DAEGIS INC. - FORM 10-Q/A

Attached files

file	filename
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER UNDER SECTION 302 - DAEGIS INC.	exhibit31-2.htm
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

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 January 31, 2010

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: 10,122,708 shares of common stock, $0.001 par value, as of January 31, 2010.

EXPLANATORY NOTE

We are filing this amendment to our Quarterly Report on Form 10-Q for the quarterly period ended January 31, 2010, which was originally filed with the Securities and Exchange Commission on March 5, 2010 (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 to correct accounting errors as follows:

Adoption of certain provisions of 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 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.
Accounting for contingent consideration in business combinations in accordance with ASC 805 “Business Combinations” (“ASC 805”), was not properly applied in accounting for the Company’s June 30, 2009 acquisition of AXS-One Inc. The Company calculated the fair value of contingent consideration related to net license revenue on a quarterly basis and recorded any change in the calculated amount as adjustments in the statement of operations.

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 January 31, 2010. See Note 2 to our unaudited condensed consolidated financial statements for additional discussion regarding the impact of the accounting errors noted above.

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	3

Item 1.	Financial Statements	3

	Unaudited Condensed Consolidated Balance Sheets as of January 31, 2010 and	3
	April 30, 2009

	Unaudited Condensed Consolidated Statements of Operations for the three and nine	4
	months ended January 31, 2010 and 2009

	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months	5
	ended January 31, 2010 and 2009

	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26

Item 4.	Controls and Procedures	26

PART II.	OTHER INFORMATION	28

Item 1.	Legal Proceedings	28

Item 6.	Exhibits	29

SIGNATURE		30

CERTIFICATIONS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

UNIFY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

	January 31,			April 30,
	2010			2009
	(As Restated) See Note 2
ASSETS
Current assets:
Cash and cash equivalents	$	2,316		$	6,147
Accounts receivable, net		8,668			4,501
Prepaid expenses and other current assets		1,297			717
Total current assets		12,281			11,365

Property and equipment, net		400			472
Goodwill		17,010			6,425
Intangibles, net		9,736			2,720
Other assets, net		296			99
Total assets	$	39,723		$	21,081

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	738		$	685
Current portion of long term debt		1,854			1,663
Accrued compensation and related expenses		1,647			1,178
Common stock warrant liability		968			—
Other accrued liabilities		4,407			905
Deferred revenue		11,958			5,617
Total current liabilities		21,572			10,048

Long term debt, net		252			837
Other long term liabilities		1,436			893

Commitments and contingencies		—			—

Stockholders’ equity:
Common stock		10			7
Additional paid-in capital		78,809			69,941
Accumulated other comprehensive income (loss)		245			(113	)
Accumulated deficit		(62,601	)		(60,532	)
Total stockholders’ equity		16,463			9,303
Total liabilities and stockholders’ equity	$	39,723		$	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						Nine Months Ended
	January 31,						January 31,
	2010			2009			2010			2009
	(As Restated) See Note 2						(As Restated) See Note 2
Revenues:
Software licenses	$	3,354		$	1,737		$	6,169		$	5,286
Services		4,228			2,753			11,075			8,869
Migration solutions		1,040			718			2,976			1,881
Total revenues		8,622			5,208			20,220			16,036

Cost of Revenues:
Software licenses		140			33			229			172
Services		1,020			239			2,212			787
Migration solutions		625			315			1,414			833
Total cost of revenues		1,785			587			3,855			1,792
Gross profit		6,837			4,621			16,365			14,244

Operating Expenses:
Product development		1,749			631			4,901			2,062
Selling, general and administrative		3,878			2,712			13,822			9,434
Change in fair value of contingent consideration		(858	)		—			(858	)		—
Total operating expenses		4,769			3,343			17,865			11,496
Income (loss) from operations		2,068			1,278			(1,500	)		2,748
Other income (expense):
Gain from change in fair value of common stock warrant liability		43			—			102			—
Other, net		(92	)		(40	)		(87	)		(206	)
Total other income (expense)		(49	)		(40	)		15			(206	)
Income (loss) before income taxes		2,019			1,238			(1,485	)		2,542
Provision for income taxes		56			153			122			341
Net income (loss)	$	1,963		$	1,085		$	(1,607	)	$	2,201

Net income (loss) per share:
Basic	$	0.19		$	0.16		$	(0.17	)	$	0.32
Dilutive	$	0.19		$	0.15		$	(0.17	)	$	0.29

Shares used in computing net income (loss) per share:
Basic		10,123			6,981			9,536			6,981
Dilutive		10,601			7,334			9,536			7,592

See accompanying notes to condensed consolidated financial statements.

