converted into, in the aggregate, 1,000,000 shares of Unify common stock. The outstanding convertible notes of AXS-One with an aggregate outstanding principal and interest balance of approximately $13 million were exchanged for 1,642,600 shares of Unify common stock. The note holders may also be issued additional shares of Unify common stock based on revenue generated from AXS-One’s products over 13 months after the effective date of the merger.

AXS-One is a leading provider of integrated content archiving software solutions which enables organizations to implement secure, scalable and enforceable policies that address records management for corporate governance, legal discovery and industry regulations. The acquisition of AXS-One advances the Company’s growth strategy to acquire superior technology companies that can leverage its technology strengths, extensive customer base and worldwide distribution channel while enabling the combined company to meet a broader set of customers’ needs, accelerate direct and channel sales, and achieve cost synergies.

The goodwill of $11.0 million arising from the acquisition consists of increased market presence and opportunities, enhanced product mix and operating efficiencies expected from combining the operations of Unify and AXS-One. All of the goodwill was assigned to Unify’s Integrated Content Archiving Solutions segment. None of the goodwill recognized is expected to be deductible for income tax purposes.

The following table summarizes the consideration paid for AXS-One and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date, June 30, 2009.

Consideration
Equity instruments (2,642,600 common shares of Unify)	$	8,853
Contingent consideration arrangement		4,285
Fair value of total consideration	$	13,138

Recognized amounts of identifiable assets acquired and liabilities assumed
Financial assets	$	117
Accounts receivable		591
Other assets		679
Property, plant and equipment		132
Identifiable intangible assets		8,685
Financial liabilities		(5,616	)
Deferred revenue		(2,493	)
Total identifiable net assets	$	2,095
Goodwill		11,043
	$	13,138

Acquisition related costs (included in selling, general and administrative expense in Unify's
statement of operations for six months ended October 31, 2009)	$	611

The fair value of the 2,642,600 common shares issued as part of the consideration paid for AXS-One ($8,853,000) was determined on the basis of the closing market price of Unify’s common shares on the acquisition date.

The contingent consideration arrangement requires Unify to issue to the former holders of AXS-One convertible notes 0.35 shares of Unify common stock for every $1 of AXS-One net license revenue over the first $2,000,000 for the 13 month period following the acquisition date. After the holders of AXS-One convertible notes have received in the aggregate 2,580,000 Unify shares (as adjusted to reflect stock splits, stock dividends and reverse stock splits of Unify) under the earn-out, the shares issued as the earn-out shall be distributed one-half to the holders of AXS-One convertible notes and one-half to the former management members until the management members have received 171,250 Unify shares under the earn-out. Thereafter, any additional Unify shares issued as earn-out shall be distributed solely to the holders of AXS-One convertible notes. There is no limit to the total number of shares that can be earned. The estimated number of shares that Unify will issue under the contingent consideration arrangement is 1,184,000. The fair value of the contingent consideration of $4.9 million is based on management’s estimate of both expected net license revenue and share price. The fair value of the contingent consideration is provisional pending the receipt of a final valuation.

Based on the receipt of a preliminary valuation, acquisition date provisional values were adjusted to decrease contingent consideration by $477,000, decrease identifiable intangible assets by $1,325,000, increase deferred revenue by $423,000 and increase goodwill by $1,271,000. The fair values of the contingent consideration, acquired identifiable intangible assets, deferred income tax liabilities and deferred revenue remain provisional pending the receipt of a final valuation. Intangible assets include technologies of $5.1 million, trademarks of $1.2 million, backlog of $0.1 million, and customer relationships of $2.3 million.

The amounts of AXS-One’s revenue and earnings included in the Company’s consolidated statement of operations for the six months ended October 31, 2009, and the supplemental pro forma revenue and earnings of the combined entity had the acquisition date been May 1, 2009, or May 1, 2008, are:

(in thousands, except per share amounts)	Revenue		Net loss			Net loss per share
Actual from July 1, 2009 to October 31, 2009	$	2,815	$	(1,542	)	$	(0.15	)
Supplemental pro forma from May 1, 2009 to October 31, 2009	$	13,108	$	(4,219	)	$	(0.42	)
Supplemental pro forma from May 1, 2008 to October 31, 2008	$	17,905	$	(3,029	)	$	(0.43	)

4. Stock Compensation Information

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. For the quarter ended October 31, 2009, equity-based compensation expense from operations was comprised of the following (in thousands):

	Three Months Ended				Six Months Ended
	October 31,				October 31,
	2009		2008		2009		2008
Cost of Sales	$	5	$	4	$	8	$	7
Product Development		32		21		61		43
Selling, General and Administrative		135		124		257		241
Total Equity-Based Compensation	$	172	$	149	$	326	$	291

The following table shows remaining unrecognized compensation expense on a pre-tax basis related to all types of non-vested equity awards outstanding as of October 31, 2009. 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 2010	$	320
2011		630
2012		488
2013		200
2014		8
Total	$	1,646

The cost above is expected to be recognized over a weighted-average period of 1.48 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 six months ended October 31, 2009 and 2008, respectively: expected option life, 12 to 18 months following vesting; stock volatility of 93% and 89%; risk-free interest rates of 1.9% and 3.0% and no dividends during the expected term. Not all stock options that have been granted will be exercised. Accordingly, the Company’s calculation of equity-based compensation expense includes an adjustment for the estimated number of options that will be forfeited.

