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Handleman Company Reports First Quarter Results

Handleman Company sold a majority of its assets and operations in the UK to a subsidiary of Tesco PLC. The assets sold included substantially all the fixed assets located in Handleman's Tesco-dedicated distribution center in the UK and certain licensed and proprietary computer software held by the Company's corporate subsidiary. The total received by Handleman was approximately 9.4 million pounds Sterling. Tesco also retained a substantial portion of Handleman's UK workforce.

In June 2008 Handleman announced its decision to exit the North American music business and entered into a definitive agreement pursuant to which it sold music inventory and selected other assets related to its Wal-Mart business inthe United States to Anderson Merchandisers, L.P. ("Anderson"). Handleman also announced in July 2008 that it sold its Canadian operations to Anderson and sold its Artist to Market Distribution unit ("A2M") to Eurpac Service, Inc.

Handleman is continuing to explore opportunities to maximize the value of its other businesses and how best to maximize the economic return to its shareholders. These other businesses include Crave Entertainment Group, Inc. ("Crave"), a leading full-service distributor of video game software, hardware, and related accessories and a specialty video game publisher, and REPS LLC ("REPS"), a national in-store merchandiser.

In accordance with generally accepted accounting principles, Handleman's music category management and distribution operations in the U.S. andCanada, as well as its A2M, UK and Crave operations, have been classified as discontinued operations for financial reporting purposes. The Company's continuing operations primarily consist of REPS and corporate support services. A thorough discussion of the Company's financial results for its first quarter of fiscal 2009 is contained in Handleman's Form 10-Q, filed today with the Securities and Exchange Commission.

First Quarter of Fiscal 2009

Revenues from continuing operations for the first quarter of fiscal 2009 were $3.5 million, compared to $3.7 million for the first quarter of fiscal 2008. Net loss for the first quarter of fiscal 2009 was $46.5 million or $2.28 per diluted share, compared to net loss of $17.7 million or $.88 per diluted share for the first quarter of fiscal 2008. The first quarter of fiscal 2009 includes a net loss on disposal of $11.2 million from operations of discontinued subsidiaries.

Handleman filed a preliminary proxy statement on August 15, 2008 with the Securities and Exchange Commission ("SEC") in connection with its proposed Plan of Final Liquidation and Dissolution of the Company. The Plan of Liquidation must be approved by a majority of the Company's shareholders in order to be implemented.

While the Company believes that a cash distribution is a possibility, no assurance can be given to investors that any distribution will occur. If the Plan of Liquidation is approved by the shareholders whether there will be any excess cash proceeds for distribution to shareholders is subject to a number of material risks and uncertainties that may prevent any such distribution from occurring. The Company will provide information about future cash distributions, if any, at such time as it believes that they are reasonably estimable.

Additional Information and Where to Find It

In connection with the proposed Plan of Liquidation, Handleman Company has filed a proxy statement with the Securities and Exchange Commission ("SEC"). SHAREHOLDERS ARE URGED TO READ THE PROXY STATEMENT FILED WITH THE SEC CAREFULLY AND IN ITS ENTIRETY WHEN IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED PLAN OF LIQUIDATION. The definitive proxy statement will be mailed to the Company's shareholders. In addition, shareholders will be able to obtain the proxy statement and all other relevant documents filed by the Company with the SEC free of charge at the SEC's Web site www.sec.gov or from Handleman Company, Attn: Corporate Secretary, 500 Kirts Blvd.,Troy, Michigan 48084, 248-362-4400.

Participants in the Solicitation

Handleman Company's directors, executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from the shareholders of the Company in favor of the Plan of Liquidation. INFORMATION ABOUT HANDLEMAN COMPANY AND ITS DIRECTORS AND EXECUTIVE OFFICERS, AND THEIR OWNERSHIP OF THE COMPANY'S SECURITIES AND INTERESTS IN THE PLAN OF LIQUIDATION, WILL BE SET FORTH IN THE AFOREMENTIONED PROXY STATEMENT. Additional information regarding the interests of those persons may be obtained by reading the proxy statement when it becomes available.

Forward-Looking and Cautionary Statements

This press release contains forward-looking statements, which are not historical facts. These statements involve risks and uncertainties and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results, events and performance could differ materially from those contemplated by these forward-looking statements because of factors affecting any of a number of critical objectives, including, without limitation, obtaining all required regulatory approvals to sell the assets and operations of our Canadian subsidiary to Anderson, the completion of an agreement to sell a substantial portion of the Company's UK assets to Tesco, our ability to transition our U.S. music customers other than Wal-Mart to other vendors smoothly, maintaining satisfactory working relationships with our lenders, customers and vendors, maintaining sufficient liquidity to fund our day-to-day operations, retaining key personnel, satisfactory resolution of any outstanding claims or claims which may arise, finding and capitalizing on opportunities to maximize the value of the Company's non-music operations, selling certain of the Company's assets in a timely manner and for amounts reasonably consistent with the Company's valuation of those assets, and other factors discussed in this press release and those detailed from time to time in the Company's filings with the Securities and Exchange Commission. Handleman Company notes that the preceding conditions are not a complete list of risks and uncertainties. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this press release.

                              - Tables Follow  -



                    CONSOLIDATED STATEMENTS OF OPERATIONS
                (amounts in thousands, except per share data)
                                 (unaudited)

                                                           Three Months
                                                         (13 Weeks) Ended

                                                     August 2,      July 28,
                                                       2008           2007

    Revenues                                          $3,534         $3,699

    Costs and expenses:
      Direct product costs                            (1,845)        (2,071)
      Selling, general and
       administrative expenses                       (22,265)       (21,823)
      Impairment of goodwill
      Impairment of subsidiary assets
    Operating loss                                   (20,576)       (20,195)

    Interest expense                                    (357)          (919)
    Investment income                                    104          1,261

    Loss from continuing operations
     before income taxes                             (20,829)       (19,853)

    Income tax benefit                                   602          2,204

    Loss from continuing operations                  (20,227)       (17,649)

    Loss from discontinued operations                (26,318)           (67)

    Net loss                                        $(46,545)     $ (17,716)


    Basic net loss per share:
      - From continuing operations                    $ (.99)         $(.88)
      - From discontinued operations                   (1.29)            --
    Total basic net loss per share                    $(2.28)         $(.88)


    Diluted net loss per share
      - From continuing operations                    $ (.99)         $(.88)
      - From discontinued operations                   (1.29)            --
    Total diluted net loss per share                  $(2.28)         $(.88)

    Weighted average number of
     shares outstanding - basic                       20,419         20,195

                        - diluted                     20,419         20,195



                    CONSOLIDATED CONDENSED BALANCE SHEETS
                            (amounts in thousands)
                                 (unaudited)

                                                  August 2, 2008   May 3, 2008
    Assets
      Cash and cash equivalents                         $1,927         $1,043
      Accounts receivable                                3,671         62,479
      Merchandise inventories                               --         29,404
      Other current assets                               5,064         10,221
      Assets held for sale                             138,924        139,943
        Total current assets                           149,586        243,090

      Property and equipment, net of
       depreciation and amortization                     9,160         28,870
      Other assets, net                                 26,014         56,744
        Total assets                                  $184,760       $328,704

    Liabilities
      Debt, current                                   $ 11,767        $63,706
      Accounts payable                                   5,409         31,023
      Other current liabilities                         15,600         23,548
      Liabilities for sale                              50,690         62,298
        Total current liabilities                       83,466        180,575

      Other liabilities                                  6,343          6,456

    Shareholders' equity                                94,951        141,673
        Total liabilities and
         shareholders' equity                         $184,760       $328,704

SOURCE Handleman Company