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

	Nine Months Ended January 31,
	2010			2009
	(As Restated) See Note 2
Cash flows from operating activities:
Net income (loss)	$	(1,607	)	$	2,201
Reconciliation of net income (loss) to net cash provided by (used in) operating
activities:
Depreciation		176			135
Loss on disposal of equipment		—			2
Amortization of intangible assets		1,861			539
Amortization of discount on notes payable		25			35
Stock based compensation expense		471			448
Change in fair value of contingent consideration		(858	)		—
Gain from change in fair value of common stock warrant liability		(102	)		—
Changes in operating assets and liabilities:
Accounts receivable		(3,457	)		(121	)
Prepaid expenses and other current assets		(122	)		(144	)
Other long term assets		20			—
Accounts payable		(1,337	)		(202	)
Accrued compensation and related expenses		(26	)		(543	)
Other accrued liabilities		(2,161	)		186
Accrued acquisition costs		(46	)		—
Deferred revenue		4,178			(566	)
Other long term liabilities		(216	)		23
Net cash provided by (used in) operating activities		(3,201	)		1,993

Cash flows from investing activities:
Acquisition, net of cash acquired		37			(491	)
Purchases of property and equipment		(34	)		(165	)
Payments on acquisition obligations		—			(110	)
Net cash provided by (used in) investing activities		3			(766	)

Cash flows from financing activities:
Proceeds from issuance of common stock		9			1
Payments on revolver		—			(1,000	)
Borrowings on revolving line of credit		350			1,000
Principal payments under debt obligations		(1,175	)		(22	)
Net cash used in financing activities		(816	)		(21	)
Effect of exchange rate changes on cash		183			(396	)
Net increase (decrease) in cash and cash equivalents		(3,831	)		810
Cash and cash equivalents, beginning of period		6,147			2,692
Cash and cash equivalents, end of period	$	2,316		$	3,502
Supplemental cash flow information:
Cash paid during the period for:
Interest	$	93		$	66
Taxes	$	22		$	130

Supplemental non-cash financing activities:
Common stock issued in conjunction with acquisition	$	3		$	52

See accompanying notes to condensed consolidated financial statements.

UNIFY CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2010

Restatement of Historical Financial Statements

As discussed in Note 2, the accompanying Consolidated Balance Sheet as of January 31, 2010 and the Consolidated Statements of Operations for the three and nine months ended January 31, 2010, and the Cash Flows for the nine months ended January 31, 2010 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 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 nine months ended January 31, 2010, to correct errors in the accounting for certain common stock warrants and contingent consideration. 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 common stock 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 common stock 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.

Additionally, in applying ASC 805 the Company had calculated the fair value of contingent consideration related to net license revenue on a quarterly basis and recorded any change in the calculated amount as an adjustment to goodwill. However, in accordance with ASC 805 such changes in the fair value should have been recorded as adjustments in the statement of operations.

The accompanying financial statements have been restated to report the 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	January 31, 2010	Exercise Price	Warrants	January 31, 2010
				(in thousands)
November 20, 2006	80,000	$1.35	October 31, 2012		$131
November 20, 2006	270,000	$1.60	October 31, 2012		$395
November 20, 2006	200,000	$1.90	October 31, 2012		$255
April 24, 2009	190,182	$2.75	April 24, 2014		$187

The following tables summarize the effects of the restatement on the specific items presented in our historical consolidated financial statements previously included in our Quarterly Report on Form 10-Q for the quarter ended January 31, 2010:

Consolidated Balance Sheet	January 31, 2010			January 31, 2010
(in thousands)	(As previously			(As restated)
	reported)
Goodwill	$	16,152		$	17,010
Total assets		38,865			39,723

Current liabilities:
Common stock warrant liability		-			968
Total current liabilities		20,604			21,572