Under the 2001 Stock Option Plan (the “2001 Option Plan”), the Company may grant options to purchase up to 2,000,000 shares of common stock to eligible employees, directors, and consultants at prices not less than the fair market value at the date of grant for incentive stock options and not less than 85% of the fair market value at the date of grant for non-statutory stock options. Options granted under the 2001 Stock Option Plan generally vest over four years, are exercisable to the extent vested, and expire 10 years from the date of grant. Under the 1991 Stock Option Plan (the “1991 Option Plan”) which expired as of March 2001, the Company was able to grant options to eligible employees, directors and consultants at prices not less than the fair market value at the date of grant for incentive stock options and not less than 85% of the fair market value at the date of grant for non-statutory stock options. Options granted under the 1991 Option Plan generally vest over four years, are exercisable to the extent vested, and expire 10 years from the date of grant.

A summary of the Company’s stock option activity for the six months ended October 31, 2009 is as follows:

					Weighted
			Weighted		average remaining	Aggregate
			average		contractual	intrinsic
	Shares		exercise price		term (in years)	value (1)
Outstanding at April 30, 2009	1,075,804		$	3.93	7.22	$	496,992
Granted	649,700		$	2.82
Exercised	0		$	-
Canceled or expired	(63,495	)	$	8.09
Outstanding at October 31, 2009	1,662,009		$	3.34	7.52	$	681,631

Exercisable at October 31, 2009	745,987		$	3.10	6.24	$	448,126

(1)

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

Total intrinsic value of awards exercised during the quarters ended October 31, 2009 and October 31, 2008 was $0 for both periods. The total fair value of awards vested during the quarters ended October 31, 2009 and October 31, 2008 was $176,630 and $124,535, respectively.

A summary of the Company’s nonvested stock option activity for the period ended October 31, 2009 is as follows:

			Weighted
			average fair
	Shares		value
Nonvested at April 30, 2009	460,464		$	3.50
Granted	649,700		$	1.49
Vested	(145,158	)	$	2.86
Canceled or expired	(48,984	)	$	2.50
Nonvested at October 31, 2009	916,022		$	2.23

5. Goodwill and Intangible Assets

The following tables present details of the Company’s goodwill and intangible assets as of October 31, 2009 and April 30, 2009 (in thousands).

	Gross					Net
	carrying		Accumulated			carrying		Estimated
October 31, 2009	amount		amortization			amount		useful life
Infinite Lives:
Goodwill	$	17,670	$	—		$	17,670	—
Finite Lives:
Customer-related		3,836		(973	)		2,863	4 to 10 years
Technology-based		7,633		(1,523	)		6,110	3 to 6 years
Trademarks		1,500		(299	)		1,201	4 to 5 years
Trade name		191		(123	)		68	1 to 3 years
Backlog		90		(60	)		30	0.5 years
Non-compete		96		(18	)		78	3 to 5 years
Consulting agreement		125		(74	)		51	1 to 1.3 years
Total	$	31,141	$	(3,070	)	$	28,071

	Gross					Net
	carrying		Accumulated			carrying		Estimated
April 30, 2009	amount		amortization			amount		useful life
Infinite Lives:
Goodwill	$	6,425	$	—		$	6,425	—
Finite Lives:
Customer-related		1,536		(742	)		794	4 to 5 years
Technology-based		2,395		(827	)		1,568	3 to 4 years
Trademarks		300		(181	)		119	4 years
Trade name		180		(107	)		73	1 to 3 years
Non-compete		85		(7	)		78	3 to 3.3 years
Consulting agreement		110		(22	)		88	1 to 1.3 years
Total	$	11,031	$	(1,886	)	$	9,145

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 six months ended October 31, 2009, was $1,176,000. Amortization expense for the six months ended October 31, 2008, was $360,000. The estimated future amortization expense related to intangible assets as of October 31, 2009, is as follows (in thousands):

Fiscal Year Ending April 30,	Amount
Remainder of 2010	$	1,319
2011		2,357
2012		1,849
2013		1,330
2014		1,327
2015		1,119
Thereafter		1,100
Total	$	10,401

Goodwill at October 31, 2009, represents the excess of purchase prices over the sum of the amounts assigned to assets acquired less liabilities assumed. The Company believes these acquisitions will produce the following results:

Increased Market Presence and Opportunities: The addition of the acquired companies 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 its acquisitions should benefit current customers and provide the combined company with the ability to access new customers.
Operating Efficiencies: The combination of the Company with its acquisitions 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 companies it has acquired. 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.

