United States Securities & Exchange Commission EDGAR Filing

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FFEolQ9TVfR+ylVBIzHdCU04S9ay4zqEL2XpR01nBpXCakpglryZ4mZHrKSvLmoH oXT4Uj89UhXuuQVB4hhmHQ== 0001116502-07-000221.txt : 20070205 0001116502-07-000221.hdr.sgml : 20070205 20070205091239 ACCESSION NUMBER: 0001116502-07-000221 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20070205 DATE AS OF CHANGE: 20070205 GROUP MEMBERS: BRYANT R. RILEY GROUP MEMBERS: RILEY INVESTMENT MANAGEMENT LLC GROUP MEMBERS: RILEY INVESTMENT PARTNERS MASTER FUND, L.P. GROUP MEMBERS: RILEY INVESTMENT PARTNERS, L.P. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: NETMANAGE INC CENTRAL INDEX KEY: 0000909793 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770252226 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-43535 FILM NUMBER: 07578437 BUSINESS ADDRESS: STREET 1: 10725 N DE ANZA BLVD CITY: CUPERTINO STATE: CA ZIP: 95014 BUSINESS PHONE: 4089737171 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: Riley Investment Management LLC CENTRAL INDEX KEY: 0001345523 IRS NUMBER: 954799549 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 11100 SANTA MONICA BLVD. STREET 2: SUITE 810 CITY: LOS ANGELES STATE: CA ZIP: 91042 BUSINESS PHONE: 310-966-1444 MAIL ADDRESS: STREET 1: 11100 SANTA MONICA BLVD. STREET 2: SUITE 810 CITY: LOS ANGELES STATE: CA ZIP: 91042 SC 13D/A 1 netmsc13da.htm SC 13D/A United States Securities & Exchange Commission EDGAR Filing

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

(Rule 13d-2-101)

INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND
AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a)

(Amendment No. 5)¹

NetManage, Inc.

(Name of Issuer)

Common Stock

(Title of Class of Securities)

641144308

(CUSIP Number)

Bryant R. Riley

Riley Investment Management LLC

11100 Santa Monica Blvd.

Suite 810

Los Angeles, CA 90025

(310) 966-1445

(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)

February 2, 2007

(Date of Event which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box: £

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for other parties to whom copies are to be sent.

(Continued on following pages)

———————

¹The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).


CUSIP No. 641144308	13D	Page 2


1	NAME OF REPORTING PERSON S.S. OR IRS. IDENTIFICATION NO. OF ABOVE PERSON Riley Investment Management LLC
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [X]
3	SEC USE ONLY
4	SOURCE OF FUNDS* AF
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
6	CITIZENSHIP OR PLACE OF ORGANIZATION Delaware
NUMBER OF SHARES		7	SOLE VOTING POWER 536,111¹
BENEFICIALLY OWNED BY		8	SHARED VOTING POWER 46,509²
EACH REPORTING		9	SOLE DISPOSITIVE POWER 536,111¹
PERSON WITH		10	SHARED DISPOSITIVE POWER 46,509²
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 536,111¹
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES SHARES* [x]
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 5.7%³
14	TYPE OF REPORTING PERSON* IA

———————

Because Riley Investment Management LLC has sole investment and voting power over 536,111 shares of Common Stock owned by Riley Investment Partners, L.P. and Riley Investment Partners Master Fund, L.P., Riley Investment Management LLC may be deemed to have beneficial ownership of these shares.

Riley Investment Management LLC has shared voting and dispositive power over 46,509 shares of Common Stock owned of by an investment advisory client of Riley Investment Management LLC. However, Riley Investment Management LLC disclaims beneficial ownership of these shares.

Based on 9,457,683 shares of common stock of NetManage, Inc. (“NetManage” or the “Issuer”) outstanding at October 10, 2006, as reported in NetManage’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 filed with the Securities and Exchange Commission on November 3, 2006.