Stockholders' equity:
Additional paid-in-capital		79,418			78,809
Accumulated deficit		(63,100	)		(62,601	)
Total stockholders' equity		16,573			16,463

Consolidated Statements of Operations	Three Months Ended					Nine Months Ended
(in thousands)	January 31, 2010					January 31, 2010
	(As previously					(As previously
	reported)		(As restated)			reported)			(As restated)
Change in fair value of contingent consideration	$	-	$	(858	)	$	-		$	(858	)
Total operating expenses		5,627		4,769			18,723			17,865
Income (loss) from operations		1,210		2,068			(2,358	)		(1,500	)
Gain from change in fair value of common stock warrant liability		-		43			-			102
Net Income (loss)		1,062		1,963			(2,567	)		(1,607	)
Net income (loss) per share, basic		0.10		0.19			(0.27	)		(0.17	)
Net income (loss) per share, dilutive		0.10		0.19			(0.27	)		(0.17	)

Consolidated Statement of Cash Flows	Nine Months Ended
(in thousands)	January 31, 2010
	(As previously
	reported)			(As restated)
Cash flows from operating activities:
Net loss	$	(2,567	)	$	(1,607	)
Change in fair value of contingent consideration		-			(858	)
Gain from change in fair value of common stock warrant liability		-			(102	)
Net cash used in operating activities		(3,201	)		(3,201	)

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 January 31, 2010, royalty payments earned totaled $118,000. 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 $10.3 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 (in thousands) (as restated):

Consideration
Equity instruments (2,642,600 common shares of Unify)	$	8,853
Contingent consideration arrangement		2,732
Fair value of total consideration	$	11,585

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		10,348
Change in fair value of contingent consideration		(858	)
	$	11,585

Acquisition related costs (included in selling, general and administrative expense in Unify's statement
of operations for the nine months ended January 31, 2010)	$	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 855,000. The fair value of the contingent consideration of $2.7 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 $2,030,000, decrease identifiable intangible assets by $1,325,000, increase deferred revenue by $423,000 and increase goodwill by $576,000. The decrease in contingent consideration resulted in a $858,000 increase in income for the three and nine months ended January 31, 2010. 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 nine months ended January 31, 2010, 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 January 31, 2010	$	6,038	$	(573	)	$	(0.06	)
Supplemental pro forma from May 1, 2009 to January 31, 2010	$	21,729	$	(3,157	)	$	(0.32	)
Supplemental pro forma from May 1, 2008 to January 31, 2009	$	25,565	$	(4,814	)	$	(0.69	)

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 January 31, 2010, equity-based compensation expense from operations was comprised of the following (in thousands):

	Three Months Ended				Nine Months Ended
	January 31,				January 31,
	2010		2009		2010		2009
Cost of Sales	$	5	$	3	$	13	$	10
Product Development		31		22		90		65
Selling, General and Administrative		112		132		368		373
Total Equity-Based Compensation	$	148	$	157	$	471	$	448

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 January 31, 2010. 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	$	154
2011		606
2012		504
2013		202
2014		10
Total	$	1,476

The cost above is expected to be recognized over a weighted-average period of 1.34 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 nine months ended January 31, 2010 and 2009, respectively: expected option life, 12 to 18 months following vesting; stock volatility of 93% and 95%; risk-free interest rates of 1.9% and 1.5% 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 nine months ended January 31, 2010 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	655,300		$	2.82
Exercised	(5,911	)	$	1.47
Canceled or expired	(89,675	)	$	6.57
Outstanding at January 31, 2010	1,635,518		$	3.55	7.29	$	781,275

Exercisable at January 31, 2010	781,437		$	3.17	6.17	$	509,424

(1)

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

Total intrinsic value of awards exercised during the quarters ended January 31, 2010 and January 31, 2009 was $8,596 and $0, respectively. The total fair value of awards vested during the quarters ended January 31, 2010 and January 31, 2009 was $162,357 and $158,554, respectively.