6. Credit Facility

On November 20, 2006, the Company entered into a revolving credit note agreement with ComVest Capital LLC. Under the terms of the agreement the Company can borrow up to $2.5 million. As of October 31, 2009, there was $350,000 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 (5.5% as of October 31, 2009 and April 30, 2009).

7. Fair Value of Financial Instruments

We adopted the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements.

Under ASC Topic 820, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company values its warrants based on open form option pricing models which, based on the relevant inputs, render the fair value estimate Level 3. The Company bases its estimates of fair value for liabilities on the amount it would pay a third-party market participant to transfer the liability and incorporates inputs such as equity prices, historical and implied volatilities, dividend rates and prices of convertible securities issued by comparable companies maximizing the use of observable inputs when available. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value.

Level 1 – Quoted prices in active markets for identical assets and liabilities. Level 1 is generally considered the most reliable measurement of fair value under ASC 820.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Fair Value on a Recurring Basis

The table below categorizes assets and liabilities measured at fair value on a recurring basis as of October 31, 2009:

	Fair Value		Fair value measurement using
	October 31, 2009		Level 1		Level 2		Level 3
Common stock warrant liability	$	1,011	$	-	$	-	$	1,011

The following table summarizes the activity of Level 3 inputs measured on a recurring basis for the quarter ended October 31, 2009:

(in thousands)	Common Stock Warrants
Balance at July 31, 2009		$1,275
Issuance of common stock warrants		-
Change in fair value of common stock warrant liability		(264	)
Balance at October 31, 2009		$1,011

8. Long-Term Debt

The Company’s debt consists of the following at October 31, 2009 and April 30, 2009 (in thousands):

	October 31,			April 30,
	2009			2009
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.	$	998		$	1,400

Note Payable, interest rate of 5%, payable in installments through April 2011.		878			1,032

Note Payable, interest rate of 5%, payable in installments through May 2011.		250			—

ComVest Capital LLC credit facility, interest rate 5.5%, payable November 2010.		350			—

Capital leases payable, payable in monthly installments through September 2011.		77			97
		2,553			2,529
Less discount on notes payable, net		(9	)		(29	)
Less current portion		(1,733	)		(1,663	)
Total long term debt, net	$	811		$	837

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 generally may not retire before age 65 and must be employed at the time of retirement. As of October 31, 2009 and April 30, 2009 the amount of severance is $92,000 and $81,000, respectively. Also included in other long term liabilities as of October 31, 2009 and April 30, 2009 is $571,000 and $541,000, respectively, of deferred tax liabilities and $245,000 and $271,000 of deferred rent related to the Roseville, California office. Additionally, included in other long term liabilities as October 31, 2009, is $561,000 related to the purchase accounting valuation for the Rutherford, New Jersey office lease.

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 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						Six Months Ended
	October 31,						October 31,
	2009			2008			2009			2008
Deferred maintenance revenue beginning balance	$	7,803		$	5,218		$	5,473		$	6,130
Deferred maintenance revenue recognized during period		(3,562	)		(2,889	)		(6,142	)		(5,745	)
Deferred maintenance revenue of new maintenance contracts		4,082			2,484			8,992			4,428
Deferred maintenance revenue ending balance	$	8,323		$	4,813		$	8,323		$	4,813

11. 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.

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.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of October 31, 2009, 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 six months ended October 31, 2009.

In September 2008, the State of California suspended the ability to use net operating loss carry-forwards to offset taxable income for a two year period.

12. Comprehensive Income (Loss)

Comprehensive income includes net income (loss) and net foreign currency translation adjustments. A comprehensive gain (loss) on foreign currency translations for the three months ended October 31, 2009 and 2008 was $250,000 and ($203,000), respectively. A comprehensive gain (loss) on foreign currency translations for the six months ended October 31, 2009 and 2008 was $218,000 and ($194,000), respectively.

13. 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.

14. Income (Loss) Per Share

Basic earnings (loss) 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 (loss) 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 six months ended October 31, 2009, because of our reported net loss, potentially dilutive securities were excluded from the per share computations due to their anti-dilutive effect.