CUSIP No. 641144308	13D	Page 3


1	NAME OF REPORTING PERSON S.S. OR IRS. IDENTIFICATION NO. OF ABOVE PERSON Riley Investment Partners, L.P.
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [X]
3	SEC USE ONLY
4	SOURCE OF FUNDS* WC
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
6	CITIZENSHIP OR PLACE OF ORGANIZATION Delaware
NUMBER OF SHARES		7	SOLE VOTING POWER 525,460
BENEFICIALLY OWNED BY		8	SHARED VOTING POWER -0-
EACH REPORTING		9	SOLE DISPOSITIVE POWER 525,460
PERSON WITH		10	SHARED DISPOSITIVE POWER -0-
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 525,460
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES SHARES* [ ]
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 5.6%¹
14	TYPE OF REPORTING PERSON* PN

———————


CUSIP No. 641144308	13D	Page 4


1	NAME OF REPORTING PERSON S.S. OR IRS. IDENTIFICATION NO. OF ABOVE PERSON Riley Investment Partners Master Fund, L.P.
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [X]
3	SEC USE ONLY
4	SOURCE OF FUNDS* WC
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
6	CITIZENSHIP OR PLACE OF ORGANIZATION Cayman Islands
NUMBER OF SHARES		7	SOLE VOTING POWER 10,651
BENEFICIALLY OWNED BY		8	SHARED VOTING POWER -0-
EACH REPORTING		9	SOLE DISPOSITIVE POWER 10,651
PERSON WITH		10	SHARED DISPOSITIVE POWER -0-
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 10,651
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES SHARES* [ ]
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0.1%¹
14	TYPE OF REPORTING PERSON* PN

———————


CUSIP No. 641144308	13D	Page 5


1	NAME OF REPORTING PERSON S.S. OR IRS. IDENTIFICATION NO. OF ABOVE PERSON Bryant R. Riley
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [X]
3	SEC USE ONLY
4	SOURCE OF FUNDS* AF
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
6	CITIZENSHIP OR PLACE OF ORGANIZATION California
NUMBER OF SHARES			7	SOLE VOTING POWER 536,111¹
BENEFICIALLY OWNED BY			8	SHARED VOTING POWER 46,509²
EACH REPORTING			9	SOLE DISPOSITIVE POWER 536,111¹
PERSON WITH			10	SHARED DISPOSITIVE POWER 46,509²
11		AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 536,111
12		CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES SHARES* [x]
13		PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 5.7%³
14		TYPE OF REPORTING PERSON* IN

———————

Because Riley Investment Management LLC has sole voting and investment power over Riley Investment Partners, L.P.’s and Riley Investment Partners Master Fund, L.P.’s security holdings and Mr. Riley, in his role as the sole manager of Riley Investment Management LLC, controls their voting and investment decisions, Mr. Riley may be deemed to have beneficial ownership of the 536,111 shares owned by Riley Investment Partners, L.P. and Riley Investment Partners Master Fund, L.P.

Riley Investment Management LLC has shared voting and dispositive power over 46,509 shares of Common Stock owned by an investment advisory clients of Riley Investment Management LLC. Although Mr. Riley controls Riley Investment Management LLC’s voting and investment decisions for its investment advisory clients, Mr. Riley disclaims beneficial interest in these shares.


CUSIP No. 641144308	13D	Page 6


CUSIP No. 641144308	13D	Page 7

Item 2.

Identity and Background

Item 2 as previously filed is amended and restated as follows:

(a)

Riley Investment Partners, L.P. (a Delaware limited partnership, formerly known as SACC Partners LP)

Riley Investment Partners Master Fund, L.P. (a Cayman Islands limited partnership)

Riley Investment Management LLC (Delaware limited liability company)

Mr. Bryant R. Riley (individual residing in California)

(b)

11100 Santa Monica Blvd.

Suite 810

Los Angeles, CA 90025

(c)

Mr. Riley manages and owns all of the outstanding membership interests of Riley Investment Management LLC (“RIM”), an SEC registered investment adviser. RIM is the investment adviser to and general partner of Riley Investment Partners, L.P. (“RIP”) and Riley Investment Partners Master Fund, L.P. (“Master”). Mr. Riley, RIM, RIP and Master are located at the address specified in (b) above.

(d)

N/A

(e)

N/A

(f)

United States

Item 4.

Purpose of the Transaction

Item 4 as previously filed is hereby amended to add the following:

On February 2, 2007, RIM sent a letter to the Issuer’s Board of Directors. Among other things, the letter expressed their concern with the Issuer’s operational and financial condition and future outlook. In the letter, RIM called on the Issuer’s board of directors for decisive action to change the Issuer’s current strategy. The letter urged the directors to seek a sale of the Issuer to a strategic or financial buyer and complete its evaluation of the current offer to acquire the Issuer, as reported on January 17, 2007. RIM stated that it plans to evaluate the directors’ commitment to the sales process, and views the board’s decisions going forward as important factors in the evaluation of director nominations in the Issuer’s next annual meeting The foregoing description of the letter is qualified in its entirety by reference to the letter attached as Exhibit A.

Item 5.

Interest in Securities of the Issuer

Item 5 as previously filed is hereby amended and restated as follows:

(a)

With respect to each Reporting Person, see the response set forth in Rows 11 and 13, including the footnotes thereto.