A summary of the Company’s nonvested stock option activity for the period ended January 31, 2010 is as follows:

			Weighted
			average fair
	Shares		value
Nonvested at April 30, 2009	460,464		$	3.50
Granted	655,300		$	1.49
Vested	(208,469	)	$	2.56
Canceled or expired	(53,214	)	$	2.56
Nonvested at January 31, 2010	854,081		$	2.19

5. Goodwill and Intangible Assets

The following tables present details of the Company’s goodwill and intangible assets as of January 31, 2010 and April 30, 2009 (in thousands).

	Gross					Net
	carrying		Accumulated			carrying		Estimated
January 31, 2010 (as restated)	amount		amortization			amount		useful life
Infinite Lives:
Goodwill	$	17,010	$	—		$	17,010	—
Finite Lives:
Customer-related		3,836		(1,108	)		2,728	4 to 10 years
Technology-based		7,650		(1,924	)		5,726	3 to 6 years
Trademarks		1,500		(378	)		1,122	4 to 5 years
Trade name		192		(131	)		61	1 to 3 years
Backlog		90		(90	)		-	0.5 years
Non-compete		97		(24	)		73	3 to 5 years
Consulting agreement		126		(100	)		26	1 to 1.3 years
Total	$	30,501	$	(3,755	)	$	26,746

	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 nine months ended January 31, 2010, was $1,860,843. Amortization expense for the nine months ended January 31, 2009, was $539,000. The estimated future amortization expense related to intangible assets as of January 31, 2010, is as follows (in thousands):

Fiscal Year Ending April 30,	Amount
Remainder of 2010	$	638
2011		2,366
2012		1,856
2013		1,330
2014		1,327
2015		1,119
Thereafter		1,100
Total	$	9,736

Goodwill at January 31, 2010, 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 January 31, 2010, 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 January 31, 2010 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 January 31, 2010:

	Fair Value		Fair value measurement using
	January 31, 2010		Level 1		Level 2		Level 3
Common stock warrant liability	$	968	$	—	$	—	$	968

The following table summarizes the activity of Level 3 inputs measured on a recurring basis for the quarter ended January 31, 2010:

(in thousands)	Common Stock Warrants
Balance at October 31, 2009		$	1,011
Issuance of liability from common stock warrants			—
Change in fair value of common stock warrant liability			(43	)
Balance at January 31, 2010		$	968

8. Long-Term Debt

The Company’s debt consists of the following at January 31, 2010 and April 30, 2009 (in thousands):

	January 31,			April 30,
	2010			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.	$	698		$	1,400

Note Payable, interest rate of 5%, payable in installments through April 2011.		742			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			—

Note Payable, payable in installments through December 2011.		5			—

Capital leases payable, payable in monthly installments through September 2011.		65			97
		2,110			2,529
Less discount on notes payable, net		(4	)		(29	)
Less current portion		(1,854	)		(1,663	)
Total long term debt, net	$	252		$	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 January 31, 2010 and April 30, 2009 the amount of severance is $87,000 and $81,000, respectively. Also included in other long term liabilities as of January 31, 2010 and April 30, 2009 is $677,000 and $541,000, respectively, of deferred tax liabilities and $232,000 and $271,000 of deferred rent related to the Roseville, California office. Additionally, included in other long term liabilities as January 31, 2010, is $441,000 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 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						Nine Months Ended
	January 31,						January 31,
	2010			2009			2010			2009
Deferred maintenance revenue beginning balance	$	8,323		$	4,813		$	5,473		$	6,130
Deferred maintenance revenue recognized during period		(3,826	)		(2,724	)		(9,968	)		(8,469	)
Deferred maintenance revenue of new maintenance contracts		5,387			3,784			14,379			8,212
Deferred maintenance revenue ending balance	$	9,884		$	5,873		$	9,884		$	5,873

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 January 31, 2010, 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 nine months ended January 31, 2010.

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 January 31, 2010 and 2009 was $139,000 and ($31,000), respectively. A comprehensive gain (loss) on foreign currency translations for the nine months ended January 31, 2010 and 2009 was $358,000 and ($225,000), 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. 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 were repurchased during the quarter ended January, 31, 2010.