	Three Months Ended					Six Months Ended
(in thousands, except per share amounts)	October 31,					October 31,
	2009			2008		2009			2008
	(As Restated)					(As Restated)
Net income (loss)	$	(1,136	)	$	725	$	(3,569	)	$	1,116

Weighted average shares of common stock outstanding, basic		10,119			6,981		9,243			6,981
Effect of dilutive securities		-			624		-			685
Weighted average shares of common stock outstanding, diluted		10,119			7,605		9,243			7,666

Earnings (loss) per share of common stock:
Basic	$	(0.11	)	$	0.10	$	(0.39	)	$	0.16
Diluted	$	(0.11	)	$	0.10	$	(0.39	)	$	0.15

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. Potentially dilutive securities that are not included in the diluted net loss calculation because they would be antidilutive are employee stock options of 258,799 and common stock warrants of 354,242 as of October 31, 2009. 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 545,558 for the six months ended October 31, 2009.

15. Subsequent Event

Stock Repurchase Plan. On December 1, 2009, the Company announced that its Board of Directors had approved a stock repurchase program authorizing the repurchase of up to 300,000 shares of its common stock. Under the program, shares may be repurchased from time to time in open market transactions at prevailing market prices or in privately negotiated purchases. The timing and actual number of shares purchased will depend on a variety of factors, such as price, corporate and regulatory requirements, alternative investment opportunities, and other market and economic conditions. Repurchases under the program will be funded from available working capital. The program may be commenced, suspended or terminated at any time, or from time-to-time at management’s discretion without prior notice. No shares have been repurchased as of the date of this report.

16. Segment Information

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 2010, we have determined that we have three reportable segments: Database and Development Products (“DDP”), Integrated Content Archiving Solutions and Modernization & Migration Solutions. Prior to the first quarter of fiscal year 2010, the Company maintained two reportable segments, Database and Development Products and Modernization & Migration Solutions. 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, services and migration solutions) 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 products from all segments. Additionally, we do not track assets by segment and therefore asset disclosures by segment are not relevant and are not presented.

For the second quarter of fiscal 2010 and 2009, total revenue from the United States was $3.0 million and $1.6 million, respectively. Total revenue from all other countries was $4.1 million in the second quarter of fiscal 2010 and $4.2 million for the second quarter of fiscal 2009. Total long-lived assets as of October 31, 2009 and April 30, 2009, for the United States, was $26.7 million and $9.6 million, respectively. Total long-lived assets in all other countries were $2.1 million as of October 31, 2009 and $68,000 as of April 30, 2009.

Financial information for the Company’s reportable segments is summarized below (in thousands). Fiscal 2009 segment information has been reclassified to conform to the fiscal 2010 presentation.

	Three Months Ended				Six Months Ended
	October 31,				October 31,
	2009		2008		2009		2008
Total Revenues:
Database and Development Products	$	3,672	$	5,157	$	6,847	$	9,665
Integrated Content Archiving Solutions		1,732		-		2,816		-
Modernization and Migration Solutions		1,683		644		1,936		1,163
Total Revenues	$	7,087	$	5,801	$	11,599	$	10,828

Cost of Revenue:
Database and Development Products	$	252	$	387	$	602	$	687
Integrated Content Archiving Solutions		572		-		753		-
Modernization and Migration Solutions		653		358		716		518
Total Cost of Revenues	$	1,477	$	745	$	2,071	$	1,205

Gross Profit:
Database and Development Products	$	3,420	$	4,770	$	6,245	$	8,978
Integrated Content Archiving Solutions		1,160		-		2,063		-
Modernization and Migration Solutions		1,030		286		1,220		645
Total Gross Profit	$	5,610	$	5,056	$	9,528	$	9,623

UNIFY CORPORATION

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

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

The following discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and Notes thereto in Part I, Item 1 of this Quarterly Report on Form 10-Q/A and with the audited Consolidated Financial Statements and Notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2009, as filed with the SEC.

RESTATEMENT OF PREVIOUSLY-ISSUED CONSOLIDATED FINANCIAL STATEMENTS

In this Amendment No. 1, we have restated our previously-issued consolidated financial statements and related disclosures for the quarter ended October 31, 2009 to correct errors in the accounting for certain warrants. See Note 2 to the accompanying unaudited condensed consolidated financial statements. We are also making corresponding amendments to the following sections of MD&A: Results of Operations and Liquidity and Capital Resources.

Overview

Unify (the “Company”, “we”, “us” or “our”) is a global provider of application modernization, data management and application development solutions. Our migration solutions, integrated content archiving 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, integrated content archiving solutions and modernization solutions through three segments. The segments are the Database and Development Products (“DDP”), Integrated Content Archiving Solutions and our Modernization & Migration Solutions.