(b)

See Item 5(a) and, with respect to each Reporting Person, the responses to Rows 7 through 10 set forth for such Reporting Person on the cover pages hereto.


CUSIP No. 641144308	13D	Page 8

(c)

The following are transactions effected in Common Stock that have taken place since the Reporting Persons’ previous Schedule 13D filing.


Investment Advisory Client	Date	Transaction Code	Quantity	Price
	01/24/2007	Buy	516	5.5
	01/29/2007	Buy	448	5.5



Master	1/24/2007	Buy	5,706	5.5
	1/29/2007	Buy	4,945	5.5

(d)

As the beneficial owner of 46,509 shares of the Issuer’s Common Stock, RIM’s client referenced to above is entitled to any dividends or proceeds paid, not any of the Reporting Persons.

(e)

Not applicable.

Item 7.

Material to be filed as Exhibits

EXHIBIT A:

Letter, dated February 2, 2007, from Riley Investment Management LLC to NetManage, Inc.


CUSIP No. 641144308	13D	Page 9

SIGNATURE

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

Date: February 5, 2007


		Riley Investment Management LLC


		By:	/s/ Bryant R. Riley
			Bryant R. Riley, Managing Member


		Riley Investment Partners, L.P.
			By: Riley Investment Management LLC, its General
			Partner
		By:	/s/ Bryant R. Riley
			Bryant R. Riley, Managing Member


		Riley Investment Partners Master Fund, L.P.
			By: Riley Investment Management LLC, its General
		By:	/s/ Bryant R. Riley
			Bryant R. Riley, Managing Member

		By:	/s/ Bryant R. Riley
			Bryant R. Riley

EX-99.1 (A) 2 exhibita.htm LETTER DATED FEBRUARY 2, 2007 United States Security & Exchange Commission EDGAR Filing

EXHIBIT A

Riley Investment Management, LLC

11100 Santa Monica Boulevard, Suite 810 Los Angeles, CA 90025

Phone (310) 966-1445 Fax (310) 966-1096

February 2, 2007

NetManage, Inc.

Board of Directors

20883 Stevens Creek Boulevard

Cupertino, CA 95014

Dear Sirs:

As large shareholders of NetManage, with approximately 6% of the Company’s common shares, we are writing you to express our deepest concern with NetManage’s operational and financial condition. The disappointing results reported by NetManage’s executive team during the last earnings call on Monday, January 29, 2007, illustrate the need for quick and decisive action on the part of the board of directors. We believe that the current strategy being executed by management and endorsed by you as directors, is not working. An examination of recent and past performance reveals that NetManage’s is under-scaled, is not growing and is not delivering on its promises.

Based on the results NetManage reported for the fourth quarter of 2006, it seems obvious that new license revenues are not growing as rapidly as management had hoped on previous earnings calls. New product sales came in at only $2.8 million, down 38% on a year to year basis and down 25% compared to the previous quarter of 2006 on what should have been a strong seasonal period. On an annual basis, NetManage’s revenues shrunk by 18%. Over the last three years revenues have decreased by 30%. Accordingly, NetManage is not closing a sufficient number of new deals to support profitable operations. Operating losses during the last quarter came in at $1.4 million and amounted to $3.6 million for the fiscal year of 2006, or about 10% of total sales. Had it not been for the unexpected increase in deferred revenues generated mostly from NetManage’s diminishing RUMBA legacy product, the Compa ny’s cash position would have deteriorated further.

To put the above results into a long-term perspective, we estimate that over the last 10 fiscal years NetManage’s revenues have shrunk by approximately 66% and net losses amounted to approximately $176 million. During that period NetManage expensed over $140 million for research and development and spent over $240 million in stock and cash to finance 7 acquisitions. These investment decisions were taken to support products such as Librados and OnWeb, which did not deliver on their promised growth potential. The company’s inability to generate a sufficient return on its capital contributed to the free fall of NetManage’s stock, which has lost approximately 33% of its value in the last 5 years (and roughly 97% of its value compared to the historical stock price peak of $209.1 achieved in December 1995 adjusted for stock splits and dividends). For comparison, over the last 5 years an invest or in the NASDAQ

Board of Directors

NetManage, Inc.

February 2, 2007

composite would have enjoyed a 28% increase in value, and an investor in the RUSSELL 2000 small cap composite would have benefited from an increase of about 67% in price.