15. 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 nine months ended January 31, 2010, 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				Nine Months Ended
(in thousands, except per share amounts)	January 31,				January 31,
	2010		2009		2010			2009
	As Restated				As Restated
Net income (loss)	$	1,963	$	1,085	$	(1,607	)	$	2,201

Weighted average shares of common stock outstanding, basic		10,123		6,981		9,536			6,981
Effect of dilutive securities		478		353		-			611
Weighted average shares of common stock outstanding, diluted		10,601		7,334		9,536			7,592

Earnings (loss) per share of common stock:
Basic	$	0.19	$	0.16	$	(0.17	)	$	0.32
Diluted	$	0.19	$	0.15	$	(0.17	)	$	0.29

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 248,706 and common stock warrants of 262,685 as of January 31, 2010. 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 548,482 for the nine months ended January 31, 2010.

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 third quarter of fiscal 2010 and 2009, total revenue from the United States was $5.0 million and $1.7 million, respectively. Total revenue from all other countries was $3.6 million in the third quarter of fiscal 2010 and $3.5 million for the third quarter of fiscal 2009. Total long-lived assets as of January 31, 2010 and April 30, 2009, for the United States, was $24.5 million and $9.6 million, respectively. Total long-lived assets in all other countries were $2.1 million as of January 31, 2010 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				Nine Months Ended
	January 31,				January 31,
	2010		2009		2010		2009
Total Revenues:
Database and Development Products	$	4,361	$	4,490	$	11,207	$	14,155
Integrated Content Archiving Solutions		3,221		-		6,038		-
Modernization and Migration Solutions		1,040		718		2,975		1,881
Total Revenues	$	8,622	$	5,208	$	20,220	$	16,036

Cost of Revenue:
Database and Development Products	$	326	$	272	$	853	$	959
Integrated Content Archiving Solutions		834		-		1,588		-
Modernization and Migration Solutions		625		315		1,414		833
Total Cost of Revenues	$	1,785	$	587	$	3,855	$	1,792

Gross Profit:
Database and Development Products	$	4,035	$	4,218	$	10,354	$	13,196
Integrated Content Archiving Solutions		2,387		-		4,450		-
Modernization and Migration Solutions		415		403		1,561		1,048
Total Gross Profit	$	6,837	$	4,621	$	16,365	$	14,244

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 unaudited condensed consolidated financial statements and related disclosures for the quarter ended January 31, 2010 for the following:

To correct errors in the accounting for certain warrants. Specifically, we previously classified as equity instruments warrants that should have been classified as derivative liability instruments based on the terms of the warrants and the applicable accounting guidance.
To correct an error in the application of ASC 805. The Company had calculated the fair value of contingent consideration related to net license revenue on a quarterly basis and recorded any change in the calculated amount as an adjustment to goodwill. However, in accordance with ASC 805 such changes in the fair value should have been recorded as adjustments in the statement of operations.

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 development, data management, migration and archiving software solutions. Our software helps companies to maximize value and reduce cost in the development, deployment, management and retention of business applications, data and electronically stored information. Our archiving solutions meet an organization’s requirement to archive, discover and preserve electronically stored information for eDiscovery, regulatory compliance, global email access and storage savings.

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 (“IT”) and legal departments, 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 New Jersey, Canada, Australia, France, Germany, and the United Kingdom (“UK”). We market and sell products directly in the United States, Europe, Canada, Japan, 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™ Notes which delivers a like-for-like migration of Lotus Notes applications to the Microsoft .NET platform, Composer Sabertooth™ which speeds the conversion of Team Developer or SQLWindows applications to Microsoft .NET, Composer CipherSoft which automatically converts Oracle Forms and PL/SQL code to Java and Composer Mainframe which delivers automation migration of legacy COBOL, Ideal and Natural code to modern code and relational databases through best of breed partnerships with Ateras Inc and Information Analysis Inc. We also have an integrated content archiving and eDiscovery software solution, the Unify Archive 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.

Account Receivable and Allowance for Doubtful Accounts

We record trade accounts receivable at the invoiced amount and they do not bear interest. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We make these estimates based on an analysis of accounts receivable using available information on our customers’ financial status and payment histories as well as the age of the account receivable. Historically, bad debt losses have not differed materially from our estimates.