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 offices in Maryland, New Jersey, Canada, Australia, Singapore, France, Germany, and the United Kingdom (“UK”). We market and sell products directly in the United States, Europe, Canada, Singapore and Australia and indirectly through global distributors and resellers 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 and ACCELL. Our Modernization and Migration Solutions include Composer for Lotus Notes which delivers a like-for-like migration of Lotus Notes applications to the Microsoft .NET and SharePoint platforms and Composer Sabertooth which speeds the conversion of Team Developer or SQLWindows applications to Microsoft .NET. We also have an integrated content archiving software solution, the AXS-One Compliance Platform ™, which enables organizations to securely capture, index, archive, retrieve, review, share, search, supervise and manage the retention, disposition, preservation and destruction of electronic records.

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’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.

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 may be billed under time-and-materials or fixed price arrangements. Revenues and expenses relating to providing consulting services are generally recognized as the services are performed.

Deferred Tax Asset Valuation Allowance

As of April 30, 2009, we had approximately $17.1 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.

Fair Value of Common Stock Warrant Liability

The Company accounts for common stock warrants in accordance with applicable accounting guidance provided in ASC 815 - “Derivatives and Hedging — Contracts in Entity’s Own Equity”. The Company values its warrants based on open form option pricing models which, based on the relevant inputs, render the fair value estimate Level 3. The Company bases its estimates of fair value for liabilities on the amount it would pay a third-party market participant to transfer the liability and incorporates inputs such as equity prices, historical and implied volatilities, dividend rates and prices of convertible securities issued by comparable companies maximizing the use of observable inputs when available. Changes in the fair value of the warrants are reflected in the consolidated statement of operations as “Gain (loss) from change in fair value of common stock warrant liability.”

Results of Operations

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

	Three Months Ended						Six Months Ended
	October 31,						October 31,
	2009			2008			2009			2008
	(As Restated)						(As Restated)
Revenues:
Software licenses	19.9		%	34.3		%	24.3		%	32.8		%
Services	56.3		%	54.6		%	59.0		%	56.5		%
Migration solutions	23.8		%	11.1		%	16.7		%	10.7		%
Total revenues	100.0		%	100.0		%	100.0		%	100.0		%

Cost of Revenues:
Software licenses	0.7		%	1.5		%	1.3		%	1.3		%
Services	10.9		%	5.1		%	10.4		%	5.1		%
Migration solutions	9.2		%	6.2		%	6.2		%	4.8		%
Total cost of revenues	20.8		%	12.8		%	17.9		%	11.2		%

Gross profit	79.2		%	87.2		%	82.1		%	88.8		%

Operating Expenses:
Product development	24.7		%	11.8		%	27.2		%	13.2		%
Selling, general and administrative	72.3		%	57.6		%	85.7		%	62.1		%
Total operating expenses	97.0		%	69.4		%	112.9		%	75.3		%
Income (loss) from operations	(17.8	)	%	17.8		%	(30.8	)	%	13.6		%
Other income (expense):
Gain from change in fair value of common
stock warrant liability	3.7		%	0.0		%	0.5		%	0.0		%
Other, net	(1.1	)	%	(2.6	)	%	0.1		%	(1.5	)	%
Total other income (expense)	(2.6	)	%	(2.6	)	%	0.6		%	(1.5	)	%
Income (loss) before income taxes	(15.2	)	%	15.2		%	(30.2	)	%	12.1		%
Provision for income taxes	0.8		%	2.7		%	0.6		%	1.7		%
Net income (loss)	(16.0	)	%	12.5		%	(30.8	)	%	10.4		%

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, Asia Pacific, Europe and through indirect channels comprised of distributors, ISVs, VARs, and other partners worldwide.

Total revenues in the second quarter of fiscal 2010 were $7.1 million, an increase of $1.3 million from the second quarter of fiscal 2009. This represents an increase of 22% from the second quarter of fiscal 2009 revenues of $5.8 million. While the Company continued to feel the impact of the world-wide slowdown in the economic environment in the second quarter of 2010 there was a noticeable increase in sales activity in most parts of the world compared to the first quarter of 2010. While total revenue in the second quarter was up compared to the first quarter, the Company is not experiencing as large a number of high dollar value orders being placed as it has in prior years. Late in the second quarter of 2010 the Company released a new version of its Team Developer product. We expect sales of this product to increase during the remainder of the fiscal year. Total software license revenues in the second quarter of fiscal 2010 were $1.4 million, a decrease of $0.6 million from the second quarter of fiscal 2009. This represents a decrease of 29% over the second quarter of fiscal 2009 revenues of $2.0 million. Total services revenues in the second quarter of fiscal 2010 and 2009 were $4.0 million and $3.2 million, respectively. The increase in services revenue primarily related to the services revenue generated by AXS-One. Total migration solutions revenue in the second quarter of fiscal 2010 was $1.7 million compared to $0.6 million for the second quarter of fiscal 2009. The increase in migration solutions revenue was primarily related to a multi-million dollar database migration project for a governmental entity.

