Riley Investment Issues Response to NetManage (NETM) Related to $5.25 Offer

In an amended 13D filing, NetManage, Inc. (NASDAQ: NETM) 5.4% holder Riley Investment disclosed a response letter to the company related to their $5.25 per share offer. The firm said NetManage did not undertaken an evaluation of the proposed transaction and instead requested more information. The firm provided responses to the requests in the letter on Background, Financing, Conditions, Post-Closing Management and Timing. The firm also extended the expiration date of the offer.

In the letter the firm said, "We are disappointed that NetManage’s Board of Directors has not taken a more proactive approach to our offer and reiterate that time is of the essence for your shareholders. Having now responded to your information requests we hope to receive your prompt response. Accordingly, we are extending the expiration date of our proposal to October 15, 2006. We are more than willing to enter into friendly negotiations but we are also prepared to pursue other alternatives, including seeking changes in senior management and the Board of Directors."

Shares of NetManage are currently trading at $4.99.

A Copy of the Letter:

October 3, 2006

NetManage, Inc.
Board of Directors
20883 Stevens Creek Boulevard
Cupertino, CA 95014

Dear Mr. Alon:

We believe that our initial letter to you on August 31, 2006 provided NetManage, Inc. (“NetManage”) enough information for the Board of Directors to meet with us to discuss our proposal to acquire all of the outstanding shares of NetManage common stock that we do not already own for $5.25 per share in cash (the “Transaction”). We are disappointed that, according to your letter to us dated September 12, 2006, you had not yet undertaken an evaluation of the proposed Transaction. We are even more disappointed that in lieu of meeting with us to at least preliminarily discuss our proposal you have sent us the letter with your requests, many of which cannot be answered without due diligence or discussions with NetManage. However, in order to advance the process, we are responding to your letter with the following additional information:

·Background: Riley Investment Management LLC (“RIM”) was founded in February 2000 and currently has assets under management of approximately * million. RIM has a wide background in activist investing and a strong operating background particularly in technology companies through, among other factors, its membership on boards of directors. RIM’s managing member Bryant Riley serves on the Board of Directors of Integrated Silicon Solution Inc., Carreker Corporation, Celeritek, Inc. (now named CTK Windup Corp.), Mossimo, Inc. and Aldila, Inc. and is the Chairman of Alliance Semiconductor Corporation. Although RIM has not previously acquired a public company, RIM has successfully led to changes in management and control of the aforementioned companies and negotiated the sale of numerous businesses and business units in connection with its Board participation in those companies. RIM is the general partner of SACC Partners L.P. RIM and B. Riley & Company are owned by Mr. Riley and Mr. Riley is also the Chairman of the Board of B. Riley & Company.

Zeff Capital Partners, L.P. (“Zeff Capital”) was founded in July 2001 and currently has assets under management of approximately * million. Zeff Capital traditionally invests as a passive long-term shareholder but has a history of activism in cases of underperforming businesses. * Daniel Zeff is President and Managing Member of Zeff Holding Company, LLC, which serves as the General Partner of Zeff Capital and the Investment Manager of Zeff Capital Offshore Fund.

· Financing: With more than * million under management combined, we have ample resources at our disposal to finance the equity required for the acquisition of NetManage. Furthermore, we anticipate obtaining preliminary financing commitments by October 15, 2006. Of course, in order for us to obtain definitive financing commitments, NetManage would need to allow our financing partners to conduct due diligence.

· Conditions: Because NetManage has not met with us to discuss our proposal and we have not been allowed to conduct due diligence, it is difficult to describe all of the conditions to the consummation of the Transaction we expect to include in the definitive agreements. However, at a minimum, we would expect to include conditions with respect to: 1) accuracy of representations and warranties and compliance with covenants, 2) obtaining any required regulatory and material third party consents, 3) entry into agreements with selected members of NetManage management, 4) absence of a material adverse change, and 5) obtaining financing for the Transaction. We reserve the right to include additional conditions based on our negotiations with NetManage, our due diligence and our discussions with financing sources

· Post-Closing Management: We have significant experience in restructuring unprofitable businesses and are confident of our ability to work together with NetManage’s employees. Because you have not engaged in discussions with us and have not allowed us to speak to management members, we are unable to describe the terms on which we would expect to retain management post closing. However, we wish to reiterate our support and confidence in NetManage’s loyal and talented employees, as the Company will continue to rely on their expertise in research and development, marketing and sales, operations and general management post-closing. During the due diligence process we intend to enter into discussions with * managers and identify those who share our view regarding the necessary measures required to bring NetManage back to profitability.

· Timing: We would like to reiterate our desire to reach a definite merger agreement at the earliest possible date. Once we are allowed to begin our due diligence, and assuming your full cooperation, we anticipate that we will require 45 business days to gather the necessary information and complete discussions with your management team. We will provide a draft of a definite merger agreement 15 days after the completion of this process.

Our proposal remains conditioned upon, among other things, completion of satisfactory due diligence, completion of financing plan, negotiation of mutually acceptable definitive agreements (and the conditions set forth in such agreements) and reaching agreement with certain members of NetManage management for continued employment following the Transaction on mutually satisfactory terms. In addition, this letter does not constitute a legally binding obligation, and there will be no binding obligation except as set forth in definitive acquisition documents executed by all parties. We have no obligation to enter into or consummate a transaction, except if and to the extent reflected in any such executed, definitive agreements.

We are disappointed that NetManage’s Board of Directors has not taken a more proactive approach to our offer and reiterate that time is of the essence for your shareholders. Having now responded to your information requests we hope to receive your prompt response. Accordingly, we are extending the expiration date of our proposal to October 15, 2006. We are more than willing to enter into friendly negotiations but we are also prepared to pursue other alternatives, including seeking changes in senior management and the Board of Directors.

Bryant R. Riley, as Managing Member, Riley Investment Management LLC

Daniel Zeff, as Managing Partner, Zeff Capital Partners, L.P.