We wish to reiterate to the board of directors our view that NetManage’s deteriorating condition is a result of an inadequate overall strategy. We believe this view was expressed by other shareholders during the last earnings call. Investor frustration is understandable in light of management’s history of failing to deliver on its optimistic projections. For example, during the earnings call for the third quarter of fiscal year 2006, NetManage’s CEO stated that “we remain very optimistic about our opportunities for growth and profitability for the fourth quarter of 2006 and into 2007”. The CEO continued to comment that he was optimistic that NetManage might be able to achieve operating profitability in fiscal year 2006. During the earnings call for the second quarter of fiscal year 2006, NetManage’s CEO commented that “although we are disappointed by the year to date net loss we believe this should be viewed as a temporary setback” and later added that “we are confident we will continue to add new customers and return to growth and profitability in the second half of 2006”. In contrast, during the second half of 2006, NetManage saw its revenues decrease by about 13% on a year to year basis and its net losses amount to $0.9 million. In addition, over the last 8 consecutive quarters NetManage missed 6 of the Street’s consensus revenue estimates. These facts raise serious doubt as to management’s ability to accurately perceive the true revenue potential that exists in the Libardos and OnWeb products and its ability to deliver on its plans. It also strongly suggests that NetManage’s failure to sustain top line revenue growth is a result of a fundamental problem, rather than a set of temporary mishaps.

In light of the above, we call on the board of directors to recognize the need for change in NetManage’s strategy. As a small player in the consolidating Service-Oriented-Architecture industry, NetManage suffers, and will likely continue to suffer, from increasing competitive challenges that will make it harder, rather than easier for NetManage’s sales team to win new product deals. Furthermore, the cost of remaining a stand-alone public company outweighs NetManage’s current earnings power and cash flow generation capacity. As a result, we expect NetManage to continue to accumulate losses going forward unless the board of directors takes action to curtail management’s apparent inefficient use of capital.

We find it especially disconcerting that while NetManage continued to pour money into product and sales initiatives that resulted in increased losses that eroded shareholder value, the board of directors elected to reward senior management by raising executive compensation. Between the end of fiscal year 2001 and fiscal year 2005, the board awarded the CEO and CFO with an accumulated total cash compensation of approximately $3 million or an increase of 14% over the level beginning that period. During the same period NetManage’s revenues decreased by 45% and net losses amounted to about $19 million, or 9% of revenues. The CEO’s average cash compensation during those four years stood at about $500,000. Even more troubling is the fact that while shareholders saw the price of their stock go from $7.1 per share at the end of 2001 as adjusted for dividends and stock splits, down to $5.3 at close of year 2005, or a drop of 25% in

Page 2

Board of Directors

NetManage, Inc.

February 2, 2007

value, the board of directors rewarded the CEO with 486,393 options, or about 5% of the average share count of that period. According to the information provided in NetManage’s proxy materials, we estimate that the potential realizable value of these options are at least $2.3 million based on the relative rate of appreciation of NetManage’s shares as of January 31, 2007 to the options’ exercise price.

We wish to conclude by reminding directors of their duty to maximize and realize shareholder value. All of NetManage’s directors, aside from one, have served on the board for more than 9 years and some have held seats for over 15 years. This group of directors oversaw the strategy that led to NetManage’s disappointing performance and endorsed management’s decisions during the deterioration of the last decade. Furthermore, none of the directors aside from the CEO are major shareholders of NetManage. We therefore call on the board to change course and acknowledge that NetManage’s operational plan is not working for the benefit of its owners. We believe that the board of directors should move swiftly towards realizing the value that still exists in NetManage’s legacy customer base and recurring revenue sources, through a sale of the Company to a strategic or financial buyer. With an installed base of more than 10,000 customers, NetManage presents potential buyers with a strong stream of maintenance revenues that command an estimated gross margin in excess of 90%. Leveraging this customer base can offer strategic buyers a solid platform on which to grow additional products while utilizing a larger sales force and spreading the cost of research and development over an expanded revenue base. Alternatively, NetManage’s highly profitable recurring cash flows can offer financial and private buyers excellent returns as they eliminate the unnecessary costs of public filing, as well as what we view as excessive management compensation and under-scaled general and administration expenses currently incurred by NetManage.

We urge directors to complete, sooner rather than later, their evaluation of the current offer to acquire NetManage, as reported on January 17, 2007. Riley Investment Management plans to closely evaluate directors’ commitment to this ongoing sales process, and views the board’s decisions going forward as important factors in the evaluation of director nominations in NetManage’s next annual meeting.

Respectfully,

/s/ BRYANT R. RILEY
Bryant R. Riley, as Managing Member, Riley
Investment Management LLC

Page 3

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