For the second quarter of fiscal 2010 and 2009, total revenues from the United States were 43% and 28% of total revenues, respectively. Total revenue from the United States in absolute dollars was $3.0 million for the second quarter of fiscal 2010 and $1.6 million for the second quarter of fiscal 2009. Total revenue from all other countries was $4.1 million in the second quarter of fiscal 2010 and $4.2 million for the second quarter of fiscal 2009. On a percentage basis, revenue from other countries was 57% for the second quarter of fiscal 2010 and 72% for fiscal 2009.

Cost of Revenues

Cost of Software Licenses. Cost of software licenses consists primarily of 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 $51,000 and $89,000 for the second quarter of fiscal 2010 and fiscal 2009, respectively. The decrease in cost of software licenses represents a decrease in software royalty payments. For the first six months ended October 31, 2009 and 2008, cost of software licenses was $145,000 and $139,000, respectively.

Cost of Services. Cost of services consists primarily of employee, facilities and travel costs incurred in providing customer support under software maintenance contracts and consulting and services. Cost of services was $773,000 and $298,000 for the second quarter of fiscal 2010 and fiscal 2009, respectively. For the first six months ended October 31, 2009 and 2008, cost of services was $1,210,000 and $548,000, respectively. The increase in cost of services for both the three months and six months ended October 31, 2009 was due primarily to the addition of AXS-One employees.

Cost of Migration Solutions. Cost of migration solutions consists primarily of both expenses associated with employees involved in migration projects and also expenses related to third party assistance. Cost of migration solutions was $653,000 and $358,000 for the second quarter of fiscal 2010 and fiscal 2009, respectively. For the six months ended October 31, 2009 and 2008, cost of migration solutions was $716,000 and $518,000, respectively. The increase in cost of migration solutions for both the three and six months ended October 31, 2009 was primarily due to a large migration project in the current year.

Operating Expenses

Product Development. Product development expenses consist primarily of employee and facilities costs incurred in the development and testing of new products and in the porting of new and existing products to additional hardware platforms and operating systems. Product development costs in the second quarter of fiscal 2010 were $1.7 million compared to $0.7 million in the same period of fiscal 2009. For the six months ended October 31, 2009 and 2008, product development expenses were $3.2 million and $1.4 million, respectively. The increase in product development expenses in fiscal 2010 was primarily the result of expenses related to our acquisition of CipherSoft in January 2009 and our acquisition of AXS-One in June 2009.

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 $5.1 million in the second quarter of fiscal 2010 and $3.3 million for the second quarter of fiscal 2009. The major components of SG&A for the second quarter of fiscal 2010 were sales expenses of $2.6 million, marketing expenses of $0.4 million and general and administrative expenses of $2.1 million. For the second quarter of fiscal 2009, the major components of SG&A were sales expenses of $1.6 million, marketing expenses of $0.3 million and general and administrative expenses of $1.4 million. In the six months ended October 31, 2009 and 2008, our SG&A expenses were $9.9 million and $6.7 million, respectively. The major components of SG&A for the six month period ended October 31, 2009 were sales expenses of $4.8 million, marketing expenses of $0.7 million and general and administrative expenses of $4.4 million. The major components of SG&A for the six month period ended October 31, 2008 were sales expenses of $3.3 million, marketing expenses of $0.5 million and general and administrative expenses of $2.9 million. The increase in SG&A expenses in fiscal 2010 was primarily the result of expenses incurred related to our acquisition of CipherSoft in January 2009 and our acquisition of AXS-One in June 2009.

Change in Fair Value of Common Stock Warrant Liability. The change in the fair value of common stock warrant liability for the three and six months ended October 31, 2010 resulted in a gain of $264,000 and $60,000 respectively, due primarily to a decrease in the Company’s common stock share price during the periods.

Other Income (Expense), Net. Other income (expense), net consists primarily of interest expense, foreign exchange gains and losses and other income. Interest expense for the second quarter of fiscal 2010 and 2009 was $66,000 and $41,000, respectively. For the six months ended October 31, 2009 and 2008, interest expense was $124,000 and $87,000, respectively. Interest expense consists primarily of interest incurred on notes payable resulting from a debt financing in conjunction with the November 2006 acquisition of Gupta Technologies LLC and the acquisition of CipherSoft Inc., plus the amortization of related debt issuance costs and the amortization of the discount on notes payable. Foreign exchange rate losses for the second quarter of fiscal 2010 were $13,000. Foreign exchange rate losses in the second quarter of fiscal 2009 were $119,000. Foreign exchange rate gains for the six months ended October 31, 2009 were $64,000. Foreign exchange rate losses for the six months ended October 31, 2008 were $110,000. Other income for the second quarter of fiscal 2010 and 2009 was $1,000 and $0, respectively. Other income for the six months ended October 31, 2009 was $61,000. Other income for the six months ended October 31, 2008 was $19,000.