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						Nine Months Ended
	January 31,						January 31,
	2010			2009			2010			2009
	As Restated						As Restated
Revenues:
Software licenses	38.9		%	33.3		%	30.5		%	33.0		%
Services	49.0		%	52.9		%	54.8		%	55.3		%
Migration solutions	12.1		%	13.8		%	14.7		%	11.7		%
Total revenues	100.0		%	100.0		%	100.0		%	100.0		%

Cost of Revenues:
Software licenses	1.6		%	0.6		%	1.1		%	1.1		%
Services	11.8		%	4.6		%	10.9		%	4.9		%
Migration solutions	7.2		%	6.0		%	7.0		%	5.2		%
Total cost of revenues	20.6		%	11.2		%	19.0		%	11.2		%

Gross profit	79.4		%	88.8		%	81.0		%	88.8		%

Operating Expenses:
Product development	20.3		%	12.1		%	24.2		%	12.9		%
Selling, general and administrative	45.0		%	52.1		%	68.4		%	58.8		%
Change in fair value of contingent consideration	(10.0	)	%	—			(4.2	)	%	—
Total operating expenses	55.3		%	64.2		%	88.4		%	71.7		%
Income (loss) from operations	24.1		%	24.6		%	(7.4	)	%	17.1		%
Other income (expense):
Gain from change in fair value of common stock warrant liability	0.5		%	—			0.5		%	—
Other, net	(1.1	)	%	(0.8	)	%	(0.4	)	%	(1.3	)	%
Total other income (expense)	(0.6	)	%	(0.8	)	%	0.1		%	(1.3	)	%
Income (loss) before income taxes	23.5		%	23.8		%	(7.3	)	%	15.8		%
Provision for income taxes	0.7		%	2.9		%	0.6		%	2.1		%
Net income (loss)	22.8		%	20.9		%	(7.9	)	%	13.7		%

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 third quarter of fiscal 2010 were $8.6 million, an increase of $3.4 million from the third quarter of fiscal 2009. This represents an increase of 65% from the third quarter of fiscal 2009 revenues of $5.2 million. Total revenues for the nine months ended fiscal 2010 were $20.2 million, an increase of $4.2 million. This represents an increase of 26% over the nine month period of fiscal 2009 revenues of $16.0 million. While the Company continued to feel the impact of the world-wide slowdown in the economic environment in the third quarter of 2010 there was a noticeable increase in sales activity in most parts of the world compared to the first and second quarters of 2010. While total revenue in the third quarter was up compared to the first and second quarters, the Company is still 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 and as a result we saw an increase in Team Developer sales in the third quarter. Total software license revenues in the third quarter of fiscal 2010 were $3.4 million, an increase of $1.7 million from the third quarter of fiscal 2009. This represents an increase of 93% over the third quarter of fiscal 2009 revenues of $1.7 million. Total software license revenues for the nine months ended fiscal 2010 were $6.1 million, an increase of $0.8 million. This represents an increase of 15% over the nine month period of fiscal 2009 revenues of $5.3 million. Total services revenues in the third quarter of fiscal 2010 and 2009 were $4.2 million and $2.8 million, respectively. Total services revenues for the nine months ended fiscal 2010 were $11.1 million, an increase of $2.3 million. This represents an increase of 26% over the nine month period of fiscal 2009 revenues of $8.8 million. The increase in services revenue primarily related to the services revenue generated by AXS-One. Total migration solutions revenue in the third quarter of fiscal 2010 was $1.0 million compared to $0.7 million for the third quarter of fiscal 2009. Total migration solutions revenue for the nine months ended fiscal 2010 were $3.0 million, an increase of $1.1 million. This represents an increase of 58% over the nine month period of fiscal 2009 revenues of $1.9 million. The increase in migration solutions revenue was primarily related to a multi-million dollar database migration project for a governmental entity.