Provision for Income Taxes. For the second quarter of fiscal 2010, the Company recorded $58,000 in foreign withholding tax expense. For the second quarter of fiscal 2009, the Company recorded $156,000 in federal and state income tax expenses. For the six months ended October 31, 2009 the Company recorded $66,000 in foreign withholding tax expense. For the six months ended October 31, 2008, the Company recorded $188,000 in federal and state income tax expenses.

Liquidity and Capital Resources

At October 31, 2009, the Company had cash and cash equivalents of $2.2 million, compared to $6.1 million at April 30, 2009. The decrease in cash from April 30, 2009 to October 31, 2009 was primarily the result of payments on obligations related to the June 30, 2009 acquisition of AXS-One. The Company had net accounts receivable of $9.3 million as of October 31, 2009, and $4.5 million as of April 30, 2009.

As of October 31, 2009 the Company has various notes payable outstanding in the amount of $2.1 million of which $1.7 million is current. The notes payable all have an interest rate of 5%. The Company also has a $2.5 million revolving line of credit with an interest rate of prime plus 2.25% which has a maturity date of November 30, 2010. As of October 31, 2009 there is $350,000 outstanding on the revolving line of credit.

We believe the existing cash balance of $2.2 million as of October 31, 2009, along with forecasted operating cash flows and the revolver credit facility, will provide us with sufficient working capital for us to meet our operating needs for the next 12 months. Our operating plan assumes normal operations for the Company and the required debt service payments.

In fiscal 2010, we plan to increase the marketing of our Composer product lines and we also anticipate releasing new versions of some of our Rapid Application Development Products as well as our Database Management Products. Additionally, as a result of our purchase of AXS-One we expect to offer our integrated content archiving solutions through our distribution channels and accelerate direct and channel sales in fiscal 2010. The fiscal 2010 plan requires few additional strategic investments in sales, marketing or implementation services.

Operating Cash Flow. For the first six months of fiscal year 2010 cash used by operations was $3.9 million. This compares to cash flows provided by operations of $0.8 million for the first six months of fiscal 2009. Cash flows used by operations for the first six months of fiscal 2010 principally resulted from a net loss of $3.6 million, an increase in accounts receivable of $4.0 million, a decrease in accounts payable of $1.4 million, a decrease in accrued compensation and related expenses of $0.3 million, a decrease in other accrued liabilities of $1.2 million, a decrease in other long term liabilities of $0.2 million, and gain from change in fair value of common stock warrant liability of $0.1 million. Offsetting these amounts was an increase in deferred revenue of $4.8 million, a decrease in prepaid expenses and other current assets of $0.5 million, amortization of intangible assets of $1.2 million, depreciation of $0.1 million and stock based compensation expense of $0.3 million.

Cash flows provided by operations for the first six months of fiscal 2009 principally resulted from $1.1 million in net income, amortization of intangible assets of $0.4 million, stock based compensation expense of $0.3 million, a decrease of $0.3 million in accounts receivable, an increase of $0.1 million in accounts payable and an increase of $0.3 million in other accrued liabilities. Offsetting these amounts was an increase of $0.1 million of prepaid expenses and other current assets, a decrease of $0.4 million of accrued compensation and related expenses and a decrease of $1.3 million in deferred revenue.

Investing Cash Flows. Cash flow from investing activities was $30,000 for the first six months of fiscal 2010 and was primarily the result of cash gained in the acquisition of AXS-One. Net cash used in investing activities for the first six months of fiscal 2009 was $261,000 and was the result of the purchase of property and equipment of $151,000 and payments on acquisition obligations of $110,000.

Financing Cash Flows. Net cash used in financing activities for the first six months of fiscal 2010 was $366,000. Cash from financing activities was the result of proceeds from debt obligations of $350,000. Offsetting this amount was $716,000 of principal payments on debt obligations. Net cash used in financing activities for the first six months of fiscal 2009 was $11,000.

A summary of certain contractual obligations as October 31, 2009 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	$	2,476	$	1,688	$	788		—		—
Estimated interest expense		50		46		4		—		—
Other liabilities		1,086		994		—		92		—
Capital leases		77		45		32		—		—
Operating leases		5,115		1,457		2,671		697		290
Total contractual cash obligations	$	8,804	$	4,230	$	3,495	$	789	$	290

Other liabilities primarily include contractual severance payments related to the AXS-One acquisition.

Volatility of Stock Price and General Risk Factors Affecting Quarterly Results

Unify’s common stock price has been and is likely to continue to be subject to significant volatility. A variety of factors could cause the price of the common stock to fluctuate, perhaps substantially, including: announcements of developments related to our business; fluctuations in the operating results and order levels of Unify or its competitors; general conditions in the computer industry or the worldwide economy; announcements of technological innovations; new products or product enhancements from us or our competitors; changes in financial estimates by securities analysts; developments in patent, copyright or other intellectual property rights; developments in our relationships with our customers, distributors and suppliers; legal proceedings brought against the Company or its officers; significant changes in our senior management team; and our proposed stock repurchase program. 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 began trading on the NASDAQ under the symbol UNFY on August 25, 2008. Previously the Company’s shares traded over-the-counter on the “bulletin board.” Even though the Company has moved to a larger exchange with the NASDAQ, we do not receive any analyst coverage, the Company’s shares are still thinly traded and our stock is considered to be a micro-cap stock. Our stock is therefore subject to greater price volatility than larger companies whose stock trades more actively.

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 integrate acquisitions; our ability to attract, integrate 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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk. The Company’s exposure to market rate risk for changes in interest rates relates primarily to its investment portfolio, which consists of cash equivalents. Cash equivalents are highly liquid investments with original maturities of three months or less and are stated at cost. Cash equivalents are generally maintained in money market accounts which have as their objective preservation of principal. The Company does not believe its exposure to interest rate risk is material for cash and cash equivalents, which totaled $2.2 million as of October 31, 2009. Unify had no short-term investments at October 31, 2009.

In November 2006, the Company entered into a revolving credit facility agreement with ComVest whereby ComVest would provide up to $2.5 million through a revolving credit facility. The revolver has an interest rate of prime plus 2.25% and has a maturity date of November 30, 2010. Should the prime interest rate increase during the life of the revolver, the Company would have exposure to interest rate risk if it has a large balance outstanding on the revolver. As of October 31, 2009, there was $350,000 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, UK, Australia, Singapore and Canada. At October 31, 2009, the Company had $2.2 million in such payables denominated in Euros and U.S. dollars, and a total $5.0 million in receivables denominated in Euros, Canadian dollars, U.S. dollars and pounds sterling. The Company 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. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of October 31, 2009. The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934. Management recognizes that any disclosure controls and procedures no matter how well designed and operated, can only provide reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As a result of a material weakness in our internal control over financial reporting relating to the accounting for common stock warrants, our management has reassessed the effectiveness of our disclosure controls and procedures and have determined that our disclosure controls and procedures were not effective as of October 31, 2009.

(b) Restatement of Consolidated Financial Statements. On February 15, 2011, the Audit Committee of the Board of Directors, concluded that the Company’s unaudited financial statements for the interim period ended October 31, 2009, did not properly account for certain common stock warrants and, as a result, should not be relied upon. The Audit Committee has authorized and directed the officers of the Company to restate its unaudited interim financial statements included in this Form 10-Q filing as and for the quarter ended October 31, 2009.

(c) Remediation Plan. Since the determination regarding this material weakness, we have devoted significant effort and resources to the remediation and improvement of our internal control over financial reporting. While we had processes to identify and intelligently apply developments in accounting, we enhanced these processes to better evaluate our research and understanding of the nuances of complex accounting standards. Our enhancements included providing training to accounting staff relative to the application and interpretation of ASC 815. We have also increased communication among our legal and finance personnel. Additionally, we have retained a third party professional to assist us with the interpretation and application of new and complex accounting guidance. Management will continue to review and make necessary changes to the overall design of its internal control environment, as well as to policies and procedures to improve the overall effectiveness of internal control over financial reporting.

(d) Changes in Internal Controls. There have been no changes in our internal controls over financial reporting that occurred during the quarter ended October 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Item 4A. Risk Factors

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, and current and potential stockholders may lose confidence in our financial reporting.

We are required by the SEC to establish and maintain adequate internal control over financial reporting that provides reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. We are likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses in those internal controls.

As described elsewhere in this Amendment No. 1, in connection with the restatement process, we identified a material weakness with regard to accounting for warrant instruments in our internal control over financial reporting, specifically with regard to our prior interpretation of ASC 815, as it related to the accounting of warrants as either liabilities or equity instruments dating back to May 2009. Upon a reassessment of those financial instruments, we determined that we should have accounted for certain common stock warrant instruments as liabilities instead of equity. Given this material weakness with regard to the accounting for common stock warrants, management determined that we did not maintain effective internal control over financial reporting as of October 31, 2009. Any failure to maintain such internal controls could adversely impact our ability to report our financial results on a timely and accurate basis.

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. If such matters arise, the Company cannot assure that it would prevail in such matters, nor can it assure that any remedy could be reached on mutually agreeable terms, if at all. Due to the inherent uncertainties of litigation, were there any such matters, the Company would not be able to accurately predict their ultimate outcome. As of October 31, 2009, 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 6. Exhibits

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

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

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

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

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: March 8, 2011	Unify Corporation
	(Registrant)

	By:

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

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