For the third quarter of fiscal 2010 and 2009, total revenues from the United States were 58% and 33% of total revenues, respectively. Total revenue from the United States in absolute dollars was $5.0 million for the third quarter of fiscal 2010 and $1.7 million for the third quarter of fiscal 2009. The increase is primarily due to the recognition of revenue on two large US based projects. Additionally, AXS-One has historically had a high percentage of total revenue from the United States. Total revenue from all other countries was $3.6 million in the third quarter of fiscal 2010 and $3.5 million for the third quarter of fiscal 2009. On a percentage basis, revenue from other countries was 42% for the third quarter of fiscal 2010 and 67% 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 $140,000 and $33,000 for the third quarter of fiscal 2010 and fiscal 2009, respectively. The increase in cost of software licenses represents an increase in software royalty payments. For the first nine months ended January 31, 2010 and 2009, cost of software licenses was $229,000 and $172,000, 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 third party consulting services. Cost of services was $1,020,000 and $239,000 for the third quarter of fiscal 2010 and fiscal 2009, respectively. For the nine months ended January 31, 2010 and 2009, cost of services was $2,212,000 and $787,000, respectively. The increase in cost of services for both the three months and nine months ended January 31, 2010 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 $625,000 and $315,000 for the third quarter of fiscal 2010 and fiscal 2009, respectively. For the nine months ended January 31, 2010 and 2009, cost of migration solutions was $1,414,000 and $833,000, respectively. The increase in cost of migration solutions for both the three and nine months ended January 31, 2010 was primarily due to a large database 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 third quarter of fiscal 2010 were $1.7 million compared to $0.6 million in the same period of fiscal 2009. For the nine months ended January 31, 2010 and 2009, product development expenses were $4.9 million and $2.1 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 $3.9 million in the third quarter of fiscal 2010 and $2.7 million for the third quarter of fiscal 2009. The major components of SG&A for the third quarter of fiscal 2010 were sales expenses of $1.8 million, marketing expenses of $0.4 million and general and administrative expenses of $1.7 million. For the third quarter of fiscal 2009, the major components of SG&A were sales expenses of $1.3 million, marketing expenses of $0.2 million and general and administrative expenses of $1.2 million. In the nine months ended January 31, 2010 and 2009, our SG&A expenses were $13.8 million and $9.4 million, respectively. The major components of SG&A for the nine month period ended January 31, 2010 were sales expenses of $6.7 million, marketing expenses of $1.0 million and general and administrative expenses of $6.1 million. The major components of SG&A for the nine month period ended January 31, 2009 were sales expenses of $4.6 million, marketing expenses of $0.7 million and general and administrative expenses of $4.1 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 Contingent Consideration. In applying ASC 805 the Company had calculated the fair value of contingent consideration related to net license revenue on a quarterly basis and recorded any change in the calculated amount as an adjustment to goodwill. However, in accordance with ASC 805 such changes in the fair value should have been recorded as adjustments in the statement of operations.

Change in Fair Value of Common Stock Warrant Liability. The change in the fair value of common stock warrant liability for the three and nine months ended January 31, 2010 resulted in a gain of $43,000 and $102,000 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 third quarter of fiscal 2010 and 2009 was $71,000 and $48,000, respectively. For the nine months ended January 31, 2010 and 2009, interest expense was $195,000 and $135,000, 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 third quarter of fiscal 2010 were $22,000. Foreign exchange rate losses in the third quarter of fiscal 2009 were $21,000. Foreign exchange rate gains for the nine months ended January 31, 2010 were $42,000. Foreign exchange rate losses for the nine months ended January 31, 2009 were $132,000. Other income for the third quarter of fiscal 2010 and 2009 was $0 for both periods. Other income for the nine months ended January 31, 2010 was $61,000. Other income for the nine months ended January 31, 2009 was $19,000.

Provision for Income Taxes. For the third quarter of fiscal 2010, the Company recorded $56,000 in federal and state income tax expenses. For the third quarter of fiscal 2009, the Company recorded $153,000 in federal and state income tax expenses. For the nine months ended January 31, 2010 the Company recorded $122,000 in federal and state income tax expenses. For the nine months ended January 31, 2009, the Company recorded $341,000 in federal and state income tax expenses.

Liquidity and Capital Resources

At January 31, 2010, the Company had cash and cash equivalents of $2.3 million, compared to $6.1 million at April 30, 2009. The decrease in cash from April 30, 2009 to January 31, 2010 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 $8.4 million as of January 31, 2010, and $4.5 million as of April 30, 2009.

As of January 31, 2010 the Company has various notes payable outstanding in the amount of $1.8 million of which $1.5 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 January 31, 2010 there is $350,000 outstanding on the revolving line of credit.

We believe the existing cash balance of $2.3 million as of January 31, 2010, 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.

Operating Cash Flow. For the first nine months of fiscal year 2010 cash used by operations was $3.2 million. This compares to cash flows provided by operations of $2.0 million for the first nine months of fiscal 2009. Cash flows used by operations for the first nine months of fiscal 2010 principally resulted from a net loss of $1.6 million, an increase in accounts receivable of $3.5 million, an increase in prepaid expenses and other current assets of $0.1 million, a decrease in accounts payable of $1.3 million, a decrease in other accrued liabilities of $2.2 million, a decrease in other long term liabilities of $0.2 million, a change in fair value of contingent consideration of $0.9 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 $4.2 million, amortization of intangible assets of $1.9 million, depreciation of $0.2 million and stock based compensation expense of $0.5 million.

For the first nine months of fiscal year 2009 cash provided by operations was $2.0 million. Cash flows provided by operations for the first nine months of fiscal 2009 principally resulted from $2.2 million in net income, depreciation of $0.1 million, amortization of intangible assets of $0.5 million, stock based compensation expense of $0.4 million, an increase of $0.2 million in other accrued liabilities. Offsetting these amounts was an increase of $0.1 million in accounts receivable, an increase of $0.1 million of prepaid expenses and other current assets, a decrease of $0.2 million in accounts payable, a decrease of $0.5 million of accrued compensation and related expenses and a decrease of $0.6 million in deferred revenue.

Investing Cash Flows. Cash flow from investing activities was $3,000 for the first nine 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 nine months of fiscal 2009 was $766,000 and was the result of the purchase of property and equipment of $165,000, payments on acquisitions of $491,000 and payments on acquisition obligations of $110,000.

Financing Cash Flows. Net cash used in financing activities for the first nine months of fiscal 2010 was $816,000. Cash from financing activities was the result of borrowings on the revolving line of credit of $350,000. Offsetting this amount was $1,175,000 of principal payments on debt obligations. Net cash used in financing activities for the first nine months of fiscal 2009 was $21,000.

A summary of certain contractual obligations as January 31, 2010 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
Notes payable	$	2,045	$	1,811	$	234		—		—
Estimated interest expense		33		32		1		—		—
Other liabilities		404		317		—		87		—
Capital leases		65		43		22		—		—
Operating leases		4,748		1,428		2,597		723		—
Total contractual cash obligations	$	7,295	$	3,631	$	2,854	$	810	$	—

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 $2.3 million as of January 31, 2010. Unify had no short-term investments at January 31, 2010.

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 January 31, 2010, 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 cash and accounts receivable balances related to activities with the Company’s operations in France, Germany, UK, Australia and Canada. At January 31, 2010 the Company had cash held in foreign currencies of $1,023,000 in Euros, $133,000 in Canadian dollars, $293,000 in pounds sterling, and $4,000 in Australian dollars. At January 31, 2010 the Company had accounts receivable in foreign currencies of $2,649,000 in Euros, $106,000 in Canadian dollars, $749,000 in pounds sterling, $140,000 in Australian dollars, $19,000 in Japanese yen, $4,000 in Polish zloty, and $24,000 in Malaysian ringgit. 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 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 January 31, 2010. 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 weaknesses in our internal control over financial reporting relating to the accounting for warrants and contingent consideration, 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 January 31, 2010.

(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 January 31, 2010, did not properly account for certain common stock warrants and contingent consideration 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 of and for the quarter ended January 31, 2010.

(c) Remediation Plan. Since the determination regarding these material weaknesses, 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 interpretations of ASC 815 and ASC 805. 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 January 31, 2010 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 material weaknesses with regard to accounting for common stock warrant instruments and contingent consideration in our internal control over financial reporting, specifically with regard to our prior interpretation of ASC 815, as it related to the accounting of common stock 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. Additionally, in applying ASC 805 the Company had calculated the fair value of contingent consideration related to net license revenue on a quarterly basis and recorded any change in the calculated amount as an adjustment to goodwill. However, in accordance with ASC 805 such changes in the fair value should have been recorded as adjustments in the statement of operations. Given these material weaknesses with regard to the accounting for common stock warrants and contingent consideration, management determined that we did not maintain effective internal control over financial reporting as of January 31, 2010. 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 January 31, 2010, 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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